Worthington Steel Inc

Condensed Notes to COMBINED Financial Statements (UNAUDITED)

Note A – Worthington Steel Separation, Description of Business, and Basis of Presentation

Fiscal Periods

Our fiscal year and fourth quarter ends on May 31, with “fiscal 2023” ended on May 31, 2023, and “fiscal 2024” ending on May 31, 2024. Our other quarterly periods end on the final day of August (first quarter), November (second quarter) and February (third quarter).

Worthington Steel Separation

On September 29, 2022, Worthington Industries, Inc. (“Worthington Industries,” “Worthington Enterprises, Inc.” or “Parent”) announced its intention to spin off its existing steel processing business, Worthington Steel, Inc. (“Worthington Steel,” the “Company,” “we,” “us,” or “our”) into a stand-alone publicly traded company through a tax-free pro rata distribution of 100% of the common shares of Worthington Steel (the “Distribution”)to holders of record of Worthington Industries common shares as of the close of business on November 21, 2023 (the “Record Date”). Each holder of record of Worthington Industries common shares received one common share of Worthington Steel for every one Worthington Industries common share held at the close of business on the Record Date (the “Distribution”). The Separation was completed on December 1, 2023 (the “Distribution Date”), at 12:01 a.m., Eastern Time. In connection with the Separation, Worthington Steel made a cash distribution to Worthington Enterprises of $150.0 million from the issuances of certain debt (see Note H – Debt). Worthington Enterprises retained no ownership interest in Worthington Steel following the Separation. Also on December 1, 2023, Worthington Steel’s common shares began trading on the New York Stock Exchange (“NYSE”) under the ticker symbol “WS.”

On November 30, 2023, in connection with the Separation, we entered into several agreements with Worthington Enterprises, Inc. that govern the relationship between Worthington Enterprises, Inc. and us following the Distribution, including a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement, and Transition Services Agreement.

Direct and incremental costs incurred in connection with the Separation, including (a) fees paid to third parties for audit, advisory, and legal services to effect the Separation, (b) non-recurring employee-related costs, such as retention bonuses, and (c) non-recurring functional costs associated with shared corporate functions (collectively, the “Separation Costs”) are presented separately in our combined statements of earnings. Separation Costs totaled$14.9 million and$8.0 million during the three months ended November 30, 2023 and three months ended November 30, 2022, respectively, and$18.5 million and$8.0 million during the six months ended November 30, 2023 and six months ended November 30, 2022, respectively.

Description of the Business

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

Basis of Presentation

Throughout the periods covered by the combined financial statements, we operated as a business of Parent. Our combined financial statements are prepared on a carve-out basis using the consolidated financial statements and accounting records of Parent in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Our combined financial statements include the historical operations that comprise our business and reflect significant assumptions and allocations as well as certain assets and liabilities that have historically been held at Parent’s corporate level but are specifically identifiable or otherwise attributable to us. The carve-out financial statements may not include all expenses that would have been incurred had we existed as a separate, stand-alone entity during the periods presented.

The combined financial statements include the accounts of Worthington Steel and its consolidated subsidiaries. Investments in unconsolidated affiliates are accounted for using the equity method. Material intercompany accounts and transactions are eliminated.

We own controlling interests in the following three joint ventures: Spartan Steel Coating, L.L.C. (“Spartan”) (52%), TWB Company, L.L.C. (“TWB”) (55%), Worthington Samuel Coil Processing, L.L.C. (“WSCP”) (63%), and Worthington Specialty Processing (“WSP”) (51%). WSP became a non-operating joint venture on October 31, 2022, when its remaining net assets were sold. These joint ventures are consolidated with the equity owned by the other joint venture members shown as noncontrolling interests in our combined balance sheets, and their portions of net earnings and other comprehensive income (loss) (“OCI”) shown as net earnings or comprehensive income attributable to noncontrolling interests in our combined statements of earnings and comprehensive income, respectively. The investment in our unconsolidated affiliate is accounted for using the equity method. See further discussion of our unconsolidated affiliate in “Note C – Investment in Unconsolidated Affiliate.”

