ANNUAL REPORT TO SECURITY HOLDERS
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
PRESIDENT'S LETTER
September 21, 2001
Dear Fellow Employees and Owners:
As I watched the rescue efforts at the Pentagon, I was reminded that the last
time that I had seen the skeleton of that building was during its construction.
The Great Depression had not really ended in 1938 when my father decided that
low cost recreation would be appealing to people. We built a bowling center
in Clarendon, less than 3 miles from the site that was to eventually be the
Pentagon. During World War II many of our best customers worked there.
In the sixty-three years since we first started on the Clarendon Bowling Center,
we have been able to adapt to a wide variety of national and international
political and economic upheavals. The nature of the game contributed to our
staying power. Bowling is easy to understand, simple to learn and allows people
of various skill levels to compete with each other. Add to that Bowl America's
policies of locating sites near our customers, moderate pricing and emphasizing
friendly service and you have a foundatin for earnings longevity.
We continue to profit from our business. Our bowling centers operated about as
profitably this year as they did last year, which had one extra week. (Our
overall earnings were reduced by legal costs related to matters which have
been decided in our favor.)
We never can measure the impact of an economic slowdown on the bowling business
until it's over. While the new year has started slowly, both July and August
were profitable. It wasn't too many years ago that that was news. League
starts were interrupted by the events at the Pentagon and World Trade Center
but we do not as yet believe that league participation will be significantly
different than in fiscal 2001. However, we will have a major improvement in
tournament play with statewide and regional tournaments being held at Bowl
America centers within driving distance of the potential participants. These
events will take place in 2002 and impact our last quarter.
Based on what we have been able to see so far, we expect that we will be able
to prudently support our new dividend level throughout the year, which would
enable us to look forward to the 30th consecutive year of increased annual
per share dividends. Bowl America is one of the leading companies in providing
its owners with these annual increases. At the end of calendar year 2000,
according to Mergent's Dividend Achievers, only 73 companies of the 10,000
they surveyed had longer consecutive dividend increase records.
We have been less successful in finding new locations. However, we were able
to use the money we might have used for a new location to buy in more of our
stock, increasing each shareholder's stake in the remaining bowling centers.
The combination of reduced shares outstanding, the strength of our business
and the relatively higher valuation granted by the market to dividend paying
stocks combined to enable us to reach an all time high for Bowl America stock.
That often gives rise to a temptation to sell one's interest in a successful
company in order to find another more successful company. It takes economic
times like this to remind people that trading involves downside risks as well
as upside rewards. We prefer to continue to emphasize the benefits of
ownership of a business as opposed to ownership of stock certificates, which
are sometimes "not worth the paper they are printed on". (I have one of those
too.)
I am as convinced now as I was in 1990 that a "best company is one that inspires
its customers, its employees and its stockholders to stick with it. After all,
old friends are best friends."
Leslie H.Goldberg, President
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities in fiscal 2001 was $4,800,000 which
was sufficient to meet day-to-day cash needs. Short-term investments consist-
ing mainly of U.S. Treasury Bills and Notes, cash and cash equivalents
totaled $7,575,000 at the end of fiscal 2001 compared to $10,397,000 at the
end of fiscal 2000.
The Company purchased 244,036 shares of its previously outstanding common stock
in fiscal year 2001 for a cost of $2,091,000.
Approximately $3,616,000 was expended to acquire property and equipment during
fiscal 2001. The Company purchased, for $2,250,000, the land and building at
Bowl America Glen Burnie at the expiration of its lease. Other capital
purchases included bowling equipment and amusement games. The Company is
actively seeking land for additional locations. Cash and cash flows are
sufficient to finance all planned purchases, modernization and construction.
The Company's position in telecommunication stocks is an additional source of
expansion capital.
These securities are carried at their fair value on the last day of the
quarter. The value of these securities on July 1, 2001 was $6.2 million
or approximately $3 million lower than at July 2, 2000. In fiscal 2001 the
Company received $219,000 from the merger of AT&T and Media One, two of the
stocks in the portfolio at July 2, 2000.
