FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED:OCTOBER 2, 2016
COMMISSION FILE NUMBER:001-7829
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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant wasrequired 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YesX No __
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions 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 __ NoX
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 |
| November 11, 2016 |
Class A Common Stock, |
|
$.10 par value | 3,746,454 |
|
|
Class B Common Stock, |
|
$.10 par value | 1,414,517 |
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended | ||||||||
October 2, | September 27, | |||||||
2016 | 2015 | |||||||
Operating Revenues: | ||||||||
Bowling and other | $ | 3,577,379 | $ | 3,474,033 | ||||
Food, beverage and merchandise sales | 1,486,957 | 1,446,130 | ||||||
Total Operating Revenue | 5,064,336 | 4,920,163 | ||||||
Operating Expenses: | ||||||||
Employee compensation and benefits | 2,681,333 | 2,746,545 | ||||||
Cost of bowling and other services | 1,469,370 | 1,510,612 | ||||||
Cost of food, beverage and merchandise sales | 482,275 | 469,342 | ||||||
Depreciation and amortization | 292,694 | 336,187 | ||||||
General and administrative | 230,776 | 231,781 | ||||||
Total Operating Expenses | 5,156,448 | 5,294,467 | ||||||
Operating Loss | (92,112 | ) | (374,304 | ) | ||||
Interest, dividend and other income | 93,714 | 146,528 | ||||||
Interest expense | 2,722 | - | ||||||
Loss before provision for income tax benefit | (1,120 | ) | (227,776 | ) | ||||
Provision for income tax benefit | (400 | ) | (79,700 | ) | ||||
Net loss | $ | (720 | ) | $ | (148,076 | ) | ||
Net loss per share-basic & diluted | (.00 | ) | (.03 | ) | ||||
Weighted average shares outstanding | 5,160,971 | 5,160,971 | ||||||
Dividends paid | $ | 877,365 | $ | 877,365 | ||||
Per share, dividends paid, Class A | $ | .17 | $ | .17 | ||||
Per share, dividends paid, Class B | $ | .17 | $ | .17 | ||||
The operating results for the thirteen (13) week period ended October 2, 2016 are not necessarily indicative of results to be expected for the year. See notes to condensed consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Thirteen Weeks Ended | ||||||||
October 2, | September 27, | |||||||
2016 | 2015 | |||||||
Net Loss | $ | (720 | ) | $ | (148,076 | ) | ||
Other comprehensive earnings-net of tax | ||||||||
Unrealized loss on available-for-sale securities netof tax benefit of $116,046 and $180,812 | (187,618 | ) | (293,762 | ) | ||||
Reclassification adjustment for loss (gain) included in net loss, net of tax (benefit) of ($2,227) and $9,258 | 3,619 | (15,041 | ) | |||||
Comprehensive Loss | $ | (184,719 | ) | $ | (456,879 | ) | ||
The operating results for the thirteen (13) week period ended October 2, 2016 are not necessarily indicative of results to be expected for the year.
See notes to condensed consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
As of | ||||||||
October 2, | July 3, | |||||||
2016 | 2016 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 571,487 | $ | 986,193 | ||||
Short-term investments | 485,452 | 484,558 | ||||||
Inventories | 591,287 | 561,217 | ||||||
Prepaid expenses and other | 426,559 | 664,379 | ||||||
Income taxes refundable | 187,060 | - | ||||||
TOTAL CURRENT ASSETS | 2,261,845 | 2,696,347 | ||||||
LAND, BUILDINGS & EQUIPMENT, net ofaccumulated depreciation of $41,268,477 and $40,987,543 | 19,336,340 | 19,523,856 | ||||||
OTHER ASSETS: | ||||||||
Marketable investment securities | 8,540,728 | 8,824,456 | ||||||
Cash surrender value-life insurance | 740,161 | 740,161 | ||||||
Other | 66,315 | 66,315 | ||||||
TOTAL OTHER ASSETS | 9,347,204 | 9,630,932 | ||||||
TOTAL ASSETS | $ | 30,945,389 | $ | 31,851,135 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 439,729 | $ | 660,711 | ||||
