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Leases | 9 Months Ended
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Sep. 30, 2019
Leases [Abstract] |
LEASES | 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 leases primarily include leases of land, buildings, vehicles, construction equipment and office equipment. As of September 30, 2019, Quanta’s leases had remaining lease terms of up to 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 |  | Nine Months Ended
Lease cost | Classification |  | September 30, 2019 |  | September 30, 2019
Finance lease cost: |  |  |  |  |
Amortization of lease assets | Depreciation (1) |  | $ | 320 |  |  | $ | 976 |
Interest on lease liabilities | Interest expense |  | 15 |  |  | 54 |
Operating lease cost | Cost of services and Selling, general and administrative expenses |  | 30,543 |  |  | 91,278 |
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 |
Total lease cost |  |  | $ | 242,885 |  |  | $ | 712,214 |
(1) | Depreciation is included within “Cost of services” and “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.
(2) | Short-term lease cost includes both leases and rentals with initial terms of one year or less.
(3) | Variable lease cost primarily relates to real estate leases and consists of common area maintenance charges, real estate taxes, insurance and other variable costs.
For the three 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
Assets: |  |  |
Operating lease right-of-use assets | Operating lease right-of-use assets |  | $ | 289,267 |
Finance lease assets | Property and equipment, net of accumulated depreciation |  | 1,079 |
Total lease assets |  |  | $ | 290,346 |
Liabilities: |  |  |
Current: |  |  |
Operating | Current portion of operating lease liabilities |  | $ | 93,506 |
Finance | Current maturities of long-term debt and short-term debt |  | 893 |
Non-current: |  |  |
Operating | Operating lease liabilities, net of current portion |  | 197,896 |
Finance | Long-term debt, net of current maturities |  | 596 |
Total lease liabilities |  |  | $ | 292,891 |
Certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. For rental purchase options exercised through a third-party lessor and for which a substantive benefit is deemed to be transferred to the lessor, such benefit is recorded in “Property, plant and equipment, net of accumulated depreciation,” with a corresponding increase in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of September 30, 2019, the benefit recorded was $9.8 million. Future minimum lease payments for operating and finance leases were as follows (in thousands):
|  | As of September 30, 2019
|  | Operating Leases |  | Finance Leases |  | Total
Remainder of 2019 |  | $ | 28,398 |  |  | $ | 388 |  |  | $ | 28,786 |
2020 |  | 96,874 |  |  | 627 |  |  | 97,501 |
2021 |  | 70,524 |  |  | 342 |  |  | 70,866 |
2022 |  | 46,867 |  |  | 119 |  |  | 46,986 |
2023 |  | 30,503 |  |  | 50 |  |  | 30,553 |
Thereafter |  | 46,953 |  |  | 26 |  |  | 46,979 |
Total future minimum lease payments |  | $ | 320,119 |  |  | $ | 1,552 |  |  | $ | 321,671 |
Less imputed interest |  | (28,717 | ) |  | (63 | ) |  | (28,780 | )
Total lease liabilities |  | $ | 291,402 |  |  | $ | 1,489 |  |  | $ | 292,891 |
Future minimum lease payments for operating leases under the prior standard and Quanta’s historical accounting policy were as follows (in thousands):
|  | As of December 31, 2018
|  | Operating Leases
2019 |  | $ | 124,530 |
2020 |  | 81,189 |
2021 |  | 55,827 |
2022 |  | 34,337 |
2023 |  | 21,450 |
Thereafter |  | 37,217 |
Total minimum lease payments |  | $ | 354,550 |
The weighted average remaining lease terms and discount rates were as follows:
|  | As of September 30, 2019
Weighted average remaining lease term (in years): |  |
Operating leases |  | 4.36 |
Finance leases |  | 2.33 |
Weighted average discount rate: |  |
Operating leases |  | 4.3 | %
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 30, 2019, the maximum guaranteed residual value of this equipment was $754.1 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 30, 2019, Quanta had additional operating lease obligations that had not yet commenced of $9.0 million. These operating leases will commence in 2019 and 2020 with lease terms of one to seven years.
