FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED: DECEMBER 28, 2008
COMMISSION FILE NUMBER: 0-1830
BOWL AMERICA INCORPORATED
(Exact name of registrant as specified in its charter)
| MARYLAND | 54-0646173 |
| (State of Incorporation) | (I.R.S.Employer Identification No) |
6446 Edsall Road, Alexandria, Virginia 22312
(Address of principal executive offices)(Zip Code)
(703) 941-6300
(Registrant's telephone number including area code)
Indicate by check mark 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer__ | Accelerated Filer__ | Non-Accelerated Filer __ | Smaller Reporting Company X |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes __ No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
| Shares Outstanding at | |
| January 25, 2009 | |
| Class A Common Stock, | |
| $.10 par value | 3,662,711 |
| Class B Common Stock, | |
| $.10 par value | 1,468,462 |
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| December 28, | December 30, | December 28, | December 30, | |||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Operating Revenues: | ||||||||||||||||
| Bowling and other | $ | 5,322,923 | $ | 5,358,863 | $ | 10,059,907 | $ | 9,950,568 | ||||||||
| Food, beverage and merchandise sales | 2,223,251 | 2,147,450 | 4,120,207 | 3,928,197 | ||||||||||||
| 7,546,174 | 7,506,313 | 14,180,114 | 13,878,765 | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Employee compensation and benefits | 3,369,303 | 3,409,296 | 6,820,403 | 6,838,985 | ||||||||||||
| Cost of bowling and other services | 1,810,558 | 1,703,610 | 3,781,205 | 3,407,127 | ||||||||||||
| Cost of food, beverage and merchandise sales | 679,773 | 655,079 | 1,265,121 | 1,216,840 | ||||||||||||
| Depreciation and amortization | 459,922 | 458,701 | 924,563 | 916,936 | ||||||||||||
| Recoveries | - | (157,000 | ) | (60,000 | ) | (357,000 | ) | |||||||||
| General and administrative | 250,843 | 135,775 | 466,454 | 396,401 | ||||||||||||
| 6,570,399 | 6,205,461 | 13,197,746 | 12,419,289 | |||||||||||||
| Operating Income | 975,775 | 1,300,852 | 982,368 | 1,459,476 | ||||||||||||
| Investment earnings | - | 267,237 | - | 267,237 | ||||||||||||
| Interest and dividend income | 165,877 | 188,857 | 348,254 | 397,421 | ||||||||||||
| Earnings before provision for income | ||||||||||||||||
| taxes | 1,141,652 | 1,756,946 | 1,330,622 | 2,124,134 | ||||||||||||
| Provision for income taxes | 397,800 | 630,700 | 463,800 | 759,000 | ||||||||||||
| Net Earnings | $ | 743,852 | $ | 1,126,246 | $ | 866,822 | $ | 1,365,134 | ||||||||
| Earnings per share-basic & diluted | $ | .15 | $ | .22 | $ | .17 | $ | .27 | ||||||||
| Weighted average shares outstanding | 5,134,182 | 5,135,690 | 5,134,936 | 5,135,697 | ||||||||||||
| Dividends paid | $ | 770,354 | $ | 744,677 | $ | 1,540,707 | $ | 1,489,356 | ||||||||
| Per share, dividends paid, Class A | $ | .15 | $ | .145 | $ | .30 | $ | .29 | ||||||||
| Per share, dividends paid, Class B | $ | .15 | $ | .145 | $ | .30 | $ | .29 | ||||||||
The operating results for the thirteen (13) and twenty-six (26) week periods ended December 28, 2008 are not necessarily indicative of results to be expected for the year. See notes to condensed consolidated financial statements.
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BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| December 28, | December 30, | December 28, | December 30, | |||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Net Earnings | $ | 743,852 | $ | 1,126,246 | $ | 866,822 | $ | 1,365,134 | ||||||||
| Other comprehensive earnings- net of tax | ||||||||||||||||
| Unrealized (loss) gain on available- | ||||||||||||||||
| for-sale securities net of tax of | ||||||||||||||||
| ($160,727) and ($78,476) for 13 weeks, | ||||||||||||||||
| and ($307,273) and ($35,198) for 26 weeks | (273,969 | ) | (133,844 | ) | (523,868 | ) | (60,011 | ) | ||||||||
| Add: reclassification adjustment for | ||||||||||||||||
| (gain)loss included in net income, | ||||||||||||||||
| net of tax of $98,797 | - | (160,175 | ) | - | (160,175 | ) | ||||||||||
| Comprehensive earnings | $ | 469,883 | $ | 832,227 | $ | 342,954 | $ | 1,144,948 | ||||||||
The operating results for the thirteen (13) and twenty-six (26) week periods ended December 28, 2008 are not necessarily indicative of results to be expected for the year.
