

6.	CONSTRUCTION JOINT VENTURES

The Company participates in joint ventures with other major construction companies and other partners, typically for large, technically complex projects, including design-build projects, when it is desirable to share risk and resources in order to seek a competitive advantage. Joint venture partners typically provide independently prepared estimates, furnish employees and equipment, enhance bonding capacity and often also bring local knowledge and expertise. These projects generally have joint and several liability. The Company selects its joint venture partners based on its analysis of their construction and financial capabilities, expertise in the type of work to be performed and past working relationships with the Company, among other criteria.

Joint ventures with a controlling interest—For these joint ventures, the equity held by the remaining owners and their portions of net income (loss) are reflected in the Consolidated Balance Sheets line item “Noncontrolling interests” in “Stockholders’ equity” and the Consolidated Statements of Operations line item “Net income attributable to noncontrolling interests,” respectively.

The following table summarizes the changes in the noncontrolling owners’ interests in subsidiaries and consolidated joint ventures:



	Years Ended December 31,
	2019			2018			2017
Balance, beginning of period	$	7,859		$	4,856		$	656
Net income attributable to noncontrolling interest included in equity	794			4,353			4,200
Distributions to noncontrolling interest owners	(7,360		)	(1,350		)	—
Balance, end of period	$	1,293		$	7,859		$	4,856

Joint ventures with a noncontrolling interest—Where the Company has a noncontrolling joint interest in a venture, the Company accounts for its share of the operations of such construction joint ventures on a pro-rata basis using proportionate consolidation on its Consolidated Statements of Operations and as a single line item in “Receivables from and equity in construction joint ventures” in the Consolidated Balance Sheets. This method is an acceptable modification of the equity method of accounting which is a common practice in the construction industry. Condensed combined financial amounts of joint ventures in which the Company has a noncontrolling interest and the Company’s share of such amounts which are included in the Company’s Consolidated Financial Statements are shown below:

Generally, each construction joint venture is formed to accomplish a specific project and is jointly controlled by the joint venture partners. The joint venture agreements typically provide that our interests in any profits and assets, and our respective share in any losses and liabilities that may result from the performance of the contract are limited to our stated percentage interest in the venture. We have no significant commitments beyond completion of the contract with the customer.

Joint venture contracts with project owners typically impose joint and several liability on the joint venture partners. Although our agreements with our joint venture partners provide that each party will assume and pay its share of any losses resulting from a project, if one of our partners is unable to pay its share, we would be fully liable under our contract with the project owner. Circumstances that could lead to a loss under these guarantee arrangements include a partner’s inability to contribute additional funds to the venture in the event that the project incurs a loss or additional costs that we could incur should the partner fail to provide the services and resources toward project completion that had been committed to in the joint venture agreement. Historically, the Company has not incurred a liability related to the nonperformance of a joint venture partner.

Under a joint venture agreement, one partner is typically designated as the sponsor or manager. The sponsoring partner typically provides all administrative, accounting and most of the project management support for the project and generally receives a fee from the joint venture for these services. We have been designated as the sponsoring partner in certain of our current joint venture projects and are a non-sponsoring partner in others.

The Company must determine whether each joint venture in which it participates is a variable interest entity. This determination focuses on identifying which joint venture partner, if any, has the power to direct the activities of a joint venture and the obligation to absorb losses of the joint venture or the right to receive benefits from the joint venture in excess of their ownership interests and could have the effect of requiring us to consolidate joint ventures in which we have a noncontrolling variable interest.

The Company determined that the joint venture between RLW (51% owner) and SEMA Construction Inc (“SEMA”) (49% owner) is a VIE as the Company is the primary beneficiary, as pursuant to the terms of the SEMA Operating Agreement the Company is exposed to the majority of potential losses of the partnership. At December 31, 2018 and 2017 we had no participation in a joint venture where we have a material non-majority variable interest.

Summary financial information for SEMA is as follows:



	Year Ended December 31, 2019
Revenues	$	6,903
Operating income	$	467
Net income attributable to Sterling common stockholders	$	471

Where we are a noncontrolling venture partner, we account for our share of the operations of such construction joint ventures on a pro-rata basis using proportionate consolidation on our Consolidated Statements of Operations and as a single line item in “Receivables from and equity in construction joint ventures” in the Consolidated Balance Sheets. This method is an acceptable modification of the equity method of accounting which is a common practice in the construction industry. Combined financial amounts of joint ventures in which the Company has a noncontrolling interest and the Company’s share of such amounts which are included in the Company’s Consolidated Financial Statements are shown below:



	As of December 31,
	2019			2018
Current assets	$	92,710		$	64,815
Current liabilities	$	(86,705	)	$	(74,543	)
Sterling’s receivables from and equity in construction joint ventures	$	9,196		$	10,720



	Years Ended December 31,
	2019		2018		2017
Revenues	$	158,291	$	115,441	$	93,848
Income before tax	$	20,449	$	8,097	$	7,827
Sterling’s noncontrolling interest:
Revenues	$	76,419	$	55,134	$	44,948
Income before tax	$	8,170	$	4,104	$	3,847

The caption “Receivables from and equity in construction joint ventures,” includes undistributed earnings and receivables owed to the Company. Undistributed earnings are typically released to the joint venture partners after the customer accepts the project as completed and any warranty period, if any, has passed.