Note B – Investments in Unconsolidated Affiliates

Our investments in affiliated companies that we do not control, either through majority ownership or otherwise, are accounted for using the equity method. At May 31, 2012, these equity investments and the percentage interests owned consisted of: ArtiFlex (50%), ClarkDietrich (25%), Gestamp Worthington Wind Steel, LLC (the “Gestamp JV”) (50%), Samuel Steel Pickling Company (31%), Serviacero Planos, S. de R. L. de C.V. (50%), TWB Company, L.L.C. (45%), Worthington Armstrong Venture (“WAVE”) (50%), Worthington Modern Steel Framing Manufacturing Co., Ltd. (“WMSFMCo.”) (40%), and Worthington Specialty Processing (“WSP”) (51%). WSP is considered to be jointly controlled and not consolidated due to substantive participating rights of the minority partner.

During January 2012, we sold our 49% equity interest in LEFCO Worthington, LLC, to the other member of the joint venture. The impact of this transaction was immaterial.

On May 9, 2011, we joined with International Tooling Solutions, LLC to form ArtiFlex, a joint venture that provides an integrated solution for engineering, tooling, stamping, assembly and other services to customers primarily in the automotive industry. We contributed our automotive body panels business in exchange for a 50% ownership interest. Our investment in this joint venture is accounted for under the equity method, as our ownership interest does not constitute a controlling financial interest.

In accordance with the applicable accounting guidance, our investment in ArtiFlex was recognized at fair value based on the total enterprise fair value of the joint venture of approximately $56,808,000. This amount exceeded the book value of the underlying equity in the net assets of the joint venture by approximately $31,098,000. Our share of this excess fair value, or cost, is included within the carrying value of our investment in the unconsolidated affiliate and recognized as an adjustment to equity income in periods subsequent to acquisition. We attributed this excess fair value to the following assets:


(in thousands)
Inventories (1)	$	1,900
Intangible assets (2)		8,200
Property, plant and equipment, net (3)		8,198

Total identifiable assets		18,298
Equity method goodwill (4)		12,800

Total excess fair value	$	31,098

(1)	Recognized as an adjustment to equity income as the related inventories are sold.

(2)

Includes $7,500,000 related to definite-lived intangible assets. This amount will be amortized to equity income over the estimated useful lives of those assets. The remaining $700,000 relates to intangible assets with indefinite useful lives, which will be reviewed for impairment in accordance with the applicable accounting guidance and, to the extent impaired, recognized as a reduction to equity income.

(3)	Recognized as an adjustment to equity income over the estimated useful lives of the related assets in a manner consistent with depreciation.

(4)	Will be reviewed for impairment in accordance with the applicable accounting guidance and, to the extent impaired, recognized as a reduction to equity income.

On March 18, 2011, we joined with Gestamp Renewables group to create the Gestamp JV, a 50%-owned joint venture focused on producing towers for wind turbines being constructed in North America. The Gestamp JV planned to construct its initial production facility in Cheyenne, Wyoming; however, due to the volatile political environment in the United States, particularly in regards to the Federal Production Tax Credit, construction of this facility has been placed on hold. Our investment in this joint venture is accounted for under the equity method, as our ownership interest does not constitute a controlling financial interest.

On March 1, 2011, we joined with ClarkWestern Building Systems, Inc. to form ClarkDietrich, a joint venture that manufactures a full line of drywall studs and accessories, structural studs and joists, metal lath and accessories, and shaft wall studs and track used primarily in residential and commercial construction. We contributed our metal framing business and related working capital in exchange for a 25% ownership interest in ClarkDietrich in addition to the assets of certain MISA Metals, Inc. steel processing locations. Our investment in this joint venture is accounted for under the equity method, as our ownership interest does not constitute a controlling financial interest.

In accordance with the applicable accounting guidance, our investment in ClarkDietrich was recognized at fair value based on the total enterprise fair value of the joint venture of approximately $233,000,000. This amount exceeded the book value of the underlying equity in the net assets of the joint venture by approximately $20,320,000. Our share of this excess fair value, or cost, is included within the carrying value of our investment in the unconsolidated affiliate and recognized as an adjustment to equity income in periods subsequent to acquisition. We attributed this excess fair value to the following assets:


(in thousands)
Inventories (1)	$	15,000
Intangible assets (2)		14,400
Property, plant and equipment, net (3)		(10,180	)

Total identifiable assets		19,220
Equity method goodwill (4)		1,100

Total excess fair value	$	20,320

(1)	Recognized as an adjustment to equity income as the related inventories are sold.

(2)

Includes $8,960,000 related to definite-lived intangible assets. This amount will be amortized to equity income over the estimated useful lives of those assets. The remaining $5,440,000 relates to intangible assets with indefinite useful lives, which will be reviewed for impairment in accordance with the applicable accounting guidance and, to the extent impaired, recognized as a reduction to equity income.

