NOTE 5—BUSINESS COMBINATIONS

Beck Alloys

On November 1, 2016, Real Alloy acquired certain assets of Beck Alloys and 49% of the voting interests of Beck Trading from Beck Alloys, Beck Aluminum Corporation and GSB Beck Holdings, Inc. (collectively, the “Beck Sellers”), under an asset and securities purchase agreement (the “Beck Purchase Agreement”). Upon closing, we paid $23.6 million in cash to the Beck Sellers and accounted for the transaction as a business combination (the “Beck Acquisition”), with the purchase price allocated based on the estimated fair values of the assets acquired and liabilities assumed. We incurred acquisition costs and expenses associated with the Beck Acquisition totaling approximately $1.0 million during the year ended December 31, 2016, which are classified as nonoperating expenses in the consolidated statements of operations.

The following table provides summary information about the purchase consideration and identifiable assets acquired:


(In millions)
Consideration paid at closing	$	23.6
Purchase price allocation:
Inventories	$	10.6
Property, plant and equipment		6.8
Equity method investment		6.1
Prepaid expenses, supplies and other current assets		0.1
Estimated fair value of assets acquired	$	23.6

Inventories include the estimated fair value of finished goods, work in process and raw materials. The estimated fair value of finished goods was based on analyses of future selling prices and the profit associated with the manufacturing effort. The estimated fair value of work in process considered costs to complete to finished goods and was based on analyses of future selling prices and the profit associated with the manufacturing effort. The estimated fair value of raw materials was based on replacement cost. The $10.6 million of estimated fair value of inventories includes $0.3 million in fair value adjustments, all of which was amortized as noncash charges in cost of sales during the year ended December 31, 2016.

Property, plant and equipment includes land, site improvements, buildings and building improvements, and machinery, equipment, furniture and fixtures. The estimated fair value of property, plant and equipment was based on appraisals and replacement cost analyses. The fair value of property, plant and equipment acquired was estimated as follows:


	Estimated Fair
(In millions)	Value
Land and improvements	$	0.7
Buildings and improvements		2.6
Machinery, equipment, furniture and fixtures		3.5
Property, plant and equipment acquired	$	6.8

The fair value of prepaid expenses, supplies and other current assets includes inventory supplies and is based on replacement cost.

The fair value of the equity method investment is based on a discounted cash flow model with various assumptions about growth rates and margins, as well as the cash distribution waterfall, under which Real Alloy receives the first $6.0 million of distributions; thereafter, distributions will be based on equity ownership percentages.

The operating results related to the assets acquired from Beck Alloys are included in the Company’s consolidated financial statements from the acquisition date. For the period from the acquisition date to December 31, 2016, the Beck Alloy assets provided revenues of $10.5 million and loss from continuing operations before income taxes of $1.1 million. Additionally, we recognized $1.1 million of loss from equity method investment for the period from November 1, 2016, the closing date, to December 31, 2016.

The following selected unaudited pro forma results of operations of the Company for the years ended December 31, 2017 and 2016 give effect to this business combination as though the transaction occurred on January 1, 2016:


	Year Ended December 31,
(In millions)	2017		2016
Total revenues:
As reported	$	1,346.4	$	1,249.7
Pro forma		1,346.4		1,326.7
Loss from continuing operations:
As reported	$	(120.8)	$	(103.2)
Pro forma		(120.8)		(112.6)

As of December 31, 2017 and 2016, Real Alloy had trade accounts receivable due from and to Beck Trading of $3.1 million and $6.8 million, respectively, and trade payables due from Beck Trading of $0.8 million and $0.5 million, respectively. Additionally, as part of the Beck Acquisition, Real Alloy and Beck Trading entered into a Sales Representative and Tolling Agreement whereby, for a defined group of customers, Real Alloy serves as a sales representative for Beck Trading and is paid a commission for sales generated. Beck Trading also serves as a sales representative for Real Alloy, for a defined group of customers, and is paid a commission for sales generated.