Note 2 – Acquisitions

Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in existing and contiguous markets, and leverage fixed operating costs such as distribution and advertising.

Subsequent Event

We signed definitive asset purchase agreements to complete the acquisition of certain retail tire and automotive repair stores located within our markets. These transactions are expected to close during the second quarter of fiscal 2017. The acquisitions will be financed through our existing credit facility.

On July 17, 2016, we acquired one retail tire and automotive repair store located in Georgia from Kwik-Fit Tire & Service, Inc. This store operates under the Mr. Tire name. The acquisition was financed through our existing credit facility.

On July 10, 2016, we acquired four retail tire and automotive repair stores located in Minnesota from Task Holdings, Inc. and Autopar, Inc. These stores operate under the Car-X name. The acquisition was financed through our existing credit facility.

On June 26, 2016, we acquired one retail tire and automotive repair store located in Michigan from Harlow Tire Company. This store operates under the Monro name. The acquisition was financed through our existing credit facility.

Fiscal 2017

During fiscal 2017, we acquired the following businesses for an aggregate purchase price of $47.2 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.

On June 19, 2016, we acquired two retail tire and automotive repair stores located in New Hampshire from Express Tire Centers, LLC. These stores operate under the Tire Warehouse name.

On May 8, 2016, we acquired one retail tire and automotive repair store located in Florida from Pioneer Tire Pros. This store operates under The Tire Choice name.

On May 1, 2016, we acquired 29 retail/commercial tire and automotive repair stores and one retread plant located in Florida from McGee Tire Stores, Inc. These stores will operate primarily under The Tire Choice name.

These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to customer lists, favorable leases and trade name.

We expensed all costs related to acquisitions in the three months ended June 25, 2016. The total costs related to completed acquisitions were immaterial for the three months ended June 25, 2016. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

Sales for the fiscal 2017 acquired entities for the three months ended June 25, 2016 totaled $8.9 million for the period from acquisition date through June 25, 2016.

Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.

The preliminary fair values of identifiable assets acquired and liabilities assumed were based on preliminary valuations and estimates. The excess of the net purchase price over net tangible and intangible assets acquired was recorded as goodwill. The preliminary allocation of the aggregate purchase price as of June 25, 2016 was as follows:



	As of Acquisition Date
	(Dollars in thousands)
Trade receivables	$	1,371
Inventories		4,283
Other current assets		243
Property, plant and equipment		8,917
Intangible assets		7,080
Other non-current assets		72
Long-term deferred income tax assets		3,004
Total assets acquired		24,970
Warranty reserves		145
Other current liabilities		887
Long-term capital leases and financing obligations		13,633
Other long-term liabilities		273
Total liabilities assumed		14,938
Total net identifiable assets acquired	$	10,032
Total consideration transferred	$	47,160
Less: total net identifiable assets acquired		10,032
Goodwill	$	37,128

The following are the intangible assets acquired and their respective fair values and weighted average useful lives:



	As of Acquisition Date
	Dollars in thousands		Weighted Average Useful Life
Customer lists	$	3,593		7 years
Favorable leases		3,187		14 years
Trade name		300		2 years
Total	$	7,080		10 years

Fiscal 2016

On April 25, 2015, we acquired the Car-X Brand, as well as the franchise rights for 146 auto service centers from Car-X Associates Corp., a subsidiary of Tuffy Associates Corp. The Car-X stores are owned and operated by independent Car-X franchisees in Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri, Ohio, Tennessee, Texas and Wisconsin. The franchise locations operate under the Car-X name. Monro operates as the franchisor through a standard royalty agreement, while Car-X remains a separate and independent brand and business through Car-X, LLC, Monro’s wholly-owned subsidiary, with franchise operations based in Illinois. The acquisition was financed through our existing credit facility. The results of operations for this acquisition are included in Monro’s financial results from the date of acquisition and are immaterial.

The acquisition resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining this business with ours, and unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to franchise agreements and trade name.

We expensed all costs related to acquisitions in the three months ended June 27, 2015. The total costs related to completed acquisitions were immaterial for the three months ended June 27, 2015. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

Supplemental pro forma information for the current or prior reporting periods has not been presented due to the immateriality of these amounts for the periods the acquired entity was not owned by Monro.

We have recorded the identifiable assets acquired and liabilities assumed at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the remainder recorded as goodwill as follows:



	As of Acquisition Date
	(Dollars in thousands)
Trade receivables	$	365
Other current assets		2
Property, plant and equipment		415
Intangible assets		9,100
Other non-current assets		14
Long-term deferred income tax assets		396
Total assets acquired		10,292
Other current liabilities		397
Long-term capital leases and financing obligations		561
Other long-term liabilities		714
Total liabilities assumed		1,672
Total net identifiable assets acquired	$	8,620
Total consideration transferred	$	17,650
Less: total net identifiable assets acquired		8,620
Goodwill	$	9,030

The total consideration of $17.7 million is comprised of $11.7 million in cash, and a $6.0 million payable to the seller. The payable is being liquidated via equal monthly payments through August 2022.

The following are the intangible assets acquired and their respective fair values and weighted average useful lives:



	As of Acquisition Date
	Dollars in thousands		Weighted Average Useful Life
Franchise agreements	$	7,100		13 years
Trade name		2,000		15 years
Total	$	9,100		13 years

As a result of the updated purchase price allocations, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates include an increase in other current assets of $.1 million; an increase in property, plant and equipment of $1.2 million; an increase in long-term deferred income tax assets of $.8 million; an increase in other current liabilities of $.3 million and an increase in long-term capital leases and financing obligations of $3.0 million. The measurement period adjustments resulted in an increase to goodwill of $1.2 million.

These measurement period adjustments were not material to the Consolidated Statement of Comprehensive Income for the quarter ended June 25, 2016.

We continue to refine the valuation data and estimates primarily related to inventory, road hazard warranty, intangible assets, real estate, and real property leases for all other fiscal 2016 acquisitions and the fiscal 2017 acquisitions, and expect to complete the valuations no later than the first anniversary date of the respective acquisition. We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material.