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
QUARTER ENDED: SEPTEMBER 28, 2003 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 a 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 an accelerated filer (as
defined in Exchange Act Rule 12 b-2). Yes __ No X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Shares Outstanding at
October 26, 2003
Class A Common Stock,
$.10 par value 3,670,112
Class B Common Stock,
$.10 par value 1,468,462
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended
September 28, September 29,
2003 2002
Operating Revenues:
Bowling and other $4,325,269 $4,278,984
Food, beverage and merchandise sales 1,819,906 1,847,018
_________ _________
6,145,175 6,126,002
Operating Expenses:
Employee compensation and benefits 3,181,590 3,148,325
Cost of bowling and other services 1,520,434 1,495,479
Cost of food, beverage and merchandise sales 634,035 613,350
Depreciation and amortization 394,930 441,152
General and administrative 181,144 171,588
_________ _________
5,912,133 5,869,894
Net gain from sale of building 2,168,117 -
_________ _________
Operating Income 2,401,159 256,108
Interest and dividend income 95,981 115,436
_________ _________
Earnings before provision for income taxes 2,497,140 371,544
Provision for Income Taxes 923,200 134,127
_________ _________
Net Earnings $1,573,940 $237,417
========= =========
Earnings per share-basic and diluted $ .31 $.05
Weighted average shares outstanding 5,138,574 5,149,996
Dividends paid $ 642,323 $ 618,000
Per share, dividends paid, Class A $.125 $.12
Per share, dividends paid, Class B $.125 $.12
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited)
Net Earnings $1,573,940 $ 237,417
Other comprehensive earnings, net of tax
Unrealized (loss) on available-for-sale
securities (232,793) (731,250)
_________ ________
Comprehensive earnings (loss) $ 1,341,147 $(493,833)
========= ========
The operating results for the thirteen (13) week period ending September 28,
2003 are not necessarily indicative of results to be expected for the year.
See notes to condensed consolidated financial information.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of
September 28, June 29,
2003 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,749,835 $ 1,503,313
Short-term investments 8,459,803 9,505,678
Inventories 729,533 565,071
Prepaid expenses and other 2,703,348 590,555
Income taxes refundable - 443,788
__________ __________
TOTAL CURRENT ASSETS 14,642,519 12,608,405
PROPERTY, PLANT & EQUIPMENT
Net of accumulated depreciation of
$27,594,234 and $27,208,055 20,105,529 20,287,508
ASSETS HELD FOR SALE (Note 4) - 117,948
OTHER ASSETS:
Marketable equity securities 3,561,141 3,932,550
Cash surrender value-life insurance 465,794 463,579
Other 66,767 126,517
__________ __________
TOTAL ASSETS $38,841,750 $37,536,507
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 644,658 $ 700,425
Dividends payable 642,323 642,323
Accrued expenses 725,189 910,087
Other current liabilities 876,581 354,854
Income taxes payable 461,935 -
Current deferred income taxes 103,300 103,300
__________ __________
TOTAL CURRENT LIABILITIES 3,453,986 2,710,989
LONG-TERM DEFERRED COMPENSATION 133,468 133,468
NONCURRENT DEFERRED INCOME TAXES 1,602,570 1,738,900
__________ __________
TOTAL LIABILITIES 5,190,024 4,583,357
__________ __________
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
3,670,112 shares 367,012 367,012
Class B issued and outstanding
1,468,462 shares 146,846 146,846
Additional paid-in capital 7,480,009 7,480,257
Accumulated other comprehensive earnings-
Unrealized gain on available-for-sale
securities, net of tax 1,739,720 1,972,513
Retained earnings 23,918,139 22,986,522
__________ __________
TOTAL STOCKHOLDERS'EQUITY 33,651,726 32,953,150
__________ __________
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $38,841,750 $37,536,507
========== ==========
See notes to condensed consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
September 28, September 29,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,573,940 $ 237,417
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 394,930 441,152
Changes in assets and liabilities
Increase in inventories (164,462) (227,088)
Decrease (increase) in prepaid & other 171,057 (51,935)
Net gain from sale of building (2,168,117) -
Decrease in income taxes refundable 443,788 133,127
Increase in income taxes payable 461,935 -
Decrease in other long-term assets 59,750 32,103
Decrease in accounts payable (55,767) (136,951)
Decrease increase in accrued expenses (184,922) (52,922)
Increase in other current liabilities 521,727 339,572
_________ _________
Net cash provided by
operating activities 1,053,859 714,475
_________ _________
Cash flows from investing activities
Expenditures for property, plant and equip (212,951) (218,430)
Net sales & maturities of short-term
investments 1,047,937 1,056,181
_________ _________
Net cash provided by investing activities 834,986 837,751
_________ _________
Cash flows from financing activities
Payment of cash dividends (642,323) (618,000)
_________ _________
Net cash used in financing activities (642,323) (618,000)
_________ _________
Net Increase in Cash and Equivalents 1,246,522 934,226
_________ _________
Cash and Equivalents, Beginning of quarter 1,503,313 1,633,817
_________ _________
Cash and Equivalents, End of quarter $2,749,835 $2,568,043
========= =========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Quarter for
Income taxes $ 17,500 $ 1,000
See notes to condensed consolidated financial information.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen Weeks Ended
September 28, 2003
(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, 2003 has been derived
from the Company's June 29, 2003 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, 2003.
