Acquisitions and Subsidiaries and Joint Ventures with Noncontrolling Owners’ Interests

RHB

On December 30, 2013, the Company and Richard Buenting revised the Second Amended and Restated Operating Agreement entered into on April 27, 2012 and their Management Agreement entered into on February 1, 2012. The Third Amended and Restated Operating Agreement and the amended Management Agreement eliminated the buy/sell option and instead included the obligation for the Company to purchase Mr. Buenting’s interest upon his death or permanent disability for $20 million or $18 million (subsequently increased to $20 million), respectively. In the event of Mr. Buenting’s death or permanent disability, his estate representative, trustee or designee shall become the selling representative and sell his 50% interest to the Company. In order to fund the purchase of Mr. Buenting’s interest, the Company has purchased term life insurance with a payout of $20 million in the event of Mr. Buenting’s death. The Company will be the beneficiary and will also pay the premiums related to this life insurance contract. The life insurance proceeds of $20 million shall be used as full payment for Mr. Buenting’s interest in the occurrence of his death. On June 2, 2015, the Company purchased an insurance policy with a five-year term on Mr. Buenting that provides a lump sum disability benefit in the principal sum of $20 million. In the event of Mr. Buenting’s permanent total disability, the principal sum becomes payable to the Company, and in turn the Company is obligated to use the proceeds of the policy to purchase Mr. Buenting’s 50% member’s interest in RHB in accordance with the terms of the amended agreements. No other transfer of member’s interest is permitted other than to the selling representative in the event of Mr. Buenting’s death or permanent disability. The amended agreements were entered into in order to eliminate the earnings-per-share volatility caused by the buy/sell option.

The amended agreements resulted in an obligation to purchase Mr. Buenting’s 50% member’s interest that the Company is certain to incur because of Mr. Buenting’s death; therefore, the Company has classified the noncontrolling interest as mandatorily redeemable and has recorded a liability in “Members’ interest subject to mandatory redemption and undistributed earnings” on the consolidated balance sheets. The liability consists of the following (amounts in thousands):

	Years Ended December 31,
	2015			2014
Member’s interest subject to mandatory redemption	$	20,000		$	20,000
Undistributed earnings attributable to this interest		9,836			6,079
Earnings distributed		(6,014	)		(3,200	)
Total liability	$	23,822		$	22,879

Undistributed earnings increased by $3.8 million and $2.1 million for the years ended December 31, 2015 and 2014, respectively, and were included in “Other operating (expense) income, net” on the Company’s consolidated statements of operations. Distributions for the years ended December 31, 2015 and 2014 were $2.8 million and $3.2 million, respectively.

Myers

On November 28, 2015, Myers LP entered into its Second Amended and Restated Limited Partnership Agreement, which replaced the Amended and Restated Limited Partnership Agreement. This amendment included the obligation for the Company to purchase Myers’ interest, which includes all members’ interest other than Sterling’s 50% interest, upon the death or permanent disability of Clinton Wallace Myers for $20 million. In the event of Mr. Myers’ death or permanent disability, his estate representative, trustee or designee shall become the selling representative and sell Myers’ 50% interest to the Company. In order to fund the purchase of Myers’ interest, the Company will purchase a term life insurance and disability insurance with a payout of $20 million, which is required to be purchased within 120 days from the date of the executed agreement, in the event of Mr. Myers’ death or permanent disability. The Company will be the beneficiary and will also pay the premiums related to these insurance contracts. The life insurance proceeds of $20 million shall be used as full payment for Myers’ interest upon the occurrence of his death or permanent disability.

The amended agreements resulted in an obligation to purchase Myers’ 50% interest that the Company is certain to incur because of Mr. Myers’ death; therefore, the Company has classified the noncontrolling interest as mandatorily redeemable and has recorded a liability in “Members’ interest subject to mandatory redemption and undistributed earnings” on the consolidated balance sheets. The liability consists of the following (amounts in thousands):

	Years Ended December 31,
	2015		2014
Member’s interest subject to mandatory redemption	$	20,000	$	--
Undistributed earnings attributable to this interest		6,616		--
Total liability	$	26,616	$	--

In order to reclassify the initial $26.1 million liability, $18.8 million was reclassified to the liability account and reduced “Additional paid in capital” (“APIC”) on the Company’s consolidated balance sheets. This $18.8 million represented the portion of the revaluation of Myers’ noncontrolling interest that was above the $7.3 million held as Myers’ Noncontrolling interest in Equity when the agreement was executed. According to GAAP, this reduction to APIC is treated similarly to a dividend to a preferred shareholder, and would reduce earnings per share. Therefore, this $18.8 million reduction in APIC was included as a reduction to earnings per share attributable to Sterling common stockholders. Refer to Note 13.

Undistributed earnings included $6.1 million of accumulated earnings through November 30, 2015. An additional $0.5 million was included in undistributed earnings for December 2015 and was included in “Other operating (expense) income, net” on the Company’s consolidated statement of operations.

RHB Inc.

On June 20, 2014, the Company sold to Mr. Buenting a 50% interest in RHB Inc. RHB Inc. is currently an ancillary company that provides certain services for RHB LLC. RHB Inc. is run as a cost center with a financial goal to break-even, and has an immaterial amount of assets. The purchase price and the accounting effects of the total transaction were immaterial to the Company.