See notes to condensed consolidated financial statements.
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| BOWL AMERICA INCORPORATED AND SUBSIDIARIES |
Condensed Consolidated Balance Sheets
(Unaudited)
| As of | ||||||||
| December 28, | June 29, | |||||||
| 2008 | 2008 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 3,441,923 | $ | 2,129,512 | ||||
| Short-term investments | 6,198,760 | 6,274,274 | ||||||
| Inventories | 657,170 | 800,559 | ||||||
| Prepaid expenses and other | 1,555,805 | 1,959,849 | ||||||
| Income taxes refundable | 366,984 | 366,984 | ||||||
| Current deferred income taxes | 27,141 | 27,141 | ||||||
| TOTAL CURRENT ASSETS | 12,247,783 | 11,558,319 | ||||||
| LAND, BUILDINGS & EQUIPMENT | ||||||||
| Net of accumulated depreciation of | ||||||||
| $34,254,194 and $33,397,603 | 24,266,029 | 24,860,760 | ||||||
| OTHER ASSETS: | ||||||||
| Marketable securities | 6,246,360 | 7,008,263 | ||||||
| Cash surrender value-life insurance | 504,777 | 529,628 | ||||||
| Other | 99,780 | 99,780 | ||||||
| TOTAL OTHER ASSETS | 6,850,917 | 7,637,671 | ||||||
| TOTAL ASSETS | $ | 43,364,729 | $ | 44,056,750 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 601,195 | $ | 919,760 | ||||
| Accrued expenses | 793,437 | 1,147,524 | ||||||
| Dividends payable | 769,676 | 770,353 | ||||||
| Income taxes payable | 71,590 | - | ||||||
| Other current liabilities | 1,792,378 | 332,385 | ||||||
| TOTAL CURRENT LIABILITIES | 4,028,276 | 3,170,022 | ||||||
| LONG-TERM DEFERRED COMPENSATION | 54,621 | 54,621 | ||||||
| NONCURRENT DEFERRED INCOME TAXES | 2,309,871 | 2,617,144 | ||||||
| TOTAL LIABILITIES | 6,392,768 | 5,841,787 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 3) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, par value $10 a share: | ||||||||
| Authorized and unissued, | ||||||||
| 2,000,000 shares | - | - | ||||||
| Common stock, par value $.10 a share: | ||||||||
| Authorized, 10,000,000 shares | ||||||||
| Class A issued and outstanding | ||||||||
| 3,662,711 and 3,667,228 | 366,270 | 366,722 | ||||||
| Class B issued and outstanding | ||||||||
| 1,468,462 shares | 146,846 | 146,846 | ||||||
| Additional paid-in capital | 7,472,157 | 7,478,838 | ||||||
| Accumulated other comprehensive earnings- | ||||||||
| Unrealized gain on available-for-sale | ||||||||
| securities, net of tax | 1,757,253 | 2,281,121 | ||||||
| Retained earnings | 27,229,435 | 27,941,436 | ||||||
| TOTAL STOCKHOLDERS'EQUITY | 36,971,961 | 38,214,963 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY | $ | 43,364,729 | $ | 44,056,750 | ||||
See notes to condensed consolidated financial statements.
