Exhibit A

MARRIOTT CORPORATION

Comparable Hotel and Restaurant Companies

Arithmetica
Average
Return

Equityb Beta

Marketc
Leverage

Market Equity

Marriott Corporation

22.4%

1.11

41%

59%

Lodging:
Hilton
Holiday
La Quinta
Ramada
Total Arithmetic Average

13.3%
28.8%
-6.4%
11.7%
11.9%

0.76
1.35
0.89
1.36

14%
79%
69%
65%
56.8%

86%
21%
31%
35%
43.3%

Restaurants:
Church's
Collins
Frisch's
Luby's
McDonalds
Wendys
Total Arithmetic Average

-3.2%
20.3%
56.9%
15.1%
22.5%
4.6%
19.4%

1.45
1.45
0.57
0.76
0.94
1.32

4%
10%
6%
1%
23%
21%
10.8%

96%
90%
94%
99%
77%
79%
89.2%

Source: Casewriter estimates.

a

Calculated over the five-year period 1983-1987.

Estimated using five years of monthly data over the 1983-1987 period.

Book value of debt divided by the sum of the book value of debt plus the market value of equity.

Debt Equity

Unlevered
Asset Beta

0.695

0.761

0.163
3.762
2.226
1.857
2.002

0.686
0.388
0.360
0.611
0.511

0.042
0.111
0.064
0.010
0.299
0.266
0.132

1.411
1.351
0.547
0.755
0.785
1.123
0.995

Exhibit B
MARRIOTT CORPORATION

Levering Model

Beta Assets
Proportion
Marriott Corporation
Lodging
Restaurants
Contract Services

100.0%
60.6%
12.4%
27.0%

Unlevered
Asset Beta

Re-levered
Asset Beta

0.761
0.511
0.995
1.214

1.546
1.472
1.471
1.748

Target Market
Leverage
60%
74%
42%
40%

Exhibit C
MARRIOTT CORPORATION

Cost of Debt
Identifiable
Assets
Proportion
Marriott Corporation
Lodging
Restaurants
Contract Services

100.0%
60.6%
12.4%
27.0%

Risk Free Rate

Debt Adder

8.86%
8.95%
8.72%
8.72%

1.3%
1.1%
1.8%
1.4%

Cost of Debt
10.16%
10.05%
10.52%
10.12%

Exhibit D
MARRIOTT CORPORATION

Cost of Equity
Identifiable
Assets
Proportion
Marriott Corporation
Lodging
Restaurants
Contract Services

100.0%
60.6%
12.4%
27.0%

Risk Free Rate

Re-levered
Equity Beta

8.86%
8.95%
8.72%
8.72%

1.546
1.472
1.471
1.748

Market Risk
Premium
7.84%
7.43%
8.47%
8.47%

Exhibit E
MARRIOTT CORPORATION

Weighted Average Cost of Capital (WACC)

After Tax Cost Target Market
Target Market
of Debt
Leverage
Cost of Equity
Equity

Marriott Corporation
Lodging
Restaurants
Contract Services

6.71%
6.63%
6.94%
6.68%

60%
74%
42%
40%

20.98%
19.89%
21.18%
23.52%

40%
26%
58%
60%

Target Debt
Equity
1.500
2.846
0.724
0.667

Tax Rate
34%
34%
34%
34%

Cost of Equity
20.98%
19.89%
21.18%
23.52%

WACC

After Tax Cost

of Debt
6.71%
6.63%
6.94%
6.68%

12.42%
10.08%
15.20%
16.79%

Marriott Corp./Cost Abridged

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Table A Market-Value Target-Leverage Ratios and Credit Spreads for Marriott and
Its Divisions
Debt
Percentage in
Capital

Fraction of
Debt at
Floating

Fraction of Debt Rate Premium

Debt at
Above Government
Fixed

Marriott

60%

40%

60%

1.30%

Lodging
Contract services
Restaurants

74%
40%
42%

50%
40%
25%

50%
60%
75%

1.10%
1.40%
1.80%

Table B
1988

U.S. Government Interest Rates in April

Maturity
30-year
10-year
1-year

Rate
8.95%
8.72%
6.90%

Exhibit 1

Financial History of Marriott Corporation (dollars in millions, except per share amounts)

