| Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
| Sep. 30, 2016 |
| Accounting Policies [Abstract] | |
| Principles of Consolidation | Principles of Consolidation The consolidated financial statements of Quanta
include the accounts of Quanta Services, Inc. and its wholly owned
subsidiaries, which are also referred to as its operating units.
The consolidated financial statements also include the accounts of
certain of Quanta’s investments in joint ventures, which are
either consolidated or proportionately consolidated, as discussed
in the following summary of significant accounting policies.
Investments in affiliated entities in which Quanta does not have a
controlling financial interest, but over which Quanta has
significant influence, usually because Quanta holds a voting
interest of between 20% and 50%, are accounted for using the equity
method. All significant intercompany accounts and transactions have
been eliminated in consolidation. Unless the context requires
otherwise, references to Quanta include Quanta Services, Inc. and
its consolidated subsidiaries. |
| Interim Condensed Consolidated Financial Information | Interim Condensed Consolidated Financial
Information These unaudited condensed consolidated financial
statements have been prepared pursuant to the rules of the
Securities and Exchange Commission (SEC). Certain information and
footnote disclosures, normally included in annual financial
statements prepared in accordance with accounting principles
generally accepted in the United States (US 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 subsidiaries included in Quanta’s Annual
Report on Form 10-K for the year ended December 31, 2015,
which was filed with the SEC on February 29, 2016. |
| Use of Estimates and Assumptions | Use of Estimates and Assumptions The preparation of financial statements in
conformity with US GAAP requires the use of estimates and
assumptions by management in determining the reported amounts of
assets and liabilities, disclosures of contingent assets and
liabilities known to exist as of the date the financial statements
are published, and the reported amounts of revenues and expenses
recognized during the periods presented. Quanta reviews all
significant estimates affecting its consolidated financial
statements on a recurring basis and records the effect of any
necessary adjustments prior to their publication. Judgments and
estimates are based on Quanta’s beliefs and assumptions
derived from information available at the time such judgments and
estimates are made. Uncertainties with respect to such estimates
and assumptions are inherent in the preparation of financial
statements. Estimates are primarily used in Quanta’s
assessment of the allowance for doubtful accounts, valuation of
inventory, useful lives of assets, fair value assumptions in
analyzing goodwill, other intangibles and long-lived asset
impairments, equity and other investments, loan receivables,
purchase price allocations, liabilities for self-insured and other
claims and guarantees, multiemployer pension plan withdrawal
liabilities, revenue recognition for construction contracts
inclusive of contractual change orders and claims, share-based
compensation, operating results of reportable segments, as well as
the provision for income taxes and the calculation of uncertain tax
positions. |
| Cash and Cash Equivalents | Cash and Cash Equivalents Quanta had cash and cash equivalents of $117.4
million and $128.8 million as of September 30, 2016 and
December 31, 2015. Cash consisting of interest-bearing demand
deposits is carried at cost, which approximates fair value. Quanta
considers all highly liquid investments with an original maturity
of three months or less at the time of purchase to be cash
equivalents, which are carried at fair value. At September 30,
2016 and December 31, 2015, cash equivalents were $7.8 million
and $1.4 million, and consisted primarily of money market
investments and money market mutual funds and are discussed further
in Fair Value Measurements |
| Current and Long-Term Accounts and Notes Receivable and Allowance for Doubtful Accounts | Current and Long-Term Accounts and Notes Receivable and
Allowance for Doubtful Accounts Quanta provides an allowance for doubtful accounts
when collection of an account or note receivable is considered
doubtful, and receivables are written off against the allowance
when deemed uncollectible. Inherent in the assessment of the
allowance for doubtful accounts are certain judgments and estimates
regarding, among other factors, the customer’s access to
capital, the customer’s willingness or ability to pay,
general economic and market conditions, the ongoing relationship
with the customer and uncertainties related to the resolution of
disputed matters. Quanta considers accounts receivable delinquent
after 30 days but does not generally include delinquent
accounts in its analysis of the allowance for doubtful accounts
unless the accounts receivable have been outstanding for at least
90 days. In addition to balances that have been outstanding
for 90 days or more, Quanta also includes accounts receivable
balances that relate to customers in bankruptcy or with other known
difficulties in its analysis of the allowance for doubtful
accounts. Material changes in Quanta’s customers’
business or cash flows, which may be impacted by negative economic
and market conditions, could affect Quanta’s ability to
collect amounts due from them. As of September 30, 2016 and
December 31, 2015, Quanta had allowances for doubtful accounts
on current receivables of approximately $2.8 million and $5.2
million. Long-term accounts receivable are included within other
assets, net on the consolidated balance sheets. Should customers experience financial difficulties
or file for bankruptcy, or should anticipated recoveries relating
to receivables in existing bankruptcies or other workout situations
fail to materialize, Quanta could experience reduced cash flows and
losses in excess of current allowances provided. The balances billed but not paid by customers
pursuant to retainage provisions in certain contracts are generally
due upon completion of the contracts and acceptance by the
customer. Based on Quanta’s experience with similar contracts
in recent years, the majority of the retainage balances at each
balance sheet date are expected to be collected within the next
twelve months. Current retainage balances as of September 30,
2016 and December 31, 2015 were approximately $258.8 million
and $250.1 million, and were included in accounts receivable.
Retainage balances with settlement dates beyond the next twelve
months were included in other assets, net, and as of
September 30, 2016 and December 31, 2015 were $6.2
million and $4.5 million. Within accounts receivable, Quanta recognizes
unbilled receivables in circumstances such as when revenues have
been earned and recorded but the amount cannot be billed under the
terms of the contract until a later date; costs have been incurred
but are yet to be billed under cost-reimbursement type contracts;
or amounts arise from routine lags in billing (for example, work
completed one month but not billed until the next month). These
balances do not include revenues accrued for work performed under
fixed-price contracts as these amounts are recorded as costs and
estimated earnings in excess of billings on uncompleted contracts.
