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 1, 2007 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 December 31, 2006, which was the last business day of the
registrant's most recently completed second quarter, 3,668,386 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 $37 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 31, 2006, the
total aggregate market value for both classes of common stock held by
nonaffiliates would be approximately $40 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, 2007
Class A Common Stock
$.10 par value 3,667,228
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 1, 2007 are
incorporated into Part III of this Form 10-K. Portions of Bowl America's 2007
Annual Report to shareholders are incorporated by reference in Part II,
Items 5,6,7 and 8.
BOWL AMERICA INCORPORATED
INDEX TO FISCAL 2007 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) Financial Information about Geographic Areas 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, Related Stockholder
Matters and Issuer Purchases of Equity Securities 2
ITEM 6. Selected Financial Data 2
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 3
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 on Accounting and
Financial Disclosure 3
ITEM 9A. Controls and Procedures 3
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 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 2007 10-K FILING
PART III
(Continued)
Page
ITEM 13. Certain Relationships and Related Transactions,
and Director Independence
(a) Transactions with Related Persons 4
(b) Review, Approval and Ratification of Transactions with
Related Persons 4
(c) Promoters and Certain Control Persons 4
(d) Directors Independence 4
ITEM 14. Principal Accountant Fees and Services 4
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)1. Financial Statements 4-5
(a)3. Exhibits 4-5
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 location in Falls Church,
Virginia, was closed in February 2007, due to damage from an ice storm.
Repairs are underway and the center is currently expected to reopen in the
second quarter of fiscal 2008.
(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
28% of operating revenues. The balance of operating revenues (approximately
72%) represents fees for bowling and related services.
(c) Narrative Description of Business
As of September 1, 2007 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 meeting room
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) Financial Information about Geographic Areas
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 may not be able to reopen the Falls Church bowling center in the
second quarter of fiscal 2008. Repairs are currently underway at our Falls
Church bowling center. No assurance can be given that the center will be able
to reopen as scheduled in the second quarter of fiscal 2008. The delayed
opening of such center could adversely affect us.
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 1, 2007.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) The information set forth in the section entitled "Market
Information", "Holders", and "Cash Dividends" under "Selected Financial Data"
on page 4 of the Company's July 1, 2007 Annual Report is incorporated by
reference herein.
(b) Not applicable
(c) Not applicable
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in the section entitled "Selected Financial
Data" on page 4 of the Company's July 1, 2007 Annual Report is incorporated by
reference herein. Such information should be read in conjunction with the
audited financial statements.
-2-
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 1, 2007 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 $9,945,104 and $7,990,636 at July 1,
2007 and July 2, 2006, 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 1, 2007, 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 4 through 13 of the
Company's July 1, 2007 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 1, 2007.
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 1, 2007 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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.
-3-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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 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 1, 2007 and July 2, 2006
Consolidated statements of earnings and comprehensive earnings
- years ended July 1, 2007, July 2, 2006, and July 3, 2005
Consolidated statements of stockholders' equity - years ended
July 1, 2007, July 2, 2006, and July 3, 2005
Consolidated statements of cash flows - years ended
July 1, 2007, July 2, 2006, and July 3, 2005
Notes to the consolidated financial statements - years ended
July 1, 2007, July 2, 2006, and July 3, 2005
(a)2. Exhibits:
3(i)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(i)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(ii) 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 20, 2007)
10(b) Employment agreement, dated December 5, 2006, between
Registrant and Irvin Clark. (Incorporated by reference from
Registrant's Form 8-K filed December 7, 2006)
-4-
10(c) Employment agreement, dated December 5, 2006, between
Registrant and Cheryl A. Dragoo. (Incorporated by reference
from Registrant's Form 8-K filed December 7, 2006)
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)
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
Chief Executive and Operating Officer
Date: September 27, 2007
Cheryl A. Dragoo
Chief Financial Officer,
Assistant Treasurer and Controller
Principal Accounting Officer
Date: September 27, 2007
-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 27, 2007
Ruth Macklin A. Joseph Levy
Senior Vice President-Treasurer Senior Vice President-Secretary
and Director and Director
Date: September 27, 2007 Date: September 27, 2007
Irvin Clark
Senior Vice President - General Manager
Director
Date: September 27, 2007
Warren T. Braham Stanley H. Katzman
Director Director
Date: September 27, 2007 Date: September 27, 2007
Allan L. Sher Merle Fabian
Director Director
Date: September 27, 2007 Date: September 27, 2007
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BOWL AMERICA INCORPORATED
PRESIDENT'S LETTER
"cumulative dividends on that single $2.00 share will exceed $100.00"
September 20, 2007
Dear Fellow Owners:
Bowl America Shirley, the first Bowl America bowling center, will celebrate
its 50th anniversary January 22, 2008. It opened in 1958 as Shirley Tenpin
Bowl, the first modern tenpin bowling center in the metropolitan Washington
area. Before that, Virginia, Maryland and Washington, DC had been almost
exclusively duckpins, which are bowled with a smaller ball and smaller pins.
