SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
__X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Fiscal Year ended 4/30/1997
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _________ to _________
Commission File Number O-2825
Swiss Chalet, Inc.
(Exact name of Registrant as specified in its charter)
COMMONWEALTH OF PUERTO RICO 66-020-0307
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
105 DE DIEGO AVENUE, SANTURCE, PR 00911
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number (787) 721-1200
Securities registered pursuant to Section 12(b) of the Act :
Title of each class : NONE
Securities registered pursuant to Section 12(g) of the Act :
COMMON STOCK (No Par Value)
Title of Class
Check whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES:X NO:
Check that no disclosure of delinquent filers in response to Item 405 of
Regulation SB is contained in this form and no disclosure will be
contained, to the best of the registrant's knowledge, in the Proxy
Statement incorporated by reference in Part III of this Form 10KSB or any
amendment thereto : YES ( ) NO (x) Disclosure
State issuer's revenues for it's most recent fiscal year : $5,444,014.
As of April 30, 1997 the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was : Please refer to Item 5.
As of April 30, 1997 the Registrant had 1,401,162 shares of Common Stock
Issued and Outstanding.
Documents incorporated by reference : NONE
PART I
ITEM 1 - BUSINESS
Swiss Chalet, Inc. (hereinafter referred to as the "Registrant" or the
"Company") was incorporated on April 9 1952 under laws of the Commonwealth
of Puerto Rico. It owns and operates the Hotel Pierre in San Juan, Puerto
Rico. The Hotel consists of 184 rooms and supporting facilities.
Portions of the Registrant's property that are not being utilized for its
Hotel operations are leased to E.H. Shehab Co, Inc. (a womens clothing
store),and an independently owned restaurant which is also operating the
banquet facilities.
The pastry shop is currently leased to The Village Bake Shop and additional
restaurant facilities are being provided in a small space within the main
Hotel building through a concession arrangement.
Since April 1986 the Registrant has operated under a grant of tax
exemption issued pursuant to the Tourism Incentives Act of 1983. The grant
is for a period of ten years and provides partial tax exemption from
Commonwealth of Puerto Rico income and property taxes. The grant also
provides 100% exemption from license taxes imposed by the Municipality of
San Juan. The grant requires the Registrant to invest at least 20% of it's
net income in certain training programs and improvements of the property,
among others. In March of 1993 the Registrant obtained an extension of the
above tax exemptions for a further period of ten years.
See Note 5 to the financial statements included in Item 7.
Some of the Company's employees are represented by the local chapter
of the Union de Tronquistas (Teamsters) and in November of 1994 a new three
year contract was negotiated which expires on 11/30/1997.
The Company has not received any notice of any violation of
regulations from The Environmental Protection Agency.
The hotel business in Puerto Rico is highly competitive, especially
during the summer months. The Registrant has a great deal of competitors
most of which are larger than itself. The Registrant has maintained its
competitive position by upgrading the hotel property while keeping rates at
or below those of the closest competitors in its category. For the past
three fiscal years no single customer has accounted for 10% or more of Net
Sales.
Supplies required by the Registrant in its operations are readily
available from local and mainland U.S. sources.
The Registrant is not engaged in any research activities related to
the development of new products or services or to the improvement of
existing ones.
-1-
The Registrant holds no patents, licenses, franchises or concessions,
except that the Registrant is a member of the Best Western International,
Inc. hotel organization. Registrant is connected to the central
reservations system of Best Western International, Inc.
The Registrant currently employs approximately 65 employees.
