SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 3, 2005 Commission file Number 1-7829
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
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on
which registered
Common stock (par value $.10) American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K, Section 229.405 of this Chapter, is not contained
herein, and will not be contained to the best of registrant's knowledge, in
definitive Proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendments to this Form 10-K. 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 by checkmark whether the registrant is a shell company (as
defined by Rule 12b-2 of the Exchange act). YES [ ] NO [X]
As of December 26, 2004, which was the last business day of the
registrant's most recently completed second quarter, 3,669,311 Class A common
shares were outstanding, and the aggregate market value of the common shares
(based upon the closing price of these shares on the American Stock Exchange)
of Bowl America Incorporated held by nonaffiliates was approximately
$32 million. As of that date 1,468,462 Class B common shares were outstanding.
Class B common shareholders have the right to convert their Class B common to
Class A common stock on a share for share basis. If the Class B shares were
converted to Class A shares as of December 26, 2004, the total aggregate
market value for both classes of common stock held by nonaffiliates would be
approximately $35 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statements, which will be filed
with the Commission not later than 120 days after July 3, 2005 are
incorporated into Part III of this Form 10-K. Portions of Bowl America's 2005
Annual Report to shareholders are incorporated by reference in Part II,
Items 5,6,7 and 8.
BOWL AMERICA INCORPORATED
INDEX TO FISCAL 2005 10-K FILING
PART I
Page
Cover Page
Documents Incorporated by Reference
Index
ITEM 1. Business
(a) General Development of Business 1
(b) Financial Information about Industry Segments 1
(c) Narrative Description of Business 1
(d) Foreign Operations 1
ITEM 2. Properties 2
ITEM 3. Legal Proceedings 2
ITEM 4. Submission of Matters to a Vote of Security Holders 2
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters 2
ITEM 6. Selected Financial Data 2
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 2
ITEM 7a. Quantitative and Qualitative Disclosure About Market Risk 2
ITEM 8. Financial Statements and Supplementary Data 3
ITEM 9. Changes in and Disagreements with Accountants and
Financial Disclosure 3
ITEM 9A. Controls and Procedures 3
PART III
ITEM 10. Directors and Executive Officers of the Registrant 3
ITEM 11. Executive Compensation 3
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners 3
(b) Security Ownership of Management 3
(c) Changes in Control 3
(d) Securities Authorized for Issuance Under Equity
Compensation Plans 3
BOWL AMERICA INCORPORATED
INDEX TO FISCAL 2005 10-K FILING
PART III
(Continued)
Page
ITEM 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others 3
(b) Certain Business Relationships 3
(c) Indebtedness of Management 3
(d) Transactions with Promoters 3
ITEM 14. Principal Accountant Fees and Services 4
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)1. Financial Statements 4
(a)3. Exhibits 4
Signatures 5-6
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Bowl America Incorporated (herein referred to as the Company) was
incorporated in 1958. The Company commenced business with one bowling center
in 1958, and at the end of the past fiscal year, the Company and its wholly-
owned subsidiaries operated 18 bowling centers.
Construction of Bowl America Short Pump, a 40-lane bowling center in
metropolitan Richmond, Virginia, is underway and the location is expected to
open in the second quarter of fiscal 2006.
(b) Financial Information about Industry Segments
The Company operates in one segment. Its principal source of
revenue consists of fees charged for the use of bowling lanes and other
facilities and from the sale of food and beverages for consumption on the
premises. Merchandise sales, including food and beverages, were approximately
29% of operating revenues. The balance of operating revenues (approximately
71%) represents fees for bowling and related services.
(c) Narrative Description of Business
As of September 1, 2005 the Registrant and its subsidiaries operated
10 bowling centers in the greater metropolitan area of Washington, D.C., one
bowling center in the greater metropolitan area of Baltimore, Maryland, one
bowling center in Orlando, Florida, three bowling centers in the greater
metropolitan area of Jacksonville, Florida, and three bowling centers in the
greater metropolitan area of Richmond, Virginia. These 18 bowling centers
contain a total of 716 lanes.
These establishments are fully air-conditioned with facilities for
service of food and beverages, game rooms, rental lockers, and playroom
facilities. All centers provide shoes for rental, and bowling balls are
provided free. In addition, each center retails bowling accessories. Most
locations are equipped for glow-in-the-dark bowling, popular for parties and
non-league bowling.
The bowling equipment essential for the Company's operation is
readily available. The major source of its equipment is Brunswick Corporation.
The bowling business is a seasonal one, and most of the business takes
place from October through May. It is highly competitive, but the Company has
managed to maintain its position in the field. The principal method of
competition is the quality of service furnished to the Company's customers.
Its primary competitors are two large bowling equipment manufacturers,
Brunswick Corporation and AMF Bowling Worldwide, Inc.
Compliance with federal, state and local environmental protection laws
has not materially affected the Company.
The number of persons employed by the Company and its subsidiaries is
approximately 700.
(d) Foreign Operations
The Company has no foreign operations.
-1-
ITEM 2. PROPERTIES
The Company's general offices are located at 6446 Edsall Road,
Alexandria, Virginia 22312. Two of the Company's bowling centers are located
in leased premises, and the remaining sixteen centers are owned by the Company.
The Company's leases expire from 2009 through 2014. The specific locations of
the bowling centers are discussed under Item 1 (c).