LEASES | 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 leases primarily include leases of land, buildings, vehicles, construction equipment and office equipment. As of September 30, 2019, Quanta’s leases had remaining lease terms of up to 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 |  | Nine Months Ended
Lease cost | Classification |  | September 30, 2019 |  | September 30, 2019
Finance lease cost: |  |  |  |  |
Amortization of lease assets | Depreciation (1) |  | $ | 320 |  |  | $ | 976 |
Interest on lease liabilities | Interest expense |  | 15 |  |  | 54 |
Operating lease cost | Cost of services and Selling, general and administrative expenses |  | 30,543 |  |  | 91,278 |
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 |
Total lease cost |  |  | $ | 242,885 |  |  | $ | 712,214 |
(1) | Depreciation is included within “Cost of services” and “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of operations.
(2) | Short-term lease cost includes both leases and rentals with initial terms of one year or less.
(3) | Variable lease cost primarily relates to real estate leases and consists of common area maintenance charges, real estate taxes, insurance and other variable costs.
For the three 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
Assets: |  |  |
Operating lease right-of-use assets | Operating lease right-of-use assets |  | $ | 289,267 |
Finance lease assets | Property and equipment, net of accumulated depreciation |  | 1,079 |
Total lease assets |  |  | $ | 290,346 |
Liabilities: |  |  |
Current: |  |  |
Operating | Current portion of operating lease liabilities |  | $ | 93,506 |
Finance | Current maturities of long-term debt and short-term debt |  | 893 |
Non-current: |  |  |
Operating | Operating lease liabilities, net of current portion |  | 197,896 |
Finance | Long-term debt, net of current maturities |  | 596 |
Total lease liabilities |  |  | $ | 292,891 |
Certain of Quanta’s equipment rental agreements contain purchase options pursuant to which the purchase price is offset by a portion of the rental payments. For rental purchase options exercised through a third-party lessor and for which a substantive benefit is deemed to be transferred to the lessor, such benefit is recorded in “Property, plant and equipment, net of accumulated depreciation,” with a corresponding increase in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of September 30, 2019, the benefit recorded was $9.8 million. Future minimum lease payments for operating and finance leases were as follows (in thousands):
|  | As of September 30, 2019
|  | Operating Leases |  | Finance Leases |  | Total
Remainder of 2019 |  | $ | 28,398 |  |  | $ | 388 |  |  | $ | 28,786 |
2020 |  | 96,874 |  |  | 627 |  |  | 97,501 |
2021 |  | 70,524 |  |  | 342 |  |  | 70,866 |
2022 |  | 46,867 |  |  | 119 |  |  | 46,986 |
2023 |  | 30,503 |  |  | 50 |  |  | 30,553 |
Thereafter |  | 46,953 |  |  | 26 |  |  | 46,979 |
Total future minimum lease payments |  | $ | 320,119 |  |  | $ | 1,552 |  |  | $ | 321,671 |
Less imputed interest |  | (28,717 | ) |  | (63 | ) |  | (28,780 | )
Total lease liabilities |  | $ | 291,402 |  |  | $ | 1,489 |  |  | $ | 292,891 |
Future minimum lease payments for operating leases under the prior standard and Quanta’s historical accounting policy were as follows (in thousands):
|  | As of December 31, 2018
|  | Operating Leases
2019 |  | $ | 124,530 |
2020 |  | 81,189 |
2021 |  | 55,827 |
2022 |  | 34,337 |
2023 |  | 21,450 |
Thereafter |  | 37,217 |
Total minimum lease payments |  | $ | 354,550 |
The weighted average remaining lease terms and discount rates were as follows:
|  | As of September 30, 2019
Weighted average remaining lease term (in years): |  |
Operating leases |  | 4.36 |
Finance leases |  | 2.33 |
Weighted average discount rate: |  |
Operating leases |  | 4.3 | %
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 30, 2019, the maximum guaranteed residual value of this equipment was $754.1 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 30, 2019, Quanta had additional operating lease obligations that had not yet commenced of $9.0 million. These operating leases will commence in 2019 and 2020 with lease terms of one to seven years.

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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