2. Acquisitions and Subsidiaries and Joint Ventures with Noncontrolling Owners' Interests

JBC

On August 1, 2011, RLW, Sterling's 80% owned subsidiary, purchased all of the outstanding shares of capital stock of JBC. JBC is a heavy civil construction business located in Tempe, Arizona, that builds roads and highways in Arizona, primarily for municipalities. This acquisition expanded the geographic footprint of the Company into Arizona, and JBC's capabilities in structural concrete utilities and paving as well as performing construction manager at risk type contracts complement the Company's current operations. RLW paid an initial purchase price for JBC of $7.6 million (net of a receivable from the seller determined subsequent to the acquisition date) which was funded by available cash and short-term investments of RLW and the Company. The purchase agreement provides for additional purchase price of up to $5 million to be paid over a five-year period. The additional purchase price is in the form of an earn-out which is calculated generally as 50% of the amount by which earnings before interest, taxes, depreciation and amortization (“EBITDA”) exceeds $2 million for each of the calendar years 2011 through 2015 and $1.2 million for the seven months ended July 31, 2016. The discounted present value of the additional purchase price was estimated to be $2.4 million as of August 1, 2011, the acquisition date, and $2.4 million as of December 31, 2011. This liability is included in other long-term liabilities in the accompanying condensed consolidated balance sheets.

The following table summarizes the initial allocation of the purchase price for JBC (in thousands):

Assets acquired and liabilities assumed:
Current assets, including cash of $4,662	$	8,839
Current liabilities		(5,708	)
Working capital acquired		3,131
Property and equipment		2,018
Other		9
Total tangible net assets acquired at fair value		5,158
Goodwill		4,803
Total consideration		9,961
Fair value of earn-out		(2,370	)
Cash paid, net of $409 receivable from seller	$	7,591

The purchase price allocation has been finalized, and our analysis of the assets acquired indicates that there are no material separately identifiable intangible assets. The goodwill attributable to the acquisition is deductible for tax purposes over 15 years.

Acquisition related costs of $328,000 are included in direct costs of acquisitions in the Company's consolidated statements of operations for the twelve months ended December 31, 2011.

The fair value of the financial assets acquired includes receivables with a fair value of $3.8 million, which are deemed fully collectible.

Myers

On August 1, 2011, the Company purchased a 50% limited partner interest in Myers. Myers is a construction limited partnership located in California and was acquired in order to expand the geographic scope of the Company's operations into California. The Company paid a purchase price of $1.2 million, which was funded by available cash of the Company. The terms of the purchase include a buy-back option on August 1, 2016 and again on August 1, 2019 under which certain of the sellers have the option to repurchase the Company's 50% limited partner interest for an amount equal to 50% of 4.5 times the limited partnership's average annual trailing twenty-four months earnings before interest, taxes, depreciation and amortization.

The following table summarizes the initial allocation of the purchase price for Myers (in thousands):

Assets acquired and liabilities assumed:
Current assets, including cash of $654	$	3,207
Current liabilities		(2,464	)
Working capital acquired		743
Property and equipment		708
Debt due to noncontrolling interest owner		(500	)
Total tangible net assets acquired at fair value		951
Goodwill		1,502
Total consideration		2,453
Fair value of noncontrolling owners' interest in Myers		(1,226	)
Cash paid	$	1,227

The fair value of the noncontrolling interests was determined based on the negotiated price at which the Company purchased its 50% interest which was based in part on expectations of future earnings. The purchase price allocation has been finalized, and our analysis of the assets acquired indicates that there are no material separately identifiable intangible assets. The goodwill attributable to the acquisition is deductible for tax purposes over 15 years.

Acquisition related costs of $128,000 are included in direct costs of acquisitions in the Company's consolidated statements of operations for the year ended December 31, 2011. The fair value of the financial assets acquired includes receivables with a fair value of $2.1 million, which are expected to be fully collectible.

See Note 3 regarding the determination that Myers' is a variable interest entity and the resulting impact on the consolidated financial statements.

Pro Forma Financial Information for Acquisitions

The amounts of JBC's and Myers' revenues and earnings included in the Company's consolidated statements of operations and cash flows for the year ended December 31, 2011, and the revenues and earnings of the combined entity had the acquisition dates been January 1, 2010, are (in thousands):

	Revenues		Net Income (Loss) Attributable to Sterling Common Stockholders
JBC actual from 8/1/2011 – 12/31/2011	$	12,303	$	245
Myers actual from 8/1/2011 – 12/31/2011		7,153		170
Supplemental pro forma results of the Company, JBC, and Myers on a combined basis for 1/1/2010 – 12/31/2010 (unaudited)		475,906		19,596

RLW

On December 3, 2009, we completed the acquisition of privately-owned RLW, a Utah limited liability company which is headquartered in Draper, Utah, near Salt Lake City. RLW is a heavy civil construction business focused on the construction of bridges and other structures, roads and highways, and light and commuter rail projects, primarily in Utah, with licenses to do business in surrounding states. We paid approximately $63.9 million to acquire 80% of the equity interests in RLW. The purchase price was funded from the Company's available cash and short-term investments.

