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Leases | 6 Months Ended
--- | ---
Jun. 30, 2022
Leases [Abstract] |
Leases | 11. LEASES: Quanta primarily leases land, buildings, vehicles, construction equipment and office equipment. The components of lease costs in the accompanying condensed consolidated statements of operations are as follows (in thousands):
|  |  | Three Months Ended |  | Six Months Ended
|  |  | June 30, |  | June 30,
Lease cost | Classification |  | 2022 |  | 2021 |  | 2022 |  | 2021
Finance lease cost: |  |  |  |  |  |  |  |  |
Amortization of lease assets | Depreciation (1) |  | $ | 436 |  |  | $ | 230 |  |  | $ | 876 |  |  | $ | 474 |
Interest on lease liabilities | Interest and other financing expenses |  | 28 |  |  | 23 |  |  | 55 |  |  | 50 |
Operating lease cost | Cost of services and Selling, general and administrative expenses |  | 24,248 |  |  | 26,947 |  |  | 49,125 |  |  | 54,723 |
Short-term and variable lease cost (2) | Cost of services and Selling, general and administrative expenses |  | 224,088 |  |  | 160,342 |  |  | 443,387 |  |  | 318,241 |
Total lease cost |  |  | $ | 248,800 |  |  | $ | 187,542 |  |  | $ | 493,443 |  |  | $ | 373,488 |
(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. Variable lease cost is insignificant. During the three months ended June 30, 2022, Quanta recognized a $2.8 million asset impairment charge primarily related to the expected discontinued use of the right-of-use asset associated with its existing corporate headquarters in connection with a planned move to a new headquarters by the end of 2022. This amount is reported as “Asset impairment charges” in the accompanying condensed consolidated statements of operations. Quanta has entered into arrangements with certain related parties to lease certain real property and facilities. Typically, the parties are employees of Quanta who are also the former owners of businesses acquired by Quanta, and the real properties and facilities continue to be utilized by Quanta subsequent to the acquisitions. 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 10 years, subject to renewal options. Related party lease expense was $3.8 million and $3.2 million for the three months ended June 30, 2022 and 2021 and $7.4 million and $8.0 million for the six months ended June 30, 2022 and 2021. 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. When these purchase options are exercised and a substantive benefit is deemed to be transferred to a third-party lessor, the transaction is deemed to be a financing transaction for accounting purposes, which results in the recognition of an asset equal to the purchase price in “Property, plant and equipment, net of accumulated depreciation,” and a corresponding liability in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of June 30, 2022 and December 31, 2021, the assets recorded related to these financing transactions, net of accumulated depreciation, totaled $78.6 million and $53.9 million. Future minimum lease payments for operating and finance leases were as follows (in thousands):
|  | As of June 30, 2022
|  | Operating Leases |  | Finance Leases |  | Total
Remainder of 2022 |  | $ | 43,232 |  |  | $ | 740 |  |  | $ | 43,972 |
2023 |  | 72,121 |  |  | 1,267 |  |  | 73,388 |
2024 |  | 50,936 |  |  | 745 |  |  | 51,681 |
2025 |  | 36,345 |  |  | 396 |  |  | 36,741 |
2026 |  | 25,139 |  |  | 263 |  |  | 25,402 |
Thereafter |  | 29,051 |  |  | 22 |  |  | 29,073 |
Total future minimum operating and finance lease payments |  | 256,824 |  |  | 3,433 |  |  | 260,257 |
Less imputed interest |  | (18,403) |  |  | (2) |  |  | (18,405) |
Total lease liabilities |  | $ | 238,421 |  |  | $ | 3,431 |  |  | $ | 241,852 |
Future minimum lease payments for short-term leases, which are not recorded in the condensed consolidated balance sheets due to Quanta’s accounting policy election, were $14.6 million as of June 30, 2022. Rental expense associated primarily with certain month-to-month equipment rentals is excluded from these amounts because Quanta is unable to accurately predict future amounts associated with such rentals. The weighted average remaining lease terms and discount rates were as follows:
|  | As of June 30, 2022
Weighted average remaining lease term (in years): |  |  |  |
Operating leases |  | 4.21 |  |
Finance leases |  | 2.94 |  |
Weighted average discount rate: |  |  |  |
Operating leases |  | 3.6 | % |  |
Finance leases |  | 3.2 | % |  |
Quanta has also guaranteed the residual value under certain of its equipment operating leases, agreeing to pay any difference between the residual value and the fair market value of the underlying asset at the date of lease termination. As of June 30, 2022, the maximum guaranteed residual value of this equipment was $945.8 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. During the three months ended March 31, 2022, Quanta entered into a real estate lease that has not yet commenced. The lease agreement also contains a purchase option in the amount of $53.7 million that can be exercised during 2022.