Bowling centers tended to be single proprietor operations, mostly because
the biggest management function was soliciting and recruiting temporary workers
on a daily basis to serve as pin boys. American Machine and Foundry developed
an automatic pinsetter for tenpins, which was the national game. However, they
had no market in the duckpin territory because their machine was not adaptable.
Enter C. Edward Goldberg. My father had been the founding force of a
duckpin center in Clarendon, Virginia in 1940. He became active in the local
proprietors association, headed it, and later became Chairman of the duckpin
department of the Bowling Proprietors Association of America, the national
tenpin organization. He also became, for many matters, its Washington
representative, driving to Capitol Hill and knocking on doors to present the
industry's point of view to our Congressmen. In those days, the BPAA could
not afford a "professional lobbyist". These activities brought him into contact
with the management of AMF. A deal was struck to introduce tenpins and the
new AMF machines to the Washington, DC area. AMF built Shirley Tenpin Bowl
for the Clarendon investing group and leased it to us for two years with an
option to purchase. Eventually that center formed the basis for a public
stock offering. Three hundred thousand shares of the new Bowl America stock
were sold to the public at $2.00 per share. In addition to the current fiscal
year being a birthday for the bowling center, it will also mark the year in
which the cumulative dividends on that single $2.00 share will exceed $100.00.
Those original investors who were smart enough not to sell their original
shares now have 11.3 shares of Bowl America stock.
Bowl America was not the only company that capitalized on the arrival of
the automatic pinsetters to create bowling chains. Many of them went public
in the late 1950's and 1960's. We are, however, the only one of those
companies surviving today. We went public in order to finance expansion. We
were bowling people, not stock market people, and our objective was to create a
secure profitable bowling company to generate income for our families' futures.
We, therefore, valued survival of the company as our top priority. We proudly
reported paying off each mortgage. We bought two of our most profitable
leased centers so that in the event of a downturn we would never again face
rental demands when money was short. We selected dividend payments as the
most equitable way of treating each stockholder the same when it came to the
rewards of the business.
I am often reminded of a magazine piece I read in the early 1970's. The
author talked about being the richest family in town but living like paupers.
It seems an ancestor invested in the company that became IBM. On his death
bed, he made the family swear to never sell the IBM stock. Its market price
exploded but IBM had paid no dividends at that time. The value of the family
asset increased, but the real standard of living of its members was unchanged.
That wasn't for us.
The nature of our product - entertainment - requires discipline to protect
our dividend paying ability. Our customers pay for entertainment with what is
left between what they earn (or expect to earn) and mandatory expenses such as
food, taxes, housing, health care and transportation. This discretionary
component is under pressure from both ends. We first noticed the impact on our
traffic in June, and it continues into the new fiscal year.
It's a nice time for our "old" company to have a nest egg.
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 2007 was
$6,101,000 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 $11,492,000 at the end of fiscal 2007
compared to $9,046,000 at the end of fiscal 2006. The increase of
approximately $2,446,000 resulted primarily from operations including
our newest bowling center in Richmond, Virginia, that opened in January
2006. In the prior year the Company internally funded the building of
the new location. In the third quarter of fiscal 2007, a location in
Falls Church, Virginia, was temporarily closed due to roof damage
caused by an ice storm. The building remains closed while repairs are
being made. The Company carries business interruption insurance that
is expected to provide recovery for at least $440,000 of lost revenues.
During fiscal year 2006, the Company expended approximately
$802,000 for the purchase of entertainment and restaurant equipment,
primarily upgrading current facilities. In July 2007, the Company
purchased and received bowling pins totaling approximately $242,000.
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 1, 2007.
CONTRACTUAL Total Less than 1-3 3-5 More than
OBLIGATIONS 1 year years years 5 years
-------------------------------------------------------------------------
Operating lease
obligations $ 993,982 $ 272,951 $376,364 $176,000 $168,667
Purchase
obligations - - - - -
-------------------------------------------------------------------------
Total $ 993,982 $ 272,951 $376,364 $176,000 $168,667
=========================================================================
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 1,
2007 was approximately $6.1 million compared to $4.5 million at July 2,
2006.
