Worthington Steel posts $5M quarterly net loss
Worthington Steel classified the acquired Kloeckner Disposal Group as held for sale and expects the sale to be completed before the end of fiscal 2027.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Rhea-AI Filing Summary
Worthington Steel, Inc. reported net sales of $2,726.6 million for the three months ended August 31, 2026, versus $872.9 million a year earlier; consolidated net loss was $5.0 million, compared with net earnings of $38.6 million. Kloeckner, consolidated from June 3, 2026, contributed $1,772.7 million in sales and $4.5 million in net earnings attributable to controlling interest from continuing operations.
Worthington Steel completed its acquisition of 52.52% of Kloeckner’s issued and outstanding shares through a voluntary public cash takeover offer at €11.00 per share, subject to increases made voluntarily or as required under applicable German law. Subsequent purchases raised its ownership to approximately 62.11%. Preliminary consideration transferred was $776.4 million, including $670.0 million cash consideration.
As of August 31, 2026, total debt was $2,196.4 million, including $541.6 million of short-term borrowings and current maturities due within the next year. Worthington Steel issued $700.0 million of 7.75% senior secured notes and entered a $700.0 million term loan to fund part of the acquisition; it repaid $200.0 million of the term loan on August 19, 2026, leaving $500.0 million outstanding.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointNet sales were $2,726.6 million, versus $872.9 million a year earlier.
Negative
- Moderate pointNet loss: $5.0 million versus $38.6 million in net earnings a year earlier.
Filing Explained
Any DPLTA-related obligations depend on the agreement being established.
Worthington Steel describes a Domination and Profit and Loss Transfer Agreement with Kloeckner as conditional: if established, it would create ongoing financial obligations to Kloeckner and its minority shareholders.
Separately, management says it has committed to sell the Kloeckner disposal group, including Becker Stahl-Service GmbH and related operations, and expects completion before fiscal 2027 ends; the group is classified as discontinued operations and reported separately from continuing operations.
Key Figures
Key Terms
controlling financial interest financial
purchase price allocation financial
toll processing technical
asset-based revolving credit agreement financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What was Worthington Steel’s Kloeckner offer price?
How much did Kloeckner contribute to Worthington Steel’s quarterly results?
How much availability did Worthington Steel have under its new revolving credit facility?
When does Worthington Steel expect to sell the acquired Becker operations?
AI-generated analysis. How Rhea-AI works. Not financial advice.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended |
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ___________ to ___________ |
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Commission File Number: |
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code) |
Not Applicable |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
On October 9, 2026, the number of common shares, without par value, of the registrant issued and outstanding was
Table of Contents
TABLE OF CONTENTS
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Cautionary Note Regarding Forward-Looking Statements |
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Part I. Financial Information |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets – August 31, 2026 and May 31, 2026 |
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Consolidated Statements of Earnings –Three Months Ended August 31, 2026, and August 31, 2025 |
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Consolidated Statements of Comprehensive Income –Three Months Ended August 31, 2026, and August 31, 2025 |
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Consolidated Statements of Cash Flows – Three Months Ended August 31, 2026, and August 31, 2025 |
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Consolidated Statements of Equity and Mezzanine Equity – Three Months Ended August 31, 2026, and August 31, 2025 |
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Condensed Notes to Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. |
Controls and Procedures |
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Part II. Other Information |
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Item 1. |
Legal Proceedings |
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Item 1A. |
Risk Factors |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. |
Defaults Upon Senior Securities |
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Item 4. |
Mine Safety Disclosures |
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Item 5. |
Other Information |
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Item 6. |
Exhibits |
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Signatures |
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i
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Selected statements made by Worthington Steel, Inc. (“Worthington Steel” and, together with its consolidated subsidiaries, the “Company,” “we,” “us,” or “our”) contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”), including, without limitation, the notes to the consolidated financial statements contained in Part I, Item 1 hereto, “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 1A. Risk Factors—Proposed Acquisition-Related Risks,” constitute “forward-looking statements,” as that term is used in the Private Securities Litigation Reform Act of 1995, as amended (the “PSLRA”). Forward-looking statements reflect the Company’s current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “should,” “would,” “intend,” “plan,” “will,” “likely,” “estimate,” “project,” “position,” “strategy,” “target,” “aim,” “seek,” “foresee,” or other similar words or phrases. These forward-looking statements include, without limitation, statements relating to:
ii
Table of Contents
Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow:
iii
Table of Contents
iv
Table of Contents
We note these risk factors for investors as contemplated by the PSLRA. Forward-looking statements should be construed in the light of such risks. It is impossible to predict or identify all potential risk factors. Consequently, readers should not consider the foregoing list to be a complete set of all potential risks and uncertainties. Readers are cautioned not to place undue reliance on any forward-looking statements. Any forward-looking statements in this Form 10-Q are based on currently available information as of the date of this Form 10-Q, and we assume no obligation to correct or update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
v
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. – Financial Statements
WORTHINGTON STEEL, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
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(Unaudited) |
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August 31, |
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May 31, |
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2026 |
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2026 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, less allowances of $ |
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Inventories: |
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Raw materials |
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Work in process |
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Finished products |
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Total inventories |
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Income taxes receivable |
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Assets held for sale |
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Prepaid expenses and other current assets |
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Current assets of discontinued operations |
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Total current assets |
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Investment in unconsolidated affiliates |
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Operating lease right-of-use assets |
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Finance lease right-of-use assets, net of accumulated amortization of $ |
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Goodwill |
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Other intangible assets, net of accumulated amortization of $ |
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Deferred income taxes |
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Equity securities |
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Prepaid pension assets |
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Other assets |
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Property, plant and equipment: |
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Land |
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Buildings and improvements |
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Machinery and equipment |
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Construction in progress |
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Total property, plant and equipment |
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Less: accumulated depreciation |
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Total property, plant and equipment, net |
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Non-current assets held for sale |
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Non-current assets of discontinued operations |
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Total assets |
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$ |
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$ |
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See condensed notes to consolidated financial statements.
1
Table of Contents
WORTHINGTON STEEL, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
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(Unaudited) |
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August 31, |
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May 31, |
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2026 |
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2026 |
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Liabilities, mezzanine equity, and equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Short-term borrowings |
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Accrued compensation, contributions to employee benefit plans and related taxes |
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Dividends payable |
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Other accrued items |
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Current operating lease liabilities |
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Current finance lease liabilities |
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Income taxes payable |
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Current maturities of long-term debt |
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Current liabilities of discontinued operations |
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Total current liabilities |
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Other liabilities |
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Long-term debt, net |
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Non-current operating lease liabilities |
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Non-current finance lease liabilities |
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Deferred income taxes |
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Non-current liabilities of discontinued operations |
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Total liabilities |
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Mezzanine equity: |
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Redeemable noncontrolling interest (“Redeemable NCI”) |
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Total mezzanine equity |
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Shareholders’ equity – controlling interest: |
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Preferred shares, value; authorized – |
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Common shares, value; authorized – |
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Additional Paid-in Capital (“APIC”) |
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Retained Earnings |
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Accumulated other comprehensive income (loss), net of taxes of $( |
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( |
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Total Shareholders’ equity – controlling interest |
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Noncontrolling interests (“NCI”) |
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Total equity |
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Total liabilities, mezzanine equity, and equity |
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$ |
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$ |
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See condensed notes to consolidated financial statements.
2
Table of Contents
WORTHINGTON STEEL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share amounts)
(Unaudited)
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Three Months Ended |
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August 31, |
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2026 |
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2025 |
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Net sales |
$ |
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$ |
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Cost of goods sold |
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Gross margin |
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Selling, general and administrative expense |
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Restructuring and other (income) expense, net |
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( |
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Operating income |
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Other income (expense): |
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Miscellaneous income (expense), net |
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( |
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Interest expense, net |
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( |
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( |
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Equity in net income of unconsolidated affiliate |
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Earnings before income taxes |
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Income tax expense |
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Net earnings (loss) from continuing operations |
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( |
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Net loss from discontinued operations |
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( |
) |
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Net earnings (loss) |
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Net earnings attributable to noncontrolling interests |
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Net earnings (loss) attributable to controlling interest |
$ |
( |
) |
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$ |
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Amounts attributable to controlling interest: |
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Net earnings (loss) from continuing operations |
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( |
) |
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Net loss from discontinued operations |
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( |
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Net earnings (loss) attributable to controlling interest |
$ |
( |
) |
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$ |
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Earnings per share - basic: |
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Continuing operations |
$ |
( |
) |
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$ |
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Discontinued operations |
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( |
) |
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Consolidated earnings per share - basic |
$ |
( |
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$ |
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Earnings per share - diluted: |
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Continuing operations |
$ |
( |
) |
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$ |
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Discontinued operations |
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( |
) |
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Consolidated earnings per share - diluted |
$ |
( |
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$ |
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Weighted average common shares outstanding - basic |
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Weighted average common shares outstanding - diluted |
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Common shares outstanding at end of period |
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Cash dividends declared per share |
$ |
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$ |
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See condensed notes to consolidated financial statements.
3
Table of Contents
WORTHINGTON STEEL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
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Three Months Ended |
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August 31, |
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2026 |
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2025 |
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Net earnings (loss) attributable to controlling interest |
$ |
( |
) |
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$ |
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Net earnings attributable to noncontrolling interests |
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Net earnings (loss) |
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( |
) |
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Other comprehensive income (loss): |
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Foreign currency translation, net |
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( |
) |
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Net investment hedge, net of tax |
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( |
) |
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Pension liability adjustment, net of tax |
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( |
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Cash flow hedges, net of tax |
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Other comprehensive income (loss) |
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( |
) |
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Comprehensive income (loss) |
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( |
) |
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Comprehensive income (loss) attributable to noncontrolling interests |
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( |
) |
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Comprehensive income (loss) attributable to controlling interest |
$ |
( |
) |
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$ |
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|
See condensed notes to consolidated financial statements.
4
Table of Contents
WORTHINGTON STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
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Three Months Ended |
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August 31, |
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2026 |
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2025 |
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Operating activities: |
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Net earnings (loss) |
|
$ |
( |
) |
|
$ |
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Adjustments to reconcile net earnings (loss) to net cash used in operating activities: |
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Loss from discontinued operations, net |
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- |
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Depreciation and amortization |
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Benefit from deferred income taxes |
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( |
) |
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( |
) |
Bad debt expense (income) |
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( |
) |
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Equity in net income of unconsolidated affiliate, net of distributions |
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( |
) |
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Net gain on sale of assets |
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( |
) |
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( |
) |
Stock-based compensation |
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Realized loss on equity investment |
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Noncash restructuring and other expense |
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Changes in assets and liabilities, net of impact of acquisitions: |
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Receivables |
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( |
) |
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( |
) |
Inventories |
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( |
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( |
) |
Accounts payable |
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( |
) |
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Accrued compensation and employee benefits |
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( |
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( |
) |
Other operating items, net |
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Net cash used in operating activities |
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( |
) |
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( |
) |
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Investing activities: |
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Investment in property, plant and equipment |
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( |
) |
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( |
) |
Acquisitions, net of cash acquired |
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( |
) |
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( |
) |
Proceeds from sale of assets, net of selling costs |
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Other investing activities |
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Net cash used in investing activities |
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( |
) |
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( |
) |
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|
|
|
|
||
Financing activities: |
|
|
|
|
|
|
||
Proceeds from (repayments of) short-term borrowings, net |
|
|
( |
) |
|
|
|
|
Proceeds from revolving credit facility borrowings - swing loans |
|
|
|
|
|
|
||
Repayments of revolving credit facility borrowings - swing loans |
|
|
( |
) |
|
|
( |
) |
Proceeds from long-term debt, net of issuance costs |
|
|
|
|
|
|
||
Principal payments on long-term debt |
|
|
( |
) |
|
|
( |
) |
Payments of tax withholdings, net of proceeds from issuance of common shares |
|
|
( |
) |
|
|
( |
) |
Payments to noncontrolling interests |
|
|
( |
) |
|
|
|
|
Dividends paid |
|
|
( |
) |
|
|
( |
) |
Purchase of noncontrolling interest in Kloeckner |
|
|
( |
) |
|
|
|
|
Payments of debt issuance costs |
|
|
( |
) |
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Cash Flows from Discontinued Operations: |
|
|
|
|
|
|
||
Net cash provided by operating activities of discontinued operations |
|
|
|
|
|
|
||
Net cash provided by investing activities of discontinued operations |
|
|
|
|
|
|
||
Net cash provided by discontinued operations |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Effects of exchange rate changes on cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
See condensed notes to consolidated financial statements.
5
Table of Contents
WORTHINGTON STEEL, INC.
CONSOLIDATED STATEMENTS OF EQUITY AND MEZZANINE EQUITY
(In millions, except per common share amounts)
(Unaudited)
|
Shareholders’ Equity |
|
|
|
|
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine |
|
|||||||||
|
Controlling Interest |
|
|
|
|
|
|
|
|
Equity |
|
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Common Shares |
|
|
|
|
|
AOCI, |
|
|
Retained |
|
|
|
|
|
|
|
|
|
|
|
Redeemable |
|
||||||||||||
|
Shares |
|
|
Amount |
|
|
APIC |
|
|
Net of Tax |
|
|
Earnings |
|
|
Total |
|
|
NCI |
|
|
Total |
|
|
NCI |
|
|||||||||
Balance at May 31, 2026 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Acquisition (Note 2) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
||
Purchase of noncontrolling interest in Kloeckner (Note 2) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
Net earnings (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Other comprehensive loss |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
Other comprehensive income attributable to Redeemable NCI |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Common shares issued, net of withholding tax |
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Dividends to noncontrolling interests |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
Cash dividends declared ($ |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
Balance at August 31, 2026 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
Shareholders’ Equity |
|
|
|
|
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine |
|
|||||||||
|
Controlling Interest |
|
|
|
|
|
|
|
|
Equity |
|
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Common Shares |
|
|
|
|
|
AOCI, |
|
|
Retained |
|
|
|
|
|
|
|
|
|
|
|
Redeemable |
|
||||||||||||
|
Shares |
|
|
Amount |
|
|
APIC |
|
|
Net of Tax |
|
|
Earnings |
|
|
Total |
|
|
NCI |
|
|
Total |
|
|
NCI |
|
|||||||||
Balance at May 31, 2025 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|||||||
Acquisition (Note 2) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Contribution of Tempel Nagold (Note 2) |
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
|
|
Net earnings |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||
Other comprehensive income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Other comprehensive income attributable to Redeemable NCI |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Common shares issued, net of withholding tax |
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
Theoretical common shares in non-qualified deferred compensation plans |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|||
Cash dividends declared ($ |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
Balance at August 31, 2025 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
See condensed notes to consolidated financial statements.
6
Table of Contents
WORTHINGTON STEEL, INC. INDEX TO Condensed Notes to CONSOLIDATED Financial Statements (Unaudited)
|
|
PAGE |
Note 1 – Description of Business and Basis of Presentation |
|
8 |
Note 2 – Acquisitions |
|
11 |
Note 3 – Revenue Recognition |
|
14 |
Note 4 – Investments |
|
15 |
Note 5 – Restructuring and Other (Income) Expense, Net |
|
17 |
Note 6 – Contingent Liabilities and Commitments |
|
18 |
Note 7 – Guarantees |
|
18 |
Note 8 – Debt |
|
19 |
Note 9 – Other Comprehensive Income (Loss) |
|
24 |
Note 10 – Equity and Mezzanine Equity |
|
25 |
Note 11 – Income Taxes |
|
25 |
Note 12 – Employee Retirement Plans |
|
26 |
Note 13 – Earnings per Share |
|
27 |
Note 14 – Derivative Financial Instruments and Hedging Activities |
|
27 |
Note 15 – Fair Value |
|
32 |
Note 16 – Related Party Transactions |
|
34 |
Note 17 – Segment Information |
|
34 |
Note 18 – Discontinued Operations |
|
35 |
Note 19 – Subsequent Events |
|
37 |
7
Table of Contents
WORTHINGTON STEEL, INC.
Condensed Notes to CONSOLIDATED Financial Statements
(Unaudited)
Note 1 – Description of Business and Basis of Presentation
Description of Business
Worthington Steel, Inc. (“Worthington Steel,” together with its consolidated subsidiaries, the “Company”) is a value-added metals processor and service center company with a diversified range of products and services serving customers across a variety of end markets. On June 3, 2026, the Company completed the acquisition of a controlling equity interest in German-based Kloeckner (the “Kloeckner Acquisition”), significantly expanding the Company’s scale, product and service offerings, end-market exposure and geographic footprint. For additional information, see “Note 2 – Acquisitions.”
The Company sells steel on a direct basis, whereby it is exposed to the risks and rewards of ownership of the material while in its possession. Additionally, the Company toll processes steel under a fee for service arrangement whereby it processes customer-owned material. The Company’s manufacturing facilities further benefit from the flexibility to scale between direct and tolling services based on demand dynamics throughout the year.
Worthington Steel became an independent, publicly traded company on December 1, 2023, following its separation from Worthington Enterprises, Inc., formerly known as Worthington Industries, Inc.
Basis of Presentation
The unaudited consolidated financial statements include the accounts of Worthington Steel and its consolidated subsidiaries. Material intercompany accounts and transactions are eliminated.
These interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments that are of a normal and recurring nature necessary for a fair presentation of the consolidated financial statements for these interim periods have been included. Operating results for the first quarter of fiscal 2027 are not necessarily indicative of the results that may be expected for the entirety of fiscal 2027 or any other quarter. These interim unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the 2026 Form 10-K.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
On June 3, 2026, the Company completed its acquisition of a controlling interest in Kloeckner, a Germany-based metals processor with operations primarily in the United States, Mexico, and Europe. Following the acquisition, the Company held approximately
The Company owns controlling interests in the following additional
The results of Sitem Group are included in the Company’s consolidated financial statements on a one-month reporting lag to allow for the timely completion of its financial reporting process. The Company did not identify any material events during the most recent lag period that would require adjustment to the consolidated financial statements. For additional information, see “Note 2 – Acquisitions.”
8
Table of Contents
The Company owns a noncontrolling interest (
Discontinued Operations
In connection with the Kloeckner Acquisition, the Company acquired certain Kloeckner business units that met the held-for-sale criteria under Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment (“ASC 360”) as of the acquisition date, including Becker Stahl-Service GmbH and its related steel service center operations (the “Kloeckner Disposal Group”). In accordance with ASC Topic 805, Business Combinations (“ASC 805”), the Kloeckner Disposal Group was classified and measured at fair value less costs to sell as of the acquisition date. Management has committed to a plan to sell the Kloeckner Disposal Group, and expects the sale to be completed before the end of fiscal 2027.
Unless otherwise indicated, amounts and disclosures included in the interim condensed consolidated financial statements relate to the Company’s continuing operations and exclude amounts attributable to discontinued operations. For additional information, see “Note 18 – Discontinued Operations and Assets and Liabilities Held for Sale.”
