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ACG6175 ? Final Examination

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Question;NEW YORK--(BUSINESS WIRE)?01/09/2008;Alcoa and subsidiaries;Statement of Consolidated Income;(unaudited), continued;(in millions, except per-share, share;and metric ton amounts);Year ended;December 31;2006;2007;Sales;$;30,379;$;30,748;Cost of goods sold (exclusive of expenses;below);23,318;24,248;Selling, general administrative, and;other expenses;1,402;1,472;Research and development expenses;213;249;Provision for depreciation, depletion;and amortization;1,280;1,268;Goodwill impairment charge;?;133;Restructuring and other charges;543;399;Interest expense;384;401;Other income, net;(193);(1,913);Total;costs and expenses;26,947;26,257;Income;from continuing operations before taxes on income;3,432;4,491;Provision for taxes on income;835;1,555;Income from continuing operations before;minority interests? share;2,597;2,936;Less: Minority interests? share;436;365;Income;from continuing operations;2,161;2,571;Income (loss) from discontinued;operations;87;(7);NET;INCOME;$;2,248;$;2,564;Earnings (loss) per common share;Basic;Income from continuing operations;$;2.49;$;2.98;Income (loss) from discontinued;operations;.10;?;Net income;$;2.59;$;2.98;2006;2007;Average number of shares used to compute;Basic earnings per common share;868,819,955;860,771,021;Common stock outstanding at the end of;the period;867,739,544;827,401,800;Shipments of aluminum products (metric;tons);5,545,000;5,393,000;Alcoa and subsidiaries Consolidated;Balance Sheet (a = unaudited) - in millions;December 31, 2006 (a);December 31, 2007;ASSETS;Current assets;Cash and cash equivalents;$;506;$;483;Receivables from customers;less allowances of $68 in 2006 and $72 in 2007;2,788;2,602;Other receivables;301;451;Inventories;3,380;3,326;Prepaid expenses and other current assets;1,378;1,224;Total;current assets;8,353;8,086;Properties, plants, and equipment;27,689;31,601;Less: accumulated depreciation;depletion, and amortization;13,682;14,722;Properties, plants, and equipment, net;14,007;16,879;Goodwill;4,885;4,806;Investments;1,718;2,038;Other assets;3,939;4,046;Assets held for sale;4,281;2,948;Total;assets;$;37,183;$;38,803;LIABILITIES;Current liabilities;Short-term borrowings;$;462;$;569;Commercial paper;340;856;Accounts payable, trade;2,407;2,787;Accrued compensation and retirement costs;949;943;Taxes, including taxes on income;851;644;Other current liabilities;1,360;1,165;Long-term debt due within one year;510;202;Total;current liabilities;6,879;7,166;Commercial paper;1,132;?;Long-term debt, less amount due within;one year;4,777;6,371;Accrued pension benefits;1,540;1,098;Accrued postretirement benefits;2,956;2,753;Other noncurrent liabilities and deferred;credits;2,002;1,943;Deferred income taxes;762;545;Liabilities of operations held for sale;704;451;Total;liabilities;20,752;20,327;MINORITY INTERESTS;1,800;2,460;SHAREHOLDERS;EQUITY;Preferred stock;55;55;Common stock;925;925;Additional capital;5,817;5,774;Retained earnings;11,066;13,039;Treasury stock, at cost;(1,999);(3,440);Accumulated other comprehensive loss;(1,233);(337);Total shareholders' equity;14,631;16,016;Total liabilities and equity;$;37,183;$;38,803;(a) The Consolidated Balance;Sheet as of December 31, 2006 has been reclassified to reflect the movement;of the automotive castings and packaging and consumer businesses to held for;sale in the third quarter of 2007.;Alcoa and subsidiaries - Segment;Information (unaudited) - dollars in millions, except realized prices;production and shipments in thousands of metric tons [kmt]);4Q06;2006;1Q07;2Q07;3Q07;4Q07;2007;Alumina;Production (kmt);3,790;15,128;3,655;3,799;3,775;3,855;15,084;Third-party alumina shipments (kmt);2,084;8,420;1,877;1,990;1,937;2,030;7,834;Third-party sales;$;711;$;2,785;$;645;$;712;$;664;$;688;$;2,709;Intersegment sales;$;550;$;2,144;$;579;$;587;$;631;$;651;$;2,448;Equity income (loss);$;1;$;(2);$;1;$;?;$;(1);$;1;$;1;Depreciation, depletion, and amortization;$;56;$;192;$;56;$;62;$;76;$;73;$;267;Income taxes;$;115;$;428;$;100;$;102;$;89;$;49;$;340;After-tax;operating income (ATOI);$;259;$;1,050;$;260;$;276;$;215;$;205;$;956;Primary Metals;Aluminum (kmt);908;3,552;899;901;934;959;3,693;Third-party aluminum