At September 30, 2016 and December 31, 2015, the balances
of unbilled receivables included in accounts receivable were
approximately $243.1 million and $233.6 million. |
| Goodwill and Other Intangibles | Goodwill and Other Intangibles Quanta has recorded goodwill in connection with its
historical acquisitions of companies. Upon acquisition, these
companies were either combined into one of Quanta’s existing
operating units or managed on a stand-alone basis as an individual
operating unit. Goodwill recorded in connection with these
acquisitions is subject to an annual assessment for impairment,
which Quanta performs at the operating unit level for each
operating unit that carries a balance of goodwill. Each of
Quanta’s operating units is organized into one of two
internal divisions: the Electric Power Infrastructure Services
Division and the Oil and Gas Infrastructure Services Division. As
most of the companies acquired by Quanta provide multiple types of
services for multiple types of customers, these divisional
designations are based on the predominant type of work performed by
each operating unit at the point in time the divisional designation
is made. Goodwill is required to be measured for impairment at the
reporting unit level, which represents the operating segment level
or one level below the operating segment level for which discrete
financial information is available. Quanta has determined that its
individual operating units represent its reporting units for the
purpose of assessing goodwill impairments.
Quanta has the option to first assess qualitative
factors to determine whether it is necessary to perform the
two-step fair value-based impairment test described below. If
Quanta believes that, as a result of its qualitative assessment, it
is more likely than not that the fair value of a reporting unit is
less than its carrying amount, the quantitative impairment test is
required. Otherwise, no further testing is required. Quanta can
choose to perform the qualitative assessment on none, some or all
of its reporting units. Quanta can also bypass the qualitative
assessment for any reporting unit in any period and proceed
directly to step one of the impairment test, and then resume the
qualitative assessment in any subsequent period. Qualitative
indicators, including deterioration in macroeconomic conditions,
declining financial performance, or a sustained decrease in share
price, among other things, may trigger the need for annual or
interim impairment testing of goodwill associated with one or all
of the reporting units. Quanta’s goodwill impairment assessment is
performed at year-end, or more frequently if events or
circumstances arise which indicate that goodwill may be impaired.
For instance, a decrease in Quanta’s market capitalization
below book value, a significant change in business climate or loss
of a significant customer, as well as the qualitative indicators
referenced above, may trigger the need for interim impairment
testing of goodwill for one or all of its reporting units. The
first step of the two-step fair value based test involves comparing
the fair value of each of Quanta’s reporting units with its
carrying value, including goodwill. If the carrying value of the
reporting unit exceeds its fair value, the second step is
performed. The second step compares the carrying amount of the
reporting unit’s goodwill to the implied fair value of its
goodwill. If the implied fair value of goodwill is less than the
carrying amount, an impairment loss would be recorded as a
reduction to goodwill with a corresponding charge to operating
expense. Quanta determines the fair value of its reporting
units using a weighted combination of the discounted cash flow,
market multiple and market capitalization valuation approaches,
with heavier weighting on the discounted cash flow method, as in
management’s opinion, this method currently results in the
most accurate calculation of a reporting unit’s fair value.
Determining the fair value of a reporting unit requires judgment
and the use of significant estimates and assumptions. Such
estimates and assumptions include revenue growth rates, operating
margins, discount rates, weighted average costs of capital and
future market conditions, among others. Quanta believes the
estimates and assumptions used in its impairment assessments are
reasonable and based on available market information, but
variations in any of the assumptions could result in materially
different calculations of fair value and determinations of whether
or not an impairment is indicated. Under the discounted cash flow method, Quanta
determines fair value based on the estimated future cash flows of
each reporting unit, discounted to present value using
risk-adjusted industry discount rates, which reflect the overall
level of inherent risk of a reporting unit and the rate of return
an outside investor would expect to earn. Cash flow projections are
derived from budgeted amounts and operating forecasts (typically a
one-year model) plus an estimate of later period cash flows, all of
which are evaluated by management. Subsequent period cash flows are
developed for each reporting unit using growth rates that
management believes are reasonably likely to occur, along with a
terminal value derived from the reporting unit’s earnings
before interest, taxes, depreciation and amortization (EBITDA). The
EBITDA multiples for each reporting unit are based on trailing
twelve-month comparable industry data. Under the market multiple and market capitalization
approaches, Quanta determines the estimated fair value of each of
its reporting units by applying transaction multiples to each
reporting unit’s projected EBITDA and then averaging that
estimate with similar historical calculations using either a one,
two or three year average. For the market capitalization approach,
Quanta adds a reasonable control premium, which is estimated as the
premium that would be received in a sale of the reporting unit in
an orderly transaction between market participants.
For recently acquired reporting units, a step one
impairment test may indicate an implied fair value that is
substantially similar to the reporting unit’s carrying value.
Such similarities in value are generally an indication that
management’s estimates of future cash flows associated with
the recently acquired reporting unit remain relatively consistent
with the assumptions that were used to derive its initial fair
value. During the fourth quarter of 2015, a two-step
fair-value based goodwill impairment analysis was performed for
each of Quanta’s reporting units, and no reporting units were
evaluated solely on a qualitative basis. Step one of the analysis
indicated that the implied fair value of each of Quanta’s
reporting units, other than recently acquired reporting units and
two other reporting units described below, was substantially in
excess of its carrying value. After performing step two of the
analysis, management concluded that goodwill was impaired at two
reporting units in Quanta’s Oil and Gas Infrastructure
Services Division. Accordingly, during the fourth quarter of 2015,
Quanta recorded a $39.8 million non-cash charge for the impairment
of goodwill which primarily resulted from lower forecasted oil and
gas services revenues for its Gulf of Mexico operations and certain
operations in Australia, due to the extended low commodity price
environment. As discussed generally above, when evaluating the
2015 step one impairment test results, management considered many
factors in determining whether or not an impairment of goodwill for
any reporting unit was reasonably likely to occur in future
periods, including future market conditions and the economic
environment in which Quanta’s reporting units were operating.