ITEM 2 - PROPERTIES
The Registrant owns a parcel of land bounded by De Diego Avenue, Loiza
Street and Del Parque Street of approximately 2.6 acres. This property is
occupied by the Hotel Pierre, E.H. Shehab clothing store, parking areas, an
unoccupied theater building and the location of a restaurant operated by a
lessee. The Company believes that it has sufficient land resources to give
adequate space for any future expansion. The Registrant's administrative
and accounting offices are maintained at this location. There were no
mortgages encumbering this property during the fiscal year.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not involved in any litigation which management
believes will materially and adversely affect its financial condition or
results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal 1997 to
a vote of security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded over-the-counter, however no
Broker is consistently making a market in the stock. As a result, there is
very little activity in the public trading market and the Company cannot
furnish reliable high or low quotations from any Broker. During the year
ended 4/30/97 the only material transaction for which the Company had price
information took place at $6 per share in February 1997
Mr. David C. Baumgarten who was the Chairman of the Board and owner of
449,713 shares of common stock died on April 26, 1995. As of the date of
preparation of the Proxy Statement none of these shares had been
distributed or otherwise disposed of. The Co-Executors of the Estate of
David C. Baumgarten are Mr. Harvey Litwin (currently a director of the
Company) and Mr. Robert Lasky.
As of April 30, 1997 there were 532 holders of record of Common Stock.
-2-
The schedule of dividends paid since 1986 is as follows:
Record Date Date Payable Amount
May 01,1997 June 6,1997 .70
Nov 11,1996 Dec 6,1996 .20
May 1, 1996 Jun 7,1996 .65
Nov 15,1995 Dec 8,1995 .15
May 1, 1995 Jun 2 1995 .55
Dec 1, 1994 Dec 9,1994 .15
May 2, 1994 Jun 3, 1994 .45
Dec 1, 1993 Dec 10,1993 .15
May 3, 1993 Jun 4, 1993 .25
Dec 1, 1992 Dec 11,1992 .15
May 1, 1992 Jun 4, 1992 .25
Dec 2, 1991 Dec 17,1991 .15
May 13,1991 Jun 4, 1991 .35
Nov 30,1990 Dec 15,1990 .15
May 1, 1990 Jun 4, 1990 .50
Dec 1, 1989 Dec 15,1989 .15
May 1, 1989 Jun 1, 1989 .25
Nov 15,1988 Dec 15,1988 .15
May 2, 1988 Jun 1, 1988 .20
Dec 10,1987 Dec 15,1987 .10
May 1, 1987 Jun 1, 1987 .15
May 1, 1986 Jun 2, 1986 .10
-3-
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues over the past two years were $5,150,376 in Fiscal year 1996
and $5,444,014 in Fiscal year 1997.
A BREAKDOWN OF SALES FOR THE TWO YEAR PERIOD FOLLOWS :
1997 1996
ROOMS $4,827,512 $4,541,302
TELEPHONE 165,567 161,723
RENTALS 262,378 268,103
OTHER INCOME 188,557 179,248
TOTAL REVENUE $5,444,014 $5,150,376
The Company had an outstanding year with consistently higher occupancy
levels ( especially in September and October 1996 when Red Cross used the
hotel as a headquarters for hurricane relief efforts in Puerto Rico).
Expenses remained well controlled and much of the increase in payroll costs
could be attributed to profit sharing based on record earnings for the 1997
fiscal year.
On April 24, 1986 the Company was granted a partial tax exemption
grant for ten years which was extended in March of 1993 for a further ten
years. The terms of these exemptions are explained more fully in Note 5 of
the Financial Statements included in this report.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of Working Capital is from funds provided
by operations. The Company believes that its excess cash from operations
will be sufficient to finance its long and short-term capital needs as
currently projected, including the payment of accrued dividends.
The Company is studying various alternatives for development of its
available property. As one of the key components in any proposal is the
construction of a multi-floor parking garage the Company is setting aside
cash reserves with the intention of substantially contributing to the
construction cost of this part of the development.
-4-
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Financial Statements of the Registrant are included as a part of
this report following Part III Item 13.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
DISCLOSURE
There were no disagreements on accounting or financial disclosure
matters with the Company's independent auditors during the two year period
ended April 30, 1997.
