Worthington Steel, Inc.: Form 10-Q for the period ended Nov 30, 2025

Unless otherwise indicated, all Note references contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) refer to the Notes to Consolidated Financial Statements included in “Part I – Item 1. – Financial Statements” of this Form 10-Q.

Introduction

The following discussion and analysis of market and industry trends, business developments, and the results of our operations and financial position, should be read in conjunction with our consolidated financial statements and the notes thereto included in “Part I – Item 1. – Financial Statements” of this Form 10-Q. The 2025 Form 10-K includes additional information about our business, operations, and consolidated financial position and should be read in conjunction with this Form 10-Q. This MD&A is designed to provide a reader with material information relevant to an assessment of our financial condition and results of operations, and to allow investors to view the Company from the perspective of management.

Basis of Presentation

Worthington Steel was formed as an Ohio corporation on February 28, 2023, for the purpose of receiving, pursuant to a reorganization, all of the outstanding equity interests of the steel processing business of the Former Parent. On December 1, 2023, the Separation was completed, and Worthington Steel became an independent, publicly traded company. Our financial statements are consolidated financial statements based on our reported results as a stand-alone company and include the accounts of Worthington Steel and its consolidated subsidiaries. Our investment in the unconsolidated affiliate is accounted for using the equity method. Material intercompany accounts and transactions are eliminated. For additional information, see “Note 1 – Description of Business and Basis of Presentation.”

Business Overview and Strategy

Business Overview

We are one of North America’s premier value-added metals processors with the ability to provide a diversified range of products and services that span a variety of end markets. We maintain market-leading positions in the North American carbon flat-rolled steel and tailor welded blank industries and are one of the largest global producers of electrical steel laminations. For over 70 years, we have been delivering high quality steel processing capabilities across a variety of end-markets including automotive, heavy truck, agriculture, construction, and energy. With the ability to produce customized steel solutions, we aim to be the preferred value-added steel processor in the markets we serve by delivering highly technical, customer-specific solutions, while also providing advanced materials support. Our scale allows us to achieve an advantaged cost structure and service platform supported by a strategic operating footprint. We serve our customers by processing flat-rolled steel coils, which we source primarily from various North American steel mills, into the precise type, thickness, length, width, shape, and surface quality required by customer specifications. We sell steel on a direct basis, whereby we are exposed to the risks and rewards of ownership of the material while in our possession. Additionally, we toll process steel under a fee for service arrangement whereby we process customer-owned material. Our manufacturing facilities further benefit from the flexibility to scale between direct and tolling services based on demand dynamics throughout the year.

Our operations are managed principally on a products and services basis under a single group organizational structure. We own controlling interests in the following operating joint ventures: Spartan, TWB, WSCP, and Sitem Group. We also own a controlling interest in WSP, which became a nonoperating joint venture in October 2022, when we completed the divestiture of its remaining net assets. The net assets and operating results of these joint ventures are consolidated with the equity owned by the minority joint venture member shown as NCI or, in the case of Sitem Group, Redeemable NCI in our consolidated balance sheets, and the noncontrolling interests in net earnings and OCI is shown as net earnings or comprehensive income attributable to noncontrolling interests in our consolidated statements of earnings and consolidated statements of comprehensive income, respectively. Our remaining joint venture, Serviacero Worthington, is unconsolidated and accounted for using the equity method.

AI in Transformation

During the second quarter of fiscal 2026, we continued integrating commercially available AI technologies into our long-term transformation strategy. Through these efforts, we continue to use AI to generate insights, evaluate strategies, and automate routine tasks, improving productivity and strengthening internal decision-making. We are developing and refining AI solutions in areas such as predictive maintenance and intelligent reporting, which drive greater value through smarter, more connected systems. Expanding the use of AI across operations and the back office enables our teams to focus on the most value-driving aspects of their roles.

Recent Business Development

On December 17, 2025, the Board declared a quarterly cash dividend of $0.16 per common share payable on March 27, 2026 to shareholders of record at the close of business on March 13, 2026.

Trends and Factors Impacting Our Performance

The steel processing industry is fragmented and highly competitive. Given the broad base of products and services offered, specific competitors vary based on the target industry, product type, service type, size of program and geography. Competition is primarily on the basis of price, product quality and the ability to meet delivery requirements. Our processed steel products are priced competitively, primarily based on market factors, including, among other things, market pricing, the cost and availability of raw materials, transportation and shipping costs, and overall economic conditions in the U.S. and abroad.

General Economic and Market Conditions

We sell our products and services to a diverse customer base and a broad range of end markets. The breakdown of net sales by end market for the periods presented is illustrated below:

The automotive industry is one of the largest consumers of flat-rolled steel in North America, and thus the largest end market for us and our unconsolidated joint venture, Serviacero Worthington. North American vehicle production, including production at the Detroit Three Automakers, is a leading indicator of automotive demand. North American vehicle production was down 3% in the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025, while the Detroit Three Automakers vehicle production was flat in the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025.

