Note 3 - Variable Interest Entities

12 Months Ended

Dec. 31, 2012

3.	Variable Interest Entities

Under GAAP, the Company must determine whether each entity, including joint ventures in which it participates, is a variable interest entity. This determination focuses on identifying which owner or joint venture 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 us to consolidate the entity in which we have a non-majority variable interest. Where the Company has determined that it is appropriate to consolidate a variable interest entity in which it owns a 50% or less interest, the remaining owners’ interests in the equity and net income of the entity are included in the balance sheet line item: “Noncontrolling owners’ interests in subsidiaries and joint ventures.”

The Company owns a 50% interest in Myers of which it is the primary beneficiary and has consolidated Myers into these financial statements. Further see Note 2 above for additional information on the acquisition of this limited partnership. The partnership agreement requires that Sterling provide a $3 million line of credit to the limited partnership. In addition the partnership is relying on the Company’s surety bonding capacity in order to bid and perform large construction jobs resulting in the Company having joint and several liability for completion of such jobs, and the Company will provide management to the partnership to oversee bidding and management of larger projects. Although the Company will receive 50% of the income from the partnership, it may suffer more than 50% of any losses as a result of its obligation to provide the $3 million line of credit and its obligations under the surety bonds. Because the Company exercises primary control over activities of the partnership and it is exposed to the majority of potential losses of the partnership, the Company consolidated Myers within the Company’s financial statements from August 1, 2011, the date of acquisition.

The financial information of Myers which is reflected in our consolidated balance sheets and statements of operations is as follows (in thousands):

	As of December 31,
	2012		2011
Assets:
Current assets:
Cash and cash equivalents	$	7,164	$	1,365
Contracts receivable, including retainage		2,866		2,244
Other current assets		1,214		419
Total current assets		11,244		4,028
Property and equipment, net		3,041		926
Goodwill		1,501		1,541
Total assets	$	15,786	$	6,495
Liabilities:
Current liabilities:
Accounts payable	$	4,627	$	1,134
Other current liabilities		6,283		2,323
Total current liabilities		10,910		3,457
Long-term liabilities:
Other long-term liabilities		--		--
Total long-term liabilities		--		--
Total liabilities	$	10,910	$	3,457

	Year Ended December 31, 2012		Period from August 1, 2011 (the acquisition date) to December 31, 2011
Revenues	$	84,877	$	7,153
Operating income		2,152		531
Net income (loss) attributable to Sterling common stockholders		694		170

Other current liabilities shown in the table above include $500,000 in demand notes payable that are due to one of the noncontrolling interest owners in 2011 and paid in 2012.