New Accounting Policies
The Company has updated the following significant accounting policies in the first quarter of fiscal 2027 following the acquisition of Kloeckner. There have not been any other material changes to the significant accounting policies included in the 2026 Form 10-K.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost for inventories of Worthington Steel is determined using the first-in, first-out method. Cost for inventories of Kloeckner is determined primarily using the monthly moving-average method, with specific identification used for certain inventories. The assessment of net realizable value requires the use of estimates to determine cost to complete, normal profit margin and the ultimate selling price of inventory.
Investments Measured at Net Asset Value
In connection with the Kloeckner Acquisition, the Company acquired investments in venture capital and growth equity funds. These are measured using net asset value (“NAV”) per share (or its equivalent) as a practical expedient under ASC Topic 820, Fair Value Measurement (“ASC 820”), where the investee's NAV is calculated consistent with ASC Topic 946, Financial Services—Investment Companies (“ASC 946”). Changes in NAV are recognized in net earnings within miscellaneous income (expense), net, consistent with the Company's policy for equity securities. Investments are classified as current or non-current based on management's intent and expected timing of sale. Prior-period financial statements were not recast, as the Company held no investments measured using the NAV practical expedient in prior periods. For additional information, see “Note 15 – Fair Value.”
Supplemental cash flow information
The following table summarizes supplemental cash flow information for the periods presented:
|
Three Months Ended |
|
|||||
|
August 31, |
|
|
August 31, |
|
||
(In millions) |
2026 |
|
|
2025 |
|
||
Interest paid, net of amount capitalized |
$ |
|
|
$ |
|
||
Income taxes paid, net of refunds |
$ |
|
|
$ |
|
||
9
Table of Contents
Concentration of Net Sales and Equity Securities
Net Sales
The Company sells its products and services to a diverse customer base and a broad range of end markets. The automotive industry is the largest end market for the Company, which is influenced by the production schedules of Ford, General Motors and Stellantis North America (the “Detroit Three Automakers”).
While the Company’s business is not dependent on any one customer, the Company has significant concentrations of net sales within the automotive end market and with the Detroit Three Automakers. A significant loss of, or decrease in, business from these customers could have an adverse effect on the Company’s consolidated net sales and financial results if the Company were not able to obtain replacement business.
The following table summarizes the concentration percentage of consolidated net sales for the periods presented:
|
|
Three Months Ended |
|
|||||
|
|
August 31, |
|
|
August 31, |
|
||
(Percentage of Net Sales) |
|
2026 |
|
|
2025 |
|
||
End Market – Automotive |
|
|
% |
|
|
% |
||
End Market – Construction |
|
|
% |
|
|
% |
||
Detroit Three Automakers |
|
|
% |
|
|
% |
||
Equity Securities
As of May 31, 2026, the Company’s equity securities were comprised exclusively of Kloeckner shares. As a result of the Kloeckner Acquisition, the Company began consolidating Kloeckner’s results of operations and financial position. As of August 31, 2026, the Company is no longer subject to the fluctuation in the fair value of these securities based on market conditions and issuer-specific developments. Refer to “Note 2 – Acquisitions” for additional information.
Reclassifications: The Company has reclassified the presentation of certain prior-year information to conform to the current presentation.
Recent Accounting Pronouncements
There have been no new accounting standards adopted since the filing of the 2026 Form 10-K that have significance, or potential significance, to the interim condensed consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
Disaggregation of Income Statement Expenses – In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). This guidance requires the disaggregation of certain expense captions into specified categories in disclosures within the notes to the financial statements to provide enhanced transparency into the expense captions presented on the statement of earnings. It is effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. Adoption may be applied either prospectively to financial statements issued for reporting periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the financial statements. The Company is evaluating the impact of adoption, and it expects the adoption of this ASU will result in additional disclosures, but that it will not result in a material impact on its consolidated financial statements.
Targeted Improvements to the Accounting for Internal-Use Software – In September 2025, the FASB issued ASU No. 2025-06, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”). This guidance modernizes the accounting for internal-use software. ASU 2025-06 removes all references to prescriptive and sequential software development stages and clarifies the threshold for beginning capitalization of eligible internal-use software costs. Under the amended guidance, capitalization begins when management has authorized and committed to funding the software project and it is probable that the project will be completed and the software will be used to perform the function intended. It is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2027, with early adoption permitted. ASU 2025-06 can be applied prospectively to new software costs incurred as of the beginning of the adoption
10
Table of Contents
period for all projects, prospectively to new software costs incurred only for projects that meet the new capitalization requirements, or retrospectively by recasting comparative periods and recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the first period presented. The Company is currently evaluating the timing and method of its adoption of ASU 2025-06 and has not selected a transition method, and the impact of adoption is not yet reasonably estimable.
Hedge Accounting Improvements – In September 2025, the FASB issued ASU No. 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements (“ASU 2025-09”). This guidance amends existing guidance to simplify the application of hedge accounting, enhance alignment between risk management activities and financial reporting, and provide additional flexibility in the designation and measurement of certain hedging relationships. The amendments included in the five matters addressed in this ASU are intended to better reflect those strategies in financial reporting by enabling entities to achieve and maintain hedge accounting for highly effective economic hedges of forecasted transactions. It is effective for annual periods beginning after December 15, 2026, and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact that adoption of ASU 2025-09 will have on its consolidated financial statements and related disclosures. The impact of adoption is not yet reasonably estimable.
Accounting for Government Grants Received by Business Entities – In December 2025, the FASB issued ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (“ASU 2025-10”). This guidance establishes authoritative guidance for the recognition, measurement, presentation, and disclosure of government grants received by business entities. It is effective for annual periods beginning after December 15, 2028, including interim periods within those annual periods. ASU 2025-10 allows for modified prospective, modified retrospective, or full retrospective application. Early adoption in interim or annual periods is permitted, with adoption in an interim period to be applied as of the beginning of the annual period that includes that interim. The Company has begun evaluating the guidance, including its application to government financing arrangements containing potential forgiveness provisions, and has not selected a transition method. The impact of adoption is not yet reasonably estimable.
Interim Reporting: Narrow-Scope Improvements – In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”). This guidance enhances consistency in interim reporting for all entities by clarifying interim disclosure requirements and the form and content of interim financial statements in accordance with GAAP. It is effective for interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and must be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact of ASU 2025-11 on its consolidated financial statements and disclosures.
Environmental Credits and Environmental Credit Obligations – In May 2026, the FASB issued ASU No. 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818). This guidance establishes recognition, measurement, presentation and disclosure guidance for environmental credits and related regulatory compliance obligations. It is effective for interim periods within annual reporting periods beginning after December 15, 2027. The guidance will be applied through a cumulative-effect adjustment to opening retained earnings at the beginning of the annual period of adoption, without recasting prior periods. Given the recent issuance of the guidance, the Company has initiated a preliminary assessment of its applicability to the Company’s operations. The impact of adoption is not yet reasonably estimable.
The significant accounting policies discussed herein are not intended to represent a comprehensive list of all of the Company’s accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with a lesser need for the Company’s judgment in its application. There are also areas in which the Company’s judgment in selecting an available alternative would not produce a materially different result.
Note 2 – Acquisitions
Kloeckner Acquisition
On
The acquisition advances the Company's growth strategy by broadening its value-added product offerings, diversifying its end-market exposure and geographic footprint, and significantly increasing the scale of its metals processing operations. The combination is also expected to provide opportunities for operational efficiencies and further growth.
11
Table of Contents
Immediately prior to the Acquisition Date, the previously held Kloeckner shares were accounted for as an equity security investment (see Note 4 – “Investments” in the Company’s Form 10-K for the year ended May 31, 2026). The Company remeasured its previously held equity interest to fair value as of the acquisition date, resulting in a loss of $
On June 15, 2026, an additional
On July 15, 2026, the Company commenced a public delisting tender offer for all outstanding Kloeckner shares not already held by the Company at a price of €
12
Table of Contents
Consideration Transferred & Purchase Price Allocation
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Preliminary |
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(In millions) |
|
Valuation |
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Consideration Transferred |
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Cash Consideration |
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$ |
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Fair value of previously held equity interest |
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Total Consideration Transferred |
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$ |
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|
|
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Recognized amounts of identifiable assets acquired and liabilities assumed |
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Cash and cash equivalents |
|
$ |
|
|
Receivables |
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Inventories |
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Assets held for sale |
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Prepaid expenses |
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Other current assets |
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Current assets of discontinued operations |
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Operating lease right-of-use assets |
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Finance lease right-of-use assets |
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Property, plant and equipment |
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Deferred income taxes |
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Prepaid pension assets |
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Other assets |
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Non-current assets of discontinued operations |
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Total identifiable assets |
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Accounts payable |
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|
( |
) |
Short-term borrowings |
|
|
( |
) |
Accrued compensation and related taxes |
|
|
( |
) |
Other current liabilities |
|
|
( |
) |
Current operating lease liabilities |
|
|
( |
) |
Current finance lease liabilities |
|
|
( |
) |
Current liabilities of discontinued operations |
|
|
( |
) |
Non-current operating lease liabilities |
|
|
( |
) |
Non-current finance lease liabilities |
|
|
( |
) |
Deferred income tax liabilities |
|
|
( |
) |
Long-term debt |
|
|
( |
) |
Pension and other postretirement benefit obligations |
|
|
( |
) |
Other non-current liabilities |
|
|
( |
) |
Non-current liabilities of discontinued operations |
|
|
( |
) |
Total identifiable liabilities |
|
|
( |
) |
Kloeckner - Net identifiable assets |
|
|
|
|
Goodwill |
|
|
- |
|
Fair value of noncontrolling interest |
|
|
|
|
Total – Kloeckner |
|
$ |
|
|
The fair value of the previously held equity interest and the noncontrolling interest were both measured using the €
13
Table of Contents
The Company incurred acquisition-related expenses for the Kloeckner Acquisition of $
Operating results of Kloeckner have been included in the Company’s condensed consolidated statements of earnings since June 3, 2026, the Acquisition Date. For the three months ended August 31, 2026, Kloeckner contributed net sales of $
Pro Forma Information
The following unaudited pro forma information presents consolidated results as if the acquisition of Kloeckner had occurred on June 1, 2025, the beginning of fiscal 2026. The pro forma information reflects preliminary fair value adjustments, including depreciation and amortization of the fair value adjustments to property, plant and equipment and identifiable intangible assets, interest expense on the new financing, and the related tax effects, net of the portion attributable to noncontrolling interests. Pro forma net earnings attributable to controlling interest from continuing operations for the three months ended August 31, 2025 include nonrecurring acquisition-related transaction costs, net of tax. Pro forma net earnings attributable to controlling interest from continuing operations for the three months ended August 31, 2026 exclude transaction costs recognized in the current quarter and the remeasurement of the previously held equity interest, net of tax. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition occurred on June 1, 2025, nor of future results.
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Three Months Ended |
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|||||
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August 31, |
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August 31, |
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||
|
|
2026 |
|
|
2025 |
|
||
Net Sales |
|
$ |
|
|
$ |
|
||
Net earnings attributable to Worthington Steel from continuing operations |
|
$ |
|
|
$ |
( |
) |
|
Diluted earnings per share attributable to Worthington Steel shareholders |
|
$ |
|
|
$ |
( |
) |
|
Sitem Group (Fiscal 2026)
On
See the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2026 for additional information regarding this acquisition. See also “Note 10 – Equity and Mezzanine Equity” for information regarding the redeemable noncontrolling interest and related put and call options associated with this transaction.
Note 3 – Revenue Recognition
The Company recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration it expects to receive for those goods or services, including any variable consideration.
The Company generates revenue primarily by processing flat-rolled steel coils into the precise type, thickness, length, width, shape, and surface quality required by customer specifications, and by distributing steel and other metal products and providing related processing services to customers primarily in North America and Europe, sourcing material from a global network of steel mills and other producers. The Company generates a substantial percentage of its revenue from selling steel on a direct basis, whereby it is exposed to the risks and rewards of ownership of the material while in its possession. Additionally, the Company toll processes steel under fee-for-service arrangements on customer-owned material. Toll processing revenue is recognized over time. All other revenue is recognized at a point in time, generally upon shipment to the customer.
14
Table of Contents
The following table summarizes net sales by product class for the periods presented:
|
Three Months Ended |
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|||||
|
August 31, |
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|
August 31, |
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(In millions) |
2026 |
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|
2025 |
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||
Product class |
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|
|
|
||
Direct |
$ |
|
|
$ |
|
||
Toll |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
The following table summarizes the unbilled receivables and contract assets at the dates indicated:
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|
August 31, |
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May 31, |
|
||
(In millions) |
Balance Sheet Classification |
|
2026 |
|
|
2026 |
|
||
Unbilled receivables |
Receivables |
|
$ |
|
|
$ |
|
||
Contract assets |
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
The following table summarizes the changes in contract liabilities for the periods presented:
(In millions) |
|
|
|
|
Balance at May 31, 2026 |
|
$ |
|
|
Contract liabilities assumed in acquisition |
|
|
|
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Additions to contract liabilities during the period |
|
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|
Revenue recognized related to contract liability balance |
|
|
( |
) |
Balance at August 31, 2026 |
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$ |
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|
Note 4 – Investments
Investment in Unconsolidated Affiliate
Investments in affiliated companies that the Company does not control, either through majority ownership or otherwise, are accounted for using the equity method. As of August 31, 2026, the Company owns a noncontrolling interest (
The Company accounts for its investment in Serviacero Worthington under the equity method using financial information on a one-month lag. Accordingly, the summarized financial information included below does not reflect events occurring in the subsequent one-month period.
The Company received a distribution of $
15
Table of Contents
The following tables summarize certain financial information of Serviacero Worthington as of the dates, and for the periods presented:
|
August 31, |
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May 31, |
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(In millions) |
2026 |
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|
2026 |
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||
Cash and cash equivalents (1) |
$ |
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$ |
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||
Other current assets |
|
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Non-current assets |
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Total assets |
$ |
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$ |
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||
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Current liabilities |
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Other non-current liabilities |
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Equity (1) |
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Total liabilities and equity |
$ |
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|
$ |
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||
|
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Three Months Ended |
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|
August 31, |
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August 31, |
|
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(In millions) |
2026 |
|
|
2025 |
|
||
Net sales |
$ |
|
|
$ |
|
||
Gross margin |
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Operating income |
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Depreciation and amortization |
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Interest expense |
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Income tax expense |
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Net earnings |
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The following table presents the net earnings of Serviacero Worthington attributable to the Company for the periods presented:
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Three Months Ended |
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|||||
|
August 31, |
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|
August 31, |
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||
(In millions) |
2026 |
|
|
2025 |
|
||
Equity in net income of unconsolidated affiliate |
$ |
|
|
$ |
|
||
Equity securities
The following table summarizes the equity securities, all of which were Kloeckner shares, at the dates indicated:
|
August 31, |
|
|
May 31, |
|
||
(In millions) |
2026 |
|
|
2026 |
|
||
Equity securities |
$ |
|
|
$ |
|
||
16
Table of Contents
Amounts presented as net gains (losses) on equity securities reflect changes in fair value and exclude transaction costs, which are expensed as incurred.
|
Three Months Ended |
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|||||
|
August 31, |
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August 31, |
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(In millions) |
2026 |
|
|
2025 |
|
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Net unrealized gains (losses) on equity securities |
$ |
|
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$ |
|
||
Realized gains (losses) on sales of equity securities |
|
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|
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Realized gains (losses) on remeasurement of previously held equity interest (1) |
|
( |
) |
|
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|
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Total recognized in net earnings |
$ |
( |
) |
|
$ |
|
|
|
For additional information, see “Note 2 – Acquisitions” and “Note 15 – Fair Value.”
Note 5 – Restructuring and Other (Income) Expense, Net
The Company considers restructuring activities to be programs whereby it fundamentally changes its 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).
A progression of liabilities associated with restructuring activities, together with a reconciliation to restructuring and other (income) expense, net, financial statement caption in the Company’s consolidated statements of earnings as of the dates presented, is summarized below:
|
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Balance, as of |
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Balance, as of |
|
||||||
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May 31, |
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Acquisition |
|
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Expense |
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August 31, |
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||||||
(In millions) |
|
2026 |
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Activity |
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(Income) |
|
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Payments |
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|
Adjustments |
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|
2026 |
|
||||||
|
$ |
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|
$ |
|
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$ |
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|
$ |
( |
) |
|
$ |
( |
) |
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$ |
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|||||
|
|
- |
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- |
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( |
) |
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- |
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- |
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||
|
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$ |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
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Net gain on sale of assets |
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( |
) |
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Restructuring and other (income) expense, net |
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$ |
( |
) |
|
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|
|
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|
|||||||
During the three months ended August 31, 2026, the following actions were taken related to our restructuring activities:
17
Table of Contents
A progression of liabilities associated with restructuring activities, together with a reconciliation to restructuring and other (income) expense, net, financial statement caption in the Company’s consolidated statements of earnings as of the dates presented, is summarized below:
|
|
Balance, as of |
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|
|
|
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|
Balance, as of |
|
|||||
|
|
May 31, |
|
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Expense |
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|
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|
|
|
|
|
August 31, |
|
|||||
(In millions) |
|
2025 |
|
|
(Income) |
|
|
Payments |
|
|
Adjustments |
|
|
2025 |
|
|||||
Early retirement and severance |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
|
||
Net gain on sale of assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
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|
||||
Restructuring and other (income) expense, net |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|||||||
During the three months ended August 31, 2025, the following actions were taken related to our restructuring activities:
The Company expects substantially all of the remaining restructuring liability as of August 31, 2026, to be paid in the next 12 months.
Note 6 – Contingent Liabilities and Commitments
Contingent Liabilities
The Company accrues for loss contingencies when losses are probable and reasonably estimable. Otherwise, the Company discloses the matter if there is a reasonable possibility that a loss may have occurred.
The Company is a defendant in certain legal proceedings that are incidental to its business. In the opinion of management, the outcome of these legal proceedings, which is not clearly determinable at the present time, individually and in the aggregate, would not have a material adverse effect on the Company, its consolidated financial position, future results of operations or cash flows. The Company has recorded a liability, as necessary, to provide for the anticipated costs, including legal defense costs, associated with the resolution of these legal proceedings. However, the possibility exists that the costs to resolve these legal proceedings could differ materially from the recorded estimates and, therefore, could have a material effect on the Company, its consolidated financial position, future results of operations or cash flows for the periods in which they are resolved. For matters for which a loss or additional loss is reasonably possible, the Company cannot reasonably estimate the possible loss or range of loss in excess of amounts accrued, if any.
