Worthington Steel, Inc.: Form 10-Q for the period ended Feb 28, 2026

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 third 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 Developments

On March 25, 2026, the Board declared a quarterly cash dividend of $0.16 per common share payable on June 26, 2026 to shareholders of record at the close of business on June 12, 2026.

Proposed Acquisition of Kloeckner

On January 15, 2026, we entered into a BCA with Kloeckner. Following execution of the BCA, we launched a voluntary public cash takeover offer to all Kloeckner shareholders to tender each Kloeckner Share to us. Subject to the terms and conditions of the Offer Document, upon the Offer Closing, we will pay cash consideration equal to €11.00 per tendered share (subject to any increases either made voluntarily or in accordance with applicable German law) for the Offer. The initial acceptance period for the Offer began on February 5, 2026 upon publication of the Offer Document following its approval by BaFin.

On March 10, 2026, we executed the Offer Amendment. Pursuant to the Offer Amendment, we reduced the minimum acceptance threshold of the Kloeckner Shares required as a condition to the closing of the Offer from at least 65% to at least 57.5% of the Kloeckner Shares at the expiry of the Acceptance Period. In addition, as a result of the Offer Amendment, the Acceptance Period was extended by two weeks pursuant to the WpÜG, and expired on March 26, 2026.

On March 31, 2026, we announced that we had achieved the minimum acceptance threshold of Kloeckner’s issued share capital. Following the expiration, an additional, statutory two-week acceptance period began on April 1, 2026, which will conclude on April 14, 2026, after which we will announce the final results for the Offer. Subject to the Regulatory Condition, we expect the Offer Closing to occur in the second half of 2026. On March 27, 2026, we informed Kloeckner about our firm intention to enter into a DPLTA with Kloeckner immediately after completion of the Offer.

We believe the Proposed Acquisition represents a strong strategic fit by creating a diversified metals processing leader with an enhanced product offering and broader geographic reach. The combined company will benefit from greater scale, shared best practices and operational efficiency.

As of February 28, 2026, we own equity securities of Kloeckner for which it does not have a controlling interest or the ability to exercise significant influence. The Proposed Acquisition has not been completed as of February 28, 2026, and, accordingly, we have not applied acquisition accounting. The results of operations and financial position of Kloeckner are not included in our financial statements. Upon closing of the Proposed Acquisition, we expect to obtain a controlling financial interest and account for the transaction as a business combination. There can be no assurance that the transaction will be completed or that the related financing will be obtained on the terms currently contemplated or at all.

If completed, the Proposed Acquisition is expected to have a material impact on our business, results of operations and financial condition. For more information, see “Part II, Item 1A. Risk Factors—Proposed Acquisition-Related Risks” as well as “Note 9 – Debt,” “Note 2 – Acquisitions,” and Note 14 – Derivative Financial Instruments and Hedging Activities” to the consolidated financial statements contained in Part I, Item 1 of this Form 10-Q.

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 increased 1% in the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025, while the Detroit Three Automakers vehicle production increased 3% in the third quarter of fiscal 2026 compared to the third 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. Recent U.S. GDP data indicates moderating economic growth through the third quarter of fiscal 2026. While overall economic activity has remained resilient, the pace of growth has slowed compared to earlier periods due to ongoing geopolitical uncertainty and uneven demand across industrial sectors. Consistent with these trends, we have observed variability in demand across our non-automotive end markets during the third quarter of fiscal 2026. While certain end markets have shown signs of stabilization, others continue to experience softer conditions, consistent with the more moderate pace of U.S. GDP growth.

Total volume (tons) decreased by 7% compared to the prior year quarter. Direct tons sold increased by 4%, with the increase driven equally between the legacy business and the addition of Sitem Group. Direct shipments to the overall automotive market and to the Detroit Three Automakers increased by 10% and 13%, respectively, in the third quarter of fiscal 2026 as compared to the third quarter of fiscal 2025. Toll volumes decreased 22% in the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. The decrease in toll volumes was due to a combination of closing the Cleveland-area WSCP facility in May 2025, as well as softening demand from mill customers.

Detroit Three Automakers represented 33% and 32% of our consolidated net sales during the third quarter of fiscal 2026 and fiscal 2025, respectively. Direct shipments to the Detroit Three Automakers in the third quarter of fiscal 2026 increased approximately 13%, compared to the third quarter of fiscal 2025, which significantly outpaced the reported 3% growth in the Detroit Three Automakers production for the same period. Similar to second quarter of fiscal 2026, the increase in automotive volume reflects share gains from new programs plus the impact of a key automotive OEM customer returning to a more normal build schedule after curtailing production in fiscal 2025. Agriculture volume and container volume were up 9% and 11%, respectively, in the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. The increase in agriculture volume was primarily due to improved OEM equipment demand. These gains were offset by softness in other markets, with energy, construction, service center, and heavy truck volumes down 22%, 7%, 21%, and 12%, respectively, in the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. The decrease in energy was largely driven by a decline in project-based solar programs, whereas construction and service center saw increased competition. Heavy truck continues to see ongoing market weakness.

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.

