WS 10-K & 10-Q changes, risk factors and insider trading

Summary of Risk Factors

We and our shareholders are subject to a number of risks, including risks related to our business operations, risks related to the Kloeckner Acquisition, risks related to owning our common shares and other general risks. The following is a summary of the material risks we and our shareholders face and is not exhaustive. Please read the full “Risk Factors” discussion that follows this summary carefully for a more thorough description of these and other risks.

Risks Related to Our Business

Our net sales are heavily concentrated in the automotive and construction end markets;

Financial difficulties and bankruptcy filings by our customers;

Continued volatility in steel prices;

Fluctuations in raw material prices and our ability to pass on increases in raw material costs to our customers;

Interruptions in deliveries of needed raw materials or supplies;

An increase in the spread between the price of steel and steel scrap prices;

Global steel-making capacity may exceed demand for steel products in some regions around the world;

Concern about climate change might result in new legal and regulatory requirements to reduce or mitigate the effects of climate change;

Failure to maintain proper inventory levels;

The loss of significant volume from our key customers;

The cyclical nature of our key end markets;

Significant reductions in sales to our automotive-related customers;

Strikes against Ford Motor Company, General Motors Company, and Stellantis N.V. (collectively, the “Detroit Three” automakers);

The closing, idling or relocation of our customers’ facilities;

Strikes, work stoppages or other labor disruptions affecting our suppliers;

The closing or idling of our suppliers’ manufacturing facilities;

Sales conflicts with our customers and/or suppliers;

The loss of key supplier relationships;

Increased competition may impact demand and pricing of our products;

Impact of material substitution;

Increases in freight and energy costs;

The lack of availability of freight services;

Public health emergencies;

The length, impact and outcome of the Russia and Ukraine conflict;

The length, impact and outcome of the conflict between the United States, Israel, and Iran;

Information system security risks, security breaches of our information systems and systems integration issues;

Impact of and associated costs to prevent cyber security threats;

Impact of AI technologies;

Disruptions to our business or the business of our customers or suppliers;

Economic, political and other risks associated with foreign operations;

Relationships between the members of any of our joint ventures;

Successful execution on acquisitions, equity investments and other investments may not meet our expectations;

Our capital resources may not be adequate to provide for all of our cash requirements;

We may have to find additional sources of funding, which could be difficult;

Increased leverage and borrowing rates;

Our ability to make payments on our indebtedness;

Vulnerability to interest rate increases;

Higher borrowing costs, less available capital, more stringent terms and tighter covenants under our debt agreements;

Impact of future performance not meeting or exceeding guidance about anticipated future performance;

Impact of legal proceedings or investigations;

Adverse claims experience, to the extent not covered by insurance;

Actual accounting and tax-related results differing materially from required estimates;

The principal shareholder of Worthington Steel may have the ability to exert significant influence in matters requiring a shareholder vote and could delay, deter or prevent a change in control of Worthington Steel;

The loss of, or inability to attract and retain, qualified personnel;

The loss of senior management or other key employees;

Failure to realize expected benefits from cost reduction efforts;

Costs related to environmental and health and safety matters;

Operations have historically been subject to seasonal fluctuations that may impact our cash flows for a particular period; and Failure to realize expected benefits from transformation efforts.

Risks Related to the Kloeckner Acquisition

Restrictions on our interactions with Kloeckner may delay or limit the implementation of our integration strategy and could adversely impact our results of operations;

If a Domination and Profit and Loss Transfer Agreement (“DPLTA”) is executed and 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;

Failure to successfully integrate our business and Kloeckner’s business in the expected timeframe may adversely affect our future results;

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

The Kloeckner Acquisition may limit our financial flexibility and increase our interest expense; and Litigation or appraisal proceedings relating to the Kloeckner Acquisition and/or any DPLTA, including proceedings concerning the adequacy of compensation to minority shareholders, may result in management distraction or financial exposure.

Risks Related to the Separation and Our Relationship with the Former Parent

We might not be able to engage in certain transactions and equity issuances following the distribution.

Risks Related to Owning Our Common Shares

AI in Transformation

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

On June 1, 2026, we incurred indebtedness in the form of (1) the 2033 Notes, due June 1, 2033, and (2) the seven-year Term Loans under the Term Loan Facility.

