Instructions
Choice Hotels 10-K
In Project 3, you will learn how to access US Securities and Exchange Commission public information about companies. You will also learn how to calculate and analyze ratios, analyze and make decisions based on cost, and develop a sales forecast and budget.
Start by looking up the 10-K for Choice Hotels (CHH) for year 2019 on the SEC website. Follow these steps:
    1. Go to www.SEC.gov.
    2. At the top on the right, click Company Filings.
    3. In the fast search box, enter the Ticker Symbol for Choice Hotels, CHH.    
    4. Click Search
    5. EDGAR search results will appear. Notice the name and address for Choice Hotels. Also notice the box that reads Filter Results: Filing Type. Enter "10-K" and click Search.
    6. You should see a 10-K with a filing date of 2020-03-02. This is the latest available at the time this project was developed.
7. Repeat 1 through 6 for Marriott International (MAR) for year 2019 on the SEC website. You should see a 10-K with a filing date of 2020-02-27. This is the latest available at the time this project was developed.
    8. There are two available formats of this 10-K data, and we will use the Documents to answer the questions. You will use the data provided in the worksheets to complete the Ratio Analysis and to answer related questions.
    9. Complete the financial statements by filling in the Excel formulas for each grey box.
    10. Answer all questions on each tab in this workbook.
Note: Quarterly Financial Statements are not audited. Only annual financial statements are audited by a public accounting firm.
Income Statement.v2
        Choice Hotels                                Marriott International
        Common Size Income Statements    12 Months Ended                            Consolidated Statements of Income - USD ($) ($ in millions, except per share amounts)    12 Months Ended
        Consolidated Statements of Income - USD ($)    Dec. 31, 2019    % of Total revenues    Dec. 31, 2018    % of Total revenues    Dec. 31, 2017    % of Total revenues            Dec. 31, 2019    % of Total revenues    Dec. 31, 2018    % of Total revenues    Dec. 31, 2017    % of Total revenues
        REVENUES:                                REVENUES
        Royalty fees    $388,151,000    34.82%    $ 376,676,000    36.17%    $ 341,745,000    36.31%        Base management fees    $ 1,180    5.63%    $ 1,140    5.49%    $ 1,102    5.39%
        Initial franchise and relicensing fees    $27,489,000    2.47%    $ 26,072,000    2.50%    $ 23,038,000    2.45%        Franchise fees    $ 2,006    9.57%    $ 1,849    8.91%    $ 1,586    7.75%
        Procurement services    $61,429,000    5.51%    $ 52,088,000    5.00%    $ 40,451,000    4.30%        Incentive management fees    $ 637    3.04%    $ 649    3.13%    $ 607    2.97%
        Marketing and reservation system    $577,426,000    51.80%    $ 543,677,000    52.21%    $ 499,625,000    53.08%        Gross fee revenues    $ 3,823    18.23%    $ 3,638    17.53%    $ 3,295    16.11%
        Owned Hotels    $20,282,000    1.82%    $ - 0    -    $ - 0    0.00%        Contract investment amortization    $ (62)    -0.30%    $ (58)    -0.28%    $ (50)    -0.24%
        Other    $40,043,000    3.59%    $ 42,791,000    4.11%    $ 36,438,000    3.87%        Net fee revenues    $ 3,761    17.93%    $ 3,580    17.25%    $ 3,245    15.87%
        Total revenues    $1,114,820,000    100.00%    $1,041,304,000    100.00%    $941,297,000    100.00%        Owned, leased, and other revenue    $ 1,612    7.69%    $ 1,635    7.88%    $ 1,752    8.57%
        OPERATING EXPENSES:                                Cost reimbursement revenue    $ 15,599    74.38%    $ 15,543    74.88%    $ 15,455    75.57%
        Selling, general and administrative    $168,833,000    15.14%    $ 170,027,000    16.33%    $ 165,821,000    17.62%        Total revenues    $ 20,972    100.00%    $ 20,758    100.00%    $ 20,452    100.00%