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The By-Laws of the Corporation presently provide that the number of
directors shall be not less than (6) six nor more than fifteen (15)
directors. At the present time the Corporation has eight (8) directors all
of whom were elected for a one (1) year term on October 5, 1996, as
follows :
NAME PRINCIPAL OCCUPATION AND DIRECTOR
OTHER INFORMATION SINCE
=================================================================
Patrick D. Baumgarten Mr.Baumgarten, son of the late 1988
David C. Baumgarten is Assistant
Controller of the Agency for
Performing Arts, Inc. (theatrical
agents), which has been his principal
occupation for more than the past five
years.
Age 45
John Bradley Chairman and Secretary of the 1963
Corporation. Mr.Bradley has been
the Chairman of the Corporation
since 1995 and Secretary since 1982.
Mr. Bradley has been Chairman of
T.C.R. Services Inc. since 1994 and
prior to that was President of
Southwire International Corp.
his principal occupations for more
than the past five years.
Age 92
B.Chester Hryniewicz President of the Corporation 1976
Mr.Hryniewicz has been President of
the Corporation since 1982.
Mr.Hryniewicz is an independent
financial consultant, which has
been his principal occupation for
more than the past five years.
Age 66
-5-
NAME PRINCIPAL OCCUPATION AND DIRECTOR
OTHER INFORMATION SINCE
=================================================================
Harvey Litwin Mr.Litwin is the Treasurer 1981
for the Agency for the Performing
Arts,Inc.(theatrical agents),
New York which has been his
principal occupation for more
than the past five years.
Age 66
Jose Ramirez Mr. Ramirez is an architect and 1991
the principal of Jose Ramirez
Associates, a local architectural
firm and acts as design consultant
for the hotel and restaurant industry.
These have been his principal
occupations for the past five years.
Age 42
Peter D. Somech Treasurer of the Corporation. 1988
Mr.Somech has been Treasurer of
the Corporation since 1985, his
principal occupation. From 1983 to
the present time Mr. Somech has also
served as Controller of the Corporation.
Age 53
Wallace Valencia Mr. Valencia is President of 1987
Valencia Shipping Agency,Inc.
(shipping agents) which has been his
principal occupation for the past
five years. He is also Vice President
of Sea Land of Puerto Rico,Inc.
A position he has occupied for more
than the past five years.
Age 69
Gustavo Velez Toro Executive Vice President of the 1977
Corporation. Mr.Velez has been
Executive Vice President of the
Corporation since 1982, his principal
occupation. From 1979 to the present
Mr. Velez has also served as General
Manager of the Hotel.
Age 58
-6-
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
requires the officers, directors, and persons owning more than 10% of the
Company's Common Stock to file reports of ownership and changes in
ownership to the Securities and Exchange Commission and are required to
furnish the Company with copies of such reports.
Based solely on review of the copies of these forms furnished to the
Company, or written representations from its officers and directors, the
Company believes that for the fiscal year ended April 30, 1997, the Company
complied in all respects with the reporting requirements of Section 16(a)
of the Securities and Exchange Act of 1934. Mr. David C. Baumgarten, who
was Chairman of the Board and owner of 449,713 shares of Common Stock, died
on April 26, 1995. The co-executors of the estate are Mr. Harvey Litwin ( a
Director of the Company) and Mr. Robert Lasky and, until these shares are
either distributed or otherwise disposed of, ownership is shown in our
records as "Estate of David C. Baumgarten".
ITEM 10 EXECUTIVE COMPENSATION
The Chief Executive Officer of the Company is Mr.B.Chester Hryniewicz
who is the Company President. His compensation paid in the fiscal year
ended April 30, 1997 was as follows :
SALARY BONUS STOCK OTHER
====== ===== ===== =====
B.Chester Hryniewicz $16,200 $4,836 NONE -
No employee, executive, or officer received compensation in excess of
$100,000 during the fiscal year.
During the fiscal year ended April 30, 1997 the directors of the
Corporation were paid a fee of $200 for each meeting attended with the
exception of two meetings of the Executive Committee where fees were
waived. Aggregate Directors Fees totalled $4,800.
