QUANTA SERVICES INC, QUANTA SERVICES MANAGEMENT ...

QUANTA SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
California Fire Claim — Amador County. In October 2004, a wildfire in Amador County, California,
burned 16,800 acres. The United States Forest Service alleged that the fire originated as a result of the activities
of a Quanta subsidiary crew performing vegetation management under a contract with Pacific Gas & Electric Co.
(PG&E). In November 2007, the United States Department of Agriculture (USDA) sent a written demand to the
Quanta subsidiary for payment of fire suppression costs of approximately $8.5 million. The USDA
communicated verbally that it also intends to seek past and future restoration and other damages of
approximately $51.3 million. No litigation has been filed. PG&E tendered defense and indemnification for the
matter to Quanta in 2010. The USDA, Quanta, its subsidiary and PG&E have entered into a tolling agreement
with respect to the filing of any litigation and are exchanging information on an informal basis.
Quanta and its subsidiary intend to vigorously defend against any liability and damage allegations. Quanta
has notified its insurers, and two insurers are participating under a reservation of rights. Other insurers in that
policy year have not stated a position regarding coverage. Quanta has recorded a liability and corresponding
insurance recovery receivable of approximately $8.5 million associated with this matter. Given Quanta’s intent to
vigorously defend against the allegations and the potential for insurance coverage, Quanta cannot estimate the
amount of any loss or the range of any possible losses that might exceed its insurance coverage. However, due to
the nature of these claims, an adverse result leading to a significant uninsured loss could have a material adverse
effect on Quanta’s consolidated financial condition, results of operations and cash flows.
Concentrations of Credit Risk
Quanta is subject to concentrations of credit risk related primarily to its cash and cash equivalents and
accounts receivable, including amounts related to unbilled accounts receivable and costs and estimated earnings
in excess of billings on uncompleted contracts. Substantially all of Quanta’s cash investments are managed by
what it believes to be high credit quality financial institutions. In accordance with Quanta’s investment policies,
these institutions are authorized to invest this cash in a diversified portfolio of what Quanta believes to be high
quality investments, which consist primarily of interest-bearing demand deposits, money market mutual funds
and investment grade commercial paper with original maturities of three months or less. Although Quanta does
not currently believe the principal amount of these investments is subject to any material risk of loss, economic
conditions have significantly impacted the interest income Quanta receives from these investments and is likely
to continue to do so in the future. In addition, Quanta grants credit under normal payment terms, generally
without collateral, to its customers, which include electric power, natural gas and pipeline companies,
telecommunications service providers, governmental entities, general contractors, and builders, owners and
managers of commercial and industrial properties located primarily in the United States and Canada.
Consequently, Quanta is subject to potential credit risk related to changes in business and economic factors
throughout the United States and Canada, which may be heightened as a result of depressed economic and
financial market conditions that have existed in recent years. However, Quanta generally has certain statutory
lien rights with respect to services provided. Under certain circumstances, such as foreclosures or negotiated
settlements, Quanta may take title to the underlying assets in lieu of cash in settlement of receivables. In such
circumstances, extended time frames may be required to liquidate these assets, causing the amounts realized to
differ from the value of the assumed receivable. Historically, some of Quanta’s customers have experienced
significant financial difficulties, and others may experience financial difficulties in the future. These difficulties
expose Quanta to increased risk related to collectability of billed and unbilled receivables and costs and estimated
earnings in excess of billings on uncompleted contracts for services Quanta has performed. One customer
accounted for approximately 11% of consolidated revenues during the year ended December 31, 2010 and
approximately 12% of billed and accrued receivables at December 31, 2010. Business with this customer is
included in the Natural Gas and Pipeline Infrastructure Services segment. No other customers represented 10% or
more of revenues for the years ended December 31, 2011, 2010 and 2009 or of billed and unbilled accounts
receivable as of December 31, 2011 and 2010.
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