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Contingencies and Commitments
12 Months Ended
Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Contingencies and Commitments

L. Contingencies and Commitments

Contingencies

Environmental Matters. Arconic participates in environmental assessments and cleanups at more than 100 locations. These include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) sites.

A liability is recorded for environmental remediation when a cleanup program becomes probable and the costs can be reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of remedial actions and related costs. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, and technological changes, among others.

Arconic’s remediation reserve balance was $308 and $306 at December 31, 2016 and December 31, 2015 (of which $48 and $18 was classified as a current liability), respectively, and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. In 2016, the remediation reserve was increased by $14 due to a net charge associated with a number of sites and was recorded in Cost of goods sold on the accompanying Statement of Consolidated Operations. The change in the reserve also reflects a decrease of $2 due to the effects of foreign currency translation and an increase of $3 related to the acquisition of RTI (see Note F). Payments related to remediation expenses applied against the reserve were $13 in 2016 and include expenditures currently mandated, as well as those not required by any regulatory authority or third party.

Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be approximately 1% or less of cost of goods sold.

The Separation and Distribution Agreement includes provisions for the assignment or allocation of environmental liabilities between Arconic and Alcoa Corporation including certain remediation obligations associated with environmental matters. In general, the respective parties will be responsible for the environmental matters associated with their operations, and with the properties and other assets assigned to each. The only material and reportable matter assigned to Arconic concerns the Grasse River at Arconic’s Massena West location, the status of which is as follows:

Massena West, NY—Arconic has an ongoing remediation project related to Grasse River, which is adjacent to Arconic’s Massena plant site. Many years ago, it was determined that sediments and fish in the river contain varying levels of polychlorinated biphenyls (PCBs). The project, which was selected by the U.S. Environmental Protection Agency (EPA) in a Record of Decision (ROD) issued in April 2013, is aimed at capping PCB contaminated sediments with concentration in excess of one part per million in the main channel of the river and dredging PCB contaminated sediments in the near-shore areas where total PCBs exceed one part per million. At December 31, 2016 and December 31, 2015, the reserve balance associated with this matter was $228 and $234, respectively. Arconic is in the planning and design phase, which is expected to be completed in 2017. Following that, the actual remediation fieldwork is expected to commence and take approximately four years. The majority of the project funding is expected to be spent between 2017 and 2021.

Additionally, the Separation and Distribution Agreement lists environmental matters and sites where both parties, Arconic and Alcoa Corporation, share the liability. The Separation and Distribution Agreement provides for the allocation of responsibility between the two companies as well as identifies the lead party responsible for overall management of the matter. One such site previously reported on was Fusina, Italy. The share for this site allocated to Arconic is not material, and therefore, Arconic will no longer report on this matter unless and until some event in the future causes this to become material and reportable.

Lastly, Arconic previously reported on other environmental matters associated with East St. Louis, IL, Sherwin, TX, Baie Comeau, Quebec, Canada and Mosjoen, Norway. Under the Separation and Distribution Agreement, the legal entities named as parties to these matters are now affiliated with Alcoa Corporation and/or Alcoa Corporation has agreed to take full responsibility for these locations and has agreed to indemnify Arconic for any future liability associated with these locations, including the need for any future environmental remediation. Therefore, Arconic will also no longer report on these matters unless and until some event in the future causes any of them to become material and reportable.

Tax. Pursuant to the Tax Matters Agreement (see Note C) entered into between Arconic and Alcoa Corporation in connection with the Separation Transaction, Arconic shares responsibility with Alcoa Corporation, and Alcoa Corporation has agreed to partially indemnify Arconic with respect to the following matter.

As previously reported, in September 2010, following a corporate income tax audit covering the 2003 through 2005 tax years, an assessment was received as a result of Spain’s tax authorities disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by the Company. An appeal of this assessment in Spain’s Central Tax Administrative Court by the Company was denied in October 2013. In December 2013, the Company filed an appeal of the assessment in Spain’s National Court.

Additionally, following a corporate income tax audit of the same Spanish tax group for the 2006 through 2009 tax years, Spain’s tax authorities issued an assessment in July 2013 similarly disallowing certain interest deductions. In August 2013, Arconic filed an appeal of this second assessment in Spain’s Central Tax Administrative Court, which was denied in January 2015. Arconic filed another appeal of this second assessment in Spain’s National Court in March 2015.

The combined assessments (remeasured for a tax rate change enacted in November 2014) total $258 (€246). On January 16, 2017, Spain’s National Court issued a decision in favor of the Company related to the assessment received in September 2010. It is not yet known if Spain’s tax authorities will appeal this decision. Spain’s National Court has not yet rendered a decision related to the assessment received in July 2013.