Additionally, management considered the sensitivity of its fair
value estimates to changes in certain valuation assumptions. After
giving consideration to a 10% decrease in the fair value of each of
Quanta’s reporting units, the results of the assessment at
December 31, 2015 did not change. However, circumstances such
as market declines, unfavorable economic conditions, the loss of a
major customer or other factors could increase the risk of
impairment of goodwill in future periods. If an operating unit experiences prolonged periods
of declining revenues, operating margins or both, it may be at risk
of failing step one of the goodwill impairment test. Certain
operating units have experienced declines over the short-term due
to challenging macroeconomic conditions in certain geographic
areas, the decline in oil prices which has negatively impacted
customer spending, project delays and constrained customer capital
spending as a result of an increasingly complex regulatory and
permitting environment. Certain operating units within
Quanta’s Oil and Gas Infrastructure Services Division that
primarily operate within the midstream and smaller-scale
transmission market have continued to be negatively impacted by
these factors. Quanta monitors these conditions and others to
determine if it is necessary to perform step one of the fair-value
based impairment test for one or more operating units prior to the
annual impairment assessment. No interim impairment charges were
recorded during the nine months ended September 30, 2016. Quanta’s intangible assets include customer
relationships, backlog, trade names, non-compete agreements,
patented rights and developed technology, all subject to
amortization. The value of customer relationships is estimated as
of the date a business is acquired based on the value-in-use
concept utilizing the income approach, specifically the excess
earnings method. The excess earnings analysis consists of
discounting to present value the projected cash flows attributable
to the customer relationships, with consideration given to customer
contract renewals and estimated customer attrition rates, the
importance or lack thereof of existing customer relationships to
Quanta’s business plan, income taxes and required rates of
return. Quanta values backlog for acquired businesses as of the
acquisition date based upon the contractual nature of the backlog
within each service line, using the income approach to discount
back to present value the cash flows attributable to the backlog.
The value of trade names is estimated using the relief-from-royalty
method of the income approach. This approach is based on the
assumption that in lieu of ownership, a company would be willing to
pay a royalty in order to exploit the related benefits of this
intangible asset.
Goodwill and intangible assets associated with the
operating units within Quanta’s Oil and Gas Infrastructure
Services Division that have been negatively impacted by the factors
mentioned above were approximately $127.3 million and $18.6 million
at September 30, 2016. Quanta amortizes intangible assets based upon the
estimated consumption of the economic benefits of each intangible
asset, or on a straight-line basis if the pattern of economic
benefits consumption cannot otherwise be reliably estimated.
Intangible assets subject to amortization are reviewed for
impairment and are tested for recoverability whenever events or
changes in circumstances indicate that the carrying amount may not
be recoverable. For instance, a significant change in business
climate or a loss of a significant customer, among other things,
may trigger the need for interim impairment testing of intangible
assets. An impairment loss would be recognized if the carrying
amount of an intangible asset is not recoverable and its carrying
amount exceeds its fair value. During the fourth quarter of 2015, Quanta recorded
an impairment charge of $12.1 million related to customer
relationships, trade names and non-compete agreement intangible
assets. These intangible asset impairments primarily resulted from
lower forecasted oil and gas services revenues for Quanta’s
Gulf of Mexico operations and certain operations in Australia, due
to the extended low commodity price environment. The two reporting
units impacted also had related goodwill impairments, as discussed
above, and are in Quanta’s Oil and Gas Infrastructure
Services Division. |
| Investments in Affiliates and Other Entities | Investments in Affiliates and Other Entities In the normal course of business, Quanta enters
into various types of investment arrangements, each having unique
terms and conditions. These investments may include equity
interests held by Quanta in business entities, including general or
limited partnerships, contractual joint ventures, or other forms of
equity or profit participation. These investments may also include
Quanta’s participation in different financing structures such
as the extension of loans to project specific entities, the
acquisition of convertible notes issued by project specific
entities, or other strategic financing arrangements. Quanta
determines whether such investments involve a variable interest
entity (VIE) based on the characteristics of the subject entity. If
the entity is determined to be a VIE, then management determines if
Quanta is the primary beneficiary of the entity and whether or not
consolidation of the VIE is required. The primary beneficiary
consolidating the VIE must normally have both (i) the power to
direct the activities of a VIE that most significantly affect the
VIE’s economic performance and (ii) the obligation to
absorb losses of the VIE or the right to receive benefits from the
VIE, in either case that could potentially be significant to the
VIE. When Quanta is deemed to be the primary beneficiary, the VIE
is consolidated and the other party’s equity interest in the
VIE is accounted for as a non-controlling interest. In cases where
Quanta determines that it has an undivided interest in the assets,
liabilities, revenues and profits of an unincorporated VIE (e.g., a
general partnership interest), such amounts are consolidated on a
basis proportional to Quanta’s ownership interest in the
unincorporated entity. Investments in entities of which Quanta is not the
primary beneficiary, but over which Quanta has the ability to
exercise significant influence, are accounted for using the equity
method of accounting. Quanta’s share of net income or losses
from unconsolidated equity investments is included in equity in
earnings (losses) of unconsolidated affiliates in the consolidated
statements of operations when applicable. Equity investments are
reviewed for impairment by assessing whether any decline in the
fair value of the investment below the carrying value is other than
temporary. In making this determination, factors such as the
ability to recover the carrying amount of the investment and the
inability of the investee to sustain an earnings capacity are
evaluated in determining whether a loss in value should be
recognized. Any impairment losses related to investments would be
recognized in other expense. Equity method investments are carried
at original cost and are included in other assets, net in the
consolidated balance sheet and are adjusted for Quanta’s
proportionate share of the investees’ income, losses and
distributions. |
| Revenue Recognition | Revenue Recognition Through its Electric Power Infrastructure Services
and Oil and Gas Infrastructure Services segments, Quanta designs,
installs and maintains networks for customers in the electric power
and oil and gas industries. These services may be provided pursuant
to master service agreements, repair and maintenance contracts and
fixed price and non-fixed price installation contracts. Pricing
under these contracts may be competitive unit price,
cost-plus/hourly (or time and materials basis) or fixed price (or
lump sum basis), and the final terms and prices of these contracts
are frequently negotiated with the customer. Under unit-based
contracts, the utilization of an output-based measurement is
appropriate for revenue recognition. Under these contracts, Quanta
recognizes revenue as units are completed based on pricing
established between Quanta and the customer for each unit of
delivery, which best reflects the pattern in which the obligation
to the customer is fulfilled. Under cost-plus/hourly and time and
materials type contracts, Quanta recognizes revenue on an input
basis, as labor hours are incurred and services are performed. Revenues from fixed price contracts are recognized
using the percentage-of-completion method, measured by the
percentage of costs incurred to date to total estimated costs for
each contract. These contracts provide for a fixed amount of
revenues for the entire project. Such contracts provide that the
customer accept completion of progress to date and compensate
Quanta for services rendered, which may be measured in terms of
units installed, hours expended or some other measure of progress.