Our remaining net sales are to other markets such as agricultural, appliance, construction, container, energy, heavy truck, HVAC, industrial electric motor, generator, and transformer. Given the many different products that make up our net sales and the wide variety of end markets we serve, it is very difficult to isolate the key market indicators that drive this portion of our business. However, we believe that the trend in U.S. gross domestic product growth (“U.S. GDP”) is a reasonable macroeconomic indicator for analyzing the demand of our end markets other than the automotive industry. The pullback in U.S. GDP reported earlier in calendar 2025, driven largely by a temporary surge in imports following the announced tariffs by the U.S. government, appears to have reversed. U.S. GDP growth moderated during the first quarter of fiscal 2026. As a result of the U.S. government shutdown in September and October 2025, key economic data including U.S. GDP was not released by the U.S. government agencies and bureaus for our second quarter of fiscal 2026. The absence of this data creates difficulty in analyzing demand in the other end markets. Following reasonable U.S. GDP growth in the first quarter of fiscal 2026, we have seen pockets of stability and strength in some of our end markets and subdued demand in others during the second quarter of fiscal 2026.

Total volume (tons) decreased 4% compared to the prior year quarter. Direct tons sold increased by 13%, of which the Sitem Group acquisition accounted for approximately 2% of the increase. Direct shipments to the overall automotive market and to the Detroit Three Automakers increased by 26% and 30%, respectively, in the second quarter of fiscal 2026 as compared to the second quarter of fiscal 2025. Toll volumes decreased 24% in the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025, primarily related to lower volumes out of WSCP due to the closure of the toll processing manufacturing facility in Cleveland, Ohio in May 2025, as well as softening demand from mill customers.

Detroit Three Automakers represented 36% and 32% of our consolidated net sales during the second quarter of fiscal 2026 and fiscal 2025, respectively. Similar to the past few quarters, we have won share in the automotive market. This reflects both share gains from new programs reaching expected volumes and a return to more normal production levels at one OEM customer that had curtailed production last year. Energy shipments were up over 50% in the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025, largely driven by project-based solar programs. Agriculture volume was up 1% in the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025, as grain bin strength offset weaker OEM equipment demand. These gains were partially offset by softness in construction and heavy truck, which were down 9% and 6% in the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025.

The following table summarizes the concentration percentage of consolidated net sales for the periods presented:

While our automotive business is largely driven by the production schedules of the Detroit Three Automakers, our customer base is much broader and includes other domestic automotive manufacturers and many of their suppliers.

U.S inflation rate data collection and releases were also impacted by the U.S. government shutdown. Inflation data was released in December 2025 for November 2025 after skipping data publication for October 2025. During the first and second quarters of fiscal 2026, U.S. inflation rates were stable relative to the peaks observed in recent years, but remain above the U.S. Federal Reserve targeted rate of 2%. The U.S. Federal Reserve lowered the benchmark interest rate twice during the second quarter of fiscal 2026 and once subsequent to the ending of the second quarter of fiscal 2026. The benchmark interest rate cuts were in response to increased labor market downside risks (such as higher unemployment and lower hiring momentum) and cooling growth, while inflation was expected to ease. As a result, borrowing costs have generally decreased, and we expect to continue to benefit from lower rates on our Credit Facility.

We use the following information to monitor our costs and demand in our major end markets:

(1) Fiscal 2025 figures are based on revised actuals

(2) Due to the U.S. government shutdown in 2025, certain economic data, including U.S. GDP, was not made available

(3) CRU Hot-Rolled Coil (“HRC”) Index: period average

(4) S&P Global

(5) LME Zinc; period average

(6) NYMEX Henry Hub Natural Gas; period average

(7) Energy Information Administration; period average

Sales for most of our products are generally strongest in our fiscal fourth quarter when our facilities operate at seasonal peaks. Historically, sales have been weaker in our fiscal third quarter, primarily due to reduced seasonal activity in the building and construction industry, as well as customer plant shutdowns due to holidays, particularly in the automotive industry. We do not believe backlog is a significant indicator of our business.

Industry Developments

In 2025, the U.S. government continued to modify its tariff policy, including those related to imports of steel and aluminum among other items such as automobiles and automotive parts as well as universal tariffs. In June 2025, the U.S. government announced tariff increases to steel and aluminum from 25% to 50% under section 232 of the Trade Expansion Act. While exemptions for certain allied countries remain, many prior country-specific exemptions have expired or are undergoing renegotiation. Other governments, including the Chinese government, have responded with reciprocal tariffs on U.S. imports. Additional measures from the U.S. government as well as other foreign governments have occurred since that time, however, many of the measures on steel and aluminum have remained in place. The scope and duration of these tariffs continue to evolve, which creates sustained uncertainty in global trade policy. As a result, our customers’ supply chain decisions may abruptly shift, potentially impacting our financial performance. The potential for tariff changes in the future has caused some trepidation in markets even while having some time to adapt with the current tariffs imposed. Recent evidence suggests that imports of steel have decreased. While lower imports of steel may put upward pressure on prices of domestic steel and steel products, the ultimate impact tariffs will have on our financial position, results of operations, and cash flows remains to be determined.

In July 2025, the U.S. government enacted the One Big Beautiful Bill Act (“OBBBA”) into law, which ushers in a broad set of changes to the U.S. law and regulatory environments. The ultimate impact the OBBBA will have on our financial position, results of operations, and cash flows remains to be determined. However, we expect to realize cash tax savings in fiscal year 2026 due to the bonus depreciation and domestic research and development expense provisions. There is currently no expected material impact to tax expense.