On June 3, 2026, we closed the Kloeckner Acquisition, at which date we owned approximately 60.86% of Kloeckner’s total outstanding share capital.

On June 15, 2026, we settled our binding agreement to acquire one million additional Kloeckner shares at €11.00 per share (approximately $12.7 million), bringing our total ownership to approximately 61.87% of Kloeckner’s total outstanding share capital.

On June 25, 2026, we entered into the 2031 Revolving Credit Facility, an asset-based revolving credit agreement that matures on June 25, 2031, which refinanced and replaced the Credit Facility.

On July 15, 2026, we launched a public delisting tender offer for all outstanding Kloeckner shares not already held by us at a price of €11.00 per share. The delisting tender offer is not subject to any closing conditions and does not include a minimum acceptance threshold; however, there can be no assurance as to how many Kloeckner shares, if any, will be tendered.

Kloeckner Acquisition

On January 15, 2026, we entered into a BCA with Kloeckner. Following execution of the BCA, we launched a voluntary public cash takeover offer to all Kloeckner shareholders to tender each Kloeckner share to us. Subject to the terms and conditions of the Offer Document, upon the Offer Closing, we committed to pay cash consideration equal to €11.00 per tendered share (subject to any increases either made voluntarily or in accordance with applicable German law) for the Offer.

As of April 14, 2026, 52,389,508 Kloeckner shares had been tendered for acceptance under the Offer and not withdrawn (the “Tendered Shares”). On June 3, 2026, (the “Settlement Date”), we accepted the transfer of Tendered Shares for consideration of €11.00 per Tendered Share. Together with the Kloeckner shares already held by us prior to the Settlement Date, as of the Settlement Date, we held a total of 60,710,791 Kloeckner shares, representing approximately 60.86% of Kloeckner’s total 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), bringing our total ownership to 61,710,791 Kloeckner shares representing approximately 61.87% of Kloeckner’s total outstanding share capital. We used the net proceeds from the 2033 Notes and Term Loans, together with cash on hand, to fund the Kloeckner Acquisition and pay related fees and expenses. For more information, see the “Kloeckner Acquisition and Other Capital Subsequent Events” section within the “Liquidity and Capital Resources” Section below.

On March 27, 2026, we informed Kloeckner about our firm intention to enter into a DPLTA, and Kloeckner published an ad hoc announcement to this effect on the same day. From the Settlement Date until the execution of the DPLTA (the “Transition Period”), we, on the one hand, and Kloeckner, on the other hand, will continue to operate as independent companies. The DPLTA would provide us with the right to issue binding instructions to the management board of Kloeckner with respect to the management of Kloeckner’s business and would obligate Kloeckner to transfer its annual profits to us. In return, we would be required, under the terms of the DPLTA, to (i) compensate Kloeckner for any annual losses, (ii) compensate the remaining minority shareholders of Kloeckner through a guaranteed annual recurring payment and (iii) offer to acquire the remaining Kloeckner shares held by such minority shareholders in exchange for adequate exit cash compensation, in each case as determined in accordance with applicable German law.

The execution and effectiveness of the DPLTA is subject to a number of conditions and procedural requirements under German law, including: (1) approval by the management board and supervisory board of Kloeckner, (2) approval at the general shareholders’ meeting of Kloeckner by a vote of at least 75% of the share capital represented at such meeting, (3) a valuation of Kloeckner confirmed by a court-appointed independent auditor to determine the adequate amount of the recurring compensation and the exit compensation to be offered to minority shareholders, and (4) registration of the DPLTA with the commercial register of the competent local German court. At this time, we have not satisfied any of these conditions. There can be no assurance that the DPLTA will be executed or become effective, or as to the timing thereof.

Total volume (tons) decreased 6% compared to the prior year. Direct tons sold increased 6%, with the increase driven primarily by the legacy business, or approximately 5%, and the balance of the increase, or approximately 1%, due to the addition of Sitem Group. Direct shipments to the automotive market increased 14% compared to the prior year. Toll volumes decreased 21% compared to the prior year. The decrease in toll volumes was due to a combination of closing the Cleveland-area WSCP facility in May 2025, as well as softer demand from mill customers.