Our operations are managed principally on a products and services basis under a single group organizational structure. After the Separation, the financial information reviewed by the Company’s Chief Operating Decision Maker (“CODM”) for the purpose of assessing performance and allocating resources will be presented as a single component, or operating segment, and comprises all of the Company’s operations. The Company’s CODM will be its Chief Executive Officer (“CEO”).

The income tax provision in the carve-out statement of earnings has been calculated as if we were operating on a stand-alone basis and filed separate tax returns in the jurisdictions in which we operate. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of our actual tax balances prior to or subsequent to the carve-out.

Transactions and accounts which have occurred within the Company have been eliminated, based on historical intracompany activity. Parent’s net investment in these operations, including intercompany transactions between Parent and us, are reflected as Net Worthington Enterprises, Inc. investment on the accompanying combined financial statements. Certain situations require management to make estimates based on judgments and assumptions, which may affect the reported amounts of assets and respective disclosures at the date of the financial statements. Management’s judgments and assumptions may also affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates made by management.

Our combined financial statements include certain costs of doing business incurred by Parent at the corporate level. These costs are for (1) certain corporate support functions provided on a centralized basis, including information technology, human resources, finance, and corporate operations, amongst others, (2) profit sharing and bonuses, and (3) respective surpluses and shortfalls of various planned insurance expenses. These costs are included in the combined statements of earnings, primarily within selling, general and administrative expense (“SG&A”). These expenses have been allocated to us on the basis of direct usage when identifiable, with the remaining allocated using related drivers associated with the nature of the business, such as, headcount or profitability, considering the characteristics of each respective cost. Management believes the assumptions regarding the allocation of Parent’s general corporate expenses are reasonable.

All other third party-debt and related interest expense not directly attributable to the Company have been excluded from the combined financial statements because we are not the legal obligor of the debt and the borrowings are not specifically identifiable to us. Additionally, as described in “Note P – Related Party Transactions”, debt and related interest expense between Parent and TWB has been attributed to the us, as we are both the legal obligor and directly benefited from the borrowings.

Additionally, Parent incurred Separation Costs that have been directly attributed to us to the extent incurred to our direct benefit and are presented separately in our combined statements of earnings.

Our combined financial statements may not include all of the actual expenses that would have been incurred and may not reflect our combined results of earnings, balance sheet, and cash flows had we operated as a standalone company during the periods presented. Management considers these cost allocations to be reasonably reflective of our utilization of Parent’s corporate support services. Actual costs that would have been incurred if we had been a stand-alone company may have been different than these estimates during the periods presented.

Parent utilizes a centralized cash management program to manage cash for the majority of its entities. For entities that are enrolled in the program, all cash is swept into a cash pool. Accordingly, the cash and cash equivalents held by Parent at the corporate level were not attributed to us for any of the periods presented. Our foreign operations do not participate in the centralized cash management program. These cash amounts are specifically attributable to Worthington Steel and therefore are reflected in the accompanying combined balance sheets. Transfers of cash, both to and from Parent’s centralized cash management program, are reflected as a component of Net Worthington Enterprises, Inc. investment on the accompanying combined balance sheets and as a financing activity on the accompanying combined statements of cash flows.

We sell our products and services to a diverse customer base and a broad range of end markets. The automotive industry is the largest end market for us and our unconsolidated joint venture, Serviacero Planos, S. de R.L. de C.V. (“Serviacero Worthington”), with sales representing 52% of our combined net sales for both thethree months ended November 30, 2023 and November 30, 2022, and 53% and 48% of our combined net sales for thesix months ended November 30, 2023 and November 30, 2022, respectively. Sales to one automotive customer represented 14.9% and 16.6% of our combined net sales for thethree months ended November 30, 2023 and November 30, 2022, respectively, and 15.8% and 15.5% for thesix months ended November 30, 2023 and November 30, 2022, respectively.

These unaudited combined financial statements have been prepared in accordance with 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 U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which are of a normal and recurring nature except those which have been disclosed elsewhere in this Form 10-Q, necessary for a fair presentation of the combined financial statements for these interim periods, have been included. Operating results for the second quarter of fiscal 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2024 (“fiscal 2024”). For further information, refer to the combined financial statements and notes thereto included in the Form 10.