Cash dividends of $.57 per share, totaling $2.9 million, were paid
to shareholders during the 2007 fiscal year making this the thirty-
fifth consecutive year of increased dividends per share. In June 2007,
the Company declared a quarterly $.145 per share dividend to be paid in
August 2007. 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
The Company opened a new bowling center in January 2006 and temporarily
closed an existing bowling center in February 2007 when its roof was
damaged by an ice storm. The center remains closed for repairs,
currently in progress. However the date of reopening is uncertain.
Management has not completed its analysis of expected insurance
recovery, but the Company believes it will recover at least $440,000 of
lost revenues for the period February 19, 2007 through July 1, 2007.
Nineteen locations were in operation for the period February 2006
through February 19, 2007. Eighteen centers were in operation during
the remainder of fiscal 2007, 2006 and all of fiscal 2005. Fiscal
years 2007 and 2006 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 years 2007 and 2006 and the additional week of business in
fiscal year 2005.
Operating revenues increased $1,654,000 or about 5% in fiscal 2007
and $1,713,000 or about 6% in fiscal 2006. Bowling and other revenue
increased $1,241,000 or 6% in fiscal 2007 and $1,207,000 or 6% in
fiscal 2006. Food, beverage and merchandise sales rose $413,000 or 5%
in the current fiscal year and $506,000 or 6% in fiscal 2006.
Total operating expense increased $1,071,000 or 4% in fiscal 2007
and $1,975,000 or 8% in fiscal 2006. Costs for employee compensation
and benefits were up 5% in the current fiscal year and up 6% in the
prior year period. 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 3% and 11% in the
current and prior year periods, respectively. Maintenance expense
increased 4% in fiscal 2007. In fiscal 2006 the increase was $234,000
or 35% due primarily to major plumbing repairs at several locations.
Supplies expense was up 17% in fiscal 2007. Items relating to recently
installed point-of-sale systems and entertainment supplies were
responsible for the majority of the increase. The same category was up
8% in fiscal 2006.
Advertising costs decreased $91,000 or 13% in fiscal 2007 compared
to an increase of $60,000 or 9% in fiscal 2006 that included advertsing
for the new center. Utility costs were up 4% in fiscal 2007 and 17% in
fiscal 2006.
Rent expense was up 7% fiscal year 2007 primarily as a result of
increased percentage rent at a leased location, and was flat in fiscal
year 2006. Insurance expense, excluding health and life, declined 6%
in fiscal 2007 and 13% in fiscal 2006 as the market continued to
soften.
-2-
Depreciation expenses increased $253,000 or 15% in fiscal year 2007
and $202,000 or 14% in the prior fiscal year, primarily attributable to
the new location and new point-of-sale systems.
Operating income in fiscal 2007 increased approximately 12% to $5.5
million from $4.9 million in fiscal 2006. Fiscal 2006 operating income
decreased 6% from fiscal year 2005 operating income of $5.2 million.
Interest and dividend income increased 32%, in part from a one-time
dividend on a telecom stock and also because investment balances were
higher. The prior year increase of 7% was due to higher interest rates
on investments. Investment balances in fiscal 2006 were lower 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 34.4% for fiscal
2007, 34.9% for fiscal 2006, and 35.8% for fiscal 2005, 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 2007 were $4.2 million or $.82 per share
compared to $3.6 million or $.71 per share in fiscal 2006, and $3.8
million or $.75 per share in fiscal 2005.
The Company expects a decline in earnings for the fiscal 2008 first
quarter as a result of a decrease in traffic during the summer months
compared to the prior year first quarter.
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.