2. Marketable Equity Securities
Marketable equity securities, available for sale, are carried at fair
value in accordance with the provisions of SFAS No. 115.
The telecommunications stocks included in the portfolio as of September 28,
2003 were:
16,835 shares of AT&T Wireless
2,209 shares of Agere
3,946 shares of Alltel
669 shares of Avaya
27,572 shares of Bell South
8,028 shares of Lucent Technologies
9,969 shares of Qwest Communications
45,580 shares of SBC
32,000 shares of SprintFon
16,000 shares of SprintPCS
18,784 shares of Verizon
13,560 shares of Vodafone/AirTouch
3. Commitments and Contingencies
Prior to the beginning of fiscal year 2004, the Company had placed an
order for the purchase of bowling pins totaling approximately $226,800. These
bowling pins were received in the first quarter of fiscal year 2004.
In September 2003, the Company signed an agreement with Brunswick
Corporation for approximately $82,000 and with AMF for approximately $31,000
for the purchase of bowling equipment for six locations. The Company is
scheduled to receive delivery of all assets during the second quarter of
fiscal 2004.
4. Assets Held for Sale
On August 25, 2003, the Company consummated the final closing on the sale
of the Silver Spring building and assignment of the ground lease and recorded
the gain on the sale.
5. 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
LIQUIDITY AND CAPITAL RESOURCES
Short-term investments, consisting mainly of U.S. Treasury Bills and Notes,
and cash totaled $11,210,000 at the end of the first quarter of fiscal 2004 or
$201,000 higher than at the beginning of the quarter.
On August 25, 2003, the Company closed on the sale of the Silver Spring,
Maryland building and assignment of the ground lease for $2.3 million. The
funds were placed in escrow in anticipation of the purchase of another
property. The Company will attempt to qualify the new purchase as a like-kind
exchange in order to defer taxes on the gain from the Silver Spring sale.
In the three-month period ended September 28, 2003, the Company expended
$213,000 for purchases of equipment to modernize facilities and amusement
games. Additional orders for bowling equipment totaling approximately $113,000
have been placed. The Company is actively seeking property for additional
locations. Cash and cash flow are sufficient to finance all currently
contemplated purchases and construction. The Company has also maintained its
fiscal year end 2003 position in marketable equity securities, primarily
telecommunications stocks, as a further source of expansion capital.
These marketable securities are carried at their fair value on the last day of
the quarter. For the three-month period ended September 28, 2003, the market
value decreased by $371,000 to approximately $3,561,000.
While no factors requiring a change in the dividend rate are 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.
On September 25, 2003, the Board of Directors declared a cash dividend of
$.125 per share on its Class A and Class B stock to holders of record on
October 15, 2003, payable November 12, 2003.
RESULTS OF OPERATIONS
The Company ceased business at its Silver Spring location, operating with
negative cash flow, in the fourth quarter of fiscal year 2003. The sale of
the building, as mentioned above, was closed in August. Two leased locations
were closed in fiscal year 2002 at the end of their leases. One center
operating at break-even was closed in the first quarter ended September 30,
2001, and in the fourth quarter of that year, after the Company was unable to
negotiate a new lease, a profitable location ceased operation. These changes
in the number of operating centers affected all income, expense and comparisons
for the periods presented in this report.
Net proceeds of $2,168,117 from the sale of the building are included in
operating income. Additional expenses of approximately $108,400 attributable
to the sale are included in operating expenses, primarily in the employee
compensation and benefits category.