Contract costs include all direct materials, labor and subcontract
costs and those indirect costs related to contract performance,
such as indirect labor, supplies, tools, repairs and depreciation
costs. Much of the material associated with Quanta’s work is
owner-furnished and is therefore not included in contract revenues
and costs. The cost estimation process is based on professional
knowledge and experience of Quanta’s engineers, project
managers and financial professionals. Changes in job performance,
job conditions and final contract settlements are factors that
influence management’s assessment of total contract value and
the total estimated costs to complete those contracts and
therefore, Quanta’s profit recognition. Actual revenues and project costs can vary,
sometimes substantially, from previous estimates due to changes in
a variety of factors including unforeseen circumstances not
included in Quanta’s cost estimates or covered by its
contracts for which it cannot obtain adequate compensation,
including concealed or unknown environmental conditions; changes in
the cost of equipment, commodities, materials or labor;
unanticipated costs or claims due to customer-caused delays,
customer failure to provide required materials or equipment, errors
in engineering, specifications or designs, project modifications,
or contract termination and Quanta’s inability to obtain
reimbursement for such costs or recover on such claims; weather
conditions; and quality issues requiring rework or replacement.
These factors, along with other risks inherent in performing fixed
price contracts may cause actual revenues and gross profits for a
project to differ from previous estimates and could result in
reduced profitability or losses on projects. Changes in these
factors may result in revisions to costs and income, and their
effects are recognized in the period in which the revisions are
determined. These factors are routinely evaluated on a project by
project basis throughout the project term, and the impact of
corresponding revisions in management’s estimates of contract
value, contract cost and contract profit are recorded as necessary
in the period in which the revisions are determined. Provisions for
losses on uncompleted contracts are made in the period in which
such losses are determined to be probable and the amount can be
reasonably estimated. During the nine months ended September 30,
2016, Quanta experienced performance issues on an ongoing power
plant project in Alaska that resulted in an increase of the
estimated total costs necessary to complete the project. During the
planned transition from final construction and testing to the
commissioning phase, the project experienced third party
engineering deficiencies that changed Quanta’s planned scope
of work and performance failures by other contractors operating
onsite. These issues resulted in higher than expected production
costs associated with quality deficiencies and a related impact on
production sequencing. Additionally, late in the second quarter of
2016, Quanta experienced a claimed force majeure event that further
disrupted project timing and provided the customer and its
insurance providers with a notice of the event in order to seek
schedule relief and cost recovery. During the three months ended
September 30, 2016, Quanta recognized an additional $3.0
million loss as the project proceeded towards substantial
completion, resulting in total project losses of $54.8 million
during the nine months ended September 30, 2016. Quanta is in
the process of developing potential claims for damages that may
have resulted from the third party engineering and other contractor
performance issues; however, no revenues or cost recovery has been
reflected in Quanta’s estimate of total project losses at
September 30, 2016. At September 30, 2016, this project
had a contract value of $201 million and was approximately 97%
complete. This project is expected to be substantially completed
near the end of the fourth quarter of 2016. As this project
continues through the final construction and commissioning phases,
it is possible that additional performance issues or other
unforeseen circumstances could occur and result in the recognition
of additional losses on this project; however, such amounts cannot
currently be estimated. Quanta’s operating results for the three
months ended September 30, 2016 were positively impacted by
6.3% as a result of aggregate changes in contract estimates related
to projects that were in progress at June 30, 2016, primarily due
to the aggregate positive impact of numerous individually
immaterial changes in estimates, which was generally due to better
than expected performance. Quanta’s operating results for the
nine months ended September 30, 2016 were impacted by less
than 5% as a result of aggregate changes in contract estimates
related to projects that were in progress at December 31,
2015. Included in the operating results for the nine months
ended September 30, 2016 were losses from the project described
above, offset by the aggregate positive impact of numerous
individually immaterial changes in project profitability generally
due to better than expected performance for projects that were
ongoing at year-end. Quanta’s operating results for the three
and nine months ended September 30, 2015 were impacted by less
than 5% as a result of aggregate changes in contract estimates
related to projects that were in progress at December 31,
2014. Operating results for the three and nine months ended
September 30, 2015 included losses of $3.7 million and $45.0
million on two projects, which resulted from increased costs
associated with performance and site related factors. These
projects included the power plant construction project discussed
above and an electric transmission project in Canada that was
substantially completed in the third quarter of 2015. Offsetting
the losses included in the nine months ended September 30, 2015
were positive changes in estimates of $11.5 million as a result of
better than expected performance on an electric transmission
project in the United States that was substantially completed in
the second quarter of 2015. The current asset “Costs and estimated
earnings in excess of billings on uncompleted contracts”
represents revenues recognized in excess of amounts billed for
fixed price contracts. The current liability “Billings in
excess of costs and estimated earnings on uncompleted
contracts” represents billings in excess of revenues
recognized for fixed price contracts. Quanta may incur costs subject to change orders,
whether approved or unapproved by the customer, and/or claims
related to certain contracts. Quanta determines the probability
that such costs will be recovered based upon evidence such as past
practices with the customer, specific discussions or preliminary
negotiations with the customer or verbal approvals. Quanta treats
items as a cost of contract performance in the period incurred if
it is not probable that the costs will be recovered or will
recognize revenue if it is probable that the contract price will be
adjusted and can be reliably estimated. As of September 30,
2016 and December 31, 2015, Quanta recognized approximately
$115.6 million and $137.2 million related to change orders and/or
claims that had been included as contract price adjustments on
certain contracts which were in the process of being negotiated in
the normal course of business.