Throughout fiscal 2026, U.S. inflation rates have remained 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 once during the third quarter of fiscal 2026. The benchmark interest rate cut was 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) CRU Hot-Rolled Coil (“HRC”) Index: period average

(3) S&P Global

(4) LME Zinc; period average

(5) NYMEX Henry Hub Natural Gas; period average

(6) 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 (“Section 232”). 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. While the February 2026 U.S. Supreme Court ruling on International Emergency Economic Powers Act does not repeal Section 232 tariffs on steel and aluminum, the decision increases overall tariff-related marketplace volatility. As a result, our customers’ supply chain decisions may abruptly shift, potentially impacting our financial performance. While tariffs have been a reality for some time, the potential for tariff changes has caused some continued trepidation in markets, including the metals markets. Recent evidence suggests that imports of steel have decreased. While lower imports of steel may put upward pressure on domestic steel and steel products prices, 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, before increasing in the third quarter of fiscal 2026. The average price of HRC for fiscal 2026 remains higher than the same period of fiscal 2025. Direct spreads increased by $4.9 million due to higher direct volumes and a $3.3 million favorable change from an estimated $1.2 million inventory holding loss in the prior year quarter to an estimated $2.1 million inventory holding gain in the third quarter of fiscal 2026. With the recent upward steel price movements, we expect inventory holding gains to be between $15.0 million to $20.0 million in the fourth 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

Third 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 for the third quarter of fiscal 2026 were $769.8 million, an increase of $82.4 million, or 12%, compared to the third quarter of fiscal 2025. This increase was driven primarily by higher direct volumes and higher average direct selling prices. The increases were partially offset by lower toll volumes. Direct volumes increased by 4%, with the increase driven equally between the legacy business and the addition of Sitem Group. Direct selling prices increased 9% in the third quarter of fiscal 2026 compared to the prior year quarter driven by a 5% increase in the legacy business as well as the addition of Sitem Group. Toll volumes decreased 22% in the third quarter of fiscal 2026 compared to the prior year quarter. The decrease in toll volumes was due to a combination of closing the Cleveland-area Worthington Samuel Coil Processing (“WSCP”) facility in May 2025 as well as softening demand from mill customers. The mix of direct versus toll volumes was 63% to 37% in the third quarter of fiscal 2026 compared to 57% to 43% in the prior year quarter.

Gross Margin

(In millions)

Gross margin in the third quarter of fiscal 2026 was $76.1 million, a decrease of $5.1 million compared to the third quarter of fiscal 2025. The decrease was primarily driven by lower toll volumes and a $3.2 million unfavorable impact from Sitem Group, partially offset by higher direct spreads (defined as sales less material costs). Toll spreads, down $6.4 million, were negatively impacted by $6.0 million due to lower volumes and by $0.4 million due to an unfavorable change in toll mix. Direct spreads increased by $4.9 million due to higher direct volumes and a $3.3 million favorable change from an estimated $1.2 million inventory holding loss in the prior year quarter to an estimated $2.1 million inventory holding gain in the third quarter of fiscal 2026.

Selling, General and Administrative Expense

(In millions)

SG&A in the third quarter of fiscal 2026 was $77.5 million, an increase of $22.9 million compared to the third quarter of fiscal 2025. The increase in SG&A expense, which included $4.8 million related to Sitem Group, was primarily attributable to $15.4 million of professional fees related to the Proposed Acquisition.

Other Operating Items

(In millions)

Impairment of assets in the third quarter of fiscal 2026 was due to a pre-tax impairment charge of $1.5 million related to internal-use software module assets that were determined to have no value and written down to zero. Impairment of assets in the prior year quarter of $7.4 million were comprised of a (a) $1.3 million pre-tax impairment of an in-process research and development intangible asset and a (b) $6.1 million pre-tax impairment related to the consolidation of WSCP’s Cleveland toll processing manufacturing facility into its existing manufacturing facility in Twinsburg, Ohio. Refer to “Note 5 – Impairment of Assets” for additional information.

Restructuring and other income, net in the third quarter of fiscal 2026 was driven by the sales of substantially all of the remaining net assets of WSCP’s remaining Cleveland toll processing manufacturing facility, which were reported in assets held for sale prior to the sale. The sales resulted in pre-tax gains of $6.0 million and included finance lease assets and buildings and improvements, net, and machinery and equipment. Restructuring and other expense, net in the third quarter of fiscal 2025 was driven by TWB’s VRP, which is expected to accelerate the normal retirement attrition process and result in future cost savings. In connection with the VRP, we recognized $0.9 million in severance expenses during the third quarter of fiscal 2025. Refer to “Note 6 – Restructuring and Other (Income) Expense, Net” for additional information.

Miscellaneous Income (Expense), Net

(In millions)

Miscellaneous income, net in the third quarter of fiscal 2026 was $9.8 million, an increase of $9.6 million compared to the third quarter of fiscal 2025. The increase was primarily due to the unrealized gain of $9.1 million in the third quarter of fiscal 2026 of the economic (non-designated) cash flow derivative that was entered into to hedge a portion of the expected purchase price of the Proposed Acquisition. Additionally, in the third quarter of fiscal 2026, we recognized net unrealized gains on equity securities of $0.3 million. Refer to “Note 2 – Acquisitions” for additional information.

Interest Expense, Net

(In millions)

Interest expense, net in the third quarter of fiscal 2026 was $2.1 million, an increase of $0.7 million from the prior year quarter. The increase was primarily due to higher interest expense on the Credit Facility (due to higher average debt levels offset by lower average interest rates), higher debt levels on the BDC loan, and the interest expense related to the Sitem Group loans. These increases were offset by higher interest income, including the interest income from the net investment hedge. Refer to “Note 9 – Debt” and “Note 14 – Derivative Financial Instruments and Hedging Activities” for additional information.

