Construction Services Redeemable Noncontrolling Interest

6 Months Ended

Jun. 30, 2015

Construction Services Redeemable Noncontrolling Interest

Note 9 – Construction Services Redeemable Noncontrolling Interest

At the close of the acquisition discussed above, previous owners of the acquired companies retained an approximate 10% equity interest in the Canadian businesses that were acquired. The agreement, associated with the approximate 10% equity interest of the sellers, provides special dividend rights which entitle the sellers, as holders, to dividends equal to 3.4% of dividends paid at the level of Centuri and subject to certain conditions, such interests may become exchangeable for a 3.4% equity interest in Centuri. In June 2015, the previous owners notified Centuri of their intent to exchange their full equity interest in the Canadian businesses for an equity interest in Centuri, in accordance with the agreement. The exchange is anticipated to be completed in the third quarter of 2015. Additionally, the previous owners may exit their investment retained by requiring the purchase of a portion of their interest commencing October 2016 and in incremental amounts each anniversary date thereafter. The shares subject to the election cumulate (if earlier elections are not made) such that 100% of their interest retained is subject to the election after September 2021.

The Company has determined that this noncontrolling interest is a redeemable noncontrolling interest and, in accordance with SEC guidance, is classified as mezzanine equity (temporary equity) in the Consolidated Balance Sheets. Significant changes in the value of the redeemable noncontrolling interest are recognized as they occur, and the carrying value is adjusted as necessary at each reporting date. The adjustment to the redemption value in 2015 impacted retained earnings, but did not impact net income.


	Redeemable Noncontrolling Interest
(Thousands of dollars):
Balance, December 31, 2014	$	20,042
Net income (loss) attributable to redeemable noncontrolling interest		(48	)
Foreign currency exchange translation adjustment		(35	)
Adjustment to redemption value		(658	)

Balance, June 30, 2015	$	19,301

The redemption value of the redeemable noncontrolling interest is based on a Monte Carlo simulation method. First, a market approach was utilized to determine a construction services enterprise value as of the acquisition date. Potential guideline publicly-traded companies were identified by using a selection criteria, including actively traded equities, their financial solvency, and other factors. Once the guideline companies were determined, enterprise value was calculated using a weighted approach of projected earnings before interest expense and taxes (“EBIT”) and earnings before interest expense, taxes, and depreciation and amortization expense (“EBITDA”). After an estimated fair value was determined, a Monte Carlo simulation was used to assign a value to the noncontrolling interest of the sellers. Other assumptions used in this analysis included dividends, probability of events, and a discount due to lack of control (the sellers do not influence operations). This method is employed no less frequently than annually. Each quarter, market changes in the guideline companies are considered and the weighted approach to projected EBIT and EBITDA, in relation to the guideline companies, is re-evaluated to determine if value changes are necessary at each quarterly reporting date.