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Harvard Business School Case #298-101
Case Software #XLS096
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Table A Market Value-Target Leverage Ratios and Credit Spreads for Marriott and Its Divisions
Lodging 74 50 50 1.10
Contract services 40 40 60 1.40
Restaurants 42 25 75 1.80
Table B U.S. Government Interest Rates, April 1988
Maturity Rate
30-year 8.95%
10-year 8.72
1-year 6.90
Exhibit 1 Financial History, 1978-1987 (millions of dollars except per share data)
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987
Summary of Operations
Sales $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
Earnings before interest expense and income taxes 107.1 133.5 150.3 173.3 205.5 247.9 297.7 371.3 420.5 489.4
Interest expense 23.7 27.8 46.8 52.0 71.8 62.8 61.6 75.6 60.3 90.5
Income before income taxes 83.5 105.6 103.5 121.3 133.7 185.1 236.1 295.7 360.2 398.9
Income taxes 35.4 43.8 40.6 45.2 50.2 76.7 100.8 128.3 168.5 175.9
Income from continuing operationsa 48.1 61.8 62.9 76.1 83.5 108.4 135.3 167.4 191.7 223.0
Net income 54.3 71.0 72.0 86.1 94.3 115.2 139.8 167.4 191.7 223.0
Funds from continuing operationsb 101.2 117.5 125.8 160.8 203.6 272.7 322.5 372.3 430.3 472.8
a
The companys theme park operations were discontinued in 1984.
b
Funds provided from continuing operations consist of income from continuing operations plus depreciation, deferred income taxes, and other items not currently affecting working capital.
c
Total capital represents total assets less current liabilities.
Exhibit 2 Financial Summary by Business Segment, 1982-1987 (millions of dollars)
Lodging
Contract Services
Restaurants
a
Calculated over period 1983-1987.
b
Estimated by ordinary least-squares regression using daily data over 1986-1987 period.
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
Source: Casewriters estimates based on data from the University of Chicagos Center for Research in Security Prices.
Risk Free Return 8.95% 8.95% 8.72%
42%
2.47%
Indentified
12.04% assets 2777.4 1237.7 567.6 4582.7
Revenues
(weights) Weights
0.77 0.23
1.66 0.50
0.17 0.05
0.75 0.22
weighted 0.41
0.39 0.05
0.57 0.08
0.14 0.02
0.23 0.03
4.89 0.67
1.05 0.14
weighted 0.74