The Company is currently involved in a dispute relating to the import of steel across international borders. Based on currently available information, the Company believes a loss is not probable and therefore has not recorded a reserve. The Company estimates that a loss is reasonably possible and the amount of such loss could range from $
Note 7 – Guarantees
The Company does not have guarantees that it believes are reasonably likely to have a material current or future effect on its consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
At August 31, 2026, the Company had in place outstanding stand-by letters of credit in the aggregate amount of approximately $
18
Table of Contents
Note 8 – Debt
The following table summarizes the Company’s debt outstanding at the dates presented:
|
|
Rate |
|
|
August 31, |
|
|
May 31, |
|
||
(In millions) |
Security |
Type |
Rate |
Maturity |
2026 |
|
|
2026 |
|
||
Long-term debt: |
|
|
|
|
|
|
|
|
|
||
Canadian Expansion Loans: |
|
|
|
|
|
|
|
|
|
||
BDC Loan |
Secured |
Variable |
BDC Floating Base Rate minus |
$ |
|
|
$ |
|
|||
Other Canadian Government Loans |
Unsecured |
– |
– |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
||
Acquisition Related Debt: |
|
|
|
|
|
|
|
|
|
||
2033 Senior Notes |
Secured |
Fixed |
|
|
|
|
- |
|
|||
Term Loan Facility |
Secured |
Variable |
Various |
|
|
|
|
- |
|
||
|
|
|
|
|
|
|
|
|
|
||
Kloeckner Loans: |
|
|
|
|
|
|
|
|
|
||
German Syndicated Revolving Credit Facility |
Secured |
Variable |
EURIBOR (subject to |
|
|
|
|
- |
|
||
Swiss Syndicated Revolving Credit Facility |
Unsecured |
Variable |
SARON or EURIBOR (subject to |
|
|
|
|
- |
|
||
ABL Mexico |
Secured |
Variable |
SOFR + up to |
|
|
|
|
- |
|
||
|
|
|
|
|
|
|
|
|
|
||
Sitem Group Loans: |
|
|
|
|
|
|
|
|
|
||
Term Loans – Sitem Group |
Various |
Fixed & Variable |
Various |
|
|
|
|
|
|||
Standstill Agreement – Sitem Group |
Secured |
Variable |
Various |
|
|
|
|
|
|||
Total |
|
|
|
|
|
|
|
|
|
||
Less: unamortized discount and debt issuance costs |
– |
– |
– |
– |
|
|
|
|
- |
|
|
Less: current maturities of long-term debt |
– |
– |
– |
– |
|
|
|
|
|
||
Long-term debt, net of current maturities |
|
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
||
Short-term borrowings and current maturities: |
|
|
|
|
|
|
|
|
|
||
2028 Revolving Credit Facility |
Secured |
Variable |
Various |
$ |
- |
|
|
$ |
|
||
2031 Revolving Credit Facility |
Secured |
Variable |
Various |
|
- |
|
|
|
- |
|
|
ABS Germany Program |
Secured |
Variable |
EURIBOR (subject to |
|
|
|
|
- |
|
||
ABL USA |
Secured |
Variable |
Various |
|
|
|
|
- |
|
||
Austria Bank Loans |
Unsecured |
Fixed |
ranging from |
|
|
|
|
- |
|
||
Current maturities of long-term debt |
– |
– |
– |
– |
|
|
|
|
|
||
Total short-term borrowings and current maturities |
|
|
|
|
|
|
|
|
|
||
Total Debt |
|
|
|
|
$ |
|
|
$ |
|
||
Foreign currency-denominated borrowings are translated at the applicable reporting period exchange rates, with translation adjustments recorded in accumulated other comprehensive income (loss) (“AOCI”).
The following table provides the maturities of long-term debt in the next five years and the remaining years thereafter as of August 31, 2026:
(In millions) |
|
|
|
Year 1 |
$ |
|
|
Year 2 |
|
|
|
Year 3 |
|
|
|
Year 4 |
|
|
|
Year 5 |
|
|
|
Thereafter |
|
|
|
Total |
$ |
|
|
As of August 31, 2026, there were $
19
Table of Contents
Short-Term Borrowings
Revolving Credit Facility
On June 25, 2026, the Company entered into an asset-based revolving credit agreement (the “2031 Revolving Credit Facility”) which refinanced and replaced its previous revolving credit facility. The 2031 Revolving Credit Facility provides capacity of up to $
Borrowings under the 2031 Revolving Credit Facility bear interest, at the Company’s option, at a per annum rate equal to (A) (i) the base rate equal to the greatest of: (a) the prime rate, (b) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System plus
The 2031 Revolving Credit Facility is secured by a lien on substantially all of the assets of the Company and the guarantors, subject to permitted liens and certain other exceptions. The Company currently has no material contractual or regulatory restrictions on the payment of dividends under the 2031 Revolving Credit Facility, subject to compliance with the applicable conditions and limitations thereunder. As of August 31, 2026, the Company was in compliance with applicable covenants of the 2031 Revolving Credit Facility.
Prior Credit Facility
The Company’s prior senior secured revolving credit facility (the “2028 Revolving Credit Facility”) provided capacity of up to $
At May 31, 2026, there was $
Kloeckner Short-term Debt
The Company assumed the liabilities of Kloeckner as part of the acquisition and recorded Kloeckner’s liabilities within the Company’s consolidated balance sheet. Kloeckner’s short-term obligations included various loans discussed below. Kloeckner was in compliance with its financial covenants as of August 31, 2026.
ABS Germany Program
Kloeckner maintains an asset-backed securitization program in Europe (the “ABS Germany Program”) under which eligible trade receivables originated by certain subsidiaries are sold to a securitization vehicle and financed through arrangements with Commerzbank. The program has been amended and extended from time to time and currently provides capacity of up to €
Borrowings under the ABS Germany Program bear interest at EURIBOR plus a margin of
20
Table of Contents
ABL USA
On November 16, 2020, Kloeckner, through its subsidiary Kloeckner Metals Corporation, entered into an asset-based lending credit agreement (the “ABL USA Facility”) with Bank of America, N.A. as administrative agent and collateral agent. During 2022, the facility was amended to increase the facility capacity to $
The ABL USA Facility includes base rate loans and term SOFR loans. Base rate loans bear interest at a base rate in effect from time to time plus a margin of up to
Austria Bank Loans
Kloeckner, through its subsidiary Kloeckner Metals Austria GmbH & Co KG, maintains bilateral term loans (the “Austria Bank Loans”) with Oberbank AG. At August 31, 2026, the Austria Bank Loans were fully drawn with an aggregate outstanding balance of €
Long-Term Debt
Business Development Bank of Canada Canadian Loan
On March 25, 2025, Tempel Canada entered into a letter of offer (“BDC Letter”) with Business Development Bank of Canada (“BDC”). Pursuant to the terms of the BDC Letter, BDC committed to lend Tempel Canada up to CAD $
The BDC Loan is structured as a construction draw loan. The loan was fully drawn as of August 31, 2026. Monthly interest only payments were due until July 1, 2026, at which point the BDC Loan was also subject to monthly amortization payments until maturity.
Worthington Steel guarantees the payment obligations of Tempel Canada in respect of the BDC Loan. As amended during the first quarter of fiscal 2026, the guarantee is for the full outstanding amount of the BDC Loan on the date of any demand. Provided that there has never been a breach of certain default conditions, the guarantee is reduced to 50% of the outstanding BDC Loan balance once the principal amount outstanding is less than CAD $
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
As of August 31, 2026, the amount outstanding under the BDC Loan was $
Other Canadian Government Loans
Tempel Canada has entered into two interest-free loan arrangements with Canadian federal and provincial government agencies to support advanced manufacturing equipment purchases and facility expansion at its Burlington Property. These arrangements provide for aggregate funding commitments of up to CAD $
21
Table of Contents
The loans require repayment in various installments beginning in 2027 through 2032. One of the loan arrangements bears no interest until June 1, 2028, after which it accrues interest at a fixed rate of
2033 Senior Notes
On June 1, 2026, the Company issued $
Term Loan Facility
On June 1, 2026, the Company entered into a $
Under the terms of the Term Loan Facility, the Company may voluntarily prepay outstanding borrowings, in whole or in part, at any time without premium or penalty, subject to customary notice requirements. On August 19, 2026, the Company made a $
Kloeckner Long-term Debt
The Company assumed the liabilities of Kloeckner as part of the acquisition and recorded Kloeckner’s liabilities within the Company’s consolidated balance sheet. Kloeckner’s obligations included various long-term loans discussed below. Kloeckner was in compliance with its financial covenants as of August 31, 2026.
German Syndicated Revolving Credit Facility
On May 23, 2013, Kloeckner entered into a syndicated revolving credit facility agreement (the “German RCF”) with Commerzbank Aktiengesellschaft as agent. On May 8, 2026, Kloeckner entered into a fifth amendment and restatement agreement which reduced commitments under the facility to €
Borrowings under the German RCF bear interest at a rate per annum equal to EURIBOR for the relevant interest period (subject to a
The German RCF contains financial covenants requiring Kloeckner to maintain (i) a gearing ratio, defined as consolidated net debt to consolidated equity, of no more than 1.50x, (ii) consolidated equity of at least €
22
Table of Contents
base, which would require that outstanding loans and other applicable amounts may not exceed a borrowing base determined principally by reference to eligible receivables and inventory, net of certain priority obligations. A breach of the gearing ratio or minimum consolidated equity covenant, or a borrowing base shortfall, may result in a mandatory prepayment obligation.
Swiss Syndicated Revolving Credit Facility
On January 7, 2025, Kloeckner, through its subsidiary Debrunner Koenig AG, entered into an unsecured syndicated loan agreement (the “Swiss RCF”) with Zürcher Kantonalbank as agent. The Swiss RCF provides capacity of up to CHF
Borrowings under the Swiss RCF bear interest at a rate per annum equal to compounded SARON for CHF and EURIBOR for EUR for the relevant interest period plus a margin of up to
ABL Mexico
On September 4, 2024, Kloeckner, through its subsidiary Kloeckner Metals Service Centers De Mexico, S. De R.L. De C.V., entered into an asset-based lending credit agreement (the “ABL Mexico Facility”) with Banco Santander México, S.A. as
administrative agent and collateral agent. The ABL Mexico Facility provides capacity of up to $
Borrowings under the ABL Mexico Facility bear interest at a rate per annum equal to Term SOFR for the relevant interest period plus a margin of up to
Subsequent to August 31, 2026, the Company amended its ABL Mexico Facility. For additional information, see “Note 19 – Subsequent Events”.
Term Loans – Sitem Group
Sitem Group’s obligations include various secured and unsecured Euro-denominated term loans with maturities ranging from September 2026 through September 2030. At August 31, 2026, there was an aggregate amount of €
Standstill Agreement – Sitem Group
In April 2025, Sitem Group, through its subsidiary Stanzwerk AG, entered into a standstill agreement (the "Standstill Agreement") with UBS Switzerland AG, as agent, and a syndicate of lenders, relating to bilateral credit facilities originally provided to Stanzwerk AG in the aggregate principal amount of CHF
On June 29, 2026, the parties entered into an Amended and Restated Standstill Agreement, which extended the availability of the bilateral credit facilities through August 31, 2028, subject to customary events of default and other termination provisions. The amended agreement also requires principal repayments of CHF
The Standstill Agreement provides for the continued use of the facilities solely for loan advances and requires pro rata utilization of the credit lines across participating lenders. Borrowings continue to bear interest at the applicable reference rate, based on the Swiss Average Rate Overnight ("SARON"), subject to a zero floor, plus a
23
Table of Contents
The Amended and Restated Standstill Agreement contains financial covenants requiring Stanzwerk AG to maintain (i) a minimum equity ratio of
Other Debt
The Company, through certain foreign subsidiaries, maintained short-term credit facilities and overdraft agreements with an aggregate borrowing capacity of $
Note 9 – Other Comprehensive Income (Loss)
Other Comprehensive Income (Loss):
|
Three Months Ended |
|
|||||||||||||||||||||
|
August 31, 2026 |
|
|
August 31, 2025 |
|
||||||||||||||||||
(In millions) |
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
||||||
Currency translation adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign currency translation, net |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net investment hedge |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Pension liability adjustment |
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive income (loss) |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accumulated Other Comprehensive Income (Loss):
|
|
Currency Translation Adjustments |
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Foreign |
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Currency |
|
|
Net |
|
|
Foreign |
|
|
Pension |
|
|
|
|
|
|
|
||||||
|
|
Translation, |
|
|
Investment |
|
|
Currency |
|
|
Liability |
|
|
Cash Flow |
|
|
|
|
||||||
(In millions) |
|
Net |
|
|
Hedge |
|
|
Translation |
|
|
Adjustment |
|
|
Hedges |
|
|
AOCI |
|
||||||
Balance at May 31, 2026 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
OCI, before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Reclassification adjustments to net earnings (1) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|||
Income tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at August 31, 2026 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
|
|
Currency Translation Adjustments |
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Foreign |
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Currency |
|
|
Net |
|
|
Foreign |
|
|
Pension |
|
|
|
|
|
|
|
||||||
|
|
Translation, |
|
|
Investment |
|
|
Currency |
|
|
Liability |
|
|
Cash Flow |
|
|
|
|
||||||
(In millions) |
|
Net |
|
|
Hedge |
|
|
Translation |
|
|
Adjustment |
|
|
Hedges |
|
|
AOCI |
|
||||||
Balance at May 31, 2025 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
OCI, before reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Reclassification adjustments to net earnings (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Income tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance at August 31, 2025 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
24
Table of Contents
Note 10 – Equity and Mezzanine Equity
Equity
Shortfall Recovery Arrangement: During the third quarter of fiscal 2026, the Company and the minority interest member of Spartan quantified an economic shortfall of $
Upon full recovery of the shortfall, allocations of profits and distributions will revert to the stated ownership percentages of
The Shortfall Recovery Arrangement does not affect the recognition of consolidated net earnings of the consolidated joint venture. However, the Company concluded that the arrangement represents a substantive profit-sharing arrangement, as it temporarily reallocates economic participation in the joint venture’s earnings during the recovery period. Accordingly, during the recovery period, consolidated net earnings and comprehensive income of the joint venture are attributed between the controlling interest and the noncontrolling interest in accordance with the amended profit-sharing provisions rather than the stated ownership percentages. Net earnings attributable to noncontrolling interest presented in the consolidated statements of earnings also include amounts attributed to noncontrolling interests for other consolidated subsidiaries.
Mezzanine Equity
Mezzanine Equity: The Sitem Group purchase agreement includes a series of put options and call options. The put options are held by the minority investors of Sitem Group, which provide the right to sell up to
The put and call options are considered a redeemable noncontrolling interest as: (1) the minority shareholders can put Sitem Group shares to the Company; (2) the put is outside of the Company’s control; and (3) redemption is possible as it is based upon specified financial metrics. As a result, the redeemable noncontrolling interest is presented as mezzanine equity.
The put and call options cannot be separated from the noncontrolling interest. Due to the redemption features, the minority interest is classified as a Redeemable NCI within mezzanine equity on the Company’s consolidated balance sheets. For additional information, see “Note 2 – Acquisitions.”
Redeemable noncontrolling interests are initially recorded at the issuance date fair value, which is the acquisition date for the Sitem Group transaction. When redeemable noncontrolling interest is currently redeemable, or probable of becoming redeemable, it is subsequently adjusted to the greater of current redemption value or carrying value. The redemption value is determined via a contractual-based formula using certain EBITDA adjusted metrics.
For the roll forward of mezzanine equity, see the Company’s consolidated statement of equity and mezzanine equity.
Note 11 – Income Taxes
The Company’s effective income tax rate (“ETR”) was
The ETR for the first quarter of fiscal 2027 differed from the statutory rate primarily due to tax effects associated with the acquisition of Kloeckner. The ETR for the first quarter of fiscal 2026 differed from the statutory rate primarily due to non-deductible executive compensation, revaluation of a German net operating loss carryforward due to the Sitem Group transaction, and income from unconsolidated joint ventures outside the U.S. recognized net of tax.
The provision for income taxes is based on the Company’s current estimate of its annual ETR, adjusted to reflect the impact of discrete items. Net earnings attributable to NCI primarily relate to the Company’s consolidated joint ventures. The income tax treatment of earnings attributable to noncontrolling interests depends on the tax classification of the underlying entity.
25
Table of Contents
Certain of the Company’s U.S. joint ventures are treated as partnerships for U.S. income tax purposes and generally are not themselves subject to U.S. federal income tax. Accordingly, the Company recognizes income tax expense on its share of the taxable income of these joint ventures, while the portion attributable to noncontrolling interests is generally taxable directly to the other joint venture investors. In contrast, consolidated entities that are subject to corporate income tax recognize income tax expense at the entity level. Accordingly, the income tax expense of these entities is fully reflected in the Company’s consolidated income tax provision, including tax expense associated with earnings ultimately attributable to noncontrolling interests.
Management estimates the annual ETR based on its forecast of annual pre-tax income for domestic and foreign operations. The Company’s actual ETR for fiscal 2027 could differ materially from the estimated rate as of August 31, 2026.
Note 12 – Employee Retirement Plans
In connection with the acquisition of Kloeckner, the Company assumed sponsorship of various defined benefit pension plans covering certain current and former employees of Kloeckner, primarily located in the United States, Switzerland, Germany, Austria, and Mexico (the “Kloeckner Plans”).
The Kloeckner Plans were remeasured as of the Kloeckner Acquisition date. The Kloeckner Plans are accounted for in accordance with ASC Topic 715 Compensation—Retirement Benefits. The Company does not remeasure the Kloeckner Plans on an interim basis absent a triggering event, such as a plan amendment, curtailment, or settlement. During the first quarter of fiscal 2027, the Company did not identify triggering events that would have required the remeasurement of the Kloeckner Plans.
As of the Kloeckner Acquisition date, the Company assumed U.S. defined benefit pension plans with an overfunded status of $
The Stanzwerk AG pension plan, assumed in the Sitem Group acquisition, is a funded defined benefit pension plan in Switzerland covering eligible employees. The plan’s assets are managed by a collective trust. During the first quarter of fiscal 2027, the Company recognized a $
There have been no material changes to the Company's previously existing defined benefit pension and other postretirement benefit plans, including the Stanzwerk AG pension plan assumed in the Sitem Group acquisition, the Tempel Employees Pension Plan, and the pension obligation assumed in the Voestalpine Nagold acquisition, since May 31, 2026. See “Note 12 – Defined Benefit Pension Plans” in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2026 for additional information.
Net Periodic Benefit Cost
Net periodic pension and other postretirement benefit cost (benefit) for the periods presented below were as follows:
|
|
Three Months Ended August 31, 2026 |
|
|
Three Months Ended August 31, 2025 |
|
||||||||||||||||||
|
|
Pension Benefits |
|
|
|
|
|
Pension Benefits |
|
|
|
|
||||||||||||
(In millions) |
|
U.S. |
|
|
Non-U.S. |
|
|
Other Benefits |
|
|
U.S. |
|
|
Non-U.S. |
|
|
Other Benefits |
|
||||||
Defined benefit plans components of expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Net amortization and deferral costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Settlement gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Curtailment gain |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net periodic benefit cost (income) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
The service cost component is included in cost of goods sold and selling, general and administrative expense. The non-service cost components – interest cost, expected return on plan assets, and amortization of actuarial gains and losses – are included in miscellaneous income (expense), net.
