Marriott Corp / Project Chariot

Case: Marriott Corporation (A) (HBS Case No. 394-085)

Supplement: Marriott Corporation Excel Work Book (HBS Courseware No. 307-703)

Marriott Corporation Based on No Spin-out of Marriott International Financial Projections Change the highlighted numbers only Annual growth of $ sales through existing units (assuming general inflation of 3% per year) 5.4% Forecast 1982-1989 Average 7.6% 1992 5.0% 1993 5.5% 1994 5.8% 1995 6.0% EBIT % Sales Assets Sales ($ millions) Common Dividend Per Share Available for sale at Dec. 1991 $ 1,524 $ $ 1992 100 $ 0.28 $ 1993 120$ 0.28 $ 1994 150 $ 0.28 $ 1995 180 0.28 $ Sales EBIT Interest (net) Pre-tax profits Tax @ 41% Net income Preferred dividend Net income, common Shares outstanding (millions) Earnings per share Times Interest earned 1991 8,331 $ 367 222 145 63 82 6 76 94.5 0.80 $ 1.7 1992 8,781 $ 439 206 233 95 137 17 120 93.6 1.28 $ 2.1 1993 9,255 $ 509 197 312 128 184 17 167 93.6 1.78 $ 2.6 1994 9,755 $ 566 183 383 157 226 17 209 93.6 2.23 $ 3.1 1995 10,282 617 163 454 186 268 17 251 93.6 2.68 $ 3.8 1992 1993 1994 1995 226 $ 270 137 $ 270 0 407 184 $ 270 0 454 268 270 0 538 496 Statement of Cash Flows: Cash Flow from Operating Activities Net income Depreciation Change in net working capital Total from Operating Activities Cash Flow from Investing Activities Capital expenditures Sale of assets Total from Investing Activities Cash Flow from Financing Activities Preferred dividend Common dividend Total Cash Available for Debt Repayment Cumulative Debt Repayment (350) 100 (250) (350) 120 (230) (350) 150 (200) (350) 180 (170) (17) (26) (17) (26) (43) 114 (17) (26) (43) 181 (43) (17) (26) (43) 325 872 253 547 114 295 Partial Balance Sheet Interest bearing debt Owner's equity Total Capital $ $ 12/31/1991 3,031 $ 679 3,710 $ 1992 2,917 $ 773 3,690 $ 1993 2,736 $ 914 3,650 $ 1994 2,484 $ 1,096 3,580 $ 1995 2,159 1,321 3,480 Debt as % capital 82% 79% 75% 69% 62% Table A Market Statistics on Marriott Corporation (September 1992) $16.00 .75 1.30 Recent market price Estimated earnings per share Stock Beta Pricelearnings ratio: Marriott Corporation S&P 500 Industrials (close of 3Q1992) S&P Hotel/Motel (close of 3Q1992) 21.30 26.00 22.70 Sources: Value Line reports (September 4, 1992), MC annual statement, S&P Analysts' Handbook. Exhibit 1 Project Chariot Division of Marriott Corporation into Marriott International, Inc. and Host Marriott Corporation (amounts are projected) MARRIOTT CORPORATION OJECT CHARIOT PROJECT CHARIOT MARRIOTT INTERNATIONAL Trademarks, reservation system Franchise system, trade names Land leased to affiliates All management and franchise contracts on hotels, inns, suites, resorts Marriott Management Services Marriott Sr. Living Services Marriott Distribution Services HOST MARRIOTT CORP. Owned real estate resorts, inns, suites, hotels retirement communities Undeveloped land Partnership interests in unconsolidated affiliates Host/Travel Plazas 1992 STATISTICS $259 million $ 25 million $134 million 0 $134 million $ 1.40 $2.6 billion $ .4 billion 0 $.8 billion 10.4 33% EBIT Interest Net income Pfrd. Dividend Net Inc., Common EPS Total Assets Debt Prfd. Stock Common Equity Times interest Debt % book capital $123 million $210 million ($49 million) $ 17 million ($66 million) ($0.69) $4.6 billion $2.6 billion $.2 billion $.6 billion .59 76% 394-045 Marriott Corporation (A) Exhibit 2 Marriott Corporation Long-Term Debt ($ in millions of dollars) 1990 1991 Moody's S&P 175 527 Baa3 BBB 1,198 250 1,323 250 "Baa3 Baa3 "BBB BBB Secured notes, with an average rate of 8.6% at January 3, 