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary
routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended July 3, 2005.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The information set forth in the section entitled "Market
Information", "Holders", and "Dividends" on page 3 of the Company's July 3,
2005 Annual Report is incorporated by reference herein.
(b) Not applicable
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in the section entitled "Selected Financial
Data" on page 3 of the Company's July 3, 2005 Annual Report is incorporated by
reference herein. Such information should be read in conjunction with the
audited financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 2 of the Company's July 3, 2005 Annual Report is incorporated by
reference herein.
ITEM 7a. 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 $11,273,191 and $11,681,729 at July 3,
2005 and June 27, 2004, 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 July 3, 2005, a 10% decline in the average yield would not
have a material impact on our interest income.
-2-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes thereto, the
Reports of Independent Registered Public Accounting Firms and the Selected
Quarterly Financial Data (unaudited), as contained on pages 4 through 13 of the
Company's July 3, 2005 Annual Report, are incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
ITEM 9A. 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 July 3, 2005.
There were no changes in the Company's internal control over financial reporting
identified in connection with the evaluation that occurred during the fourth
quarter of the Company's fiscal year ended July 3, 2005 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item regarding directors is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
-3-
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Financial Statements
The following consolidated financial statements of Bowl America
Incorporated and its subsidiaries are incorporated by reference
in Part II, Item 8:
Reports of Independent Registered Public Accounting Firms
Consolidated balance sheets - July 3, 2005 and June 27, 2004
Consolidated statements of earnings and comprehensive earnings
- years ended July 3, 2005, June 27, 2004, and June 29, 2003
Consolidated statements of stockholders' equity - years ended
July 3, 2005, June 27, 2004, and June 29, 2003
Consolidated statements of cash flows - years ended
July 3, 2005, June 27, 2004, and June 29, 2003
Notes to the consolidated financial statements - years ended
July 3, 2005, June 27, 2004, and June 29, 2003
(a)2. Exhibits:
3(a) Articles of Incorporation of the Registrant and amendments
through December 1988 thereto (Incorporated by reference from
exhibit number 3 to the Annual Report for 1989 on Form 10-K for
fiscal year ended July 2, 1989.)
3(b) Amendment to and restatement of Article FIFTH (b) III 2.2
of the Registrant's Articles of Incorporation (Incorporated by
reference from the Registrant's Form 8-K filed December 9, 1994.)
3(c) By-laws of the Registrant (Incorporated by reference from
exhibit 3 to the Annual Report for 1989 on Form 10-K for fiscal
year ended July 2, 1989.)
10(a) Extension of employment agreement with Leslie H. Goldberg
(Incorporated by reference from the Registrant's Form 8-K filed
June 23, 2005)
10(b) Employment agreement, dated December 31, 2004, between
Registrant and Irvin Clark. (Incorporated by reference from
Registrant's Form 8-K filed December 30, 2004)
10(c) Employment agreement, dated December 31, 2004, between
Registrant and Cheryl A. Dragoo. (Incorporated by reference
from Registrant's Form 8-K filed December 30, 2004)
21 Subsidiaries of registrant (Incorporated by reference from
exhibit number 1 to the Registrant's Annual Report on Form 10-K
for fiscal year ended June 30, 2002.
31.1 Written statement of Chief Executive Officer (Rule 13a-14a
Certification)
31.2 Written statement of Chief Financial Officer (Rule 13a-14a
Certification)
32 Written statement of Chief Executive and Chief Financial
Officers (Section 1350 Certifications)
-4-
BOWL AMERICA INCORPORATED
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
BOWL AMERICA INCORPORATED
Leslie H. Goldberg
President and Principal Executive
& Operating Officer
Date: September 29, 2005
Cheryl A. Dragoo
Chief Financial Officer,
Assistant Treasurer and Controller
Principal Accounting Officer
Date: September 29, 2005
-5-
BOWL AMERICA INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and the dates indicated.
Name, Title, Capacity
Leslie H. Goldberg
President, Principal Executive
& Operating Officer & Director
Date: September 29, 2005
Ruth Macklin A. Joseph Levy
Senior Vice President-Treasurer Senior Vice President-Secretary
and Director and Director
Date: September 29, 2005 Date: September 29, 2005
Warren T. Braham Stanley H. Katzman
Director Director
Date: September 29, 2005 Date: September 29, 2005
Allan L. Sher Merle Fabian
Director Director
Date: September 29, 2005 Date: September 29, 2005
Irvin Clark
Director
Date: September 29, 2005
-6-
BOWL AMERICA INCORPORATED
PRESIDENT'S LETTER
September 23, 2005
Dear Fellow Owners:
When drawings of the interior of Bowl America Short Pump began to come in, I
was inspired to dig up a photo from about 1940 of the first floor of the
Clarendon Bowling Center. The dimension of the lot allowed for two walls and
eleven bowling lanes. Under normal circumstances, the odd numbered lane would
be a problem since league matches require a pair of lanes. However, under the
"if you have too many lemons, make lemonade" theory, the center was promoted as
always having "open bowling" for non-league customers.
In the middle of the bowling lanes, attached to a building column, was a
platform which faced the bowlers. During league matches, as a 12-year old,
I sat there with a whistle. If a bowler crossed the line, I blew my whistle,
and the bowler received a zero for that ball. Eventually, a simple electric
eye device made the "foul line judge" job obsolete.
It is a long way from our first electric eye to our ability to show each of you,
on the Internet, the progress of construction at our newest center. Our
completion date has been moved up because of the inability of our local utility
to hook us up to their power. Their crews have been loaned to the hurricane
areas to deal with widespread outages that are threatening public health. When
it is safe for them to return, we will get on with our job, and our internet
site will give you a look at the completion process as it happens. Simply go
to www.bowlamericainc.com and access Short Pump.
