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, advertising and administration. Acquisitions in this footnote include acquisitions of five or more locations as well as acquisitions of one to four locations that are part of the Company’s greenfield store growth strategy.

Subsequent Events

We have signed a definitive asset purchase agreement to complete the acquisition of eight retail tire and automotive repair stores located in Illinois and Indiana from a Car-X franchisee. These stores will continue to operate under the Car-X brand. This transaction is expected to close during the second quarter of fiscal 2018 and is expected to be financed through our existing credit facility.

On July 30, 2017, we acquired 13 retail tire and automotive repair stores in Michigan, 12 of which were operating as Speedy Auto Service and Tire dealer locations, from UVR, Inc. One of the acquired stores was not opened by Monro. These stores operate under the Monro name. The acquisition was financed through our existing credit facility.

On July 9, 2017, we acquired one retail tire and automotive repair store located in North Carolina from Norman Young Tires, Inc. This store operates under the Treadquarters name. The acquisition was financed through our existing credit facility.

On June 25, 2017, we acquired one retail tire and automotive repair store located in Illinois from D&S Pulaski, LLC. This store operates under the Car-X name. The acquisition was financed through our existing credit facility.

Fiscal 2018

During the first quarter of fiscal 2018, we acquired the following businesses for an aggregate purchase price of $3.7 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 11, 2017, we acquired two retail tire and automotive repair stores located in Minnesota and Wisconsin from J & R Diversified, Inc. These stores operate under the Car-X name.

On June 11, 2017, we acquired one retail tire and automotive repair store located in Ohio from Michael N. McGroarty, Inc. This store operates under the Mr. Tire name.

On June 2, 2017, we acquired one retail tire and automotive repair store located in Connecticut from Tires Plus LLC. This store operates under the Monro name.

On May 21, 2017, we acquired one retail tire and automotive repair store located in Ohio from Bob Sumerel Tire Co., Inc. This store operates under the Mr. Tire name.

On April 23, 2017, we acquired one retail tire and automotive repair store located in Florida from Collier Automotive Group, Inc. This store operates 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 favorable leases and customer lists.

We expensed all costs related to acquisitions in the quarter ended June 24, 2017. The total costs related to completed acquisitions were immaterial for the quarter ended June 24, 2017. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

Sales for the fiscal 2018 acquired entities for the quarter ended June 24, 2017 totaled $.5 million for the period from acquisition date through June 24, 2017.

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 liabilities assumed was recorded as goodwill. The preliminary allocation of the aggregate purchase price as of June 24, 2017 was as follows:



	As of Acquisition Date
	(Dollars in thousands)
Inventories	$	198
Other current assets		36
Property, plant and equipment		1,278
Intangible assets		433
Other non-current assets		7
Long-term deferred income tax assets		609
Total assets acquired		2,561
Other current liabilities		258
Long-term capital leases and financing obligations		2,483
Total liabilities assumed		2,741
Total net identifiable liabilities assumed	$	(180)
Total consideration transferred	$	3,739
Less: total net identifiable liabilities assumed		(180)
Goodwill	$	3,919

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
Favorable leases	$	270		10 years
Customer lists		163		7 years
Total	$	433		9 years

Fiscal 2017

During the first quarter of fiscal 2017, we acquired the following businesses for an aggregate purchase price of $47.9 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 tire and automotive repair stores and one retread facility located in Florida from McGee Tire Stores, Inc. These stores will operate primarily under The Tire Choice name. The retread facility operates under the McGee Tire name.

We expensed all costs related to acquisitions in the quarter ended June 25, 2016. The total costs related to completed acquisitions were immaterial for the quarter 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 quarter ended June 25, 2016 totaled $7.8 million for the period from acquisition date through June 25, 2016.

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	$	1,616
Inventories		3,714
Other current assets		242
Property, plant and equipment		9,612
Intangible assets		6,731
Other non-current assets		151
Long-term deferred income tax assets		3,453
Total assets acquired		25,519
Warranty reserves		187
Other current liabilities		958
Long-term capital leases and financing obligations		15,086
Other long-term liabilities		763
Total liabilities assumed		16,994
Total net identifiable assets acquired	$	8,525
Total consideration transferred	$	47,858
Less: total net identifiable assets acquired		8,525
Goodwill	$	39,333

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
Favorable leases	$	3,450		16 years
Customer lists		2,981		12 years
Trade name		300		2 years
Total	$	6,731		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 a decrease in inventories of $.1 million; an increase in property, plant and equipment of $1.3 million; a decrease in intangible assets of $1.1 million; a decrease in long-term deferred income tax assets of $.1 million; an increase in other current liabilities of $.6 million and an increase in long-term capital leases and financing obligations of $.1 million. The measurement period adjustments resulted in an increase to goodwill of $.7 million.

These measurement period adjustments were not material to the Consolidated Statement of Comprehensive Income for the quarter ended June 24, 2017.

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 fiscal 2017 acquisitions which closed subsequent to June 25, 2016 and the fiscal 2018 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.