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 4/30/1999
_____ 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 : $5,791,178.
As of April 30, 1999 the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was : Please refer to Item 5.
As of April 30, 1999 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 Tradition Francaise 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 6 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 1997 a new three
year contract was negotiated which expires on 11/30/2000.
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 1999 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. According to the
various Internet information services the price range during the fiscal
year was between $6.125 and $11 per share.
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, 1999 there were 521 holders of record of Common Stock.
-2-
The schedule of dividends paid since 1986 is as follows:
Record Date Date Payable Amount
May 3,1999 Jun 4,1999 .70
Nov 9,1998 Dec 4,1998 .20
May 1,1998 Jun 5,1998 .70
Nov 10,1997 Dec 5,1997 .20
May 1,1997 Jun 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 $5,320,145 in Fiscal year 1998
and $5,791,178 in Fiscal year 1999.
A BREAKDOWN OF SALES FOR THE TWO YEAR PERIOD FOLLOWS :
1999 1998
ROOMS $5,201,084 $4,681,249
TELEPHONE 130,329 164,319
RENTALS 245,121 272,239
OTHER INCOME 214,644 202,338
TOTAL REVENUE $5,791,178 $5,320,145
The results of Swiss Chalet, Inc.`s (The "Company") operations during
the fiscal year ending April 30, 1999 broke new records in spite of a poor
start and two large bad debt write-offs. Operating expenses remained well
controlled and the signing of a three year contract with the unionized
employees in November 1997 has helped maintain stability in this area. As
some of our competitors were damaged during Hurricane Georges and have
still not reopened the competitive pressures in our price range have eased
to the point that we expect an occupancy much better than average for the
traditionally slow summer season. As reopening dates for these closed
properties remain uncertain it is difficult to predict how long these
favorable market conditions will continue, however, management will remain
flexible in adapting its rate policies to changing conditions.
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 6 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, 1999.
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 seven (7) directors all
of whom were elected for a one(1) year term on October 17,1998 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 47
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 94
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 68
-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 68
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 44
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 55
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 60
We regret to report that Mr. Wallace Valencia who also served as
a director died on May 16,1998. His loss is deeply felt by all his
colleagues.
-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, 1999, 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, 1999 was as follows :
SALARY BONUS STOCK OTHER
====== ===== ===== =====
B.Chester Hryniewicz $16,200 $4,128 NONE -
No employee, executive, or officer received compensation in excess of
$100,000 during the fiscal year.
During the fiscal year ended April 30, 1999 the directors of the
Corporation were paid a fee of $200 for each meeting attended . Aggregate
Directors Fees totalled $5,000.
-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 15, 1999 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 5.02%
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 .96
John Bradley 15,212 1.09
B.Chester Hryniewicz 70,299 5.02
Harvey Litwin 64,345(2) 4.59
Jose Ramirez 8,000 .57
Peter D. Somech 55,365 3.95
Gustavo Velez Toro 29,981 2.14
All directors and officers
as a group (7 persons) 256,720 18.32
(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, 1999 and 1998
Statements of Operations for the years ended
April 30, 1999 and 1998
Statement of Shareholders' Equity for the years
ended April 30, 1999 and 1998
Statements of Cash Flows for the years ended
April 30, 1999 and 1998
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, 1999.
-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
June 15, 1999
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
June 15, 1999 June 15, 1999
_________________________ _________________________
GUSTAVO VELEZ TORO PETER D. SOMECH
Executive Vice President and Treasurer,Director and
Director Chief Financial Officer
June 15, 1999 June 15, 1999
-10-
EXHIBIT 11
SWISS CHALET, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED APRIL 30
1999 1998
Net Income $1,927,835 $1,650,395
Weighted Average Number 1,401,162 1,401,162
of Shares Outstanding
Net Earnings Per $ 1.38 1.18
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, 1999
-E2-
SWISS CHALET, INC.
FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS' REPORT
YEARS ENDED APRIL 30, 1999 AND 1998
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 7-12
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, 1999 and 1998, 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, 1999 and 1998, 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 4, 1999.
Stamp Number 1591560 was
affixed to the original
of this report
1
SWISS CHALET, INC.
BALANCE SHEETS - APRIL 30, 1999 AND 1998.