Impact of Raw Material Prices

Our principal raw material is flat-rolled steel, including electrical steel, which we purchase in coils from primary steel producers. The steel industry has been cyclical, and at times availability and pricing can be volatile due to a number of factors beyond our control. This volatility can significantly affect our steel costs. In an environment of increasing prices for steel and other raw materials, competitive conditions may impact how much of the price increases we can pass on to our customers. To the extent we are able to pass future price increases in raw materials to our customers, this could positively affect our financial results leading to inventory holding gains. To the extent we are unable to pass future price increases in raw materials to our customers, our financial results could be adversely affected. Also, if steel prices decrease, in general, competitive conditions may impact how quickly we must reduce our prices to our customers, and we could be forced to use higher-priced raw materials already in our inventory to complete orders for which the selling prices have decreased, which results in inventory holding losses. Declining steel prices could also require us to write down the value of our inventories to reflect current market pricing. Industry consolidation in recent years has reduced the number of steel suppliers, and further consolidation could make it more difficult or costly to obtain alternate supply in the event of a disruption.

The market price of our products is closely correlated to the price of HRC, which is largely driven by the demand for steel and the cost of raw materials. During the fourth quarter of fiscal 2025, steel prices continued their rise before falling slightly in the first quarter of fiscal 2026. Prices fell slightly from the first quarter of fiscal 2026 to the second quarter of fiscal 2026, while the average was higher than for the same period in the prior year. Direct spreads, up $6.5 million, were impacted by a $6.2 million favorable change from an estimated $13.4 million inventory holding loss in the prior year quarter to an estimated $7.2 million inventory holding loss in the second quarter of fiscal 2026. With the recent steel price movements, we expect inventory holding gains and losses will fall within a range of a pre-tax gain of $3.0 million to a pre-tax loss of $3.0 million loss in the third quarter of fiscal 2026.

To manage our exposure to market risk, we attempt to negotiate the best prices for commodities and to competitively price products and services to reflect fluctuations in market prices. Derivative financial instruments have been used to manage a portion of our exposure to fluctuations in the cost of our raw materials; steel is the most significant. These contracts covered periods commensurate with known or expected exposures throughout the periods presented. The derivative financial instruments were executed with highly rated financial institutions.

The following table presents the average quarterly market price per ton of HRC steel for the periods presented:

(1) CRU HRC Index: period average

No matter how efficient our operations are, which use steel as a raw material, they create some amount of scrap. The expected price of scrap compared to the price of the steel raw material is factored into pricing. Generally, as the price of steel increases, the price of scrap increases by a similar amount and vice versa. When increases in scrap prices do not keep pace with the increases in the price of the steel raw material, it can have a negative impact on our margins.

Results of Operations

Second Quarter – Fiscal 2026 Compared to Fiscal 2025

The following table presents a review of the results of operations for the periods presented:

(In millions, except volume and per common share amounts)

Net sales totaled $871.9 million in the second quarter of fiscal 2026, up $132.9 million, or 18%, compared to the second quarter of fiscal 2025. The increase was driven primarily by higher direct volumes and, to a lesser extent, higher average direct selling prices. The increases were partially offset by lower toll volumes as well as slightly lower average toll selling prices due to product mix. Direct tons sold increased by 13%, of which the Sitem acquisition accounted for approximately 2% of the increase, and toll volumes decreased 24% in the second quarter of fiscal 2026 compared to the prior year quarter. The decrease in toll volumes was primarily related to lower toll volumes from WSCP due to the closure of the toll processing manufacturing facility in Cleveland, Ohio in May 2025, as well as lower demand from mill customers. Direct selling prices increased 7% and toll selling prices decreased 4% in the second quarter of fiscal 2026 compared to the prior year quarter. The mix of direct versus toll volumes was 65% to 35% in the second quarter of fiscal 2026 compared to 55% to 45% in the prior year quarter.

Gross Margin

(In millions)

Gross margin increased $13.2 million over the prior year quarter to $93.2 million, primarily due to higher direct spreads and higher direct volumes, partially offset by lower toll margins. Higher direct volumes favorably impacted gross margin by $16.5 million. Direct spreads, up $6.5 million, were impacted by a $6.2 million favorable change from an estimated $13.4 million inventory holding loss in the prior year quarter to an estimated $7.2 million inventory holding loss in the second quarter of fiscal 2026. Toll margins, down $10.5 million, were negatively impacted by $7.7 million due to lower volumes and by $2.7 million due to an unfavorable change in toll mix. Sitem Group contributed $1.6 million in gross margin.

Selling, General and Administrative Expense

(In millions)

SG&A increased $9.8 million over the prior year quarter primarily due to an increase in compensation expense of $6.9 million and professional fees of $2.4 million partially offset by lower bad debt expense of $2.0 million. Included in those reported expenses was Sitem Group, which reported $2.5 million of SG&A in the second quarter of fiscal 2026.

Other Operating Items

(In millions)

Impairment of assets in the second quarter of fiscal 2026 was due to a pre-tax impairment charge of $0.6 million on certain machinery at our manufacturing facility in Taylor, Michigan. Refer to “Note 1 – Description of Business and Basis of Presentation” for additional information.