-3-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPERATIONS
Selected Financial Data
For the Years Ended
July 1, July 2, July 3, June 27, June 29,
2007 2006 2005 2004 2003
__________________________________________________________
Operating Revenues $31,974,336 $30,320,251 $28,607,145 $28,433,689 $29,375,692
Operating Expenses 26,481,388 25,410,113 23,435,145 23,539,032 24,262,944
Interest and dividend
Income 863,983 655,818 609,963 413,738 475,598
Investment (Loss)
Earnings (3,613) - 151,817 - -
Gain on Sale of Land,
Buildings and
Equipment 15,557 23,028 65,531 2,201,240 -
__________ __________ __________ __________ __________
Earnings before pro-
vision for income
taxes 6,368,875 5,588,984 5,999,311 7,509,635 5,588,346
Provision for income
taxes 2,179,932 1,949,409 2,150,030 2,807,896 2,005,000
__________ __________ __________ __________ __________
Net Earnings $ 4,188,943 $ 3,639,575 $ 3,849,281 $ 4,701,739 $ 3,583,346
Weighted Average
Shares Outstanding
Basic & Diluted 5,136,499 5,136,968 5,137,773 5,138,559 5,145,934
Earnings Per Share
Basic & Diluted $.82 $.71 $.75 $.91 $.70
Net Cash Provided by
Operating Activities $6,101,075 $4,292,512 $5,503,187 $5,501,857 $5,450,867
Cash Dividends Paid $2,927,853 $2,876,696 $2,774,419 $2,672,062 $2,470,081
Cash Dividends Paid
Per Share-Class A $.57 $.56 $.54 $.52 $.48
-Class B $.57 $.56 $.54 $.52 $.48
Total Assets $45,834,730 $43,130,385 $42,548,998 $40,579,581 $37,536,507
Stockholders' Equity $39,337,237 $37,088,954 $36,191,662 $34,896,581 $32,953,150
Net Book Value Per
Share $7.66 $7.22 $7.04 $6.79 $6.41
Net Earnings as a %
of Beginning Stock-
holders' Equity 11.3% 10.1% 11.0% 14.3% 11.0%
Lanes in Operation 756 756 716 716 716
Centers in Operation 19 19 18 18 18
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 2007 and 2006.
2007 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_________________________________________________________
High 14.68 15.85 16.80 17.05
Low 14.35 14.31 15.75 16.52
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
Holders
The approximate number of holders of record of the Company's Class A Common
Stock as of July 1, 2007 is 392 and of the Company's Class B Common Stock
is 26.
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 2007
and 2006.
Class A Common Stock
Quarter 2007 2006
____________________________________________
First 14 cents 14 cents
Second 14 cents 14 cents
Third 14.5 cents 14 cents
Fourth 14.5 cents 14 cents
Class B Common Stock
Quarter 2007 2006
_____________________________________________
First 14 cents 14 cents
Second 14 cents 14 cents
Third 14.5 cents 14 cents
Fourth 14.5 cents 14 cents
-4-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 1, 2007 July 2, 2006
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 1,547,345 $ 1,055,687
Short-term investments (Note 3) 9,945,104 7,990,636
Inventories 581,705 625,467
Prepaid expenses and other 1,067,523 1,046,203
Income taxes refundable 36,555 172,873
Current deferred income taxes (Note 7) 29,154 46,910
__________ __________
Total Current Assets 13,207,386 10,937,776
Land, Buildings and Equipment, Net (Note 4) 25,887,241 27,053,704
Other Assets
Marketable equity securities (Note 3) 6,141,324 4,540,061
Cash surrender value-officers'life insurance 502,099 505,664
Other 96,680 93,180
__________ __________
Total Other Assets 6,740,103 5,138,905
---------- ----------
TOTAL ASSETS $45,834,730 $43,130,385
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 919,297 $ 910,550
Accrued expenses 1,067,203 1,214,780
Dividends payable 744,679 719,165
Other current liabilities 330,372 395,919
__________ __________
Total Current Liabilities 3,061,551 3,240,414
Long-Term Deferred Compensation 59,224 66,221
Non-current Deferred Income Taxes (Note 7) 3,376,718 2,734,796
__________ __________
TOTAL LIABILITIES 6,497,493 6,041,431
__________ __________
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
3,667,254 and 3,668,430 366,725 366,843
Class B outstanding 1,468,462 shares 146,846 146,846
Additional paid-in capital 7,478,876 7,480,615
Accumulated other comprehensive earnings-
Unrealized gain on available-for-sale
securities, net of tax 3,368,192 2,338,565
Retained earnings 27,976,598 26,756,085
__________ __________
TOTAL STOCKHOLDERS' EQUITY $39,337,237 $37,088,954
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,834,730 $43,130,385
<FN> =========== ==========
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 EARNINGS & COMPREHENSIVE EARNINGS
For the Years Ended
July 1, 2007 July 2, 2006 July 3, 2005
______________________________________________
Operating Revenues
Bowling and other $22,876,620 $21,635,492 $20,428,291
Food, beverage and
merchandise sales 9,097,716 8,684,759 8,178,854
__________ __________ __________
31,974,336 30,320,251 28,607,145
Operating Expenses
Compensation and benefits 14,016,650 13,355,702 12,617,207
Cost of bowling and other 6,956,702 6,743,507 6,058,703
Cost of food, beverage and