These aggregate contract price adjustments
represent management’s best estimate of additional contract
revenues which have been earned and which management believes are
probable of collection. The amounts ultimately realized by Quanta
upon final acceptance by its customers could be higher or lower
than such estimated amounts; however, such amounts cannot currently
be estimated. |
| Income Taxes | Income Taxes Quanta follows the liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recorded for future tax consequences of temporary
differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and
laws that are expected to be in effect when the underlying assets
or liabilities are recovered or settled. Quanta regularly evaluates valuation allowances
established for deferred tax assets for which future realization is
uncertain. The estimation of required valuation allowances includes
estimates of future taxable income. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences become deductible. Quanta considers projected future
taxable income and tax planning strategies in making this
assessment. If actual future taxable income differs from these
estimates, Quanta may not realize deferred tax assets to the extent
estimated. Quanta records reserves for income taxes related to
certain tax positions in those instances where Quanta considers it
more likely than not that additional taxes may be due in excess of
amounts reflected on income tax returns filed. When recording
reserves for expected tax consequences of uncertain positions,
Quanta assumes that taxing authorities have full knowledge of the
position and all relevant facts. Quanta continually reviews
exposure to additional tax obligations, and as further information
is known or events occur, changes in tax reserves may be recorded.
To the extent interest and penalties may be assessed by taxing
authorities on any underpayment of income tax, such amounts have
been accrued and are classified in the provision for income
taxes. As of September 30, 2016, the total amount of
unrecognized tax benefits relating to uncertain tax positions was
$59.5 million, an increase from December 31, 2015 of $5.0
million. This increase in unrecognized tax benefits resulted
primarily from tax positions expected to be taken for 2016.
Although the Internal Revenue Service (IRS) completed its
examination related to tax years 2010, 2011 and 2012 during the
nine months ended September 30, 2016, certain subsidiaries
remain under examination by various U.S. state, Canadian and other
foreign tax authorities for multiple periods. Quanta believes it is
reasonably possible that within the next 12 months unrecognized tax
benefits may decrease by up to $32.1 million as a result of
settlement of these examinations or as a result of the expiration
of certain statute of limitations periods. U.S. federal and state and foreign income tax laws
and regulations are voluminous and are often ambiguous. As such,
Quanta is required to make many subjective assumptions and
judgments regarding its tax positions that could materially affect
amounts recognized in its future consolidated balance sheets and
statements of operations and comprehensive income. |
| Earnings Per Share | Earnings Per Share Basic earnings per share is computed using the
weighted average number of common shares outstanding during the
period, and diluted earnings per share is computed using the
weighted average number of common shares outstanding during the
period adjusted for all potentially dilutive common stock
equivalents, except in cases where the effect of the common stock
equivalents would be antidilutive. |
| Self-Insurance | Self-Insurance Quanta is insured for employer’s liability,
general liability, auto liability and workers’ compensation
claims. Under these programs, the deductibles for general liability
and auto liability are $10.0 million per occurrence, the deductible
for workers’ compensation is $5.0 million per occurrence, and
the deductible for employer’s liability is $1.0 million per
occurrence. Quanta is generally self-insured for all claims that do
not exceed the amount of the applicable deductible. Quanta also has
employee health care benefit plans for most employees not subject
to collective bargaining agreements, of which the primary plan is
subject to a deductible of $0.4 million per claimant per year. Losses under all of these insurance programs are
accrued based upon Quanta’s estimate of the ultimate
liability for claims reported and an estimate of claims incurred
but not reported, with assistance from third-party actuaries. These
insurance liabilities are difficult to assess and estimate due to
unknown factors, including the severity of an injury, the extent of
damage, the determination of Quanta’s liability in proportion
to other parties and the number of incidents not reported. The
accruals are based upon known facts and historical trends, and
management believes such accruals are adequate. |
| Collective Bargaining Agreements | Collective Bargaining Agreements Some of Quanta’s operating units are parties
to various collective bargaining agreements with unions that
represent certain of their employees. The collective bargaining
agreements expire at various times and have typically been
renegotiated and renewed on terms similar to those in the expiring
agreements. The agreements require the operating units to pay
specified wages, provide certain benefits to their union employees
and contribute certain amounts to multiemployer pension plans and
employee benefit trusts. Quanta’s multiemployer pension plan
contribution rates generally are specified in the collective
bargaining agreements (usually on an annual basis), and
contributions are made to the plans on a
“pay-as-you-go” basis based on its union employee
payrolls. The location and number of union employees that Quanta
employs at any given time and the plans in which they may
participate vary depending on the projects Quanta has ongoing at
that time and the need for union resources in connection with those
projects. Therefore, Quanta is unable to accurately predict the
union employee payroll and the amount of the resulting
multiemployer pension plan contribution obligation for future
periods. |
| Stock-Based Compensation | Stock-Based Compensation Quanta recognizes compensation expense for
restricted stock, restricted stock units (RSUs) and performance
units to be settled in common stock based on the fair value of the
awards at the date of grant, net of estimated forfeitures. The fair
value of restricted stock awards, RSUs and performance units to be
settled in common stock is determined based on the number of
shares, RSUs or performance units granted and the closing price of
Quanta’s common stock on the date of grant. An estimate of
future forfeitures is required in determining the period expense.
Quanta uses historical data to estimate the forfeiture rate;
however, these estimates are subject to change and may impact the
value that will ultimately be realized as compensation expense. The
resulting compensation expense from time-based RSU and performance
unit awards is recognized on a straight-line basis over the
requisite service period, which is generally the vesting period,
while compensation expense from performance-based RSU awards is
recognized using the graded vesting method over the requisite
service period. The cash flows resulting from the tax deductions in
excess of the compensation expense recognized for restricted stock,
RSUs and performance units to be settled in common stock and stock
options (excess tax benefit) are classified as financing cash
flows.