Miscellaneous Income (Expense), Net

(In millions)

Miscellaneous income (expense), net decreased $3.9 million over the prior year quarter primarily due to the annuitization of a portion of the total projected benefit obligation of the inactive Tempel Steel Pension Plan in the second quarter of fiscal 2025, which resulted in a pre-tax, non-cash settlement gain of $2.7 million to accelerate a portion of deferred pension cost and recognition of a pre-tax gain of $1.5 million related to the sale of unused land in China. Additionally, in the second quarter of fiscal 2026, there were foreign currency remeasurement losses of $0.1 million versus foreign currency remeasurement losses of $0.7 million in the prior year quarter, primarily related to exchange rate movements in Mexico offset by exchange rate movements in Canada and Europe.

Interest Expense, Net

(In millions)

Interest expense, net increased $0.6 million from the prior year quarter primarily due to higher average debt levels as a result of debt assumed in the Sitem Group acquisition, higher debt levels on the BDC loan, and higher interest expense on the Credit Facility (higher average debt levels offset by lower average interest rates). These increases were offset by higher interest income. Refer to “Note 7 – Debt” for additional information.

Equity Income

(In millions)

36

Equity income at Serviacero Worthington increased $7.7 million from the prior year quarter, driven by higher direct spreads, including inventory holding gains, as well as favorable foreign currency exchange impacts.

Income Taxes

(In millions)

Income tax expense was $4.2 million in the second quarter of fiscal 2026 compared to $3.6 million in the prior year quarter. The increase in income tax expense was primarily driven by higher pre-tax earnings in the current quarter offset by items related to excess tax benefits related to share-based compensation recognized in the current quarter. The income tax expense in the current quarter resulted in an ETR of 18.2%, compared to 22.2% for the prior year quarter. For additional information regarding our income taxes, refer to “Note 10 – Income Taxes.”

Adjusted EBIT

We evaluate operating performance on the basis of earnings before interest and taxes (“EBIT”), as adjusted for certain items (“adjusted EBIT”). EBIT, a non-GAAP financial measure, is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT, a non-GAAP financial measure, excludes impairment and restructuring expense (income), net, but may also exclude other items, as described below, that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Adjusted EBIT is used by management to evaluate operating performance and engage in financial and operational planning, because we believe that this financial measure provides additional perspective on the performance of our ongoing operations. Additionally, management believes these non-GAAP financial measures provide useful information to investors because they allow for meaningful comparisons and analysis of trends in our businesses and enable investors to evaluate operations and future prospects in the same manner as management.

The following table provides a reconciliation of net earnings attributable to controlling interest (the most comparable GAAP financial measure) to adjusted EBIT for the periods presented:

(In millions)

(1) Impairment charges are excluded because they do not occur in the ordinary course of our ongoing business operations, are inherently unpredictable in timing and amount, and are non-cash, so their exclusion facilitates the comparison of historical, current and forecasted financial results. Non-cash impairment charge in the second quarter of fiscal 2026 was driven by a pre-tax impairment charge of $0.6 million on certain machinery at our manufacturing facility in Taylor, Michigan. Refer to “Note 1 – Description of Business and Basis of Presentation” for additional information.

(2) Pension settlement gain reflects the pension lift-out transaction to transfer a portion of the total projected benefit obligation of the Tempel Employees Pension Plan to a third-party insurance company, which resulted in a pre-tax non-cash gain, is excluded as it is not part of our ongoing operations.

(3) Gain on land sale reflects the sale of unused land on the campus of the Tempel China, which resulted in a pre-tax gain, is excluded as it is not part of our ongoing operations.

(4) Other loss, net, reflects the following items reported in miscellaneous income (expense), net, which are excluded as they are not part of ongoing operations:

• Net insured loss incurred for damage as a result of a small, quickly contained fire at Tempel Canada. We recognized a $0.5 million pre-tax loss equal to the amount of the insurance deductible.
• Environmental reserve settlement pre-tax gain of $0.2 million recognized by Tempel Canada as the result of a prior indemnification with the former owners of the Canadian facility.

Adjusted EBIT in the second quarter of fiscal 2026 was up $12.3 million compared to the second quarter of fiscal 2025 primarily due to a $13.2 million increase in gross margin and higher equity income from Serviacero Worthington, partially offset by an increase in SG&A.

Six Months Year-to-Date – Fiscal 2026 Compared to Fiscal 2025

The following table presents a review of the results of operations for the periods presented:

(In millions, except volume and per common share amounts)

Net sales totaled $1,744.8 million in the current year period, up $171.8 million, or 11%, from the period year period. The increase was driven primarily by higher direct volumes and, to a lesser extent, higher average direct selling prices. The increases were partially offset by lower toll volumes as well as slightly lower average toll selling prices driven by product mix. Direct tons sold increased by 9%, of which the Sitem acquisition accounted for approximately 1% of the increase, and toll volumes decreased 23% in the current year period compared to the prior year period. The decrease in toll volumes was primarily related to lower toll volumes from WSCP due to the closure of the toll processing manufacturing facility in Cleveland, Ohio in May 2025, as well as lower demand from mill customers. Direct selling prices increased 4% and toll selling prices decreased 3% in the current year period compared to the prior year period. The mix of direct versus toll volumes was 64% to 36% in the current year period compared to 56% to 44% in the prior year period.