shipments (kmt);556;2,087;518;565;584;624;2,291;Average realized price per kmt of;aluminum;$;2,766;$;2,665;$;2,902;$;2,879;$;2,734;$;2,646;$;2,784;4Q06;2006;1Q07;2Q07;3Q07;4Q07;2007;Third-party sales;$;1,698;$;6,171;$;1,633;$;1,746;$;1,600;$;1,597;$;6,576;Intersegment sales;$;1,524;$;6,208;$;1,477;$;1,283;$;1,171;$;1,063;$;4,994;Equity income;$;18;$;82;$;22;$;18;$;11;$;6;$;57;Depreciation, depletion, and amortization;$;97;$;395;$;95;$;102;$;102;$;111;$;410;Income taxes;$;180;$;726;$;214;$;196;$;80;$;52;$;542;ATOI;$;480;$;1,760;$;504;$;462;$;283;$;196;$;1,445;Flat-Rolled Products;Third-party aluminum shipments (kmt);564;2,273;568;583;602;574;2,327;Third-party sales;$;2,127;$;8,297;$;2,275;$;2,344;$;2,309;$;2,243;$;9,171;Intersegment sales;$;66;$;246;$;60;$;63;$;59;$;59;$;241;Equity loss;$;(1);$;(2);$;?;$;?;$;?;$;?;$;?;Depreciation, depletion, and amortization;$;55;$;219;$;55;$;55;$;58;$;55;$;223;Income taxes;$;(2);$;68;$;26;$;33;$;31;$;5;$;95;ATOI;$;62;$;255;$;62;$;93;$;61;$;(16);$;200;Extruded and End Products;Third-party aluminum shipments (kmt);203;877;213;146;78;69;506;Third-party sales;$;1,070;$;4,419;$;1,175;$;965;$;563;$;543;$;3,246;Intersegment sales;$;25;$;99;$;42;$;26;$;13;$;7;$;88;Equity income (loss);$;?;$;?;$;?;$;9;$;(2;);$;7;$;14;Depreciation, depletion, and amortization;$;31;$;118;$;9;$;10;$;11;$;9;$;39;Income taxes;$;2;$;18;$;11;$;29;$;5;$;9;$;54;ATOI;$;27;$;60;$;34;$;46;$;13;$;16;$;109;4Q06;2006;1Q07;2Q07;3Q07;4Q07;2007;Engineered Solutions;Third-party aluminum shipments (kmt);30;139;31;30;27;24;112;Third-party sales;$;1,346;$;5,456;$;1,449;$;1,478;$;1,407;$;1,391;$;5,725;Equity loss;$;(5);$;(4);$;?;$;?;$;?;$;?;$;?;Dep, depl, & amort;$;44;$;169;$;41;$;42;$;46;$;43;$;172;Income taxes;$;(15);$;101;$;44;$;47;$;38;$;11;$;140;ATOI;$;73;$;331;$;93;$;105;$;60;$;58;$;316;Packaging and Consumer;Third-party aluminum shipments (kmt);46;169;35;40;37;45;157;Third-party sales;$;837;$;3,235;$;736;$;837;$;828;$;887;$;3,288;Equity income;$;1;$;1;$;?;$;?;$;?;$;?;$;?;Dep, depl, & amort;$;32;$;124;$;30;$;30;$;29;$;?;$;89;Income taxes;$;11;$;33;$;7;$;17;$;17;$;27;$;68;ATOI;$;26;$;95;$;19;$;37;$;36;$;56;$;148;Reconciliation of ATOI to consolidated;net income;4Q06;2006;1Q07;2Q07;3Q07;4Q07;2007;Total segment ATOI;$;927;$;3,551;$;972;$;1,019;$;668;$;515;$;3,174;Unallocated amounts (net of tax);Impact of LIFO;(66);(170;);(27);(16);10;9;(24);Interest income;14;58;11;9;10;10;40;Interest expense;(61);(250;);(54);(56);(98);(53);(261);Minority interests;(98);(436;);(115;);(110);(76);(64);(365);Corporate expense;(82);(317;);(86);(101);(101;);(100;);(388);Restructuring and other charges;(386;);(379;);(18);21;(311;);1;(307);Discontinued operations;101;87;(11);(1);(3);8;(7);Other;10;104;(10);(50);456;306;702;Consolidated net income;$;359;$;2,248;$;662;$;715;$;555;$;632;$;2,564;The difference between certain segment financial information;totals and consolidated financial information is in Corporate.;QUESTIONS:1.) Decompose Alcoa?s ROE for 2006 and 2007. In what direction do you see the company?s performance moving? What other information would you like to see (be specific)?2.) Alcoa's net income for the 3rd quarter of 2007 increased 86% over 3rd quarter results from 2006. Why then did the stock price drop 6% after the company announced those earnings? 3.) Based on the data presented, what operating segments compriseAlcoa's business? Based on the reconciliation of ATOI to Net Income, what can you say about the quality of Alcoa?s income? Be specific in your answer.4.) How would you classify (from an economic perspective) the products sold by Alcoa? What external factors limit Alcoa?s flexibility in pricing those products? Which segments of Alcoa's operations do you think are most directly impacted by this pricing limitation?5.) Given the pricing limitations on their products, on what basis does Alcoacompete? Why might that make it difficult to compete with rising entities indiverse global locations, such as United Company Rusal, that that has access to low-cost hydropower in Russia?REQUIRED;Compose your;answers in Standard English.;Answer all parts;of each question separately.;Label each of;your responses accordingly.;Provide and;label the elements of any supporting calculations.;BE SPECIFIC!

 

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