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 4/30/2000
_____ 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 : $6,784,257.
As of April 30, 2000 the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was : Please refer to Item 5.
As of April 30, 2000 the Registrant had 1,401,162 shares of Common Stock
Issued and Outstanding.
PART I
ITEM 1 - DESCRIPTION OF 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 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 with the exception of a leakage following
the removal of two diesel tanks. The resulting soil contamination is
presently being evaluated and corrected.
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 - DESCRIPTION OF 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, 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 2000 to a
vote of security holders through the solicitation of proxies or otherwise.
On June 20, 2000 a Proxy Statement was mailed to all stockholders in respect
of the proposed merger agreement with SCI Acquisition Inc. for a Special
Meeting to be held on July 22, 2000. A full copy of the merger agreement
was filed with the Securities and Exchange Commission on Form 8-K on May 10,
2000.
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 $7
and $9 per share.
-2-
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, 2000 there were 519 holders of record of Common Stock.
The schedule of dividends paid since 1986 is as follows:
Record Date Date Payable Amount
Nov 12,1999 Dec 10,1999 .20
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 $5,791,178 in Fiscal year 1999 and
$6,784,257 in Fiscal year 2000.
A BREAKDOWN OF SALES FOR THE TWO YEAR PERIOD FOLLOWS :
2000 1999
ROOMS $6,067,375 $5,201,084
TELEPHONE 159,094 130,329
RENTALS 265,680 245,121
OTHER INCOME 292,108 214,644
TOTAL REVENUE $6,784,257 $5,791,178
The results of Swiss Chalet, Inc.`s (The "Company") operations during the
fiscal year ending April 30, 2000 broke new records both in occupancy
percentage and in average rates. Operating expenses remained well controlled
and the resulting net gain of 30% in after-tax income is a very satisfactory
result for the Company. As most of the competitors that were damaged during
Hurricane Georges have now reopened, the competitive pressures in our price
range are beginning to increase and some softening is beginning to show in the
first quarter of the current fiscal year. 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.
Due to the terms of the proposed merger agreement, the funds that the
Company had originally set aside from tourism related activities for capital
development may be utilized as part of the extraordinary distribution as
called for in the proposed agreement.
-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 AND
FINANCIAL 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, 2000.
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16A OF THE EXCHANGE ACT
The By-Laws of the Company 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 16,1999 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 48
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 95
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 69
-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 69
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 45
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 56
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 61
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.
-6-
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, 2000, 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, 2000 was as follows :
SALARY BONUS STOCK OTHER
====== ===== ===== =====
B.Chester Hryniewicz $16,200 $4,942 NONE -
No employee, executive, or officer received compensation in excess of
$100,000 during the fiscal year.
During the fiscal year ended April 30, 2000 the directors of the Corporation
were paid a fee of $200 for each meeting attended . Aggregate Directors
Fees totaled $3,800.
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 9, 2000 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
Estate of Pierre Lohner 85,808 6.12%
c/o Phillipe Lohner
P.O.Box 6608 Loiza Sta
San Juan, P.R. 00914
B. Chester Hryniewicz 70,299 5.02%
500 S. Palm Ave #82
Sarasota
Florida 34236
-7-
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.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
-8-
ITEM 13 - EXHIBITS, LISTS AND REPORTS AND REPORTS ON FORM 8-K
(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, 2000 and 1999
Statements of Operations for the years ended
April 30, 2000 and 1999
Statement of Shareholders' Equity for the years
ended April 30, 2000 and 1999
Statements of Cash Flows for the years ended
April 30, 2000 and 1999
Notes to Financial Statements
(A) (2) Exhibits
( 2) Agreement and Plan of Merger, dated as of May 8,2000
by and between Swiss Chalet Inc. and SCI Acquisition
Inc. *
(11) Computation of Earnings per share
(21) Subsidiaries of the Company
(23) Consent of Independent Accountants
(B) REPORTS ON FORM 8-K
No reports on Form 8K were filed during the three-month period ended
April 30, 2000.
* This document is incorporated herein by reference to the Company s
Current report on Form 8-K filed with the SEC on May 10,2000.
-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.
_________________________
/s/ B. CHESTER HRYNIEWICZ
B.CHESTER HRYNIEWICZ
President and Director
June 30, 2000
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.
