NOTE B – Investments in Unconsolidated Affiliates

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 $38,948,000 during the six months ended November 30, 2017. 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 $61,085,000 at November 30, 2017. In accordance with the applicable accounting guidance, we reclassified the negative balance 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 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 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 in the tables below:


(in thousands)	November 30, 2017		May 31, 2017
Cash	$	50,389	$	55,541
Other current assets		553,970		559,021
Noncurrent assets		371,328		361,106

Total assets	$	975,687	$	975,668

Current liabilities	$	139,168	$	156,947
Short-term borrowings		16,539		8,172
Current maturities of long-term debt		5,118		5,827
Long-term debt		266,036		268,711
Other noncurrent liabilities		21,637		21,380
Equity		527,189		514,631

Total liabilities and equity	$	975,687	$	975,668


	Three Months Ended November 30,				Six Months Ended November 30,
(in thousands)	2017		2016		2017		2016
Net sales	$	412,617	$	387,192	$	855,241	$	804,307
Gross margin		71,122		96,541		157,357		220,738
Operating income		34,604		67,365		91,767		161,762
Depreciation and amortization		5,935		6,973		13,128		13,793
Interest expense		2,461		2,151		4,953		4,299
Income tax expense		1,816		3,545		3,164		11,063
Net earnings		30,190		63,444		82,664		149,511

On November 20, 2017, the Company announced that the WAVE joint venture agreed to sell its business and operations in Europe, Middle East, Africa and Asia, to Knauf Group, a family-owned manufacturer of building materials headquartered in Germany. Worthington expects to receive proceeds of approximately $45,000,000 for its 50% share of the WAVE operations being sold. The transaction is subject to regulatory approvals and other customary closing conditions and is anticipated to close in the middle of calendar 2018. The operations being sold generated a net loss of $1,703,000 and $273,000 during the three and six months ended November 30, 2017, respectively. Results for the three and six months ended November 30, 2017 included allocated costs of $2,263,000 related to the period covering January 1 to August 31, 2017 as a result of a new cost-sharing agreement between the joint venture and its partners. Net assets of the business being sold were approximately $31,500,000 as of November 30, 2017. These amounts have been included in the tables presented above.