Equity Income

(In millions)

Equity income at Serviacero Worthington increased $3.5 million from the prior year quarter, driven primarily by higher direct spreads, including inventory holding gains, and to a lesser extent, favorable foreign currency exchange impacts. The increase was partially offset by lower volumes.

Income Taxes

(In millions)

Income tax expense was $3.5 million in the third quarter of fiscal 2026 compared to $5.0 million in the prior year quarter. The decrease in income tax expense was primarily driven by lower pre-tax earnings in the current quarter. The income tax expense in the current quarter resulted in an ETR of 25.6%, compared to 26.7% for the prior year quarter. Refer to “Note 12 – Income Taxes” for additional information.

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 an 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. Impairment of assets in the third quarter of fiscal 2026 was due to a pre-tax impairment charge of $1.5 million related to internal-use software module assets that were determined to have no value and written down to zero. There was no noncontrolling interest impact for this impairment charge. Impairment of assets in the third quarter of fiscal 2025 was driven by a) $1.3 million impairment of an indefinite-lived in-process research and development intangible asset that was determined to be fully impaired and b) a $6.1 million impairment related to the consolidation of WSCP’s Cleveland toll processing manufacturing facility into its existing manufacturing facility in Twinsburg, Ohio, excluding the $2.8 million noncontrolling interest portion of impairment of assets. Refer to “Note 5 – Impairment of Assets” 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). These restructuring activities are excluded to facilitate period-to-period comparability of our operating performance. In the third quarter of fiscal 2025, we announced plans to combine WSCP’s toll processing manufacturing facility in Cleveland facility into its Twinsburg, Ohio facility. In the third quarter of fiscal 2026, we sold substantially all of the remaining net assets of WSCP’s Cleveland facility, which were reported in assets held for sale prior to the sale. The sales resulted in pre-tax gains of $6.0 million, excluding the impact of noncontrolling interest of $2.2 million, and included finance lease assets and buildings and improvements, net, and machinery and equipment. In the third quarter of fiscal 2025, in connection with the TWB’s announced VRP, we recognized $0.9 million in severance expenses, which is recorded in restructuring and other (income) expense, net, and excludes the noncontrolling interest portion of restructuring and other (income) expense, net of $0.4 million. Refer to “Note 6 – Restructuring and Other (Income) Expense, Net.”

(3) Kloeckner purchase derivative consists of the change in the fair value of an economic (non-designated) cash flow derivative that was entered into to hedge a portion of the expected purchase price of the outstanding Kloeckner Shares in connection with the Proposed Acquisition. The change in the fair value is recorded in miscellaneous income (expense), net, and it is excluded from adjusted results to facilitate period-to-period comparability of the Company’s operating performance as it reflects non-operational activity.

(4) Kloeckner acquisition-related expenses consist of the acquisition-related costs incurred in connection with the Proposed Acquisition, consisting primarily of advisory, legal, accounting, valuation and other professional fees, as well as certain integration expenses, and are expensed as incurred within SG&A expense. Exclusion of these costs is appropriate because they are directly attributable to a specific strategic transaction that management expects to be transformative to our portfolio, scale and long-term operating profile and are not reflective of our ongoing operating performance for the periods presented. Exclusion facilitates period-over-period comparisons, and to assess performance excluding the impact of transaction-specific activities.

Adjusted EBIT in the third quarter of fiscal 2026 was down $5.3 million compared to the third quarter of fiscal 2025 primarily due to a $5.1 million decrease in gross margin and an increase in SG&A, partially offset by higher equity income from Serviacero Worthington.

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 in the current year period were $2,514.6 million, an increase of $254.2 million, or 11%, compared to the prior 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 volumes increased by 7%, 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 due to a combination of closing the WSCP Cleveland toll processing facility in May 2025 as well as softening demand from mill customers. Direct selling prices increased 5% and toll selling prices decreased 2% 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 in the current year period was $284.5 million, an increase of $22.9 million compared to the prior year period. The increase was primarily driven by higher direct spreads and higher direct volumes, partially offset by lower toll volumes. Direct spreads, up $55.6 million, were impacted by a $31.7 million favorable change from an estimated $31.2 million inventory holding loss in the prior year period to an estimated $0.5 million inventory holding gain in the current year period. Higher direct volumes favorably impacted gross margin by $28.3 million. Toll spreads, down $28.2 million, were negatively impacted by $20.9 million due to lower volumes and a $7.3 million unfavorable change in toll mix. Manufacturing expenses were up $4.6 million due to increased direct volume and inflationary pressures, partially offset by lower costs due to the closure of the WSCP Cleveland toll processing facility in May 2025.

Selling, General and Administrative Expense

(In millions)

SG&A in the current year period was $216.3 million, an increase of $43.6 million compared to the prior year period. The increase in SG&A expense included $14.8 million related to Sitem Group, 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. Professional fees increased $15.6 million from the prior year period, primarily attributable to $20.3 million of professional fees related to the proposed acquisition of Kloeckner. Additionally, compared to the prior year period, compensation expense increased by $12.4 million.