_________________________ _________________________
/s/ B. CHESTER HRYNIEWICZ /s/ JOHN BRADLEY
B.CHESTER HRYNIEWICZ JOHN BRADLEY
President and Director Secretary and Director
June 30, 2000 June 30, 2000
_________________________ _________________________
/s/ GUSTAVO VELEZ TORO /S/ PETER D. SOMECH
GUSTAVO VELEZ TORO PETER D. SOMECH
Executive Vice President and Treasurer, Director and
Director Chief Financial Officer
June 30, 2000 June 30, 2000
-10-
EXHIBIT 11
SWISS CHALET, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED APRIL 30
2000 1999
Net Income $2,519,338 $1,927,835
Weighted Average Number 1,401,162 1,401,162
of Shares Outstanding
Net Earnings Per $ 1.80 1.38
Common Share
-E1-
EXHIBIT 21
SWISS CHALET, INC. AND SUBSIDIARY
SUBSIDIARY OF THE REGISTRANT
Subsidiary : FRASCATI, INC.
State of Incorporation : PUERTO RICO
Inactive as of April 30, 2000
-E2-
SWISS CHALET, INC.
FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS' REPORT
YEARS ENDED APRIL 30, 2000 AND 1999
CONTENTS
Page
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of income 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, 2000 and 1999, 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, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ HORWATH VELEZ SEMPRIT & CO PSC
HORWATH VELEZ SEMPRIT & CO. PSC
June 9, 2000.
Stamp Number 1664115 was
affixed to the original
of this report
1
SWISS CHALET, INC.
BALANCE SHEETS - APRIL 30, 2000 AND 1999.
ASSETS
Current assets: 2000 1999
Cash and cash equivalents $5,397,790 $3,468,285
Securities held to maturity 409,503
Accounts receivable, net of allowance for
doubtful accounts of $15,000 in 2000 and
$54,028 in 1999 531,017 473,779
Other receivables 2,859 2,359
Inventories, supplies 49,540 43,611
Prepaid:
Expenses 38,450 32,809
Total current assets $6,019,656 4,430,346
Property, plant and equipment, net 3,387,008 3,553,576
Other assets 238,604 113,110
$9,645,268 $8,097,032
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,814 $ 37,903
Accrued expenses 898,641 758,946
Dividends payable 131,944 1,096,805
Income tax payable 22,783 12,497
Total current liabilities 1,087,182 1,906,151
Other liabilities, deferred compensation plan
liability 237,200 109,100
Shareholders' equity
Common stock,$0.50 stated value; authorized
4,000,000 shares; issued and outstanding
1,401,162 shares in 2000 and 1999 700,581 700,581
Capital in excess of stated value 24,069 24,069
Retained earnings 7,596,236 5,357,131
8,320,886 6,081,781
$9,645,268 $8,097,032
See notes to financial statements. 2
SWISS CHALET, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 2000 AND 1999
2000 1999
Revenues:
Rooms $6,067,375 $5,201,084
Telephone 159,094 130,329
Rentals and other income 557,788 459,765
6,784,257 5,791,178
Expenses:
Departmental:
Cost of sales 94,182 87,868
Payroll and related 1,395,630 1,252,270
Other 640,707 478,910
Administrative and general 900,436 863,078
Marketing 164,829 159,716
Property operation, maintenance and energy 575,915 563,088
Property taxes and insurance 99,123 106,523
Depreciation 291,386 272,036
4,162,208 3,783,489
Income before income taxes 2,622,049 2,007,689
Income taxes 102,711 79,854
Net income $2,519,338 $1,927,835
Earnings per common share, net income $ 1.80 $ 1.38
See notes to financial statements. 3
SWISS CHALET, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30, 2000 AND 1999
Capital in
excess of
stated value Share -
Common stock of Retained holders
Shares Amount common stock earnings equity
Balance, 05/01/98 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
Dividends on common
stock, $0.20 per share
declared in October ( 280,233)( 280,233)
1999
Net income 2,519,338 2,519,338
Balance, 04/30/00 1,401,162 $700,581 $ 24,069 $7,596,236 $8,320,886
See notes to financial statements.
4
SWISS CHALET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 2000 AND 1999.
2000 1999
Cash flows from operating activities:
Net income $2,519,338 $1,927,835
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 291,386 272,036
Provision for doubtful accounts
receivable 1,206 78,969
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable ( 56,338) ( 159,984)
Inventories ( 5,929) 22,197
Prepaid:
Expenses ( 5,641) 7,863
Operating equipment ( 9,518) 8,889
Increase (decrease) in:
Accounts payable and accrued
expenses 135,606 124,829
Deferred compensation liability 18,400 17,900
Income tax payable 10,286 12,497
Total adjustments 379,458 385,196
Net cash provided by operating
activities (carried forward) 2,898,796 2,313,031
Continued.