Net earnings were $.31 per share for the thirteen-week period ended
September 28, 2003 versus net earnings of $.05 per share for the thirteen-week
period ended September 29, 2002. The sale of the building, after taxes,
accounted for $.25 per share of the current year quarter earnings.
Operating revenues increased slightly in the current year quarter versus a
decrease of 5% for the prior year three-month period. Hurricane Isabel caused
closings at almost all of the Maryland and Virginia locations in mid-September.
However linage was up over the prior year quarter primarily as a result of
promotional pricing during normally slow times. While the promotion produced
a lower average game rate and bowling revenue for the quarter was flat, at
comparable centers bowling revenue was up 2% over the prior year period.
Food, beverage and merchandise sales were down 1% in the current three-month
period and down 6% in the comparable prior year period due primarily to the
decrease in the number of operating centers.
Operating expenses excluding depreciation and amortization were up 2% in the
current three-month period and 1% in the comparable period last year. Overall,
items related to the Silver Spring sale included in operating expenses were
responsible for the increase in the current year period. Advertising expenses
increased 12% in the current year period versus a decrease of 14% in the prior
year quarter. Employee compensation and benefits were up 1% in the current
quarter but less than 1% in the prior year quarter.
Supplies and services expenses decreased 17% for the current three-month period
after an increase of 8% in last year's three-month period when new masking
unit graphics were installed at several locations. Utility costs were down 2%
in the current quarter and 11% in the prior year period.
Depreciation and amortization expense decreased 10% in the current year period
and 2% in the comparable period last year primarily due to our operating fewer
centers. Rent expense was down 2% in the current year's three-month period
and 12% in the prior year period due to the closings, mentioned above, of
leased locations.
Insurance expense was down 10% in the current year quarter versus an increase
of 47% in last year's comparable quarter that included dramatic premium
increases from the first renewal after the catastrophic events of
September 11, 2001.
CRITICAL ACCOUNTING POLICIES
We have 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
our 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our short-term investments and certain cash equivalents
are subject to interest rate risk. We manage this risk by maintaining an
investment portfolio of available-for-sale instruments with high credit
quality and relatively short average maturities. The fair value of marketable
debt securities held was $8,175,000 and $7,199,000 at September 28, 2003 and
September 29, 2002, respectively. The fair value of certain fixed rate debt
securities will change depending on movements in interest rates. Declines in
interest rates will affect our interest income. Based on our portfolio of
debt securities at September 28, 2003, a 10% decline in the average yield
would have no material impact on annual interest income.
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 September 28,
2003. There were no significant changes in internal controls or in other
factors that significantly affected, or are reasonably likely to materially
affect, internal controls during the quarter ended September 28, 2003 or
subsequent to the date of their most recent evaluation.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
S.E.C. FORM 10-Q
September 28, 2003
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
32 Written Statement of the Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. 1350
99 Press release issued November 11, 2003 (furnished herewith)
(b) Reports on Form 8-K None
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: November 11, 2003 By: Leslie H. Goldberg
Leslie H. Goldberg, President
Date: November 11, 2003 By: Cheryl A. Dragoo
Cheryl A. Dragoo, Controller
EX-31.1
Exhibit 31.1 to Form 10-Q
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) Or
15d-14(a) under the Securities Exchange Act of 1934
I, Leslie H. Goldberg, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Bowl America
Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting: and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 11, 2003
Leslie H Goldberg
Chief Executive Officer
Exhibit 31.2
Exhibit 31.2 to Form 10-Q
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) Or
15d-14(a) under the Securities Exchange Act of 1934
I, Cheryl A. Dragoo, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Bowl America
Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting: and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 11, 2003
Cheryl A. Dragoo
Chief Financial Officer
Exhibit 32
Exhibit 32 to Form 10-Q
Written Statement of the Chief Executive Officer and Chief Financial
Officer
Pursuant to 18 U.S.C. 1350
Solely for the purposes of complying with 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the
undersigned Chief Executive Officer and Chief Financial Officer of Bowl
America Incorporated (the "Company"), hereby certify, based on our
knowledge, that the Quarterly Report on Form 10-Q of the Company for the
period ended September 28, 2003, (the "Report") fully complies with the
requirements of Section 13(a) of the Securities Act of 1934 and that
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Leslie H. Goldberg
Chief Executive Officer
Cheryl A. Dragoo
Chief Financial Officer
Date: November 11, 2003