Summary of Operations
Sales
Earnings before interest expense and
income taxes
Interest expense
Income before income taxes
Income taxes
Income from continuing operationsa
Net income
Funds provided from cont. operationsb
Capitalization and Returns
Total assets
Total capitalc
Long-term debt
Percent to total capita
Shareholders equity
Per Share and Other Data
Earnings per share:
Continuing operationsa
Net income
Cash dividends
Shareholders equity
Market price at year end
Shares outstanding (in millions)
Return on avg. shareholders equity

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1,174.1

1,426.0

1,633.9

1,905.7

2,458.9

2,950.5

3,524.9

4,241.7

5,266.5

6,522.2

107.1
23.7
83.5
35.4
48.1
54.3
101.2

133.5
27.8
105.6
43.8
61.8
71.0
117.5

150.3
46.8
103.5
40.6
62.9
72.0
125.8

173.3
52.0
121.3
45.2
76.1
86.1
160.8

205.5
71.8
133.7
50.2
83.5
94.3
203.6

247.9
62.8
185.1
76.7
108.4
115.2
272.7

297.7
61.6
236.1
100.8
135.3
139.8
322.5

371.3
75.6
295.7
128.3
167.4
167.4
372.3

420.5
60.3
360.2
168.5
191.7
191.7
430.3

489.4
90.5
398.9
175.9
223
223
472.8

1,000.3
826.9
309.9
37.5%
418.7

1,080.4
891.9
365.3
41.0%
413.5

1,214.3
977.7
536.6
54.9%
311.5

1,454.9
1,167.5
607.7
52.1%
421.7

2,062.6
1,634.5
889.3
54.4%
516

2,501.4
2.007.5
1,071.60
53.4%
628.2

2,904.7
2,330.7
1,115.3
47.9%
675.6

3,663.8
2,861.4
1,192.3
41.7%
848.5

4,579.3
3,561.8
1,662.8
46.7%
991.0

5,370.5
4,247.8
2,498.8
58.8%
810.8

0.25
0.29
0.026
2.28
2.43
183.6
13.9%

0.34
0.39
0.034
2.58
3.48
160.5
17.0%

0.45
0.52
0.042
2.49
6.35
125.3
23.8%

0.57
0.64
0.051
3.22
7.18
130.8
23.4%

0.61
0.69
0.063
3.89
11.70
132.8
20.0%

0.78
0.83
0.076
4.67
14.25
134.4
20.0%

1.00
1.04
0.093
5.25
14.7
128.8
22.1%

1.24
1.24
0.113
6.48
21.58
131.0
22.1%

1.40
1.40
0.136
7.59
29.75
130.6
20.6%

1.67
1.67
0.17
6.82
30.00
118.8
22.2%

Source: Company reports.

a

The companys theme-park operations were discontinued in 1984.

b
c

Funds provided from continuing operations consist of income from continuing operations plus depreciation, deferred income taxes, and other items not currently affecting working capital.

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

$1,091.7
132.6
909.7
22.7
371.5

$1,320.5
139.7
1,264.6
27.4
377.2

$1,640.8
161.2
1,786.3
31.3
366.4

$1,898.4
185.8
2,108.9
32.4
808.3

$2,233.1
215.7
2,236.7
37.1
966.6

$2,673.3
263.9
2,777.4
43.9
1,241.90

819.8
51.0
373.3
22.9
127.7

950.6
71.1
391.6
26.1
43.8

1,111.3
86.8
403.9
28.9
55.6

1,586.3
118.6
624.4
40.2
125.9

2,236.1
154.9
1,070.2
61.1
448.7

2,969.0
170.6
1,237.7
75.3
112.7

547.4
48.5
452.2
25.1
199.6

679.4
63.8
483.0
31.8
65.0

707.0
79.7
496.7
35.5
72.3

757.0
78.2
582.6
34.8
128.4

797.3
79.1
562.3
38.1
64.0

879.9
82.4
567.6
42.1
79.6

Lodging:
Sales
Operating profit
Identifiable assets
Depreciation
Capital expenditures
Contract Services:
Sales
Operating profit
Identifiable assets
Depreciation
Capital expenditures
Restaurants:
Sales
Operating profit
Identifiable assets
Depreciation
Capital expenditures

Source: Company reports.

