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 2, 2006 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 if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. YES [ ] NO [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES[ ] NO [X]
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 a large accelerated filer
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [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 January 1, 2006, which was the last business day of the
registrant's most recently completed second quarter, 3,668,518 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 of the registrant 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 January 1, 2006, the
total aggregate market value for both classes of common stock held by
nonaffiliates would be approximately $34 million.
Indicate the number of shares outstanding of each of the issuer's classes
Of common stock, as of the last practical date:
Shares outstanding at
September 1, 2006
Class A Common Stock
$.10 par value 3,668,430
Class B Common Stock
$.10 par value 1,468,462
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 2, 2006 are
incorporated into Part III of this Form 10-K. Portions of Bowl America's 2006
Annual Report to shareholders are incorporated by reference in Part II,
Items 5,6,7 and 8.
BOWL AMERICA INCORPORATED
INDEX TO FISCAL 2006 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 1A. Risk Factors 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 3
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 2006 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 19 bowling centers. The Company's newest location,
a 40 lane center in metropolitan Richmond, Virginia, opened January 27, 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, 2006 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 four bowling centers in the
greater metropolitan area of Richmond, Virginia. These 19 bowling centers
contain a total of 756 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 750.
(d) Foreign Operations
The Company has no foreign operations.
Item 1A. RISK FACTORS
General economic, social and political conditions may adversely impact
revenue. The Company's revenues may be affected if customers' discretionary
income declines as a result of a downturn in the economy. Competition from
other forms of recreation can affect the popularity of bowling and could
adversely affect revenues. Political events such as a terrorist attack could
cause people to avoid public places where large crowds gather.
Adverse weather conditions can affect revenues. Especially during
the busy winter months, revenues from open play bowling, generally on weekends
and holidays, can be affected by severe weather conditions that limit
customers' ability to travel.
High energy costs could adversely affect operating income as heating
and air conditioning are a significant expense of center operations.
We depend on key personnel for our performance. Our performance
significantly depends upon the continued contributions of our President and
Chief Executive Officer, General Manager and certain other key employees. The
loss or unavailability of any such persons, or the delay and disruption that
could be associated in the event of a need to replace any such persons, could
adversely affect us.
We may not be able to expand our operations. We are endeavoring to
increase the number of our bowling centers through the acquisition or
construction of new centers. No assurance can be given that we will be able
to effect such expansion on terms favorable to us or that we will be able to
profitably operate any such new centers.
We qualify as a "controlled company" under American Stock Exchange
rules. We qualify as a "controlled company" under the rules of the AMEX as a
result of the fact that our President and Chief Executive Officer and his
family beneficially own shares possessing more than 50% of our outstanding
shares' total voting power, and we are consequently exempt from certain AMEX
corporate governance listing requirements. Furthermore, such controlling
shareholders would be able to determine the outcome of certain matters that
could be submitted for shareholder approval, rendering the minority
shareholders unable to control such matters.
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 seventeen 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 2, 2006.
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 "Cash Dividends" under "Selected Financial Data"
on page 3 of the Company's July 2, 2006 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 2, 2006 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 2, 2006 Annual Report is incorporated by
reference herein.
-2-
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 $7,990,636 and $11,273,191 at July 2,
2006 and July 3, 2005, 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 2, 2006, a 10% decline in the average yield would not
have a material impact on our interest income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes thereto, the
Report of Independent Registered Public Accounting Firm and the Selected
Quarterly Financial Data (unaudited), as contained on pages 2 through 11 of the
Company's July 2, 2006 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 2, 2006.