The Detroit Three automakers represented 35% and 33% of our consolidated net sales during fiscal 2026 and fiscal 2025, respectively. Shipments to the Detroit Three automakers increased 17% in fiscal 2026 as compared to fiscal 2025, which significantly outpaced the reported 2% growth in the Detroit Three automakers production for the same period. The increase in automotive volume reflects share gains from new programs plus the impact of a key automotive original equipment manufacturer customer returning to a more normal build schedule after curtailing production in fiscal 2025. Energy and container volumes were up 15% and 14%, respectively, during fiscal 2026 compared to fiscal 2025. The increase in energy volume was driven by project-based solar programs. These gains were partially offset by softness in other markets, with construction, heavy truck, agriculture, and service center volumes down 8%, 10%, 10%, and 33%, respectively. The decrease in construction and service center volumes was largely driven by increased competition, while heavy truck and agriculture volumes were impacted by ongoing market weakness.

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

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. Over fiscal 2025, HRC prices declined in the first quarter and then increased throughout the rest of fiscal 2025, with a significant increase in the fourth quarter of 2025. In fiscal 2026, prices fell in the first and second quarters, before increasing in the third and fourth quarters. The average price of HRC for fiscal 2026 remains higher than fiscal 2025. For the fiscal year, due to the increasing price over the period, direct spreads (calculated as sales less material costs) were favorably impacted by a $25.6 million change from $10.4 million of inventory holding losses in fiscal 2025 to an estimated $15.2 million of inventory holding gains in fiscal 2026. With the recent upward HRC price movements, we expect inventory holding gains to be between $10.0 million and $15.0 million in the first quarter of fiscal 2027.

Net sales in fiscal 2026 were $3,443.8 million, an increase of $350.5 million, or 11%, compared to fiscal 2025. The increase was driven primarily by higher direct volumes, including the $165.7 million impact of the addition of Sitem Group and, to a lesser extent, higher average direct selling prices. Direct tons sold increased 6%, with legacy business increasing 5% and the remaining increase due to the addition of Sitem Group. Direct selling prices, excluding the impact of Sitem Group, increased 3% in fiscal 2026 compared to fiscal 2025. Toll processing net sales decreased 20% in fiscal 2026 compared to fiscal 2025. The decrease in toll volumes was due to a combination of closing the Cleveland-area WSCP facility in May 2025 as well as softening demand from mill customers as they required less outside processing to meet their production requirements. Toll selling prices increased 1% in fiscal 2026 compared to fiscal 2025. The mix of direct versus toll volumes was 64% to 36% in fiscal 2026, compared to 57% to 43% in fiscal 2025.

Gross margin in fiscal 2026 was $403.3 million, an increase of $14.7 million, compared to fiscal 2025. The increase was primarily driven by higher direct spreads, and to a lesser extent, a $2.0 million favorable impact from Sitem Group, which was partially offset by lower toll spreads. Direct spreads increased by $49.0 million, primarily due to the $32.2 million impact of higher direct volume, as well as a $25.6 million change from $10.4 million in estimated inventory holding losses in fiscal 2025 compared to estimated holding gains of $15.2 million in fiscal 2026. These gains in direct spreads were partially offset by an $8.8 million unfavorable impact due to value-added market spread compression compared to the prior year. Toll spreads, down $30.6 million, were negatively impacted by $24.9 million due to lower volumes and $5.7 million due to an unfavorable change in toll price, primarily due to mix.

Selling, general and administrative expense (“SG&A”) in fiscal 2026 was $297.4 million, an increase of $65.8 million compared to fiscal 2025. The increase in SG&A expense included $19.0 million related to Sitem Group, which includes a one-time bonus of €4.0 million ($4.6 million) paid to key individuals at Sitem Group as a result of the closing of the Sitem Group acquisition. Professional and other fees increased $29.4 million in fiscal 2026 compared to fiscal 2025, excluding Sitem Group expenses, primarily attributable to $35.8 million of professional and other fees related to the Kloeckner Acquisition. Additionally, compared to fiscal 2025, compensation expense increased by $10.8 million, including a $3.8 million increase in incentive compensation.