Dividends per share increased for the twenty-ninth consecutive year. Cash
dividends paid to shareholders during fiscal 2001 were $2.3 million. In
addition, a stock dividend was paid to all shareholders on July 26, 2000.
Since the end of the fiscal year, on July 26, 2001, another 5% stock dividend
was paid to all shareholders. Earnings per share figures in this report have
been adjusted to reflect both of these stock dividends. 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 its estimate
of future opportunities.
Subsequent to year end, a location operating at break-even was closed at the
expiraton of its lease.
RESULTS OF CONSOLIDATED OPERATIONS
Fiscal years 2001 and 1999 each consisted of 52-weeks. Fiscal year 2000 was
a 53-week year. The Company operated 21 centers during the peak bowling
season of fiscal 2001 after a location was closed in the second quarter at the
expiration of its lease. In fiscal 2000 there were 22 centers in operation
compared to 23 centers during the peak season of fiscal 1999 as a location was
closed in the fourth quarter of fiscal 1999. The changes in the number of
centers in operation and the extra week of business in fiscal 2000 impacted all
revenues and expenses and comparisons in this report.
Operating revenues increased 2% in fiscal 2001 and 5% in fiscal 2000. Bowling
and other revenue increased slightly in fiscal 2001 but was up 5% in fiscal
2000. Linage at centers in operation for the entire report period was
basically flat with increases in open play and special event bowling offsetting
the decrease in league play. Increases in the average game rate and
ancillary revenues were partially responsible for the increases both years.
Total food, beverage and merchandise sales rose 5% in the current year and 4%
in fiscal 2000. Cost of sales were up 6% and 5% respectively.
Total operating expense increased 6% in the current and less than 1% in the
prior year period. Costs for employee compensation and benefits increased 3%
in both the current and prior year periods partially due to need for
overtime pay during this tight labor market.
Maintenance costs rose 27% in the current fiscal year after falling 13% last
year. Resurfacing the majority of our wooden bowling lanes in the current
year was responsible for over half of the increase. In addition, two locations
were refurbished during fiscal 2001.
Equipment expenses and supplies expenses were flat in the current year and
down 5% in the prior year period. Advertising expense was down 8% in the
current year and up 17% in the prior year because of different types of
support for Glow-in-the-dark bowling. Utility costs were up 3% in the
current year primarily as a result of higher natural gas prices. Last
year, although there was an overall decrease in utility costs, natural gas
prices were up.
Rent expense decreased 19% in the current year due to the closing of a leased
location and the purchase of a formerly leased center. In the prior fiscal
year rent expense decreased 11% due to the closing of a leased location in
the fourth quarter of fiscal 1999. Insurance costs were up 15% in the
current year partially due to an industry-wide trend after a 4% decrease in
the prior year.
Depreciation expenses decreased 8% in fiscal 2001 and 7% in fiscal 2000 as
several large capital assets reached full depreciation.
The primary cause of the increase in general and administrative costs in the
current year is legal expenses associated with a lawsuit where the Company
has prevailed in Federal District Court. The plaintiff has appealed the
decision.
The Company's effective income tax rates were 34.7% in 2001, 35.9% in 2000 and
36.3% in 1999, the difference from statutory rates being primarily for the
partial exclusion of dividends received on investments and the state tax
exemption for interest on U.S. Government obligations.
