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

On January 31, 2016, we acquired one retail tire and automotive repair store located in Georgia that will operate under the Mr. Tire name. The acquisition was financed through our existing credit facility.

Fiscal 2016

During fiscal 2016, we acquired the following businesses for an aggregate purchase price of $50.8 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in Monro’s financial results from the respective acquisition dates.

On December 13, 2015, we acquired four retail tire and automotive repair stores from a former Car-X franchisee located in Wisconsin, as well as one retail tire and automotive repair store located in Florida. These stores operate under the Car-X name and The Tire Choice name, respectively.

In July and August 2015, we acquired three retail tire and automotive repair stores located in Illinois and Indiana from two former Car-X franchisees. These stores operate under the Car-X name.

On August 16, 2015, we acquired 27 retail tire and automotive repair stores located in Central New York and Pennsylvania from Kost Tire. These stores operate under the Mr. Tire name.

On July 12, 2015, we acquired four retail tire and automotive repair stores located in Massachusetts from Windsor Tire Co., Inc. These stores operate under the Monro Brake & Tire name.

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. At the time of acquisition, the Car-X stores were owned and operated by 32 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 acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses 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 customer relationships, trade name, favorable leases and franchise agreements.

We expensed all costs related to acquisitions in the nine months ended December 26, 2015. The total costs related to completed acquisitions were $.1 million and $.6 million for the three and nine months ended December 26, 2015, respectively. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

Sales for the fiscal 2016 acquired entities, including franchise royalty income, for the three and nine months ended December 26, 2015 totaled $9.6 million and $15.6 million, respectively, for the period from acquisition date through December 26, 2015.

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 December 26, 2015 was as follows:



	As of Acquisition Date
	(Dollars in thousands)
Trade receivables	$	260
Inventories		929
Other current assets		502
Property, plant and equipment		10,080
Intangible assets		11,708
Long-term deferred income tax assets		5,583
Other non-current assets		25
Total assets acquired		29,087
Warranty reserves		162
Other current liabilities		1,610
Long-term capital leases and financing obligations		22,143
Other long-term liabilities		545
Total liabilities assumed		24,460
Total net identifiable assets acquired	$	4,627
Total consideration transferred	$	50,769
Less: total net identifiable assets acquired		4,627
Goodwill	$	46,142

The total consideration of $50.8 million is comprised of $44.8 million in cash, and a $6.0 million payable to a 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:



	Dollars in thousands		As of Acquisition Date Weighted Average Useful Life
Customer relationships	$	1,369		7 years
Trade name		2,100		15 years
Franchise agreements		7,200		18 years
Favorable leases		1,039		15 years
Total	$	11,708		16 years

Fiscal 2015

During fiscal 2015, we acquired the following businesses for an aggregate purchase price of $82.7 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions were included in Monro’s financial results for the period from acquisition date through December 27, 2014.

On December 7, 2014, we acquired nine retail tire and automotive repair stores in Florida from Gold Coast Tire & Auto Centers. These stores operate under The Tire Choice name.

During July and December 2014, we acquired four retail tire and automotive repair stores located in New York and Georgia through four separate transactions. These stores operate under the Mr. Tire name.

On September 28, 2014, we acquired nine retail tire and automotive repair stores located in Georgia from Wood & Fullerton Stores, LLC. These stores operate under the Mr. Tire name.

On August 8, 2014, we acquired 35 retail tire and automotive repair stores located in Florida from Hennelly Tire & Auto, Inc. These stores operate under The Tire Choice name.

On June 15, 2014, we acquired ten and nine retail tire and automotive repair stores located in Michigan from Lentz U.S.A. Service Centers, Inc. and Kan Rock Tire Company, Inc., respectively. Two of the acquired stores never opened. These stores operate under the Monro Brake & Tire name.

On April 13, 2014, we acquired two retail tire and automotive repair stores located in New Hampshire from Bald Tire & Auto, Inc. These stores were previously Tire Warehouse franchise locations and continue to operate under the Tire Warehouse name.

The acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses 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 trade names, customer relationships and favorable leases.

We expensed all costs related to acquisitions in the nine months ended December 27, 2014. The total costs related to completed acquisitions were $.3 million and $.9 million for the three and nine months ended December 27, 2014, respectively. These costs are included in the Consolidated Statements of Comprehensive Income primarily under operating, selling, general and administrative expenses.

Sales for the fiscal 2015 acquired entities for the three and nine months ended December 27, 2014 totaled $18.8 million and $29.5 million, respectively, for the period from acquisition date through December 27, 2014.

We have recorded the identifiable assets acquired and liabilities assumed at their estimated fair value as of their respective acquisition dates, with the remainder recorded as goodwill as follows:



	As of Acquisition Date
	(Dollars in thousands)
Inventories	$	4,974
Other current assets		563
Property, plant and equipment		33,788
Intangible assets		7,311
Long-term deferred income tax assets		16,728
Other non-current assets		72
Total assets acquired		63,436
Warranty reserves		737
Other current liabilities		3,476
Long-term capital leases and financing obligations		55,036
Other long-term liabilities		1,465
Total liabilities assumed		60,714
Total net identifiable liabilities acquired	$	2,722
Total consideration transferred	$	82,709
Plus: gain on bargain purchase		383
Less: total net identifiable liabilities acquired		2,722
Goodwill	$	80,370

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



	Dollars in thousands		As of Acquisition Date Weighted Average Useful Life
Trade names	$	1,900		10 years
Customer relationships		2,034		7 years
Favorable leases		3,377		14 years
Total	$	7,311		11 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 property, plant and equipment of $3.6 million; a decrease in intangible assets of $1.7 million; an increase in long-term deferred income tax assets of $1.5 million; an increase in current liabilities of $.7 million; an increase in long-term capital leases and financing obligations of $7.2 million; and a decrease in purchase price of $.4 million. The measurement period adjustments resulted in an increase to goodwill of $4.1 million.

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 2015 acquisitions subsequent to December 27, 2014, and for the fiscal 2016 acquisitions, and expect to complete 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.