Subsidiaries, including Variable Interest Entities

The Company has two 50% owned subsidiaries, Myers and RHB, for which it is obligated to purchase its partners’ interests totaling $40.0 million, due to circumstances outlined in the partner agreements that are certain to occur. Therefore, the Company has consolidated these two entities and classified these obligations as mandatorily redeemable and has recorded a liability in “Members’ interest subject to mandatory redemption and undistributed earnings” on the consolidated balance sheets. In addition, all undistributed earnings at the time of the noncontrolling owners’ death or permanent disability are also mandatorily payable. In the event of either Mr. Buenting’s or Mr. Myers’ death, the Company has purchased two separate $20.0 million death and permanent total disability insurance policies to mitigate the Company’s cash draw if such events were to occur. The liability consists of the following (amounts in thousands):



	As of December 31,
	2017		2016
Members’ interest subject to mandatory redemption	$	40,000	$	40,000
Net accumulated earnings	7,386		5,230
Total liability	$	47,386	$	45,230

Due to an amendment to one of the Partners agreements in 2015, $18.8 million was reclassified to the liability account “Members’ interest subject to mandatory redemption and undistributed earnings” 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 noncontrolling interest above the $7.4 million held as “Noncontrolling interest” in the consolidated balance sheet when the agreement was executed. This reduction to APIC was treated similarly to a dividend to a preferred shareholder and reduced earnings per share attributable to Sterling common stockholders.

Fifty percent of the earnings of these consolidated 50% owned subsidiaries for 2017, 2016 and 2015 was $11.5 million, $8.9 million and $4.2 million, respectively, and were recorded in “Other operating expense, net” on the Company’s consolidated statements of operations. In 2015, Myers’ portion of earnings subject to distribution by the Company was $0.5 million, as the amendment to the agreement was not entered into until November 2015. Before the amendment, Myers’ portion of earnings was included in “Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures.”

The Company must determine whether each entity, including these two 50% owned subsidiaries, in which it participates, is a VIE. This determination focuses on identifying which owner or entity partner, if any, has the power to direct the activities of the entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity disproportionate to its interest in the entity, which could have the effect of requiring the Company to consolidate the entity in which we have a noncontrolling variable interest. The Company determined Myers is a VIE and we are the primary beneficiary as we exercise primary control over activities of the partnership as the operating/general partner and pursuant to the terms of the Myers Operating Agreement is exposed to the majority of potential losses of the partnership. As such, the following table presents the condensed financial information of Myers, which is reflected in the Company’s consolidated balance sheets and statements of operations, as follows (amounts in thousands):



	As of December 31,
	2017		2016
Assets:
Current assets:
Cash and cash equivalents	$	8,590	$	9,655
Contracts receivable, including retainage	26,844		15,046
Other current assets	15,672		10,208
Total current assets	51,106		34,909
Property and equipment, net	9,001		9,824
Goodwill	1,501		1,501
Total assets	$	61,608	$	46,234
Liabilities:
Current liabilities:
Accounts payable	$	28,448	$	21,274
Other current liabilities	11,798		8,782
Total current liabilities	40,246		30,056
Long-term liabilities:
Other long-term liabilities	3,491		5,373
Total liabilities	$	43,737	$	35,429



	Year Ended December 31,
	2017		2016		2015
Revenues	$	181,589	$	156,202	$	175,691
Operating income	9,069		6,005		7,371
Net income attributable to Sterling common stockholders	4,531		2,993		3,681