1992, maturing through 2010 Unsecured debt Senior notes, with an average rate of 9.3% at January 3, 1992, maturing through 2001 Debentures, 9.4%, due 2007 Revolving loans, with an average rate of 5.3% at January 3, 1992, maturing through 1995 Other notes, with an average rate of 7.8% at January 3, 1992, maturing through 2015 Capital lease obligations Loss current portion 1,780 676 209 193 Baa3 BBB 61 3,673 (75) 3,598 62 3,031 (52) 2,979 Source: MC Annual Statement; Moody's and S&P reports, Includes approximately $230 million (current valuation) of 8.25% Liquid Yield Option Notes, maturing in June 2016 for the face amount of $675 million and rated Bal (Moody's) and not rated by S&P. by year-end 1992, MC expected to have reduced its revolving loan borrowings by $600 million and its other debt by approximately $150 million On April 29, 1992, MC Issued $200 million of 10%. 20-year senior notes, and on May 5, 1992, $200 million of 9 1/2% 10-year senior notes. Both issues were rated as Bra3 (Moody's and BBB (S&P) and sold at yields in line with other Bra3 issues at the date of Isa (se Exhibit A-1 in Appendix A). Exhibit 3 Marriott Corporation Consolidated Statements of Income ($ in millions, except per share amounts) 1989 1990 1991 SALES Lodging: Rooms Food and beverages Other $2,093 1,082 371 3,546 3,990 7,536 $2,374 1,146 422 3,942 3,704 7,646 $2,699 1,194 486 4,379 3,952 8,331 Contract services OPERATING COSTS AND EXPENSES Lodging Departmental direct costs: Rooms Food and beverages Other, including payments to hotel owners and not restructuring charges of $65 million in 1990 and $194 million in 1989 Contract services, including restructuring charges of $57 million in 1990 and $51 million in 1989 481 816 554 870 628 915 2,117 2,279 2,511 3,818 7.232 3,590 7.293 3,799 7,853 132 239 325 403 535 114 353 153 478 OPERATING PROFIT Lodging Contract services, including $231 million gain on divestiture of airline catering business in 1989 Operating profits before corporate expenses and taxes Corporate expenses, including restructuring charges of $31 million in 1990 and $11 million in 1989 Interest oxponso Interest income INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Provision for income taxes INCOME FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS, net of income taxes Income from discontinued operations Provision for loss on disposal (107) (185) 55 (137) (183) 47 (111) (265) 43 298 117 181 80 33 47 145 63 82 35 (39) $117 $47 $82 NET INCOME EARNINGS (LOSS) PER COMMON SHARE Continuing operations Discontinued operations $.46 $0.80 $1.62 (04) $1.58 $0.46 $0.80 Source: MC Annual Report Exhibit 4 Marriott Corporation Consolidated Balance Sheets ($ in millions) 1990 1991 ASSETS Current Assets Cash and equivalents Accounts receivable Inventories, at lower of average cost or market Other current assets $ 283 654 261 230 1,428 $ 36 524 243 220 1,023 Property and equipment Assets hold for sale Investments in affiliates ntangibles Notes receivable and other 2,774 1,274 462 494 494 $6.926 2,485 1,524 455 476 437 $6.400 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable Accrued payroll and benefits Other payables and accruals Notes payable and capital leases $ 675 305 582 75 1,637 $ 579 313 391 52 1,335 3,598 388 312 584 2,979 351 232 614 210 Long-term dobt Other long-term liabilities Deferred income Deferred income taxes Convertible subordinated debt Shareholders' Equity Convertible proforrod stock Common stock, issued 105.0 million shares Additional paid-in capital Retained earnings Treasury stock, 9.5 million and 11.4 million common shares, respectively, at cost