| Acquisitions | 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 a definitive asset purchase agreement to complete the acquisition of 27 retail tire and automotive repair stores located in Central New York and Pennsylvania from Kost Tire on July 17, 2015. This transaction is expected to close during the second quarter of fiscal 2016. These stores will operate under the Mr. Tire name. The acquisition is expected to be financed through our existing credit facility.
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. The acquisition was financed through our existing credit facility.
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 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 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 combini n g 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 trade name and franchise agreements.
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.
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 recorde d as goodwill. The preliminar y allocation of the aggregate purchase price as of June 27, 2015 was as follows:
As of Acquisition Date
(Dollars in thousands)
Trade receivables
$
Other current assets
Property, plant and equipment
Intangible assets
Total assets acquired
Other current liabilities
Total liabilities assumed
Total net identifiable assets acquired
$
Total consideration transferred
$
Less: total net identifiable assets acquired
Goodwill
$
The total consideration of $17.8 million is comprised of $11.8 million in cash, and a $6.0 million payable to the seller . The payable is scheduled to be 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
Trade name
$
15 years
Franchise agreement
18 years
Total
$
17 years
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the im materiality of these amounts for the periods the acquired entity was not owned by Monro.
Fiscal 2015
During fiscal 2015, we acquired the following businesses for an aggregate purchase price of $18.4 million. The acquisitions were financed through our existing credit facility. The results of operations for these acquisitions are included in Monro’s financial results for the period from acquisition date through June 28, 2014 and were immaterial.
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 were 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 r ecorded finite-lived intangible assets at their estimated fair value related to customer relationships and favorable leases.
We expensed all costs related to the acquisitions during fiscal 2015. The total costs related to these acquisitions for the first quarter of fiscal 2015 were not material to the Consolidated Statements of Comprehensive Income. 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 impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
We have recorded the identifiable assets acquired and liabilities assumed at their estimated fair values as of their respective acquisition dates, with the remainder recorded as goodwill as follows:
As of Acquisition Date
(Dollars in thousands)
Inventories
$
Other current assets
Property, plant and equipment
Intangible assets
Long-term deferred income tax assets
Total assets acquired
Warranty reserves
Other current liabilities
Long-term capital leases and financing obligations
Other long-term liabilities
Total liabilities assumed
Total net identifiable assets acquired
$
Total consideration transferred
$
Less: total net identifiable assets acquired
Goodwill
$
The following are the intangible assets acquired and their respective estimated fair values and weighted average useful lives:
Dollars in thousands
As of Acquisition Date Weighted Average Useful Life
Customer relationships
7 years
Favorable leases
14 years
Total
$
9 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 $1.0 million; a decrease in intangible assets of $1.8 million; an in crease in current liabilities of $.3 million; an in crease in long-term capital leases and financing obligations of $1.3 million ; and an immaterial change in various assets and liabilities netting to $.3 million . The measurement period adjustments resulted in an increase to goodwill of $2.1 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 all other fiscal 2015 acquisitions and the fiscal 2016 acquisition, 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. |