-2-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPERATIONS
Selected Financial Data
For the Years Ended
July 1, July 2, June 27, June 28, June 29,
2001 2000 1999 1998 1997
__________________________________________________________
Operating Revenues $29,400,903 $28,902,200 $27,547,490 $27,086,822 $26,995,056
Operating Expenses 24,508,226 23,151,241 22,995,118 22,984,246 23,585,519
Interest and dividend
Income 1,035,712 823,470 684,781 675,302 632,927
__________ __________ __________ __________ __________
Earnings before pro-
vision for income
taxes 5,928,389 6,574,429 5,237,153 4,777,878 4,042,464
Provision for income
taxes 2,060,000 2,361,000 1,902,000 1,716,000 1,552,000
__________ __________ __________ __________ __________
Net Earnings $ 3,868,389 $ 4,213,429 $ 3,335,153 $ 3,061,878 $ 2,490,464
Weighted Average
Shares Outstanding
Basic & Diluted 5,222,876 5,587,892 6,026,032 6,240,000 6,262,668
Earnings Per Share
Basic & Diluted $.74 $.75 $.55 $.49 $.40
Net Cash Provided by
Operating Activities $4,795,680 $6,636,768 $5,334,800 $5,261,518 $4,513,157
Cash Dividends Paid $2,256,182 $2,197,659 $2,249,628 $2,264,293 $2,187,567
Cash Dividends Paid
Per Share-Class A $.45 $.43 $.41 $.40 $.385
-Class B $ 45 $.43 $.41 $.40 $.385
Total Assets $37,597,866 $40,711,299 $41,747,936 $40,435,450 $38,002,571
Stockholders' Equity $32,703,140 $34,868,395 $35,477,445 $35,291,573 $33,381,832
Net Book Value Per
Share $6.66 $7.12 $6.75 $6.24 $5.90
Net Earnings as a %
of Beginning Stock-
holders' Equity 11.1% 11.9% 9.5% 9.2% 7.6%
Lanes in Operation 820 854 854 886 886
Centers in Operation 21 22 22 23 23
All share and per share amounts (excluding Net Book Value Per Share) have
been adjusted to reflect both the 5% stock dividend distributed on July 26,
2001 and the 5% stock dividend distributed on July 26, 2000.
Market Information
The principal market on which the Company's Class A Common Stock is traded is
the American Stock Exchange. The Company's Class B Common Stock is not listed
on any exchange and is not traded. This stock can be converted to Class A
Common Stock at any time. The table below presents the price range of the
Company's Class A stock in each quarter of fiscal 2001 and 2000.
2001 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_________________________________________________________
High 8 3/8 8 7/8 9 63/64 10 13/32
Low 7 9/16 7 15/16 8 1/8 9 19/32
2000 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_______________________________________________________
High 7 5/16 7 1/2 7 5/8 7 7/8
Low 6 7/8 6 7/8 7 7 1/4
Holders
The approximate number of holders of record of the Company's Class A Common
Stock as of July 1, 2001 is 468 and of the Company's Class B Common Stock
is 32.
Cash Dividends
The table below presents the cash dividends per share of Class A and Class B
stock paid, and the quarter in which the payment was made during fiscal 2001
and 2000.
Class A Common Stock
Quarter 2001 2000
___________________________________________
First 11 cents 10.5 cents
Second 11 cents 10.5 cents
Third 11.5 cents 11 cents
Fourth 11.5 cents 11 cents
Class B Common Stock
Quarter 2001 2000
___________________________________________
First 11 cents 10.5 cents
Second 11 cents 10.5 cents
Third 11.5 cents 11 cents
Fourth 11.5 cents 11 cents
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 1, 2001 July 2, 2000
____________ ____________
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 1,338,420 $ 1,523,242
Short-term investments (Note 3) 6,236,665 8,873,682
Inventories 720,505 657,628
Prepaid expenses and other 867,938 440,318
Income taxes refundable 449,093 -
__________ __________
Total Current Assets 9,612,621 11,494,870
Property, Plant and Equipment, Net (Note 4) 21,078,785 19,367,989
Other Assets
Marketable equity securities (Note 3) 6,216,928 9,168,446
Cash surrender value-officers'life insurance 411,411 388,184
Other 278,121 291,810
__________ __________
TOTAL ASSETS $37,597,866 $40,711,299
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 1, 2001 July 2, 2000
_____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,071,563 $ 688,213
Accrued expenses 934,274 893,493