Leases | 11. LEASES: Quanta primarily leases land, buildings, vehicles, construction equipment and office equipment. The components of lease costs in the accompanying condensed consolidated statements of operations are as follows (in thousands):
|  |  | Three Months Ended |  | Six Months Ended
|  |  | June 30, |  | June 30,
Lease cost | Classification |  | 2022 |  | 2021 |  | 2022 |  | 2021
Finance lease cost: |  |  |  |  |  |  |  |  |
Amortization of lease assets | Depreciation (1) |  | $ | 436 |  |  | $ | 230 |  |  | $ | 876 |  |  | $ | 474 |
Interest on lease liabilities | Interest and other financing expenses |  | 28 |  |  | 23 |  |  | 55 |  |  | 50 |
Operating lease cost | Cost of services and Selling, general and administrative expenses |  | 24,248 |  |  | 26,947 |  |  | 49,125 |  |  | 54,723 |
Short-term and variable lease cost (2) | Cost of services and Selling, general and administrative expenses |  | 224,088 |  |  | 160,342 |  |  | 443,387 |  |  | 318,241 |
Total lease cost |  |  | $ | 248,800 |  |  | $ | 187,542 |  |  | $ | 493,443 |  |  | $ | 373,488 |
(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. Variable lease cost is insignificant. During the three months ended June 30, 2022, Quanta recognized a $2.8 million asset impairment charge primarily related to the expected discontinued use of the right-of-use asset associated with its existing corporate headquarters in connection with a planned move to a new headquarters by the end of 2022. This amount is reported as “Asset impairment charges” in the accompanying condensed consolidated statements of operations. Quanta has entered into arrangements with certain related parties to lease certain real property and facilities. Typically, the parties are employees of Quanta who are also the former owners of businesses acquired by Quanta, and the real properties and facilities continue to be utilized by Quanta subsequent to the acquisitions. 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 10 years, subject to renewal options. Related party lease expense was $3.8 million and $3.2 million for the three months ended June 30, 2022 and 2021 and $7.4 million and $8.0 million for the six months ended June 30, 2022 and 2021. 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. When these purchase options are exercised and a substantive benefit is deemed to be transferred to a third-party lessor, the transaction is deemed to be a financing transaction for accounting purposes, which results in the recognition of an asset equal to the purchase price in “Property, plant and equipment, net of accumulated depreciation,” and a corresponding liability in “Current maturities of long-term debt and short-term debt” and “Long-term debt, net of current maturities.” As of June 30, 2022 and December 31, 2021, the assets recorded related to these financing transactions, net of accumulated depreciation, totaled $78.6 million and $53.9 million. Future minimum lease payments for operating and finance leases were as follows (in thousands):
|  | As of June 30, 2022
|  | Operating Leases |  | Finance Leases |  | Total
Remainder of 2022 |  | $ | 43,232 |  |  | $ | 740 |  |  | $ | 43,972 |
2023 |  | 72,121 |  |  | 1,267 |  |  | 73,388 |
2024 |  | 50,936 |  |  | 745 |  |  | 51,681 |
2025 |  | 36,345 |  |  | 396 |  |  | 36,741 |
2026 |  | 25,139 |  |  | 263 |  |  | 25,402 |
Thereafter |  | 29,051 |  |  | 22 |  |  | 29,073 |
Total future minimum operating and finance lease payments |  | 256,824 |  |  | 3,433 |  |  | 260,257 |
Less imputed interest |  | (18,403) |  |  | (2) |  |  | (18,405) |
Total lease liabilities |  | $ | 238,421 |  |  | $ | 3,431 |  |  | $ | 241,852 |
Future minimum lease payments for short-term leases, which are not recorded in the condensed consolidated balance sheets due to Quanta’s accounting policy election, were $14.6 million as of June 30, 2022. Rental expense associated primarily with certain month-to-month equipment rentals is excluded from these amounts because Quanta is unable to accurately predict future amounts associated with such rentals. The weighted average remaining lease terms and discount rates were as follows:
|  | As of June 30, 2022
Weighted average remaining lease term (in years): |  |  |  |
Operating leases |  | 4.21 |  |
Finance leases |  | 2.94 |  |
Weighted average discount rate: |  |  |  |
Operating leases |  | 3.6 | % |  |
Finance leases |  | 3.2 | % |  |
Quanta has also guaranteed the residual value under certain of its equipment operating leases, agreeing to pay any difference between the residual value and the fair market value of the underlying asset at the date of lease termination. As of June 30, 2022, the maximum guaranteed residual value of this equipment was $945.8 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. During the three months ended March 31, 2022, Quanta entered into a real estate lease that has not yet commenced. The lease agreement also contains a purchase option in the amount of $53.7 million that can be exercised during 2022.

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