Exhibit 3

Information on Comparable Hotel and Restaurant Companies

Arithmetica
Average
Return

Equityb
Beta

Marketc
Leverage

1987
Revenues
($ billions)

22.4%

1.11

41%

6.52

HILTON HOTELS CORPORATION

(Owns, manages, and licenses hotels. Operates casinos.)

13.3

0.76

14%

0.77

HOLIDAY CORPORATION
(Owns, manages, and licenses hotels and restaurants.
Operates casinos.)

28.8

1.35

79%

1.66

LA QUINTA MOTOR INNS

(Owns, operates, and licenses motor inns.)

-6.4

0.89

69%

0.17

RAMADA INNS, INC.

(Owns and operates hotels and restaurants.)

11.7

1.36

65%

0.75

CHURCHS FRIED CHICKEN

(Owns and franchises restaurants and gaming businesses.)

-3.2

1.45

4%

0.39

COLLINS FOODS INTERNATIONAL

(Operates Kentucky Fried Chicken franchise and moderately
priced restaurants.)

20.3

1.45

10%

0.57

FRISCHS RESTAURANTS
(Operates and franchises restaurants.)

56.9

0.57

6%

0.14

MARRIOTT CORPORATION
(Owns, operates, and manages hotels, restaurants, and
airline and institutional food services.)
Hotels:

Restaurants:

LUBYS CAFETERIAS
(Operates cafeterias.)

15.1

0.76

1%

0.23

McDONALDS
(Operates, franchises, and services restaurants.)

22.5

0.94

23%

4.89

WENDYS INTERNATIONAL
(Operates, franchises, and services restaurants.)

4.6

1.32

21%

1.05

Source: Casewriter estimates.

a

Calculated over the five-year period 1983-1987.

Estimated using five years of monthly data over the 1983-1987 period.

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

Years

Arithmetic
Average

Standard
Deviation

Short-term Treasury bills:

1926-87
1926-50
1951-75
1976-80
1981-85
1986
1987

3.54%
1.01%
3.67%
7.80%
10.32%
6.16%
5.46%

0.94%
0.40%
0.56%
0.83%
0.75%
0.19%
0.22%

4.58%
4.14%
2.39%
1.95%
17.85%
24.44%
-2.69%

7.58%
4.17%
6.45%
11.15%
14.26%
17.30%
10.28%

5.24%
4.82%
3.05%
2.70%
18.96%
19.85%
-0.27%

6.97%
3.45%
6.04%
10.87%
14.17%
8.19%
9.64%

12.01%
10.90%
11.87%
14.81%
15.49%
18.47%
5.23%

20.55%
27.18%
13.57%
14.60%
13.92%
17.94%
30.50%

Long-term U.S. government bond

returns:
1926-87
1926-50
1951-75
1976-80
1980-85
1986
1987
Long-term, high-grade corporate
bonds returns:
1926-87
1926-50
1951-75
1976-80
1981-85
1986
1987
Standard & Poors 500
Composite Stock Index returns:
1926-87
1926-50
1951-75
1976-80
1981-85
1986
1987

Source: Casewriter estimates based on data from the University of Chicagos

Center for Research in Security Prices.

Exhibit 5

Spreads between S&P 500 Composite Returns and Bond Rates

Years

Arithmetic
Average

Standard
Deviation

Spread between S&P 500 Composite returns and

short-term U.S. Treasury bill returns:
1926-87
1926-50
1951-75
1976-80
1981-85
1986
1987

8.47%
9.89%
8.20%
7.01%
5.17%
12.31%
-0.23%

20.60%
27.18%
13.71%
14.60%
14.15%
17.92%
30.61%

7.43%
6.76%
9.48%
12.86%
-2.36%
-5.97%
7.92%

20.78%
26.94%
14.35%
15.58%
13.70%
14.76%
35.35%

6.77%
6.06%
8.82%
12.11%
-3.47%
-1.38%
5.50%

20.31%
26.70%
13.15%
15.84%
13.59%
14.72%
34.06%

Spread between S&P 500 Composite returns and

long-term U.S. government bond returns:
1926-87
1926-50
1951-75
1976-80
1981-85
1986
1987
Spread between S&P 500 Composite returns and
long-term, high-grade corporate bonds:
1926-87
1926-50
1951-75
1976-80
1981-85
1986
1987

Source: Casewriter estimates based on data from the University of Chicagos Center for Research
in Security Prices.