marriot "the cost of capital"

8/13/2019 Marriot "the cost of capital"

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190509318.xls.ms_office

Exhibit 1 Financial History of Marriott Corporation

(dollars in millions, except per share amounts)

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1978 1979 1980 1981 1982

Summary of Operations

Sales 1,174.1 1,426.0 1,633.9 1,905.7 2,458.9Earnings before interest expense and income taxes 107.1 133.5 150.3 173.3 205.5Interest Expense 23.7 27.8 46.8 52.0 71.8

Income before income taxes 83.5 105.6 103.5 121.3 133.7Income taxes 35.4 43.8 40.6 45.2 50.2Income from continuing operations 48.1 61.8 92.9 76.1 83.5Net Income 54.3 71.0 72.0 86.1 94.3Funds provided from cont. operation 101.2 117.5 125.8 160.8 203.6

Capitalization and Returns

Total Assets 1,000.3 1,080.4 1,214.3 1,454.9 2,062.6Total capital(c) 826.9 891.9 977.7 1,167.5 1,634.5Long-term debt 309.9 365.3 536.6 607.7 889.3 Percent to total capital 37.5% 41.0% 54.9% 52.1% 54.4%Sharholders' equity 418.7 413.5 311.5 421.7 516.0

Per Share and Other Data

Earnings per share:Continuing operations (a) 0.25 0.34 0.45 0.57 0.61

Net income 0.29 0.39 0.52 0.64 0.69Cash Dividends 0.026 0.034 0.042 0.051 0.063Shareholders' equity 2.28 2.58 2.49 3.22 3.89Market price at year end 2.43 3.48 6.35 7.18 11.70Shares outstanding (in millions) 183.6 160.5 125.3 130.8 132.8Return on avg. shareholders' equity 13.9% 17.0% 23.8% 23.4% 20.0%

Source: Company Reports(a) The Company's theme park operations were discontinued in 1984(b) Funds provided from continuing operations consist of income from continuing operations plus depreciatio deferred income taxes, and other items not currently affecting workign capital.(c) Total capital represents total assets less current liabilities

Exhibit 2 Financial Summary of Marriott by Business Segment, 1982-1987

(dollars in millions)

1982 1983 1984 1985 1986 1987

Lodging:

Sales $1,091.7 $1,320.5 $1,640.8 $1,898.4 $2,233.1 $2,673.3Operating profit 132.6 139.7 161.2 185.8 215.7 263.9Identifiable assets 909.7 1,264.6 1,786.3 2,108.9 2,236.7 2,777.4

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Depreciation 22.7 27.4 31.3 32.4 37.1 43.9Capital expenditures 371.5 377.2 366.4 808.3 966.6 1,241.9

Contract Services:

Sales 819.8 950.6 1,111.3 1,586.3 2,236.1 2,969.0Operating profit 51.0 71.7 86.8 118.6 154.9 170.6

Identifiable assets 373.3 391.6 403.9 624.4 1,070.2 1,237.7Depreciation 22.9 26.1 28.9 40.2 61.1 75.3Capital expenditures 127.7 43.8 55.6 125.9 448.7 112.7

Retaurants:

Sales 547.4 679.4 707.0 757.0 797.3 879.9Operating profit 48.5 63.8 79.7 78.2 79.1 82.4Identifiable assets 452.2 483.0 496.7 582.6 562.3 567.6

Depreciation 25.1 31.8 35.5 34.8 38.1 42.1Capital expenditures 199.6 65.0 72.3 128.4 64.0 79.6

Source: Company Reports

Exhibit 3 Information on Comparable Hotel and Restaurant Companies

Aritmetic (a) 1987Average Equity (b) Market (c) Revenues

Return Beta Leverage ($ billions)

MARRIOTT CORPORATION 22.40% 1.11 41% 6.52

(owns, operates, and manages hotels, restaurants,

and airline and institutional food services.)

Hotels:

HILTON HOTELS CORPORATION 13.30% 0.76 14% 0.77(owns, manages, and licenses hotels.

Operates casinos.)

HOLIDAY CORPORATION 28.80% 1.35 79% 1.66

(Owns, operates, and licenses hotels and restaurants.

Operates casinos.)

LA QUINTA MOTOR INNS -6.40% 0.89 69% 0.17

(Owns, operates, and licenses motor inns.)

RAMADA INNS, INC. 11.70% 1.36 65% 0.75(Owns and operates hotels and restaurants.)

Restaurants:

CHURCH'S FRIED CHICKEN -3.20% 1.45 4% 0.39

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(owns and franchises restaurants and gaming businesses.)

COLLINS FOODS INTERNATIONAL 20.30% 1.45 10% 0.57

(Operates Kentucky Fried Chicken franchise

and moderately prices restaurants.)

FRISCH'S RESTAURANTS 56.90% 0.57 6% 0.14(Operates and franchises restaurants.)

LUBY'S CAFETERIAS 15.10% 0.76 1% 0.23

(Operates Cafeterias.)

MCDONALD'S 22.50% 0.94 23% 4.89

(Operates, franchises, and services restaurants.)

WENDY'S INTERNATIONAL 4.60% 1.32 21% 1.05(Operates, franchises, and services restaurants.)

Source: Casewriter estimates.

(a) Calculated over the five-year priod of 1983-1987(b) Estimated using five years of monthly data over the 1983-1987 period by ordinary least squares(c) Book value of debt divided by the sum of the book value of debt plus the market value of equity.

Exhibit 4 Annual Holding-Period Returns for Selected Securities

and market Indexes, 1926-1987

Arimethic Standard

Years Average Deviation

Short-term Treasury bills:

1926-87 3.54% 0.94%1926-50 1.01% 0.40%1951-75 3.67% 0.56%1976-80 7.80% 0.83%1981-85 10.32% 0.75%

1986 6.16% 0.19%1987 5.46% 0.22%

Long-term U.S. Government bonds returns:

1926-87 4.58% 7.58%1926-50 4.14% 4.17%1951-75 2.39% 6.45%1976-80 1.95% 11.15%1981-85 17.85% 14.26%

1986 24.44% 17.30%1987 -2.69% 10.28%

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Long-term, high-grade corporate bond returns:

1926-87 5.24% 6.97%

1926-50 4.82% 3.45%1951-75 3.05% 6.04%1976-80 2.70% 10.87%

1981-85 18.96% 14.17%1986 19.85% 8.19%1987 -0.27% 9.64%

Standard and Poor's 500 Composit Stock Index returns:

1926-87 12.01% 20.55%1926-50 10.90% 27.18%

1951-75 11.87% 13.57%1976-80 14.81% 14.60%1981-85 15.49% 13.92%

1986 18.47% 17.94%

1987 5.23% 30.50%

Source: Casewriter estimates based on data from the University ofChicago's Center for Research in Security Prices.

Exhibit 5 Spreads between S&P 500 Composite Returns and Bond Rates

Arimethic Standard

Years Average Deviation

Spread between S&P 500 Compsoite returnsand short-term U.S. Treasury bill returns:

1926-87 8.47% 20.60%1926-50 9.89% 27.18%1951-75 8.20% 13.71%1976-80 7.01% 14.60%1981-85 5.17% 14.15%

1986 12.31% 17.92%1987 -0.23% 30.61%

Spread between S&P 500 Compsoite returnsand long-term U.S. Government bond returns:

1926-87 7.43% 20.78%1926-50 6.76% 26.94%1951-75 9.48% 14.35%1976-80 12.86% 15.58%1981-85 -2.36% 13.70%

1986 -5.97% 14.76%

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marriot "the cost of capital"

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