This integration of new technology with what may be the world's oldest sport
is really important. Robert Putnam noted ten years ago in "Bowling Alone" the
decline in membership of face-to-face groups. He mentioned the PTA, the
Federation of Women's Clubs and Boy Scouts, but his title focused on bowling
leagues. As our business shifts from the committed week-after-week bowler to
what we call the casual bowler, it will become even more important to vary our
entertainment, communication, and control capabilities. The new technology,
much of which can be retrofitted to our older centers, enables us to better
accomodate both groups simultaneously.
League bowling is not dead. Only this week I heard a report that sociologists
have discovered that many of the declining neighborhood institutions are
showing turnarounds. The reason given is the growth in the immigrant
population, which is looking to community groups as a way to participate with
their neighbors.
Rising gas prices have hit our mostly suburban customers, but it has also
caused many of them to "vacation at home". And we are near these homes.
But our energy costs will also increase. We cook and heat with natural gas.
A catastrophe anywhere always results in increased insurance premiums even in
unaffected areas. Keep in mind that we are following a 53rd week. This also
means this fiscal year starts a week later and thus has an extra week of league
bowling in its first quarter. In the fourth quarter, we lose both the 53rd
week comparison with the prior year and that early week of league bowling.
However, we expect an important profit contribution from Bowl America Short
Pump in the second half.
There seems a greater uncertainty this year than we have faced recently. It
is good to remember that this business essentially started near the end of the
Great Depression (with teenage foul line judges). A we have noted often, the
basic appeal of bowling has enabled us to prosper in both the good and bad
times that followed.
Regards,
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 2005 was $5,503,000
which was sufficient to meet day-to-day cash needs. Short-term investments
consisting mainly of U.S. Government securities, cash and cash equivalents
totaled $12,980,000 at the end of fiscal 2005 compared to $13,002,000 at the
end of fiscal 2004.
The Company began building the 40-lane Bowl America Short Pump center
during fiscal 2005 with cash outlays of approximately $1,831,000 toward the
estimated construction and equipment cost of $5 million. This new location
in metropolitan Richmond, Virginia, is expected to open during the second
quarter of fiscal 2006.
During fiscal year 2005, the Company expended approximately $1,353,000 for
the purchase of bowling equipment and restaurant equipment and amusement games,
continuing to upgrade current facilities. In July 2005, the Company signed
purchase agreements totaling approximately $578,000 for point-of-sale cash
systems to be installed during the first quarter of fiscal 2006 and for
equipment for the new location.
The Company is actively seeking property for the development of new
bowling centers. Cash and cash flows are sufficient to finance all
contemplated construction and purchases and to meet short-term purchase
commitments and operating lease commitments, detailed in the table below.
The Company's holdings of marketable equity securities, primarily
telecommunication stocks, are an additional source of expansion capital. These
marketable securities are carried at their fair value on the last day of the
year. The value of the securities on July 3, 2005 was $4.2 million compared
to approximately $4.0 million at June 27, 2004.
CONTRACTUAL Total Less than 1-3 3-5 More than
OBLIGATIONS 1 year years years 5 years
-------------------------------------------------------------------------
Operating lease
obligations $1,555,441 $ 276,761 $553,522 $380,491 $344,667
Purchase
obligations 3,161,000 3,161,000 - - -
-------------------------------------------------------------------------
Total $4,716,441 $3,437,761 $553,522 $380,491 $344,667
=========================================================================
Cash dividends of $.54 per share totaling $2.8 million, were paid to
shareholders during the 2005 fiscal year making this the thirty-third
consecutive year of increased dividends per share. In June 2005, the Company
declared a $.14 per share dividend to be paid in August 2005. While no factors
requiring a change in the dividend rate are yet apparent, the Board of
Directors decides the amount and timing of any dividend at its quarterly
meeting based on its appraisal of the state of the business and estimate of
future opportunities.
In May 2003, the Company ceased operating the Silver Spring facility after
entering into an agreement, consummated in August 2003, to sell the building.
RESULTS OF OPERATIONS
Eighteen centers were in operation during both fiscal 2005 and 2004
while nineteen centers were in operation during the peak season of fiscal 2003.
Fiscal years 2004 and 2003 each consisted of 52 weeks. Fiscal year 2005 was a
53-week year. The additional week contributed to operating revenues and most
categories of expenses.
Operating revenues increased $173,000 or about 1% in fiscal 2005 versus a
decrease of $942,000 or 3%, excluding the gain on the sale of Silver Spring,
mentioned above, in fiscal 2004. Bowling and other revenue increased $274,000
or 1% in fiscal 2005, primarily as a result of a higher average game rate and
an increase in some ancillary services revenue. In the prior year period
bowling and other revenue declined 2%.
Food, beverage and merchandise sales decreased 1% in fiscal 2005 although
profitability on sales increased as cost of sales declined at a greater rate.
In fiscal 2004 food, beverage and merchandise sales decreased 6%, due in part
to the closure of Silver Spring and a change in the food service operation at
Gaithersburg.
Total operating expense declined slightly in fiscal 2005 versus a decrease
of 3% in the prior year. Costs for employee compensation and benefits were
down less than 1% in fiscal 2005 and down 2% in the prior year. In the prior
year an increase in the contribution to the pension plans was offset by the
lower cost of operating one fewer center. In fiscal 2005 health insurance costs
were up 2%, however, a significant increase is expected in the new plan year.
Cost of bowling and other services increased 2% in the current year period
versus a decrease of 1% in the prior year period. Maintenance expense was down
12% in fiscal 2005 due primarily to fewer building and air conditioning repairs.