The preparation of combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying notes. Actual results could differ materially from those estimates.

Note B – Revenue Recognition

The following table summarizes net sales by product class for the periods presented:

The following table summarizes revenue that has been recognized over time for the periods presented:

The following table summarizes the unbilled receivables at the dates indicated:

(1)

There wereno contract assets at either of the dates indicated above.

Note C – Investment in Unconsolidated Affiliate

We own a noncontrolling interest (50%) inone unconsolidated joint venture: Serviacero Worthington. We account for our investment in Serviacero Worthington using the equity method of accounting. Serviacero Worthington provides steel processing services, such as pickling, blanking, slitting, multi-blanking and cutting-to-length, to customers in a variety of industries including automotive, appliance and heavy equipment.

We did not receive any distributions from Serviacero Worthington during the six months ended November 30, 2023 or the six months ended November 30, 2022.

The following tables summarize the combined financial information of Serviacero Worthington as of the dates, and for the periods, presented:

Note D – Impairment of Long-Lived Assets

During the first quarter of fiscal 2023, we committed to plans to liquidate certain fixed assets at our WSCP joint venture’s toll processing facility in Cleveland, Ohio. In accordance with the applicable accounting guidance, the net assets were recorded at the lower of net book value or fair market value less costs to sell resulting in a pre-tax impairment charge of $0.3 million.

No impairment charges were recorded during the second quarter of fiscal 2023.

During the first quarter of fiscal 2024, we lowered our estimate of fair value less costs to sell to reflect the expected scrap value of the toll processing equipment, $0.2 million, resulting in a pre-tax impairment charge of $1.4 million.

No impairment charges were recorded during the second quarter of fiscal 2024.

Note E – Restructuring and Other Income, Net

We consider restructuring activities to be programs whereby we fundamentally change our 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).

Restructuring and other income, net in the second quarter of fiscal 2023 of $4.3 million resulted primarily from the sale of the remaining net assets of WSP on October 31, 2022. The sale resulted in net cash proceeds of $20.8 million which resulted in a pre-tax gain of $3.9 million.

There wereno liabilities associated with our restructuring activities at November 30, 2023.

Note F – Contingent Liabilities and Commitments

Legal Proceedings

We are defendants in certain legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our combined financial position or future results of operations. 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 will have a material adverse effect on our business, financial position, results of operation or cash flows.

Note G – Guarantees

We do not have guarantees that we believe are reasonably likely to have a material current or future effect on our combined financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

At November 30, 2023, we had in place an outstanding stand-by letter of credit in the amount of $1.2 million issued to third-party service providers. The fair value of this guarantee instrument, based on premiums paid, was not material andno amounts were drawn against it at November 30, 2023.

Note H – Debt

The following table summarizes our debt outstanding at November 30, 2023 and May 31, 2023:

Maturities of long-term debt and short-term borrowings in the current fiscal year and next four fiscal years thereafter, are as follows:

Revolving Credit Facility

On November 30, 2023, we entered into a multi-year senior secured revolving credit facility (the “Credit Facility”) scheduled to mature on November 30, 2028, with a group of lenders. The Credit Facility allows for borrowings of up to $550.0 million, to the extent secured by eligible accounts receivable and inventory balances at period end, which consist primarily of U.S. Dollar denominated account balances. Amounts drawn under the Credit Facility will have maturities of up toone year and will accrue interest at rates equal to an applicable margin over the SOFR Rate. We incurred approximately $2.7 million of issuance costs, of which $2.5 million will be amortizedto interest expense over the expected five-year term and are reflected in other assets. As of November 30, 2023, $175.0 million was outstanding under the Credit Facility, of which $150.0 million was paid to Worthington Enterprises, Inc. on December 1, 2023, in connection with the Separation. As of November 30, 2023, the interest rate on the Credit Facility was 6.95%.

Term Loan Facility with Worthington Enterprises, Inc.