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| BOWL AMERICA INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Twenty-six Weeks Ended | ||||||||
| December 28, | December 30, | |||||||
| 2008 | 2007 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net earnings | $ | 866,822 | $ | 1,365,134 | ||||
| Adjustments to reconcile net earnings | ||||||||
| to net cash provided by | ||||||||
| operating activities: | ||||||||
| Depreciation and amortization | 924,563 | 916,936 | ||||||
| (Gain)loss on sale of available for | ||||||||
| sale securities | - | (267,237 | ) | |||||
| Changes in assets and liabilities | ||||||||
| Decrease (increase)in inventories | 143,389 | (54,610 | ) | |||||
| Decrease (increase) in prepaid & other | 404,044 | (283,690 | ) | |||||
| Decrease in income taxes refundable | - | 36,555 | ||||||
| Increase in income taxes payable | 71,590 | 209,246 | ||||||
| Increase in other long-term assets | - | (1,000 | ) | |||||
| Decrease in accounts payable | (318,565 | ) | (261,826 | ) | ||||
| Decrease in accrued expenses | (354,087 | ) | (294,089 | ) | ||||
| Increase in other current liabilities | 1,459,993 | 1,389,995 | ||||||
| Net cash provided by | ||||||||
| operating activities | 3,197,749 | 2,755,414 | ||||||
| Cash Flows From Investing Activities | ||||||||
| Expenditures for land, building and equip | (329,832 | ) | (390,098 | ) | ||||
| Net sales & maturities of short-term | ||||||||
| investments | 75,514 | 963,576 | ||||||
| Proceeds from sale of marketable securities | - | 290,932 | ||||||
| Purchases of marketable securities | (69,238 | ) | (68,206 | ) | ||||
| Decrease (increase) in cash surrender value | 24,851 | (2,214 | ) | |||||
| Net cash provided by (used in) | ||||||||
| investing activities | (298,705 | ) | 793,990 | |||||
| Cash Flows From Financing Activities | ||||||||
| Payment of cash dividends | (1,540,707 | ) | (1,489,356 | ) | ||||
| Purchase of Class A Common Stock | (45,926 | ) | (438 | ) | ||||
| Net cash used in financing activities | (1,586,633 | ) | (1,489,794 | ) | ||||
| Net Increase in Cash and Equivalents | 1,312,411 | 2,059,610 | ||||||
| Cash and Equivalents, Beginning of period | 2,129,512 | 1,547,345 | ||||||
| Cash and Equivalents, End of period | $ | 3,441,923 | $ | 3,606,955 | ||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash Paid During the Period for: | ||||||||
| Income taxes | $ | 390,210 | $ | 513,198 | ||||
See notes to condensed consolidated financial information.
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BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Twenty-six Weeks Ended
December 28, 2008
(Unaudited)
1. Basis for Presentation
The accompanying unaudited condensed consolidated financial statements of Bowl America Incorporated and subsidiaries (the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated balance sheet as of June 29, 2008 has been derived from the Company's June 29, 2008 audited financial statements. Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for the fair presentation for the periods presented. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report to the Securities and Exchange Commission on Form 10-K for the year ended June 29, 2008.
2. Marketable Equity Securities
Marketable equity securities, available for sale, are carried at fair value in accordance with the provisions of SFAS No. 115. Fair value is determined based on quoted market prices in an active market. At December 28, 2008, the fair value of these securities was $3,415,302, with an original cost of $710,799, resulting in an unrealized gain of $2,704,503.
The telecommunications stocks included in the portfolio as of December 28, 2008 were:
| 82,112 shares of AT&T | 2,000 shares of Embarq |
| 354 shares of Fairpoint Communications | 939 shares of Idearc |
| 475 shares of LSI | 9,969 shares of Qwest |
| 40,000 shares of Sprint | 18,784 shares of Verizon |
| 11,865 shares of Vodafone | 4,079 shares of Windstream |
3. Commitments and Contingencies
The Company’s purchase commitments at December 28, 2008, are for materials, supplies, services and equipment as part of the normal course of business.
In February 2007, the Company temporarily closed an existing bowling center in Falls Church, Virginia when its roof was damaged by an ice storm. The center reopened on March 31, 2008. The Company has made a claim under its business interruption insurance for the lost income of the center from the time of its closure up to March 31, 2008, the date of reopening and will make a separate claim for lost income during the period of restoration of business. At December 28, 2008, no final settlement of the loss has taken place. The Company believes that the reasonable estimate for the amount to be recovered is at least $1,300,000 from the date of the roof damage through December 28, 2008. Of this amount, $440,000 was recognized as recovery in fiscal year 2007, $800,000 was recognized as recovery in fiscal year 2008 and the remaining $60,000 has been recognized as recovery in the six-month period ended December 28, 2008 and a receivable for that amount has been included in the category Prepaid expenses and other on the Condensed Consolidated Balance Sheets at December 28, 2008. The estimate was based on the average yearly percentage change in revenues between 2007 and 2006 comparable fiscal quarters multiplied by the prior year earnings of that center.
6
4. Employee benefit plans
The Company has two defined contribution plans with Company contributions determined by the Board of Directors. The Company has no defined benefit plan or other postretirement plan.
5. Reclassifications
Certain previous year amounts have been reclassified to conform with current year presentation.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company views a strong financial position as a major benefit to shareholders and emphasizes payment of dividends as part of its financial plan. A portion of earnings has consistently been invested to create a reserve to protect the Company in downturns in business, to capitalize on opportunities for expansion and modernization and to provide a secure source of income. For these reasons, the Company prefers a conservative approach to investing rather than taking greater risk for possible rapid growth. During times of volatility the Company places excess funds primarily in short-term, relatively liquid investments such as government backed treasury funds or certificates of deposits.
