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Business Combinations, Goodwill and Intangible Assets | 9 Months Ended
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Sep. 30, 2021
Business Combinations Goodwill And Intangible Assets [Abstract] |
Business Combinations, Goodwill and Intangible Assets | 4. Business Combinations, Goodwill and Intangible Assets Warrick Rolling Mill Acquisition. On March 31, 2021, we acquired Alcoa Warrick LLC and certain assets comprising the aluminum casting and rolling mill facility located in Warrick County, Indiana (collectively, “Warrick”) for a purchase price of $670.0 million. Warrick is a leading producer of bare and coated aluminum coil used for can stock applications in the beverage and food packaging industry in North America. The transaction provides us with non-cyclical end market diversification and re-entry into the packaging end market. Acquisition-related costs incurred and expensed during the quarter and nine months ended September 30, 2021 were $1.0 million and $15.0 million, respectively, primarily related to legal and consulting fees and included within Selling, general, administrative, research and development (“SG&A and R&D”). The preliminary purchase consideration to allocate was determined as follows (in millions of dollars):
Contract purchase price |  | $ | 670.0 |
Preliminary working capital adjustment |  |  | 31.0 |
Initial outstanding indebtedness – Other postretirement benefits liabilities |  |  | (83.5 | )
Cash paid at acquisition close on March 31, 2021 |  |  | 617.5 |
Cash received for post-close adjustments |  |  | (8.3 | )
Total purchase consideration to allocate |  | $ | 609.2 |
We prepared an initial allocation of the purchase consideration as of the acquisition date based on our understanding of the fair value of the acquired assets and assumed liabilities. As we continue to obtain additional information supporting the final valuation of inventories, property, plant and equipment, intangible assets, other assets and long-term liabilities, we will refine the estimates of fair value and may revise our allocation of the purchase consideration. We expect to finalize the valuation of the assets and liabilities as soon as practicable, but in any event no later than one year from the acquisition date. The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the acquisition date as well as adjustments made up to September 30, 2021 (in millions of dollars):
|  | Initial Allocation |  |  | Adjustments |  |  | Updated Allocation |
Trade receivables |  | $ | 162.4 |  |  | $ | (2.4 | ) |  | $ | 160.0 |
Other receivables |  |  | 6.2 |  |  |  | 4.8 |  |  |  | 11.0 |
Inventories, including step up |  |  | 209.0 |  |  |  | 0.1 |  |  |  | 209.1 |
Prepaid expenses and other current assets |  |  | — |  |  |  | 0.3 |  |  |  | 0.3 |
Property, plant and equipment |  |  | 385.4 |  |  |  | (41.7 | ) |  |  | 343.7 |
Operating lease assets |  |  | 12.3 |  |  |  | — |  |  |  | 12.3 |
Intangible assets |  |  | 56.5 |  |  |  | (6.5 | ) |  |  | 50.0 |
Goodwill |  |  | 27.4 |  |  |  | (6.9 | ) |  |  | 20.5 |
Other Assets |  |  | — |  |  |  | 56.8 |  |  |  | 56.8 |
Accounts payable |  |  | (143.0 | ) |  |  | (0.2 | ) |  |  | (143.2 | )
Accrued salaries, wages and related expenses |  |  | (5.9 | ) |  |  | (1.0 | ) |  |  | (6.9 | )
Other accrued liabilities |  |  | (11.5 | ) |  |  | 0.9 |  |  |  | (10.6 | )
Long-term portion of operating lease liabilities |  |  | (8.7 | ) |  |  | — |  |  |  | (8.7 | )
Pension and other postretirement benefits |  |  | (83.7 | ) |  |  | 0.2 |  |  |  | (83.5 | )
Long-term liabilities |  |  | (1.6 | ) |  |  | — |  |  |  | (1.6 | )
Preliminary allocated purchase consideration |  | $ | 604.8 |  |  | $ | 4.4 |  |  | $ | 609.2 |
Intangible Assets. The following table presents the components of acquired intangible assets and their estimated useful lives (in millions of dollars):
|  | Useful Life (in years) |  |  | Fair Value |
Favorable lease contract |  |  | 120 |  |  | $ | 7.0 |
Favorable commodity contracts |  |  | 2 |  |  |  | 11.0 |
Customer relationships |  |  | 12 |  |  |  | 32.0 |
Total |  |  |  |  |  | $ | 50.0 |
Goodwill. Goodwill related to the Warrick acquisition is primarily attributable to the assembled workforce and is expected to be deductible for income tax purposes. The following table presents the changes to goodwill during the nine months ended September 30, 2021 (in millions of dollars):
|  | Gross Carrying Value |  |  | Accumulated Impairment Loss |  |  | Net Carrying Value |
Balance as of December 31, 2020 |  | $ | 37.2 |  |  | $ | (18.4 | ) |  | $ | 18.8 |
Warrick acquisition |  |  | 20.5 |  |  |  | — |  |  |  | 20.5 |
Balance as of September 30, 2021 |  | $ | 57.7 |  |  | $ | (18.4 | ) |  | $ | 39.3 |
Other Assets. Represents assets to be purchased or constructed by Alcoa Corporation (“Alcoa”) following the close of the acquisition and subsequently conveyed to us in connection with separating the rolling mill from the other businesses retained by Alcoa. Results of Warrick. See Note 15 for the quarter and six months net sales from the continuing operations of Warrick included in our Statements of Consolidated (Loss) Income for the quarter and nine months ended September 30, 2021, respectively. Net (loss) income for the quarter and nine months ended September 30, 2021 are not provided as the Warrick results have been fully integrated and discrete financial information cannot be obtained without unreasonable effort. Certain Unaudited Pro Forma Information. The following unaudited pro forma financial information presents what our results would have been had Warrick been acquired on January 1, 2020. The unaudited pro forma information include s adjustments and consequential tax effects related to: (i) amortization and depreciation for intangible assets and property, plant and equipment acquired; (ii) the effects of certain reclassifications and conforming accounting policies; and (iii) acquisition-related transaction costs. The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the consolidated business had the acquisition occurred at the beginning of fiscal year 2020 or of the results of our future operations of the consolidated business.
|  | Quarter Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Net sales |  | $ | 750.6 |  |  | $ | 534.3 |  |  | $ | 2,130.4 |  |  | $ | 1,703.7 |
Net (loss) income |  | $ | (2.8 | ) |  | $ | 1.9 |  |  | $ | (1.2 | ) |  | $ | (44.2 | )
The Warrick rolling mill has historically purchased aluminum and electrical power from Alcoa’s smelter and power plant in Warrick County, Indiana. Alcoa’s Warrick smelter historically sold the aluminum to the Warrick rolling mill at smelter cost and electrical power from Alcoa’s power plant at negotiated prices between the parties. As part of the acquisition of Warrick, we negotiated pricing for aluminum and electrical power with Alcoa at alternative rates which more closely align with market pricing. The table above does not reflect the cost of aluminum and electrical power under these negotiated rates.

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