Other Operating Items

(In millions)

Impairment of assets in the current year period was comprised of a pre-tax impairment charges of (a) $0.6 million related to certain machinery at our manufacturing facility in Taylor, Michigan, and (b) $1.5 million related to internal-use software module assets that were determined to have no value and written down to zero. Impairment of assets in the prior year period was comprised of pre-tax asset impairment charges of (a) $1.3 million related to an in-process research and development intangible asset and (b) $6.1 million related to the consolidation of WSCP’s Cleveland toll processing manufacturing facility into its existing manufacturing facility in Twinsburg, Ohio. Refer to “Note 5 – Impairment of Assets” for additional information.

Restructuring and other income, net in the current year period was driven by the sales of substantially all of the remaining net assets of WSCP’s remaining Cleveland toll processing manufacturing facility, which were reported in assets held for sale prior to the sale. The sales resulted in pre-tax gains of $7.0 million in the current year period and included finance lease assets and buildings and improvements, net, and machinery and equipment. Restructuring and other expense, net in the third quarter of fiscal 2025 was driven by TWB’s VRP, which is expected to accelerate the normal retirement attrition process and result in future cost savings. In connection with the VRP, we recognized $0.9 million in severance expenses during the third quarter of fiscal 2025. Refer to “Note 6 – Restructuring and Other (Income) Expense, Net” for additional information.

Miscellaneous Income (Expense), Net

(In millions)

Miscellaneous income, net in the current year period was $9.9 million, an increase of $11.8 million compared to the prior year period. The increase was primarily due to the unrealized gain of $9.1 million in the third quarter of fiscal 2026 of the economic (non-designated) cash flow derivative that was entered into to hedge a portion of the expected purchase price of the Proposed Acquisition. Additionally, in the third quarter of fiscal 2026, we recognized net unrealized gains on equity securities of $0.3 million. Refer to “Note 2 – Acquisitions” for additional information.

Additionally, excluding the impact of the economic (non-designated) cash flow derivative described above, there were foreign currency remeasurement gains of $0.4 million in the current year period versus foreign currency remeasurement losses of $2.5 million in the prior year period, primarily related to exchange rate movements in Mexico offset by exchange rate movements in Canada and Europe.

The increase in miscellaneous income (expense), net was also 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. That reduction in expense was partially offset in the prior year period as we recognized a pre-tax gain of $1.5 million on the sale of unused land in China, as well as a pre-tax, non-cash settlement gain of $2.7 million that accelerated a portion of deferred pension cost due to the annuitization of a portion of the total projected benefit obligation of the inactive Tempel Employees Pension Plan.

Interest Expense, Net

(In millions)

Interest expense, net in the current year period was $7.7 million, an increase of $1.6 million from the prior year period. The increase was primarily due to higher interest expense on the Credit Facility (due to higher average debt levels offset by lower average interest rates), higher debt levels on the BDC loan, and the interest expense related to the Sitem Group loans. These increases were offset by higher interest income, including the interest income from the net investment hedge. Refer to “Note 9 – Debt” and “Note 14 – Derivative Financial Instruments and Hedging Activities” for additional information.

Equity Income

(In millions)

Equity income at Serviacero Worthington increased $16.3 million from the prior year period, primarily due to higher direct spreads, including inventory holding gains, and favorable foreign currency exchange impacts. The increase was partially offset by lower volumes.

Income Taxes

(In millions)

Income tax expense was $21.1 million for the current year period compared to $12.6 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 24.2% compared to 18.7% for the prior year period. For additional information regarding our income taxes, refer to “Note 12 – 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. Impairment of assets in the current year period was due to pre-tax impairment charges of (a) $0.6 million on certain machinery at our manufacturing facility in Taylor, Michigan and (b) $1.5 million related to internal-use software module assets that were determined to have no value and written down to zero. There was no noncontrolling interest impact for these impairment charges. Impairment of assets in the prior year period were due to pre-tax impairment charges of (a) $1.3 million for an indefinite-lived in-process research and development intangible asset that was determined to be fully impaired and (b) $6.1 million related to our plans to combine WSCP’s Cleveland toll processing manufacturing facility into its existing manufacturing facility in Twinsburg, Ohio, excluding the $2.8 million noncontrolling interest portion of impairment of assets. Refer to “Note 5 – Impairment of Assets” 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). These restructuring activities are excluded to facilitate period-to-period comparability of our operating performance. In the third quarter of fiscal 2025, we announced plans to combine WSCP’s Cleveland toll processing manufacturing facility into WSCP’s existing manufacturing facility in Twinsburg, Ohio. In the current year period, we sold substantially all of the remaining net assets of WSCP’s Cleveland toll processing manufacturing facility, which were reported in assets held for sale prior to the sale. The sales resulted in pre-tax gains of $7.0 million, excluding the impact of noncontrolling interest of $2.6 million, and included finance lease assets and buildings and improvements, net, and machinery and equipment. In the third quarter of fiscal 2025, TWB announced a VRP. In connection with the VRP, we recognized $0.9 million in severance expenses during the third quarter of fiscal 2025, which is recorded in restructuring and other (income) expense, net, and excludes the noncontrolling interest portion of restructuring and other expenses, net of $0.4 million. Refer to “Note 6 – Restructuring and Other (Income) Expense, Net.”

(3) Tax indemnification adjustment reflects tax and indemnification adjustments reported in income tax expense and 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 we acquired Tempel, provides protection to us 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 reported in miscellaneous income (expense), net, and is excluded from adjusted results to facilitate period-to-period comparability of our operating performance as it reflects a discrete settlement event.