Income taxes payable - 129,390
Deferred income taxes (Note 8) - 23,000
Other current liabilities 400,889 430,808
__________ __________
Total Current Liabilities 2,406,726 2,164,904
Noncurrent Deferred Income Taxes (Note 8) 2,488,000 3,678,000
__________ __________
TOTAL LIABILITIES 4,894,726 5,842,904
Commitments and Contingencies (Note 5)
Stockholders' Equity (Note 6)
Preferred stock,
par value $10 a share: Authorized
and unissued 2,000,000 shares
Common stock,
par value $.10 per share
Authorized 10,000,000 shares
Class A issued
3,491,976 and 3,406,070 shares 349,197 340,607
Class B issued
1,416,427 and 1,488,826 shares 141,643 148,883
Additional paid-in capital 3,897,298 3,959,169
Accumulated other comprehensive earnings-
Unrealized gain on available-for-sale
securities, net of tax 3,427,471 5,246,421
Retained earnings 24,887,531 25,173,315
__________ __________
TOTAL STOCKHOLDERS' EQUITY $32,703,140 $34,868,395
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,597,866 $40,711,299
<FN>
See notes to consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS
For the Years Ended
July 1,2001 July 2, 2000 June 27, 1999
______________________________________________
Operating Revenues
Bowling and other $20,807,378 $20,715,004 $19,696,199
Food, beverage and
merchandise sales 8,593,525 8,187,196 7,851,291
__________ __________ __________
29,400,903 28,902,200 27,547,490
Operating Expenses
Compensation and benefits 12,601,235 12,229,408 11,820,526
Cost of bowling and other 5,676,633 5,479,160 5,654,989
Cost of food, beverage and
merchandise sales 2,679,472 2,523,687 2,414,579
Depreciation and amortization 1,940,368 2,099,928 2,268,267
General and administrative 1,610,518 819,058 836,757
__________ __________ __________
24,508,226 23,151,241 22,995,118
Operating Income 4,892,677 5,750,959 4,552,372
Interest and dividend income 1,035,712 823,470 684,781
__________ __________ __________
Earnings before provision
for income taxes 5,928,389 6,574,429 5,237,153
Provision for income taxes(Note 8)
Current 2,218,000 2,552,000 2,062,000
Deferred (158,000) (191,000) (160,000)
_________ __________ __________
2,060,000 2,361,000 1,902,000
Net Earnings $ 3,868,389 $ 4,213,429 $ 3,335,153
Other Comprehensive (Loss)Earnings
Net of Tax-unrealized (loss)
gain on available-for-sale
securities (1,818,950) (39,509) 1,950,599
Comprehensive Earnings 2,049,439 4,173,920 5,285,752
Earnings Per Share-Basic &
Diluted $.74 $.75 $.55
<FN>
All share and per share amounts have been adjusted to reflect both the 5%
stock dividend distributed on July 26, 2001 and the 5% stock dividend
distributed on July 26, 2000.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK Accumulated
_______________________________________ Additional Other
Class A Class A Class B Class B Paid-In Comprehensive Retained
Shares Amount Shares Amount Capital Earnings(1) Earnings
Balance June 28, 1998 4,120,351 $412,035 1,536,146 $153,614 $4,893,504 $3,335,331 $26,497,089
Purchase of stock (374,180) (37,418) (27,430) (2,743) (628,061) - (2,182,030)
Cash dividends paid(41 cents/sh) - - - - - (2,249,628)
Change in unrealized gain on
available-for-sale securities - - - - - 1,950,599 -
Net earnings for the year - - - - - - 3,335,153
_________________________________________________________________________________________________________________________
Balance June 27, 1999 3,746,171 $374,617 1,508,716 $150,871 $4,265,443 $5,285,930 $25,400,584
Purchase of stock (362,101) (36,210) (19,890) (1,988) (477,324) - (2,243,039)
Shares issued for ESOP 22,000 2,200 - - 171,050 - -
Cash dividends paid(43 cents/sh) - - - - - - (2,197,659)
Change in unrealized gain on
available-for-sale securities - - - - - (39,509) -
Net earnings for the year - - - - - - 4,213,429
_______________________________________________________________________________________________________________________
Balance July 2, 2000 3,406,070 $340,607 1,488,826 $148,883 $3,959,169 $5,246,421 $25,173,315
Stock issued in 5% dividend 170,112 17,011 74,431 7,443 1,901,322 - (1,925,776)
Purchase of stock (100,206) (10,021) (143,830) (14,383) (916,037) - (1,150,671)