There was no change 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 2, 2006 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:
Report of Independent Registered Public Accounting Firm
Consolidated balance sheets - July 2, 2006 and July 3, 2005
Consolidated statements of earnings and comprehensive earnings
- years ended July 2, 2006, July 3, 2005, and June 27, 2004
Consolidated statements of stockholders' equity - years ended
July 2, 2006, July 3, 2005, and June 27, 2004
Consolidated statements of cash flows - years ended
July 2, 2006, July 3, 2005, and June 27, 2004
Notes to the consolidated financial statements - years ended
July 2, 2006, July 3, 2005, and June 27, 2004
(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 22, 2006)
10(b) Employment agreement, dated December 31, 2005, between
Registrant and Irvin Clark. (Incorporated by reference from
Registrant's Form 8-K filed January 10, 2006)
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 28, 2006
Cheryl A. Dragoo
Chief Financial Officer,
Assistant Treasurer and Controller
Principal Accounting Officer
Date: September 28, 2006
-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 28, 2006
Ruth Macklin A. Joseph Levy
Senior Vice President-Treasurer Senior Vice President-Secretary
and Director and Director
Date: September 28, 2006 Date: September 28, 2006
Warren T. Braham Stanley H. Katzman
Director Director
Date: September 28, 2006 Date: September 28, 2006
Allan L. Sher Merle Fabian
Director Director
Date: September 28, 2006 Date: September 28, 2006
Irvin Clark
Director
Date: September 28, 2006
-6-
BOWL AMERICA INCORPORATED
PRESIDENT'S LETTER
September 22, 2006
Dear Fellow Owners:
More and more people are coming to Bowl America. They are spending more
money. Our sales for bowling related activities and food and beverages were
higher than last year, even though we had one fewer fiscal week. This is true
even without the sales at our new center.
But the earnings were not up. What we charged did not keep up with what we
have to pay for the good and services we provide our customers. Economists
say the pressure of rising costs is abating. If, like me, you go to a local
grocery or hardware store, you are not as sanguine. If you have a light switch
in your home, you know what is happening with energy costs. Just convert that
to thousands of square feet in the bowling centers that must be brightly lit
and ventilated almost year round. Watching our costs will have to be a top
priority this year.
Also, some of our best business is done in locations that have been actively
used for almost 50 years. This year, some of the oldest buildings required
expensive and unpredicted repairs. These buildings, however, are well located
for future growth. My guess is you would probably include almost all of our
neighborhoods on your list if you were starting to build a new bowling chain.
Think how often you read about economic growth and low unemployment in Fairfax
and Loudoun Counties and in Richmond.
Another growing item is our dividend. This was the 34th consecutive year of
increased dividends per share, which resulted in our being ranked 21st among
19,000 public companies in a recent survey. We are not prepared, however, to
view our situation as static. Elsewhere you will see the photographs of our
spectacular new Richmond, Virginia area facility. It is located in what we
believe to be the fastest growing section of that city and the photos hardly do
justice to its visual impact. This blend of the new with continued development
of our existing properties is what is required to accomplish our objective of
continuing to increase the real rewards of owning shares in our company. We
have long argued that shareholders are best served if they can share in their
companies' success without having to sell their stock.
Future success won't simply flow from bricks and mortar. It will be
determined by the skills of our people and customs we have developed over the
years. I am particularly reminded of this because of the recent death of Paul
Mudd. Paul and I had actually worked together at the old Clarendon Bowling
Center during World War II. When Bowl America was founded, Paul became its
first manager, opening Shirley Bowl in January 1958. He continued with the
company until his retirement in 1989. Paul's relationship with Bowl America
will not, however, be limited by dates. Even today, when discussing the things
that the best bowling center managers do, we always come back to talking about
how Paul Mudd did it. In this respect, he was part of our past and will be
part of our future.
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 2006 was
$4,293,000 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 $9,046,000 at the end of fiscal 2006
compared to $12,980,000 at the end of fiscal 2005. The decrease of
approximately $3,934,000 is primarily the result of internally funding
the building of Bowl America Short Pump which opened to the public on
January 27, 2006.
During fiscal year 2006, the Company expended approximately
$1,118,000 for the purchase of bowling equipment and restaurant
equipment and amusement games, continuing to upgrade current
facilities. Approximately $4,201,000 was expended in the fiscal year
for building and equipping the new location. All contracts for the
site were paid in full except a $10,000 balance due on one contract.
In July 2006, the Company signed purchase agreements totaling
approximately $290,000 for bowling pins and point-of-sale cash
systems. In August 2006 all pins and equipment were delivered and
payment in full was made.
The Company is actively seeking property for the development of new
bowling centers. The Company has made no application for third party
funding as cash and cash flows are sufficient to finance all
contemplated purchases and to meet short-term purchase commitments and
operating lease commitments. The table below summarizes these
obligations as of July 2, 2006. 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 2, 2006 was approximately $4.5 million
compared to $4.2 million at July 3, 2005.
