Note B – Investments in Unconsolidated Affiliates

At May 31, 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%), Worthington Specialty Processing (“WSP”) (51%), and Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd. (10%). WSP is considered to be jointly controlled and not consolidated due to substantive participating rights of the minority partner.

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. We 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.

On July 31, 2013, we acquired an additional 10% interest in our laser welded blank 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 O – Acquisitions.”

During the fourth quarter of fiscal 2013, we determined our 40% ownership interest in our construction joint venture in China, WMSFMCo., was other than temporarily impaired due to current and projected operating losses. As a result, an impairment charge of $4,751,000, representing the carrying value of the investment, was recognized within equity income in our consolidated statement of earnings.

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.

We received distributions from unconsolidated affiliates totaling $85,346,000, $84,539,000, and $138,471,000 in fiscal 2014, fiscal 2013 and fiscal 2012, respectively, including a 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 $59,287,000 and $63,187,000 at May 31, 2014 and 2013, respectively. In accordance with the applicable accounting guidance, we reclassified 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. During fiscal 2014, we received excess distributions from ClarkDietrich of $9,223,000.

The following table presents combined information of the financial position for the affiliated companies accounted for using the equity method as of May 31, 2014 and 2013:


(in thousands)	2014		2013
Cash	$	52,997	$	70,380
Receivable from partner (1)		12,717		69,706
Other current assets		454,417		518,262
Noncurrent assets		294,001		350,681

Total assets	$	814,132	$	1,009,029

Current liabilities	$	128,595	$	181,111
Short-term borrowings		40,992		21,369
Current maturities of long-term debt		4,510		5,442
Long-term debt		268,350		274,750
Other noncurrent liabilities		20,217		18,345
Equity		351,468		508,012

Total liabilities and equity	$	814,132	$	1,009,029

(1)

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

The following table presents financial results of our three largest affiliated companies for the fiscal years ended May 31, 2014, 2013 and 2012. All other affiliated companies are combined and presented in the Other category.


(in thousands)	2014		2013		2012
Net sales
WAVE	$	382,821	$	370,702	$	364,530
ClarkDietrich		549,267		547,971		564,624
TWB		54,003		344,065		312,943
Other		506,711		490,996		443,646

Total net sales	$	1,492,802	$	1,753,734	$	1,685,743

Gross margin
WAVE	$	177,935	$	167,924	$	155,246
ClarkDietrich		73,803		75,580		61,703
TWB		6,109		41,116		40,098
Other		54,773		48,229		57,346

Total gross margin	$	312,620	$	332,849	$	314,393

Operating income
WAVE	$	144,167	$	137,202	$	127,305
ClarkDietrich		27,918		35,024		27,094
TWB		4,273		28,241		28,141
Other		37,574		30,457		38,473

Total operating income	$	213,932	$	230,924	$	221,013

Depreciation and amortization
WAVE	$	4,916	$	3,919	$	4,142
ClarkDietrich		16,253		18,173		14,271
TWB		880		5,123		3,259
Other		14,909		13,497		12,481

Total depreciation and amortization	$	36,958	$	40,712	$	34,153

Interest expense
WAVE	$	6,464	$	6,280	$	3,427
ClarkDietrich		103		3		3
TWB		-		-		-
Other		2,655		2,611		2,617

Total interest expense	$	9,222	$	8,894	$	6,047

Income tax expense
WAVE	$	3,606	$	2,451	$	2,789
ClarkDietrich		-		-		-
TWB		478		1,218		5,458
Other		5,770		3,187		6,867

Total income tax expense	$	9,854	$	6,856	$	15,114

Net earnings
WAVE	$	134,019	$	128,614	$	121,261
ClarkDietrich		27,837		35,005		27,203
TWB		4,023		27,931		22,952
Other		30,252		24,452		30,317

Total net earnings	$	196,131	$	216,002	$	201,733

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

At May 31, 2014, $13,241,000 of our consolidated retained earnings represented undistributed earnings, net of tax, of our unconsolidated affiliates.