-7-
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The only persons, to the knowledge of the Corporation, who
beneficially owned more than five per cent (5%) of the outstanding Common
Stock of the Corporation as of June 30, 1997 were the following:
Name & Address Number of Shares Percent of Shares
Beneficially Owned Eligible to vote
============== ================== =================
Estate of David C. Baumgarten 449,713 32.10%
c/o Harvey Litwin APA
888 7th Ave
New York, NY 10106
Pierre Lohner 85,808 6.12%
P.O. Box 6602
Santurce, P.R. 00914
B. Chester Hryniewicz 70,299 5.01%
1307 Magdalena Ave Apt 2
Condominio Placid Park
Puerto Rico 00907-1976
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
Name Number of Shares Owned Percent of
(1) Shares
===================== ====================== ==========
Patrick Baumgarten 13,518 .97
John Bradley 11,610 .83
B.Chester Hryniewicz 70,299 5.01
Harvey Litwin 64,345(2) 4.59
Jose Ramirez 8,000 .57
Peter D. Somech 55,465 3.96
Wallace Valencia 28,171 2.01
Gustavo Velez Toro 29,981 2.14
All directors and officers
as a group (8 persons) 281,389 20.08
(1) Includes securities owned by affiliates, parents, wives and
children of certain directors. Each director has voting and
investment power with respect to the shares beneficially owned
by him.
(2) Mr. Litwin is a co-executor of the late Mr. David C.Baumgarten's will
(449,713 shares). As of the date of preparation of this report none of
the shares that form part of the estate have been sold or distributed.
-8-
ITEM 13 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 8K
(A) (1) Financial Statements
The following Financial Statements of the Registrant, are
included as a part of this report.
Independent Auditors' Report
Balance Sheets as of April 30, 1997 and 1996
Statements of Operations for the years ended
April 30, 1997 and 1996
Statement of Shareholders' Equity for the years
ended April 30, 1997 and 1996
Statements of Cash Flows for the years ended
April 30, 1997 and 1996
Notes to Financial Statements
(A) (3) Exhibits
(11) Computation of Earnings per share
(22) Subsidiaries of the Company
(24) Consent of Independent Accountants
(B) REPORTS ON FORM 8K
No reports on Form 8K were filed during the three-month period ended
April 30, 1997.
--9-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SWISS CHALET, INC.
_________________________
B.CHESTER HRYNIEWICZ
President and Director
July 7, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
_________________________ _________________________
B.CHESTER HRYNIEWICZ JOHN BRADLEY
President and Director Secretary and Director
July 1, 1997 July 1, 1997
_________________________ _________________________
GUSTAVO VELEZ TORO WALLACE VALENCIA
Executive Vice President and Director
Director
July 1, 1997 July 1, 1997
_________________________
PETER D. SOMECH
Treasurer, Director, & Chief Financial Officer
July 1, 1997
-10-
EXHIBIT 11
SWISS CHALET, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED APRIL 30
1997 1996
Net Income $1,738,842 $1,608,149
Weighted Average Number 1,401,162 1,401,162
of Shares Outstanding
Net Earnings Per $ 1.24 1.15
Common Share
-E1-
EXHIBIT 22
SWISS CHALET, INC. AND SUBSIDIARY
SUBSIDIARY OF THE REGISTRANT
Subsidiary : FRASCATI, INC.
State of Incorporation : PUERTO RICO
Inactive as of April 30, 1997
-E2-
SWISS CHALET, INC.
FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS' REPORT
YEARS ENDED APRIL 30, 1997 AND 1996
CONTENTS
Page
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of operations 3
Statements of shareholders' equity 4
Statements of cash flows 5-6
Notes to financial statements 7-11
INDEPENDENT AUDITORS' REPORT
Board of Directors
Swiss Chalet, Inc.
San Juan, Puerto Rico
We have audited the accompanying balance sheets of Swiss Chalet, Inc.
as of April 30, 1997 and 1996, and the related statements of operations,
shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Swiss Chalet,
Inc. as of April 30, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally
accepted accounting principles.
HORWATH VELEZ SEMPRIT & CO. PSC
June 3, 1997.