Total Shareholders' Equity 105 69 528 200 105 35 583 (295) 407 $6.926 (244) 679 $6.400 Source: MC Annual Report Exhibit 5 Marriott Corporation Consolidated Statements of Cash Flows ($ in millions) 1989 1990 1991 $ 181 $ 47 $ 82 186 41 256 208 18 153 272 27 (50) (31) (273) 98 83 (38) 3 3 50 (100) (39) (19) 123 (76) (22) (5) 63 88 63 13 423 86 509 385 (10) 375 549 3 552 OPERATING ACTIVITIES Income from continuing operations Adjustments to reconcile to cash from operations Depreciation and amortization Income taxes Not restructuring charges Proceeds from sale of timeshare notes receivablo Amortization of deferred incomo Losses (gains) on sales of assets Other Working capital changes Accounts receivable Inventories Other current assets Accounts payable and accruals Cash from continuing operations Cash from discontinued operations Cash from operations INVESTING ACTIVITIES Proceeds from sales of assets Less noncash proceeds Cash received from sales of assets Capital expenditures Acquisitions Other Cash used in investing activities FINANCING ACTIVITIES Issuance of convertible preferred stock Issuances of long-term and convertible subordinated debt Issuances of common stock Repayments of long-term debt Purchases of treasury stock Dividends payments Cash from (used in) financing activities INCREASE (DECREASE) IN CASH AND EQUIVALENTS CASH AND EQUIVALENTS, beginning of year CASH AND EQUIVALENTS, ond of year 84 1,648 (258) 1,390 (1,368) (242) (223) 990 (15) 975 (1,094) (118) (129) 84 (427) (126) (443) (366) (469) 873 41 (581) (280) (26) 27 1,317 24 (846) (294) (27) 174 195 815 3 (1,316) (27) (330) 93 7 100 183 100 283 (247) 283 36 Source: MC Annual Report Exhibit 6 Marriott Corporation Ten-Year Financial Summary (dollars in millions, except per share amounts) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 19% 5 14 11 $462 21% 4 17 11 $627 26% 3 23 10 $911 29% 2 27 16 $821 26% 3 23 32 $1,053 13% 4 9 14 $1,359 14% 4 10 14 $1,368 1% 3 (2%) 12 $1,094 9% 3 6 7 $427 .97 .95 .99 .99 1.02 1.09 1.11 1.16 1.10 1.30 $.56 $.41 8.2% 4.7 8.2% $.74 8.2% 4.9 22.1 7.5 $1.16 7.7% 4.1 4.8 Reported sales growth Rate of general inflation Real growth Increase in Marriott hotel rooms Capital expenditures Asset Management Sales/total assets Profitability Earnings per share EBIT as % of sales Net income as % of sales Return on equity Return on invested capital Financial leverage Long-term debt as % capital Times interest earned Senior debt rating Valuation Share price Earnings per share Dividends per share Price/earnings ratio Market/book ratio $.96 8.4% 4.6 22.1 7.4 $1.40 7.3% 3.8 $1.59 6.8% 3.5 30.4 6.7 $1.62 6.4% 2.4 23.8 5.7 $.46 3.4% 0.6 9.7 3.9 $.80 4.9% 1.0 18.3 6.5 20.0 20.0 20.6 22.2 8.5 7.6 6.3 6.4 53% 54% 2.3 A2 48% 3.8 A2 42% 4.0 A2 47% 6.0 A2 59% 4.7 A2 61% 3.3 A3 60% 2.6 A3 68% 1.4 59% 1.5 Baa3 A2 Baa2 $11.70 .41 .06 29 3.0 $14.25 .56 .08 25 3.1 $14.70 .74 .09 20 2.8 $21.58 .96 .11 22 3.3 2 $29.75 1.16 .14 26 3.9 $30.00 1.40 .17 21 4.4 $31.63 1.59 .21 20 4.8 $33.38 1.62 .25 21 5.5 $10.50 .46 .28 23 2.4 $16.50 .80 .28 21 3.3 Operating results in 1990 included pretax restructuring charges and writeoffs, net of certain nonrecurring gains, of $153 million related to continuing operations. Operating results in 1989 included pretax restructuring charges and writeoffs of $256 million related to continuing operations, a $231 million pretax gain on the transfer of the airline catering division, and a $39 million after-tax charge recorded in conjunction with the planned disposal of the restaurant division. Exhibit 8 Operating Results of Unconsolidated Affiliates ($ in millions) 1986 