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.

Fiscal 2018

During the first six months of fiscal 2018, we acquired the following businesses for an aggregate purchase price of $14.0 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 August 13, 2017, we acquired eight retail tire and automotive repair stores located in Indiana and Illinois from Auto MD, LLC. These stores operate under the Car-X name.

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.

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.

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.

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 six months ended September 23, 2017. The total costs related to completed acquisitions were $.2 million and $.3 million for the three and six months ended September 23, 2017, respectively. 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 three and six months ended September 23, 2017 totaled $3.1 million and $3.6 million, respectively, for the period from acquisition date through September 23, 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 tangible and intangible assets acquired was recorded as goodwill. The preliminary allocation of the aggregate purchase price as of September 23, 2017 was as follows:



	As of Acquisition Date
	(Dollars in thousands)
Inventories	$	443
Other current assets		139
Property, plant and equipment		5,461
Intangible assets		2,917
Other non-current assets		7
Long-term deferred income tax assets		2,129
Total assets acquired		11,096
Other current liabilities		980
Long-term capital leases and financing obligations		8,831
Other long-term liabilities		80
Total liabilities assumed		9,891
Total net identifiable assets acquired	$	1,205
Total consideration transferred	$	14,033
Less: total net identifiable assets acquired		1,205
Goodwill	$	12,828

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	$	1,914		10 years
Customer lists		1,003		7 years
Total	$	2,917		9 years

Fiscal 2017

During the first six months of fiscal 2017, we acquired the following businesses for an aggregate purchase price of $129.1 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 September 19, 2016, we acquired one commercial tire and automotive repair store located in Florida from Florida Tire Service, LLC. This store operates 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 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 operate primarily under The Tire Choice 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 customer lists, favorable leases and trade names.

We expensed all costs related to acquisitions in the six months ended September 24, 2016. The total costs related to completed acquisitions were $.2 million and $.4 million for the three and six months ended September 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 six months ended September 24, 2016 totaled $14.3 million and $22.0 million, respectively, for the period from acquisition date through September 24, 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	$	7,006
Inventories		18,125
Other current assets		377
Property, plant and equipment		23,674
Intangible assets		17,804
Other non-current assets		174
Long-term deferred income tax assets		6,099
Total assets acquired		73,259
Warranty reserves		448
Other current liabilities		2,805
Long-term capital leases and financing obligations		26,207
Other long-term liabilities		999
Total liabilities assumed		30,459
Total net identifiable assets acquired	$	42,800
Total consideration transferred	$	129,096
Plus: gain on bargain purchase		13
Less: total net identifiable assets acquired		42,800
Goodwill	$	86,309

The total consideration of $129.1 million is comprised of $129 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	$	9,461		13 years
Favorable leases		5,388		14 years
Trade names		2,955		17 years
Total	$	17,804		14 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 $1.2 million; a decrease in intangible assets of $2.0 million; a decrease in long-term deferred income tax assets of $.3 million; a decrease in other current liabilities of $.1 million; and an increase in long-term capital leases and financing obligations of $.2 million. The measurement period adjustments resulted in an increase of goodwill of $1.2 million.

These measurement period adjustments were not material to the Consolidated Statements of Comprehensive Income for the quarter and six months ended September 23, 2017, 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 2017 acquisitions which closed subsequent to September 24, 2016 and the fiscal 2018 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.