Compensation expense associated with liability
based awards, such as RSUs that are expected to or may settle in
cash, is recognized based on a remeasurement of the fair value of
the award at the end of each reporting period. Upon settlement, the
holders receive for each RSU an amount in cash equal to the fair
market value on the settlement date of one share of Quanta common
stock, as specified in the applicable award agreement. For
additional information on Quanta’s restricted stock, RSUs and
performance unit awards, see Note 10. |
| Functional Currency and Translation of Financial Statements | Functional Currency and Translation of Financial
Statements The U.S. dollar is the functional currency for the
majority of Quanta’s operations, which are primarily located
within the United States. The functional currency for
Quanta’s foreign operations, which are primarily located in
Canada and Australia, is typically the currency of the country in
which the foreign operating unit is located. Generally, the
currency in which the operating unit transacts the majority of its
activities, including billings, financing, payroll and other
expenditures, would be considered the functional currency. The
treatment of foreign currency translation gains or losses is
dependent upon management’s determination of the functional
currency of each operating unit. In preparing the consolidated
financial statements, Quanta translates the financial statements of
its foreign operating units from their functional currency into
U.S. dollars. Statements of operations, comprehensive income and
cash flows are translated at average monthly rates, while balance
sheets are translated at month-end exchange rates. The translation
of the balance sheet results in translation gains or losses, which
are included as a separate component of equity under the caption
“Accumulated other comprehensive income (loss).” Gains
and losses arising from transactions which are not denominated in
the operating units’ functional currencies are included
within other income (expense) in the statements of operations. |
| Comprehensive Income | 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 | Litigation Costs and Reserves Quanta records reserves when it is probable that a
liability has been incurred and the amount of loss can be
reasonably estimated. Costs incurred for litigation are expensed as
incurred. Further details are presented in Note 11. |
| Fair Value Measurements | Fair Value Measurements The carrying values of cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate fair
value due to the short-term nature of these instruments. The
carrying value of variable rate debt also approximates fair value.
For disclosure purposes, qualifying assets and liabilities are
categorized into three broad levels based on the priority of the
inputs used to determine their fair values. The fair value
hierarchy gives the highest priority to quoted prices (unadjusted)
in active markets for identical assets or liabilities (Level 1) and
the lowest priority to unobservable inputs (Level 3). All of
Quanta’s cash equivalents were categorized as Level 1 assets
at September 30, 2016 and December 31, 2015, as all
values were based on unadjusted quoted prices for identical assets
in an active market that Quanta has the ability to access. In connection with Quanta’s acquisitions,
identifiable intangible assets acquired include goodwill, backlog,
customer relationships, trade names, covenants not-to-compete,
patented rights and developed technology. Quanta utilizes the fair
value premise as the primary basis for its valuation procedures,
which is a market-based approach to determine the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. Quanta
periodically engages the services of an independent valuation firm
when a new business is acquired to assist management with this
valuation process, including assistance with the selection of
appropriate valuation methodologies and the development of
market-based valuation assumptions. Based on these considerations,
management utilizes various valuation methods, including an income
approach, a market approach and a cost approach, to determine the
fair value of intangible assets acquired based on the
appropriateness of each method in relation to the type of asset
being valued. The assumptions used in these valuation methods are
analyzed and compared, where possible, to available market data,
such as industry-based weighted average costs of capital and
discount rates, trade name royalty rates, public company valuation
multiples and recent market acquisition multiples. In accordance
with its annual impairment test during the quarter ended
December 31, 2015, the carrying amounts of such assets,
including goodwill, were compared to their fair values. The level
of inputs used for these fair value measurements is the lowest
level (Level 3). Quanta uses the assistance of third party
specialists to develop valuation assumptions. Quanta believes that
these valuation methods appropriately represent the methods that
would be used by other market participants in determining fair
value. Quanta also uses fair value measurements in
connection with the valuation of its investments in private company
equity interests and financing instruments. These valuations
require significant management judgment due to the absence of
quoted market prices, the inherent lack of liquidity and the
long-term nature of such assets. Typically, the initial costs of
these investments are considered to represent fair market value, as
such amounts are negotiated between willing market participants. On
a quarterly basis, Quanta performs an evaluation of its investments
to determine if an other-than-temporary decline in the value of
each investment has occurred and whether the recorded amount of
each investment will be realizable. If an other-than-temporary
decline in the value of an investment occurs, a fair value analysis
would be performed to determine the degree to which the investment
was impaired and a corresponding charge to earnings would be
recorded during the period. These types of fair market value
assessments are similar to other nonrecurring fair value measures
used by Quanta, which include the use of significant judgment and
available relevant market data. Such market data may include
observations of the valuation of comparable companies, risk
adjusted discount rates and an evaluation of the expected
performance of the underlying portfolio asset, including historical
and projected levels of profitability or cash flows. In addition, a
variety of additional factors may be reviewed by management,
including, but not limited to, contemporaneous financing and sales
transactions with third parties, changes in market outlook and the
third-party financing environment. |
| Adoption of New Accounting Pronouncements | Adoption of New Accounting Pronouncements In February 2015, the FASB issued an update which
amends existing consolidation guidance, including amending the
guidance related to determining whether an entity is a variable
interest entity (VIE). The guidance may be applied using a modified
retrospective approach whereby the entity records a cumulative
effect of adoption at the beginning of the fiscal year of initial
application. A reporting entity may also apply the amendments on a
full retrospective basis. Quanta adopted this guidance effective
January 1, 2016, and the adoption of the update did not have a
significant impact on Quanta’s consolidated financial
statements or related disclosures. In April 2015, the FASB issued an update that
requires debt issuance costs related to a recognized debt liability
to be presented in the balance sheet as a direct deduction from the
carrying amount of that debt liability, consistent with the
presentation of debt discounts and premiums. The update is required
to be adopted retroactively for all periods presented. In August
2015, the FASB issued another update that states that the
Securities Exchange Commission (SEC) staff would not object to an
entity deferring and presenting debt issuance costs as an asset and
subsequently amortizing the deferred debt issuance costs ratably
over the term of the line-of-credit arrangement, regardless of
whether there are any outstanding borrowings on the line-of-credit