Contributions
The Company contributed $
26
Table of Contents
Note 13 – Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per common share attributable to controlling interest for the periods presented:
|
Three Months Ended |
|
|||||
|
August 31, |
|
|
August 31, |
|
||
(In millions, except per share amounts) |
2026 |
|
|
2025 |
|
||
Numerator (basic & diluted): |
|
|
|
|
|
||
Net earnings (loss) from continuing operations attributable to controlling interest |
$ |
( |
) |
|
$ |
|
|
Denominator: |
|
|
|
|
|
||
Basic earnings (loss) weighted average common shares |
|
|
|
|
|
||
Effect of dilutive securities |
|
|
|
|
|
||
Diluted earnings (loss) adjusted weighted average common shares |
|
|
|
|
|
||
|
|
|
|
|
|
||
Basic earnings (loss) per common share from continuing operations |
$ |
( |
) |
|
$ |
|
|
Diluted earnings (loss) per common share from continuing operations |
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
||
Anti-dilutive non-qualified stock options and restricted common share awards(1) |
|
|
|
|
|
||
|
Earnings per common share was calculated based on the weighted-average number of common shares outstanding. Earnings per diluted common share included the weighted-average effect of dilutive restricted common shares and non-qualified stock options on the weighted-average shares outstanding.
Note 14 – Derivative Financial Instruments and Hedging Activities
The Company utilizes derivative financial instruments to primarily manage exposure to certain risks related to its ongoing operations. The primary risks managed through the use of derivative financial instruments are commodity price risk, foreign currency exchange risk, and interest rate risk. While certain of the Company’s derivative financial instruments are designated as hedging instruments, the Company also enters into derivative financial instruments that are designed to hedge a risk, but are not designated as hedging instruments and, therefore, do not qualify for hedge accounting. These derivative financial instruments are adjusted to current fair value through earnings at the end of each period.
Commodity Price Risk Management – The Company is exposed to changes in the price of certain commodities, including steel, zinc and other raw materials, and the Company’s utility requirements. The Company’s objective is to reduce earnings and cash flow volatility associated with forecasted purchases and sales of these commodities to allow management to focus its attention on business operations. Accordingly, the Company enters into derivative financial instruments to manage the associated price risk.
Interest Rate Risk Management – The Company is exposed to the impact of interest rate changes. The Company’s objective is to manage the impact of interest rate changes on cash flows and the market value of borrowings. The Company utilizes a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, the Company enters into interest rate swaps to further manage exposure to interest rate variations related to borrowings and to lower overall borrowing costs.
Foreign Currency Exchange Risk Management – The Company conducts business in several major international currencies and is, therefore, subject to risks associated with changing foreign currency exchange rates. The Company uses various methods to protect against exchange rate movements.
The translation of foreign currencies into U.S. dollars also subjects the Company to exposure related to fluctuating foreign currency exchange rates; however, derivative financial instruments are not used to manage this risk.
27
Table of Contents
The Company is exposed to counterparty credit risk on all of its derivative financial instruments. Accordingly, the Company has established and maintains strict counterparty credit guidelines. The Company has credit support agreements in place with certain counterparties to limit the Company’s credit exposure. These agreements require either party to post cash collateral if its cumulative market position exceeds a predefined liability threshold. Amounts posted to the margin accounts accrue interest at market rates and are required to be refunded in the period in which the cumulative market position falls below the required threshold. The Company does not have significant exposure to any one counterparty, and management believes the overall risk of loss is remote and, in any event, would not be material.
Refer to “Note 15 – Fair Value” for additional information regarding the accounting treatment for the Company’s derivative financial instruments, as well as how fair value is determined.
The following table summarizes the fair value of the derivative financial instruments and the respective lines in which they were recorded in the consolidated balance sheet at the dates presented:
|
Fair Value of Assets |
|
|
Fair Value of Liabilities |
|
||||||||||||||
|
Balance |
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
||||
|
Sheet |
|
August 31, |
|
|
May 31, |
|
|
Sheet |
|
August 31, |
|
|
May 31, |
|
||||
(In millions) |
Location |
|
2026 |
|
|
2026 |
|
|
Location |
|
2026 |
|
|
2026 |
|
||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity contracts |
Receivables |
|
$ |
|
|
$ |
|
|
Accounts payable |
|
$ |
|
|
$ |
|
||||
Commodity contracts |
Other assets |
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency exchange contracts |
Receivables |
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
||||
Foreign currency exchange contracts |
Other assets |
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cross-currency swap |
Receivables |
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
||||
Cross-currency swap |
Other assets |
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fair Value Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cross-currency swap |
Receivables |
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
||||
Cross-currency swap |
Other assets |
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total - Qualified |
|
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commodity contracts |
Receivables |
|
$ |
|
|
$ |
|
|
Accounts payable |
|
$ |
|
|
$ |
|
||||
Commodity contracts |
Other assets |
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency exchange contracts |
Receivables |
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
||||
Foreign currency exchange contracts |
Other assets |
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total - Unqualified |
|
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total derivative financial instruments |
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|||||
As allowable under GAAP, the Company’s policy is to record derivative financial instruments, with the exception of cross-currency swaps, on a net basis where the Company has an executed master netting arrangement with counterparties as well as where the right of offset exists. The cross-currency swaps are reflected on a gross basis in the consolidated balance sheet as the Company has not entered into any master netting arrangements. The amounts in the table above reflect the fair value of the derivative financial instruments on a net basis, where allowable under master netting arrangements and/or where the right of offset exists. Had these amounts been recognized on a gross basis, the impact would have been an increase in receivables with a corresponding increase in accounts payable of $
The fair value of the Company’s interest rate contracts was less than $
28
Table of Contents
Cash Flow Hedges
The Company enters into derivative financial instruments to hedge its exposure to changes in cash flows attributable to interest rate, foreign currency exchange rates, and commodity price fluctuations associated with certain forecasted transactions. Purchases of commodities are hedged for periods of up to 24 months and certain forecasted foreign currency transactions for periods generally up to 12 months. These derivative financial instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on each of these derivative financial instruments is reported as a component of OCI and reclassified into earnings in the same line associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative financial instrument is recognized in earnings immediately.
The following table summarizes the Company’s cash flow hedges outstanding at August 31, 2026:
|
|
Notional |
|
|
|
|
(In millions) |
|
Amount |
|
|
Maturity Date |
|
Commodity contracts |
|
$ |
|
|
– |
|
Foreign currency exchange contracts |
|
$ |
|
|
||
Interest rate contracts |
|
$ |
|
|
||
The following table summarizes the Company’s cash flow hedges outstanding at May 31, 2026:
|
|
Notional |
|
|
|
|
(In millions) |
|
Amount |
|
|
Maturity Date |
|
Commodity contracts |
|
$ |
|
|
– |
|
Foreign currency exchange contracts |
|
$ |
|
|
– |
|
Interest rate contracts |
|
$ |
|
|
– |
|
Net Investment Hedges – Cross-Currency Swaps
The Company uses cross-currency swaps to hedge foreign currency risk on portions of its Euro-denominated net investments in foreign subsidiaries against fluctuations in Euro/U.S. Dollar exchange rates. During the second quarter of fiscal 2026, the Company entered into a cross-currency swap to hedge a portion of its net investment in Sitem Group. During the first quarter of fiscal 2027, the Company entered into an additional cross-currency swap to hedge a portion of its net investment in Kloeckner. As part of the hedge contracts, the Company receives a fixed rate of U.S. dollar interest on a monthly basis.
The Company has elected the spot method for assessing the effectiveness of the contracts. The Company excludes from the assessment of hedge effectiveness the portion of the fair value of the cross-currency swaps attributable to interest rate differentials. The Company recognizes the initial value of the excluded components in earnings within interest expense, net, using a systematic and rational method over the life of the hedging instruments. The change in fair value of the swaps and related income tax is recorded within other comprehensive income, net of tax, on the consolidated statements of comprehensive income and, as net investment hedges, as a component within currency translation adjustments of AOCI. Amounts recorded in AOCI include both (i) changes attributable to spot exchange rates and (ii) amounts related to excluded components that are deferred in other comprehensive income. The Company recognized interest income within interest expense, net, in the consolidated statements of earnings of $
During the three months ended August 31, 2026, the Company partially terminated and de-designated €
29
Table of Contents
The following table summarizes the Company’s net investment hedges outstanding at August 31, 2026.
|
|
Pay |
|
Receive |
|
|
||||||||
(Notional amount in millions) |
|
Notional |
|
|
Interest |
|
Notional |
|
|
Interest |
|
Maturity |
||
Nature of Swap |
|
Amount |
|
|
Rate |
|
Amount |
|
|
Rate |
|
Date |
||
Pay Fixed/Receive Fixed |
|
|
|
|
|
|
|
|
|
|
|
|
||
November 2025 |
|
€ |
|
|
|
$ |
|
|
|
|||||
June 2026 |
|
€ |
|
|
|
$ |
|
|
|
|||||
The following table summarizes the Company’s net investment hedge outstanding at May 31, 2026.
|
|
Pay |
|
Receive |
|
|
||||||||
(Notional amount in millions) |
|
Notional |
|
|
Interest |
|
Notional |
|
|
Interest |
|
Maturity |
||
Nature of Swap |
|
Amount |
|
|
Rate |
|
Amount |
|
|
Rate |
|
Date |
||
Pay Fixed/Receive Fixed |
|
|
|
|
|
|
|
|
|
|
|
|
||
November 2025 |
|
€ |
|
|
|
$ |
|
|
|
|||||
The following table summarizes the gain (loss) recognized in OCI and the gain (loss) reclassified from AOCI into net earnings for derivative financial instruments designated as cash flow and net investment hedges for the periods presented:
(In millions) |
|
Gain (Loss) |
|
|
Location of Gain (Loss) |
|
Gain (Loss) Reclassified |
|
||
For the three months ended August 31, 2026: |
|
|
|
|
|
|
|
|
||
Cash Flow Hedges |
|
|
|
|
|
|
|
|
||
Commodity contracts |
|
$ |
|
|
Cost of goods sold |
|
$ |
|
||
Foreign currency exchange contracts |
|
|
|
|
Cost of goods sold |
|
|
|
||
Interest rate contracts |
|
|
( |
) |
|
Interest expense, net |
|
|
|
|
Total - Cash Flow Hedges |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Net Investment Hedges |
|
|
|
|
|
|
|
|
||
Cross-currency swap |
|
|
( |
) |
|
Miscellaneous income (expense), net |
|
|
|
|
Total - Net Investment Hedges |
|
|
( |
) |
|
|
|
|
|
|
Total |
|
$ |
( |
) |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
||
For the three months ended August 31, 2025: |
|
|
|
|
|
|
|
|
||
Cash Flow Hedges |
|
|
|
|
|
|
|
|
||
Commodity contracts |
|
$ |
( |
) |
|
Cost of goods sold |
|
$ |
|
|
Foreign currency exchange contracts |
|
|
|
|
Cost of goods sold |
|
|
|
||
Foreign currency exchange contracts |
|
|
|
|
SG&A |
|
|
|
||
Interest rate contracts |
|
|
|
|
Interest expense, net |
|
|
|
||
Total - Cash Flow Hedges |
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
|
$ |
|
||
As of August 31, 2026, for the net investment hedges, the Company has recognized amounts in net earnings related to excluded components as described above. Refer to “Note 9 – Other Comprehensive Income (Loss)” for additional information regarding the use of derivative financial instruments and the recognized amounts within OCI and AOCI.
For the cash flow hedges, the estimated net amount of the gains recognized in AOCI at August 31, 2026, expected to be reclassified into net earnings within the succeeding twelve months is $
30
Table of Contents
Fair Value Hedge – Cross Currency Swap
In June 2026, the Company entered into a €
|
|
|
|
Loss Recognized |
|
|||||
|
|
|
|
in Earnings for the |
|
|||||
|
|
|
|
Three Months Ended |
|
|||||
|
|
Location of Loss |
|
August 31, |
|
|
August 31, |
|
||
(In millions) |
|
Recognized in Earnings |
|
2026 |
|
|
2025 |
|
||
Fair value cross-currency swap |
|
Miscellaneous income (expense), net |
|
$ |
( |
) |
|
$ |
|
|
Hedged portion of Euro-denominated loan |
|
Miscellaneous income (expense), net |
|
$ |
( |
) |
|
|
|
|
Total |
|
|
|
$ |
( |
) |
|
$ |
|
|
Economic (Non-designated) Hedges
The Company enters into foreign currency exchange contracts to manage its foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. The Company also enters into certain commodity contracts that do not qualify for hedge accounting treatment. Accordingly, these derivative financial instruments are adjusted to current market value at the end of each period through earnings.
The following table summarizes the Company’s economic (non-designated) derivative financial instruments outstanding at August 31, 2026:
|
|
Notional |
|
|
|
|
(In millions) |
|
Amount |
|
|
Maturity Date(s) |
|
Commodity contracts |
|
$ |
|
|
– |
|
Foreign currency exchange contracts |
|
$ |
|
|
– |
|
The following table summarizes the Company’s economic (non-designated) derivative financial instruments outstanding at May 31, 2026:
|
|
Notional |
|
|
|
|
(In millions) |
|
Amount |
|
|
Maturity Date(s) |
|
Commodity contracts |
|
$ |
|
|
– |
|
Foreign currency exchange contracts |
|
$ |
|
|
- |
|
The following tables summarize the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments for the periods presented:
|
|
|
|
Gain (Loss) Recognized |
|
|||||
|
|
|
|
in Earnings for the |
|
|||||
|
|
|
|
Three Months Ended |
|
|||||
|
|
Location of Gain (Loss) |
|
August 31, |
|
|
August 31, |
|
||
(In millions) |
|
Recognized in Earnings |
|
2026 |
|
|
2025 |
|
||
Commodity contracts |
|
Cost of goods sold |
|
$ |
|
|
$ |
|
||
Foreign currency exchange contracts |
|
Miscellaneous income (expense), net |
|
|
( |
) |
|
|
|
|
Total |
|
|
|
$ |
|
|
$ |
|
||
31
Table of Contents
Foreign currency exchange derivatives for the Kloeckner Acquisition
In January 2026, the Company executed a Euro/U.S. Dollar foreign currency forward contract to hedge a portion of the expected purchase price of the Kloeckner Acquisition. The contract was initially entered into with a notional amount of €
Note 15 – Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets and liabilities that the reporting entity can assess at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability and that are significant to the fair value of the assets and liabilities (i.e., allowing for situations in which there is little or no market activity for the asset or liability at the measurement date).
Recurring Fair Value Measurements
At August 31, 2026, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:
(In millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
There were no transfers between Level 1 and Level 2 and no transfers in or out of Level 3 during the three months ended August 31, 2026.
32
Table of Contents
At May 31, 2026, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:
(In millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Equity securities (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
Non-Recurring Fair Value Measurements
At August 31, 2026, there were
At May 31, 2026, the Company’s assets measured at fair value on a non-recurring basis were as follows:
(In millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Totals |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Long-lived assets, intangible assets, and other assets - Electrical Steel (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Long-lived assets held and used - Taylor (2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
The fair value of non-derivative financial instruments, including cash and cash equivalents, receivables, income taxes receivable, other assets, accounts payable, accrued compensation, contributions to employee benefit plans and related taxes, other accrued items, income taxes payable and other liabilities, approximate carrying value due to their short-term nature.
The carrying value of the Company's short-term borrowings, consisting of the 2031 Revolving Credit Facility, the ABS Germany Program, ABL USA Facility, and the Austria Bank Loans (and, at May 31, 2026, the 2028 Revolving Credit Facility), approximates fair value due to their variable interest rates and/or short-term nature. See “Note 8 – Debt” for additional information regarding these facilities.
33
Table of Contents
The following table provides a summary of the carrying value and estimated fair value of the Company's long-term debt, including current maturities, as of the dates presented:
|
|
August 31, |
|
|
May 31, |
|
||
(In millions) |
|
2026 |
|
|
2026 |
|
||
Carrying Value |
|
$ |
|
|
$ |
|
||
Fair Value, estimated (1) |
|
|
|
|
|
|
||
|
Investments Measured at Net Asset Value
The Company acquired investments in certain venture capital and growth equity investment funds (the “Kloeckner Funds”) in connection with the Kloeckner Acquisition. The Kloeckner Funds primarily invest in early- and growth-stage technology companies across Germany, Western Europe, and North America. The Kloeckner Funds are closed-end vehicles; none of the Company's interests are redeemable, and the Company receives distributions only as the underlying fund investments are realized or the fund is liquidated. Transfers of the Company's interests in the Kloeckner Funds require the consent of the general partner of each fund. The timing of the liquidation of the underlying assets of the Kloeckner Funds has not been communicated to the Company by the general partners of the funds or announced publicly.
Certain investments measured at fair value using the NAV per share as a practical expedient, in accordance with ASC 820, have not been classified within the fair value hierarchy above. For additional information, see “Note 1 – Description of Business and Basis of Presentation.”
The following table summarizes these investments at August 31, 2026:
(In millions) |
|
Fair Value |
|
|
Unfunded Commitments |
|
|
Redemption Frequency |
|
Redemption Period Notice |
||
Private equity funds |
|
$ |
|
|
$ |
|
|
N/A |
|
N/A |
||
Subsequent to the Separation of the Company from Worthington Enterprises, transactions between Worthington Enterprises and the Company are considered related party, including those subject to agreements entered into in connection with the Separation. Material related party transactions have been disclosed below.
Transactions with Worthington Enterprises
The majority of the Company’s net sales to Worthington Enterprises are subject to the Steel Supply and Services Agreement and are included within net sales in the consolidated statements of earnings. Net sales to Worthington Enterprises were $
As of August 31, 2026 and May 31, 2026, the outstanding accounts receivable balance with Worthington Enterprises equaled $
Note 17 – Segment Information
The Company’s CODM is Worthington Steel’s . The Company has determined that it has only
34
Table of Contents
The Company’s
The measure of segment profit or loss for the Company’s one reportable segment is net earnings, consistent with the measure the Company used for its single reportable segment prior to the Kloeckner Acquisition.
The Company regularly provides the CODM a reporting package structured similarly to the condensed consolidated statements of earnings.
The following table presents the significant expenses that are regularly provided to the CODM for the reportable segment and the required disclosable amounts that are included in net earnings for the three months ended August 31, 2026:
|
Three Months Ended |
|
|||||
|
August 31, |
|
|||||
(In millions) |
2026 |
|
|
2025 |
|
||
Net sales |
$ |
|
|
$ |
|
||
Cost of goods sold: |
|
|
|
|
|
||
Material cost |
|
|
|
|
|
||
Direct labor, manufacturing expenses, and other (1) |
|
|
|
|
|
||
Total cost of goods sold |
|
|
|
|
|
||
Gross margin |
|
|
|
|
|
||
Selling, general and administrative expense |
|
|
|
|
|
||
Restructuring and other (income) expense, net |
|
( |
) |
|
|
( |
) |
Operating income |
|
|
|
|
|
||
Other income (expense): |
|
|
|
|
|
||
Miscellaneous income (expense), net |
|
( |
) |
|
|
|
|
Interest expense, net |
|
( |
) |
|
|
( |
) |
Equity in net income of unconsolidated affiliate |
|
|
|
|
|
||
Earnings before income taxes |
|
|
|
|
|
||
Income tax expense |
|
|
|
|
|
||
Net earnings (loss) from continuing operations |
|
( |
) |
|
|
|
|
Net loss from discontinued operations |
|
( |
) |
|
|
- |
|
Net earnings (loss) |
|
( |
) |
|
|
|
|
Net earnings attributable to noncontrolling interests |
|
|
|
|
|
||
Net earnings (loss) attributable to controlling interest |
$ |
( |
) |
|
$ |
|
|
Note 18 – Discontinued Operations and Assets and Liabilities Held for Sale
In connection with the Kloeckner Acquisition, the Company acquired certain Kloeckner business units that met the held-for-sale criteria in ASC 360 as of the acquisition date. For additional information, see “Note 1 – Description of Business and Basis of Presentation.” The assets and liabilities of the Kloeckner Disposal Group were recorded at their acquisition-date fair value less costs to sell and have not been depreciated or amortized since the acquisition date. The Company did not allocate any consolidated interest expense that is not directly attributable to or related to the Kloeckner Disposal Group. The Kloeckner Disposal Group was identified for disposal as non-core to the Company’s post-acquisition strategy, and the Company expects to complete the sale by way of sale to a third-party purchaser, with completion expected by the end of fiscal 2027.