In the prior fiscal year, due to replacement of wooden lanes, there were no
lane resurfacing costs. The 9% decrease in maintenance costs last year
reflected the change. Supplies expense was flat in fiscal 2005 versus an
increase of 5% in the prior fiscal year.
Advertising costs increased $171,000 or 38% in fiscal 2005 and $65,000 or
17% in the prior year. Both years included campaigns to increase awareness of
our websites and services for corporate outings. In fiscal 2005 the Company
made heavier use of the cable and television media. Utility costs were up 4%
in fiscal 2005 versus a slight decline in fiscal 2004.
Rent expense decreased 4% in fiscal 2005 and 2% in the prior year. The
decline in fiscal 2005 was primarily due to lower common area maintenance costs.
Insurance expense, excluding health and life, increased 10% in fiscal 2005 and
was down 8% in fiscal 2004.
Depreciation expenses decreased by $69,000 or 4% in fiscal 2005 and
by $81,000 or 5% in fiscal 2004. Large assets reaching full depreciation were
responsible for the decreases in both years.
Operating income increased 5.7% to $5.2 million from $4.9 million in fiscal
2004. Fiscal 2004 operating income declined approximately 4.3% from
$5.1 million in fiscal 2003.
Interest and dividend income increased 47% from the prior year due to
higher interest rates on investments.
Gain on the sale of land, building and equipment in fiscal 2004 was due
principally to the sale of the Silver Spring building.
Investment earnings of $152,000 on the mandatory exchange of AT&T Wireless
stock for cash from Cingular Wireless were recorded in fiscal 2005.
Effective income tax rates for the Company were 35.8% for fiscal 2005,
37.4% for fiscal 2004, and 35.9% in 2003, 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.
Net earnings in fiscal 2005 were $3.8 million or $.75 per share, compared
to $4.7 million or $.91 per share in fiscal 2004, and $3.5 million or $.70 per
share in fiscal 2003.
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 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.
We have identified accounting for the impairment of long-lived assets under
SFAS 144 " Accounting for the Impairment or Disposal of Long-Lived Assets" as a
critical accounting policy due to the significance of the amounts included in
our 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.
-2-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPERATIONS
Selected Financial Data
For the Years Ended
July 3, June 27, June 29, June 30, July 1,
2005 2004 2003 2002 2001
__________________________________________________________
Operating Revenues $28,607,145 $28,433,689 $29,375,692 $29,901,142 $29,400,903
Operating Expenses 23,435,145 23,539,032 24,262,944 24,507,566 24,508,226
Interest and dividend
Income 609,963 413,738 475,598 598,982 1,035,712
Investment Earnings 151,817 - - - -
Gain on Sale of Land,
Buildings and
Equipment 65,531 2,201,240 - - -
__________ __________ __________ __________ __________
Earnings before pro-
vision for income
taxes 5,999,311 7,509,635 5,588,346 5,992,558 5,928,389
Provision for income
taxes 2,150,030 2,807,896 2,005,000 2,174,000 2,060,000
__________ __________ __________ __________ __________
Net Earnings $ 3,849,281 $ 4,701,739 $ 3,583,346 $ 3,818,558 $ 3,868,389
Weighted Average
Shares Outstanding
Basic & Diluted 5,137,773 5,138,559 5,145,934 5,132,083 5,222,876
Earnings Per Share
Basic & Diluted $.75 $.91 $.70 $.74 $.74
Net Cash Provided by
Operating Activities $5,503,187 $5,501,857 $5,450,867 $5,954,909 $4,795,680
Cash Dividends Paid $2,774,419 $2,672,062 $2,470,081 $2,371,121 $2,256,182
Cash Dividends Paid
Per Share-Class A $.54 $.52 $.48 $.46 $.45
-Class B $.54 $.52 $.48 $.46 $.45
Total Assets $42,548,998 $40,579,581 $37,536,507 $36,562,578 $37,509,243
Stockholders' Equity $36,191,662 $34,896,581 $32,953,150 $32,682,139 $32,614,517
Net Book Value Per
Share $7.04 $6.79 $6.41 $6.35 $6.64
Net Earnings as a %
of Beginning Stock-
holders' Equity 11.0% 14.3% 11.0% 11.7% 11.1%
Lanes in Operation 716 716 716 746 820
Centers in Operation 18 18 18 19 21
All share and per share amounts (excluding Net Book Value Per Share) have been
adjusted to reflect the 5% stock dividend distributed on July 26, 2001.
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 2005 and 2004.
2005 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_________________________________________________________
High 14.60 14.30 14.41 14.35
Low 14.00 13.95 13.55 13.40
2004 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_______________________________________________________
High 13.10 14.00 15.25 14.70
Low 10.67 12.81 14.00 14.05
Holders
The approximate number of holders of record of the Company's Class A Common
Stock as of July 3, 2005 is 423 and of the Company's Class B Common Stock
is 28.
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 2005
and 2004.
