NOTE B – Investments in Unconsolidated Affiliates

At February 28, 2014, equity investments and the percentage interests owned consisted of the following (in alphabetic order): ArtiFlex Manufacturing, LLC (“ArtiFlex”) (50%), ClarkDietrich (25%), Samuel Steel Pickling Company (31.25%), Serviacero Planos, S. de R. L. de C.V. (“Serviacero”) (50%), 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.

On July 31, 2013, we acquired an additional 10% interest in our laser welded blanks joint venture, TWB, increasing our ownership to a 55% controlling interest. Since that date, TWB’s results have been consolidated within Steel Processing versus reported in equity in net income of unconsolidated affiliates. For additional information, refer to “NOTE N – Acquisitions.”

On October 18, 2013, we finalized an agreement with Nisshin Steel Co., Ltd. and Marubeni-Itochu Steel Inc. to form Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd., which is awaiting regulatory approval. Initially, we will own a 10% interest in the joint venture with the option to increase our ownership interest to 34%. The joint venture will construct a plant in Zhejiang Province in the People’s Republic of China that will produce cold rolled strip steel primarily for the automotive industry.

During the second quarter of fiscal 2014, we dissolved our wind tower joint venture, Gestamp Worthington Wind Steel, LLC, due to the volatile political environment in the United States, particularly in regards to the Federal Production Tax Credit. This event did not have a material impact on our financial position or results of operations.

We received distributions from unconsolidated affiliates totaling $70,073,000 during the nine months ended February 28, 2014. We have received cumulative distributions from WAVE in excess of our investment balance totaling $62,387,000 and $63,187,000 at February 28, 2014 and May 31, 2013, 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. During the nine months ended February 28, 2014, we received excess distributions from ClarkDietrich of $9,223,000.

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


(in thousands)	February 28, 2014		May 31, 2013
Cash	$	56,077	$	70,380
Receivable from partner (1)		12,897		69,706
Other current assets		437,179		518,262
Noncurrent assets		296,033		350,681

Total assets	$	802,186	$	1,009,029

Current liabilities	$	136,419	$	181,111
Short-term borrowings		38,204		21,369
Current maturities of long-term debt		4,782		5,442
Long-term debt		269,461		274,750
Other noncurrent liabilities		18,105		18,345
Equity		335,215		508,012

Total liabilities and equity	$	802,186	$	1,009,029


	Three Months Ended February 28,				Nine Months Ended February 28,
(in thousands)	2014		2013		2014		2013
Net sales	$	340,645	$	421,645	$	1,121,362	$	1,306,758
Gross margin		73,217		90,570		239,098		254,796
Operating income		48,752		61,387		164,824		169,997
Depreciation and amortization		8,622		9,979		28,063		29,089
Interest expense		2,494		2,212		6,950		6,681
Income tax expense		2,937		1,842		8,829		5,488
Net earnings		44,018		57,421		149,801		158,570

(1)	Represents cash owed from a joint venture partner as a result of centralized cash management.

The fluctuations in the financial information presented in the tables above were driven primarily by the consolidation of TWB effective July 31, 2013.