35
Table of Contents
Subsequent Events” for additional information regarding the Kloeckner Disposal Group.
In addition, in connection with the Kloeckner Acquisition, the Company acquired certain long-lived assets, primarily buildings and improvements, of Kloeckner business units that met the held-for-sale criteria in ASC 360 as of the acquisition date. These business units continue to operate, and the associated operations and cash flows have not been disposed of. As of August 31, 2026, these assets, consisting primarily of buildings and improvements, had a carrying value of $
The carrying amounts of the major classes of assets and liabilities of the Kloeckner Disposal Group classified as held for sale and included in discontinued operations as of August 31, 2026 were as follows:
|
|
August 31, |
|
|
(In millions) |
|
2026 |
|
|
Assets |
|
|
|
|
Trade receivables |
|
$ |
|
|
Inventories & other current assets |
|
|
|
|
Current assets of discontinued operations |
|
|
|
|
Non-current assets of discontinued operations |
|
|
|
|
Assets of discontinued operations |
|
$ |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Trade payables |
|
$ |
|
|
Short-term borrowings & other current liabilities |
|
|
|
|
Current liabilities of discontinued operations |
|
|
|
|
Long-term debt & other non-current liabilities |
|
|
|
|
Non-current liabilities of discontinued operations |
|
|
|
|
Liabilities of discontinued operations |
|
$ |
|
|
Earnings (loss) from discontinued operations, net of tax, for the three months ended August 31, 2026 was as follows:
|
|
Three Months Ended |
|
|
(In millions) |
|
August 31, 2026 |
|
|
Net sales |
|
$ |
|
|
Cost of goods sold |
|
|
|
|
Gross margin |
|
|
|
|
Selling, general and administrative expense |
|
|
|
|
Restructuring and other (income) expense, net |
|
|
- |
|
Operating loss |
|
|
( |
) |
Other income (expense): |
|
|
|
|
Miscellaneous income (expense), net |
|
|
|
|
Interest expense, net |
|
|
( |
) |
Loss before income taxes |
|
|
( |
) |
Income tax expense |
|
|
|
|
Net loss |
|
$ |
( |
) |
No comparative amounts are presented for the three months ended August 31, 2025 given the date of the Kloeckner Acquisition.
36
Table of Contents
Note 19 – Subsequent Events
On September 3, 2026, Kloeckner Metals Service Centers de Mexico, S. de R.L. de C.V. (“KMSCM”) and Kloeckner Specialty Metals de Mexico, S. de R.L. de C.V. (“KSM”), an indirect subsidiary of the Company acquired in connection with the Kloeckner Acquisition, entered into Amendment No. 2 to the Loan and Security Agreement governing the ABL Mexico Facility. The amendment increased aggregate commitments under the facility by $
On September 8, 2026, Worthington Steel GmbH entered into a DPLTA with Kloeckner. The DPLTA is not currently effective. An extraordinary general meeting of Kloeckner shareholders to vote on approval of the DPLTA is expected to take place on October 23, 2026. Its effectiveness remains subject to the required shareholder approvals and registration with the commercial register at Kloeckner’s registered seat and cannot occur before January 1, 2027. If and when the DPLTA becomes effective and subject to applicable law, Worthington Steel GmbH will be entitled to issue binding instructions to Kloeckner’s management board, Kloeckner generally will be required to transfer its annual profits to Worthington Steel GmbH and Worthington Steel GmbH generally will be required to absorb Kloeckner’s annual losses. Until the DPLTA becomes effective, Kloeckner continues to operate subject to applicable German law, which limits certain actions the Company may take with respect to its operations.
Under the DPLTA, once effective, each outside Kloeckner shareholder will be entitled to elect either to tender its shares for cash compensation of €
On October 6, 2026, Worthington Steel's Board of Directors (the “Board”) declared a quarterly cash dividend of $
On October 7, 2026, the Company terminated
In October 2026, the Company entered into a definitive agreement to sell its Becker operations, which are classified as discontinued operations in this filing, in a transaction expected to generate approximately €
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Table of Contents
Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Index |
Page |
|
|
|
|
|
Introduction |
38 |
|
|
|
|
Basis of Presentation |
38 |
|
|
|
|
Business Overview and Strategy |
38 |
|
|
|
|
Recent Business Development |
39 |
|
|
|
|
Trends and Factors Impacting Our Performance |
40 |
|
|
|
|
Results of Operations |
44 |
|
|
|
|
First Quarter – Fiscal 2027 Compared to Fiscal 2026 |
44 |
|
|
|
|
Liquidity and Capital Resources |
49 |
|
|
|
|
Critical Accounting Estimates |
53 |
|
|
|
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 2026 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 became an independent, publicly traded company on December 1, 2023, following its separation from Worthington Enterprises, formerly known as Worthington Industries, Inc.
Our consolidated financial statements include the accounts of Worthington Steel and its consolidated subsidiaries. On June 3, 2026, we completed the acquisition of a controlling equity interest in Kloeckner. Kloeckner’s results are included in our consolidated financial statements beginning on the acquisition date, with the portion of Kloeckner not owned by us reflected as NCI. Our investment in our 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” and “Note 2 – Acquisitions.”
In connection with the Kloeckner Acquisition, the Company acquired certain Kloeckner business units that met the held-for-sale criteria as of the acquisition date, including the Kloeckner Disposal Group. Management has committed to a plan to sell the Kloeckner Disposal Group, and we expect the sale to be completed within one year of the acquisition date. The results of this Kloeckner Disposal Group are reported as discontinued operations in the accompanying interim consolidated financial statements for all periods presented. Unless otherwise indicated, the discussion and analysis of our results of operations included in this MD&A relates to continuing operations and excludes the results of discontinued operations. Prior-period amounts have been recast, as applicable, to conform to this presentation. For additional information, see “Note 18 – Discontinued Operations and Assets and Liabilities Held for Sale.”
Business Overview and Strategy
Business Overview
We are one of North America’s leading value-added metals processing and manufacturing companies. We partner with customers to deliver specialized, highly technical solutions across carbon flat-rolled steel, aluminum, stainless steel, long products, heavy plate and electrical steel to solve complex challenges across a broad range of industries.
On June 3, 2026, we completed the acquisition of a controlling equity interest in Kloeckner, a metals service center and processing company with operations primarily in the United States, Mexico, and Europe. The Kloeckner Acquisition significantly increased our
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Table of Contents
scale and broadened our product and service offerings, customer and end-market exposure and geographic footprint. Through Kloeckner, our capabilities now include a broader range of carbon steel products, as well as aluminum, stainless steel, and long products, together with value-added processing, fabrication and distribution services.
Our legacy Worthington Steel operations primarily provide value-added processing of carbon flat-rolled steel, electrical steel laminations and tailor welded solutions. We serve customers through a combination of direct sales, in which we purchase and take ownership of the material, and toll processing and other fee-based arrangements involving customer-owned material. The addition of Kloeckner materially expanded our metals service center and distribution activities and diversified our business beyond our historical product, end-market, and geographic concentrations.
We sell steel on a direct basis, whereby we are exposed to the risks and rewards of ownership of the material while in its possession. Additionally, we toll process material 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 strategy is focused on providing differentiated, value-added solutions to our customers, driving operational excellence through the Worthington Business System, investing in attractive growth opportunities and maintaining disciplined capital allocation. Following the Kloeckner Acquisition, our near-term priorities include supporting Kloeckner’s continued execution of its strategic initiatives, advancing integration planning and other collaborative activities permitted under applicable law, evaluating potential cost, operational and commercial opportunities that may be available if and when legally permissible, maintaining strong customer service and operational execution, and reducing acquisition-related debt.
Worthington Steel became an independent, publicly traded company on December 1, 2023, following its separation from Worthington Enterprises.
Our operations are managed principally on a products and services basis with a single operating and single reportable segment. 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 are 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
We continue to integrate commercially available AI technologies into our long-term transformation strategy. Through these efforts, we are evaluating and using AI tools to support internal analysis, automate certain routine tasks and assist employee decision-making. We continue to develop and refine AI solutions in areas such as predictive maintenance and intelligent reporting, which are intended to improve system connectivity and operational decision-making. Expanding the use of AI across operations and the back office may enable our teams to focus on the most value-driving aspects of their roles.
Recent Business Developments
On October 6, 2026, the Board declared a quarterly cash dividend of $0.16 per common share payable on December 28, 2026 to shareholders of record at the close of business on December 14, 2026.
Kloeckner Acquisition
On June 3, 2026, we completed our acquisition of a controlling interest in Kloeckner through a voluntary public takeover offer. Following the acquisition, we held a total of 60,710,791 Kloeckner shares, representing approximately 60.86% of Kloeckner’s outstanding share capital. The total aggregate consideration for the tendered shares was €576.3 million (approximately $668.3 million). On June 15, 2026, we consummated the acquisition of an additional one million Kloeckner shares at €11 per share (approximately $12.7 million), increasing our total ownership to 61,710,791 Kloeckner shares representing approximately 61.87% of Kloeckner’s outstanding share capital. Kloeckner’s results are included in our consolidated financial statements beginning on the acquisition date, with the portion of Kloeckner not owned by us reflected as noncontrolling interests. For additional information, see “Note 2 – Acquisitions.”
In connection with the Kloeckner Acquisition, on June 1, 2026, we incurred $1.4 billion of secured indebtedness consisting of $700.0 million aggregate principal amount of 7.750% Senior Secured Notes due 2033 (the “2033 Senior Notes”), which mature on June 1, 2033, and incurred $700.0 million of borrowings under a seven-year senior secured term loan B credit facility (the “Term Loan Facility”), which matures on June 1, 2033. Borrowings under the Term Loan Facility bear interest, at our option, at a rate per annum equal to Term
39
Table of Contents
SOFR plus 4.00%, Daily Simple SOFR plus 4.00%, or the base rate plus 3.00%. The proceeds from the 2033 Senior Notes and Term Loan Facility, together with cash on hand, were used to fund the Kloeckner Acquisition, repay certain existing indebtedness of Worthington Steel and Kloeckner, pay related transaction fees and expenses, and for general working capital purposes.
On June 25, 2026, we entered into the 2031 Revolving Credit Facility, a new asset-based revolving credit facility in the aggregate principal amount of up to $550.0 million subject to borrowing base availability and other conditions, which refinanced and replaced our previous revolving credit facility. The 2031 Revolving Credit Facility matures on June 25, 2031, and borrowings bear interest at variable rates based on SOFR or a base rate, plus an applicable margin. The 2031 Revolving Credit Facility provides additional liquidity to support our working capital and general corporate requirements following the Kloeckner Acquisition. For additional information, see “Liquidity and Capital Resources” and “Note 8 – Debt.”
Kloeckner Delisting
On July 15, 2026, we commenced the Delisting Tender Offer. The acceptance period ended on August 12, 2026, and Kloeckner’s shares were delisted from the regulated market of the Frankfurt Stock Exchange effective August 12, 2026. Upon settlement of the Delisting Tender Offer, we acquired 242,446 additional Kloeckner shares for aggregate consideration of approximately €2.7 million ($3.2 million as of August 31, 2026), increasing our ownership interest to approximately 62.11%.
Domination and Profit and Loss Transfer Agreement
On September 8, 2026, subsequent to the end of the first quarter of fiscal 2027, Worthington Steel GmbH entered into a DPLTA with Kloeckner. The DPLTA is not currently effective. An extraordinary general meeting of Kloeckner shareholders to vote on approval of the DPLTA is expected to take place on October 23, 2026. Its effectiveness remains subject to the required shareholder approvals and registration with the commercial register at Kloeckner’s registered seat and cannot occur before January 1, 2027.
If and when the DPLTA becomes effective, and subject to applicable law, Worthington Steel GmbH will be entitled to issue binding instructions to Kloeckner’s management board, Kloeckner generally will be required to transfer its annual profits to Worthington Steel GmbH, and Worthington Steel GmbH generally will be required to absorb Kloeckner’s annual losses. Until the DPLTA becomes effective, Kloeckner continues to operate subject to applicable German law, which limits certain actions we may take with respect to its operations.
Under the DPLTA, once effective, each outside Kloeckner shareholder will be entitled to elect either to tender its shares for cash compensation of €11.00 per share or to receive recurring annual compensation of €0.67 per share on a gross basis for each full fiscal year of Kloeckner. As a result, the initial exit compensation if all of the remaining outside shareholders tendered would be approximately €415.8 million (approximately $483.0 million), or the guaranteed annual compensation (gross) of €25.3 million (approximately $29.4 million) if all remained. The first guaranteed annual compensation is in calendar year 2028. The adequacy of both forms of compensation may be challenged by outside shareholders in appraisal proceedings under German law, which could result in higher compensation amounts. For additional information, see “Note 2 – Acquisitions.”
Trends and Factors Impacting Our Performance
The metals processing and service center industry is fragmented and highly competitive. Given the broad base of products and services we offer following the Kloeckner Acquisition, specific competitors vary based on the end market, product and service offering, geography, and customer requirements. Competition is primarily on the basis of price, product quality, value-added capabilities, service, and the ability to meet delivery requirements. Our pricing is affected by, among other factors, metals prices, the cost and availability of raw materials, transportation and shipping costs, foreign currency exchange rates, and general economic conditions in the markets in which we operate.
General Economic and Market Conditions
We sell our products and services to a diversified customer base across a broad range of end markets. Historically, sales of our legacy Worthington Steel operations have generally been strongest in our fiscal fourth quarter and weaker in our fiscal third quarter due principally to seasonal construction activity and customer plant shutdowns. The Kloeckner Acquisition materially changed our end-market composition, and, accordingly, the historical seasonality of our legacy Worthington Steel operations may not be indicative of the seasonality of our consolidated results. We do not believe backlog is a significant indicator of our business.
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We use the following information to monitor our costs and demand in our major end markets:
|
|
Three Months Ended |
|
|||||||||
|
|
August 31, |
|
|
August 31, |
|
|
|
|
|||
|
|
2026 |
|
|
2025 (1) |
|
|
Change |
|
|||
U.S. GDP (% growth year-over-year) |
|
|
2.3 |
% |
|
|
1.8 |
% |
|
|
0.5 |
% |
Eurozone GDP (% growth year-over-year) |
|
|
1.0 |
% |
|
|
1.4 |
% |
|
|
(0.4 |
%) |
Hot-Rolled Steel ($ per ton)(2) |
|
$ |
1,152 |
|
|
$ |
857 |
|
|
$ |
295 |
|
Detroit Three Auto Build (000's vehicles)(3) |
|
|
1,659 |
|
|
|
1,679 |
|
|
|
(20 |
) |
No. America Auto Build (000's vehicles)(3) |
|
|
3,861 |
|
|
|
3,889 |
|
|
|
(28 |
) |
Zinc ($ per pound)(4) |
|
$ |
1.66 |
|
|
$ |
1.25 |
|
|
$ |
0.41 |
|
Natural Gas ($ per mcf)(5) |
|
$ |
2.97 |
|
|
$ |
3.28 |
|
|
$ |
(0.31 |
) |
On-Highway Diesel Fuel Prices ($ per gallon)(6) |
|
$ |
5.15 |
|
|
$ |
3.71 |
|
|
$ |
1.44 |
|
Total volume (tons) from continuing operations increased by 109% compared to the prior year quarter. Excluding the impact of Kloeckner, direct tons sold increased by 3%.
The Kloeckner Acquisition significantly expanded our customer base and end-market exposure and, as a result, materially changed the composition of our consolidated net sales compared with the prior-year period. The breakdown of net sales by end market for the periods presented is illustrated below:
|
|
Three Months Ended |
|
|||||
|
|
August 31, |
|
|
August 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Automotive |
|
|
25 |
% |
|
|
56 |
% |
Construction |
|
|
19 |
% |
|
|
11 |
% |
Machinery & Equipment |
|
|
14 |
% |
|
|
10 |
% |
Appliances & Consumer Goods |
|
|
8 |
% |
|
|
2 |
% |
Energy |
|
|
6 |
% |
|
|
7 |
% |
Other Transportation |
|
|
5 |
% |
|
|
4 |
% |
Containers |
|
|
3 |
% |
|
|
2 |
% |
Agriculture |
|
|
1 |
% |
|
|
2 |
% |
Other |
|
|
19 |
% |
|
|
6 |
% |
Total |
|
|
100 |
% |
|
|
100 |
% |
The change in our end-market mix compared with the prior-year period reflects, among other factors, the inclusion of Kloeckner beginning after the acquisition. Accordingly, the percentages presented for the three months ended August 31, 2026 are not directly comparable to the prior-year period.
The following table summarizes the concentration percentage of consolidated net sales for the periods presented:
|
|
Three Months Ended |
|
|||||
|
|
August 31, |
|
|
August 31, |
|
||
(Percentage of Net Sales) |
|
2026 |
|
|
2025 |
|
||
End Market – Automotive |
|
|
25 |
% |
|
|
56 |
% |
End Market – Construction |
|
|
19 |
% |
|
|
11 |
% |
Detroit Three Automakers |
|
|
15 |
% |
|
|
35 |
% |
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.
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Automotive remains an important end market for our overall operations. As illustrated, Kloeckner has significant exposure to other end markets, which results in the overall diversification of the end markets as illustrated. However, Kloeckner maintains a healthy exposure to the automotive end market, particularly in North America. As a result, North American vehicle production, including production at the Detroit Three Automakers, continues to be an important indicator for our operations.
North American vehicle production and Detroit Three Automakers vehicle production both decreased 1% in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. Excluding the impact of Kloeckner, direct shipments to the overall automotive market and to the Detroit Three Automakers increased by 4% and 1%, respectively, in the first quarter of fiscal 2027 as compared to the first quarter of fiscal 2026. Toll volumes decreased 8% in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. The decrease in toll volumes was due to continued soft demand from mill customers.
Detroit Three Automakers represented 15% and 35% of our consolidated net sales during the first quarter of fiscal 2027 and fiscal 2026, respectively. Direct shipments to the Detroit Three Automakers in the first quarter of fiscal 2027 increased approximately 1%, compared to the first quarter of fiscal 2026. Over the same time period, Detroit Three Automakers reported a 1% decrease in production. Our automotive volume reflects resilient demand and our continued success in winning business.
