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 have signed a definitive asset purchase agreement to complete the acquisition of 16 retail tire and automotive repair stores located in Illinois and Iowa from a Car-X franchisee. These stores will continue to operate under the Car-X brand. We have also signed definitive asset purchase agreements to complete the acquisition of three retail tire and automotive repair stores located within our existing markets through two additional acquisitions. These transactions are expected to close during the fourth quarter of fiscal 2017. The acquisitions are expected to be financed through our existing credit facility.

Fiscal 2017

During the first nine months of fiscal 2017, we acquired the following businesses for an aggregate purchase price of $133.1 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 October 16, 2016, we acquired one retail tire and automotive repair store located in Rhode Island from Hamel Tire Center, Inc. This store operates under the Monro name.

On October 2, 2016, we acquired three retail tire and automotive repair stores located in Ohio from Parkway D/C Enterprises, Inc. These stores operate under the Mr. Tire name.

On September 19, 2016, we acquired one commercial tire and automotive repair store located in Florida from Florida Tire Service, LLC. This store will operate under The Tire Choice name.

On September 18, 2016, we acquired two retail tire and automotive repair stores located in Michigan from Davco Development Company and Ricketts, Inc. These stores operate under the Monro name.

On September 11, 2016, we acquired 26 retail/commercial tire and automotive repair stores and one retread plant located in North Carolina, as well as four wholesale centers, from Clark Tire & Auto, Inc. These stores will operate under the Mr. Tire name. The wholesale centers operate under the Tires Now name.

On July 18, 2016, we acquired one retail tire and automotive repair store located in Indiana from NTI, LLC. This store operates under the Car-X name.

On July 17, 2016, we acquired one retail tire and automotive repair store located in Georgia from Kwik-Fit Tire & Service. This store operates under the Mr. Tire name.

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.

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.

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 names.

We expensed all costs related to acquisitions in the nine months ended December 24, 2016. The total costs related to completed acquisitions were $.3 million and $.7 million for the three and nine months ended December 24, 2016, respectively. 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 and nine months ended December 24, 2016 totaled $43.0 million and $65.0 million, respectively, for the period from acquisition date through December 24, 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 December 24, 2016 was as follows:



	As of Acquisition Date
	(Dollars in thousands)
Cash and equivalents	$	15
Trade receivables		7,221
Inventories		16,190
Other current assets		390
Property, plant and equipment		24,318
Intangible assets		16,329
Other non-current assets		208
Long-term deferred income tax assets		6,942
Total assets acquired		71,613
Warranty reserves		393
Other current liabilities		2,546
Long-term capital leases and financing obligations		29,067
Other long-term liabilities		526
Total liabilities assumed		32,532
Total net identifiable assets acquired	$	39,081
Total consideration transferred	$	133,119
Less: total net identifiable assets acquired		39,081
Goodwill	$	94,038

The total consideration of $133.1 million is comprised of $133 million in cash, and a $.1 million payable to a seller. The payable is being paid via equal annual payments through September 2019.

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	$	9,526		9 years
Favorable leases		5,480		10 years
Trade names		1,323		11 years
Total	$	16,329		10 years

Fiscal 2016

During the first nine months of 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 franchise agreements, trade name, favorable leases and customer lists.

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.

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	$	377
Inventories		913
Other current assets		502
Property, plant and equipment		13,462
Intangible assets		11,527
Other non-current assets		25
Long-term deferred income tax assets		6,793
Total assets acquired		33,599
Warranty reserves		162
Other current liabilities		2,158
Long-term capital leases and financing obligations		27,475
Other long-term liabilities		870
Total liabilities assumed		30,665
Total net identifiable assets acquired	$	2,934
Total consideration transferred	$	50,834
Less: total net identifiable assets acquired		2,934
Goodwill	$	47,900

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:



	As of Acquisition Date
	Dollars in thousands		Weighted Average Useful Life
Franchise agreements	$	7,100		13 years
Trade name		2,000		15 years
Favorable leases		1,780		13 years
Customer lists		647		7 years
Total	$	11,527		13 years

As a result of the purchase price allocations that have been updated from the fiscal year ended March 26, 2016, 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 total current assets of $.1 million; an increase in property, plant and equipment of $2.6 million; an increase in intangible assets of $.4 million; an increase in long-term deferred income tax assets of $1.4 million; an increase in total current liabilities of $.6 million; and an increase in long-term capital leases and financing obligations of $5.8 million. The measurement period adjustments resulted in an increase of goodwill of $1.9 million.

These measurement period adjustments were not material to the Consolidated Statements of Comprehensive Income for the three and nine months ended December 24, 2016, respectively.

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 2016 acquisitions which closed subsequent to December 26, 2015, and for the fiscal 2017 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.