arrangement. Quanta adopted this guidance effective January 1,
2016, and the adoption of the update did not have a significant
impact on Quanta’s consolidated financial statements or
related disclosures. In April 2015, the FASB issued an update that
provides guidance to customers about whether a cloud computing
arrangement includes a software license. If a cloud computing
arrangement includes a software license, then the customer should
account for the software license element of the arrangement
consistent with the acquisition of other software licenses. If a
cloud computing arrangement does not include a software license,
the customer should account for the arrangement as a service
contract. An entity can elect to adopt the amendments either
prospectively to all arrangements entered into or materially
modified after the effective date or retrospectively. Quanta
adopted this guidance effective January 1, 2016, and the
adoption of the update did not have a significant impact on
Quanta’s consolidated financial statements or related
disclosures. In September 2015, the FASB issued an update that
requires an acquiring company to recognize adjustments to
provisional amounts that are identified during the measurement
period in the reporting period in which such adjustments are
determined. An acquiring company must record any effect on earnings
from changes in depreciation or amortization or other income
effects, calculated as if the accounting had been completed at the
acquisition date. The acquiring company must also present
separately on the face of the income statement or disclose in the
notes the amount recorded in current-period earnings that would
have been recorded in previous reporting periods if the adjustment
had been recognized as of the acquisition date. The update is
required to be adopted prospectively to adjustments that occur
after the effective date with earlier application permitted for
financial statements that have not yet been issued. Quanta adopted
this guidance effective January 1, 2016, and the adoption of
the update did not have a significant impact on Quanta’s
consolidated financial statements or related disclosures. |
| Accounting Standards Not Yet Adopted | Accounting Standards Not Yet Adopted In May 2014, the FASB issued an update that
supersedes most current revenue recognition guidance as well as
some cost recognition guidance. The update requires that an entity
recognize revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or
services. This update also requires new qualitative and
quantitative disclosures about the nature, amount, timing and
uncertainty of revenues and cash flows arising from customer
contracts, including significant judgments and changes in
judgments, information about contract balances and performance
obligations, and assets recognized from costs incurred to obtain or
fulfill a contract. In July 2015, the FASB affirmed its proposal to
defer the effective date until fiscal years beginning on or after
December 15, 2017. The guidance can be applied on a full
retrospective or modified retrospective basis whereby the entity
records a cumulative effect of initially applying this update at
the date of initial application. Quanta is currently evaluating the
potential impact of this authoritative guidance on its consolidated
financial statements and will adopt this guidance effective
January 1, 2018. In August 2014, the FASB issued guidance to address
the diversity in practice in determining when there is substantial
doubt about an entity’s ability to continue as a going
concern and when and how an entity must disclose certain relevant
conditions and events. This update requires an entity to evaluate
whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern for a period of one year
after the date that the financial statements are issued (or
available to be issued). If such conditions or events exist, an
entity should disclose that there is substantial doubt about the
entity’s ability to continue as a going concern for a period
of one year after the date that the financial statements are issued
(or available to be issued), along with the principal conditions or
events that raise substantial doubt, management’s evaluation
of the significance of those conditions or events in relation to
the entity’s ability to meet its obligations and
management’s plans that are intended to mitigate those
conditions or events. The guidance is effective for annual and
interim periods ending after December 15, 2016. This guidance
will impact the disclosure and presentation of any substantial
doubt by Quanta about its ability to continue as a going concern,
if such substantial doubt were to exist. Quanta will adopt this
guidance by December 31, 2016. In July 2015, the FASB issued an update that
requires inventory to be measured at the lower of either cost or
net realizable value. When evidence exists that the net realizable
value of inventory is lower than its cost, the difference will be
recognized as a loss in earnings in the period in which it occurs.
The update is required to be adopted prospectively and is effective
for interim and annual reporting periods beginning after
December 15, 2016, although early adoption is permitted.
Quanta is currently evaluating the potential impact of this
authoritative guidance on its consolidated financial statements and
will adopt this guidance by January 1, 2017. In January 2016, the FASB issued an update that
addresses certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments. The new
standard is effective for interim and annual periods beginning
after December 15, 2017. Early adoption is permitted for
financial statements of fiscal years or interim periods that have
not been previously issued. Quanta is evaluating the impact of the
new standard on its consolidated financial statements and will
adopt the new standard by January 1, 2018. In February 2016, the FASB issued an update that
requires companies that lease assets to recognize on the balance
sheet the assets and liabilities for the rights and obligations
created by those assets. The new standard is effective for interim
and annual periods beginning after December 15, 2018. Early
adoption is permitted for financial statements of fiscal years or
interim periods that have not been previously issued. Quanta is
evaluating the impact of the new standard on its consolidated
financial statements and will adopt the new standard by
January 1, 2019. In March 2016, the FASB issued an update that
requires companies with share-based payments to record all of the
tax effects related to such share-based payments at settlement (or
expiration) through the income statement rather than through
equity. It is anticipated that companies will experience increased
volatility of income tax expense upon adoption of this update. This
change is required to be applied prospectively to all excess tax
benefits and tax deficiencies resulting from settlements after the
date of the adoption of the update and is effective for interim and
annual reporting periods beginning after December 15, 2016,
although early adoption is permitted. Quanta is currently
evaluating the potential impact of this authoritative guidance on
its consolidated financial statements and will adopt this guidance
by January 1, 2017. In June 2016, the FASB issued an update that will
change the way companies measure credit losses for most financial
assets and certain other instruments that are not measured at fair
value through net income. The update will require companies to use
an “expected loss” model for instruments measured at
amortized cost and to record allowances for available-for-sale
(AFS) debt securities rather than reduce the carrying amounts. The
update will also require disclosure of information regarding how a
company developed its allowance, including changes in the factors
that influenced management’s estimate of expected credit
losses and the reasons for those changes. Companies will apply this
standard’s provisions as a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period
in which the guidance is effective. The new standard is effective
for interim and annual reporting periods beginning after
December 15, 2019, although early adoption is permitted for
annual reporting periods beginning after December 15, 2018.