JBC

On January 23, 2014, RLW, the former owner of JBC and the Company agreed to amend the above mentioned earn-out agreement in order to reduce the Company’s recorded liability at that time, while providing the former owner, who at the time was the chief executive officer of JBC, a greater incentive to meet earnings benchmarks. The amendment resulted in a reduction of $0.6 million in the Company’s earn-out liability, thereby reducing the total earn-out liability to $1.4 million on December 31, 2013. As part of the amendment, a payment of $0.8 million was made during the first quarter of 2014. The amendment increased the total available earn-out from $5.0 million to $10.0 million if certain EBITDA benchmarks are met. The amendment extended the earn-out period through December 31, 2017 and reduced the benchmark EBITDA for 2014 and 2015 to $1.5 million and increased it to $2.0 million in 2016 and 2017. This earn-out liability continues to be classified as a Level 3 fair value measurement and the unobservable inputs continue to be the forecasted EBITDA for the periods after the period being reported on through December 31, 2017. There was no yearly excess forecasted EBITDA in our calculation at December 31, 2015 of the minimum EBITDA benchmarks for the years 2016 through 2017. The discounted present value of the additional purchase price was estimated to be $0.3 million as of December 31, 2014. The undiscounted earn-out liability as of December 31, 2015 is minimal and could increase by $9.3 million if EBITDA during the earn-out period increases $18.5 million or more and could decrease by the full amount of the liability for the year if EBITDA does not exceed the minimum threshold for that year. Each year is considered a discrete earnings period and future losses by JBC, if any, would not reduce the Company’s liability in years in which JBC has exceeded its earnings benchmark. Any significant increase or decrease in actual EBITDA compared to the forecasted amounts would result in a significantly higher or lower fair value measurement of the additional purchase price. This liability is included in other long-term liabilities on the accompanying consolidated balance sheets. As part of recording the present value of this liability, the Company incurs accreted interest expense for the passage of time until the time of settlement. The Company incurred accreted interest expense of $0.3 million for the year ended December 31, 2014. As part of the updated EBITDA forecast, the Company reduced its liability to zero and recorded interest income of $0.3 million in the first quarter of 2015. There has been minimal change in the value of this liability; therefore, the interest income was $0.3 million for the year ended December 31, 2015.

Noncontrolling Interests’ – Call Options

During the year ended December 31, 2015, the Company entered into several agreements, with RHB and with Myers, which gives the 50% owners of these entities the option to buy the Company’s 50% interest in these entities for $10,000 should the Company ever become subject to the repossession or disposition of its collateral as defined in the Company’s new debt agreement with Nations or if the Company dissolves or becomes insolvent. Based on these agreements, the Company does not believe that it is likely that the exercise of these options would ever transpire; therefore, there has been no value placed on these options which resulted in no impact to our consolidated financial statements. Refer to Note 9 for more information about the debt agreement with Nations.

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, 2013 through 2015 (amounts in thousands):

	Years Ended December 31,
	2015			2014			2013
Balance, beginning of period	$	7,462		$	4,097		$	20,046
Net income attributable to noncontrolling interest included in liabilities		--			--			2,024
Net income attributable to noncontrolling interest included in equity		3,216			4,556			1,879
Change in fair value of RLW put/call		--			--			(59	)
Change in fair value of RHB put/call		--			--			1,875
Change due to the Myers amendment		(7,367	)		--			--
Change due to the RHB amendment		--			--			(18,103	)
Distributions to noncontrolling interests owners		(3,402	)		(1,191	)		(3,056	)
Acquisition of RLW noncontrolling interest		--			--			(509	)
Balance, end of period	$	(91	)	$	7,462		$	4,097

Noncontrolling owners’ interest in earnings of subsidiaries for the year ended December 31, 2015 shown in the accompanying consolidated statement of operations is $3.2 million, which the Company includes in “Equity”, “Noncontrolling interests” in the accompanying consolidated balance sheet. There were distributions of $3.4 million to certain noncontrolling interest members during the year ended December 31, 2015.

Noncontrolling owners’ interest in earnings of subsidiaries for the year ended December 31, 2014 shown in the accompanying consolidated statement of operations is $4.6 million, which the Company includes in ”Equity”, “Noncontrolling interests” in the accompanying consolidated balance sheet. There were distributions of $1.2 million to certain noncontrolling interest members during the year ended December 31, 2014.

Noncontrolling owners’ interest in earnings of subsidiaries and joint ventures for the year ended December 31, 2013 shown in the accompanying consolidated statement of operations of $3.9 million includes income of $2.0 million attributable to noncontrolling interest owners, which the Company includes in liabilities and $1.9 million which the Company includes in equity. Of the $2.0 million included in liabilities, less than $0.1 million of net loss was reflected in “Current obligations for noncontrolling owners’ interests in subsidiaries and joint ventures,” and $2.1 million of net income has been reclassified from “Obligations for noncontrolling owners’ interests in subsidiaries and joint ventures,” leaving the Company with a zero balance in this account, to “Members’ interest subject to mandatory redemption” in the accompanying consolidated balance sheet. The remaining $1.9 million was attributable to noncontrolling interest owners which the Company includes in equity and was reflected in equity in “Noncontrolling interests” in the accompanying consolidated balance sheet.