merchandise sales 2,673,667 2,707,000 2,492,677
Depreciation and amortization 1,918,595 1,665,637 1,463,188
General and administrative 915,774 938,267 803,370
__________ __________ __________
26,481,388 25,410,113 23,435,145
Operating Income 5,492,948 4,910,138 5,172,000
Interest and dividend income 863,983 655,818 609,963
Investment (loss) earnings (3,613) - 151,817
Gain on sale of land, buildings
and equipment 15,557 23,028 65,531
__________ __________ __________
Earnings before provision
for income taxes 6,368,875 5,588,984 5,999,311
Provision for income taxes(Note 7)
Current 2,118,337 2,281,996 2,060,514
Deferred 61,595 (332,587) 89,516
_________ __________ __________
2,179,932 1,949,409 2,150,030
Net Earnings $ 4,188,943 $ 3,639,575 $ 3,849,281
Other Comprehensive Gain (Loss)
Net of Tax
Unrealized gain
on available-for-sale securities 1,027,254 143,851 334,483
Reclassification adjustment
for loss (gain) included in net
income 2,373 - (88,687)
_________ _________ _________
Comprehensive Earnings 5,218,570 3,783,426 4,095,077
Earnings Per Share-Basic &
Diluted $.82 $.71 $.75
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 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 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
Purchase of stock (1,176) (118) - - (1,739) - (15,063)
Cash dividends paid - - - - - - (2,208,688)
Accrued dividends declared
June 19, 2007, payable
August 10, 2007 - - - - - - (744,679)
Change in unrealized gain on
available-for-sale securities
(shown net of tax) - - - - - 1,027,254 -
Reclassification adjustment
for loss included in net income,
net of tax - - - - - 2,373 -
Net earnings for the year - - - - - - 4,188,943
_______________________________________________________________________________________________________________________
Balance, July 1, 2007 3,667,254 $366,725 1,468,462 $146,846 $7,478,876 $3,368,192 $27,976,598
<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.
-7-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
July 1, July 2, July 3,
2007 2006 2005
Cash Flows From Operating Activities
Net earnings $4,188,943 $3,639,575 $3,849,281
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,918,595 1,665,637 1,463,188
Increase (decrease) in deferred income tax 61,595 (332,587) 89,516
Gain on disposition of assets-net (15,557) (23,028) (65,531)
Loss (gain) on sale of available-for-sale
securities 3,613 - (151,817)
Changes in assets and liabilities:
Decrease (increase) in inventories 43,762 985 (42,986)
(Increase) decrease in prepaid expenses
and other (20,615) (476,642) 103,813
Decrease (increase) in income taxes
refundable 136,318 (40,406) (132,467)
Increase in other long-term assets (4,205) (26,429) (26,322)
Increase (decrease) in accounts payable 8,747 (219,467) 324,205
(Decrease) increase in accrued expenses (147,577) 87,141 236,350
Decrease in income taxes payable - - (179,855)
(Decrease) increase in other current
liabilities (65,547) 22,987 38,615
Decrease in long-term deferred
compensation (6,997) (5,254) (2,803)
_________ _________ _________
Net cash provided by operating activities $6,101,075 $4,292,512 $5,503,187
_________ _________ _________
Cash Flows from Investing Activities
Expenditures for land,buildings,equipment (802,065) (5,319,123) (3,184,491)
Sale of assets 59,650 63,075 109,488
(Purchases) sales and maturities of
short-term investments (1,944,740) 3,179,143 529,097
Decrease (increase) in cash surrender value 3,565 10,584 (48,645)
Proceeds from sale of marketable securities 18,946 - 252,525
_________ _________ _________
Net cash used in investing activities (2,664,644) (2,066,321) (2,342,026)
_________ _________ _________
Cash Flows from Financing Activities
Payment of cash dividends (2,927,853) (2,876,696) (2,774,419)
Purchase of Class A Common Stock (16,920) (1,193) -
_________ _________ _________
Net cash used in financing activities (2,944,773) (2,877,889) (2,774,419)
_________ _________ _________
Net Increase (Decrease) in Cash and
Cash Equivalents 491,658 (651,698) 386,742
Cash and Cash Equivalents, Beginning of Year 1,055,687 1,707,385 1,320,643
_________ _________ _________
Cash and Cash Equivalents, End of Year $1,547,345 $1,055,687 $1,707,385
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Income taxes $1,993,078 $2,322,802 $2,284,987
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 -
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
-8-
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 2007 ended July 1, 2007, fiscal year 2006 ended July 2, 2006, and fiscal
year 2005 ended July 3, 2005. Fiscal years 2007 and 2006 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 5-10 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 1,
2007, July 2, 2006 and July 3, 2005 were $590,767, $681,994 and $623,322,
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 5,136,499, 5,136,968 and 5,137,773, for fiscal years 2007,
2006 and 2005, 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 1, 2007.