5
SWISS CHALET, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED APRIL 30, 2000 AND 1999
2000 1999
Net cash provided by operating
activities (brought forward) 2,898,796 2,313,031
Cash flows from investing activities:
Capital expenditures ( 115,300) ( 870,070)
Redemption (acquisition) of securities
held to maturity, net 409,503 1,648,206
Funding of deferred compensation plan ( 18,400) ( 17,900)
Collection of principal, note receivable 2,135
Net cash provided by (used in)
investment activities 275,803 762,371
Cash flows used in financing activities,
dividends paid (1,245,094) (1,244,924)
Increase (decrease) in cash and
cash equivalents 1,929,505 1,830,478
Cash and cash equivalents, beginning 3,468,285 1,637,807
Cash and cash equivalents, ending $5,397,790 $3,468,285
Supplemental disclosure of cash flow information
Cash paid during the year for income taxes $ 92,425 $ 59,643
Supplemental schedule of noncash financing activities
Dividends declared but unpaid $ 3,745 $ 984,452
Retirement of fully depreciated assets $ 322,007 $ 107,940
Change in fair value of deferred
compensation assets $ 109,700 $ -
See notes to financial statements.
6
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000 AND 1999
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. Held-to maturity securities are
principally U.S Treasury Bills. Accounts receivable result mainly from
credit card charges and corporate accounts. Therefore , management
beleves 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, 2000 AND 1999
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 cash equivalents 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 the funds available in the plan. 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, 2000 and 1999, no transaction
resulted in deferred taxes.
Investments:
In 1999 the Company accounted 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 securities held by the Company consisted of U.S.
Treasury Bills which were classified as held-to-maturity securities and
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, 2000 AND 1999
2. CASH AND CASH EQUIVALENTS:
2000 1999
Cash in Banks $ 178,871 $ 172,267
Money market fund 105,992 2,289,852
Certificates of Deposit 360,000 300,000
Treasury bills 4,752,927 706,166
$5,397,790 $3,468,285
3. PROPERTY AND EQUIPMENT:
2000 1999
Land $1,369,357 $1,369,357
Buildings and improvements 4,117,344 4,189,189
Furniture and equipment 723,509 858,371
$6,210,210 $6,416,917
Less accumulated depreciation 2,916,593 2,947,214
3,293,617 3,469,703
Operating equipment, net 93,391 83,873
$3,387,008 $3,553,576
4. OTHER ASSETS:
2000 1999
Note receivable $ 1,404 $ 4,010
Deferred compensation plan
investment 237,200 109,100
$ 238,604 $ 113,110
5. ACCRUED EXPENSES:
2000 1999
Payroll and related $ 578,497 $ 425,679
Room,property and municipal tax 111,908 106,770
Rent deposits 13,191 22,900
Professional services 34,875 34,600
Utilities 35,148 42,543
Travel agent commissions 13,798 20,945
Other 111,224 105,509
$ 898,641 $ 758,946
9
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 2000 AND 1999
6. TAX EXEMPTION GRANT:
The Company has a tax exemption grant that provides for the following
tax exemptions :
Income taxes 90%, to April 30, 2003. The Company has
the option to elect the ten specific
years to be covered under the income tax
exemption.
Property taxes 80% 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 4.08% in 2000 and 4.19%
in 1999. Income tax savings related to the tax exemption grants,
including the effect on per share amounts, are as follows:
Year Amount Per share
2000 $891,625 $ .64
1999 $678,914 $ .48
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 2000
and 1999.
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 approximately $32,000 in 2000 and $30,000 in 1999.
10
SWISS CHALET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 2000 AND 1999
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 $400,147 in 2000
and $285,430 in 1999.
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 $109,148 in 2000 and $99,320 in 1999
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. Severance benefits consist basically of six-month
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 eighteen month
salary, plus the fringe benefits stated in the contracts. In April
1999, the Board of Directors approved an amendment into the contract
that specifies that if the corporation changes in control, they shall
have the option to receive a lump sum of 85% of the total benefits
( as defined in the contract), should they no longer wish to continue
in the Company.
10.SUBSEQUENT EVENT
On May 8, 2000 the Company entered into an agreement and plan of
merger with SCI Acquisition Inc. As a result of the merger, all the
outstanding shares of common stock of the Company will be converted
into the right to receive: a) an aggregate amount of $17,700,000 or
approximately $12.63 per share in cash on account of the merger, b)
an extraordinary cash distribution in an amount equal to its
available cash less a cash reserve that may range from $400,000 to
$575,000, and that will be used to settle certain liabilities, and c)
any funds remaining in the cash reserve on the eighteen month
anniversary of the effective date and not applied to pay liabilities
as provided under the agreement shall be considered additional
consideration and shall be distributed pro-rata to the holders of
record of Company common stock immediately prior to the effective
date, provided such persons have surrendered their old certificates.
11
EXHIBIT 23
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 9, 2000 insofar as it relates to the financial statements and
schedules of Swiss Chalet, Inc. as of April 30,2000 and 1999 and for the
years then ended.
/s/ HORWATH VELEZ SEMPRIT & C0 PSC
HORWARTH VELEZ SEMPRIT & CO. PSC
June 9, 2000