(3)	Recognized as an adjustment to equity income over the estimated useful lives of the related assets in a manner consistent with depreciation.

(4)	Will be reviewed for impairment in accordance with the applicable accounting guidance and, to the extent impaired, recognized as a reduction to equity income.

On November 19, 2010, we joined with Hubei Modern Urban Construction and Development Group Co., Ltd. to create WMSFMCo. We contributed approximately $6,100,000 of cash in exchange for a 40% ownership interest. The purpose of WMSFMCo. is to design, manufacture, assemble and distribute steel framing materials and accessories for construction projects in five Central Chinese provinces and to provide project management and building design and construction supply services thereto. Our investment in this joint venture is accounted for under the equity method, as our ownership interest does not constitute a controlling financial interest.

Worthington acquired certain assets from Gibraltar Industries, Inc. and its subsidiaries (collectively, “Gibraltar”) on February 1, 2010. Included in the assets acquired was a 31.25% ownership interest in Samuel Steel Pickling Company, a joint venture which operates a steel pickling facility in Twinsburg, Ohio, and another in Cleveland, Ohio. Our investment in this joint venture is accounted for under the equity method, as our ownership interest does not constitute a controlling financial interest.

We received distributions from unconsolidated affiliates totaling $138,471,000, $57,146,000 and $52,970,000 in fiscal 2012, fiscal 2011 and fiscal 2010, respectively, including a one-time special dividend of $50,000,000 in connection with a refinancing transaction completed by WAVE in December 2011. We have received cumulative distributions from WAVE in excess of our investment balance, which resulted in an amount recorded within other liabilities on our consolidated balance sheets of $69,165,000 and $10,715,000 at May 31, 2012 and 2011, respectively. In accordance with the applicable accounting guidance, we reclassify the negative balance to the liability section of our consolidated balance sheet. We will continue to record our equity in the net income of WAVE as a debit to the investment account, and if it becomes positive, it will again be shown as an asset on our consolidated balance sheet. If it becomes probable that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will recognize any 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.

The following table presents combined information of the financial position for affiliated companies accounted for using the equity method as of May 31, 2012 and 2011:


(in thousands)	2012		2011
Current assets	$	626,975	$	597,222
Noncurrent assets		345,500		260,805

Total assets	$	972,475	$	858,027

Current liabilities	$	174,016	$	184,467
Current maturities of long-term debt		5,305		-
Long-term debt		289,308		150,229
Other noncurrent liabilities		21,934		5,365
Equity		481,912		517,966

Total liabilities and equity	$	972,475	$	858,027

The following table presents financial results of our three largest affiliated companies for the fiscal years ended May 31, 2012, 2011 and 2010. All other affiliated companies are combined and presented in the Other category.


(in thousands)	2012		2011		2010
Net sales
WAVE	$	364,530	$	346,717	$	319,821
ClarkDietrich		564,624		165,807		-
TWB		312,943		272,191		220,500
Other		443,646		249,716		168,458

Total net sales	$	1,685,743	$	1,034,431	$	708,779

Gross margin
WAVE	$	163,563	$	154,194	$	146,045
ClarkDietrich		61,703		17,115		-
TWB		42,124		34,756		29,753
Other		62,758		32,018		13,824

Total gross margin	$	330,148	$	238,083	$	189,622

Operating income
WAVE	$	127,305	$	116,295	$	111,524
ClarkDietrich		27,094		8,323		-
TWB		28,141		21,470		14,982
Other		38,473		22,056		4,660

Total operating income	$	221,013	$	168,144	$	131,166

Depreciation and amortization
WAVE	$	4,142	$	3,991	$	3,767
ClarkDietrich		14,271		8		-
TWB		3,259		3,900		3,783
Other		12,481		3,553		3,140

Total depreciation and amortization	$	34,153	$	11,452	$	10,690

Interest expense
WAVE	$	3,427	$	1,375	$	1,366
ClarkDietrich		3		-		-
TWB		-		-		-
Other		2,617		137		116

Total interest expense	$	6,047	$	1,512	$	1,482

Income tax expense
WAVE	$	2,789	$	2,669	$	2,457
ClarkDietrich		-		-		-
TWB		5,458		4,233		1,408
Other		6,867		3,224		1,760

Total income tax expense	$	15,114	$	10,126	$	5,625

Net earnings
WAVE	$	121,261	$	112,544	$	107,776
ClarkDietrich		27,203		8,331		-
TWB		22,952		18,022		14,469
Other		30,317		17,782		5,592

Total net earnings	$	201,733	$	156,679	$	127,837

At May 31, 2012, $32,958,000 of our consolidated retained earnings represented undistributed earnings, net of tax, of our unconsolidated affiliates.