Accrued expenses | 773,467 | 1,193,463 | ||||||
Dividends payable | 877,365 | 877,365 | ||||||
Income taxes payable | - | 207,840 | ||||||
Short-term note payable | 500,000 | - | ||||||
Other current liabilities | 940,073 | 325,982 | ||||||
Current deferred income taxes | 27,850 | 27,850 | ||||||
TOTAL CURRENT LIABILITIES | 3,558,484 | 3,293,211 | ||||||
LONG-TERM DEFERRED COMPENSATION | 23,620 | 23,620 | ||||||
NONCURRENT DEFERRED INCOME TAXES | 2,273,354 | 2,384,962 | ||||||
TOTAL LIABILITIES | 5,855,458 | 5,701,793 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
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 3,746,454 | 374,645 | 374,645 | ||||||
Class B issued and outstanding 1,414,517 | 141,452 | 141,452 | ||||||
Additional paid-in capital | 7,854,108 | 7,854,108 | ||||||
Accumulated other comprehensive earnings- | ||||||||
Unrealized gain on available-for-sale | ||||||||
securities, net of tax | 2,805,261 | 2,986,587 | ||||||
Retained earnings | 13,914,465 | 14,792,550 | ||||||
TOTAL STOCKHOLDERS' EQUITY | 25,089,931 | 26,149,342 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 30,945,389 | $ | 31,851,135 | ||||
See notes to condensed consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended | ||||||||
October 2, | September 27, | |||||||
2016 | 2015 | |||||||
Cash Flows From Operating Activities | ||||||||
Net loss | $ | (720 | ) | $ | (148,076 | ) | ||
Adjustments to reconcile net lossto net cash provided byoperating activities: | ||||||||
Depreciation and amortization | 292,694 | 336,187 | ||||||
Loss on involuntary cancellation of available-for-sale securities | 5,845 | - | ||||||
Gain on sale of available-for-sale securities | - | (24,299 | ) | |||||
Changes in assets and liabilities | ||||||||
Increase in inventories | (30,070 | ) | (62,507 | ) | ||||
Decrease in prepaid & other | 237,820 | 298,485 | ||||||
Increase in income taxes refundable | (187,060 | ) | (26,000 | ) | ||||
Increase in deferred tax asset | - | (79,700 | ) | |||||
Decrease in accounts payable | (220,982 | ) | (258,733 | ) | ||||
Decrease in accrued expenses | (419,996 | ) | (158,099 | ) | ||||
Decrease in income taxes payable | (207,840 | ) | - | |||||
Increase in other current liabilities | 614,091 | 614,504 | ||||||
Net cash provided by operating activities | 83,782 | 491,762 | ||||||
Cash Flows From Investing Activities | ||||||||
Expenditures for land, building and equipment | (105,178 | ) | (19,381 | ) | ||||
Net (purchases) sales & maturities of short-term investments | (894 | ) | (12 | ) | ||||
Proceeds from sale of available-for-sale securities | - | 1,000,000 | ||||||
Net purchases of marketable securities | (15,051 | ) | (18,578 | ) | ||||
Net cash (used in) provided by investing activities | (121,123 | ) | 962,029 | |||||
Cash Flows From Financing Activities | ||||||||
Proceeds from note payable | 500,000 | - | ||||||
Payment of cash dividends | (877,365 | ) | (877,365 | ) | ||||
Net cash used in financing activities | (377,365 | ) | (877,365 | ) | ||||
NetChangein Cash and Equivalents | (414,706 | ) | 576,426 | |||||
Cash andCashEquivalents, Beginning of period | 986,193 | 778,367 | ||||||
Cash andCashEquivalents, End of period | $ | 571,487 | $ | 1,354,793 | ||||
Supplemental Disclosures of Cash Flow Information | ||||||||
Cash Paid During the Period for: | ||||||||
Interest | 2,722 | - | ||||||
Income taxes | $ | 394,500 | $ | 26,000 | ||||
See notes to condensed consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Weeks Ended
October 2, 2016
(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 July 3, 2016 has been derived from the Company's 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 of the Company’s financial position and results of operations for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended July 3, 2016.