1990 1991 1992 $889 $1,855 1,729 Sales Cash operating exponses Depreciation EBIT Interest expenses Not loss { : 347 $1,801 1,709 344 ($252) 811 $ 78 213 ($135) $1,900 1,735 347 ($182) ($221) Balance Sheets of Unconsolidated Affiliates at December 31 ($ in millions) Assets 1986 1991 1992 1986 1991 1992 Current Noncurrent Total $ 194 2,721 $2,915 $ 158 4,842 $5,000 $ 204 4,589 $4,793 Liabilities & Equity Current liabilities Long-term dobt Other liabilities Equity Total $ 154 2,377 242 142 $2,915 $ 445 4,233 565 (243) $5,000 $1,464 3,162 694 (527) $4,793 Marriott Corporation Pre-tax Income from Unconsolidated Affiliates ($ in millions) 1986 1990 1991 1992 $ 63 Management fees, not of cost Ground rents Interest income Equity in net loss Total $ 76 17 21 $ 81 18 19 (21) $ 97 $ 82 19 16 (24) $ 93 (16) $ 47 (16) $ 98 Exhibit A-1 Comparison of Bond Ratings Moody's S&P Yields High Quality Aaa Aa AAA AA 7.80% 8.07 Investment Grade A Baa 8.26 8.72 BBB BB B Junk Bonds Substandard Ba B 9.04 10.81 Speculative Caa CCC D Note: Moody's and S&P use "modifiers for bonds rated below triple A S&P uses a plus and minus system; thus, A+ designates the strongest A-rated bonds and A-the weakest. Moody's uses a 1, 2 or 3 designation, with 1 denoting the strongest and 3 the weakest; thus, within the double A category, Aal is the best, Aa2 is average, and Au3 is the weakest. "Yields of corporate bonds with 10-year maturitses as of September 28, 192. Exhibit A-2 Bond Ratings of Industrial Corporations (1987-1989 Medians) AAA AA A BBB BB B CCC Times interest earned Long-term debt as percent of capital 12.0 12% 9.1 19% 5.5 30% 3.6 38% 2.3 51% 1.0 66% .8 62% Assess risks, make recommendations 1. What are the risks to proceeding with implementation? 2. Is it safe to assume the project can be abandoned if the public reacts negatively? 3. Should Mr. Marriott recommend Project Chariot to the board? Marriott Corporation Based on No Spin-out of Marriott International Financial Projections Change the highlighted numbers only Annual growth of $ sales through existing units (assuming general inflation of 3% per year) 5.4% Forecast 1982-1989 Average 7.6% 1992 5.0% 1993 5.5% 1994 5.8% 1995 6.0% EBIT % Sales Assets Sales ($ millions) Common Dividend Per Share Available for sale at Dec. 1991 $ 1,524 $ $ 1992 100 $ 0.28 $ 1993 120$ 0.28 $ 1994 150 $ 0.28 $ 1995 180 0.28 $ Sales EBIT Interest (net) Pre-tax profits Tax @ 41% Net income Preferred dividend Net income, common Shares outstanding (millions) Earnings per share Times Interest earned 1991 8,331 $ 367 222 145 63 82 6 76 94.5 0.80 $ 1.7 1992 8,781 $ 439 206 233 95 137 17 120 93.6 1.28 $ 2.1 1993 9,255 $ 509 197 312 128 184 17 167 93.6 1.78 $ 2.6 1994 9,755 $ 566 183 383 157 226 17 209 93.6 2.23 $ 3.1 1995 10,282 617 163 454 186 268 17 251 93.6 2.68 $ 3.8 1992 1993 1994 1995 226 $ 270 137 $ 270 0 407 184 $ 270 0 454 268 270 0 538 496 Statement of Cash Flows: Cash Flow from Operating Activities Net income Depreciation Change in net working capital Total from Operating Activities Cash Flow from Investing Activities Capital expenditures Sale of assets Total from Investing Activities Cash Flow from Financing Activities Preferred dividend Common dividend Total Cash Available for Debt Repayment Cumulative Debt Repayment (350) 100 (250) (350) 120 (230) (350) 150 (200) (350) 180 (170) (17) (26) (17) (26) (43) 114 (17) (26) (43) 181 (43) (17) (26) (43) 325 872 253 547 114 295 Partial Balance Sheet Interest bearing debt Owner's equity Total Capital $ $ 12/31/1991 3,031 $ 679 3,710 $ 1992 2,917 $ 773 3,690 $ 1993 2,736 $ 914 3,650 $ 1994 2,484 $ 1,096 3,580 $ 1995 2,159 1,321 3,480 Debt as % capital 82% 79% 75% 69% 62% Table A Market Statistics on Marriott Corporation (September 1992) $16.00 .75 1.30 Recent market price Estimated earnings per share Stock Beta Pricelearnings ratio: Marriott Corporation S&P 500 Industrials (close of 3Q1992) S&P Hotel/Motel (close of 3Q1992) 21.30 26.00 22.70 Sources: Value Line reports (September 4, 1992), MC annual statement, S&P Analysts' Handbook. Exhibit 1 Project Chariot Division of Marriott Corporation into Marriott International, Inc. and Host Marriott Corporation (amounts are projected) MARRIOTT CORPORATION OJECT CHARIOT PROJECT CHARIOT MARRIOTT INTERNATIONAL Trademarks, reservation system Franchise system, trade names Land leased to affiliates All management and franchise contracts on hotels, inns, suites, resorts Marriott Management Services Marriott Sr. Living Services Marriott Distribution Services HOST MARRIOTT CORP. Owned real estate resorts, inns, suites, hotels retirement communities Undeveloped land Partnership interests in unconsolidated affiliates Host/Travel Plazas 1992 STATISTICS $259 million $ 25 million $134 million 0 $134 million $ 1.40 $2.6 billion $ .4 billion 0 $.8 billion 10.4 33% EBIT Interest Net income Pfrd. Dividend Net Inc., Common EPS Total Assets Debt Prfd. Stock Common Equity Times interest Debt % book capital $123 million $210 million ($49 million) $ 17 million ($66 million) ($0.69) $4.6 billion $2.6 billion $.2 billion $.6 billion .59 76% 394-045 Marriott Corporation (A) Exhibit 2 Marriott Corporation Long-Term Debt ($ in millions of dollars) 1990 1991 Moody's S&P 175 527 Baa3 BBB 1,198 250 1,323 250 "Baa3 Baa3 "BBB BBB Secured notes, with an average rate of 8.6% at January 3, 1992, maturing through 2010 Unsecured debt Senior notes, with an average rate of 9.3% at January 3, 1992, maturing through 2001 Debentures, 9.4%, due 2007 Revolving loans, with an average rate of 5.3% at January 3, 1992, maturing through 1995 Other notes, with an average rate of 7.8% at January 3, 1992, maturing through 2015 Capital lease obligations Loss current portion 1,780 676 209 193 Baa3 BBB 61 3,673 (75) 3,598 62 3,031 (52) 2,979 Source: MC Annual Statement; Moody's and S&P reports, Includes approximately $230 million (current valuation) of 8.25% Liquid Yield Option Notes, maturing in June 2016 for the face amount of $675 million and rated Bal (Moody's) and not rated by S&P. by year-end 1992, MC expected to have reduced its revolving loan borrowings by $600 million and its other debt by approximately $150 million On April 29, 1992, MC Issued $200 million of 10%. 20-year senior notes, and on May 5, 1992, $200 million of 9 1/2% 10-year senior notes. Both issues were rated as Bra3 (Moody's and BBB (S&P) and sold at yields in line with other Bra3 issues at the date of Isa (se Exhibit A-1 in Appendix A). Exhibit 3 Marriott Corporation Consolidated Statements of Income ($ in millions, except per share amounts) 1989 1990 1991 SALES Lodging: Rooms Food and beverages Other $2,093 1,082 371 3,546 3,990 7,536 $2,374 1,146 422 3,942 3,704 7,646 $2,699 1,194 486 4,379 3,952 8,331 Contract services OPERATING COSTS AND EXPENSES Lodging Departmental direct costs: Rooms Food and beverages Other, including payments to hotel owners and not restructuring charges of $65 million in 1990 and $194 million in 1989 Contract services, including restructuring charges of $57 million in 1990 and $51 million in 1989 481 816 554 870 628 915 2,117 2,279 2,511 3,818 7.232 3,590 7.293 3,799 7,853 132 239 325 403 535 114 353 153 478 OPERATING PROFIT Lodging Contract services, including $231 