        Depreciation and amortization    $18,828,000    1.69%    $ 14,330,000    1.38%    $ 6,680,000    0.71%        OPERATING COSTS AND EXPENSES
        Marketing and reservation system    $579,139,000    51.95%    $ 534,266,000    51.31%    $ 479,400,000    50.93%        Owned, leased, and other-direct    $ 1,316    6.28%    $ 1,306    6.29%    $ 1,411    6.90%
        Owned Hotels    $14,448,000    1.30%    $ - 0    0.00%    $ - 0    0.00%        Depreciation, amortization, and other    $ 341    1.63%    $ 226    1.09%    $ 229    1.12%
        Total operating expenses    $781,248,000    70.08%    $ 718,623,000    69.01%    $ 651,901,000    69.26%        General, administrative, and other    $ 938    4.47%    $ 927    4.47%    $ 921    4.50%
        Impairment of goodwill    -$3,097,000    -0.28%    $ (4,289,000)    -0.41%    $ - 0    0.00%        Merger-related costs and charges    $ 138    0.66%    $ 155    0.75%    $ 159    0.78%
        Impairment of long-lived assets    -$7,259,000    -0.65%        0.00%        0.00%        Reimbursed expenses    $ 16,439    78.39%    $ 15,778    76.01%    $ 15,228    74.46%
        Loss on sale of business    -$4,674,000    -0.42%        0.00%        0.00%        Total operating expenses    $ 19,172    91.42%    $ 18,392    88.60%    $ 17,948    87.76%
        Gain on sale of assets, net    $100,000    0.01%    $ 82,000    0.01%    $ 257,000    0.03%        OPERATING INCOME    $ 1,800    8.58%    $ 2,366    11.40%    $ 2,504    12.24%
        Operating income    $318,642,000    28.58%    $318,474,000    30.58%    $289,653,000    30.77%        Gains and other income, net    $ 154    0.73%    $ 194    0.93%    $ 688    3.36%
        OTHER INCOME AND EXPENSES, NET:                                Interest expense    $ (394)    -1.88%    $ (340)    -1.64%    $ (288)    -1.41%
        Interest expense    $46,807,000    4.20%    $ 45,908,000    4.41%    $ 45,039,000    4.78%        Interest income    $ 26    0.12%    $ 22    0.11%    $ 38    0.19%
        Interest income    -$9,996,000    -0.90%    $ (7,452,000)    -0.72%    $ (5,920,000)    -0.63%        Equity in earnings    $ 13    0.06%    $ 103    0.50%    $ 40    0.20%
        Loss on extinguishment of debt    $7,188,000    0.64%    $ - 0    0.00%    $ - 0    0.00%        INCOME BEFORE INCOME TAXES    $ 1,599    7.62%    $ 2,345    11.30%    $ 2,982    14.58%
        Other (gain) loss    -$4,862,000    -0.44%    $ 1,437,000    0.14%    $ (3,229,000)    -0.34%        Provision for income taxes    $ (326)    -1.55%    $ (438)    -2.11%    $ (1,523)    -7.45%
        Equity in net (income) loss of affiliates    $9,576,000    0.86%    $ 5,323,000    0.51%    $ 4,546,000    0.48%        NET INCOME    $ 1,273    6.07%    $ 1,907    9.19%    $ 1,459    7.13%
         Total other income and expenses, net    $48,713,000    4.37%    $45,216,000    4.34%    $40,436,000    4.30%        EARNINGS PER SHARE
        Income before income taxes    $269,929,000    24.21%    $273,258,000    26.24%    $249,217,000    26.48%        Earnings per share - basic    $ 3.83    38300.00%    $ 5.45    54500.00%    $ 3.89    38900.00%
        Income taxes    $47,051,000    4.22%    $ 56,903,000    5.46%    $ 126,890,000    13.48%        Earnings per share - diluted    $ 3.80    38000.00%    $ 5.38    53800.00%    $ 3.84    38400.00%
        Net income    $222,878,000    19.99%    $216,355,000    20.78%    $122,327,000    13.00%
        Basic earnings per share:
        Basic earnings per share (in dollars per share)    $4.00    40000%    $ 3.83    38300%    $ 2.16    21600%    
        Diluted earnings per share (in dollars per share)    $3.98    39800%    $ 3.80    38000%    $ 2.15    21500%    
        Questions:
        1. What are two accounts in the Choice Hotels income statement that show the biggest change over the past 3 years? What information in the 10-K report helps to explain these changes?