Conversion-Class B to Class A 3,000 300 (3,000) (300) - - -
Shares issued for ESOP plan 13,000 1,300 - - 131,300 - -
Cash dividends paid(45 cents/sh) - - - - - - (2,256,182)
Change in unrealized gain on
available-for-sale securities - - - - - (1,818,950) -
Net earnings for the year - - - - - - 3,868,389
________________________________________________________________________________________________________________________
Balance, July 1, 2001 3,491,976 $349,197 1,416,427 $141,643 $5,075,754 $3,427,471 $23,709,075
<FN> (1)Unrealized gains and losses are shown net of tax
See notes to consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
July 1, July 2, June 27,
2001 2000 1999
Cash Flows From Operating Activities
Net earnings $3,868,389 $4,213,429 $3,335,153
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,940,368 2,099,928 2,268,267
Decrease in deferred income taxes (158,000) (191,000) (160,000)
(Gain) loss on disposition of assets-net (35,647) (30,775) 17,237
Stock issuance-ESOP Plan 132,600 173,250 -
Gain on sale of available-for-sale securit (290,951) - -
Changes in assets and liabilities:
(Increase) decrease in inventories (62,877) (38,753) 78,696
(Increase) decrease in prepaid expenses
and other (427,620) 41,961 7,479
(Increase) decrease in income taxes
refundable (578,483) 218,584 (89,194)
Decrease (increase) in other long-term
assets 13,689 202,121 (219,452)
Increase (decrease) in accounts payable 383,350 (49,827) (110,290)
Increase (decrease) in accrued expenses 40,781 (83,907) 201,349
(Decrease) increase in other current
liabilities (29,919) 81,757 5,555
_________ _________ _________
Net cash provided by operating activities $4,795,680 $6,636,768 $5,334,800
_________ _________ _________
Cash Flows from Investing Activities
Expenditures for property,plant,equipment (3,615,517) (528,166) (971,135)
Net sales and maturities (purchases) of
short-term investments 2,786,311 (1,183,106) 350,560
Increase in cash surrender value (23,227) (3,259) (1,582)
Proceeds from sale of marketable securities 219,225 - -
_________ _________ _________
Net cash used in investing activities (633,208) (1,714,531) (622,157)
_________ _________ _________
Cash Flows from Financing Activities
Payment of cash dividends (2,256,182) (2,197,659) (2,249,628)
Purchase of Class A Common Stock (923,400) (2,474,664) (2,654,813)
Purchase of Class B Common Stock (1,167,712) (283,897) (195,439)
_________ _________ _________
Net cash used in financing activities (4,347,294) (4,956,220) (5,099,880)
_________ _________ _________
Net Decrease in Cash and Cash Equivalents (184,822) (33,983) (387,237)
Cash and Cash Equivalents, Beginning of Year 1,523,242 1,557,225 1,944,462
_________ _________ _________
Cash and Cash Equivalents, End of Year $1,338,420 $1,523,242 $1,557,225
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Income taxes $2,852,134 $2,524,045 $2,282,560
Interest - - $1,528
See notes to consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Bowl America Incorporated is engaged in the operation of 21 bowling
centers, with food and beverage service in each center. Twelve centers are
located in metropolitan Washington D.C., two centers in metropolitan
Baltimore, Maryland, one center in metropolitan Orlando, Florida, three
centers in metropolitan Richmond, Virginia, and three centers in metropolitan
Jacksonville, Florida. These 21 centers contain a total of 820 lanes.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiary corporations. All significant inter-
company items have been eliminated in the consolidated financial statements.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest to June 30. Fiscal
year 2001 ended July 1, 2001, fiscal year 2000 ended July 2, 2000, and fiscal
year 1999 ended June 27, 1999. Fiscal years 2001 and 1999 each consisted of
52 weeks. Fiscal year 2000 consisted of 53 weeks.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition
The Company records revenue for fees charged for use of bowling lanes and
other facilities at the time the services are provided. Food, beverage and
merchandise sales are recorded as revenue at the time the product is given to
the customer.