ASSETS
Current assets: 1999 1998
Cash and cash equivalents $3,468,285 $1,637,807
Securities held to maturity 409,503 2,057,709
Accounts receivable, net of allowance for
doubtful accounts of $54,028 in 1999 and
$40,000 in 1998 473,779 391,765
Other receivables 2,359 3,134
Inventories, supplies 43,611 65,808
Prepaid:
Expenses 32,809 32,958
Income Tax 7,714
Total current assets 4,430,346 4,196,895
Property, plant and equipment, net 3,553,576 2,964,431
Other assets 113,110 97,569
$8,097,032 $7,258,895
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,903 $ 38,487
Accrued expenses 758,946 633,533
Dividends payable 1,096,805 1,080,683
Income tax payable 12,497
Total current liabilities 1,906,151 1,752,703
Other liabilities, deferred compensation plan
liability 109,100 91,200
Shareholders' equity
Common stock,$0.50 stated value; authorized
4,000,000 shares; issued and outstanding
1,401,162 shares in 1999 and 1998 700,581 700,581
Capital in excess of stated value 24,069 24,069
Retained earnings 5,357,131 4,690,342
6,081,781 5,414,992
$8,097,032 $7,258,895
See notes to financial statements. 2
SWISS CHALET, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1999 AND 1998
1999 1998
Revenues:
Rooms $5,201,084 $4,681,249
Telephone 130,329 164,319
Rentals and other income 459,765 474,577
5,791,178 5,320,145
Expenses:
Departmental:
Cost of sales 87,868 87,830
Payroll and related 1,252,270 1,179,290
Other 478,910 520,564
Administrative and general 863,078 762,492
Marketing 159,716 159,002
Property operation, maintenance and energy 563,088 553,139
Property taxes and insurance 106,523 98,162
Depreciation 272,036 239,856
3,783,489 3,600,335
Income before income taxes 2,007,689 1,719,810
Income taxes 79,854 69,415
Net income $1,927,835 $1,650,395
Earnings per common share, net income $ 1.38 $ 1.18
See notes to financial statements. 3
SWISS CHALET, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1999 AND 1998
Capital in
excess of
stated value Share -
Common stock of Retained holders
Shares Amount common stock earnings equity
Balance, 05/01/97 1,401,162 $700,581 $ 24,069 $4,300,993 $5,025,643
Dividends on common
stock,$0.20 per share
declared in September
1997 and $0.70 per
share declared in
April 1998 (1,261,046)(1,261,046)
Net income 1,650,395 1,650,395
Balance, 04/30/98 1,401,162 700,581 24,069 4,690,342 5,414,992
Dividends on common
stock, $0.20 per share
declared in October
1998 and $0.70 per share
declared in April 1999 (1,261,046)(1,261,046)
Net income 1,927,835 1,927,835
Balance, 04/30/99 1,401,162 $700,581 $ 24,069 $5,357,131 $6,081,781
See notes to financial statements.
4
SWISS CHALET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1999 AND 1998.
Increase (decrease) in cash and cash equivalents
1999 1998
Cash flows from operating activities:
Net income $1,927,835 $1,650,395
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 272,036 239,856
Provision for doubtful accounts
receivable 78,969 5,344
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable ( 159,984) ( 15,429)
Inventories 22,197 ( 25,526)
Prepaid:
Expenses 149 7,896
Income Tax 7,714 ( 7,714)
Operating equipment 8,889 ( 11,875)
Increase (decrease) in:
Accounts payable and accrued
expenses 124,829 8,467
Deferred compensation liability 17,900 19,200
Income tax payable 12,497 ( 2,170)
Total adjustments 385,196 218,049
Net cash provided by operating
activities (carried forward) 2,313,031 1,868,444
Continued.
5
SWISS CHALET, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED APRIL 30, 1999 AND 1998
Increase (decrease) in cash and cash equivalents
1999 1998
Net cash provided by operating
activities (brought forward) 2,313,031 1,868,444
Cash flows from investing activities:
Capital expenditures ( 870,070) ( 190,720)
Redemption (acquisition) of securities
held to maturity (net) 1,648,206 (1,059,560)
Funding of deferred compensation plan ( 17,900) ( 19,200)
Collection of principal, note receivable 2,135 2,135
Net cash provided by (used in)
investment activities 762,371 (1,267,345)
Cash flows used in financing activities,
dividends paid (1,244,924) (1,245,695)
Increase (decrease) in cash and
cash equivalents 1,830,478 ( 644,596)
Cash and cash equivalents, beginning 1,637,807 2,282,403
Cash and cash equivalents, ending $3,468,285 $1,637,807
Supplemental disclosure of cash flow information
Cash paid during the year for income taxes $ 59,643 $ 79,299
Supplemental schedule of noncash financing activities
Dividends declared but unpaid $ 984,452 $ 984,364
See notes to financial statements.