        Answer:The two major accounts which recorded the most change in the past 3 years are the selling general and administrative expenses and the income taxes. From the above calculation we can clearly see that the administrative expense over the period of three decreased by 2.47%. One of the major reasons for this decrease was the impairment of the market lease acquisition the cost of which was associated with the office building as owned by the company. Also the company's core franchising operations were expanding but the company's focus on constant control of the the administrative and selling expenses.
One of the major reasons for the decrease in the amount of income tax was the recognition of depreciation and amortization related to own hotels which has increased and also the the federal tax credit received in relation to the rehabilitation and reuse of historic buildings. The company also recorded the loss of extinguishment of debt and early redemption of unsecured senior notes and principal amount. This is also because of the increase in the interest expense, increase in equity in loss of affiliates along with the decrease in the effective income tax rate.
        2. What are two accounts in the Marriott income statement that show the biggest change over the past 3 years? What information in the 10-K report helps to explain these changes?
        Answer: The two major accounts which showed the maximum change in the past 3 years are the reimbursed expenses and the provision for income taxes. The major reason for the difference in the reimbursed expenses was due to the timing difference between the cost as incurred for centralised programs and the services in relation to the reimbursement as received from Hotel owners and franchisees. Also the receipt of the loyalty program revenue is net of expenses decreased significantly in the year 2018 and 2017 along with the spending funded by the proceeds of sale of interest in Avendra and higher expenses for reservation and marketing.
The main reason for decrease in the income tax expense was due to the decrease in the operating income of the company. Also the touch benefit from impairment charges associated with leases of different hotels and the year Income Tax expense for future remittance of accumulated earnings of non-us subsidiaries. In the year 2018 the major degrees was due to non recurring net tax expense and the reduction in the federal tax rate and also in the year 2018 there was no unexpected gain due to the sale of interest in Avendra.
        3. Which of the two companies has the financially stronger income statement? Explain your rationale thoroughly.
        Answer: In comparison of both the hotels we can see that there is a slight increase in revenue for both the companies but the operating expense of the Marriott Hotel is significantly higher in comparison to the choice hotels in terms of the total revenue. The total operating expenses approximately 70% of the total revenue where as the total operating expense of a Marriott Hotel is approximately 90% in terms of revenue. Therefore because of the above reasons choice hotels financially stronger income statement.
Balance Sheet
        Choice Hotels                        Marriott International
        Common Size Balance Sheets    12 Months Ended                    Common Size Balance Sheets    12 Months Ended
        Consolidated Balance Sheets - USD ($) $ in Thousands    Dec. 31, 2019    % of Total assets    Dec. 31, 2018    % of Total assets        Consolidated Balance Sheets - USD ($) $ in Millions    Dec. 31, 2019    % of Total assets    Dec. 31, 2018    % of Total assets
        Current assets                        Current assets
        Cash and cash equivalents    $33,766    2.44%    $ 26,642    2.34%        Cash and equivalents    $ 225    0.90%    $ 316    1.33%
        Receivables (net of allowance for doubtful accounts of $18,482 and $15,905, respectively)    $141,566    10.21%    $ 138,018    12.12%        Accounts and notes receivable, net    $ 2,395    9.56%    $ 2,133    9.00%
        Income taxes receivable    $11,126    0.80%    $ 10,122    0.89%        Prepaid expenses and other    $ 252    1.01%    $ 249    1.05%
        Notes receivable, net of allowances    $25,404    1.83%    $ 36,759    3.23%        Assets held for sale    $ 255    1.02%    $ 8    0.03%
        Other current assets    $24,727    1.78%    $ 32,243    2.83%        Total current assets    $ 3,127    12.48%    $ 2,706    11.42%
        Total current...