(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 reported in miscellaneous income (expense), net, and is excluded from adjusted results to facilitate period-to-period comparability of our operating performance as it reflects the non-operational disposal of real property.

(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 and excludes the impact of noncontrolling interest.

(7) Other loss, net, consists of the following items reported in miscellaneous income (expense), net, which are excluded from adjusted results to facilitate period-to-period comparability of our operating performance:

• 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 from the former owners of the Canadian facility.

(8) Kloeckner purchase derivative consists of the change in the fair value of an economic (non-designated) cash flow derivative that was entered into to hedge a portion of the expected purchase price of the outstanding Kloeckner Shares in connection with the Proposed Acquisition. The change in the fair value is recorded in miscellaneous income (expense), net, and it is excluded from adjusted results to facilitate period-to-period comparability of the Company’s operating performance as it reflects non-operational activity.

(9) Kloeckner acquisition-related expenses consist of the acquisition-related related costs incurred in connection with the Proposed Acquisition, consisting primarily of advisory, legal, accounting, valuation and other professional fees, as well as certain integration expenses, and are expensed as incurred within SG&A expense. Exclusion of these costs is appropriate because they are directly attributable to a specific strategic transaction that management expects to be transformative to our portfolio, scale and long-term operating profile and are not reflective of our ongoing operating performance for the periods presented. Exclusion facilitates period-over-period comparisons, and to assess performance excluding the impact of transaction-specific activities. Kloeckner acquisition-related expenses were $15.4 million and $4.9 million for the third quarter of fiscal 2026 and the second quarter of fiscal 2026, respectively.

Adjusted EBIT in the current year period was up $27.4 million compared to the prior year period primarily due to a $22.9 million increase in gross margin and higher equity income from Serviacero Worthington, partially offset by an increase in SG&A expense.

Legal Proceedings and Contingencies

We are currently involved in a dispute relating to the import of steel across international borders. Based on currently available information, we believe a loss is not probable and therefore has not recorded a reserve. We estimate that a reasonably possible loss could range from $2.0 million to $4.0 million. We will continue to monitor the dispute and will record a reserve if settlement in the dispute becomes probable.

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 other than the Proposed Acquisition, as discussed below. However, there can be no assurances that our current sources of liquidity and capital resources will continue to be sufficient for our needs, including the Proposed Acquisition, or that we will be able to obtain additional debt or equity financing on acceptable terms in the future.

As of February 28, 2026, our cash, cash equivalents, and restricted cash balance was $90.0 million, compared to cash, cash equivalents, and restricted cash balance of $92.9 million at May 31, 2025.

During the nine months ended February 28, 2026, we generated cash of $156.3 million in operating activities and used $170.1 million in investing activities, which included $101.4 million in purchases of equity securities, $84.1 million invested in property, plant and equipment, partially offset by proceeds from sale of assets, net of selling costs of $16.6 million. Acquisitions, net of cash acquired, during the current year period was $1.6 million due to the acquisition of Sitem Group. Additionally, including the cash paid for debt issuance costs, we had net debt proceeds of $41.6 million, and we paid cash dividends of $24.6 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 February 28, 2026, the Credit Facility had availability of $150.5 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, including the Proposed Acquisition, 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, including but not limited to, funding the Proposed Acquisition. 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 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. We believe we currently have adequate capital for our current operational needs.

Proposed Acquisition of Kloeckner

We intend to fund the consideration and related transaction costs for the Proposed Acquisition with a combination of cash on hand and new debt financing expected to consist of senior secured indebtedness, which will be issued subject to market conditions and other factors. While we obtained the Bridge Nonrevolving Loan Commitment of $1.9 billion to support the expected permanent financing, there can be no assurance that we will be able to obtain additional capital, including permanent acquisition-related financing, 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.

Given the permanent financing structure has not yet been finalized, the ultimate amount of indebtedness incurred, and the applicable interest rates remain subject to market conditions at the time of issuance.

A more detailed description regarding our capital structure changes, including the impacts of Proposed Acquisition, can be found elsewhere in this MD&A as well as in the “Financing Activities” section below.

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 $156.3 million during the nine months ended February 28, 2026, compared to $176.4 million net cash provided by operating activities during the nine months ended February 28, 2025. In the current year period, the driver of this change was a $42.2 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 $12.8 million related to lower compensation, including incentive compensation, payments, 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 $170.1 million during the nine months ended February 28, 2026, compared to net cash used in investing activities of $83.8 million during the nine months ended February 28, 2025. In the current year period, the main drivers of net cash used in investing activities were the $101.4 million in purchases of equity securities, as well as capital expenditures, including the previously announced strategic expansion of our electrical steel operations in Canada and Mexico to service the transformer and automotive markets, respectively. This was partially offset by proceeds from sale of assets, net of selling costs of $16.6 million, primarily related to the sale of assets at WSCP’s remaining Cleveland toll processing manufacturing facility. Acquisitions, net of cash acquired, during the current year period, was $1.6 million due to the acquisition of Sitem Group. See Note 2 – “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 strategic initiatives, including, but not limited to, manufacturing capacity expansions, corporate headquarters, and other technology upgrades.