Class A Common Stock
Quarter 2005 2004
____________________________________________
First 13.5 cents 12.5 cents
Second 13.5 cents 12.5 cents
Third 13.5 cents 13.5 cents
Fourth 13.5 cents 13.5 cents
Class B Common Stock
Quarter 2005 2004
_____________________________________________
First 13.5 cents 12.5 cents
Second 13.5 cents 12.5 cents
Third 13.5 cents 13.5 cents
Fourth 13.5 cents 13.5 cents
-3-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 3, 2005 June 27, 2004
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 1,707,385 $ 1,320,643
Short-term investments (Note 3) 11,273,191 11,681,729
Inventories 626,452 583,466
Prepaid expenses and other 491,647 595,460
Income taxes refundable 132,467 -
__________ __________
Total Current Assets 14,231,142 14,181,298
Land, Buildings and Equipment, Net (Note 4) 23,440,265 21,762,919
Other Assets
Marketable equity securities (Note 3) 4,208,421 4,041,161
Cash surrender value-officers'life insurance 516,248 467,603
Other 152,922 126,600
__________ __________
Total Other Assets 4,877,591 4,635,364
---------- ----------
TOTAL ASSETS $42,548,998 $40,579,581
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,130,017 $ 805,812
Accrued expenses 1,127,639 891,289
Dividends payable 719,177 693,600
Income taxes payable - 179,855
Other current liabilities 372,932 334,317
Current deferred income taxes (Note 7) 247,936 148,675
__________ __________
Total Current Liabilities 3,597,701 3,053,548
Long-Term Deferred Compensation 71,475 74,278
Non-current Deferred Income Taxes (Note 7) 2,688,160 2,555,174
__________ __________
TOTAL LIABILITIES 6,357,336 5,683,000
Commitments and Contingencies (Note 5)
Stockholders' Equity (Note 8)
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 outstanding
3,669,311 366,932 366,932
Class B outstanding 1,468,462 shares 146,846 146,846
Additional paid-in capital 7,479,072 7,479,072
Accumulated other comprehensive earnings-
Unrealized gain on available-for-sale
securities, net of tax 2,194,714 1,948,918
Retained earnings 26,004,098 24,954,813
__________ __________
TOTAL STOCKHOLDERS' EQUITY $36,191,662 $34,896,581
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $42,548,998 $40,579,581
<FN> =========== ==========
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
-4-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS
For the Years Ended
July 3, 2005 June 27, 2004 June 29, 2003
______________________________________________
Operating Revenues
Bowling and other $20,428,291 $20,154,568 $20,574,413
Food, beverage and
merchandise sales 8,178,854 8,279,121 8,801,279
__________ __________ __________
28,607,145 28,433,689 29,375,692
Operating Expenses
Compensation and benefits 12,617,207 12,688,709 12,976,056
Cost of bowling and other 6,058,703 5,925,753 5,983,292
Cost of food, beverage and
merchandise sales 2,492,677 2,603,609 2,771,356
Depreciation and amortization 1,463,188 1,532,587 1,613,379
General and administrative 803,370 788,374 918,861
__________ __________ __________
23,435,145 23,539,032 24,262,944
Operating Income 5,172,000 4,894,657 5,112,748
Interest and dividend income 609,963 413,738 475,598
Gain on sale of land, buildings
and equipment 65,531 2,201,240 -
Investment earnings 151,817 - -
__________ __________ __________
Earnings before provision
for income taxes 5,999,311 7,509,635 5,588,346
Provision for income taxes(Note 7)
Current 2,060,514 1,946,247 2,050,000
Deferred 89,516 861,649 (45,000)
_________ __________ __________
2,150,030 2,807,896 2,005,000
Net Earnings $ 3,849,281 $ 4,701,739 $ 3,583,346
Other Comprehensive Gain (Loss)
Net of Tax
Unrealized gain (loss)
on available-for-sale securities 334,483 (23,595) (70,549)
Less: Reclassification adjustment
for gain included in net income (88,687) - -
_________ _________ _________
Comprehensive Earnings 4,095,077 4,678,144 3,512,797
Earnings Per Share-Basic &
Diluted $.75 $.91 $.70
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
-5-
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 30, 2002 3,666,376 $366,638 1,483,620 $148,362 $7,603,646 $2,043,062 $22,520,431
Purchase of stock (470) (47) (15,158) (1,516) (174,250) - (4,851)
Shares issued for ESOP plan 4,206 421 - - 48,579 - -
Cash dividends paid - - - - - - (2,470,081)
Accrued dividends declared
June 24, 2003, payable
August 12, 2003 - - - - - - (642,323)
Change in unrealized gain on
available-for-sale securities
(snown net of tax) - - - - - (70,549) -
Repayment of employee loan - - - - 2,282 - -
Net earnings for the year - - - - - - 3,583,346
_______________________________________________________________________________________________________________________
Balance June 29, 2003 3,670,112 $367,012 1,468,462 $146,846 $7,480,257 $1,972,513 $22,986,522
Purchase of stock (801) (80) - - (1,185) - (10,109)
Cash dividends paid - - - - - - (2,029,739)
Accrued dividends declared
June 22, 2004, payable
August 18, 2004 - - - - - - (693,600)
Change in unrealized gain on
available-for-sale securities
(shown net of tax) - - - - - (23,595) -
Net earnings for the year - - - - - - 4,701,739
________________________________________________________________________________________________________________________
Balance, June 27, 2004 3,669,311 $366,932 1,468,462 $146,846 $7,479,072 $1,948,918 $24,954,813
Cash dividends paid - - - - - - (2,080,819)
Accrued dividends declared
June 21, 2005, payable
August 17, 2005 - - - - - - (719,177)
Change in unrealized gain on
available-for-sale securities
(shown net of tax) - - - - - 334,483 -
Less: Reclassification adjustment
for gain included in net income,
net of tax - - - - - (88,687) -
Net earnings for the year - - - - - - 3,849,281
- ------------------------------------------------------------------------------------------------------------------------
Balance, July 3, 2005 3,669,311 $366,932 1,468,462 $146,846 $7,479,072 $2,194,714 $26,004,098
<FN> (1)Unrealized gains and losses are shown net of tax
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
-6-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
July 3, June 27, June 29,
2005 2004 2003
Cash Flows From Operating Activities
Net earnings $3,849,281 $4,701,739 $3,583,346
