Investments in Unconsolidated Affiliates

6 Months Ended

Nov. 30, 2023

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Affiliates

Note D – Investments in Unconsolidated Affiliates

Investments in affiliated companies that we do not control, either through majority ownership or otherwise, are accounted for using the equity method and included the following at November 30, 2023: Clarkwestern Dietrich Building Systems LLC (“ClarkDietrich”) (25%); Serviacero Planos, S. de R. L. de C.V. (“Serviacero Worthington”) (50%); Taxi Workhorse Holdings, LLC (“Workhorse”) (20%); and Worthington Armstrong Venture (“WAVE”) (50%).

We also held a 50% noncontrolling equity interest in ArtiFlex Manufacturing, LLC (“ArtiFlex”), through August 3, 2022, when it was purchased by the unrelated joint venture partner. In connection with this transaction, we received net cash proceeds of approximately $36,095 and realized a pre-tax loss of $15,759 within equity income, representing the amount by which the book value of our investment exceeded the net cash proceeds.

During the second quarter of fiscal 2024, we recognized a pre-tax gain of $2,780 within equity income, representing our portion of the overall gain realized in connection with the sale of Workhorse’s operations in Brazil.

We received distributions from unconsolidated affiliates totaling $104,008 during the six months ended November 30, 2023. We have received cumulative distributions from WAVE in excess of our investment balance amounting to $118,465 and $117,297, respectively, at November 30, 2023 and May 31, 2023, which are presented separately within long-term liabilities in our consolidated balance sheets. We will continue to record our equity in the net income of WAVE as a debit to the investment account, and if the investment balance becomes positive, it will again be shown as an asset on our consolidated balance sheets. If it becomes probable that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will recognize any negative investment balance classified as a liability as income immediately.

We use the “cumulative earnings” approach for determining cash flow presentation of distributions from our unconsolidated joint ventures. Distributions received are included in our consolidated statements of cash flows as operating activities, unless the cumulative distributions exceed our portion of the cumulative equity in the net earnings of the joint venture, in which case the excess distributions are deemed to be returns of the investment and are classified as investing activities in our consolidated statements of cash flows. During the second quarter of fiscal 2024, we classified $1,085 of dividends received from WAVE as an investing activity.

The following tables summarize combined financial information for our unconsolidated affiliates as of the dates, and for the periods presented:

	November 30,		May 31,
(In thousands)	2023		2023
Cash and cash equivalents	$	37,728	$	49,185
Other current assets		871,945		899,913
Noncurrent assets		372,258		394,468
Total assets	$	1,281,931	$	1,343,566
Current liabilities		282,320		247,796
Current maturities of long-term debt		-		36,936
Long-term debt		349,323		349,215
Other noncurrent liabilities		138,566		144,649
Equity		511,722		564,970
Total liabilities and equity	$	1,281,931	$	1,343,566

	Three Months Ended				Six Months Ended
	November 30,				November 30,
(In thousands)	2023		2022		2023		2022
Net sales	$	676,875	$	711,665	$	1,397,308	$	1,535,607
Gross margin		166,939		147,299		361,247		328,704
Operating income		134,120		107,356		283,529		245,183
Depreciation and amortization		8,303		6,864		16,946		15,052
Interest expense		4,538		3,910		10,277		6,590
Income tax expense		6,708		1,262		8,354		3,372
Net earnings		122,670		105,183		266,236		238,421