On June 8, 2021, TWB entered into a $50.0 million term loan agreement (the “TWB Term Loan”) with a subsidiary of Parent that matures in annual installments through May 31, 2024. This note accrues interest at a rate of 5.0% per annum and had a balance of$20.0 million at November 30, 2023 and May 31, 2023, which is classified separately within current liabilities in our combined balance sheet. The borrowings are the legal obligation of TWB and require settlement, in cash, in accordance with the loan agreement. As such, the debt and related interest have been attributed to us in the combined financial statements. The proceeds were used by TWB to finance the Shiloh U.S BlankLight® purchase price.

The Parent’s note receivable associated with the TWB Term Loan was contributed to us in connection with the Separation on December 1, 2023.

Other - Tempel China

Tempel's subsidiary in China (“Tempel China”) had short-term loan facilities, which were used to finance steel purchases, and were collateralized by Tempel China property and equipment. Borrowings outstanding under the facility totaled $2.8 million at May 31, 2023. These loans were paid off in June 2023, which resulted in a balance of $0 at November 30, 2023.

Accounts Receivable Securitization

On June 29, 2023, we terminated our revolving trade accounts receivable securitization facility (the “AR Facility”) because it was no longer needed. No early termination or other similar fees or penalties were paid in connection with the termination of the AR Facility.

Note I – Other Comprehensive Income (Loss)

The following table summarizes the tax effects on each component of OCI for the periods presented:

Note J– Changes in Equity

The following tables summarize the changes in equity by component and in total for the periods presented:

The following table summarizes the changes in accumulated other comprehensive income ("AOCI") for the periods presented:

The combined statement of earnings classification of amounts reclassified to net income include:

(a)

Cash flow hedges – See the disclosure in “Note N – Derivative Financial Instruments and Hedging Activities.”

Note K– Income Taxes

Our effective income tax rate was 29.9% and 25.9% for the three months ended November 30, 2023 and November 30, 2022, respectively, and 21.6% and 24.9% for the six months ended November 30, 2023 and November 30, 2022, respectively. The effective tax rates differed from the statutory rate primarily due to non-deductible expenses in foreign jurisdictions and executive compensation, and discrete items related to equity compensation.

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items and excludes any impact from the inclusion of net earnings attributable to noncontrolling interests in our combined statements of earnings. Net earnings attributable to noncontrolling interests are a result of our consolidated joint ventures. The net earnings attributable to the noncontrolling interests in the U.S. operations of our consolidated joint ventures and do not generate tax expense to us since the investors are taxed directly based on the earnings attributable to the investors. The tax expense of TWB’s wholly-owned foreign corporations is reported in our combined income tax expense. Management is required to estimate the annual effective income tax rate based upon its forecast of annual pre-tax income for domestic and foreign operations. Our actual effective income tax rate for fiscal 2024 could be materially different from the forecasted rate as of November 30, 2023.

Note L– Earnings (Loss) per Share

Earnings (loss) per common share was calculated based on the 49.3 million common shares of the Company's common stock distributed to the Worthington Enterprises, Inc.'s shareholders on December 1, 2023. The same number of common shares is being utilized for the calculation of basic and diluted earnings per common share for all periods presented prior to the Separation.

The following table sets forth the computation of basic and diluted earnings per common share attributable to controlling interest for the periods presented:

Note M – Acquisitions

Voestalpine Automotive Components Nagold GmbH & Co. KG

On November 16, 2023, we acquired Voestalpine Automotive Components Nagold GmbH & Co. KG (“Voestalpine”), a facility in Nagold, Germany for net cash consideration of $21.0 million and the assumption of a $0.9 million pension liability. Voestalpine produces automotive and electrical steel lamination stampings in Europe. The total purchase consideration was allocated primarily to tangible assets, consisting of $12.3 million of property, plant and equipment and $9.0 million of net working capital, with $0.6 million recognized as goodwill.

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired. The purchase price allocation is subject to further adjustment until we fully evaluate all pertinent information regarding the assets acquired.

The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic benefits specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. The goodwill resulting from the acquisition will be deductible for income tax purposes.

The results of operations of Voestalpine have been included in our combined statements of earnings since the date of acquisition. Proforma results, including the acquired business since the beginning of fiscal 2023, would not be materially different from the reported results.

