Acquisition

6 Months Ended

Jun. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Acquisition

Note 2: Acquisition

Acquisition of HiRail

On January 14, 2022, a subsidiary of the Company, CTOS Canada, Ltd., closed a Share Purchase Agreement with certain affiliates of Ontario Limited (d/b/a HiRail Leasing), Ontario Inc. (d/b/a Heavy Equipment Repairs), and Ontario Limited (d/b/a Northshore Rail Contracting) (collectively “HiRail”) to acquire 100% of the equity interests of HiRail. The acquisition of HiRail expands our presence in our strategic markets and deepens our relationships with key customers. HiRail, including the assignment of purchase accounting goodwill (see below), is included in the Company’s ERS segment.

Purchase Price

The Company paid $51.0 million, net of working capital adjustments, to HiRail equity interest holders and to repay debt obligations as consideration for the HiRail acquisition.

Opening Balance Sheet

The acquisition of HiRail has been accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the Company was required to assign the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of January 14, 2022. The excess of the purchase price over those fair values was recorded as goodwill and was attributable to expanded access to markets for the Company’s product and service offering, synergies, and broader product offerings to existing customers of HiRail. The total purchase price has been assigned to the underlying assets acquired and liabilities assumed based upon their fair values as of January 14, 2022, and the estimated fair values have been recorded based on independent valuations, discounted cash flow analysis, quoted market prices, contributory asset charges, and estimates made by management, which estimates fall under “Level 3” of the fair value hierarchy.

The following table summarizes the January 14, 2022 fair values of the assets acquired and liabilities assumed. The final assessment of the fair value of the HiRail assets acquired and liabilities assumed was complete as of December 31, 2022.

(in $000s)	January 14, 2022		Changes		December 31, 2022
Current assets	$	2,891	$	956	$	3,847
Property, equipment and other assets	819		—		819
Rental equipment	34,224		—		34,224
Total identifiable assets acquired	37,934		956		38,890
Total identifiable liabilities assumed	(6,011)		(1,596)		(7,607)
Total net assets	31,923		(640)		31,283
Goodwill	8,685		(41)		8,644
Intangible assets	11,027		—		11,027
Net assets acquired (purchase price)	51,635		(681)		50,954
Less: cash acquired	(1,122)		—		(1,122)
Net cash paid	$	50,513	$	(681)	$	49,832

HiRail generated $4.1 million and $7.9 million, respectively, of revenue for the three and six months ended June 30, 2022, and $0.1 million and $0.7 million, respectively, of pre-tax income from January 14, 2022 through June 30, 2022, for the three and six months ended June 30, 2022, which were included in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Costs and expenses related to the acquisition were expensed as incurred and were not material. Additionally, pro forma information as if the acquisition of HiRail had occurred on January 1, 2021 is not being presented as the information is not considered material to the Company’s financial statements.