Financing Activities

Net cash provided by financing activities was $11.0 million during the nine months ended February 28, 2026, compared to net cash used in financing activities of $69.5 million during the nine months ended February 28, 2025. In the current year period, the main driver of net cash provided by financing activities was net debt proceeds, including debt issuance costs, of $41.6 million as compared to net debt repayments of $35.8 million in the prior year period. During the nine months ended February 28, 2026, our net incremental short-term borrowings under the Credit Facility were $43.5 million. During the first and second quarters of fiscal 2026, net repayments on short-term borrowings were $39.2 million, whereas we had net borrowings of $82.7 million during the third quarter of fiscal 2026. We used a portion of the gross proceeds in the third quarter of fiscal 2026 to acquire $101.4 million of Kloeckner Shares.

There were $1.9 million of net payments on long-term debt and debt issuance costs during the nine months ended February 28, 2026, compared to $2.2 million of net proceeds during the nine months ended February 28, 2025. There were increased draws on the BDC Loan, which totaled $21.8 million during the nine months ended February 28, 2026. This was offset by the repayment of four of Sitem Group’s loans prior to the maturity date totaling €12.4 million (approximately $14.3 million at the time of payment) with cash on hand. Additionally, during the current year period, a fifth loan was fully repaid at the expected maturity date.

Dividends of $24.6 million to holders of our common shares were paid during the current year period. There were no payments to noncontrolling interest during the current year period compared to $6.9 million in the prior year 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 February 28, 2026, there was $192.7 million of outstanding borrowings drawn against the Credit Facility with $150.5 million available under the Credit Facility after accounting for the eligible borrowing base. As of February 28, 2026, we were in compliance with the financial covenants of the Credit Facility.

On January 15, 2026, we amended the Credit Facility to, among other things, permit us to consummate the Offer. We incurred immaterial costs associated with the amendment. For additional information, see “Note 2 – Acquisitions.”

Canadian Government Regional Economic Growth Loan – The FED DEV Loan is for an amount of up to CAD $3.5 million (approximately USD $2.6 million as of February 28, 2026) and is to be used for the purchase and installation of advanced manufacturing equipment at Tempel Canada’s Burlington, Ontario location. As of February 28, 2026, $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 $42.2 million as of February 28, 2026), to fund the construction of a new manufacturing facility in Burlington, Ontario, Canada. As extended in the third quarter of fiscal 2026, the draw period for the BDC Loan will lapse on June 30, 2026, unless further extended by 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 February 28, 2026, $21.8 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 $3.7 million as of February 28, 2026) to support building and equipment expansion at Tempel Canada’s Burlington, Ontario location. During fiscal 2026, we have received total distributions of CAD $2.5 million (approximately USD $1.8 million as of February 28, 2026). The AMIC Loan is structured with an incentive component that states up to CAD $0.5 million (approximately USD $0.4 million as of February 28, 2026) of the principal may be forgiven if certain performance targets are met. As of February 28, 2026, $1.8 million was outstanding under the AMIC Loan.

Sitem Group Term Loans – We assumed 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. 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 February 28, 2026, the aggregate amount outstanding of the Sitem Group Term Loans was $32.8 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 9 – Debt.”

During the third quarter of fiscal 2026, Sitem Group fully repaid four of its loan agreements prior to the maturity date totaling €12.4 million (approximately $14.3 million) with cash on hand. Upon repayment of one of the loan agreements, the associated interest rate swap was terminated. Additionally, during the third quarter of fiscal 2026, a fifth loan was fully repaid at the expected maturity date. For additional information, see “Note 9 – Debt” and “Note 14 – Derivative Financial Instruments and Hedging Activities.”

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 $22.1 million as of February 28, 2026). 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 $5.2 million as of February 28, 2026), tested monthly beginning April 30, 2025. Stanzwerk AG was in compliance with these covenants as of February 28, 2026. A detailed discussion of all debt obligations and their associated terms is provided in “Note 9 – Debt.”

Common shares – On March 25, 2026, the Board declared a quarterly cash dividend of $0.16 per common share payable on June 26, 2026, to shareholders of record at the close of business on June 12, 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 nine months ended February 28, 2026.

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 historical results 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 14 – 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 February 28, 2026. Additionally, we have purchased Kloeckner Shares with readily determined fair values for which we do not have a controlling interest or significant influence. As a result, we are exposed to equity price risk related to our investment in Kloeckner Shares. There have been no material changes to our market risk other than the aforementioned cross-currency swap and equity investments during the nine months ended February 28, 2026. 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 14 – Derivative Financial Instruments and Hedging Activities” to the consolidated financial statements located in Item 1 of this Form 10-Q.

As of February 28, 2026, if the Euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $8.0 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.

Equity Price Risk

Equity Securities

During the third quarter of fiscal 2026, we purchased Kloeckner Shares, which are publicly traded equity securities. These investments are subject to market volatility and may fluctuate in value based on changes in market conditions and issuer-specific developments.

As disclosed in “Note 4 – Investments” to the consolidated financial statements located in Item 1 of this Form 10-Q, as of February 28, 2026, the fair value of the Kloeckner Shares measured at fair value was $101.3 million. A hypothetical 10% decrease in market prices as of February 28, 2026 would result in an approximate $10.1 million decrease in the fair value of those equity securities, which would be recognized in net earnings.