2. Investments
The Company’s investments are categorized as available-for-sale. Short-term investments consist of certificates of deposits with maturities of generally three months to one year. Equity securities consist primarily of telecommunications stocks. Mutual funds consist of federal agency mortgage backed securities (Ginnie Mae). The fair value of the Company’s investments at October 2, 2016 and July 3, 2016 were as follows:
October2, 2016 Description | Fair Value | Cost basis | Unrealized Gain | |||||||||
Short-term investments | $ | 485,452 | $ | 485,452 | $ | - | ||||||
Equity securities | $ | 5,703,049 | $ | 1,279,914 | $ | 4,423,135 | ||||||
Mutual funds | $ | 2,837,679 | $ | 2,728,910 | $ | 108,769 | ||||||
July3, 2016 Description | Fair Value | Cost basis | Unrealized Gain | |||||||||
Short-term investments | $ | 484,558 | $ | 484,558 | $ | - | ||||||
Equity securities | $ | 6,001,841 | $ | 1,285,759 | $ | 4,716,082 | ||||||
Mutual funds | $ | 2,822,615 | $ | 2,713,860 | $ | 108,755 | ||||||
The fair values of the Company’s investments were determined as follows:
October 2, 2016
Description | Quoted Price for Identical Assets (Level 1)
| Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Certificates of deposits | $ | - | $ | 485,452 | $ | - | ||||||
Equity securities | 5,703,049 | - | - | |||||||||
Mutual funds | 2,837,679 | - | - | |||||||||
Total | $ | 8,540,728 | $ | 485,452 | $ | - | ||||||
July 3, 2016
Description | Quoted Price for Identical Assets (Level 1)
| Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Certificates of deposits | $ | - | $ | 484,558 | $ | - | ||||||
Equity securities | 6,001,841 | - | - | |||||||||
Mutual funds | 2,822,615 | - | - | |||||||||
Total | $ | 8,824,456 | $ | 484,558 | $ | - | ||||||
The equity securities portfolio includes the following stocks:
AT&T shares | 82,112 | |||
Manulife shares | 2,520 | |||
CSAL shares | 815 | |||
NCR shares | 774 | |||
Teradata shares | 774 | |||
Vodafone shares | 6,471 | |||
CenturyLink shares | 4,398 | |||
Frontier Communications shares | 4,508 | |||
Sprint shares | 40,000 | |||
Verizon shares | 31,904 | |||
Windstream shares | 679 |
On August 1, 2016, Dex Media, a spin off from Verizon, completed a financial restructure. Previous shares of Dex Media’s common stock were cancelled with no distribution to shareholders resulting in a loss of $5,845 on the Company’s holdings.
The Mutual fund included in the table above is Vanguard GNMA Admiral Shares #536 fund. The fair value of certificates of deposits is estimated using present value techniques and comparing the values derived from those techniques to certificates with similar values.
2. Note Payable
In August 2016 the Company obtained a $500,000 short-term loan that matures in February 2017. The loan bears interest at the one month LIBOR rate plus 2.5% with interest only payable monthly. A portion of the loan is collateralized by certificates of deposits.
3. Commitments and Contingencies
The Company’s purchase commitments at October 2, 2016, are for materials, supplies, services and equipment as part of the normal course of business.
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. New Accounting Standards
In January 2016, the Financial Accounting Standards Board (FASB) issued guidance on equity securities that requires entities to recognize changes in unrealized gains and losses on equity securities in income in the current period unless the entity is recording the related investment under the equity method or consolidating the related entity. This amendment is effective for the Company’s fiscal year ending June 2019 with earlier adoption permitted. Management is currently assessing the impact of this standard on the Company’s financial statements.
In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information.This amendment is effective for the Company’s fiscal year ending June 2020 with early adoption permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures
There were no new accounting pronouncements during the quarter ended October 2, 2016, that would impact theCompany.
6. Subsequent Events
The Company has evaluated subsequent events through the time of filing these financial statements with the Securities and Exchange Commission on November 15, 2016, and has determined that no material subsequent events have occurred.
7. Reclassifications
Certain previous year amounts have been reclassified to conform with current year presentation.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business, our sales and the industry in which we operate and our management’s beliefs and assumptions. These statements are not guarantees of future performance or development and involve risks, uncertainties and other factors that are in some cases beyond our control. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof. We are under no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
LIQUIDITY AND CAPITAL RESOURCES
The Company views a strong financial position as a major benefit to shareholders and emphasizes payment of dividends aspart 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, to provide a secure source of income and to provide a predictable return to its owners. For these reasons, the Company prefers a conservative approach to investing rather than taking greater risk for possible rapid growth. The Company balances market volatility by using both fixed income and equity investments in managing its reserve funds. Any equity security is subject to price fluctuation, however, the stocks held by the Company have relatively low volatility. The Company has long been invested in a Government National Mortgage Association (“Ginnie Mae”) fund and domestically domiciled stocks with the perceived potential of appreciation, primarily telecommunications stocks. The Company considers that this diversity also provides a measure of safety of principal.
