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 has been considered to be jointly controlled and not consolidated due to substantive participating rights of the minority partner. However, on March 1, 2016, the Company obtained formal control over the operations of the WSP joint venture with United States Steel Corporation (“U.S. Steel”). Our ownership interest will remain at 51%. WSP’s financial statements will be consolidated within the Steel Processing operating segment beginning March 1, 2016. Refer to “NOTE Q – Subsequent Events” for additional detail.

We received distributions from unconsolidated affiliates totaling $65,318,000 during the nine months ended February 29, 2016. We have received cumulative distributions from WAVE in excess of our investment balance totaling $58,430,000 at February 29, 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 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)	February 29, 2016		May 31, 2015
Cash	$	132,893	$	101,011
Receivable from member (1)		6,902		11,092
Other current assets		434,533		491,507
Noncurrent assets		376,416		318,939

Total assets	$	950,744	$	922,549

Current liabilities	$	131,308	$	184,028
Short-term borrowings		16,684		-
Current maturities of long-term debt		3,721		4,489
Long-term debt		269,261		272,861
Other noncurrent liabilities		21,133		20,471
Equity		508,637		440,700

Total liabilities and equity	$	950,744	$	922,549


	Three Months Ended						Nine Months Ended
	February 29, February 28,						February 29, February 28,
(in thousands)	2016			2015			2016		2015
Net sales	$	376,448		$	356,604		$	1,170,096	$	1,137,866
Gross margin		83,251			67,636			257,036		232,580
Operating income		54,801			41,335			171,857		154,678
Depreciation and amortization		7,905			8,827			24,070		26,932
Interest expense		2,038			2,157			6,333		6,492
Other income (expense) (2)		(59	)		(79	)		23,505		(208	)
Income tax expense		2,625			2,555			7,348		8,107
Net earnings		51,994			37,859			186,063		141,789

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

(2)

The increase in other income for the nine months ended February 29, 2016, as compared to the comparable period in the prior year is primarily attributable to the impact of ClarkDietrich’s legal settlement related to successful disparagement litigation brought against several competitors in an industry trade association.