Stamp Number 1446315 was
affixed to the original
of this report
1
SWISS CHALET, INC.
BALANCE SHEETS - APRIL 30, 1997 AND 1996.
ASSETS
Current assets: 1997 1996
Cash and cash equivalents including
certificates of deposit of $1,810,000
and U.S. Treasury Bills of $403,857 in
1997 and $2,600,000 in 1996 $2,282,403 $2,740.386
Securities held to maturity 998,149 96,000
Accounts receivable, net of allowance for
doubtful accounts of $35,0000 in 1997 and
$25,000 in 1996 381,750 370,474
Other receivables 3,064 1,750
Inventories, supplies 40,282 36,124
Prepaid expenses 40,854 29,552
Total current assets 3,746,502 3,274,286
Property, plant and equipment, net 3,001,692 2,881,068
Other assets 57,104 48,237
$6,805,298 $6,203,591
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,623 $ 22,931
Accrued expenses 620,930 596,980
Dividends payable 1,065,332 981,666
Income tax payable 2,170 16,367
Total current liabilities 1,731,055 1,617,944
Other liabilities, deferred compensation plan
liability 48,600 37,800
Shareholders' equity
Common stock,$0.50 stated value; authorized
4,000,000 shares; issued and outstanding
1,401,162 shares in 1997 and 1996 700,581 700,581
Capital in excess of stated value 24,069 24,069
Retained earnings 4,300,993 3,823,197
5,025,643 4,547,847
$6,805,298 $6,203,591
See notes to financial statements. 2
SWISS CHALET, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1997 AND 1996
1997 1996
Revenues:
Rooms $4,827,512 $4,541,302
Telephone 165,567 161,723
Rentals and other income 450,935 447,351
5,444,014 5,150,376
Expenses:
Departmental:
Cost of sales 87,035 88,120
Payroll and related 1,164,461 1,111,978
Other 528,697 502,811
Administrative and general 765,587 762,360
Marketing 157,591 162,135
Property operation, maintenance and energy 585,073 529,700
Property taxes and insurance 82,730 36,546
Depreciation 259,499 279,112
3,630,673 3,472,762
Income before income taxes 1,813,341 1,677,614
Income taxes 74,499 69,465
Net income $1,738,842 $1,608,149
Earnings per common share, net income $ 1.24 $ 1.15
See notes to financial statements. 3
SWISS CHALET, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1997 AND 1996
Capital in
excess of
stated value Share -
Common stock of Retained holders
Shares Amount common stock earnings equity
Balance, 05/01/95 1,401,162 $700,581 $ 24,069 $3,335,978 $4,060,628
Dividends on common
stock,$0.15 per share
declared in October
1995 and $0.65 per
share declared in
April 1996 (1,120,930)(1,120,930)
Net income 1,608,149 1,608,149
Balance, 04/30/96 1,401,162 700,581 24,069 3,823,197 4,547,847
Dividends on common
stock, $0.20 per share
declared in October 1996
and $0.70 per share
declared in April 1997 (1,261,046)(1,261,046)
Net income 1,738,842 1,738,842
Balance, 04/30/97 1,401,162 $700,581 $ 24,069 $4,300,993 $5,025,643
See notes to financial statements.
4
SWISS CHALET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1997 AND 1996.
Increase (decrease) in cash and cash equivalents
1997 1996
Cash flows from operating activities:
Net income $1,738,842 $1,608,149
Adjustments to reconcile net income
to net cash provided by operating
activities:
Change in the fair value of the
deferred compensation plan investment 7,600 ( 7,000)
Depreciation 259,499 279,112
Provision for doubtful accounts
receivable 7,897 9,691
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable ( 20,487) 17,751
Inventories ( 4,158) ( 4,527)
Prepaid expenses ( 11,302) 25,596
Operating equipment ( 6,787) 13,807
Increase (decrease) in:
Accounts payable and accrued
expenses 43,642 33,461
Deferred compensation liability 10,800 24,200
Income tax payable ( 14,197) 16,367
Total adjustments 272,507 408,458
Net cash provided by operating
activities (carried forward) 2,011,349 2,016,607
Continued.