CONTRACTUAL Total Less than 1-3 3-5 More than
OBLIGATIONS 1 year years years 5 years
-------------------------------------------------------------------------
Operating lease
obligations $1,265,416 $ 272,459 $544,918 $191,372 $256,667
Purchase
obligations 10,000 10,000 - - -
-------------------------------------------------------------------------
Total $1,275,416 $ 282,459 $544,918 $191,372 $256,667
=========================================================================
Cash dividends of $.56 per share, totaling $2.9 million, were paid to
shareholders during the 2006 fiscal year making this the thirty-fourth
consecutive year of increased dividends per share. In June 2006, the Company
declared a $.14 per share dividend to be paid in August 2006. 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.
RESULTS OF OPERATIONS
With the opening of Bowl America Short Pump during the third quarter of
fiscal year 2006, the number of locations in operation increased from eighteen
to nineteen. Eighteen centers were in operation during both fiscal 2005 and
2004. Fiscal years 2006 and 2004 each consisted of 52 weeks. Fiscal year
2005 was a 53-week year. All comparisons in this discussion and throughout
the report are affected by the change in the number of centers in operation
in fiscal year 2006 and the additional week of business in fiscal year 2005.
Operating revenues increased $1,713,000 or about 6% in fiscal 2006 and
$173,000 or about 1% in fiscal 2005. Bowling and other revenue increased
$1,207,000 or 6% in fiscal 2006 and $274,000 or 1% in fiscal 2005. Food,
beverage and merchandise sales rose $506,000 or 6% in the current fiscal year
versus a decrease of 1% in fiscal 2005.
Total operating expense increased $1,975,000 or 8% in fiscal 2006 compared
to a slight decline in fiscal 2005. Costs for employee compensation and
benefits were up 6% in the current fiscal year and down less than 1% in the
prior year period. In fiscal year 2006, health insurance costs increased 8%,
up from a 2% increase in the prior year. The increase was primarily the
result on higher premiums. Included in this category of expense are
contributions to our two benefit plans, both of which are defined contribution
plans. There is no additional obligation beyond the current year contribution.
Cost of bowling and other services increased 11% and 2% in the current and
prior year periods, respectively. Maintenance expense increased $234,000 or
35% in fiscal 2006 due primarily to major plumbing repairs at several locations.
In fiscal 2005 the same category was down 12% due primarily to fewer building
and air conditioning repairs than in fiscal 2004. Supplies expense was up 8%
in fiscal 2006 and flat in fiscal 2005.
Advertising costs increased $60,000 or 9% in the current year and $171,000
or 38% in the prior year period. Utility costs were up 17% in fiscal 2006 and
4% in fiscal 2005.
Rent expense was flat in fiscal year 2006 and decreased 4% in fiscal 2005.
The prior year decline was primarily due to lower common area maintenance costs.
Insurance expense, excluding health and life, declined 13% in fiscal 2006 and
increased 10% in fiscal 2005.
Depreciation expenses increased $202,000 or 14%, primarily attributable to
the purchase of assets for the new location, and decreased by $69,000 or 4%
in fiscal 2005.
Operating income in fiscal 2006 decreased approximately 6% to $4.9 million
from $5.2 million in fiscal 2005. Fiscal 2005 operating income increased 7%
over fiscal year 2004 operating income of $4.9 million excluding the gain of
$2.2 million on the sale of a facility.
Interest and dividend income increased 7% in the current year period and
47% in the prior year due to higher interest rates on investments. Investment
balances in fiscal 2006 were lower than in fiscal 2005 as the new location was
partially funded with these investments.
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 34.9% for fiscal 2006,
35.8% for fiscal 2005, and 37.4% for fiscal 2004, 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 2006 were $3.6 million or $.71 per share, compared
to $3.8 million or $.75 per share in fiscal 2005, and $4.7 million or $.91 per
share in fiscal 2004.
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.
