CROWN

Strengths  Management (most important)  Captive sources of aluminum ingots (Intalco), 81% of total needs.  More backward integration with Eastalco. Close to become a fully integrated producer.  Marketing  High level of confidence among customers - high quality  Selected to participate in the majority of US jet engine programs.  Competition  Higher P/E ratio than competition  Financial  Strong internal growth  Sales expected to increase 6-8% annually. 15-20% on aluminum.   Assets/primary assets  Two lines of products.  Stable aluminum prices on ingots. Weaknesses  Management (most important)  Now growth in the precision casting business.  Marketing  Competition  Price erosion  Financial  Erratic earnings for instability in the aluminum business  Assets/primary assets  Heavy capital expenditures.  Success on casting based on low rejects, which means technological advance. Opportunities  Be careful with the business cycle. The previous one was in 1960.  The industry is creating new uses for the metal, but could stagnate. Threats  Management (most important)  We are up in the business cycle. The 70’s could hide problems.  Marketing  Competition  Kenner competition with substitutes (steel, copper, plastic)  Prices of fabricated products eroding. Keener competition.  Financial  Assets/primary assets  Overcapacity domestically and internationally in fabricated and aluminum products.  International capacity increase. Could be larger than demand increase. Financing  $30M on equity-> dilution  $30M on 7 ¼ % $5M from 1970 to 1975 WC > $55M Dividends restricted to earnings after the loan. Additional debt limited to $20M.

 $30M subordinated convertible debentures on 6%. Payments of $2M from year 6 to 20. Not callable for 10 years, except at par per mandatory debt requirement Convertible into common stock at $31.5. 1. Recommend and defend financing decision that the management of Crown should make in 1969. Criteria Debt Convertible Debt Common Cost Low – best EPS growth Medium - Med EPS growth High - low EPS growth Risk High Medium Low Flexibility Low – limited in new debt issues, restrictive covenants Medium – moderate High – can issue debt later Timing N/A N/A Medium – stock P/E is in the middle of industry avg. Control High – no dilution High - will probably be converted (dilution) High - dilution Common stock is the best alternative for 1969 in terms of EPS growth: 1969 Subordinate d Convertible Convertible Debt Orignal Debt Debt Diluted Basis Common EBI T (ex clu 28.50 0 30.495 30.49 5 30.49 5 30.495 Interest 3.360 5.535 5.160 3.360 3.360 Ea rni ng s 25.14 0 24.960 25.33 5 27.13 5 31.504 Tax estimated 45% 11.31 3 11.232 11.40 1 12.21 1 14.177 Ea rni ng s 13.82 7 13.728 13.93 4 14.92 4 17.327 Preferred dividends - - - - - Ea rni ng s 13.82 7 13.728 13.93 4 14.92 4 17.327 Co m 7.273 7.273 7.273 8.225 8.673 EP S 1.901 1.888 1.916 1.814 1.998 Common dividends per share 0.700 0.700 0.700 0.700 0.700 Ret ain 1.201 1.188 1.216 1.114 1.298 Ret ain 8.736 8.637 8.843 9.167 11.256 Ch an -0.7% 0.8% -4.6% 5.1% P/E 20 $ 38.32