Note N– Derivative Financial Instruments and Hedging Activities

We utilize derivative financial instruments to primarily manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative financial instruments include foreign currency exchange rate risk and commodity price risk. While certain of our derivative financial instruments are designated as hedging instruments, we also enter 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 – We are exposed to changes in the price of certain commodities, including steel, zinc and other raw materials, and our utility requirements. Our 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, we enter into derivative financial instruments to manage the associated price risk.

We are exposed to counterparty credit risk on all of our derivative financial instruments. Accordingly, we have established and maintain strict counterparty credit guidelines. We have credit support agreements in place with certain counterparties to limit our 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. We do 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 O – Fair Value” for additional information regarding the accounting treatment for our derivative financial instruments, as well as how fair value is determined.

The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in thecombined balance sheet at November 30, 2023:

The amounts in the table above reflect the fair value of our derivative financial instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have been a $3.0 million increase in receivables with a corresponding increase in accounts payable.

The following table summarizes the fair value of our derivative financial instruments and the respective lines in which they were recorded in thecombined balance sheet at May 31, 2023:

The amounts in the table above reflect the fair value of our derivative financial instruments on a net basis where allowable under master netting arrangements. Had these amounts been recognized on a gross basis, the impact would have beena $7.3 million increasein receivables with a corresponding increase in accounts payable.

Cash Flow Hedges

We enter into derivative financial instruments to hedge our exposure to changes in cash flows attributable to commodity price fluctuations associated with certain forecasted transactions. 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 our cash flow hedges outstanding at November 30, 2023:

The following table summarizes our cash flow hedges outstanding at May 31, 2023:

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 hedges for the periods presented:

The estimated net amount of the gain recognized in AOCI at November 30, 2023 expected to be reclassified into net earnings within the succeeding 12 months is $5.7 million (net of tax of $1.7 million). This amount was computed using the fair value of the cash flow hedges at November 30, 2023, and will change before actual reclassification from OCI to net earnings during the fiscal years ending May 31, 2024 and May 31, 2025.

Economic (Non-designated) Hedges

We enter into foreign currency exchange contracts to manage our foreign currency exchange rate exposure related to inter-company and financing transactions that do not meet the requirements for hedge accounting treatment. We also enter 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 gain (loss) recognized in earnings.

The following table summarizes our economic (non-designated) derivative financial instruments outstanding at November 30, 2023:

The following table summarizes our economic (non-designated) derivative financial instruments outstanding at May 31, 2023:

The following table summarizes the gain (loss) recognized in earnings for economic (non-designated) derivative financial instruments for the periods presented:

Note O – 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 – Observable prices in active markets for identical assets and liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Recurring Fair Value Measurements

At November 30, 2023, our assets and liabilities measured at fair value on a recurring basis were as follows:

(1)

The fair value of our derivative financial instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “Note N – Derivative Financial Instruments and Hedging Activities” for additional information regarding our use of derivative financial instruments.

At May 31, 2023, our assets and liabilities measured at fair value on a recurring basis were as follows:

(1)

The fair value of our derivative financial instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “Note N – Derivative Financial Instruments and Hedging Activities” for additional information regarding our use of derivative financial instruments.

Non-Recurring Fair Value Measurements

At November 30, 2023, there wereno assets measured at fair value on a non-recurring basis on ourcombined balance sheet.

At May 31, 2023, our assets measured at fair value on a non-recurring basis were as follows:

(1)

Comprised of the following: (a) idled equipment at the manufacturing facility in Taylor, Michigan; and (b) the net assets of our former WSCP toll processing facility in Cleveland, Ohio.

The fair value of non-derivative financial instruments included in the carrying amounts of 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. Market pricing for our long-term debt with Worthington Enterprises, Inc. is not available; however, based on the stated interest rate and tenor as well as the market movements since issuance, we do not believe fair value would be materially different from the carrying value of the TWB Term Loan (including current maturities), which was $20.0 million at November 30, 2023 and May 31, 2023. The remaining carrying value of debt was $175.0 million at November 30, 2023, and relates to the Credit Facility, which due to its short-term nature, approximates fair value. The Credit Facility was entered into as of November 30, 2023, therefore there wereno borrowings under the Credit Facility at May 31, 2023.