Gross Margin

(In millions)

Gross margin increased $28.0 million over the prior year period to $208.4 million, primarily due to higher direct spreads and higher direct volumes, partially offset by lower toll margins. Direct spreads, up $26.2 million, were impacted by a $28.4 million favorable change from an estimated $30.1 million inventory holding loss in the prior year period to an estimated $1.7 million inventory holding loss in the current period. Higher direct volumes favorably impacted gross margin by $24.5 million. Toll margins, down $21.5 million, were impacted by a $15.8 million unfavorable impact due to lower volumes and a $5.6 million unfavorable change in toll mix. Manufacturing expenses were up $4.2 million due to increased direct volume and inflationary pressures, partially offset by lower costs due to the closure of the toll processing manufacturing facility in Cleveland, Ohio in May 2025. Sitem Group contributed $3.0 million in gross margin.

Selling, General and Administrative Expense

(In millions)

SG&A increased $20.7 million over the prior year period primarily due to an increase in compensation expense of $14.6 million, which includes a one-time bonus of €4.0 million ($4.6 million) paid to key individuals at Sitem Group as a result of the successful closing of the Sitem Group acquisition. Additionally, professional fees increased $3.2 million from the prior year period, partially offset by lower bad debt expense of $1.9 million. Sitem Group SG&A contributed $10.5 million, including the one-time bonus of $4.6 million previously discussed, to the increase in the current year period.

Other Operating Items

(In millions)

Restructuring and other (income), net in the current year period was driven by the $1.0 million pre-tax gain on the sale of an asset that was reported within assets held for sale due to the previously announced plans to combine WSCP’s toll processing manufacturing facility in Cleveland, Ohio, into its existing manufacturing facility in Twinsburg, Ohio, in the first quarter of fiscal 2026. Refer to “Note 4 – Restructuring and Other (Income), Net” for additional information.

Impairment of assets in the current year period was due to a pre-tax impairment charge of $0.6 million on certain machinery at our manufacturing facility in Taylor, Michigan. Refer to “Note 1 – Description of Business and Basis of Presentation” for additional information.

Miscellaneous Income (Expense), Net

(In millions)

Miscellaneous income (expense), net increased $2.2 million from the prior year period due to $4.4 million of expense, in the first quarter of fiscal 2025, as a result of the recognition of a tax indemnity payable to the former owners of Tempel associated with the final favorable ruling in a pre-acquisition tax matter in one of the jurisdictions in which Tempel operates. Additionally, we recorded foreign currency remeasurement gains of $0.2 million in the current period as compared to foreign currency remeasurement losses of $2.6 million in the prior year period primarily related to Tempel and TWB operations in Mexico.

The increases from the prior year period were offset by the annuitization of a portion of the total projected benefit obligation of the inactive Tempel Steel Pension Plan resulted in a pre-tax, non-cash settlement gain of $2.7 million to accelerate a portion of deferred pension cost. Additionally, we recognized a pre-tax gain of $1.5 million sale of unused land in China.

Interest Expense, Net

(In millions)

39

Interest expense increased $0.9 million from the prior year period primarily due to higher average debt levels as a result of debt assumed in the Sitem Group acquisition and higher debt levels on the BDC loan. These increases were offset by higher interest income. Refer to “Note 7 – Debt” for additional information.

Equity Income

(In millions)

Equity income at Serviacero Worthington increased $12.8 million from the prior year period, driven by higher direct spreads, including inventory holding gains, as well as favorable foreign currency exchange impacts.

Income Taxes

(In millions)

Income tax expense was $17.6 million for the current year period compared to $7.6 million for the prior year period. The increase in income tax expense was primarily driven by higher pre-tax earnings in the current period and the recognition of a $4.4 million tax benefit related to a pre-acquisition tax matter at Tempel in the prior year period. The income tax expense in the current period resulted in an ETR of 24.0% compared to 15.6% for the prior year period. For additional information regarding our income taxes, refer to “Note 10 – Income Taxes.”

Adjusted EBIT

The following table provides a reconciliation of net earnings attributable to controlling interest (the most comparable GAAP financial measure) to adjusted EBIT for the periods presented:

(In millions)

(1) Impairment charges are excluded because they do not occur in the ordinary course of our ongoing business operations, are inherently unpredictable in timing and amount, and are non-cash, so their exclusion facilitates the comparison of historical, current and forecasted financial results. Non-cash impairment charge in the second quarter of fiscal 2026 was driven by a pre-tax impairment charge of $0.6 million on certain machinery at our manufacturing facility in Taylor, Michigan. Refer to “Note 1 – Description of Business and Basis of Presentation” for additional information.

(2) Restructuring activities consist of established programs that are not part of our ongoing operations, such as divestitures, closing or consolidating facilities, employee severance (including rationalizing headcount or other significant changes in personnel), and realignment of existing operations (including changes to management structure in response to underlying performance and/or changing market conditions). In the third quarter of fiscal 2025, we announced plans to combine WSCP’s toll processing manufacturing facility in Cleveland, Ohio, into its existing manufacturing facility in Twinsburg, Ohio. In the first quarter of fiscal 2026, we recognized a $0.6 million gain on the sale of an asset, excluding the impact of noncontrolling interest, which was reported within assets held for sale. Refer to “Note 4 – Restructuring and Other (Income), Net.”