With the exception of 13,120 shares of Verizon, the common stocks in our portfolio have come from spin-offs, mergers and acquisitions of AT&T and United Telecommunications (now Sprint) purchased in 1979 and 1984 and one insurance company acquired at no cost when the company demutualized. 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 $967,000 from mergers and sales and over $4,400,000 in dividends, the majority of which were tax favored in the form of exclusion from federal taxable income. The exclusion continues into this fiscal year. These marketable securities are carried at their fair value on the last day of each reporting period. The value of the securities on October 2, 2016 was approximately $5.7 million. The value of securities held at July 3, 2016 was approximately $6 million. Short-term investments consisting mainly of Certificates of Deposits, cash and cash equivalents totaled $1,057,000 at October 2, 2016 compared to $1,471,000 at July 3, 2016.
The Company’s original investment in the Vanguard GNMA bond fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. The fund is carried at fair value on the last day of the reporting period. At October 2, 2016, the value was approximately $2,838,000. In August 2015 $1,000,000 of this fund was redeemed to meet the August 2015 dividend payment.
The Company’s position in all the above investments is a source of capital for possible expansion. Potential volatility in the trading prices of the marketable securities held by the Company could impact the Company’s opportunities for expansion. The Board of Directors reviews the portfolio weekly and any use of this reserve at its quarterly meetings.
In August 2016 the Company obtained a $500,000 short-term loan to meet the August 2016 dividend obligation. The loan, collateralized by certificates of deposits, is due in February 2017. Interest is due and paid monthly and is based on the one-month LIBOR rate plus 2.5%.
During the three-month period ended October 2, 2016, the Company expended approximately $105,000 for the purchase of building, entertainment and restaurant equipment. Except as noted above, the Company has no current plans to obtain additional 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.
The first quarter decreases in the categories of Prepaid expenses and other and of Accounts Payable were attributable primarily to the timing of the payments including compensation, insurance and taxes and for contributions to benefit plans.
Current liabilities generally increase during the first three quarters of the fiscal year as bowling leagues deposit prize fund monies with the Company throughout the league season. These funds are returned to the leagues at the end of the bowling season, generally in the fourth quarter. At October 2, 2016, league deposits of approximately $766,000 were included in the current liabilities category.
Cash flow provided by operating activities in the thirteen weeks ended October 2, 2016 was $84,000 which, along with cash on hand, and a note in the amount of $500,000 was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $877,000, or $.17 per share, were paid to shareholders during the three-month period ended October 2, 2016. In September 2016, the Company declared a regular quarterly dividend of $.17 per share, payable November 16, 2016. The economic climate is part of the consideration at the Directors’ quarterly reviews of future estimates of cash flows. 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 at such time.
Overview
The Company is in the entertainment business which, by its nature, has ups and downs based on consumer tastes and preferences. Generally, promotional and open play bowling which depends on the public’s discretionary budget dollars and their choices, accounts for more than half of our business. An unstable economy can lead many to participate in entertainment that is close to home and relatively inexpensive. Bowling has those advantages. However if the economy remainsunstable, people are less willing 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 isnever recovered. The Company operates primarily in the Washington, DC area where its business is vulnerable to sequestration or other downsizing of the federal government.
RESULTS OF OPERATIONS
The following table sets forth the items in our consolidated summary of operations for the fiscal quarters ended October 2, 2016 and September 27, 2015, and the dollar and percentage changes therein.
Thirteen weeks ended | ||||||||||||||||
October 2, 2016 and September 27, 2015 | ||||||||||||||||
Dollars in thousands | ||||||||||||||||
2016 | 2015 | Change | % Change | |||||||||||||
Operating Revenues: | ||||||||||||||||
Bowling and other | $ | 3,577 | $ | 3,474 | $ | 103 | 3.0 | |||||||||
Food, beverage and merchandise sales | 1,487 | 1,446 | 41 | 2.8 | ||||||||||||
| 5,064 | 4,920 | 144 | 2.9 | |||||||||||||
Operating Expenses: | ||||||||||||||||
Employee Compensation and benefits | 2,681 | 2,746 | (65 | ) | (2.4 | ) | ||||||||||
Cost of bowling and other services | 1,469 | 1,511 | (42 | ) | (2.8 | ) | ||||||||||
Cost of food, beverage and merchandise sales | 482 | 469 | 13 | 2.8 | ||||||||||||
Depreciation and amortization | 293 | 336 | (43 | ) | (12.8 | ) | ||||||||||
General and administrative | 231 | 232 | (1 | ) | (0.4 | ) | ||||||||||
| 5,156 | 5,294 | (138 | ) | (2.6 | ) | |||||||||||
Operating loss | (92 | ) | (374 | ) | 282 | 75.4 | ||||||||||
Interest, dividend and other income | 94 | 146 | (52 | ) | (35.6 | ) | ||||||||||
Interest expense | 3 | - | 3 | 100.0 | ||||||||||||
Loss before tax benefit | (1 | ) | (228 | ) | 227 | 99.6 | ||||||||||
Income tax benefit | - | (80 | ) | 80 | 100.0 | |||||||||||
Net loss | $ | (1 | ) | $ | (148 | ) | $ | 147 | 99.3 | |||||||
For the thirteen week period ended October 2, 2016 there was a loss of $720 or $.00 per share. For the thirteen week period ended September 27, 2015 there was a loss of $148,076 or $.03 per share. Eighteen locations were in operation in both the current and prior year quarters. The bowling business is seasonal and the first quarter which includes summer months is typically the slowest. The operating results for the fiscal 2017 period included in this report are not necessarily indicative of results to be expected for the year.