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,463,188 1,532,587 1,613,379
Increase(decrease) in deferred income tax 89,516 861,649 (45,000)
(Gain) Loss on disposition of assets-net (65,531) (2,201,240) 11,932
Stock issuance-ESOP Plan - - 49,000
Gain on sale of available-for-sale
securities (151,817) - -
Changes in assets and liabilities:
Increase in inventories (42,986) (18,395) (24,044)
Decrease (increase) in prepaid expenses
and other 103,813 (4,905) (111,266)
(Increase) decrease in income taxes
refundable (132,467) 443,788 255,980
Increase in other long-term assets (26,322) (83) (28,855)
Increase (decrease) in accounts payable 324,205 105,387 (1,246)
Increase (decrease) in accrued expenses 236,350 (18,798) 160,842
(Decrease) increase in income taxes payable (179,855) 179,855 -
Increase (decrease) in other current
liabilities 38,615 (20,537) (14,173)
(Decrease) increase in long-term
deferred compensation (2,803) (59,190) 972
_________ _________ _________
Net cash provided by operating activities $5,503,187 $5,501,857 $5,450,867
_________ _________ _________
Cash Flows from Investing Activities
Expenditures for land,buildings,equipment (3,184,491) (688,810) (1,525,181)
Sale of assets 109,488 - -
Sales (purchases) and maturities of
short-term investments 529,097 (2,309,382) (1,371,706)
Increase in cash surrender value (48,645) (4,024) (32,330)
Proceeds (purchases) from sale or
purchases of marketable securities 252,525 1,125 (1,409)
_________ _________ _________
Net cash used in investing activities (2,342,026) (3,001,091) (2,930,626)
_________ _________ _________
Cash Flows from Financing Activities
Payment of cash dividends (2,774,419) (2,672,062) (2,470,081)
Purchase of Class A Common Stock - (11,374) (5,589)
Purchase of Class B Common Stock - - (175,075)
_________ _________ _________
Net cash used in financing activities (2,774,419) (2,683,436) (2,650,745)
_________ _________ _________
Net Increase (Decrease) in Cash and
Cash Equivalents 386,742 (182,670) (130,504)
Cash and Cash Equivalents, Beginning of Year 1,320,643 1,503,313 1,633,817
_________ _________ _________
Cash and Cash Equivalents, End of Year $1,707,385 $1,320,643 $1,503,313
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Income taxes $2,284,987 $1,907,467 $2,324,881
Non-cash Investing and Financing Activities
Exchange of property - $2,351,800 -
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
-7-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Bowl America Incorporated is engaged in the operation of 18 bowling
centers, with food and beverage service in each center. Ten centers are
located in metropolitan Washington D.C., one center in metropolitan
Baltimore, Maryland, one center in metropolitan Orlando, Florida, three
centers in metropolitan Richmond, Virginia, and three centers in metropolitan
Jacksonville, Florida. These 18 centers contain a total of 716 lanes.
The Company operates in one segment.
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 2005 ended July 3, 2005 and consisted of 53 weeks. Fiscal year 2004
ended June 27, 2004, and fiscal year 2003 ended June 29, 2003. Fiscal years
2004 and 2003 each consisted of 52 weeks.
Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions. These estimates and
assumptions 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 may differ from those estimates. Significant
estimates include the deferred compensation liability for executives and key
employees including survivor benefits, depreciation expense, cash surrender
value of officers' life insurance, the Federal and State income taxes (current
and deferred), and market assumptions used in estimating the fair value of
certain assets such as marketable securities and long-lived assets.
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
calculated by use of the straight-line method. Amortization of leasehold
improvements 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 10-39 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.
Impairment of Long-Lived Assets
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 that the carrying amount.
Dividends
It is the Company's policy to accrue a dividend liability at the time the
dividends are declared.
Advertising Expense
It is the Company's policy to expense advertising expenditures as they are
incurred. The Company's advertising expenses for the years ending Ju;y 3,
2005, June 27, 2004 and June 29, 2003 were $623,322, $451,860 and $386,625,
respectively.
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.
Investment Securities
The Company accounts for its investments in accordance with SFAS No. 115
"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 or 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 5,137,773, 5,138,559 and 5,145,934, for fiscal years 2005,
2004 and 2003, respectively, and have been adjusted to reflect the 5% stock
dividend distributed on July 26, 2001.
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 3, 2005.
-8-
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. The Company maintains cash accounts which may exceed
Federally insured limits during the year, but does not believe that this
results in any significant credit risk.
Other Current Liabilities
Other current liabilities include prize fund monies held by the Company
for bowling leagues. The funds are returned to the leagues at the end of the
league bowling season. At July 3, 2005, and June 27, 2004 other current
liabilities included $369,317, and $328,014, respectively, in prize fund monies.
Reclassifications
Certain previous year amounts have been reclassified to conform with the
current year presentation.
New Accounting Standards
In December 2004, the FASB issued SFAS No. 151 "Inventory Costs". This
statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing",
to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material. This statement requires that
those items be recognized as current-period charges. In addition, this
statement requires that allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities.
The adoption of this statement did not have any impact on the Company's
financial position or results of operations.