Quanta is currently evaluating the potential impact of this
authoritative guidance on its consolidated financial statements and
will adopt this guidance by January 1, 2020. In August 2016, the FASB issued an update intended
to standardize the classification of certain transactions on the
statement of cash flows. These transactions include contingent
consideration payments made after a business combination, proceeds
from the settlement of corporate-owned life insurance policies and
distributions received from equity method investments. The new
standard is effective for interim and annual reporting periods
beginning after December 15, 2017, although early adoption is
permitted, and requires application using a retrospective
transition method. Quanta is currently evaluating the potential
impact of this authoritative guidance on its consolidated financial
statements and will adopt this guidance by January 1,
2018. In October 2016, the FASB issued an update that
will require a reporting entity to recognize the tax expense from
the sale of an asset in the seller’s tax jurisdiction when
the transfer occurs, even though the pre-tax effects of that
transaction are eliminated in consolidation. Any deferred tax asset
that arises in the buyer’s jurisdiction would also be
recognized at the time of the transfer. The new guidance will not
apply to intra-entity transfers of inventory. The income tax
consequences from the sale of inventory from one member of a
consolidated entity to another will continue to be deferred until
the inventory is sold to a third party. The new standard is
effective for interim and annual reporting periods beginning after
December 15, 2017, although early adoption is permitted. The
modified retrospective method will be required for transition to
the new guidance, with a cumulative-effect adjustment recorded in
retained earnings as of the beginning of the period of adoption.
Quanta is currently evaluating the potential impact of this
authoritative guidance on its consolidated financial statements and
will adopt this guidance by January 1, 2018. In October 2016, the FASB issued an update that
will amend the consolidation guidance related to how a reporting
entity that is the single decision maker of a VIE should treat
indirect interests in the VIE held through related parties that are
under common control with the reporting entity when determining
whether it is the primary beneficiary of a VIE. A reporting entity
has an indirect interest in a VIE if it has a direct interest in a
related party that, in turn, has a direct interest in the VIE. The
new standard is effective for interim and annual reporting periods
beginning after December 15, 2016, although early adoption is
permitted. Since Quanta has already adopted a related update, it
will be required to apply the amendments in this update
retrospectively to all relevant prior periods beginning with the
fiscal year in which the amendments in the prior update were
initially applied. Quanta is currently evaluating the potential
impact of this authoritative guidance on its consolidated financial
statements and will adopt this guidance by January 1,
2017. |
| Repurchase of Common Stock | During the fourth quarter of 2013, Quanta’s
board of directors approved a stock repurchase program authorizing
Quanta to purchase, from time to time through December 31,
2016, up to $500.0 million of its outstanding common stock (the
2013 Repurchase Program). During the nine months ended September
30, 2015, Quanta repurchased 14.3 million shares of its common
stock at a cost of $406.5 million in the open market and completed
the 2013 Repurchase Program. During the third quarter of 2015, Quanta’s
board of directors approved a new stock repurchase program
authorizing Quanta to purchase, from time to time through February
28, 2017, up to $1.25 billion of its outstanding common stock (the
2015 Repurchase Program). Repurchases under the 2015 Repurchase
Program can be made in open market or privately negotiated
transactions, including pursuant to an accelerated share repurchase
arrangement, an issuer repurchase plan or otherwise, at
management’s discretion, based on market and business
conditions, applicable contractual and legal requirements and other
factors. The 2015 Repurchase Program does not obligate Quanta to
acquire any specific amount of common stock and may be modified or
terminated by Quanta’s board of directors at any time at its
sole discretion and without notice. During the third and fourth
quarters of 2015, Quanta repurchased 19.2 million shares of its
common stock at a cost of $449.9 million in the open market under
the 2015 Repurchase Program. Also during the third quarter of 2015, Quanta
entered into an accelerated share repurchase arrangement (the ASR)
to repurchase $750.0 million of its common stock under the 2015
Repurchase Program. Under the terms of the ASR, Quanta paid $750.0
million to JPMorgan Chase Bank, National Association, London Branch
(JPMorgan) and initially received 25.7 million shares of its common
stock. The fair market value of these 25.7 million shares at the
time of delivery was approximately $600.0 million, and the
repurchased shares and the related cost to acquire them were
accounted for as an adjustment to the balance of treasury stock
during the quarter ended September 30, 2015, reducing the
weighted-average number of basic and diluted common shares used to
calculate Quanta’s earnings per share. The $150.0 million
remaining under the ASR was recorded as an adjustment to additional
paid-in capital (APIC) during the quarter ended September 30, 2015
and was reclassified from APIC to treasury stock as a result of the
final settlement of the ASR on April 12, 2016. Upon final
settlement and based on the final volume-weighted average share
price during the term of the ASR, minus a discount and subject to
other adjustments pursuant to the terms and conditions of the ASR,
Quanta received 9.4 million additional shares of its common stock
from JPMorgan. As of September 30, 2016, Quanta repurchased
54.3 million shares of its common stock at a cost of $1.20 billion
and approximately $50.1 million remained available under the 2015
Repurchase Program. |
| Segment Reporting | Quanta presents its operations under two reportable
segments: (1) Electric Power Infrastructure Services and
(2) Oil and Gas Infrastructure Services. This structure is
generally based on the broad end-user markets for Quanta’s
services. See Note 1 for additional information regarding
Quanta’s reportable segments. Quanta’s segment results are derived from the
types of services provided across its operating units in each of
the end user markets described above. Quanta’s
entrepreneurial business model allows each of its operating units
to serve the same or similar customers and to provide a range of
services across end user markets. Quanta’s operating units
are organized into one of two internal divisions, namely, the
Electric Power Infrastructure Services Division and the Oil and Gas
Infrastructure Services Division. These internal divisions are
closely aligned with the reportable segments described above based
on their operating units’ predominant type of work. Reportable segment information, including revenues
and operating income by type of work, is gathered from each
operating unit for the purpose of evaluating segment performance in
support of Quanta’s market strategies. These classifications
of Quanta’s operating unit revenues by type of work for
segment reporting purposes can at times require judgment on the
part of management. Quanta’s operating units may perform
joint infrastructure service projects for customers in multiple
industries, deliver multiple types of network services under a
single customer contract or provide service across industries, for
example, joint trenching projects to install distribution lines for
electric power and natural gas customers. In addition,
Quanta’s integrated operations and common administrative
support at each of its operating units require that certain
allocations of shared and indirect costs, such as facility costs
and indirect operating expenses, including depreciation and general
and administrative costs, be made to determine operating segment
profitability. Corporate costs, such as payroll and benefits,
employee travel expenses, facility costs, professional fees,
acquisition costs and amortization related to intangible assets are
not allocated. |
