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 November 30, 2012, these equity investments and the percentage interests owned consisted of: ArtiFlex Manufacturing, LLC (“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. (“TWB”) (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.

Our more recent, less significant, WMSFMCo. joint venture in China has experienced slower sales growth than originally anticipated due to construction delays and higher costs associated with the construction of the initial buildings. While we believe that the investment in this entity, $6,400,000 at November 30, 2012, is not currently impaired, changes to the management of the joint venture have been made and we will continue to evaluate the investment going forward.

In September 2012, ThyssenKrupp AG, the other member of our tailored steel blanks joint venture, TWB, announced that it had reached an agreement to sell its interest in the joint venture to Wuhan Iron and Steel Corporation. The sale is subject to approval by the supervisory bodies and responsible regulatory authorities.

We received distributions from unconsolidated affiliates totaling $33,449,000 during the six months ended November 30, 2012. We have received cumulative distributions from WAVE in excess of our investment balance totaling $64,966,000 and $69,165,000 at November 30, 2012 and May 31, 2012, respectively. In accordance with the applicable accounting guidance, these excess distributions are reclassified to the liabilities 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 obvious 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.

Combined financial information for our unconsolidated affiliates is summarized as follows:


	November 30,		May 31,
(in thousands)	2012		2012
Current assets	$	656,515	$	626,975
Noncurrent assets		353,600		345,500

Total assets	$	1,010,115	$	972,475


Current liabilities	$	191,314	$	174,016
Current maturities of long-term debt		5,343		5,305
Long-term debt		273,627		289,308
Other noncurrent liabilities		20,923		21,934
Equity		518,908		481,912

Total liabilities and equity	$	1,010,115	$	972,475


	Three Months Ended				Six Months Ended
	November 30,				November 30,
(in thousands)	2012		2011		2012		2011
Net sales	$	438,260	$	420,103	$	885,113	$	848,204
Gross margin		86,307		79,985		164,226		163,809
Operating income		56,900		52,809		108,610		110,038
Depreciation and amortization		9,903		4,766		19,109		9,602
Interest expense		2,208		950		4,469		1,826
Income tax expense		176		5,766		3,646		10,124
Net earnings		54,864		47,959		101,149		99,823