6
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998
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, and held-to-maturity securities 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 instruments.
Cash equivalents:
The Company considers all certificates of deposit and U.S. Treasury bills
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, 1999 AND 1998
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 Instruments", 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 are stated
at 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 certain 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 carryforward losses. As of April 30, 1999 and 1998, 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,
1999 and 1988 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 one year.
8
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1999 AND 1998
2. CASH AND CASH EQUIVALENTS
1999 1998
Cash in Banks $ 172,267 $ 159,434
Money market fund 2,289,852
Certificates of Deposit 300,000 400,000
Treasury bills 706,166 1,078,373
$3,468,285 $1,637,807
3. PROPERTY AND EQUIPMENT:
1999 1998
Land $1,369,357 $1,369,358
Buildings and improvements 4,189,189 3,513,415
Furniture and equipment 858,371 772,014
$6,416,917 $5,654,787
Less accumulated depreciation 2,947,214 2,780,769
3,469,703 2,874,018
Operating equipment, net 83,873 90,413
$3,553,576 $2,964,431
4. OTHER ASSETS:
1999 1998
Note receivable $ 4,010 $ 6,369
Deferred compensation plan
investment 109,100 91,200
$ 113,110 $ 97,569
5. ACCRUED EXPENSES:
1999 1998
Payroll and related $ 425,679 $ 374,341
Room,property and municipal tax 106,770 94,197
Rent deposits 22,900 20,300
Professional services 34,600 33,600
Utilities 42,543 32,695
Travel agent commissions 20,945 13,005
Other 105,509 65,395
$ 758,946 $ 633,533
9
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1999 AND 1998
6. 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 income tax rate was 3.98% in 1999 and 4.04%
in 1998. Income tax savings related to the tax exemption grants,
including the effect on per share amounts, are as follows:
Year Amount Per share
1999 $678,914 $ .48
1998 $601,311 $ .43
7. 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 1999
and 1998.
10
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1999 AND 1998
8. 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. Actuarial present value of the plan's liability for benefits is
not separately determinable, therefore, they are not presented. Required
contributions were $30,000 in 1999 and 1998 respectively
9. COMMITMENTS:
a. 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 $285,430 in 1999
and $228,305 in 1998.
b. 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 $99,320 in 1999 and $100,773 in 1998
c. 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, 2001. 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.
10.YEAR 2000
The Company has assessed it's exposure to date sensitive computer
software programs that may not be operative subsequent to 1999 and has
implemented a requisite course of action to minimize Year 2000 risk
and ensure that neither significant costs nor disruption of normal
business operations are encountered. However, because there is no
guarantee that all systems of outside vendors or other entities
affecting the Company's operation will be 2000 compliant, the Company
remains susceptible to consequences of the Year 2000 issue.
11
Board of Directors
Swiss Chalet Inc.
San Juan
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 4, 1999 insofar as it relates to the financial statements and
schedules of Swiss Chalet Inc. as of April 30,1999 and 1998 and for the
years then ended.
HORWARTH VELEZ SEMPRIT & CO. PSC
June 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10KSB REPORT FOR THE YEAR AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10KSB.
</LEGEND>
<CIK> 0000095898
<NAME> SWISS CHALET , INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 3,468,285
<SECURITIES> 409,503
<RECEIVABLES> 476,138
<ALLOWANCES> 0
<INVENTORY> 43,611
<CURRENT-ASSETS> 4,430,346
<PP&E> 6,500,790
<DEPRECIATION> 2,947,214
<TOTAL-ASSETS> 8,097,032
<CURRENT-LIABILITIES> 1,906,151
<BONDS> 0
<COMMON> 700,581
0
0
<OTHER-SE> 5,381,200
<TOTAL-LIABILITY-AND-EQUITY> 8,097,032
<SALES> 5,201,084
<TOTAL-REVENUES> 5,791,178
<CGS> 87,868
<TOTAL-COSTS> 87,868
<OTHER-EXPENSES> 3,695,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,007,689
<INCOME-TAX> 79,854
<INCOME-CONTINUING> 1,927,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,927,835
<EPS-BASIC> 1.38
<EPS-DILUTED> 1.38
</TABLE>