5
SWISS CHALET, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1996
Increase (decrease) in cash and cash equivalents
1997 1996
Net cash provided by operating
activities (brought forward) 2,011,349 2,016,607
Cash flows from investing activities:
Capital expenditures ( 373,336) ( 38,938)
Redemption of Securities held to maturity 96,000 635,000
Acquisition of Securities held to maturity ( 998,149) ( 96,000)
Funding of deferred compensation plan ( 18,400) ( 17,200)
Principal collection from note receivable 1,933 1,750
Net cash provided by (used in)
investing activities (1,291,952 484,612
Cash flows used in financing activities,
dividends paid (1,177,380) ( 968,846)
Increase (decrease) in cash and
cash equivalents ( 457,983) 1,532,373
Cash and cash equivalents, beginning 2,740,386 1,208,013
Cash and cash equivalents, ending $2,282,403 $2,740,386
Supplemental disclosure of cash flow information
1997 1996
Cash paid during the year for income taxes $ 88,696 $ 43,024
Supplemental schedule of noncash financing activities
Dividends declared but unpaid $1,065,332 $ 981,666
See notes to financial statements.
6
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1997 AND 1996
1.NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Nature of business:
The Company owns and operates the Hotel Pierre in San Juan, Puerto Rico.
The hotel consists of 184 guest rooms and supporting facilities.
The food and beverage facilities are leased to unrelated parties.
Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and related disclosures at the date of the financial statements, and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Credit concentration:
Financial instruments which potentially subject the Company to
concentration of credit risk consist of cash and cash equivalents,
held-to-maturity securities, and accounts receivable. The Company places
its cash and cash equivalents with high credit qualified financial
institutions and, normally, limits the amount of credit exposure to any
one financial institution.Held-to maturity securities are principally
U.S Treasury Bills. Accounts receivable result mainly from credit card
charges and corporate accounts. Therefore, management believes that there
is no significant concentration of credit risk on the Company's financial
statements.
Cash equivalents:
The Company considers all certificates of deposit with an original
maturity of three months or less to be cash equivalents.
Inventories:
Inventories are stated at cost. Cost is determined on a first-in,
first-out basis.
Property, plant and equipment:
Property, plant and equipment is stated at cost. Depreciation is being
provided by use of the straight-line method over the estimated useful
lives of the related assets.
7
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED):
Fair value of financial instruments:
The Company follows Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Statements", which requires
disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial position. The
following is a summary of the estimated fair values (if determinable) of
the Company's financial instruments.
Cash and short-term investments: For cash and the short-term instruments
the carrying amount is a reasonable estimate of fair value.
Deferred compensation plan: The deferred compensation plan liability and
the carrying amount of the funds invested approximate fair value, as
determined by the market value of the investment.
Deferred compensation plan:
On April 28, 1994, the Company adopted a nonqualified deferred
compensation plan for the benefit of a select group of management
employees. In order to provide the necessary funds to satisfy its
obligation to make benefit payments pursuant to the Plan, the Company
acquired an annuity contract to invest amounts of deferred compensation.
All rights in this annuity contract rest with the Company, which is the
contract holder.
Income taxes:
Deferred income taxes are recorded, when needed, to reflect the future
tax consequences of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each fiscal year
and for carryforwards. As of April 30, 1997 and 1996, no transaction
resulted in deferred taxes.
Investments:
The Company accounts for its investments in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for certain
investments in Debt and Equity Securities". Management determines the
appropriate classification of its investments at the time of acquisition
and reassesses such determination at balance sheet date. As of April 30,
1997 securities held by the Company consisted of U.S. Treasury Bills
which were classified as held to maturities. Held to maturity securities
are carried at amortized cost, which approximates fair value, and
represent securities maturing within less than one year.