million gain on divestiture of airline catering business in 1989 Operating profits before corporate expenses and taxes Corporate expenses, including restructuring charges of $31 million in 1990 and $11 million in 1989 Interest oxponso Interest income INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Provision for income taxes INCOME FROM CONTINUING OPERATIONS DISCONTINUED OPERATIONS, net of income taxes Income from discontinued operations Provision for loss on disposal (107) (185) 55 (137) (183) 47 (111) (265) 43 298 117 181 80 33 47 145 63 82 35 (39) $117 $47 $82 NET INCOME EARNINGS (LOSS) PER COMMON SHARE Continuing operations Discontinued operations $.46 $0.80 $1.62 (04) $1.58 $0.46 $0.80 Source: MC Annual Report Exhibit 4 Marriott Corporation Consolidated Balance Sheets ($ in millions) 1990 1991 ASSETS Current Assets Cash and equivalents Accounts receivable Inventories, at lower of average cost or market Other current assets $ 283 654 261 230 1,428 $ 36 524 243 220 1,023 Property and equipment Assets hold for sale Investments in affiliates ntangibles Notes receivable and other 2,774 1,274 462 494 494 $6.926 2,485 1,524 455 476 437 $6.400 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable Accrued payroll and benefits Other payables and accruals Notes payable and capital leases $ 675 305 582 75 1,637 $ 579 313 391 52 1,335 3,598 388 312 584 2,979 351 232 614 210 Long-term dobt Other long-term liabilities Deferred income Deferred income taxes Convertible subordinated debt Shareholders' Equity Convertible proforrod stock Common stock, issued 105.0 million shares Additional paid-in capital Retained earnings Treasury stock, 9.5 million and 11.4 million common shares, respectively, at cost Total Shareholders' Equity 105 69 528 200 105 35 583 (295) 407 $6.926 (244) 679 $6.400 Source: MC Annual Report Exhibit 5 Marriott Corporation Consolidated Statements of Cash Flows ($ in millions) 1989 1990 1991 $ 181 $ 47 $ 82 186 41 256 208 18 153 272 27 (50) (31) (273) 98 83 (38) 3 3 50 (100) (39) (19) 123 (76) (22) (5) 63 88 63 13 423 86 509 385 (10) 375 549 3 552 OPERATING ACTIVITIES Income from continuing operations Adjustments to reconcile to cash from operations Depreciation and amortization Income taxes Not restructuring charges Proceeds from sale of timeshare notes receivablo Amortization of deferred incomo Losses (gains) on sales of assets Other Working capital changes Accounts receivable Inventories Other current assets Accounts payable and accruals Cash from continuing operations Cash from discontinued operations Cash from operations INVESTING ACTIVITIES Proceeds from sales of assets Less noncash proceeds Cash received from sales of assets Capital expenditures Acquisitions Other Cash used in investing activities FINANCING ACTIVITIES Issuance of convertible preferred stock Issuances of long-term and convertible subordinated debt Issuances of common stock Repayments of long-term debt Purchases of treasury stock Dividends payments Cash from (used in) financing activities INCREASE (DECREASE) IN CASH AND EQUIVALENTS CASH AND EQUIVALENTS, beginning of year CASH AND EQUIVALENTS, ond of year 84 1,648 (258) 1,390 (1,368) (242) (223) 990 (15) 975 (1,094) (118) (129) 84 (427) (126) (443) (366) (469) 873 41 (581) (280) (26) 27 1,317 24 (846) (294) (27) 174 195 815 3 (1,316) (27) (330) 93 7 100 183 100 283 (247) 283 36 Source: MC Annual Report Exhibit 6 Marriott Corporation Ten-Year Financial Summary (dollars in millions, except per share amounts) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 19% 5 14 11 $462 21% 4 17 11 $627 26% 3 23 10 $911 29% 2 27 16 $821 26% 3 23 32 $1,053 13% 4 9 14 $1,359 14% 4 10 14 $1,368 1% 3 (2%) 12 $1,094 9% 3 6 7 $427 .97 .95 .99 .99 1.02 1.09 1.11 1.16 1.10 1.30 $.56 $.41 8.2% 4.7 8.2% $.74 8.2% 4.9 22.1 7.5 $1.16 7.7% 4.1 4.8 Reported sales growth Rate of general inflation Real growth Increase in Marriott hotel rooms Capital expenditures Asset Management Sales/total assets Profitability Earnings per share EBIT as % of sales Net income as % of sales Return on equity Return on invested capital Financial leverage Long-term debt as % capital Times interest earned Senior debt rating Valuation Share price Earnings per share Dividends per share Price/earnings ratio Market/book ratio $.96 8.4% 4.6 22.1 7.4 $1.40 7.3% 3.8 $1.59 6.8% 3.5 30.4 6.7 $1.62 6.4% 2.4 23.8 5.7 $.46 3.4% 0.6 9.7 3.9 $.80 4.9% 1.0 18.3 6.5 20.0 20.0 20.6 22.2 8.5 7.6 6.3 6.4 53% 54% 2.3 A2 48% 3.8 A2 42% 4.0 A2 47% 6.0 A2 59% 4.7 A2 61% 3.3 A3 60% 2.6 A3 68% 1.4 59% 1.5 Baa3 A2 Baa2 $11.70 .41 .06 29 3.0 $14.25 .56 .08 25 3.1 $14.70 .74 .09 20 2.8 $21.58 .96 .11 22 3.3 2 $29.75 1.16 .14 26 3.9 $30.00 1.40 .17 21 4.4 $31.63 1.59 .21 20 4.8 $33.38 1.62 .25 21 5.5 $10.50 .46 .28 23 2.4 $16.50 .80 .28 21 3.3 Operating results in 1990 included pretax restructuring charges and writeoffs, net of certain nonrecurring gains, of $153 million related to continuing operations. Operating results in 1989 included pretax restructuring charges and writeoffs of $256 million related to continuing operations, a $231 million pretax gain on the transfer of the airline catering division, and a $39 million after-tax charge recorded in conjunction with the planned disposal of the restaurant division. Exhibit 8 Operating Results of Unconsolidated Affiliates ($ in millions) 1986 1990 1991 1992 $889 $1,855 1,729 Sales Cash operating exponses Depreciation EBIT Interest expenses Not loss { : 347 $1,801 1,709 344 ($252) 811 $ 78 213 ($135) $1,900 1,735 347 ($182) ($221) Balance Sheets of Unconsolidated Affiliates at December 31 ($ in millions) Assets 1986 1991 1992 1986 1991 1992 Current Noncurrent Total $ 194 2,721 $2,915 $ 158 4,842 $5,000 $ 204 4,589 $4,793 Liabilities & Equity Current liabilities Long-term dobt Other liabilities Equity Total $ 154 2,377 242 142 $2,915 $ 445 4,233 565 (243) $5,000 $1,464 3,162 694 (527) $4,793 Marriott Corporation Pre-tax Income from Unconsolidated Affiliates ($ in millions) 1986 1990 1991 1992 $ 63 Management fees, not of cost Ground rents Interest income Equity in net loss Total $ 76 17 21 $ 81 18 19 (21) $ 97 $ 82 19 16 (24) $ 93 (16) $ 47 (16) $ 98 Exhibit A-1 Comparison of Bond Ratings Moody's S&P Yields High Quality Aaa Aa AAA AA 7.80% 8.07 Investment Grade A Baa 8.26 8.72 BBB BB B Junk Bonds Substandard Ba B 9.04 10.81 Speculative Caa CCC D Note: Moody's and S&P use "modifiers for bonds rated below triple A S&P uses a plus and minus system; thus, A+ designates the strongest A-rated bonds and A-the weakest. Moody's uses a 1, 2 or 3 designation, with 1 denoting the strongest and 3 the weakest; thus, within the double A category, Aal is the best, Aa2 is average, and Au3 is the weakest. "Yields of corporate bonds with 10-year maturitses as of September 28, 192. Exhibit A-2 Bond Ratings of Industrial Corporations (1987-1989 Medians) AAA AA A BBB BB B CCC Times interest earned Long-term debt as percent of capital 12.0 12% 9.1 19% 5.5 30% 3.6 38% 2.3 51% 1.0 66% .8 62% Assess risks, make recommendations 1. What are the risks to proceeding with implementation? 2. Is it safe to assume the project can be abandoned if the public reacts negatively? 3. Should Mr. Marriott recommend Project Chariot to the board