NONCONTROLLING INTERESTS

At the Company, noncontrolling interests consist of equity owned by management of the Company’s respective majority-owned affiliates, Anchor, BOS, and DGHM, for the periods in which the Company had an ownership interest in them. Net income attributable to noncontrolling interests in the consolidated statements of operations represents the net income allocated to the noncontrolling interest owners of the affiliates. Net income allocated to the noncontrolling interest owners was $3.5 million, $4.5 million, and $4.2 million for the years ended December 31, 2018, 2017, and 2016, respectively.

On the consolidated balance sheets, noncontrolling interests are included as the sum of the capital and undistributed profits allocated to the noncontrolling interest owners. Typically, this balance is included in a company’s permanent shareholders’ equity in the consolidated balance sheets. When the noncontrolling interest owners’ rights include certain redemption features, as described in ASC 480, Distinguishing Liabilities from Equity, such redeemable noncontrolling interests are classified as mezzanine equity and are not included in permanent shareholders’ equity. Due to the redemption features of the noncontrolling interests, the Company had redeemable noncontrolling interests held in mezzanine equity in the accompanying consolidated balance sheets of $2.5 million and $17.5 million at December 31, 2018 and 2017, respectively. The aggregate amount of such redeemable noncontrolling equity interests are recorded at the estimated maximum redemption values. In addition, the Company had zero and $5.2 million in noncontrolling interests included in permanent shareholders’ equity at December 31, 2018 and 2017, respectively. The decrease in 2018 was primarily driven by the sales of Anchor and BOS.

Each non-wholly owned affiliate operating agreement provides the Company and/or the noncontrolling interests with contingent call or put redemption features used for the orderly transfer of noncontrolling equity interests between the affiliate noncontrolling interest owners and the Company at either a contractually predetermined fair value, multiple of earnings before interest, taxes, depreciation, and amortization ("EBITDA"). The Company may liquidate these noncontrolling interests in cash, shares of the Company’s common stock, or other forms of consideration dependent on the operating agreement.

Generally, these put and call redemption features refer to shareholder rights of both the Company and the noncontrolling interest owners of the Company’s majority-owned affiliate companies. The affiliate company noncontrolling interests generally take the form of limited liability company ("LLC") units, profits interests, or common stock (collectively, the “noncontrolling equity interests”). In most circumstances, the put and call redemption features generally relate to the Company’s right and, in some cases, obligation to purchase and the noncontrolling equity interests’ right to sell their equity interests. There are various events that could cause the puts or calls to be exercised, such as a change in control, death, disability, retirement, resignation or termination. The puts and calls are generally to be exercised at the then fair value or a contractually agreed upon approximation thereof. The terms of these rights vary and are governed by the respective individual operating and legal documents.

The following table presents, by affiliate, the noncontrolling interests included as redeemable noncontrolling interests and noncontrolling interests in mezzanine and permanent equity, respectively, at the periods indicated:



	December 31, 2018		December 31, 2017
	(In thousands)
Anchor (1)	$	—	$	9,761
BOS (2)	—		8,057
DGHM (3)	2,526		4,829
Total	$	2,526	$	22,647
Redeemable noncontrolling interests	$	2,526	$	17,461
Noncontrolling interests	$	—	$	5,186

_____________


(1)	Assets and liabilities at Anchor were classified as held for sale on the Company’s consolidated balance sheets at December 31, 2017. The Company completed the sale of Anchor in April 2018.


(2)	The Company completed the sale of BOS in December 2018.


(3)	Only includes redeemable noncontrolling interests.

The following is a summary, by individual affiliate, of the terms of the put and call options:

Anchor

The Company, through its acquisition of Anchor, acquired approximately an 80% interest in each of Anchor and Anchor Russell on June 1, 2006. Effective January 1, 2013, Anchor Russell merged into Anchor, with Anchor as the surviving entity. Anchor management, employees, and certain retired employees owned the remaining noncontrolling equity interests of the firm, approximately 20%. The Anchor operating agreement described a process for the orderly transfer of noncontrolling equity interests between the Company and the Anchor noncontrolling interest owners at a contractually agreed upon value, with appraisal rights for all parties. Certain events, such as death, disability, retirement, resignation, or termination, could have resulted in repurchase of the noncontrolling equity interests by the Company at the then contractually agreed upon value. The Anchor agreement provided a formulaic mechanism to determine the then value of the noncontrolling equity interests. These noncontrolling equity interests had a five-year vesting period. Beginning six months after vesting, a holder of noncontrolling equity interests could have put up to 10% of his or her outstanding equity interests annually to the Company. The six-month holding period ensured the risks and rewards of ownership were transferred to the holder of the noncontrolling equity interests. Holders of noncontrolling equity interests retained 50% of their total outstanding units until such time as they left the firm.

In 2013, the Company sold certain repurchased noncontrolling interests to employees at Anchor with modified contingent call and put redemption features. These modified noncontrolling interests had the same terms and conditions as the previously issued noncontrolling interests with the exception that they required the approval of the Company’s CEO in order to be exercised. Therefore, these modified noncontrolling interests were not considered to be mandatorily redeemable and were not included in the redeemable noncontrolling interests within mezzanine equity, but rather within permanent equity.

The maximum redemption value, based on the contractually determined maximum redemption value formula, to repurchase the remaining approximately 20% of Anchor’s noncontrolling equity interests was zero and approximately $9.8 million as of December 31, 2018 and 2017, respectively. Of the $9.8 million of noncontrolling equity interests at December 31, 2017, $2.9 million was included in permanent equity and the remainder was included in mezzanine equity.