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 2, July 3, June 27, June 29, June 30,
2006 2005 2004 2003 2002
__________________________________________________________
Operating Revenues $30,320,251 $28,607,145 $28,433,689 $29,375,692 $29,901,142
Operating Expenses 25,410,113 23,435,145 23,539,032 24,262,944 24,507,566
Interest and dividend
Income 655,818 609,963 413,738 475,598 598,982
Investment Earnings - 151,817 - - -
Gain on Sale of Land,
Buildings and
Equipment 23,028 65,531 2,201,240 - -
__________ __________ __________ __________ __________
Earnings before pro-
vision for income
taxes 5,588,984 5,999,311 7,509,635 5,588,346 5,992,558
Provision for income
taxes 1,949,409 2,150,030 2,807,896 2,005,000 2,174,000
__________ __________ __________ __________ __________
Net Earnings $ 3,639,575 $ 3,849,281 $ 4,701,739 $ 3,583,346 $ 3,818,558
Weighted Average
Shares Outstanding
Basic & Diluted 5,136,968 5,137,773 5,138,559 5,145,934 5,132,083
Earnings Per Share
Basic & Diluted $.71 $.75 $.91 $.70 $.74
Net Cash Provided by
Operating Activities $4,292,512 $5,503,187 $5,501,857 $5,450,867 $5,954,909
Cash Dividends Paid $2,876,696 $2,774,419 $2,672,062 $2,470,081 $2,371,121
Cash Dividends Paid
Per Share-Class A $.56 $.54 $.52 $.48 $.46
-Class B $.56 $.54 $.52 $.48 $.46
Total Assets $43,130,385 $42,548,998 $40,579,581 $37,536,507 $36,562,578
Stockholders' Equity $37,088,954 $36,191,662 $34,896,581 $32,953,150 $32,682,139
Net Book Value Per
Share $7.22 $7.04 $6.79 $6.41 $6.35
Net Earnings as a %
of Beginning Stock-
holders' Equity 10.1% 11.0% 14.3% 11.0% 11.7%
Lanes in Operation 756 716 716 716 746
Centers in Operation 19 18 18 18 19
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 2006 and 2005.
2006 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_________________________________________________________
High 14.36 13.73 14.60 14.79
Low 13.37 13.03 13.50 14.40
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
Holders
The approximate number of holders of record of the Company's Class A Common
Stock as of July 2, 2006 is 405 and of the Company's Class B Common Stock
is 25.
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 2006
and 2005.
Class A Common Stock
Quarter 2006 2005
____________________________________________
First 14 cents 13.5 cents
Second 14 cents 13.5 cents
Third 14 cents 13.5 cents
Fourth 14 cents 13.5 cents
Class B Common Stock
Quarter 2006 2005
_____________________________________________
First 14 cents 13.5 cents
Second 14 cents 13.5 cents
Third 14 cents 13.5 cents
Fourth 14 cents 13.5 cents
-3-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 2, 2006 July 3, 2005
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 1,055,687 $ 1,707,385
Short-term investments (Note 3) 7,990,636 11,273,191
Inventories 625,467 626,452
Prepaid expenses and other 968,289 491,647
Income taxes refundable 172,873 132,467
Current deferred income taxes (Note 7) 46,910 -
__________ __________
Total Current Assets 10,859,862 14,231,142
Land, Buildings and Equipment, Net (Note 4) 27,053,704 23,440,265
Other Assets
Marketable equity securities (Note 3) 4,540,061 4,208,421
Cash surrender value-officers'life insurance 505,664 516,248
Other 171,094 152,922
__________ __________
Total Other Assets 5,216,819 4,877,591
---------- ----------
TOTAL ASSETS $43,130,385 $42,548,998
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 910,550 $ 1,130,017
Accrued expenses 1,214,780 1,127,639
Dividends payable 719,165 719,177
Other current liabilities 395,919 372,932
Current deferred income taxes (Note 7) - 247,936
__________ __________
Total Current Liabilities 3,240,414 3,597,701
Long-Term Deferred Compensation 66,221 71,475
Non-current Deferred Income Taxes (Note 7) 2,734,796 2,688,160
__________ __________
TOTAL LIABILITIES 6,041,431 6,357,336
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
3,668,430 and 3,669,311 366,843 366,932
Class B outstanding 1,468,462 shares 146,846 146,846
Additional paid-in capital 7,480,615 7,479,072
Accumulated other comprehensive earnings-
Unrealized gain on available-for-sale
securities, net of tax 2,338,565 2,194,714
Retained earnings 26,756,085 26,004,098
__________ __________
TOTAL STOCKHOLDERS' EQUITY $37,088,954 $36,191,662
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,130,385 $42,548,998
<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 2, 2006 July 3, 2005 June 27, 2004
______________________________________________
Operating Revenues
Bowling and other $21,635,492 $20,428,291 $20,154,568
Food, beverage and
merchandise sales 8,684,759 8,178,854 8,279,121
__________ __________ __________
30,320,251 28,607,145 28,433,689
Operating Expenses
Compensation and benefits 13,355,702 12,617,207 12,688,709
Cost of bowling and other 6,743,507 6,058,703 5,925,753
Cost of food, beverage and
merchandise sales 2,707,000 2,492,677 2,603,609
Depreciation and amortization 1,665,637 1,463,188 1,532,587
General and administrative 938,267 803,370 788,374
__________ __________ __________
25,410,113 23,435,145 23,539,032