Note P – Related Party Transactions

Historically, we were been managed and operated in the normal course of business by Parent. Transactions through November 30, 2023 between Parent and us have been accounted for as related party transactions in the accompanying combined financial statements, as described below:

Allocation of General Corporate Costs

Certain support functions have been provided to us on a centralized basis from Parent, including information technology, human resources, finance, and corporate operations, amongst others, profit sharing and bonuses, and respective surpluses and shortfalls of various planned insurance expenses. For purposes of these combined financial statements, these corporate and other shared costs have been attributed to us on the basis of direct usage when identifiable, with the remainder allocated on the basis of headcount or profitability, considering the characteristics of each respective cost. Management believes the assumptions regarding the allocation of Parent’s general corporate expenses are reasonable. Nevertheless, the combined financial statements may not include all of the actual expenses that would have been incurred and may not reflect combined results of operations, financial position and cash flows had we been a stand-alone public company during the periods presented. Substantially all of the allocated corporate costs are included in SG&A expense in the combined statements of earnings.

Our allocated expenses from Parent, which are substantially recorded in SG&A expense in the combined statements of earnings, were$19.5 million and$17.8 million for the three months ended November 30, 2023 and November 30, 2022, respectively, and$38.5 million and$32.1 million for the six months ended November 30, 2023 and November 30, 2022, respectively.

Attribution of Separation Costs

Parent incurred Separation Costs that have been directly attributed to us to the extent incurred to our direct benefit and are presented separately in our combined statements of earnings.

Sales to Parent

Net sales to Parent totaled$19.3 million and$26.4 million for the three months ended November 30, 2023 and November 30, 2022, respectively, and$43.8 million and$62.1 million for the six months ended November 30, 2023 and November 30, 2022, respectively.

Due to/from Parent

Given that cash was managed centrally, long-term intercompany financing arrangements were used to fund expansion or certain working capital needs. Excluding the TWB Term Loan disclosed in “Note H – Debt”, debt resulting from these long-term intercompany financing arrangements has been reflected in Net Worthington Enterprises, Inc. Investment within equity.

Amounts due to Parent under the TWB Term Loan totaled $20.0 million at November 30, 2023 and May 31, 2023, all of which is presented in current maturities of long-term debt due to Worthington Enterprises, Inc. in the corresponding combined balance sheet. The corresponding interest expense, which accrues at a rate of 5.0% per annum, was$0.2 million and$0.4 million in three months ended November 30, 2023 and November 30, 2022, respectively, and$0.5 million and$0.9 million in the six months ended November 30, 2023 and November 30, 2022, respectively. Refer to “Note H – Debt” for additional information.

Net Worthington Enterprises, Inc. Investment

Related party transactions between Parent and us have been included within Net Worthington Enterprises, Inc. investment in the combined balance sheets in the historical periods presented as these related party transactions were part of the centralized cash management program and were not settled in cash. Net Worthington Enterprises, Inc. investment in the combined balance sheet and combined statement of equity represents Parent’s historical investment in us, the net effect of transactions with and allocations from Parent, and our retained earnings.

Net transfers from Parent are included within Net Worthington Enterprises, Inc. investment. The reconciliation of total net transfers to and from Parent to the corresponding amount presented in the Combined Statement of Cash Flows are as follows:

Note Q – Subsequent Events

The Separation was achieved through the Distribution on the Distribution Date. In connection with the Separation, Worthington Steel made a cash distribution to Worthington Enterprises of $150.0 million from the issuances of certain debt (see Note H – Debt). Worthington Enterprises retained no ownership interest in Worthington Steel following the Separation. Also on the Distribution Date, Worthington Steel’s common shares began trading on the NYSE under the ticker symbol “WS.”

On December 20, 2023, Worthington Steel's Board of Directors (the “Board”) declared a quarterly cash dividend of $0.16 per common share payable on March 28, 2024, to shareholders of record at the close of business on March 14, 2024.