The Kloeckner Acquisition substantially broadened our exposure to non-automotive end markets, while expanding our geographic footprint across the Americas, particularly in the southern U.S., and Europe. Our remaining net sales are to other markets such as agricultural, appliance & consumer goods, 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”) and, to a lesser extent, Eurozone gross domestic product growth (“Eurozone GDP”) are reasonable macroeconomic indicators for analyzing the demand of our end markets other than the automotive industry.
Recent U.S. GDP data indicates continued economic resilience through the first quarter of fiscal 2027 although recent U.S. labor market indicators have become more mixed since the end of the first quarter. Eurozone GDP also demonstrated positive growth, including greater than expected growth. While overall economic activity has remained resilient, continued uncertainty, including geopolitical developments and rising energy prices, contributed to elevated inflation and uneven demand conditions across industrial sectors.
Excluding the impact of Kloeckner, Construction direct volumes decreased 9%, whereas Machinery & Equipment direct volumes increased 28% in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. The decrease in Construction was primarily due to increased competition and tight steel availability, which limited our ability to quote short-term contract business that more than offset data center construction demand. The increase in Machinery & Equipment was primarily due to an increase in the level of shipments out of Sitem Group, which due to the one-month reporting lag, was included in our consolidated results for an additional month during this quarter. On a quarterly basis, this increase would only be expected to occur during this reporting period.
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 maintained the benchmark interest rate during the first quarter of fiscal 2027; however, in September 2026, subsequent to the end of the first quarter of fiscal 2027, the U.S. Federal Reserve raised the benchmark federal funds rate by 25 basis points to a target rate of 3.75% to 4.00%. Similarly, the European Central Bank (“ECB”), maintained a similar view on inflation with its targeted rate of 2%. In June 2026, the ECB increased its three key ECB interest rates, and then did so again in September 2026, subsequent to the end of the first quarter of fiscal 2027.
Both the U.S. Federal Reserve and the ECB increases were in response to the elevated inflation that has been running above the targeted rates for an extended period of time. Our debt profile has transformed as a result of the Kloeckner Acquisition, including new debt to finance the acquisition as well as indebtedness assumed as part of the acquisition. As a result, our overall borrowing costs have substantially increased from the prior year period. Our new debt profile contains a mix of fixed and variable rate debt. With the increase in the benchmark interest rate, we will see an increased burden from higher borrowing costs on the variable rate debt to the extent we have outstanding borrowings on those instruments.
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Table of Contents
Industry Developments
Trade policy continues to have a significant effect on the metals industry, including metals pricing, import levels, sourcing decisions and customer demand. In June 2025, the U.S. government increased tariffs on most steel and aluminum imports to 50% under Section 232 of the Trade Expansion Act of 1962 (“Section 232”). During calendar year 2026, the U.S. government further modified the application of Section 232 tariffs, including changes to the valuation and tariff treatment of certain steel, aluminum and derivative products. These trade policy decisions may have contributed to reduced import competition and tighter supply conditions for certain metals in the U.S., which have contributed to increases in certain domestic metals prices. 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. Tariffs can increase the cost of imported metals and metal products, affect customer sourcing and purchasing decisions and contribute to volatility in metals prices and supply chains. The impact varies depending on the products we purchase and sell, their country of origin, the markets in which we operate and our ability to reflect changes in material costs in customer pricing.
As a result, our customers’ supply chain decisions may abruptly shift, potentially impacting our financial performance. Evidence collected by the U.S. government suggests that imports of steel decreased meaningfully year-over-year, but have stabilized in recent months. U.S. Department of Commerce data, which contains preliminary data, reflects the average import tonnage of U.S. import of flat (carbon and alloy) steel mill products decreased approximately 20% in the trailing 12 month ended August 31, 2026, compared to trailing 12 month ended August 31, 2025, whereas the average increased approximately 4% in the first quarter of fiscal 2027 compared to the first quarter of 2026.
After the Kloeckner Acquisition, developments in European trade policy have also become more relevant to our business, including the European Union’s steel import measures that may affect steel availability, sourcing patterns and pricing in certain European markets.
While lower imports of steel may put upward pressure on U.S. 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.
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, including, but not limited to, supply and demand, trade policy, raw material and energy costs, and geopolitical developments. 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.
After the Kloeckner Acquisition, we purchase and maintain inventories of a broader range of steel and other metal products. However, the HRC continues to be the most significant driver of our raw material costs and selling prices. 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 first quarter of fiscal 2027, steel prices continued their upward rise that began during the second half of fiscal 2026. Excluding the impact of Kloeckner, direct spreads increased by $13.9 million primarily due to higher direct volumes, and to a lesser extent, a $6.5 million favorable change from an estimated $5.6 million inventory holding gain in the prior year quarter to an estimated $12.1 million inventory holding gain in the first quarter of fiscal 2027. With the recent upward steel price movements, we expect inventory holding gains to be between $10.0 million and $15.0 million in the second quarter of fiscal 2027.
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.
43
Table of Contents
The following table presents the average quarterly market price per ton of HRC steel for the periods presented:
|
|
Fiscal Year |
|
|||||||||
(Dollars per ton) (1) |
|
2027 |
|
|
2026 |
|
|
2025 |
|
|||
1st Quarter |
|
$ |
1,152 |
|
|
$ |
857 |
|
|
$ |
690 |
|
2nd Quarter |
|
N/A |
|
|
$ |
825 |
|
|
$ |
690 |
|
|
3rd Quarter |
|
N/A |
|
|
$ |
938 |
|
|
$ |
702 |
|
|
4th Quarter |
|
N/A |
|
|
$ |
1,040 |
|
|
$ |
933 |
|
|
Annual Avg. |
|
$ |
1,152 |
|
|
$ |
915 |
|
|
$ |
754 |
|
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
First Quarter – Fiscal 2027 Compared to Fiscal 2026
The following table presents a review of the results of operations for the periods presented:
|
|
Three Months Ended |
|
|||||||||
|
|
August 31, |
|
|
August 31, |
|
|
|
|
|||
(In millions, except volume and per common share amounts) |
|
2026 |
|
|
2025 |
|
|
Change |
|
|||
Volume (tons) |
|
|
1,943,340 |
|
|
|
928,866 |
|
|
|
1,014,474 |
|
Net sales |
|
$ |
2,726.6 |
|
|
$ |
872.9 |
|
|
$ |
1,853.7 |
|
Operating income |
|
|
56.0 |
|
|
|
48.3 |
|
|
|
7.7 |
|
Equity income |
|
|
5.3 |
|
|
|
6.4 |
|
|
|
(1.1 |
) |
Net earnings (loss) from continuing operations attributable to controlling interest |
|
|
(7.0 |
) |
|
|
36.8 |
|
|
|
(43.8 |
) |
EPS from continuing operations attributable to controlling interest - diluted |
|
$ |
(0.14 |
) |
|
$ |
0.73 |
|
|
$ |
(0.87 |
) |
Net sales for the first quarter of fiscal 2027 were $2,726.6 million, an increase of $1,853.7 million, or 212%, compared to the first quarter of fiscal 2026. The Kloeckner Acquisition contributed $1,772.7 million to net sales in the first quarter of fiscal 2027.
Excluding the impact of Kloeckner, net sales increased $81.0 million or 9% compared to the prior year quarter. This $81.0 million increase was driven primarily by higher direct volumes, and, to a lesser extent, higher average direct selling prices. Direct net sales increased $81.7 million. Direct tons sold increased by 3% and direct selling prices increased 6% in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. Toll processing net sales decreased $0.7 million, or 2%, in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. Toll volumes decreased 8% and toll selling prices increased 6% in the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026.
The consolidated mix of direct versus toll volumes was 77% to 23% in the first quarter of fiscal 2027 compared to 63% to 37% in the first quarter of fiscal 2026.
Gross Margin
|
|
August 31, |
|
|
Change |
|
|
|
|
|||||||||||||||
(In millions) |
|
2026 |
|
|
% of Net sales |
|
|
2025 |
|
|
% of Net sales |
|
|
$ |
|
|
% |
|
||||||
Gross margin |
|
$ |
261.2 |
|
|
|
9.6 |
% |
|
$ |
115.2 |
|
|
|
13.2 |
% |
|
$ |
146.0 |
|
|
|
126.7 |
% |
Gross margin in the first quarter of fiscal 2027 was $261.2 million, an increase of $146.0 million compared to the first quarter of fiscal 2026.
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Table of Contents
Excluding the impact of Kloeckner, gross margin increased $2.0 million compared to the prior year quarter. The increase was primarily driven by higher direct spreads (calculated as sales less material costs), partially offset by higher manufacturing expenses and lower toll spreads. Direct spreads increased by $13.9 million primarily due to the $7.6 million impact of higher direct volumes and a $6.5 million favorable change, which resulted from an estimated $5.6 million inventory holding gain in the prior year quarter to an estimated $12.1 million inventory holding gain in the first quarter of fiscal 2027. The gains in direct spreads were partially offset by $0.2 million due to value-added market spread compression compared to the prior year quarter. Toll spreads decreased $0.9 million. Manufacturing expenses increased $11.1 million, primarily related to increased wages and benefits.
Selling, General and Administrative Expense
|
|
August 31, |
|
|
Change |
|
|
|
|
|||||||||||||||
(In millions) |
|
2026 |
|
|
% of Net sales |
|
|
2025 |
|
|
% of Net sales |
|
|
$ |
|
|
% |
|
||||||
Selling, general and administrative expense |
|
$ |
208.8 |
|
|
|
7.7 |
% |
|
$ |
67.9 |
|
|
|
7.8 |
% |
|
$ |
140.9 |
|
|
|
207.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
SG&A in the first quarter of fiscal 2027 was $208.8 million, an increase of $140.9 million compared to the first quarter of fiscal 2026.
Excluding the impact of Kloeckner, SG&A increased by $17.6 million. The $17.6 million increase in SG&A was primarily attributable to an increase of $18.6 million in professional fees related to the Kloeckner Acquisition.
In the first quarter of fiscal 2026, SG&A included a one-time bonus of $4.6 million paid to key individuals at the Sitem Group as a result of the successful closing of the Sitem Group acquisition.
Other Operating Items
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
August 31, |
|
|
Change |
||||||||
(In millions) |
|
2026 |
|
|
2025 |
|
|
$ |
|
|
|||
Restructuring and other (income) expense, net |
|
|
(3.6 |
) |
|
|
(1.0 |
) |
|
|
(2.6 |
) |
|
Restructuring and other income, net in the first quarter of fiscal 2027 was driven by:
Restructuring and other income, net in the first quarter of fiscal 2026 was driven by:
Refer to “Note 5 – Restructuring and Other (Income) Expense, Net” for additional information.
Miscellaneous Income (Expense), Net
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
August 31, |
|
|
Change |
||||||||
(In millions) |
|
2026 |
|
|
2025 |
|
|
$ |
|
|
|||
Miscellaneous income (expense), net |
|
$ |
(10.5 |
) |
|
$ |
0.2 |
|
|
$ |
(10.7 |
) |
|
Miscellaneous expense, net in the first quarter of fiscal 2027 was $10.5 million, an unfavorable change of $10.7 million compared to the miscellaneous income, net of $0.2 million in the first quarter of fiscal 2026. The change was primarily due to:
45
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The decreases were partially offset by:
Interest Expense, Net
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
August 31, |
|
|
Change |
||||||||
(In millions) |
|
2026 |
|
|
2025 |
|
|
$ |
|
|
|||
Interest expense, net |
|
$ |
38.8 |
|
|
$ |
2.9 |
|
|
$ |
35.9 |
|
|
Interest expense, net in the first quarter of fiscal 2027 was $38.8 million, an increase of $35.9 million from the prior year quarter. Our debt profile changed materially as a result of the Kloeckner Acquisition, including new debt incurred to finance the acquisition and indebtedness assumed in the acquisition. As a result, our overall borrowing costs have substantially increased from the prior year period. Our new debt profile contains a mix of fixed and variable rate debt. For additional information, see “Liquidity and Capital Resources” and “Note 8 – Debt.”
The increase was primarily due to interest expense on the 2033 Senior Notes and the Term Loan Facility entered into in the first quarter of fiscal 2027, and the interest expense on the Kloeckner debt instruments assumed as part of the acquisition. Due to the Kloeckner Acquisition, we entered into the 2031 Revolving Credit Facility and terminated the 2028 Revolving Credit Facility. In the first quarter of fiscal 2027, as a result of the termination, the remaining costs of the 2028 Revolving Credit Facility that were initially deferred were recognized in interest expense, net. Interest expense, net, also increased, to a lesser extent, due to a higher average debt balance on the BDC Loan during the first quarter of fiscal 2027 compared to the prior year quarter.
These increases were offset by higher interest income, including from interest income from excess cash held prior to the settlement of the Delisting Tender Offer, and to a lesser extent, the interest income from the net investment hedges. For additional information, see “Liquidity and Capital Resources,” “Note 8 – Debt,” and “Note 14 – Derivative Financial Instruments and Hedging Activities.”
Equity Income
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
August 31, |
|
|
Change |
||||||||
(In millions) |
|
2026 |
|
|
2025 |
|
|
$ |
|
|
|||
Serviacero Worthington |
|
$ |
5.3 |
|
|
$ |
6.4 |
|
|
$ |
(1.1 |
) |
|
Equity income at Serviacero Worthington decreased $1.1 million from the prior year quarter, driven primarily by lower volumes and unfavorable foreign currency exchange impacts. The decrease was partially offset by favorable market spread expansion, including inventory holding gains.
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Table of Contents
Income Taxes
|
|
August 31, |
|
|
Change |
|
|
|
|
|||||||||||||||
(In millions) |
|
2026 |
|
|
ETR |
|
|
2025 |
|
|
ETR |
|
|
$ |
|
|
% |
|
||||||
Income tax expense |
|
$ |
12.1 |
|
|
|
100.7 |
% |
|
$ |
13.4 |
|
|
|
26.6 |
% |
|
$ |
(1.3 |
) |
|
|
(9.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income tax expense was $12.1 million in the first quarter of fiscal 2027 compared to $13.4 million in the prior year quarter. The decrease in income tax expense was primarily driven by lower pre-tax earnings in the current quarter, partially offset by tax effects associated with the acquisition of Kloeckner. The income tax expense in the current quarter resulted in an ETR of 100.7%, compared to 26.6% for the prior year quarter. Refer to “Note 11 – Income Taxes” for additional information.
Adjusted EBIT and Adjusted EBITDA
We evaluate operating performance on the basis of earnings before interest and taxes (“EBIT”), as adjusted for certain items (“adjusted EBIT”) and adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”). EBIT, a non-GAAP financial measure, is calculated by adding interest expense and income tax expense to net earnings (loss) from continuing operations 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 EBITDA, a non-GAAP financial measure, is calculated by adding depreciation and amortization expense to adjusted EBIT. Adjustments attributable to noncontrolling interests are added back from adjusted EBIT to reflect the consolidated results.
Adjusted EBIT and adjusted EBITDA are used by management to evaluate operating performance and engage in financial and operational planning because we believe these financial measures provide 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 (loss) from continuing operations attributable to controlling interest (the most comparable GAAP financial measure) to adjusted EBIT for the periods presented:
|
|
Three Months Ended |
|
|||||
|
|
August 31, |
|
|
August 31, |
|
||
(In millions) |
|
2026 |
|
|
2025 |
|
||
Net earnings (loss) from continuing operations attributable to controlling interest (GAAP) |
|
$ |
(7.0 |
) |
|
$ |
36.8 |
|
Interest expense, net(1) |
|
|
38.8 |
|
|
|
2.9 |
|
Income tax expense(1) |
|
|
12.1 |
|
|
|
13.4 |
|
EBIT (non-GAAP) |
|
|
43.9 |
|
|
|
53.1 |
|
Restructuring and other (income), net(2) |
|
|
(2.6 |
) |
|
|
(0.6 |
) |
Kloeckner purchase derivative(3) |
|
|
0.9 |
|
|
|
- |
|
Kloeckner acquisition-related expenses(4) |
|
|
21.4 |
|
|
|
- |
|
Kloeckner securities investment loss, net(5) |
|
|
15.5 |
|
|
|
- |
|
Pension adjustments(6) |
|
|
(0.6 |
) |
|
|
- |
|
Sitem Group acquisition completion bonus payment(7) |
|
|
- |
|
|
|
3.0 |
|
Adjusted EBIT (non-GAAP) |
|
|
78.5 |
|
|
|
55.5 |
|
Depreciation and amortization(1) |
|
|
27.8 |
|
|
|
20.3 |
|
Net earnings attributable to noncontrolling interests |
|
|
5.0 |
|
|
|
1.8 |
|
EBITDA Adjustments – Noncontrolling interest impact(8) |
|
|
(0.3 |
) |
|
|
1.2 |
|
Adjusted EBITDA (non-GAAP) |
|
$ |
111.0 |
|
|
$ |
78.8 |
|
47
Table of Contents
Adjusted EBIT in the first quarter of fiscal 2027 was $78.5 million, up $23.0 million compared to the first quarter of fiscal 2026. The increase was primarily due to the contribution of Kloeckner of $27.9 million. Excluding the contribution of Kloeckner, adjusted EBIT decreased $4.9 million, primarily as a $2.8 million wage-related increase in SG&A, a $2.3 million increase in miscellaneous expense, primarily related to foreign currency losses and lower equity income from Serviacero Worthington, more than offset the $2.0 million increase in gross margin.
Adjusted EBITDA in the first quarter of fiscal 2027 was $111.0 million, up $32.2 million compared to the first quarter of fiscal 2026. The increase was primarily due to the contribution of Kloeckner of $36.0 million. The change in adjusted EBITDA was primarily driven by the same factors impacting adjusted EBIT, as well as slightly higher depreciation and amortization expense excluding Kloeckner.
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 have not recorded a reserve. We estimate that a loss is reasonably possible and 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 and reasonably estimable.
48
Table of Contents
Liquidity and Capital Resources
Our primary ongoing requirements for cash are expected to be for working capital, capital expenditures, integration and transaction-related costs, dividend payments, debt service, potential payments to Kloeckner’s remaining outside shareholders and other strategic initiatives. Following the Kloeckner Acquisition, our working capital requirements, consolidated indebtedness and debt service obligations have increased materially as a result of both the financing incurred in connection with the acquisition and certain preexisting Kloeckner indebtedness that remained outstanding following the acquisition.
Our primary sources of liquidity include cash and cash equivalents, cash generated from operating activities and available borrowings under the 2031 Revolving Credit Facility and other financing arrangements. Subsequent to the Kloeckner Acquisition, our debt profile provides for an increase in the number of available options for liquidity, with the material sources being the 2031 Revolving Credit Facility, ABL USA Facility, Swiss RCF, and German RCF. See “—Kloeckner Debt.”
As of August 31, 2026, our cash and cash equivalents balance was $248.2 million, compared to cash and cash equivalents balance of $84.6 million at May 31, 2026. As of August 31, 2026, our total consolidated debt balance was $2,196.4 million, an increase of $1,939.6 million, compared to the total consolidated debt balance of $256.8 million at May 31, 2026. The increase is primarily due to the financing of the Kloeckner Acquisition and the consolidation of certain preexisting Kloeckner indebtedness.