Gain on sale of land, buildings
and equipment 23,028 65,531 2,201,240
Operating Income 4,933,166 5,237,531 7,095,897
Interest and dividend income 655,818 609,963 413,738
Investment earnings - 151,817 -
__________ __________ __________
Earnings before provision
for income taxes 5,588,984 5,999,311 7,509,635
Provision for income taxes(Note 7)
Current 2,281,996 2,060,514 1,946,247
Deferred (332,587) 89,516 861,649
_________ __________ __________
1,949,409 2,150,030 2,807,896
Net Earnings $ 3,639,575 $ 3,849,281 $ 4,701,739
Other Comprehensive Gain (Loss)
Net of Tax
Unrealized gain (loss)
on available-for-sale securities 143,851 334,483 (23,595)
Less: Reclassification adjustment
for gain included in net income - (88,687) -
_________ _________ _________
Comprehensive Earnings 3,783,426 4,095,077 4,678,144
Earnings Per Share-Basic &
Diluted $.71 $.75 $.91
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 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
Purchase of stock (881) (89) - - (1,302) - (10,904)
Cash dividends paid - - - - - - (2,157,519)
Accrued dividends declared
June 20, 2006, payable
August 9, 2006 - - - - - - (719,165)
Change in unrealized gain on
available-for-sale securities
(shown net of tax) - - - - - 143,851 -
Repayment of employee loan - - - - 2,845 - -
Net earnings for the year - - - - - - 3,639,575
_______________________________________________________________________________________________________________________
Balance, July 2, 2006 3,668,430 $366,843 1,468,462 $146,846 $7,480,615 $2,338,565 $26,756,085
<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 2, July 3, June 27,
2006 2005 2004
Cash Flows From Operating Activities
Net earnings $3,639,575 $3,849,281 $4,701,739
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,665,637 1,463,188 1,532,587
(Decrease) increase in deferred income tax (332,587) 89,516 861,649
Gain on disposition of assets-net (23,028) (65,531) (2,201,240)
Gain on sale of available-for-sale
securities - (151,817) -
Changes in assets and liabilities:
Decrease (increase) in inventories 985 (42,986) (18,395)
(Increase) decrease in prepaid expenses
and other (476,642) 103,813 (4,905)
(Increase) decrease in income taxes
refundable (40,406) (132,467) 443,788
Increase in other long-term assets (26,429) (26,322) (83)
(Decrease) increase in accounts payable (219,467) 324,205 105,387
Increase (decrease) in accrued expenses 87,141 236,350 (18,798)
(Decrease) increase in income taxes payable - (179,855) 179,855
Increase (decrease) in other current
liabilities 22,987 38,615 (20,537)
Decrease in long-term deferred compensation (5,254) (2,803) (59,190)
_________ _________ _________
Net cash provided by operating activities $4,292,512 $5,503,187 $5,501,857
_________ _________ _________
Cash Flows from Investing Activities
Expenditures for land,buildings,equipment (5,319,123) (3,184,491) (2,968,898)
Sale of assets 63,075 109,488 -
Proceeds received from sale of facility - - 2,280,088
Sales (purchases) and maturities of
short-term investments 3,179,143 529,097 (2,309,382)
Decrease (increase) in cash surrender value 10,584 (48,645) (4,024)
Proceeds from sale of marketable securities - 252,525 1,125
_________ _________ _________
Net cash used in investing activities (2,066,321) (2,342,026) (3,001,091)
_________ _________ _________
Cash Flows from Financing Activities
Payment of cash dividends (2,876,696) (2,774,419) (2,672,062)
Purchase of Class A Common Stock (1,193) - (11,374)
_________ _________ _________
Net cash used in financing activities (2,877,889) (2,774,419) (2,683,436)
_________ _________ _________
Net (Decrease) Increase in Cash and
Cash Equivalents (651,698) 386,742 (182,670)
Cash and Cash Equivalents, Beginning of Year 1,707,385 1,320,643 1,503,313
_________ _________ _________
Cash and Cash Equivalents, End of Year $1,055,687 $1,707,385 $1,320,643
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Income taxes $2,322,802 $2,284,987 $1,907,467
Non-cash Investing and Financing Activities
Settlement of employee stock loan by
acquisition of employee-owned stock $2,845 - -
Repayment of employee stock loans by
acquisition of employee-owned stock $8,257 - -
Exchange of property - - $65,735
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 19 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, four
centers in metropolitan Richmond, Virginia, and three centers in metropolitan
Jacksonville, Florida. These 19 centers contain a total of 756 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 2006 ended July 2, 2006, fiscal year 2005 ended July 3, 2005, and fiscal
year 2004 ended June 27, 2004. Fiscal years 2006 and 2004 each consisted of
52 weeks and fiscal year 2005 consisted of 53 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 consolidated
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 July 2,
2006, July 3, 2005 and June 27, 2004 were $681,994, $623,322 and $451,860,
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 5,136,968, 5,137,773 and 5,138,559, for fiscal years 2006,
2005 and 2004, respectively.