Depreciation and Amortization
Depreciation and amortization for financial statement purposes are calcu-
lated by use of the straight-line method. Amortization of leasehold improve-
ments is calculated over the estimated useful life of the asset or term of the
lease, whichever is shorter. The categories of property, plant, and equipment
and the ranges of estimated useful lives on which depreciation and amortization
rates are based are as follows:
Bowling lanes and equipment 3-10 years
Building and building improvements 10-30 years
Leasehold improvements 10 years
Amusement games 3-5 years
Maintenance and repairs and minor replacements are charged to expense when
incurred. Major replacements and betterments are capitalized. The accounts
are adjusted for the sale or other disposition of property, and the resulting
gain or loss is credited or charged to income.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
Income Taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". Under this method, deferred income tax liabilities and assets
are based on the differences between the financial statement and tax bases
of assets and liabilities,using tax rates currently in effect. A valuation
allowance is provided when it is more likely than not that a deferred tax
asset will not be realized.
Fair Value of Financial Instruments
The fair value of short-term investments and the noncurrent marketable
security portfolio is disclosed in Note 3.
Investment Securities
The Company accounts for its investments in accordance with SFAS No. 115
entitled "Accounting for Certain Investments in Debt and Equity Securities".
All of the Company's readily marketable debt and equity securities are
classified as available-for-sale. Accordingly these securities are recorded
at fair value with any unrealized gains and losses excluded from earnings and
reported, net of deferred taxes, within a separate component of stockholders'
equity until realized. Realized gains and losses on the sale of debt and
equity securities are reported in earnings and determined using the adjusted
cost of the specific security sold.
Earnings Per Share
Earnings per share basic and diluted, have been calculated using the
weighted average number of shares of Class A and Class B common stock
outstanding of 5,222,876, 5,587,892 and 6,026,032, respectively, and have been
adjusted to reflect both the 5% stock dividend distributed on July 26, 2001
and the 5% stock dividend distributed on July 26, 2000.
Comprehensive Earnings
In accordance with SFAS No. 130, "Reporting Comprehensive Income", a
consolidated statement of comprehensive earnings reflecting the aggregation
of net earnings and unrealized gain or loss on available-for-sale securities,
the Company's principal components of other comprehensive earnings, has been
presented for each of the three years in the period ended July 1, 2001.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers money market funds, certificates of deposits, repurchase agreements
and treasury securities with original maturities of three months or less to be
cash equivalents.
New Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. In May 1999, SFAS No. 137, was issued to defer
the implementation of SFAS No. 133 for one year. SFAS No. 133 establishes
standards for the accounting and reporting of derivative instruments and
hedging activities and requires that all derivative financial instruments,
including certain derivative instruments embedded in other contracts, be
measured at fair value and recognized as assets or liabilities in the financial
statements. This statement is to be effective for all annual and interim
periods beginning after June 15, 2000. The adoption of SFAS No.133 did not
have a material effect on the consolidated financial position or results of
operations of the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The adoption of SAB 101 did
not have a material effect on the Company's consolidated financial position
or results of operations in fiscal year 2001.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
July 1, July 2,
2001 2000
Demand deposits and cash on hand $ 473,010 $ 462,807
Money market funds 484,410 378,435
Repurchase agreements 381,000 682,000
________ _________
$1,338,420 $1,523,242
3. INVESTMENTS
Short-term investments consist of certificates of deposits, U.S. Treasury
securities and a mutual fund which invests in mortgage backed securities
(maturities of generally three months to one year). At July 1, 2001, the
fair value of short-term investments was $6,236,665 with an unrealized gain
of $78,543. At July 2, 2000, the cost of all short-term investments
approximated fair value. Non-current investments are marketable equity
securities which consist primarily of ten telecommunications stocks. The
Company has classified all readily marketable debt and equity
securities as available-for-sale. These available-for-sale securities are
carried at fair value in accordance with the provisions of SFAS No. 115.
The following table summarizes the cost and approximate fair values of
equity securities available-for-sale as of July 1, 2001, and July 2, 2000
as follows:
Original Unrealized Fair
Cost Gain Value
July 1, 2001
Securities available-for-sale $857,782 $5,359,146 $6,216,928
July 2, 2000
Securities available-for-sale $857,782 $8,310,664 $9,168,446
This portfolio includes the following telecommunications stocks:
16,835 shares of AT & T Wireless
3,946 shares of Alltel
18,784 shares of Verizon
27,572 shares of Bell South
8,028 shares of Lucent Technologies
9,969 shares of Qwest
45,580 shares of SBC Communications
32,000 shares of Sprint Fon
16,000 shares of Sprint PCS
13,560 shares of Vodafone
In the year ended July 1, 2001, proceeds from the sale of available-
for-sale securities was $2,072,112 with a corresponding gross realized gain
of $290,951 recorded as interest and dividend income. There were no sales of
available-for-sale securities in the years ended July 2, 2000, and June 27,
1999.
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, as cost, consist of the following:
July 1, July 2,
2001 2000
Bowling lanes and equipment $17,951,732 $17,778,725
Amusement games 934,716 758,990
Buildings and building improvements 18,963,527 17,415,875
Leasehold improvements 522,101 866,707
Land 8,800,728 7,698,228
Bowling lanes and equipment not yet in use 503,989 265,957
__________ __________
47,676,793 44,784,482
Less accumulated depreciation and
amortization 26,598,008 25,416,493
__________ __________
$21,078,785 $19,367,989
Depreciation and amortization expense for Property, Plant and Equipment
for fiscal years 2001, 2000, and 1999 was $1,940,368, $2,099,928, and
$2,268,267 respectively.
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company and its subsidiaries are obligated under long-term real estate
lease agreements for five bowling centers. Certain of the Company's real
estate leases provide for additional annual rents based upon total gross
revenues and increases in real estate taxes and insurance. Generally, the
leases contain renewal options ranging from 5 to 10 years.
At July 1, 2001, the minimum fixed rental commitments related to all
noncancelable leases, were as follows:
Year Ending
2002 $329,509
2003 289,756
2004 289,756
2005 289,756
2006 289,756
Thereafter 2,066,811
_________
Total minimum lease payments $3,555,344
Net rental expense was as follows:
For the Years Ended
2001 2000 1999
Minimum rental under operating leases $366,097 $421,515 $453,166
Excess percentage rentals 89,807 125,612 124,587
_______ _______ _______
$455,904 $547,127 $577,753
6. STOCKHOLDERS' EQUITY
The Class A shares have one vote per share voting power. The Class B
shares may vote ten votes per share and are convertible to Class A shares at
the option of the stockholder.
The Company distributed a 5% stock dividend on July 26, 2000, where
Class A and Class B stockholders received one share of common stock for each
twenty shares of Class A and Class B common stock held as of the date of record.
7. PROFIT-SHARING AND ESOP PLAN
The Company has a profit-sharing plan which, generally, covers all individ-
uals who were employed at the end of the fiscal year and had one thousand or
more hours of service during that fiscal year. The Plan provides for Company
contributions as determined by the Board of Directors. For the years ended
July 1, 2001, July 2, 2000, and June 27, 1999, contributions in the amount of
$160,000, $170,000, and $137,500, respectively, were charged to operations.
