Note 3 - Goodwill

As of both May 31, 2025 and August 31, 2024, the balance of the Company’s goodwill was $13 million, all of which was allocated to one reporting unit, a recycling services operation. The Company evaluates goodwill for impairment annually on July 1 and upon the occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value of goodwill may be impaired. There were no triggering events identified during the first nine months of fiscal 2025 requiring an interim goodwill impairment test.

Fiscal 2024 Goodwill Impairment

In the third quarter of fiscal 2024, the Company identified a triggering event that indicated the goodwill allocated to certain of the Company’s reporting units may be impaired. Based primarily on the respective financial and operational performance of certain of the Company’s reporting units with allocated goodwill, as well as the sustained decrease in the Company’s market capitalization beginning near the end of the second fiscal quarter of fiscal 2024, and substantially maintained throughout March and April 2024, the Company identified a triggering event and performed an interim impairment test. As of the May 1, 2024 testing date, the balance of the Company’s goodwill was $229 million, which was allocated among four reporting units. Three of the reporting units, which consist of two regional metals recycling operations and the Company’s network of auto parts stores, were allocated an aggregate of $216 million of goodwill. The Company performed a quantitative impairment test for goodwill allocated to these three reporting units to identify potential impairment and measure an impairment loss, if necessary.

For the two metals recycling reporting units and the autos reporting unit subject to the quantitative impairment test as of May 1, 2024, the estimated fair value of each reporting unit was less than its carrying amount, resulting in full impairment of the allocated goodwill and an aggregate impairment charge of $216 million. The projections used in the income approach took into consideration, as applicable at the time of the impairment test, the impact of then existing market conditions for ferrous and nonferrous recycled metals and retail auto parts, the cost of obtaining adequate supply flows of scrap metal including end-of-life vehicles, and trends in production and other operating costs. The projections assumed a recovery of operating margins from the levels experienced at the measurement date over a multi-year period. The WACC rate used in the income approach valuation ranged from 14.5% to 15.0%. The terminal growth rate used was 2%. A reporting-unit-specific risk premium was embedded in the WACC to reflect the perceived level of uncertainty inherent in expected future cash flows. As part of the goodwill impairment test, the Company performed a reconciliation of its market capitalization to the aggregated estimated fair value of all reporting units, including consideration of a control premium.

The remaining $13 million of goodwill is carried by one reporting unit, a recycling services operation. The Company determined that there was no triggering event for this reporting unit for the third quarter of fiscal 2024.