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 2, 2006.
-8-
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers money market funds, certificates of deposits, and repurchase
agreements 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 2, 2006, and July 3, 2005 other current
liabilities included $375,332, and $369,317, respectively, in prize fund monies.
Reclassifications
Certain previous year amounts have been reclassified to conform with the
current year presentation.
New Accounting Standards
In October 2005, the FASB issued FSP FAS No. 13-1, "Accounting for Rental
Costs Incurred during a Construction Period" (FSP FAS No. 13-1). FSP FAS
No. 13-1 requires that rental costs associated with ground or building
operating leases incurred during a construction period be recognized as rental
expense. The Company generally owns rather than leases land upon which new
real estate projects are constructed. FSP FAS No. 13-1 is effective for the
first reporting period beginning after December 15, 2005. The adoption of this
statement did not have a material impact on the Company's consolidated
financial statements.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
July 2, July 3,
2006 2005
Demand deposits and cash on hand $ 205,361 $ 316,380
Money market funds 175,645 175,645
Repurchase agreements 674,681 1,215,360
_________ _________
$1,055,687 $1,707,385
-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 2, 2006, the
fair value of short-term investments was $7,990,636 with an unrealized loss
of $89,496. At July 3, 2005, the fair value of short-term investments was
$11,273,191 with an unrealized gain of $30,617. 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 2, 2006, and July 3, 2005
as follows:
Original Unrealized Fair
Cost Gain Value
July 2, 2006
Securities available-for-sale $757,054 $3,783,007 $4,540,061
July 3, 2005
Securities available-for-sale $757,054 $3,451,367 $4,208,421
This portfolio includes the following telecommunications stocks:
220 shares of Agere
3,946 shares of Alltel
45,580 shares of AT&T
669 shares of Avaya
27,572 shares of Bell South
2,000 shares of Embarq
8,028 shares of Lucent Technologies
9,969 shares of Qwest
40,000 shares of Sprint Nextel
18,784 shares of Verizon
13,560 shares of Vodafone
There were no sales of available-for-sale securities in the year ended
July 2, 2006. 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.
During the last twelve months ending July 2, 2006, the Company had $89,496
of gross unrealized losses from its investments in federal agency mortgage
backed securities which had a fair value of $2,340,220. The unrealized losses
on the Company's investment in the federal agency mortgage backed securities
were caused by interest rate increases. Because the decline in market value
is attributable to changes in interest rates and not credit quality and because
the Company has the ability and intent to hold this investment until a recovery
to fair value, the Company does not consider these investments to be other-
than-temporarily impaired at July 2, 2006.