(3) Tax indemnification adjustments reported in miscellaneous income (expense), net, related to an indemnification agreement with the former owners of Tempel. This adjustment is the result of a first quarter fiscal 2025 favorable tax ruling in one of the jurisdictions in which Tempel operates. The indemnification agreement, which was entered into with the former Tempel owners at the time the Company acquired Tempel, provides protection to the Company from rulings by tax authorities through the acquisition date.

(4) Pension settlement gain reflects the pension lift-out transaction to transfer a portion of the total projected benefit obligation of the Tempel Employees Pension Plan to a third-party insurance company, which resulted in a pre-tax non-cash gain, is excluded as it is not part of our ongoing operations.

(5) Gain on land sale reflects the sale of unused land on the campus of the Tempel China, which resulted in a pre-tax gain, is excluded as it is not part of our ongoing operations.

(6) Acquisition completion bonus payment consists of the one-time bonus payment paid to key individuals upon the successful acquisition closing of Sitem Group reported in SG&A. The acquisition completion bonus payment, excluding the impact of noncontrolling interest, is excluded as it is not part of our ongoing operations.

(7) Other loss, net, reflects the following items reported in miscellaneous income (expense), net, which are excluded as they are not part of ongoing operations:

• Net insured loss incurred for damage as a result of a small, quickly contained fire at Tempel Canada. We recognized a $0.5 million pre-tax loss equal to the amount of the insurance deductible.
• Environmental reserve settlement pre-tax gain of $0.2 million recognized by Tempel Canada as the result of a prior indemnification with the former owners of the Canadian facility.

Adjusted EBIT was up $27.8 million compared to the prior year period primarily due to a $28.0 million increase in gross margin and higher equity income from Serviacero Worthington, partially offset by an increase in SG&A expense.

Liquidity and Capital Resources

Our primary ongoing requirements for cash are expected to be for working capital, funding of acquisitions, dividend payments, debt redemptions and capital expenditures. We believe that our sources of liquidity, including our cash balances, the funds generated by our operating activities and the funds accessible to us, primarily through the Credit Facility, are adequate to fund our operations for the next 12 months and for the foreseeable future and will allow us to meet our current and long-term obligations and strategic initiatives. However, there can be no assurances that our current sources of liquidity and capital resources will continue to be sufficient for our needs, including our strategic initiatives, or that we will be able to obtain additional debt or equity financing on acceptable terms in the future. A more detailed description regarding our capital structure changes can be found elsewhere in this MD&A as well as in the “Financing Activities” section below.

As of November 30, 2025, our cash, cash equivalents, and restricted cash balance was $89.8 million, compared to cash, cash equivalents, and restricted cash balance of $92.9 million at May 31, 2025.

During the six months ended November 30, 2025, we generated cash of $93.0 million in operating activities and used $54.3 million in investing activities, which primarily related to $54.1 million invested in property, plant and equipment. Acquisitions, net of cash acquired, during the current year period was $1.6 million due to the acquisition of Sitem Group. Additionally, we made net debt repayments of $20.6 million, and we paid cash dividends of $16.5 million.

The following table summarizes our consolidated cash flows for the periods presented:

(In millions)

We believe we have access to adequate resources to meet the needs of our existing businesses for normal operating costs, mandatory capital expenditures, debt redemptions, dividend payments, and working capital, to the extent not funded by cash provided by operating activities, for at least 12 months and for the foreseeable future. These resources include cash and cash equivalents and unused capacity available under the Credit Facility. As of November 30, 2025, the Credit Facility had availability of $306.1 million, after accounting for the eligible borrowing base. The additional credit extended to us primarily relates to strategic capital expenditure projects. A more detailed description regarding our capital structure changes can be found elsewhere in this MD&A as well as in the “Financing Activities” section below.

We believe we could access the financial markets to be in a position to sell long-term debt or equity securities. However, the continuation of uncertain economic conditions and a heightened interest rate environment could create volatility in the financial markets, which may impact our ability to access capital and the terms under which we can do so. We will continue to monitor the economic environment and its impact on our operations and liquidity needs.

We routinely monitor current operational requirements, financial market conditions, and credit relationships and we may choose to seek additional capital by issuing new debt and/or equity securities to strengthen our liquidity or capital structure. We entered into additional financing arrangements during fiscal 2025 to take advantage of favorable financing terms available through those instruments to fund certain of our strategic capital expenditure projects. Debt financing increased in the current year period due to the incremental debt assumed in the Sitem Group acquisition and a draw on the BDC Loan. While we believe we currently have adequate capital, should we seek additional capital, there can be no assurance that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing shareholders and/or increase our interest costs.

Operating Activities

Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year to year due to economic and industry conditions. We rely on cash and short-term borrowings to meet cyclical increases in working capital needs. These needs generally rise during periods of increased economic activity or increasing raw material prices, requiring higher levels of inventory and accounts receivable. During economic slowdowns, or periods of decreasing raw material costs, working capital needs generally decrease as a result of the reduction of inventories and accounts receivable.