This sensitivity analysis is based on a static balance sheet position and does not consider potential management actions or changes in market conditions subsequent to the reporting date. Given changes in the fair value of equity securities are recognized in net earnings, our net earnings may experience volatility unrelated to our core operating performance. During the nine months ended February 28, 2026, changes in fair value of equity securities increased net earnings by $0.3 million. Future market fluctuations could materially affect results of operations.

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 February 28, 2026). Based on that evaluation, Worthington Steel’s principal executive officer and principal financial officer have concluded that such disclosure controls and procedures are 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 February 28, 2026) 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.

The following information supplements the risk factors described 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) and should be read in conjunction with the risk described 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 and those described in this report or other SEC filings 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 and those described in this report or other SEC filings 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.

Proposed Acquisition-Related Risks

The Proposed Acquisition is subject to a number of conditions, and the BCA may be terminated by Worthington Steel or Kloeckner under certain circumstances. If the Proposed Acquisition is not completed, the price of our common shares may be adversely affected.

The Offer Closing is subject to certain closing conditions as set forth in the Offer Document (the “Offer Conditions”), including, among other things, Worthington Steel obtaining the required merger and investment control clearances, foreign investment clearances, and EU foreign subsidies control clearance for the Offer (together, the “Regulatory Conditions”). The Offer Conditions, other than the Regulatory Conditions, were deemed satisfied upon the expiration of the initial acceptance period on March 26, 2026. The Regulatory Conditions must be satisfied on or prior to March 12, 2027.

The BCA may be terminated by either us or Kloeckner under certain circumstances, including, among others, if (i) the Offer lapses as a result of non-satisfaction of the Regulatory Condition, (ii) a competing transaction has been consummated or (iii) if we, on the one hand, or Kloeckner, on the other hand, has materially breached our obligations under the BCA and such breach remains uncured after seven business days.

If the Regulatory Conditions are not satisfied, or if termination rights are exercised, the BCA will terminate, and the Proposed Acquisition will not be completed. If the Proposed Acquisition is delayed or not completed, the price of our common shares may decline.

If the Proposed Acquisition is not completed, we will have incurred substantial costs that may adversely affect our financial results and operations and the market price of our common shares.

If the Proposed Acquisition is not completed, the price of our common shares may decline to the extent that the current market price of our common shares reflects a market assumption that the Proposed Acquisition will be completed. In addition, we have incurred and will continue to incur substantial costs in connection with the Proposed Acquisition. These costs are primarily associated with the fees of attorneys, accountants and our financial and other advisors, as well as committed financing fees. In addition, we have diverted significant management resources in an effort to complete the Proposed Acquisition. If the Proposed Acquisition is not completed, we will have received little or no benefit in respect of such costs incurred.

Further, if the Proposed Acquisition is not completed, we may experience negative reactions from the financial markets and from our suppliers, customers and employees. Each of these factors may adversely affect the trading price of our common shares and our financial results and operations.

As of the date of this filing, we have acquired approximately 8% of the outstanding share capital of Kloeckner outside of the Offer, and we have committed to purchase an additional 1,000,000 Kloeckner Shares at €11.00 per share from a single Kloeckner shareholder in connection with the transaction. If the Proposed Acquisition is not completed and the market price of Kloeckner's shares declines, we could incur significant losses on these share positions, which could adversely affect our financial condition and results of operations.

The Proposed Acquisition may limit our financial flexibility and increase our interest expense.

We intend to fund the consideration for the Offer and related transaction costs with a combination of cash on hand and new debt financing expected to consist of long-term senior secured indebtedness, which we expect to issue subject to market conditions and other factors.

The new debt financing is expected to contain covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, or under certain situations, making capital expenditures or increasing dividends beyond current levels, which could limit our financial flexibility.

In addition, although we have obtained debt financing commitments to backstop the new debt financing, if we are not able to obtain permanent financing on favorable terms, we may be required to fund a portion of the consideration for the Offer and related transaction costs at interest rates higher than currently expected, which could significantly increase our long-term cost of capital.

Elevated levels of debt driven by the new debt financing may cause us to miss out on other opportunities to grow our business such as other acquisitions or capital projects.

Restrictions on Worthington Steel’s dealings with Kloeckner may delay the implementation of our integration strategy and could adversely impact our results of operations. We further intend to enter into a domination and profit and loss transfer agreement with Kloeckner that could be disadvantageous.

On March 31, 2026, we announced that we had achieved the minimum acceptance threshold of Kloeckner’s issued share capital. Following such announcement, an additional, statutory two-week acceptance period began on April 1, 2026, which will conclude on April 14, 2026, after which we will announce the final results of the Offer. Upon the Offer Closing, we expect to acquire all the tendered Kloeckner Shares, but we also expect that there will be remaining minority Kloeckner shareholders that did not tender their Kloeckner Shares in connection with the Offer. As a result, under German law we are subject to certain restrictions in our dealings with Kloeckner.

On March 27, 2026, we informed Kloeckner about our firm intention to enter into a DPLTA with Kloeckner immediately after Offer Closing, and Kloeckner published an ad hoc announcement to this effect on the same day. While we are confident that we will secure the required majority at the general meeting of Kloeckner shareholders to approve the establishment of a DPLTA, unless and until a DPLTA is established, we may not have control over the day-to-day operations of Kloeckner. These restrictions could delay the implementation of our strategy and may adversely impact our results of operations. There can be no assurance that a DPLTA will be established.