The Company believes it has meritorious arguments to support its tax position and intends to vigorously litigate the assessments through Spain’s court system. However, in the event the Company is unsuccessful, a portion of the assessments may be offset with existing net operating losses available to the Spanish consolidated tax group, which would be shared between Arconic and Alcoa Corporation as provided for in the Tax Matters Agreement related to the Separation Transaction. Additionally, it is possible that the Company may receive similar assessments for tax years subsequent to 2009. At this time, the Company is unable to reasonably predict an ultimate outcome for this matter.

Other. In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against Arconic, including those pertaining to environmental, product liability, safety and health, and tax matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that the Company’s liquidity or results of operations in a particular period could be materially affected by one or more of these other matters. However, based on facts currently available, management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of the Company.

Commitments

Purchase Obligations. Arconic has entered into purchase commitments for raw materials, energy and other goods and services, which total $490 in 2017, $90 in 2018, $73 in 2019, $64 in 2020, $2 in 2021, and $5 thereafter.

Operating Leases. Certain land and buildings, plant equipment, vehicles, and computer equipment are under operating lease agreements. Total expense for all leases was $110 in 2016, $112 in 2015, and $112 in 2014. Under long-term operating leases, minimum annual rentals are $115 in 2017, $96 in 2018, $75 in 2019, $54 in 2020, $38 in 2021, and $116 thereafter.

Guarantees. At December 31, 2016, Arconic has outstanding bank guarantees related to tax matters, outstanding debt, workers’ compensation, environmental obligations, energy contracts, and customs duties, among others. The total amount committed under these guarantees, which expire at various dates between 2017 and 2026 was $51 at December 31, 2016.

Pursuant to the Separation and Distribution Agreement, Arconic was required to provide maximum potential future payment guarantees for Alcoa Corporation issued on behalf of a third party of $354. These guarantees expire at various times between 2017 and 2024 and relate to project financing for Alcoa Corporation’s aluminum complex in Saudi Arabia. Additionally, Arconic was required to provide guarantees up to an estimated present value amount of $1,600 related to two long-term supply agreements for energy for Alcoa Corporation facilities. Per the Separation and Distribution Agreement, Arconic is only liable for these guaranteed amounts in the event of an Alcoa Corporation payment default. In December 2016, Arconic entered into a one year claims purchase agreement with a bank covering claims up to $245 related to the Saudi Arabian joint venture and two long-term energy supply agreements. The majority of the premium related to this claims purchase agreement is being paid by Alcoa Corporation. At December 31, 2016, the combined fair value of the three required guarantees was $35 which was included in Other Noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet.

Arconic was also required to provide guarantees of $50 related to two Alcoa Corporation energy supply contracts. These guarantees expire in March 2017. Additionally, Arconic was required to provide guarantees of $53 related to certain Alcoa Corporation environmental liabilities. Notification of a change in guarantor has been made to the appropriate environmental agencies and Alcoa Corporation is required by the end of March 2017 to self-bond or provide collateral.

Letters of Credit. Arconic has outstanding letters of credit primarily related to workers’ compensation, energy contracts and leasing obligations. The total amount committed under these letters of credit, which automatically renew or expire at various dates, mostly in 2017 was $212 at December 31, 2016.

Pursuant to the Separation and Distribution Agreement, Arconic was required to retain letters of credit of $62 that had previously been provided related to both Arconic and Alcoa Corporation workers’ compensation claims which occurred prior to November 1, 2016. Alcoa Corporation workers’ compensation claims and letter of credit fees paid by Arconic are being billed to and are being fully reimbursed by Alcoa Corporation. Additionally, Arconic was required to provide letters of credit for certain Alcoa Corporation equipment leases and energy contracts and, as a result, Arconic has $103 of outstanding letters of credit relating to these liabilities. The entire $103 of outstanding letters of credit were canceled in 2017 when Alcoa Corporation issued its own letters of credit to cover these obligations.

Surety Bonds. Arconic has outstanding surety bonds primarily related to tax matters, contract performance, workers’ compensation, environmental-related matters, and customs duties. The total amount committed under these bonds, which automatically renew or expire at various dates, mostly in 2017, was $120 at December 31, 2016.

Pursuant to the Separation and Distribution Agreement, Arconic was required to provide surety bonds related to Alcoa Corporation workers’ compensation claims which occurred prior to November 1, 2016 and, as a result, Arconic has $22 in outstanding surety bonds relating to these liabilities. Alcoa Corporation workers’ compensation claims and surety bond fees paid by Arconic are being billed to and are being fully reimbursed by Alcoa Corporation.