Impairment of goodwill and long-lived assets in fiscal 2026 was driven by:

A pre-tax goodwill impairment charge of $53.8 million on goodwill and a pre-tax long-lived asset impairment charge of $58.4 million recorded in the fourth quarter of fiscal 2026 within the Electrical Steel reporting unit whose carrying amounts exceeded their estimated fair values. The impairments resulted from weakened demand in certain end markets, particularly industrial motors in both Europe and the United States, due to increased foreign competition, and in automotive, some delayed program launches.

A pre-tax long-lived asset impairment charge of $1.5 million was recorded during the third quarter of fiscal 2026 related to certain internal-use software assets at Tempel Canada determined to have no value.

A pre-tax long-lived asset impairment charge of $0.6 million on certain machinery at our manufacturing facility in Taylor, Michigan.

Impairment of goodwill, long-lived assets, and other assets in fiscal 2025 was driven by:

Refer to “Note 5 – Goodwill, Long-Lived Assets, and Other Assets” for more information.

Restructuring and other (income) expense, net in fiscal 2026, was driven by the sale of substantially all remaining net assets of WSCP’s Cleveland toll processing manufacturing facility, which had been reported within assets held for sale in connection with the previously announced plan to consolidate operations into our Twinsburg, Ohio facility. These transactions resulted in pre-tax gains of $6.0 million and included finance lease assets, buildings and improvements, and machinery and equipment. Additionally, in fiscal 2026, we recorded a $1.0 million gain on the sale of an asset previously classified as held for sale.

Miscellaneous income, net in fiscal 2026 was $16.6 million, an increase of $12.8 million compared to fiscal 2025. The increase was primarily due to:

Net investment income of $17.4 million related to our investment in Kloeckner equity securities, consisting of mark-to-market gains, dividend income, and other costs, recorded in miscellaneous income, net.

A $1.4 million gain recognized in the fourth quarter of fiscal 2026, primarily associated with a pension curtailment resulting from headcount reductions.

The increases were partially offset by:

In fiscal 2026, we recognized a $2.4 million pre-tax mark-to-market loss on the economic (non-designated) cash flow derivative that was entered to hedge a portion of the expected purchase price of the outstanding shares of Kloeckner in connection with the Kloeckner Acquisition.

In fiscal 2025, we recognized a $4.0 million pre-tax mark-to-market gain on the economic (non-designated) cash flow derivative that was entered to hedge the purchase price for Sitem Group.

In fiscal 2025, we recognized a pre-tax gain of $1.5 million related to the sale of unused land in China.

Proposed Acquisition-Related Risks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risks Related to Our Company, Business and Operations

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

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

Proposed Acquisition of Kloeckner

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

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

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

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

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

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

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

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

S&P Global (4)

LME Zinc; period average (5)

NYMEX Henry Hub Natural Gas; period average (6)

Energy Information Administration; period average

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

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

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

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

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

Restructuring activities consist of established programs that are not part of our ongoing operations, such as divestitures, closing or consolidating facilities, employee severance (including rationalizing headcount or other significant changes in personnel), and realignment of existing operations (including changes to management structure in response to underlying performance and/or changing market conditions). These restructuring activities are excluded to facilitate period-to-period comparability of our operating performance. In the third quarter of fiscal 2025, we announced plans to combine WSCP’s toll processing manufacturing facility in Cleveland facility into its Twinsburg, Ohio facility. In the third quarter of fiscal 2026, we sold substantially all of the remaining net assets of WSCP’s Cleveland facility, which were reported in assets held for sale prior to the sale. The sales resulted in pre-tax gains of $6.0 million, excluding the impact of noncontrolling interest of $2.2 million, and included finance lease assets and buildings and improvements, net, and machinery and equipment. In the third quarter of fiscal 2025, in connection with the TWB’s announced VRP, we recognized $0.9 million in severance expenses, which is recorded in restructuring and other (income) expense, net, and excludes the noncontrolling interest portion of restructuring and other (income) expense, net of $0.4 million. Refer to “Note 6 – Restructuring and Other (Income) Expense, Net.”

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

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

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

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

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

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