As a long-standing policy long-term investments were made in domestically domiciled stocks with the perceived potential of appreciation and safety, primarily telecommunications stocks and in the Government National Mortgage Association (“Ginnie Mae”) fund.
Telecom stocks AT&T and United Telecommunications (now Sprint) were purchased in 1979 and 1984, respectively, as an alternative to cash investments and to diversify investment holdings held in reserve. The criteria at that time were that the stock purchased be of a domestic American corporation, be liquid and be relatively stable. All stocks in our portfolio have come from spin-offs, mergers and acquisitions of the original two companies. While not all stocks in the portfolio are domestic American companies any longer, since the original purchases at an approximate cost of $630,000, we have received approximately $962,000 from mergers and sales, and over $2,500,000 in dividends.
The Company's position in marketable securities is a source of expansion capital. These marketable securities are carried at their fair value on the last day of the quarter. The value of the securities on December 28, 2008 was approximately $6,246,000, a decrease of $401,000 from September 28, 2008. During the second quarter of fiscal year 2008, the Company received approximately $291,000 from a combination of the sale of its Alltel holdings and the mandatory conversion of Avaya stock for cash. The Board of Directors reviews the portfolio and any use of this reserve at its quarterly meetings.
Cash flow provided by operating activities in the twenty-six weeks ended December 28, 2008 was $3,200,000 which was sufficient to meet day-to-day cash needs. Short-term investments consisting mainly of Certificates of Deposits, cash and cash equivalents totaled $9,641,000 at the end of the fiscal second quarter of 2009 compared to $8,404,000 at the end of fiscal 2008. In the third quarter of fiscal 2007, a bowling center in Falls Church, Virginia, was temporarily closed due to roof damage caused by an ice storm. The building remained closed for repairs through the first three quarters of fiscal 2008, reopening on March 31, 2008, the first day of the fiscal year 2008 fourth quarter.
In the six-month period ended December 28, 2008, the Company expended approximately $330,000 for the purchase of entertainment and restaurant equipment. The Company is considering additional properties for the development of new bowling centers. The Company has made no application for third party funding as cash and cash flows are sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.
Cash dividends totaling $1.5 million, or $.30 per share, were paid to shareholders during the six-month period ended December 28, 2008. In December 2008, the Company declared a quarterly $.15 per share dividend payable February 11, 2009. While no factors requiring a change in the dividend rate are yet apparent, the Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state of the business and estimate of future opportunities.
8
Overview
The Company is in the entertainment business which, by its nature, has ups and downs based on consumer tastes and whims. About half of our business comes from the steady league bowlers. The other half is from casual bowlers and groups and generally depends on the public’s discretionary budget dollars and their choices. An unstable economy can lead many to participate in entertainment that is close to home and relatively inexpensive. Bowling has those advantages. However the longer the economy remains unstable, the less willing people are to spend on other than necessities. Weather is also a factor, especially for casual bowlers. While extreme heat or rainy weather prompt people to look for indoor activities, heavy snow storms can keep customers from reaching the centers. Postponed league games are made up later in the season, but lost open play income is never recovered. Fiscal year 2009 has been and will continue to be a challenging period but our response will be helped by having the resources to be able to promote the sport.
RESULTS OF OPERATIONS
The Company temporarily closed its existing Falls Church, Virginia, bowling center in February 2007 when its roof was damaged by an ice storm. The center reopened on March 31, 2008. Nineteen centers were in operation in the current six-month period, and eighteen centers were operating during the comparable period in the prior year. All comparisons of revenues and expenses in this discussion and throughout the report are affected by the change in the number of centers in operation in fiscal years 2009 and 2008.
Net earnings were $743,852 or $.15 per share for the thirteen-week period ended December 28, 2008, and $1,126,246 or $.22 per share for the thirteen weeks ended December 30, 2007. For the current twenty-six week period net earnings per share were $866,822 or $.17 per share compared to $1,365,134 or $.27 per share for the comparable period a year ago. Approximately $.03 per share of the prior year quarter and year-to-date earnings are attributable to the after tax gain on the Company’s sale of its investment holdings in Alltel and Avaya. The operating results for fiscal 2009 periods included in this report are not necessarily indicative of results to be expected for the year.