In connection with the Kloeckner Acquisition, we incurred $1.4 billion of secured indebtedness consisting of $700.0 million aggregate principal amount of 2033 Senior Notes and $700.0 million of borrowings under the Term Loan Facility. On August 19, 2026, we made a $200.0 million voluntary principal repayment, reducing the outstanding principal balance. Following the repayment, $500.0 million was outstanding under the Term Loan Facility as of August 31, 2026. On June 25, 2026, we also entered into the $550.0 million 2031 Revolving Credit Facility, which replaced the 2028 Revolving Credit Facility that was terminated concurrently.
Additionally, we assumed the liabilities of Kloeckner as part of the acquisition and recorded Kloeckner’s liabilities within our consolidated balance sheet. Kloeckner’s debt obligations included various loans. For additional information, see below for the material impacts discussed below as well as a summary of the Kloeckner debt instruments assumed. See “—Kloeckner Debt.”
The 2033 Senior Notes contain customary restrictive covenants, including incurrence-based restrictions on certain financing and capital allocation activities. As of August 31, 2026, we were in compliance with the applicable covenants, which are not currently expected to materially restrict our liquidity or access to capital. The Term Loan Facility contains customary affirmative and negative covenants, including restrictions on indebtedness, liens, investments, restricted payments, asset dispositions and certain other transactions. The Term Loan Facility does not contain a financial maintenance covenant, although certain permitted transactions are subject to incurrence-based financial tests. We were in compliance with the applicable covenants as of August 31, 2026.
Our ability to borrow under the 2031 Revolving Credit Facility is subject to a borrowing base and satisfaction of customary borrowing conditions. In addition, the 2031 Revolving Credit Facility requires us to maintain a minimum consolidated fixed charge coverage ratio only during certain periods based on excess availability. Certain other financing arrangements of Kloeckner and its subsidiaries also contain financial and other customary covenants and are subject to borrowing base limits. Our financing arrangements also contain customary covenants and restrictions that may limit certain financing, investing and other activities. As of August 31, 2026, we were in compliance with the applicable covenants under our financing arrangements.
At August 31, 2026, after accounting for the eligible borrowing bases, as applicable, availability under the 2031 Revolving Credit Facility, ABL USA Facility, Swiss RCF, and German RCF, was $418.4 million, $138.5 million, $55.7 million, and $46.4 million, respectively. See “—Kloeckner Debt.”
During the first quarter of fiscal 2027, Stanzwerk AG entered into an Amended and Restated Standstill Agreement with UBS Switzerland AG maintaining the credit facility through August 31, 2028.
We believe our cash balances, cash expected to be generated from operating activities and available borrowing capacity under our revolving credit facilities and other borrowings provide adequate liquidity to fund our current operational needs, working capital requirements, capital expenditures, integration and transaction-related costs, debt service obligations and other current and long-term obligations and strategic initiatives. We may from time to time seek additional capital through debt or equity financings to refinance existing obligations, strengthen our liquidity or fund strategic initiatives. Our ability to access additional capital and the terms of any financing will depend on our financial performance, credit profile, prevailing interest rates, financial market and economic conditions and other factors, many of which are outside our control.
49
Table of Contents
Although we successfully accessed the debt capital markets in connection with the Kloeckner Acquisition, our future ability to access the financial markets and the terms under which we may do so will depend on a number of factors, including our financial performance, credit profile, prevailing interest rates, financial market conditions, economic conditions and other factors, many of which are outside our control. There can be no assurance that additional debt or equity financing will be available on terms acceptable to us, if at all. Any additional debt financing could increase our interest expense, leverage and covenant obligations, and any additional equity financing could dilute the interests of our existing shareholders.
Our increased indebtedness has materially increased our interest and debt service requirements compared with prior periods, and the variable-rate Term Loan Facility exposes us to changes in market interest rates. We continue to prioritize debt reduction as part of our capital allocation strategy. For additional information, see “Note 8 – Debt.”
The following table summarizes our consolidated cash flows for the periods presented:
|
|
Three Months Ended |
|
|||||
|
|
August 31, |
|
|
August 31, |
|
||
(In millions) |
|
2026 |
|
|
2025 |
|
||
Net cash used in operating activities |
|
$ |
(6.0 |
) |
|
$ |
(6.3 |
) |
Net cash used in investing activities |
|
|
(586.8 |
) |
|
|
(29.6 |
) |
Net cash provided by financing activities |
|
|
735.6 |
|
|
|
21.0 |
|
Net cash provided by discontinued operations |
|
|
21.4 |
|
|
|
- |
|
Effects of exchange rate changes on cash, cash equivalents, and restricted cash |
|
|
(0.6 |
) |
|
|
0.3 |
|
Increase (decrease) in cash, cash equivalents, and restricted cash |
|
|
163.6 |
|
|
|
(14.6 |
) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
84.6 |
|
|
|
92.9 |
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
248.2 |
|
|
$ |
78.3 |
|
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 economic expansion or higher raw material prices, requiring increased levels of inventory and accounts receivable. During economic slowdowns, or periods of declining raw material costs, working capital needs generally decrease as inventories and accounts receivable are reduced.
Net cash used in operating activities was $6.0 million during the three months ended August 31, 2026, compared to $6.3 million net cash used in operating activities during the three months ended August 31, 2025. Net operating cash flows were generally consistent between periods. Both periods reflected increased working-capital requirements associated with higher average inventory prices. Working-capital cash usage was lower in the current year period, but this was offset by changes in other operating assets and liabilities.
Investing Activities
Net cash used in investing activities was $586.8 million during the three months ended August 31, 2026, compared to net cash used in investing activities of $29.6 million during the three months ended August 31, 2025. In the current year period, the main drivers of net cash used in investing activities were the Kloeckner Acquisition, and to a lesser extent, an increase in capital expenditures, partially offset by cash proceeds from asset sales. 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 will be available on satisfactory terms. Capital expenditures were $63.0 million during the three months ended August 31, 2026, compared to $29.4 million during the three months ended August 31, 2025. Following the Kloeckner Acquisition, our current planning estimate for combined capital expenditures is $160.0 million to $180.0 million for fiscal 2027, with the timing of project spending influencing where we finish within that range. Following DPLTA effectiveness, we will review capital priorities across the consolidated business.
Financing Activities
Net cash provided by financing activities was $735.6 million during the three months ended August 31, 2026, compared to net cash provided by financing activities of $21.0 million during the three months ended August 31, 2025.
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Table of Contents
Financing activities during the three months ended August 31, 2026 primarily reflected $1.4 billion of proceeds from the issuance of the 2033 Senior Notes and borrowings under the Term Loan Facility in connection with the Kloeckner Acquisition. These proceeds were partially offset by the repayment of certain existing indebtedness of Worthington Steel and Kloeckner, including the $200.0 million voluntary repayment under the Term Loan Facility. Financing activities also included €13.7 million ($15.9 million) used to acquire additional Kloeckner shares after obtaining control, including shares acquired in connection with the Delisting Tender Offer, and $8.2 million of dividends paid to holders of our common shares during the current year period compared to $8.1 million in the prior year period. Payments to noncontrolling interests during the current year period totaled $10.5 million compared to none in the prior year period.
Following the Kloeckner Acquisition, our consolidated debt includes the 2033 Senior Notes, Term Loan Facility and certain preexisting Kloeckner indebtedness that remained outstanding following the acquisition. Our increased indebtedness has materially increased our interest and debt service requirements compared with prior periods, and our variable-rate borrowings expose us to changes in market interest rates. We continue to prioritize debt reduction as part of our capital allocation strategy.
Standstill Agreement – Sitem Group – During the first quarter of fiscal 2027, Stanzwerk AG entered into an Amended and Restated Standstill Agreement with UBS Switzerland AG maintaining the credit facility through August 31, 2028. Stanzwerk AG was in compliance with these covenants as of August 31, 2026.
For additional information on our outstanding debt and other borrowing arrangements, see “Note 8 – Debt.”
Common shares – On October 6, 2026, the Board declared a quarterly cash dividend of $0.16 per common share payable on December 28, 2026, to shareholders of record at the close of business on December 14, 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 three months ended August 31, 2026.
Material Cash Requirements
Our material cash requirements include working capital, capital expenditures, interest and principal payments on indebtedness, dividends and other contractual and strategic commitments.
We, through the acquisition of Kloeckner, have an asset-based revolving credit facility that matures in July 2027, under which $465.0 million was outstanding as of August 31, 2026. The 2031 Revolving Credit Facility provides for committed incremental revolving capacity intended to facilitate the addition of certain Kloeckner U.S. operations and the repayment of this facility, subject to the satisfaction of specified conditions. We expect to address the July 2027 maturity through this arrangement or other available financing sources. For additional information, see “Note 8 – Debt.”
On September 8, 2026, subsequent to the end of the first quarter, Worthington Steel GmbH entered into a domination and profit and loss transfer agreement with Kloeckner. The DPLTA is not currently effective and remains subject to the required shareholder approvals and registration with the applicable commercial register.
If and when the DPLTA becomes effective, each outside Kloeckner shareholder will be entitled to elect either to tender its shares for cash compensation of €11.00 per share or to receive recurring annual compensation of €0.67 per share on a gross basis for each full Kloeckner fiscal year. The compensation amounts may be challenged in appraisal proceedings under German law and could be increased. Accordingly, the amount and timing of future cash requirements associated with the DPLTA will depend on, among other factors, whether and when the DPLTA becomes effective, shareholder elections and the outcome of any appraisal proceedings.
If the DPLTA becomes effective, Kloeckner generally will also be required to transfer its annual profits to Worthington Steel GmbH, while Worthington Steel GmbH generally will be required to absorb Kloeckner’s annual losses, subject to applicable law and the terms of the DPLTA.
Refer to “Recent Business Developments,” “Note 8 – Debt” and “Note 19 – Subsequent Events” for additional information.
Dividend Policy
We currently have no material contractual or regulatory restrictions on the payment of dividends, provided that the applicable conditions and limitations under our debt agreements are satisfied, including applicable restrictions on restricted payments and, under the 2031
51
Table of Contents
Revolving Credit Facility, minimum availability requirements. 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 payments 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.
Kloeckner Debt
In connection with the Kloeckner Acquisition, we assumed the liabilities of Kloeckner and recorded Kloeckner’s liabilities within our consolidated balance sheet. Kloeckner’s debt obligations include various loans and credit facilities, which, subsequent to the Kloeckner Acquisition, provide additional sources of liquidity. The material Kloeckner debt instruments assumed are summarized below.
Kloeckner’s Syndicated Revolving Credit Facility
On May 23, 2013, Kloeckner entered into a syndicated revolving credit facility agreement (the “German RCF”) with Commerzbank Aktiengesellschaft as agent. On May 8, 2026, Kloeckner entered into a fifth amendment and restatement agreement, which reduced total commitments under the facility to €150.0 million (approximately USD $174.3 million as of August 31, 2026) and extended the maturity to June 3, 2028. The German RCF also permits ancillary facilities (including overdraft, guarantee, bonding, documentary or stand-by letter of credit, short term loan and foreign exchange facilities) in an aggregate amount of up to €50.0 million. Borrowings under the German RCF bear interest at a rate per annum equal to EURIBOR for the relevant interest period (subject to a 0.00% floor) plus a margin of 3.50%. Kloeckner is required to pay a commitment fee of 1.225% per annum on each lender’s undrawn commitments, payable quarterly in arrears. The German RCF contains financial covenants requiring Kloeckner to maintain (i) a gearing ratio, defined as consolidated net debt to consolidated equity, of no more than 1.50x, (ii) consolidated equity of at least €500.0 million and (iii) compliance with a borrowing base, which would require that outstanding loans and other applicable amounts may not exceed a borrowing base determined principally by reference to eligible receivables and inventory, net of certain priority obligations. A breach of the gearing ratio or minimum consolidated equity covenant, or a borrowing base shortfall, may result in a mandatory prepayment obligation. The foregoing summary of the German RCF is qualified in its entirety by reference to the Fifth Amendment and Restatement Agreement, a copy of which is filed as an exhibit to this Form 10-Q.
Kloeckner’s Swiss Syndicated Revolving Credit Facility
On January 7, 2025, Debrunner Koenig AG, the holding company of Kloeckner’s Swiss country organization, entered into an unsecured syndicated loan agreement (the “Swiss RCF”) with Zürcher Kantonalbank as agent and the lenders from time to time party thereto. The Swiss RCF provides capacity of up to CHF 200.0 million (approximately USD $247.4 million as of August 31, 2026) which may be increased once by up to CHF 50.0 million, subject to lender participation, and matures on January 7, 2029. The facility is available in CHF and EUR (up to €50.0 million) and provides Debrunner Koenig AG and its subsidiaries with funds for general corporate purposes. Borrowings under the Swiss RCF bear interest at a rate per annum equal to compounded SARON for CHF and EURIBOR for EUR for the relevant interest period plus a margin of up to 3.30% depending on the net leverage ratio of the Swiss subgroup. The foregoing summary of the Swiss RCF is qualified in its entirety by reference to the Credit Agreement (Kreditvertrag), dated as of January 7, 2025, an English translation of which is filed as an exhibit to this Form 10-Q.
Kloeckner’s U.S. ABL Facility
On November 16, 2020, Kloeckner Metals Corporation and certain of its subsidiaries entered into an asset-based lending credit agreement (the “ABL USA Facility”) with Bank of America, N.A. as administrative agent and collateral agent, and the lenders from time to time party thereto. On July 14, 2022, the ABL USA Facility was amended and extended, with a maturity date in July 2027. On December 19, 2022, the ABL USA Facility was amended to increase the capacity thereunder to $650.0 million. The ABL USA Facility is secured by a continuing lien on all personal property of each obligor under the facility, including, among other things, a lien on stock issued by the borrowers and certain subsidiaries, inventories and accounts receivable. The ABL USA Facility includes base rate loans and Term SOFR loans. Base rate loans bear interest at a base rate in effect from time to time plus a margin of up to 0.50%. Term SOFR loans bear interest at a rate per annum equal to Term SOFR for the relevant interest period plus a margin of up to 1.50%. The foregoing summary of the ABL USA Facility is qualified in its entirety by reference to the Loan and Security Agreement, as amended, copies of which are filed as exhibits to this Form 10-Q.
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Kloeckner’s German ABS Program
Kloeckner maintains an asset-backed securitization program in Europe (the “ABS Germany Program”) under which eligible trade receivables originated by its subsidiary Kloeckner Metals Germany GmbH are sold to a securitization vehicle and financed through arrangements with Commerzbank Aktiengesellschaft. The program, which originally comprised further subsidiaries of Kloeckner as sellers of trade receivables and additional co-founders, has been amended and extended from time to time, and on May 8, 2026 was reduced to €60.0 million (approximately USD $69.7 million as of August 31, 2026), with one international bank providing the receivables financing under the ABS Program to one German subsidiary of Kloeckner. The ABS Germany Program matures on July 25, 2028 and provides Kloeckner with funds for refinancing of trade receivables. Borrowings under the ABS Germany Program bear interest at three-month EURIBOR plus a margin of 1.30% per annum. The ABS Germany Program contains customary termination provisions, including certain receivables performance thresholds related to dilution, delinquency and default ratios, and includes financial covenants that, to the extent applicable, are consistent with those under the German RCF. The foregoing summary of the ABS Germany Program is qualified in its entirety by reference to the Exit and Amendment and Restatement Agreement, a copy of which is filed as an exhibit to this Form 10-Q.
Kloeckner’s Mexico ABL Facility
On September 4, 2024, Kloeckner Metals Service Centers de Mexico, S. de R.L. de C.V. entered into an asset-based lending credit agreement (the “ABL Mexico Facility”) with Banco Santander México, S.A. as administrative agent and collateral agent, and the lenders from time to time party thereto. The ABL Mexico Facility provides capacity of up to $115.0 million and matures on September 4, 2027. The ABL Mexico Facility is secured by inventories and accounts receivable. Borrowings under the ABL Mexico Facility bear interest at a rate per annum equal to Term SOFR for the relevant interest period plus a margin of up to 2.45% depending on the leverage ratio of the Mexican subgroup. The foregoing summary of the ABL Mexico Facility is qualified in its entirety by reference to the Loan and Security Agreement, as amended, copies of which are filed as exhibits to this Form 10-Q.
Kloeckner Shareholder Loan
In May 2026, Kloeckner, as the borrower, entered into an unsecured revolving loan agreement with Worthington Steel, as the lender, pursuant to which, effective as of the closing of the Kloeckner Acquisition, Worthington Steel agreed to provide revolving loans to Kloeckner to finance the working capital needs of Kloeckner and its subsidiaries. The initial maximum principal amount of the Kloeckner Shareholder Loan is €200 million. In the event that Kloeckner loses access to the German RCF and/or its ABS Germany Program as a result of any event caused by or attributable to Worthington Steel, the maximum aggregate principal amount of the Kloeckner Shareholder Loan may be increased to up to €400 million. The Kloeckner Shareholder Loan bears interest at an interest rate of EURIBOR plus a margin of 3.0%. The Kloeckner Shareholder Loan matures in 2031.
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 2026 Form 10-K.
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Item 3. – Quantitative and Qualitative Disclosures About Market Risk
Since May 31, 2026, the Kloeckner Acquisition and related financing and hedging transactions resulted in material changes to certain market risk exposures from those disclosed in “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of the 2026 Form 10-K. The corresponding sensitivity analyses disclosed in the 2026 Form 10-K have been updated below to reflect our exposure to the market risk as of August 31, 2026.
Except as described below, there have been no material changes to our market risk exposures from those previously disclosed in our 2026 Form 10-K.
For a discussion of our market risk, see “Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk” of the 2026 Form 10-K.
Foreign Exchange Rate Risk
Net Investment Hedge – Cross-Currency Swap
Following the Kloeckner Acquisition, our exposure to fluctuations in foreign currency exchange rates increased as a result of our expanded international operations.
During the first quarter of fiscal 2027, the Euro/U.S. Dollar foreign currency contracts entered into to hedge a portion of the expected purchase price of the Kloeckner Acquisition were settled and are no longer outstanding.
During the first quarter of fiscal 2027, we entered into a cross-currency swap to hedge foreign currency risk on a portion of our Euro net investment in Kloeckner. The cross-currency swap has a notional value of €700.0 million to $809.8 million with a maturity date of May 31, 2031, and is designated as a net investment hedge. Additionally in the first quarter of fiscal 2027, we partially terminated and de-designated €15.0 million of the notional amount of the previously disclosed cross-currency swap designated as a net investment hedge entered into in November 2025, reducing the designated notional amount from €75.0 million to €60.0 million. The remaining €60.0 million notional amount continues to be designated as a net investment hedge.
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 August 31, 2026, if the Euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $65.0 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.
In October 2026, the Company entered into replacement cross-currency swaps with unchanged euro-denominated notional amounts and maturity dates, as further described in “Note 19 – Subsequent Events.”
Fair Value Hedge – Cross-Currency Swap
Following the Kloeckner Acquisition, our exposure to fluctuations in foreign currency exchange rates increased as a result of our expanded international operations.
