Investments in Unconsolidated Affiliates

3 Months Ended

Aug. 31, 2015

Investments in Unconsolidated Affiliates

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. These include ArtiFlex Manufacturing, LLC (“ArtiFlex”) (50%), Clarkwestern Dietrich Building Systems LLC (“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 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.

We received distributions from unconsolidated affiliates totaling $21,068,000 during the three months ended August 31, 2015. We have received cumulative distributions from WAVE in excess of our investment balance totaling $58,728,000 at August 31, 2015. 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:

(in thousands)	August 31, 2015		May 31, 2015
Cash	$	96,400	$	101,011
Receivable from member (1)		10,213		11,092
Other current assets		477,072		491,507
Noncurrent assets		331,811		318,939
Total assets	$	915,496	$	922,549
Current liabilities	$	141,720	$	184,028
Short-term borrowings		25,483		-
Current maturities of long-term debt		4,460		4,489
Long-term debt		270,771		272,861
Other noncurrent liabilities		20,205		20,471
Equity		452,857		440,700
Total liabilities and equity	$	915,496	$	922,549
	Three Months Ended August 31,
(in thousands)	2015		2014
Net sales	$	404,463	$	392,550
Gross margin		89,018		88,751
Operating income		61,246		63,479
Depreciation and amortization		8,097		9,122
Interest expense		2,159		2,162
Income tax expense		2,560		2,753
Net earnings		62,926		59,440

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