The Company has made a claim under its business interruption insurance for lost income from its Falls Church center for the time of its closure up to the date of reopening. The Company has not yet received payment from the insurance company for the income lost during the temporary closure nor for the business restoration period after reopening, but the Company believes it will recover $60,000 of lost income, included as a credit in Operating Expenses, for the period June 30, 2008 through December 28, 2008. Estimated insurance recovery of $357,000 was included in the same category in fiscal 2008.
The following table sets forth the items in our consolidated summary of operations for the fiscal quarters ended December 28, 2008, and December 30, 2007, and the dollar and percentage changes therein.
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| Twenty-six weeks ended | ||||||||||||||||
| December 28, 2008 and December 30, 2007 | ||||||||||||||||
| 2008 | 2007 | Change | % Change | |||||||||||||
| Operating Revenues: | ||||||||||||||||
| Bowling and other | $ | 10,060 | $ | 9,951 | $ | 109 | 1.1 | % | ||||||||
| Food, beverage & merchandise sales | 4,120 | 3,928 | 192 | 4.9 | ||||||||||||
| 14,180 | 13,879 | 301 | 2.2 | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Compensation & benefits | 6,820 | 6,839 | (19 | ) | (.3 | ) | ||||||||||
| Cost of bowling & other | 3,781 | 3,407 | 374 | 11.0 | ||||||||||||
| Cost of food, beverage & merch sales | 1,265 | 1,217 | 48 | 3.9 | ||||||||||||
| Depreciation & amortization | 925 | 917 | 8 | .9 | ||||||||||||
| Recoveries | (60 | ) | (357 | ) | 297 | 83.2 | ||||||||||
| General & administrative | 467 | 396 | 71 | 17.7 | ||||||||||||
| 13,198 | 12,419 | 779 | 6.3 | |||||||||||||
| Operating Income | 982 | 1,460 | (478 | ) | (32.7 | ) | ||||||||||
| Interest & dividend income | 349 | 397 | (48 | ) | (12.3 | ) | ||||||||||
| Investment earnings | - | 267 | (267 | ) | (100.0 | ) | ||||||||||
| Earnings before taxes | 1,331 | 2,124 | (793 | ) | (37.3 | ) | ||||||||||
| Income taxes | 464 | 759 | 295 | 38.8 | ||||||||||||
| Net Earnings | $ | 867 | $ | 1,365 | $ | (498 | ) | (36.5 | ) | |||||||
Operating Revenues
Total operating revenues increased $40,000 to $7,546,000 in the most recent quarter and decreased $771,000 to $7,506,000 in the three-month period ended December 30, 2007. For the current fiscal six-month period operating revenues were up $301,000 versus a decrease of $1,540,000 in the comparable six-month period a year ago. The reopening of Falls Church and increased traffic at some centers were responsible for the increases in the current periods. The prior year negative changes result primarily from comparison to a period when Falls Church was open and a new site was in operation for the full quarter and six-month periods. Bowling and other revenue increased $36,000 in the quarter and $109,000 in the year-to-date period ended December 28, 2008. Prior year comparable three and six month period revenues showed decreases of $547,000 and $1,088,000, respectively.
Food, beverage and merchandise sales were up $76,000 or 3% and $192,000 or 5% in the current year quarter and six-month period, respectively. Cost of sales increased 4% in both of the respective three and six month periods due to higher sales.
Operating Expenses
Operating expenses were up $365,000 and $779,000 or 6% in both the current three-month period and six-month periods, respectively, versus decreases of $523,000 or 8% and $823,000 or 6% in the three and six month periods last year, respectively. Employee compensation and benefits were down $128,000 and $136,000 equaling decreases of 4% and 2% in the current year three and six-month periods, respectively. In the prior year comparable periods the category was up $270,000 and $523,000 or 8% in both of the prior year comparable periods, respectively. Included in this category of expense are contributions to our two benefit plans, both of which are defined contribution plans. There is no additional obligation beyond the current year contribution.
10
Cost of bowling and other services increased $374,000 or 11% versus a decrease of $130,000 or 4% in the six-month periods ended December 28, 2008 and December 30, 2007, respectively. Maintenance and repair costs were up $55,000 or 15% in the fiscal 2009 six-month period and were down $49,000 or 14% in the six-month period ended December 30, 2007. The current year period includes more frequent than normal repairs to signs and parking lot lights. Advertising costs during the current year twenty-six weeks period were up $89,000 or 29% and decreased 11% in the prior year comparable period. For the three month periods ended December 28, 2008 and December 30, 2007, respectively, utility costs were up $49,000 or 14% and $17,000 or 5%. In the six-month current and prior year periods utility costs were up $125,000 or 17% and $12,000 or 2%, respectively. Colder weather than last year and higher fuel prices contributed to the current year increases.