In June 2026, the Company entered into a €100.0 million to $114.7 million float-for-float cross-currency swap to hedge foreign currency risk associated with a portion of the principal amount of a Euro-denominated loan to Kloeckner against fluctuations in Euro/U.S. Dollar exchange rates. The cross-currency swap was designated as a fair value hedge of the Company’s foreign currency exposure related to the hedged portion of the loan. Our market risk sensitivity analyses consider the offsetting effects of the derivative and the related hedged item with respect to the designated risk.
As of August 31, 2026, if the Euro were to strengthen 10% relative to the U.S. dollar, holding interest rates constant, there would be an approximate $12.1 million unfavorable impact to the fair value of the cross-currency swap recognized in earnings. The aforementioned unfavorable impact would be substantially offset by favorable foreign currency remeasurement gains on the hedged portion of the Euro-denominated loan.
Interest Rate Risk
Debt
Our exposure to changes in interest rates increased materially during the first quarter of fiscal 2027 as a result of the Kloeckner Acquisition and related financing transactions. On June 1, 2026, we borrowed $700.0 million under the Term Loan Facility, which bears
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interest at variable rates. Our consolidated indebtedness also includes certain variable-rate indebtedness of Kloeckner and its subsidiaries.
As of August 31, 2026, we had approximately $1,507.2 million of variable-rate indebtedness outstanding. Assuming the amount of variable-rate indebtedness outstanding remained constant, a hypothetical 100 basis point increase in interest rates would decrease annualized pretax net earnings by approximately $15.1 million. This sensitivity analysis is based on our net exposure to changes in interest rates and reflects the effects of derivative instruments to the extent they modify that exposure.
The 2033 Senior Notes have an aggregate principal amount of $700.0 million and bear interest at a fixed rate of 7.750%. Accordingly, changes in market interest rates affect the fair value of the 2033 Senior Notes but do not affect our contractual interest payments or their carrying amount.
Fair Value Hedge – Cross-Currency Swap
In addition, the Company is exposed to fluctuations in Euro and U.S. dollar interest rates through its float-for-float cross-currency swap designated as a fair value hedge. As of August 31, 2026, a hypothetical 100 basis point increase in both Euro and U.S. dollar interest rates, holding foreign currency exchange rates constant, would not have a material impact on the fair value of the cross-currency swap. Similarly, a hypothetical 100 basis point increase in either Euro or U.S. dollar interest rates independently would not have a material impact on the fair value of the cross-currency swap.
Equity Price Risk
Equity Securities
Upon completion of the Kloeckner Acquisition during the first quarter of fiscal 2027, our previously held equity interest in Kloeckner was remeasured to fair value and Kloeckner became a consolidated subsidiary. Accordingly, we are no longer exposed to equity price risk associated with our previously held investment in Kloeckner shares, and the equity price sensitivity disclosed in our 2026 Form 10-K is no longer applicable.
Item 4. – Controls and Procedures
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 August 31, 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
During the first quarter of fiscal 2027, the Company completed the Kloeckner Acquisition. The acquired operations are being integrated into the Company’s control framework, to the extent permissible prior to the effectiveness of the DPLTA. Other than integrating activities associated with the Kloeckner Acquisition, there were no changes that occurred during the period covered by this Form 10-Q (the quarterly period ended August 31, 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.
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PART II. OTHER INFORMATION
Item 1. – Legal Proceedings
We are involved in various judicial and administrative proceedings, as both plaintiff and defendant, arising in the ordinary course of business. We do not believe that any such proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial position, results of operations or cash flows.
Item 1A. – Risk Factors
The following information supplements the risk factors described in “PART I – Item 1A. – Risk Factors” of the 2026 Form 10-K available at www.sec.gov or at www.worthingtonsteel.com and should be read in conjunction with the risk described in the 2026 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 2026 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 2026 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.
Risks Related to the Kloeckner Acquisition and Integration
Restrictions on our interactions with Kloeckner may delay or limit the implementation of our integration strategy and could adversely impact our results of operations. On June 3, 2026, we completed the Kloeckner Acquisition and held approximately 60.9% of Kloeckner’s outstanding share capital. Through subsequent transactions, including the Delisting Tender Offer completed in August 2026, we acquired additional Kloeckner shares and, as of August 31, 2026, held approximately 62.11% of Kloeckner’s outstanding share capital. As a result, there remain minority Kloeckner shareholders that did not tender their Kloeckner shares in connection with the original takeover offer. The acceptance period for the Delisting Tender Offer expired on August 12, 2026, and Kloeckner’s shares were delisted from the regulated market of the Frankfurt Stock Exchange effective that date.
Under German law, we are subject to certain restrictions in our interactions with Kloeckner while minority shareholders continue to hold more than 10% of outstanding Kloeckner shares and until and unless a DPLTA becomes effective. On September 8, 2026, Worthington Steel GmbH and Kloeckner executed the DPLTA. The DPLTA is not currently effective and remains subject to the required shareholder approvals and registration with the commercial register at Kloeckner’s registered seat. The DPLTA cannot become effective before January 1, 2027. While we are confident that we will secure the required majority at the general meeting of Kloeckner shareholders to approve the DPLTA, unless and until a DPLTA becomes effective, we may not have control over Kloeckner’s day-to-day operations, notwithstanding that we have a controlling financial interest for GAAP purposes. These restrictions could limit or delay implementation of our integration strategy and may adversely impact our results of operations. There can be no assurance that a DPLTA will become effective or as to the timing of its effectiveness.
If the DPLTA becomes effective, we will be subject to ongoing financial obligations to Kloeckner and its minority shareholders that could adversely affect our business, financial condition, results of operations or cash flows. Under the DPLTA, once effective, each remaining minority Kloeckner shareholder may elect either to receive recurring annual compensation of €0.67 per share on a gross basis for each full fiscal year of Kloeckner or to tender its shares for cash compensation of €11.00 per share. The adequacy of either form of compensation may be challenged in appraisal proceedings under German law, which could result in higher payments than currently contemplated.
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 otherwise be 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 and may be subject to appraisal proceedings that could result in higher payments than anticipated. There can be no assurance that, if a DPLTA becomes effective, the related obligations will not adversely affect our business, financial condition, results of operations or cash flows.
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Failure to successfully integrate our business and Kloeckner’s business may adversely affect our future results. In January 2026, we entered into a business combination agreement (“BCA”) with Kloeckner and launched a voluntary public cash takeover offer with all outstanding Kloeckner shares at €11.00 per share. We entered into the BCA with the expectation that the Kloeckner 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. 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. Until the DPLTA becomes effective, applicable German law limits certain integration actions. As a result, integration may take longer or cost more than expected, and the timing and amount of anticipated synergies remain uncertain. If the companies are not successfully integrated, the anticipated benefits of the Kloeckner 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.
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 Kloeckner Acquisition and our post-closing integration efforts depends, 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 Kloeckner Acquisition are announced and executed. Some of those employees may decide not to remain with us or Kloeckner as a result of the Kloeckner 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 Kloeckner to hiring suitable replacements. The potential distractions related to the Kloeckner 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 could have a negative impact on our business and our financial results and operations.
The Kloeckner Acquisition has materially increased our indebtedness and interest expense and may limit our financial flexibility and increase our interest expense. We funded the consideration for the Kloeckner Acquisition and related transaction costs with both U.S. Dollars and Euros with a combination of cash on hand and new debt financing, including the net proceeds from our previously announced notes offering and borrowing under our term loan. In addition, as a result of the Kloeckner Acquisition, we assumed Kloeckner’s existing debt obligations, including the German RCF, the Swiss RCF, the ABL USA Facility and various other loans, which subject Kloeckner and its subsidiaries to additional financial covenants, borrowing base requirements and, in certain circumstances, mandatory prepayment obligations. The new debt financing and the assumed Kloeckner debt instruments 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. Elevated levels of debt driven by the new debt financing and the assumed Kloeckner debt may cause us to miss out on other opportunities to grow our business such as other acquisitions or capital projects. See “Risks Related to Our Business—Capital Structure” for more information on our debt financing and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Kloeckner Debt” for more information on the Kloeckner debt instruments.
Litigation or appraisal proceedings relating to the Kloeckner Acquisition and/or any DPLTA may result in management distraction, delayed integration activities or increase our financial exposure. Lawsuits may be filed against us, the Board, Kloeckner, or other parties to the BCA in connection with the Kloeckner Acquisition. In addition, because the DPLTA has been executed, minority shareholders may initiate appraisal proceedings concerning the adequacy of the compensation or exit consideration offered to them under the DPLTA if it becomes effective. While such appraisal proceedings would not affect the effectiveness of the DPLTA, they could result in higher payments than anticipated. The potential distractions and costs related to any such litigation or proceedings may divert management’s attention away from successfully integrating Kloeckner’s business with ours and could result in additional financial exposure.
Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There were no equity securities of Worthington Steel sold by Worthington Steel during the period covered by this Form 10-Q, which were not registered under the Securities Act of 1933, as amended.
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Issuer Purchases of Equity Securities
Common shares withheld to cover tax withholding obligations in connection with the vesting of restricted stock awards and performance share awards are treated as common share repurchases. However, those withheld common shares are not considered common share repurchases under an authorized common share repurchase plan or program. The table below provides information regarding common shares withheld from our employees to satisfy minimum statutory tax withholding obligations arising from the vesting of restricted common shares and performance share awards.
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Total Number of |
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Common Shares |
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Purchased as |
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Maximum Number of |
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Total Number |
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Average Price |
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Part of Publicly |
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Common Shares that |
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of Common |
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Paid per |
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Announced |
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May Yet Be |
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Shares |
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Common |
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Plans or |
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Purchased Under the |
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Period |
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Purchased |
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Share |
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Programs |
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Plans or Programs |
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June 1-30, 2026 |
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48,540 |
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|
$ |
33.88 |
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- |
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- |
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July 1-31, 2026 |
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44,192 |
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|
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32.48 |
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|
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- |
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- |
|
|
August 1-31, 2026 |
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- |
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- |
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- |
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- |
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Total |
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92,732 |
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|
$ |
33.21 |
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- |
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Item 3. – Defaults Upon Senior Securities
Not applicable.
Item 4. – Mine Safety Disclosures
Not applicable.
Item 5. – Other Information
During the first quarter of fiscal 2027, no directors or officers (as defined under Rule 16a-1 of the Exchange Act)
Information Provided in Lieu of Filing a Current Report on Form 8-K under Item 5.02
Severance Plan for Executives
On October 6, 2026, the Board of Directors (the "Board") of the Company approved and adopted the Worthington Steel, Inc. Severance Plan for Executives (the "Severance Plan"), effective October 6, 2026.
The Severance Plan covers the Company's Chief Executive Officer, Executive Chairman and Vice Presidents or above reporting to the Chief Executive Officer or Chief Operating Officer, other than executives with individual severance agreements. Benefits are payable upon a termination without "Cause" or a resignation for "Good Reason" (each as defined in the Severance Plan).
Outside a change in control, participants receive salary continuation equal to 1.0x (1.5x for the Chief Executive Officer and Executive Chairman) the sum of annual base salary and target annual incentive. For a qualifying termination within two years following a change in control, participants instead receive a lump sum equal to 2.0x (3.0x for the Chief Executive Officer and Executive Chairman) that amount. Participants also receive subsidized COBRA coverage for up to 18 months and outplacement services. Benefits are conditioned on a release of claims, and change in control benefits are subject to a Section 280G cutback with no excise tax gross-up.
The foregoing summary of the Severance Plan does not purport to be complete and is qualified in its entirety by reference to the full text of the Severance Plan. A copy of the Severance Plan is filed as Exhibit 10.14 to this Current Report on Form 8-K and is incorporated herein by reference.
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Item 6. – Exhibits
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Incorporated by Reference |
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Exhibit Number |
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Exhibit Description |
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Form |
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Exhibit |
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Filing Date |
2.1 |
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Separation and Distribution Agreement, dated November 30, 2023, between Worthington Enterprises, Inc. and Worthington Steel, Inc. |
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8-K |
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2.1 |
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12/5/2023 |
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2.2+± |
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Business Combination Agreement, dated January 15, 2026, by and among Worthington Steel, Inc., Worthington Steel GmbH and Kloeckner & Co SE |
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8-K |
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2.1 |
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1/22/2026 |
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2.3+ |
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Irrevocable Undertaking, dated January 15, 2026, by and between Worthington Steel GmbH and SWOCTEM GmbH |
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8-K |
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2.2 |
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1/22/2026 |
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2.4 |
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Equity Commitment Letter, dated January 15, 2026, by and between Worthington Steel, Inc. and Worthington Steel GmbH |
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8-K |
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2.3 |
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1/22/2026 |
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3.1 |
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Amended Articles of Incorporation of Worthington Steel, Inc. |
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8-K |
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3.1 |
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12/5/2023 |
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3.2 |
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Amended Regulations of Worthington Steel, Inc. |
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8-K |
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3.2 |
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12/5/2023 |
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4.1 |
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Indenture, dated as of June 1, 2026, among Worthington Steel, Inc., the Note Guarantors and Deutsche Bank Trust Company Americas, as trustee and notes collateral agent. |
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8-K |
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4.1 |
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6/2/2026 |
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10.1 |
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Term Loan Credit Agreement, dated as of June 1, 2026, among Worthington Steel, Inc., as borrower, the lenders from time to time party thereto, and Wells Fargo, National Association, as administrative agent. |
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8-K |
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10.1 |
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6/2/2026 |
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10.2 |
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Third Amendment to Revolving Credit and Security Agreement, dated as of June 1, 2026, among Worthington Steel, Inc., as borrower, certain subsidiaries of the Company, PNC Bank, National Association, as agent, and the lenders party thereto. |
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8-K |
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10.2 |
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6/2/2026 |
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10.3 |
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Revolving Credit Agreement, dated June 25, 2026, by and among Worthington Steel, Inc., the lenders party thereto and Wells Fargo Bank, National Association, as Agent. |
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8-K |
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10.1 |
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6/30/2026 |
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10.4 |
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Domination and Profit and Loss Transfer Agreement, dated September 8, 2026, between Worthington Steel GmbH and Klöckner & Co SE (English translation). |
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8-K |
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10.1 |
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9/8/2026 |
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10.5*± |
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Fifth Amendment and Restatement Agreement, dated as of May 8, 2026, relating to the EUR 350,000,000 Revolving Credit Facility Agreement originally dated May 23, 2013, by and among Klöckner & Co SE, as company, original borrower and guarantor, Kloeckner Metals Corporation, as resigning additional borrower, Commerzbank Aktiengesellschaft, as agent and security agent, and the arrangers and lenders party thereto. |
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10.6*±† |
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Credit Agreement (Kreditvertrag), dated as of January 7, 2025, by and among Debrunner Koenig AG, as borrower, the lenders party thereto, and Zürcher Kantonalbank, as agent (English translation). |
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59
Table of Contents
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Incorporated by Reference |
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Exhibit Number |
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Exhibit Description |
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Form |
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Exhibit |
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Filing Date |
10.7*± |
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Fourth Amendment to Loan and Security Agreement, dated as of July 14, 2022, by and among Kloeckner Metals Corporation, Klöckner USA Holding Inc., Kloeckner Metals P.R., Inc. and California Steel and Tube, LLC, as borrowers, the lenders party thereto, and Bank of America, N.A., as administrative agent (including, as Exhibit A thereto, a conformed copy of the Loan and Security Agreement dated as of November 16, 2020). |
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10.8*± |
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Fifth Amendment to Loan and Security Agreement, dated as of December 19, 2022, by and among Kloeckner Metals Corporation, Klöckner USA Holding Inc., Kloeckner Metals P.R., Inc. and California Steel and Tube, LLC, as borrowers, the lenders party thereto, and Bank of America, N.A., as administrative agent. |
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10.9*± |
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Loan and Security Agreement, dated as of September 4, 2024, by and among Kloeckner Metals Service Centers de México, S. de R.L. de C.V., as borrower, Kloeckner Specialty Metals de México, S. de R.L. de C.V. and Naflex, S. de R.L. de C.V., as guarantors, Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México, as administrative agent and collateral agent, HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, as monitoring agent and lead arranger and bookrunner, and the lenders party thereto. |
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10.10*± |
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Amendment No. 1 to Loan and Security Agreement, dated as of December 18, 2025, by and among Kloeckner Metals Service Centers de México, S. de R.L. de C.V., as borrower, Kloeckner Specialty Metals de México, S. de R.L. de C.V. and Naflex, S. de R.L. de C.V., as guarantors, Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México, as administrative agent and collateral agent, HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, as monitoring agent, and the lenders party thereto. |
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10.11*± |
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Amendment No. 2 to Loan and Security Agreement, dated as of September 3, 2026, by and among Kloeckner Metals Service Centers de México, S. de R.L. de C.V., as borrower, Kloeckner Specialty Metals de México, S. de R.L. de C.V., as guarantor, Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México, as administrative agent and collateral agent, HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, as monitoring agent, and the lenders party thereto. |
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10.12*± |
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Exit and Amendment and Restatement Agreement, dated as of May 8, 2026, relating to the receivables securitization program originally entered into on October 27, 2020, by and among Klöckner & Co SE, as Klöckner, master servicer, performance guarantor, registrar and custodian, Klöckner Receivables Funding DAC, as purchaser, Kloeckner Metals Germany GmbH, as remaining seller, Commerzbank Aktiengesellschaft, as remaining co-funder, incoming administrative agent and note purchaser, Elektra Purchase No. 46 DAC and Opusalpha Purchaser Limited, as exiting co-funders, Landesbank Hessen-Thüringen Girozentrale and UniCredit Bank GmbH, as exiting sponsor banks, UniCredit Bank GmbH, as exiting administrative agent, and CSC Trustees GmbH, as security trustee. |
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60
Table of Contents
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Incorporated by Reference |
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Exhibit Number |
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Exhibit Description |
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Form |
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Exhibit |
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Filing Date |
10.13*#
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Worthington Steel, Inc. Annual Incentive Plan for Executives (As Amended and Restated as of September 2, 2026). |
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10.14*#
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Worthington Steel, Inc. Severance Plan for Executives |
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31.1* |
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Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Executive Officer) |
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31.2* |
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Rule 13a - 14(a) / 15d - 14(a) Certifications (Principal Financial Officer) |
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32.1** |
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Section 1350 Certification of Principal Executive Officer |
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32.2** |
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Section 1350 Certification of Principal Financial Officer |
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101* |
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Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
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104* |
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Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
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* |
Filed herewith. |
** |
Furnished herewith. |
+ |
Certain portions of this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted materials to the SEC upon its request. |
† |
English translation of a foreign-language document, filed under Rule 403(c) and Item 601(a)(6) of Regulation S-K. |
± |
Certain schedules and certain portions of this exhibit have been omitted pursuant to Item 601(a)(5) and/or Item 601(b)(10)(iv) of Regulation S-K. |
# |
Management contract or compensatory plan or arrangement. |
61
Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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WORTHINGTON STEEL, INC. |
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Date: October 13, 2026 |
By: |
/s/ Timothy A. Adams |
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Timothy A. Adams, |
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Vice President and Chief Financial Officer |
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(On behalf of the Registrant as Duly Authorized Officer and as Principal Financial Officer) |
62