4. LAND, BUILDINGS, AND EQUIPMENT
Land, buildings, and equipment, as cost, consist of the following:
July 2, July 3,
2006 2005
Buildings $17,503,396 $14,384,416
Leasehold and building improvements 6,650,271 5,134,484
Bowling lanes and equipment 21,604,873 19,584,395
Land 10,590,450 10,590,450
Amusement games 814,073 790,431
Bowling lanes and equipment not yet in use 266,812 2,012,936
__________ __________
57,429,875 52,497,112
Less accumulated depreciation and
amortization 30,376,171 29,056,847
__________ __________
$27,053,704 $23,440,265
Depreciation and amortization expense for buildings and equipment for
fiscal years 2006, 2005, and 2004 was $1,665,637, $1,463,188, and $1,532,587,
respectively. The Company includes construction in progress costs in the
bowling lanes and equipment not yet in use category until completion of the
project. 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 2, 2006, the minimum fixed rental commitments related to all
non-cancelable leases, were as follows:
Year Ending
2007 $272,459
2008 272,459
2009 272,459
2010 103,372
2011 88,000
Thereafter 256,667
_________
Total minimum lease payments $1,265,416
Net rent expense was as follows:
For the Years Ended
July 2, July 3, June 27,
2006 2004 2004
Minimum rent under operating leases $270,296 $277,394 $283,721
Excess percentage rents 28,840 23,098 27,165
_______ _______ _______
$299,136 $300,492 $310,886
Purchase Commitments
In December 2005, the Company signed a purchase order for the purchase
of point-of-sale cash systems for approximately $180,000. Installation of
all systems has been completed and payment in full was made in June 2006.
Subsequent to July 2, 2006, the Company signed a purchase order for
$49,000 for the purchase of point-of-sale cash systems to be installed during
the second quarter of fiscal 2007. The purchase order was paid for in full in
August 2006. In July 2006, a purchase order totaling $241,500 for bowling pins
to be delivered in the first quarter of fiscal 2007 was signed. All pins have
been delivered and payment in full was made in August 2006.
6. PROFIT-SHARING AND ESOP PLAN
The Company has two defined contribution plans. The first is 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 provides for Company contributions as
determined by the Board of Directors. For the years ended July 2, 2006,
July 3, 2005, and June 27, 2004, contributions in the amount of $140,000,
$150,000, and $188,000, 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 2006, 2005, and 2004 was $140,000, $150,000, and
$188,000, respectively.
The Company has no defined benefit plan or other post retirement plan.
7. INCOME TAXES
The significant components of the Company's deferred tax assets and
liabilities were as follows:
July 2, July 3,
2006 2004
Deferred tax:
Land, buildings, and equipment $1,357,001 $1,506,179
Unrealized gain on available-
for-sale securities 1,371,666 1,287,270
Prepaid expenses and other (40,781) 142,647
_________ _________
Deferred tax liabilities $2,687,886 $2,936,096
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
2006 2005 2004
Taxes computed at
statutory rate 34.0% 34.0% 34.0%
State income taxes, net
of Federal income tax
benefit 2.3 2.8 4.5
Dividends received
exclusion (.7) (.6) (.5)
All other-net (.7) (.4) (.6)
____ ____ _____
34.9% 35.8% 37.4%
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 2, 2006, and July 3, 2005, the Company had $39,093 and $41,956,
respectively, 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 2, 2006, and 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 $57,766 at July 2, 2006 and $63,019 at
July 3, 2005. The current portion of these amounts, $11,564 at July 2, 2006
and July 3, 2005, and 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 2006 and 2005 (dollars in thousands, except for
earnings per share):
Earnings
Operating Operating Before Earnings
Revenues Income Income Net Per
Taxes Earnings Share
2006
July 2, 2006 $7,036 $ 710 $ 884 $ 623 $.12
April 2, 2006 9,351 2,517 2,697 1,699 .33
January 1, 2006 7,556 1,412 1,558 1,020 .20
October 2, 2005 6,377 294 450 298 .06
2005
July 3, 2005 $7,000 $1,193 $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
-11-
Aronson & Company 700 King Farm Boulevard
Rockville, Maryland 20850
Phone 301.231.6200
Fax 301.231.7630
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 2, 2006 and July 3, 2005,
and the related Consolidated Statements of Earnings and Comprehensive Earnings,
Stockholders' Equity and Cash Flows for each of the three years in the period
ended July 2, 2006. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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. 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 2, 2006 and July 3, 2005,
and the results of their operations and their cash flows for each of the
three years in the period ended July 2, 2006 in conformity with accounting
principles generally accepted in the United States of America.
Aronson & Company
Rockville, Maryland
September 8, 2006
-12-
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 28, 2006
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 28, 2006
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 2, 2006, (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 28, 2006