8
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1996
2. PROPERTY AND EQUIPMENT:
1997 1996
Land $1,369,358 $1,369,358
Buildings and improvements 3,395,594 3,148,035
Furniture and equipment 971,322 1,358,278
$5,736,274 $5,875,671
Less accumulated depreciation 2,813,120 3,066,354
2,923,154 2,809,317
Operating equipment, net 78,538 71,751
$3,001,692 $2,881,068
3. OTHER ASSETS:
1997 1996
Note receivable $ 8,504 $ 10,437
Deferred compensation plan
investment 48,600 37,800
$ 57,104 $ 48,237
4. ACCRUED EXPENSES:
1997 1996
Payroll and related $ 386,288 $ 358,590
Room,property and municipal tax 65,507 57,650
Rent deposits 20,300 20,300
Professional services 33,000 32,600
Utilities 36,562 51,119
Travel agent commissions 7,392 7,835
Other 71,881 68,886
$ 620,930 $ 596,980
9
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1996
5. TAX EXEMPTION GRANT:
The Company has a tax exemption grant that provides for the following
tax exemptions :
Income taxes 90%, effective on May 1, 1994. The
Company has the option to elect the ten
specific years to be covered under the
income tax exemption.
Property taxes 95% for five years commencing of January
1, 1993 and 80% thereafter to December
31, 2002.
Municipal license tax 100% from July 1, 1993 to June 30, 2003.
Under the existing income tax exemption grant, the Company is
required to invest at least 20% of its net income in certain qualified
activities which include marketing and promotion, training programs and
improvement of the property, among others.
The Company's effective tax rate was 4.28% in 1997 and 4.32% in 1996.
Income tax savings related to the tax exemption grants, including the
effect on per share amounts, are as follows:
Year Amount Per share
1997 $632,704 $ .45
1996 $635,000 $ .45
6. EARNINGS PER COMMON SHARE:
Earnings per common share were computed by dividing the net income by
the weighted average number of shares outstanding, 1,401,162 in 1997 and
1996.
10
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1996
7. PENSION PLAN:
The Company is required to contribute an average of $60 monthly per
union employee to a multiemployer pension plan maintained by the labor
union. For those union employees hired after November 30, 1994, the pension
plan contribution begins at 75% of the normal contribution, increasing by
5% annually until the normal contribution is reached. Actuarial present
value of the plan's liability for benefits is not separately determinable,
therefore, they are not presented. Required contributions were as follows:
Year Amount
1997 $ 37,600
1996 $ 33,800
8. COMMITMENTS:
A profit sharing plan calls for distribution of profits among all
union and nonunion employees based on certain percentages, varying from 2%
to 15%, applied to different levels of profits, as defined. Profit sharing
expense under this plan amounted to $248,907 in 1997 and $220,350 in 1996.
The Company is a member of the Best Western International, Inc., a
hotel organization that provides for a central reservations network. Fees
paid amounted to $98,300 in 1997 and $ 98,200 in 1996
In April 1990, The Company entered into employment contracts with the
two key management members to provide for severance benefits in the event
their employment is terminated under circumstances stated in the contracts.
The contracts are automatically renewed for twenty-four month periods, at
the option of the Company. The Company elected to renew the contract for an
additional twenty-four month period ending on March 31, 1999. Severance
benefits consist basically of six months' salary plus certain fringe
benefits. The management members are also entitled to receive the monthly
base salary multiplied by the number of completed years of full-time
employment with the Company, if they have not obtained an employment with
another employer. In no event the severance payments shall exceed the
equivalent of 18 months salary, plus the fringe benefits stated in the
contracts.
11
Board of Directors
Swiss Chalet Inc
Santurce
Puerto Rico
We hereby consent to the use in the Annual Report on Form 10-KSB under
the Securities Exchange Act of 1934 of Swiss Chalet Inc. of our report
dated June 3, 1997 insofar as it relates to the financial statements and
schedules of Swiss Chalet Inc. as of April 30,1997 and 1996 and for the
years then ended.
HORWARTH VELEZ SEMPRIT & CO. PSC
June 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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TO SUCH 10KSB.
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<NAME> SWISS CHALET , INC.
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