In December 2004, the FASB issued SFAS No. 152 "Accounting for Real
Estate Time Sharing Transactions". This statement amends FASB Statement
No. 66, "Accounting for Sales of Real Estate", to reference the financial
accounting and reporting guidance for real estate time-sharing transactions
that is provided in AICPA Statement of Position (SOP) 04-2, "Accounting for
Real Estate Time Sharing Transactions". This statement also amends FASB
No. 67 "Accounting for Costs and Initial Rental Operations of Real Estate
Projects", to state that the guidance for (a) incidental operations and
(b) costs incurred to sell real estate projects does not apply to real estate
time-sharing transactions. The accounting for those operations and costs is
subject to the guidance in SOP 04-2. Adoption did not have any impact on the
Company's consolidated financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share
Based Payment" ("SFAS 123R"), which is a revision to SFAS 123 and supercedes
APB 25 and SFAS 148. This statement requires that the cost resulting from all
share-based payment transactions be recognized in the fiinancial statements.
This statement establishes fair value as the measurement objective in accounting
for share-based payment arrangements and requires all entities to apply a fair-
value based measurement method in accounting for share-based payment
transactions with employees except for equity instruments held by share
ownership plans. The adoption of this statement did not have any impact on
the Company's consolidated financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153, entitled "Exchanges of
Nonmonetary Assets - An Amendment of APB Opinion No. 29". SFAS No. 153 amends
Opinion 29 to eliminate the exception for nonmonetary exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The adoption of SFAS 153
did not have any impact on the Company's consolidated financial position or
results of operations.
In May 2005, the FASB issued SFAS No. 154, entitled "Accounting Changes
and Error Corrections - a Replacement of APB Opinion No. 20 and FASB Statement
No. 3". This statement replaces APB Opinion No. 20, "Accounting Changes", and
FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial
Statements", and changes the requirements for the accounting for and reporting
of a change in accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement does
not include specific transaction provisions. Opinion 20 previously required
that most voluntary changes in accounting principle be recognized by including
in net income of the period of the change the cumulative effect of changing to
the new principle. This statement requires retrospective application to prior
periods' financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. This statement defines retrospective application as the
application of a different accounting principle to prior accounting periods as
if that principle had always been used or as the adjustment of previously
issued financial statements to reflect a change in the reporting entity. This
statement also redefines restatement as the revising of previously issued
financial statements to reflect the correction of an error. The adoption of
SFAS 154 did not have any impact on the Company's consolidated financial
position or results of operation.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
July 3, June 27,
2005 2004
Demand deposits and cash on hand $ 316,380 $ 611,552
Money market funds 175,645 175,644
Repurchase agreements 1,215,360 533,447
_________ _________
$1,707,385 $1,320,643
-9-
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 3, 2005, the
fair value of short-term investments was $11,273,191 with an unrealized gain
of $30,617. At June 27, 2004, the fair value of short-term investments was
$11,681,729 with an unrealized loss of $89,923. Non-current investments are
marketable equity securities which consist primarily of 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 3, 2005, and June 27, 2004
as follows:
Original Unrealized Fair
Cost Gain Value
July 3, 2005
Securities available-for-sale $757,054 $3,451,367 $4,208,421
June 27, 2004
Securities available-for-sale $857,782 $3,183,379 $4,041,161
This portfolio includes the following telecommunications stocks:
220 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
45,580 shares of SBC Communications
40,000 shares of Sprint Fon
18,784 shares of Verizon
13,560 shares of Vodafone
In the year ended July 3, 2005, the Company received $252,525 as merger
compensation from Cingular Wireless for the mandatory exchange of 16,835 shares
of AT&T Wireless stock held by the Company.
In the year ended June 27, 2004, the Company received proceeds of
approximately $1,000 from the conversion of a publicly traded company into a
private enterprise. There were no sales of available-for-sale securities in the
year ended June 29, 2003.
4. LAND, BUILDINGS, AND EQUIPMENT
Land, buildings, and equipment, as cost, consist of the following:
July 3, June 27,
2005 2004
Buildings $14,384,416 $14,384,416
Leasehold and building improvements 5,134,484 5,107,091
Bowling lanes and equipment 19,584,395 18,983,657
Land 10,590,450 10,590,450
Amusement games 790,431 873,011
Bowling lanes and equipment not yet in use 2,012,936 218,497
__________ __________
52,497,112 50,157,122
Less accumulated depreciation and
amortization 29,056,847 28,394,203
__________ __________
$23,440,265 $21,762,919
Depreciation and amortization expense for buildings and equipment for
fiscal years 2005, 2004, and 2003 was $1,463,188, $1,532,587, and $1,613,379,
respectively. Bowling lanes and equipment not yet in use are not depreciated.
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company and its subsidiaries are obligated under long-term real estate
lease agreements for two 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.
At July 3, 2005, the minimum fixed rental commitments related to all
non-cancelable leases, were as follows:
Year Ending
2006 $276,761
2007 276,761
2008 276,761
2009 276,761
2010 103,730
Thereafter 344,667
_________
Total minimum lease payments $1,555,441
Net rent expense was as follows:
For the Years Ended
July 3, June 27, June 29,
2005 2004 2003
Minimum rent under operating leases $277,394 $283,721 $296,557
Excess percentage rents 23,098 27,165 27,321
_______ _______ _______
$300,492 $310,886 $323,878
Purchase Commitments
At July 3, 2005, contracts relating to the construction and equipping of
the new center in Richmond, Virginia, totaled approximately $4,296,000, of
which approximately $1,135,000 had been paid.
In late September 2004, the Company signed a contract for approximately
$770,000 for site preparation relating to the building, to be paid out as work
was completed. Revisions to the contract through July 3, 2005, increased the
contract amount to $1,037,000, of which approximately $348,000 has been paid.
