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Investments in Affiliates and Other Entities
12 Months Ended
Dec. 31, 2021
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Affiliates and Other Entities INVESTMENTS IN AFFILIATES AND OTHER ENTITIES:
As described in Note 2, in the normal course of business, Quanta enters into various types of investment arrangements, each having unique terms and conditions.
The carrying values for Quanta’s unconsolidated equity method investments were $101.2 million and $44.9 million at December 31, 2021 and 2020 and are included in “Other assets, net” in the accompanying consolidated balance sheets. As of December 31, 2021, Quanta had receivables of $49.0 million and payables of $56.3 million from its integral unconsolidated affiliates.
In October 2021, Quanta acquired a 44% interest in an entity that provides right-of-way solutions, including site preparation and clearing, materials delivery and installation and management of permitting requirements and traffic control for approximately $22.0 million, subject to certain adjustments. This investment is accounted for as an integral affiliate using the equity method of accounting.
Included within the equity method investments described above is the carrying value of Quanta’s 50% equity interest in LUMA Energy, LLC (LUMA), which was $30.6 million and $10.9 million at December 31, 2021 and 2020. During the year ended December 31, 2021, Quanta received $17.5 million of cash related to its share of earnings from LUMA. During the three months ended June 30, 2020, the LUMA joint venture was selected for a 15-year operation and maintenance agreement to operate, maintain and modernize the approximately 18,000-mile electric transmission and distribution system in Puerto Rico. In
June 2021, LUMA completed the steps necessary to transition operation and maintenance of the system from the owner to LUMA and entered into an interim services agreement. Once the owner emerges from its Title III debt restructuring process, the 15-year operation and maintenance period is scheduled to begin. During the interim services period, LUMA receives a fixed annual management fee, payable in monthly installments, and is reimbursed for costs and expenses. During the 15-year operation and maintenance period, LUMA will continue to be reimbursed for costs and expenses and receive a fixed annual management fee, but will also have the opportunity to receive additional annual performance-based incentive fees. LUMA has not assumed and will not assume ownership of the electric transmission and distribution system assets and is not responsible for operation of the power generation assets. Quanta’s ownership interest and participation in LUMA is accounted for as an equity method investment due to Quanta’s and its joint venture partner’s equal ownership of LUMA. LUMA is operationally integral to the operations of Quanta, and therefore Quanta’s share of LUMA’s net income or losses is reported within operating income in “Equity in earnings (losses) of integral unconsolidated affiliates.”
During the year ended December 31, 2020, Quanta recognized impairment losses of $8.7 million related to two non-integral equity method investments, which were primarily due to the decline in commodity prices and production volumes during 2020. These impairment losses are included in “Other income, net” in the accompanying consolidated statement of operations for the year ended December 31, 2020.
Quanta had a minority ownership interest in a limited partnership that was selected during 2014 to build, own and operate a new 500-kilometer electric transmission line and two 500 kV substations in Alberta, Canada and accounted for this interest as an equity-method investment. The limited partnership contracted with a Quanta subsidiary to perform the engineering, procurement and construction (EPC) services for the project, and the Quanta subsidiary recognized revenue and related cost of services as performance progressed on the project. However, due to Quanta’s ownership interest, a proportional amount of the EPC profit was deferred until the electric transmission line and related substations were constructed and ownership of the assets was deemed to be transferred to the third-party customer, which occurred in the three months ended March 31, 2019. The deferral of earnings and recognition of such earnings deferral were recorded as components of equity in earnings (losses) of non-integral unconsolidated affiliates, which is included in “Other income, net” in the accompanying consolidated statements of operations. During the three months ended March 31, 2019, deferred earnings of $60.3 million were recognized, the majority of which was attributable to profit earned and deferred in the years ended December 31, 2018 and 2017. During the three months ended December 31, 2019, Quanta sold its minority ownership interest in the limited partnership and recognized a gain of $13.0 million related to the sale. The gain was recorded in equity in earnings (losses) of unconsolidated affiliates, which is included in “Other income, net” in the accompanying consolidated statements of operations.
The carrying values for investments accounted for using the cost method of accounting were $130.2 million and $39.5 million at December 31, 2021 and 2020, and these amounts are included in “Other assets, net” in the accompanying consolidated balance sheets. During the three months ended March 31, 2021, Quanta acquired a minority interest in a broadband technology provider for $90.0 million. This investment includes preferential liquidation rights and is accounted for using the cost method of accounting. There have been no changes in the carrying value of the investment through December 31, 2021. However, in October 2021, the broadband technology provider entered into an agreement and plan of merger with a special purpose acquisition company. Pursuant to the terms of this transaction, which is expected to be consummated during the first half of 2022, the broadband technology provider will become a publicly traded company, and Quanta’s current preferred equity interest would become an approximate five percent common equity interest, without preferential liquidation rights, in the publicly traded company. Quanta would then begin to remeasure this investment at fair value, and the investment balance will be marked to the market price of its stock investment, with changes in value recorded within “Other income, net” on its consolidated statements of operations. Additionally, any shares of common equity held by Quanta in the publicly traded company are expected to be subject to a lock-up period that restricts the transfer of such shares for 180 days after closing of the transaction.
During the year ended December 31, 2021, Quanta also purchased, through its wholly-owned captive insurance company, certain real property, including associated buildings and facilities, that is being developed for its future corporate headquarters. A portion of this property is currently leased to third-party lessees and is expected to continue to be leased to third-party lessees in the future. As a result, an investment in real estate of $23.5 million was recognized at cost for the third-party leased portion of the property during the three months ended March 31, 2021, and the carrying amount of $23.3 million is included in “Other assets, net” in the accompanying consolidated balance sheet at December 31, 2021.
During the three months ended June 30, 2020, Quanta recognized a $9.3 million impairment to an investment in a water and gas infrastructure contractor in Australia, which also represents the cumulative amount of impairment on investments accounted for using the cost method of accounting. Quanta did not exercise its option to acquire the remaining interest in this business at an agreed price based on a multiple of the company’s earnings during a designated performance period. This impairment loss is included in “Other income, net” in the accompanying consolidated statement of operations for the year ended December 31, 2020.
As a result of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic, including the significant decline in commodity prices during 2020 and the continued volatility in commodity prices and production volumes, Quanta assessed the expected negative impacts related to certain of its investments, particularly investments dependent on the energy market. This assessment contributed in part to management’s decision to record the impairments related to certain non-integral equity method investments and the water and gas pipeline infrastructure contractor in Australia described above. Additionally, the potential impact of the uncertainties and challenges in the energy market and overall economy caused by the COVID-19 pandemic remains unknown and may change based on numerous factors, which could further negatively impact these and other of Quanta’s investments. Quanta will continue to monitor the potential impacts of these events, and should any investments suffer additional declines in actual or forecasted financial results, additional impairments may be required. See Notes 13 and 16 for additional information related to equity and cost method investments. See Note 15 for information related to Quanta’s investments associated with its deferred compensation plan.