Following the Offer Closing, we intend to enter into a DPLTA with Kloeckner. According to the applicable provisions of the German Stock Corporation Act, under a DPLTA, we would be obligated to compensate any annual net loss of Kloeckner. Furthermore, each remaining minority Kloeckner shareholder would have the option to either:

• Remain a Kloeckner shareholder and receive annual recurring compensation as stipulated by the German Stock Corporation Act; or,
• Receive adequate exit compensation in exchange for their Kloeckner Shares, in accordance with the provisions of the German Stock Corporation Act.

Kloeckner shareholders choosing the first option may later elect the second option. Our obligation to pay annual recurring compensation could result in a continuous payment obligation that may be higher than the minimum dividends that would be otherwise distributed. Our obligation to, upon shareholder demand, provide adequate exit compensation in exchange for Kloeckner Shares could require us to use significant cash or other financing resources. There can be no assurance that DPLTA will be established or that, if established, the related obligation will not adversely affect our business, financial condition, results of operations or cash flows.

Once the DPLTA is established, failure to successfully integrate our business and Kloeckner’s business in the expected timeframe may adversely affect our future results.

We entered into the BCA with the expectation that the Proposed Acquisition will result in various benefits, including certain cost savings, operational efficiencies or synergies, and an accretive effect on our earnings. To realize these anticipated benefits, our business and Kloeckner’s business must be successfully integrated. Historically, we and Kloeckner have been independent companies, and we will continue to be operated as such until the DPLTA is established. The integration may be complex and time-consuming and may require substantial resources and effort. Our management may face significant challenges in consolidating our operations and Kloeckner’s operations, integrating the two companies’ technologies, procedures, and policies, as well as addressing the different corporate cultures of the two companies. If the companies are not successfully integrated, the anticipated benefits of the Proposed Acquisition, including estimated cost, operations and commercial synergies and the timeline to realize such synergies, may not be realized fully or at all, or may take longer to realize than expected.

Additionally, our ability to realize anticipated benefits of the Proposed Acquisition could be affected by a number of other factors, including: the need for greater than expected cash or other financial resources or management time in order to integrate Kloeckner’s business; increases in other expenses related to the Proposed Acquisition, including restructuring costs; the timing and impact of purchase accounting adjustments; accounting for IFRS to GAAP adjustments; difficulties in employee or management integration; the impact of appraisal proceedings in connection with the DPLTA; adverse tax impacts related to delays in regulatory approval closing, implementation of the DPLTA, or other unanticipated factors; and unanticipated liabilities associated with the Proposed Acquisition. Any potential cost-saving opportunities may take several years following the Proposed Acquisition to implement, and any results of these actions may not be realized for several years thereafter, if at all.

We must continue to retain, recruit and motivate executives and other key employees, and failure to do so could negatively affect us.

The success of the Proposed Acquisition and our post-closing integration efforts depend, in part, on our ability to retain, recruit and motivate executives and other key employees for the benefits of the transaction to be fully realized. Our and Kloeckner’s employees may experience uncertainty about their future roles until, or even after, strategies regarding the Proposed Acquisition are announced and executed. Some of those employees may decide not to remain with us or Kloeckner as a result of the Proposed Acquisition. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected, and management’s attention may be diverted from successfully integrating the Company and Kloeckner to hiring suitable replacements. The potential distractions related to the Proposed Acquisition may adversely affect our ability to keep executives and other key employees focused on business strategies and goals, to address other important personnel matters and to retain them at all. A failure by us or Kloeckner to attract, retain and motivate executives and other key employees during the period prior to or after the Offer Closing could have a negative impact on our business and our financial results and operations.

Litigation challenging the Proposed Acquisition, including under the BCA and/or any DPLTA, may prevent the Proposed Acquisition from being consummated within the expected timeframe or at all.

Lawsuits may be filed against us, our board of directors, Kloeckner, or other parties to the BCA, challenging the Proposed Acquisition and making other claims in connection therewith and/or any DPLTA. Such lawsuits may be brought by purported shareholders and seek, among other things, to enjoin consummation of the Proposed Acquisition. One of the conditions to the Offer Closing is that there is no order from any relevant court prohibiting the continuation or consummation of the Offer. While this condition was deemed satisfied upon the expiration of the initial acceptance period, if any subsequent action successfully delays or prohibits the Offer Closing, we may be unable to complete the Proposed Acquisition on a timely basis or at all. The potential distractions related to litigation challenging the Proposed Acquisition may divert management’s attention away from successfully integrating the Company and Kloeckner.

Risks Related to Our Company, Business and Operations

The conflict between the United States, Israel and Iran and related geopolitical instability may adversely affect our business.

In February 2026, the United States and Israel launched coordinated military strikes against Iran, which retaliated with missile attacks across the region. Although we do not have material operations in the Middle East, the ongoing conflict and any further escalation, including additional military actions, retaliatory measures, sanctions, disruptions to trade or transportation routes, cyberattacks, or other governmental or market responses, has and could continue to lead to significant disruption of global energy supplies and increases in global energy prices, heighten inflationary pressures on our input costs and supply chain, adversely affect global supply chains, energy markets, commodity prices, currency exchange rates, interest rates, financial markets and overall macroeconomic conditions, increase the cost or reduce the availability of debt financing, and adversely impact customer spending patterns in markets in which we operate. While the impacts of conflict between the United States, Israel, and Iran may have an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.