Investments in Unconsolidated Affiliates

12 Months Ended

May. 31, 2015

Investments in Unconsolidated Affiliates

Note B – Investments in Unconsolidated Affiliates

At May 31, 2015, equity investments and the percentage interests owned consisted of the following (in alphabetic order): 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.

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%. To date, we have contributed $8,800,000 of our total commitment of $12,385,000. The joint venture is in the process of constructing 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.”

We received distributions from unconsolidated affiliates totaling $78,297,000, $85,346,000, and $84,539,000 in fiscal 2015, fiscal 2014 and fiscal 2013, respectively. 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 $61,585,000 and $59,287,000 at May 31, 2015 and 2014, 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 2015, we received excess distributions from ClarkDietrich of $570,000.

The following table presents combined information of the financial position for the affiliated companies accounted for using the equity method as of May 31, 2015 and 2014:

(in thousands)	2015		2014
Cash	$	101,011	$	52,997
Receivable from partner (1)		11,092		12,717
Other current assets		491,507		454,417
Noncurrent assets		318,939		294,001
Total assets	$	922,549	$	814,132
Current liabilities	$	184,028	$	128,595
Short-term borrowings		-		40,992
Current maturities of long-term debt		4,489		4,510
Long-term debt		272,861		268,350
Other noncurrent liabilities		20,471		20,217
Equity		440,700		351,468
Total liabilities and equity	$	922,549	$	814,132

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

The following table presents financial results of our three largest affiliated companies for fiscal 2015, fiscal 2014 and fiscal 2013. All other affiliated companies are combined and presented in the Other category.

(in thousands)	2015		2014		2013
Net sales
WAVE	$	382,451	$	382,821	$	370,702
ClarkDietrich		576,171		549,267		547,971
TWB		-		54,003		344,065
Other		551,558		506,711		490,996
Total net sales	$	1,510,180	$	1,492,802	$	1,753,734
Gross margin
WAVE	$	181,102	$	177,935	$	167,924
ClarkDietrich		65,530		73,803		75,580
TWB		-		6,109		41,116
Other		55,374		54,773		48,229
Total gross margin	$	302,006	$	312,620	$	332,849
Operating income
WAVE	$	147,603	$	144,167	$	137,202
ClarkDietrich		10,436		27,918		35,024
TWB		-		4,273		28,241
Other		35,492		37,574		30,457
Total operating income	$	193,531	$	213,932	$	230,924
Depreciation and amortization
WAVE	$	4,150	$	4,916	$	3,919
ClarkDietrich		16,638		16,253		18,173
TWB		-		880		5,123
Other		14,874		14,909		13,497
Total depreciation and amortization	$	35,662	$	36,958	$	40,712
Interest expense
WAVE	$	6,412	$	6,464	$	6,280
ClarkDietrich		138		103		3
TWB		-		-		-
Other		2,145		2,655		2,611
Total interest expense	$	8,695	$	9,222	$	8,894
Income tax expense
WAVE	$	2,539	$	3,606	$	2,451
ClarkDietrich		-		-		-
TWB		-		478		1,218
Other		7,949		5,770		3,187
Total income tax expense	$	10,488	$	9,854	$	6,856
Net earnings
WAVE	$	138,670	$	134,019	$	128,614
ClarkDietrich		11,799		27,837		35,005
TWB		-		4,023		27,931
Other		27,633		30,252		24,452
Total net earnings	$	178,102	$	196,131	$	216,002

The financial results of TWB have been included in the amounts presented in the tables above through July 31, 2013. On July 31, 2013, we completed the acquisition of an additional 10% interest in TWB. As a result, TWB’s results have been consolidated within Steel Processing since that date with the minority member’s portion of earnings eliminated within earnings attributable to noncontrolling interest.

At May 31, 2015, $17,142,000 of our consolidated retained earnings represented undistributed earnings, net of tax, of our unconsolidated affiliates.