Net cash provided by operating activities was $93.0 million during the six months ended November 30, 2025, compared to $122.6 million net cash provided by operating activities during the six months ended November 30, 2024. In the current year period the driver of this change was a $66.7 million increase in cash consumed due to an increase in net operating working capital (accounts receivable, inventories, and accounts payable), which was driven by the increase in average steel prices over the prior year period. These increases were partially offset by the reduction of $17.1 million related to lower compensation and benefit payments, primarily incentive compensation, and higher net earnings in the current year period as compared with the prior year period.

Investing Activities

Net cash used in investing activities was $54.3 million during the six months ended November 30, 2025, compared to net cash used in investing activities of $55.2 million during the six months ended November 30, 2024. In the current year period, the main driver of net cash used in investing activities was related to capital expenditures, primarily due to the previously announced strategic expansion of our electrical steel operations in Canada and Mexico to service the transformer and automotive markets, respectively. Acquisitions, net of cash acquired, during the current year period, was $1.6 million due to the acquisition of Sitem Group. See Note 12 – “Acquisitions” for further information.

Investment activities are largely discretionary and future investment activities could be reduced significantly, or eliminated, as economic conditions warrant. We assess acquisition opportunities as they arise, and any such opportunities may require additional financing. However, there can be no assurance that any such opportunities will arise, that any such acquisition opportunities will be consummated, or that any additional financing needed will be available on satisfactory terms. We estimate our annual maintenance capital needs to be between approximately $40.0 million and $45.0 million, which excludes capital expenditures related to manufacturing capacity expansions, corporate headquarters and other technology upgrades.

Financing Activities

Net cash used in financing activities was $41.9 million during the six months ended November 30, 2025, compared to net cash used in financing activities of $55.6 million during the six months ended November 30, 2024. The decrease in net cash used in financing activities in the current year period was primarily due to net debt repayments of $20.6 million, as compared to debt repayments of $33.0 million in the prior year period. The decrease in net debt repayments was primarily related to an increased draw on the BDC Loan, which had debt outstanding of $21.2 million at November 30, 2025, and increased net repayments of $6.2 million on the Credit Facility. Dividends of $16.5 million to shareholders of our common shares were paid during current period.

Revolving credit facility – The Credit Facility allows for borrowings of up to $550.0 million, to the extent secured by eligible accounts receivable and inventory balances at period end. The Credit Facility does not include credit rating triggers. At November 30, 2025, there were $110.0 million of outstanding borrowings drawn against the Credit Facility with $306.1 million available under the Credit Facility after accounting for the eligible borrowing base. As of November 30, 2025, we were in compliance with the financial covenants of the Credit Facility.

Canadian Government Regional Economic Growth Loan – The FED DEV Loan is for an amount of up to CAD $3.5 million (approximately USD $2.5 million as of November 30, 2025) and is to be used for the purchase and installation of advanced manufacturing equipment at Tempel Canada’s Burlington, Ontario location. As of November 30, 2025, $2.3 million was outstanding under the FED DEV Loan.

Business Development Bank of Canada Canadian Loan – Pursuant to the terms of the BDC Letter, the BDC has committed to provide Tempel Canada the BDC Loan, up to CAD $57.5 million (approximately USD $41.1 million as of November 30, 2025), to fund the construction of a new manufacturing facility in Burlington, Ontario, Canada. The draw period for the BDC Loan will lapse on March 21, 2026, unless extended by the BDC. Worthington Steel guarantees the payment obligations of Tempel Canada in respect of the BDC Loan. The BDC Loan contains representations, covenants and events of default customary for transactions of this nature, including that Tempel Canada will maintain a total debt to tangible equity ratio of 1.0 to 1.0 and a fixed charge coverage ratio of 1.15 to 1.0, each tested annually beginning May 31, 2026. As of November 30, 2025, $21.2 million was outstanding under the BDC Loan, while there were no amounts drawn and outstanding as of May 31, 2025.

Canadian Advanced Manufacturing and Innovation Competitiveness Loan – Tempel Canada entered into the AMIC Loan, which provided a loan of up to CAD $5.0 million (approximately USD $3.6 million as of November 30, 2025) to support building and equipment expansion at Tempel Canada’s Burlington, Ontario location. During the six months ended November 30, 2025, we have received total distributions of CAD $2.5 million (approximately USD $1.8 million as of November 30, 2025). The AMIC Loan is structured with an incentive component that states up to CAD $0.5 million (approximately USD $0.4 million as of November 30, 2025) of the principal may be forgiven if certain performance targets are met. As of November 30, 2025, $1.8 million was outstanding under the AMIC Loan.

Sitem Group Term Loans – We assumed the liabilities of Sitem Group as part of the acquisition and recorded the liabilities within the consolidated balance sheet as part of the opening balance sheet. The Sitem Group’s obligations included various term loans (“Sitem Group Term Loans”), which spanned maturities and had varying interest rates and interest rate mechanism. As of November 30, 2025, the aggregate amount outstanding of the Sitem Group Term Loans was $46.8 million, which includes the Sitem Group standstill agreement described below. The obligations, along with the relevant loan terms, are included in the summary table within “Note 7 – Debt.”