RLW's largest customer is UDOT, which is responsible for planning, constructing, operating and maintaining the 6,000 miles of highway and over 1,700 bridges that make up the Utah state highway system. RLW strives to provide efficient, timely and profitable execution of construction projects, with a particular emphasis on structures and innovative construction methods. RLW has significant experience in obtaining and profitably executing “design-build” and “CM/GC” (construction manager/general contractor) projects.

The noncontrolling interest owners of RLW, who are related and also its executive management, have the right to require the Company to buy their remaining 20.0% interest in RLW ("the RLW Put") and, concurrently, the Company has the right to require those owners to sell their 20.0% interest to the Company ("the Call"), in 2013. The purchase price in each case is 20% of the product of the simple average of RLW's EBITDA (income before interest, taxes, depreciation and amortization) for the calendar years 2010, 2011 and 2012 times a multiple of a minimum of 4 and a maximum of 4.5. The noncontrolling owners' interests, including the RLW Put, were recorded at their estimated fair value at the date of acquisition as "Noncontrolling owners' interests in subsidiary” in the accompanying consolidated balance sheet.

Annual interest will be accredited for the RLW Put of the noncontrolling owners' interests based on the Company's borrowing rate under its Credit Facility plus two percent. Such accretion, included in “Noncontrolling owners' interests in subsidiaries” and “Interest expense” in the accompanying consolidated balance sheet and statement of operations, respectively, amounted to $0.9 million and $0.8 million for the years ended December 31, 2011 and 2010. Accreted interest for the year ended December 31, 2009 was not material. In addition, the estimated fair value of the RLW Put was increased by $1.3 million during the year ended December 31, 2011, and this change has been reported as a charge to retained earnings.

The purchase agreement restricts the sellers from competing against the business of the Company and its subsidiaries and from soliciting their employees for a period of four years after the closing of the purchase.

The following table summarizes the initial allocation of the purchase price for RLW (in thousands):

Assets acquired and liabilities assumed:
Current assets, including cash of $ 3,370	$	43,053
Current liabilities		(31,953	)
Working capital acquired		11,100
Property and equipment		11,212
Total tangible net assets acquired at fair value		22,312
Goodwill		57,513
Total consideration		79,825
Fair value of noncontrolling owners' interests in RLW, including Put		(15,965	)
Cash paid	$	63,860

RHB

On October 31, 2007, the Company purchased a 91.67% interest in RHB and all of the outstanding capital stock of RHB Inc, then an inactive Nevada corporation. The noncontrolling interest owner of RHB had the right to put, or require the Company to buy, his remaining 8.33% interest in the subsidiary and, concurrently, the Company had the right to require that the owner sell his 8.33% interest to the Company, in 2011 (“RHB Put”). At the date of acquisition, the difference between the noncontrolling owner's interest in the historical basis of the subsidiary and the estimated fair value of that interest, including the RHB Put, was recorded as noncontrolling owner's interest in subsidiary and a reduction in additional paid-in-capital as required by GAAP then in effect. Annual interest expense ($362,000 and $206,000 for the years ended December 31, 2010 and 2009, respectively) has been accreted on the RHB Put and included in the noncontrolling owners' interests in subsidiaries in the balance sheet based on the discount rate used to calculate the fair value. In addition, the estimated fair value of the RHB Put was increased by $0.7 million during the year ended December 31, 2010, and this change has been reported as a charge to additional paid-in-capital.

On March 17, 2011, the right to put/call the RHB noncontrolling interest was extended to anytime between that date and December 31, 2012. In addition the price was increased from $7.1 million to $8.2 million which settled $1.1 million of accrued amounts due to the noncontrolling interest owner under the October 31, 2007 purchase agreement. In September 2011, the noncontrolling owner exercised his right to put his remaining interest of 8.33% in RHB to the Company for $8.2 million. This transaction was completed in December 2011 under the terms of the agreement. Consequently, RHB is now wholly owned and there is no noncontrolling interest liability as of December 31, 2011 related to RHB.

The purchase agreement restricts the sellers from competing against the business of RHB and from soliciting its employees for a period of four years after the closing of the purchase.

Changes in noncontrolling interests

The following table summarizes the changes in the noncontrolling owners' interests in subsidiaries and consolidated joint ventures for the years ended December 31, 2009 through 2011 (in thousands):

	Years Ended December 31,
	2011			2010			2009
Balance, beginning of period	$	28,724		$	23,887		$	6,300
Fair value of noncontrolling interest, including Put, related to purchase of RLW		1,268			--			15,965
Noncontrolling owners' interests in earnings of subsidiaries and joint ventures		935			7,137			1,824
Accretion of interest on Puts		881			1,169			206
Change in fair value of RHB Put		1,054			691			--
Acquisition by Sterling of RHB noncontrolling interest		(8,205	)		--			--
Distributions to noncontrolling interests owners		(7,809	)		(4,160	)		(408	)
Balance, end of period	$	16,848		$	28,724		$	23,887