Supplies and services expenses increased 6% for the current year three-month period and decreased 13% in last year’s three-month period. The changes partially related to the status of the Falls Church location.
Rent expense decreased 8% in the current year-to-date period and increased 12% in the prior year comparable period mainly due to changes in percentage rent. Insurance expense excluding health insurance increased 3% in the current year to date period and decreased 7% in last year’s comparable period.
Depreciation and amortization expense was flat in the current year six-month period versus a decrease of 4% in the prior year six-month period when no depreciation was expensed for the closed location.
Operating income in the current six-month period of fiscal 2009 decreased approximately 33% to $982,000 from $1.4 million in fiscal 2008.
Interest and Dividend Income
Interest and dividend income decreased $49,000 and $25,000 in the fiscal 2009 and 2008 year-to-date periods, respectively, due to lower interest rates on investments.
Investment Earnings
In the prior year quarter, the Company recorded a pre-tax gain of $267,000 from the sale of Alltel stock and the mandatory exchange for cash of its Avaya holdings.
CRITICAL ACCOUNTING POLICIES
Management has identified accounting for marketable investment securities under SFAS 115 (“Accounting for Certain Investments in Debt and Equity Securities”) as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the captions of Short-term investments and Marketable equity securities. The Company exercises judgment in determining the classification of its investment securities as available-for-sale and in determining their fair value. The Company records these investments at their fair value with the unrealized gain or loss recorded in accumulated other comprehensive income, a component of stockholders’ equity, net of deferred taxes. Additionally, from time to time the Company must assess whether write-downs are necessary for other than temporary declines in value.
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Management has identified accounting for the impairment of long-lived assets under SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the caption of Land, Buildings and Equipment. The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable. In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets. An impairment loss equal to the difference between the assets’ fair value and carrying value is recognized when the estimated future cash flows are less than the carrying amount.
ITEM 4. CONTROLS AND PROCEDURES.
The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of December 28, 2008. There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the quarter ended December 28, 2008, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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BOWL AMERICA INCORPORATED AND SUBSIDIARIES
S.E.C. FORM 10-Q
PART II - OTHER INFORMATION
Item 2. Issuer Purchases of Equity Securities
| Maximum number | ||||||||||||||||||
| (or approximate | ||||||||||||||||||
| Total number of | dollar value of | |||||||||||||||||
| shares purchased | shares that may | |||||||||||||||||
| as part of publicly | yet be purchased | |||||||||||||||||
| Total number of | Average price | announced plans | under the plans or | |||||||||||||||
| Period | shares purchased | paid per share | or programs | programs | ||||||||||||||
| 11/1/08- | ||||||||||||||||||
| 11/31/08 | 3,777 | $10.20 | - | - | ||||||||||||||
| 12/1/08- | ||||||||||||||||||
| 12/31/08 | 740 | $10.00 | - | - | ||||||||||||||
| Total | 4,517 | $10.17 | - | - | ||||||||||||||
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of shareholders held on December 2, 2008, the Class A shareholders approved the appointment of Director Warren T. Braham to the Company Board of Directors for a one year period to expire at the 2009 Annual Meeting. The votes were cast as follows:
| For 2,777,632 | Withheld 10,970 |
At the annual meeting of shareholders held on December 2, 2008, the Class A shareholders approved the appointment of Director Allan L. Sher to the Company Board of Directors for a one year period to expire at the 2009 Annual Meeting. The votes were cast as follows:
| For 2,777,658 | Withheld 10,944 |
At the annual meeting of shareholders held December 2, 2008, the Class B shareholders approved the appointment of Merle Fabian, Leslie H. Goldberg, Stanley H. Katzman, A. Joseph Levy, Ruth Macklin and Cheryl Dragoo, to the Company Board of Directors for a one year period to expire at the 2009 Annual Meeting. The votes were cast as follows:
| For 14,680,660 | Withheld 0 |
Item 6. Exhibits.
| 20 | Press release issued February 10, 2009 (furnished herewith) |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith |
| 32 | Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 filed herewith |
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Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Bowl America Incorporated | |
| (Registrant) | |
| Date: February 10, 2009 | By: Leslie H. Goldberg |
| Leslie H. Goldberg, President | |
| Date: February 10, 2009 | By: Cheryl A. Dragoo |
| Cheryl A. Dragoo, Controller |
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