Standstill Agreement – Sitem Group – The agreement relates to bilateral credit facilities originally provided to Stanzwerk AG in the aggregate principal amount of CHF 17.1 million (approximately USD $21.2 million as of November 30, 2025). Under the terms of the standstill, the lenders agreed to maintain availability under the credit lines through June 30, 2026. The standstill agreement contains financial covenants requiring Stanzwerk AG to maintain (i) a minimum equity ratio of 15%, tested quarterly beginning June 30, 2025, and (ii) minimum liquidity of CHF 4.0 million (approximately USD $5.0 million as of November 30, 2025), tested monthly beginning April 30, 2025. Stanzwerk AG was in compliance with these covenants as of November 30, 2025. A detailed discussion of all debt obligations and their associated terms is provided in “Note 7 – Debt.”

Common shares – On December 17, 2025, the Board declared a quarterly cash dividend of $0.16 per common share payable on March 27, 2026, to shareholders of record at the close of business on March 13, 2026.

There were no common shares purchased by Worthington Steel during the period presented as part of publicly announced plans or programs.

Redeemable NCI – While redemption events are contingent, the existence of these features could require us to use available cash, debt capacity, or other resources to satisfy our obligations in the future. We continuously monitor our liquidity profile to ensure adequate capacity to fund potential redemptions, although no such obligations were triggered during the six months ended November 30, 2025.

Dividend Policy

We currently have no material contractual or regulatory restrictions on the payment of dividends provided that no event of default exists under the Credit Facility and it meets the minimum availability threshold thereunder. Dividends are declared at the discretion of the Board. The Board reviews the dividend quarterly and establishes the dividend rate based upon our consolidated financial condition, results of operations, capital requirements, current and projected cash flows, business prospects, and other relevant factors. There is no guarantee that we will continue the payment of dividends in the future or that any dividends declared by the Board in the future will be similar in amount or timing to any dividends previously declared by the Board.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, current trends and other factors that we believe to be relevant and reasonable under the circumstances at the time the estimate was made. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Critical accounting estimates are defined as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations. Although actual results historically have not deviated significantly from those determined using our estimates, our financial position or results of operations could be materially different if we were to report under different conditions or to use different assumptions in the application of such estimates. Our critical accounting estimates have not significantly changed from those discussed in “Part II – Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” of the 2025 Form 10-K, with the exception of the estimate below.

Redeemable NCI (Sitem Group) – The determination of whether redemption is probable requires significant judgment, including evaluating contractual terms, market conditions, and the intent of minority holders. If redemption becomes probable, the carrying amount is adjusted to redemption value, which could increase volatility in retained earnings and APIC in future periods.

Management believes that disclosure of these policies and impacts is necessary for investors to understand the effect of Redeemable NCI on our financial condition, results of operations, and liquidity.

Since May 31, 2025, we have entered into a new cross-currency swap hedging transaction designated as a net investment hedge, which is disclosed in “Note 13 – Derivative Financial Instruments and Hedging Activities” to the consolidated financial statements. The corresponding sensitivity analysis disclosed in the 2025 Form 10-K for our Foreign Exchange Rate Risk has been updated below to reflect our exposure to the market risk as of November 30, 2025. There have been no material changes to our market risk other than the aforementioned cross-currency swap during the six months ended November 30, 2025. For a discussion of our market risk, see “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of the 2025 Form 10-K.

Foreign Exchange Rate Risk

Net Investment Hedge – Cross-Currency Swap

During the second quarter of fiscal 2026, we entered into a cross-currency swap to hedge foreign currency risk on a portion of our Euro net investment in the Sitem Group foreign subsidiary against fluctuations in Euro/USD exchange rates.

The notional values and corresponding interest rates are disclosed in “Note 13 – Derivative Financial Instruments and Hedging Activities” to the consolidated financial statements located in Item 1 of this Form 10-Q.

As of November 30, 2025, if the Euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $7.8 million unfavorable impact to the fair value of the cross-currency swap recognized in OCI. The aforementioned unfavorable impact recognized in OCI would be economically offset by favorable currency translation gains on our hedged net investments in those foreign subsidiaries.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that Worthington Steel files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including Worthington Steel’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management, under the supervision of and with the participation of Worthington Steel’s principal executive officer and principal financial officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q (the quarterly period ended November 30, 2025). Based on that evaluation, Worthington Steel’s principal executive officer and principal financial officer have concluded that such disclosure controls and procedures designed at the reasonable assurance level and were effective at a reasonable assurance level as of the end of the quarterly period covered by this Form 10-Q.

Changes in Internal Control Over Financial Reporting

There were no changes that occurred during the period covered by this Form 10-Q (the quarterly period ended November 30, 2025) in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. In “PART I – Item 1A. – Risk Factors” of the 2025 Form 10-K available at www.sec.gov (http://www.sec.gov) or at www.worthingtonsteel.com (http://www.worthingtonsteel.com), we included a detailed discussion of our risk factors. Our risk factors have not changed significantly from those disclosed in the 2025 Form 10-K. These risk factors should be read carefully when evaluating our business and investments in the common shares and in connection with the forward-looking statements and other information contained in this Form 10-Q. Any of the risks described in the 2025 Form 10-K could materially affect our business, consolidated financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors described in the 2025 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, consolidated financial condition and/or future results.