Operating Revenues
Total operating revenues increased 2.9% or $144,000 to $5,064,000 in the thirteen-week period ended October 2, 2016, compared to an increase of 6.3% or $291,000 to $4,920,000 in the three-month period ended September 27, 2015. Bowling and other revenue increased $103,000 or 3% in the current year fiscal quarter compared to an increase of $173,000 or 5% in the comparable prior year quarter. Food, beverage and merchandise sales were up $41,000 or 2.8% in the current year quarter due to increased traffic, compared to an increase of $118,000 or 8.9% in the prior year comparable quarter. Cost of sales increased $13,000 in the current year three-month period due to higher sales.
Operating Expenses
Operating expenses were down $138,000 or 2.6% to $5,156,000 in the three-month period ended October 2, 2016 compared to an increase of $34,000 or 1% to $5,294,000 in the prior year quarter ended September 27, 2015. Employee compensation and benefits were down $65,000 or 2% and down $7,000 or less than 1% in the fiscal first quarters of 2017 and 2016, respectively. The Company continued to make scheduling adjustments resulting in a decrease in compensation. In addition, state unemployment tax rates decreased from the prior year. In the current year group health insurance costs were lower due to changes in plan offerings with lower premiums. 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.
Cost of bowling and other services decreased $42,000 or 3% in the quarter ended October 2, 2016 versus a decrease of $18,000 or 1% in the comparable quarter ended September 27, 2015. Maintenance and repair costs were up $22,000 or 10% and $2,000 or 1% in the current year and prior year quarters, respectively. The current year period included roof repairs and plumbing repairs at several locations. The prior fiscal year period included air conditioning repairs at several locations. Advertising costs decreased $6,000 or 7% in the quarter ended October 2, 2016. Utility costs were up $3,000 or 1% in the in both the current and prior year periods. Supplies and services expenses were down $20,000 or 10% and were up $15,000 or 8% in the thirteen-week periods ended October 2, 2016 and September 27, 2015, respectively, partially due to timing of bulk purchases.
Depreciation and amortization expense was down 13% in the three-month period ended October 2, 2016 as a large group of assets reached full depreciation.
As stated above, the first quarter of the fiscal year is seasonally the slowest and the quarter ended October 2, 2016 resulted in an operating loss of $720 compared to an operating loss of $148,000 in the prior year period.
Interest, Dividend and OtherIncome
Interest, dividend and other income declined in the three month period ended October 2, 2016 primarily due to the timing of receipts for ancillary income and the end of some parking lot rental agreements.
CRITICAL ACCOUNTING POLICIES
Management has identified accounting for marketable investment 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 securities. The Company exercises judgment in determining the classification of its investment securities asavailable-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 earnings, 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.
Management has identified accounting for the impairment 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 October 2, 2016. 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 October 2, 2016, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
S.E.C. FORM 10-Q
PART II - OTHER INFORMATION
Item 6. Exhibits.
20 | Press release issued November 15, 2016 (furnished herewith) |
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31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith |
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31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith |
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32 | Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 filed herewith |
101 | Interactive data files for the thirteen weeks ended October 2, 2016 in eXtensible Business Reporting Language |
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) |
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Date: November 15, 2016 | By: /s/ Leslie H Goldberg |
| Leslie H. Goldberg, President |
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Date: November 15, 2016 | By: /s/ Cheryl A. Dragoo |
| Cheryl A. Dragoo, Controller |
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