Investments in Unconsolidated Affiliates

3 Months Ended

Aug. 31, 2016

Unconsolidated Affiliates

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%), and Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd. (10%).

We received distributions from unconsolidated affiliates totaling $38,442,000 during the three months ended August 31, 2016. We have received cumulative distributions from WAVE in excess of our investment balance totaling $66,192,000 at August 31, 2016. 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 received, less distributions received in prior periods that were determined to be returns of investment, 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, 2016		May 31, 2016
Cash	$	51,269	$	112,122
Other current assets		513,318		446,796
Noncurrent assets		355,777		352,370
Total assets	$	920,364	$	911,288
Current liabilities	$	125,082	$	112,491
Short-term borrowings		8,315		11,398
Current maturities of long-term debt		2,913		3,297
Long-term debt		265,301		266,942
Other noncurrent liabilities		22,678		21,034
Equity		496,075		496,126
Total liabilities and equity	$	920,364	$	911,288

	Three Months Ended August 31,
(in thousands)	2016		2015
Net sales	$	417,115	$	404,463
Gross margin		124,197		89,018
Operating income		94,397		61,246
Depreciation and amortization		6,820		8,097
Interest expense		2,148		2,159
Income tax expense		7,518		2,560
Net earnings		86,067		62,926

The financial results of WSP have been included in the amounts presented in the tables above through March 1, 2016. Effective March 1, 2016, the Company obtained effective control over the operations of WSP. As a result, WSP’s results have been consolidated within the financial results of Steel Processing since that date with the minority member’s portion of earnings eliminated within earnings attributable to noncontrolling interests.