Effective March 31, 1987, the Company adopted an Employee Stock Ownership
Plan (ESOP) which generally covers all employees who on the last day of the
fiscal year or December 29 have been employed for one year with at least one
thousand hours of service. The Plan provides for Company contributions as
determined by the Board of Directors. Prior to fiscal year 1995, the
contributions were allocated to participants based on compensation and years
of service. Since fiscal year 1995 contributions are allocated based on
compensation only in order to comply with Internal Revenue Service code
requirements. The Company's contributions to the Plan for fiscal years 2001,
2000, and 1999 were $165,100, $178,080, and $137,500, respectively.
9. INCOME TAXES
The significant components of the Company's deferred tax assets and liabil-
ities were as follows:
July 1, July 2,
2001 2000
Deferred tax assets:
Other 70,000 67,000
_________ _________
Total deferred tax assets 70,000 67,000
Deferred tax liabilities:
Property, plant and equipment 422,000 557,000
Unrealized gain on available-
for-sale securities 2,010,000 3,064,000
Prepaid expenses 69,000 90,000
Other 57,000 57,000
_________ _________
Total deferred tax liabilities 2,558,000 3,768,000
_________ _________
Net deferred income taxes $2,488,000 $3,701,000
Income tax expense differs from the amounts computed by applying the U.S.
Federal income tax rate to income before tax for the following reasons:
For the Years Ended
2001 % 2000 % 1999 %
Taxes computed at statutory rate $2,016,000 34.0% $2,235,000 34.0% $1,781,000 34.0%
State income taxes, net of Federal
income tax benefit 85,000 1.4 162,000 2.47 156,000 3.0
Dividends received exclusion (37,000) (.62) (33,000) (.51) (32,000) (0.6)
All other-net (4,000) (.07) (3,000) (.05) (3,000) (.07)
_________ ____ _________ ____ _________ ____
$2,060,000 34.7% $2,361,000 35.9% $1,902,000 36.3%
9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the results of operations for each of the
quarters in fiscal years 2001 and 2000 (dollars in thousands, except for
earnings per share):
Earnings
Operating Operating Before Earnings
Revenues Income Income Net Per
Taxes Earnings Share
2001
July 1, 2001 $6,319 $ 203 $ 476 $ 374 $.07
April 1, 2001 9,113 2,525 2,712 1,738 .34
December 31, 2000 7,575 1,631 1,805 1,157 .22
October 1, 2000 6,394 534 935 599 .11
2000
July 2, 2000 $6,879 $1,212 $1,443 $ 918 $.16
March 26, 2000 8,682 2,610 2,823 1,807 .33
December 26, 1999 7,374 1,599 1,776 1,141 .20
September 26, 1999 5,967 330 532 347 .06
Per share amounts have been adjusted to reflect both the 5% stock dividend
distributed on July 26, 2001 and the 5% stock dividend distributed on
July 26, 2000.
10. Subsequent Events
The Company declared a 5% stock dividend distributed on July 26, 2001,
where Class A and Class B stockholders received one share of common
stock for each twenty shares of Class A and Class B common stock held as of
the date of record. All prior years earnings per share amounts have been
restated to reflect the impact of this transaction.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Bowl America Incorporated
Alexandria, Virginia
We have audited the accompanying consolidated balance sheets of Bowl
America Incorporated and subsidiaries as of July 1, 2001 and July 2, 2000,
and the related consolidated statements of earnings and comprehensive earnings,
stockholders' equity and cash flows for each of the three years in the period
ended July 1, 2001. 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 auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Bowl America Incorporated
and subsidiaries as of July 1, 2001 and July 2, 2000, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended July 1, 2001, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte and Touche LLP
McLean, Virginia
August 31, 2001