In February 2005, the Company signed a contract for the purchase of
bowling equipment for the new location totaling approximately $379,000.
Delivery is expected in the second quarter of fiscal 2006.
During the quarter ended March 27, 2005, the Company signed a contract for
approximately $1,526,000 for construction of the building shell. Additional
requests and revisions for construction increased the contract amount to
approximately $2,880,000 at July 3, 2005, of which approximately $787,000 had
been paid. In July 2005, further changes increased the contract sum to
$2,983,000.
-10-
Subsequent to July 3, 2005, the Company signed a purchase order for
$140,000 for the purchase of point-of-sale cash systems to be installed during
the first quarter of fiscal 2006 and purchase orders totaling $438,000 for
bowling equipment expected to be installed during the second quarter of fiscal
2006. Payment is due in full ten days after acceptance of the working systems.
6. PROFIT-SHARING AND ESOP PLAN
The Company has a profit-sharing plan 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
for Company contributions as determined by the Board of Directors. For the
years ended July 3, 2005, June 27, 2004, and June 29, 2003, contributions in
the amount of $150,000, $188,000, and $145,000, respectively, were charged to
operating expense.
Effective March 31, 1987, the Company adopted an Employee Stock Ownership
Plan (ESOP) which generally covers all individuals 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. The value of the Company's contributions to the
Plan for fiscal years 2005, 2004, and 2003 was $150,000, $188,000, and
$145,000, respectively.
7. INCOME TAXES
The significant components of the Company's deferred tax assets and
liabilities were as follows:
July 3, June 27,
2005 2004
Deferred tax:
Land, buildings, and equipment $1,506,179 $1,317,905
Unrealized gain on available-
for-sale securities 1,287,270 1,237,269
Prepaid expenses 181,762 191,619
Other (39,115) (42,944)
_________ _________
Deferred tax liabilities $2,936,096 $2,703,849
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
2005 % 2004 % 2003 %
Taxes computed at
statutory rate $2,039,759 34.0% $2,553,276 34.0% $1,900,000 34.0%
State income taxes, net
of Federal income tax
benefit 169,821 2.8 337,032 4.5 161,000 2.9
Dividends received
exclusion (36,685) (.6) (35,889) (.5) (40,000) (.72)
All other-net (22,865) (.4) (46,523) (.6) (16,000) (.28)
_________ ____ _________ ____ _________ ____
$2,150,030 35.8% $2,807,896 37.4% $2,005,000 35.9%
8. 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.
At July 3, 2005 and June 27, 2004, the Company had $41,956 in employee
loans related to the issuance of shares. These loans are secured by the shares
of the Company's common stock acquired and are full recourse notes. The notes
bear interest at rates of 3% to 3 1/2% and are payable over a term of three
years from the date of the agreements which range from 2004 to 2005. These
employee loans have been recorded as a reduction of additional paid-in capital.
9. RELATED PARTIES AND DEFERRED COMPENSATION
At July 3, 2005, the Company had recorded $20,020 in deferred compensation
payable to one officer. Deferred compensation payable to non-related parties
was a total of $63,019 at July 3, 2005 and $60,875 at June 27, 2004. The
current portion of these amounts, $11,564 and $6,617 at July 3, 2005 and
June 27, 2004, respectively, is included in accrued expenses.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the results of operations for each of the
quarters in fiscal years 2005 and 2004 (dollars in thousands, except for
earnings per share):
Earnings
Operating Operating Before Earnings
Revenues Income Income Net Per
Taxes Earnings Share
2005
July 3, 2005 $7,000 $1,127 $1,379 $ 907 $.18
March 27, 2005 8,596 2,520 2,679 1,701 .33
December 26, 2004 7,111 1,190 1,502 950 .18
September 26, 2004 5,900 335 439 291 .06
2004
June 27, 2004 $6,198 $ 767 $ 909 $ 512 $.10
March 28, 2004 8,783 2,583 2,689 1,704 .33
December 28, 2003 7,308 1,312 1,415 912 .17
September 28, 2003 6,145 233 2,497 1,574 .31
-11-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 3, 2005 and June 27, 2004,
and the related Consolidated Statements of Earnings and Comprehensive Earnings,
Stockholders' Equity and Cash Flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). 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
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bowl
America Incorporated and Subsidiaries as of July 3, 2005 and June 27, 2004,
and the results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the
United States of America.
Aronson & Company
Rockville, Maryland
August 25, 2005
-12-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Bowl America Incorporated
Alexandria, Virginia
We have audited the accompanying consolidated statements of earnings and
comprehensive earnings, stockholders' equity and cash flows of Bowl
America Incorporated and Subsidiaries for the fiscal year in the period ended
June 29, 2003. 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 audit.
We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company was
not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of Bowl America Incorporated and
Subsidiaries' operations and their cash flows for the fiscal year in the period
ended June 29, 2003, in conformity with accounting principles generally
accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
McLean, Virginia
September 12, 2003
-13-
EX-31.1
Exhibit 31.1 to Form 10-K
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 Annual Report on Form 10-K 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-15(e) and 15d-15(e)) 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 most recent
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: September 29, 2005
Leslie H. Goldberg
Chief Executive Officer
Exhibit 31.2
Exhibit 31.2 to Form 10K
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 Annual Report on Form 10-K 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-15(e) and 15d-15(e)) 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 most recent
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: September 29, 2005
Cheryl A. Dragoo
Chief Financial Officer
Exhibit 32
Exhibit 32 to Form 10K
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 Annual Report
on Form 10-K of the Company for the year ended July 3, 2005, (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: September 29, 2005