In December 2017, the Company entered into an agreement to sell its interest in Anchor and completed the sale of Anchor in April 2018.

BOS

The Company acquired approximately a 70% interest in BOS through a series of purchases dating back to February 5, 2004. The remaining approximate 30% was owned by BOS principals and certain retired principals. The BOS operating agreement described a procedure for the orderly transfer of noncontrolling equity interests between the BOS noncontrolling interest owners and the Company at the then fair value, with appraisal rights for all parties. Certain events, such as death, disability, retirement, resignation, or voluntary termination, subject to the vesting period, would have resulted in repurchase of the noncontrolling equity interests by the Company at the then fair value, unless another noncontrolling interest owner opted to purchase the noncontrolling equity interests in question. These noncontrolling equity interests had vesting periods of up to seven years. Immediately after vesting, a holder of noncontrolling equity interests could have put up to the greater of 10% of his or her outstanding equity interests or 1% of total outstanding equity interests in BOS annually to the Company. Any unexercised portion of the annual put option could be carried forward to future years, provided that noncontrolling interest owners retained approximately 50% of their total outstanding units until such time as they left the firm.

In 2015, the Company entered into an updated operating agreement with BOS which provided for a certain portion of the BOS noncontrolling interest owners’ to include modified contingent call and put redemption features. These modified noncontrolling interests had the same terms and conditions as the previously issued noncontrolling interests with the exception that they required the approval of the Company’s CEO in order to be exercised. Therefore, these modified noncontrolling interests were not considered to be mandatorily redeemable and were not included in the redeemable noncontrolling interests within mezzanine equity, but rather within permanent equity.

The maximum redemption value, based on fair value, to repurchase the remaining approximately 30% of BOS’ noncontrolling equity interests was zero and approximately $8.1 million as of December 31, 2018 and 2017, respectively. Of the $8.1 million of noncontrolling equity interests at December 31, 2017, $2.3 million was included in permanent equity and the remainder was included in mezzanine equity.

In December 2018, the Company completed the closing of the sale of all of its equity interest in BOS.

DGHM

The Company acquired an 80% interest in DGHM on February 6, 2004. DGHM management and employees own the remaining 20% interest in DGHM. The DGHM operating agreement describes a process for the orderly transfer of noncontrolling equity interests between the Company and the DGHM noncontrolling interest owners at a contractually agreed upon value, with appraisal rights for all parties. Certain events, such as a change in control, death, disability, retirement, resignation or termination, may result in the repurchase of the noncontrolling equity interests by the Company at the then contractually agreed upon value. The DGHM operating agreement provides a formulaic mechanism to determine the then value of the noncontrolling equity interests. These noncontrolling equity interests have a five-year vesting period. Beginning six months after vesting, a holder of noncontrolling equity interests may put up to between 10% and 20% of his or her outstanding units annually to the Company. The six-month holding period ensures the risks and rewards of ownership are transferred to the holder of the noncontrolling equity interests. Beginning in December 2009, the Company has an annual call right under which it may elect to repurchase between 10% and 20% of the non-management and management members’ vested units. No more than 40% of the outstanding noncontrolling equity interests’ units can be put in any one year. Certain key members of DGHM management are contractually obligated to retain 50% of their noncontrolling equity interests until such time as they leave the firm. The maximum redemption value, based on the contractually determined maximum redemption value formula, to repurchase the remaining 20% of DGHM’s noncontrolling equity interests was approximately $2.5 million and $4.8 million as of December 31, 2018 and 2017, respectively.

The following tables present a roll forward of the Company’s redeemable noncontrolling interests and noncontrolling interests for the periods indicated:



	Year ended
	December 31, 2018						December 31, 2017						December 31, 2016
	Redeemable noncontrolling interests			Noncontrolling interests			Redeemable noncontrolling interests			Noncontrolling interests			Redeemable noncontrolling interests			Noncontrolling interests
	(In thousands)
Noncontrolling interests at beginning of period	$	17,461		$	5,186		$	16,972		$	4,161		$	18,088		$	3,393
Net income attributable to noncontrolling interests	2,630			857			3,354			1,114			3,204			953
Distributions	(2,537		)	(817		)	(3,277		)	(1,083		)	(3,112		)	(942		)
Purchases/ (sales) of ownership interests	(12,951		)	(5,272		)	235			85			(765		)	(134		)
Amortization of equity compensation	478			161			413			935			449			747
Adjustments to fair value	(2,555		)	(115		)	(236		)	(26		)	(892		)	144
Noncontrolling interests at end of period	$	2,526		$	—		$	17,461		$	5,186		$	16,972		$	4,161

Impact on EPS from Certain Changes in Redemption Value

To the extent that the increase in the estimated maximum redemption amounts exceeds the net income attributable to the noncontrolling interests, such excess may reduce net income attributable to the Company’s common shareholders for purposes of the Company’s EPS computations depending upon how the maximum redemption value is calculated. In cases where the maximum redemption value is calculated using a contractually determined value or predefined formula, such as a multiple of EBITDA, there may be a reduction to the net income attributable to the Company’s common shareholders for purposes of the Company’s EPS computations. However, in cases where maximum redemption value is calculated using the then fair value, there is no effect on EPS. Fair value can be derived through an enterprise value using market observations of comparable firms, a discounted cash flow analysis, or a combination of the two, among other things, rather than a contractually predefined formula or multiple of EBITDA.