-9-
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 1, 2007, and July 2, 2006 other current
liabilities included $317,973, and $375,332, respectively, in prize fund monies.
Reclassifications
Certain previous year amounts have been reclassified to conform with the
current year presentation.
New Accounting Standards
Financial Accounting Standards Board Interpretation (FIN) No. 48, Accounting
for Uncertainty in Income Taxes was issued in July 2006 and interprets FASB
Statement of Financial Accouting Standards (SFAS) No. 109, Accounting for
Income Taxes. FIN 48 requires all taxpayers to analyze all material positions
they have taken or plan to take in all tax returns that have been filed or
should have been filed with all taxing authorities for all years still subject
to challenge by those taxing authorities. If the position taken is "more-
likely-than-not" to be sustained by the taxing authority on its technical
merits and if there is more than a 50% likelihood that the position would be
sustained if challenged and considered by the highest court in the relevent
jurisdiction, the tax consequences of that position should be reflected in the
taxpayer's GAAP financial statements. The new interpretation becomes effective
for the Company July 2, 2007 and, consequently, does not affect the Company's
July 1, 2007 financial statements. However, the cumulative effect of applying
the new requirements must be reflected as adjustments to the Company's
retained earnings as shown on the opening balance sheet for the fiscal year
2008. The Company is analyzing its material tax positions and assessing the
impact that the implementation of FIN 48 will have on its future financial
statements. As of July 1, 2007, the Company is not aware of any material tax
positions whose recognition would be different upon implementation of this
new standard.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
July 1, July 2,
2007 2006
Demand deposits and cash on hand $ 482,667 $ 205,361
Money market funds 175,645 175,645
Repurchase agreements 889,033 674,681
_________ _________
$1,547,345 $1,055,687
3. INVESTMENTS
Short-term investments consist of certificates of deposits, U.S. Treasury
securities and a mutual fund which invests in mortgage backed securities
(maturities of generally three months to one year). At July 1, 2007, the
fair value of short-term investments was $9,945,104 with an unrealized loss
of $81,216. At July 2, 2006, the fair value of short-term investments was
$7,990,636 with an unrealized loss of $89,496. 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 1, 2007, and July 2, 2006
as follows:
Original Unrealized Fair
Cost Gain Value
July 1, 2007
Securities available-for-sale $734,496 $5,406,828 $6,141,324
July 2, 2006
Securities available-for-sale $757,054 $3,783,007 $4,540,061
This portfolio includes the following telecommunications stocks:
3,946 shares of Alltel
82,112 shares of AT&T
669 shares of Avaya
2,000 shares of Embarq
939 shares of Idearc
475 shares of LSI
9,969 shares of Qwest
40,000 shares of Sprint Nextel
18,784 shares of Verizon
11,865 shares of Vodafone
4,079 shares of Windstream
In the year ended July 1, 2007, the Company sold its holdings in Lucent
Technologies for a pre-tax loss of $3,613. 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.
-10-
As of July 1, 2007, the Company had $81,216 of gross unrealized losses from
its investments in federal agency mortgage backed securities which had a fair
value of $2,483,060. As of July 2, 2006, $89,496 gross unrealized losses were
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 fluctuation in market value is attributable to changes
in interest rates and not credit quality and this decrease has been eliminated,
since July 1, 2007, the Company does not consider these investments to be
other-than-temporarily impaired.
4. LAND, BUILDINGS, AND EQUIPMENT
Land, buildings, and equipment, as cost, consist of the following:
July 1, July 2,
2007 2006
Buildings $17,541,393 $17,503,396
Leasehold and building improvements 6,787,535 6,650,271
Bowling lanes and equipment 21,884,653 21,604,873
Land 10,590,450 10,590,450
Amusement games 814,345 814,073
Bowling lanes and equipment not yet in use 150,107 266,812
__________ __________
57,768,483 57,429,875
Less accumulated depreciation and
amortization 31,881,242 30,376,171
__________ __________
$25,887,241 $27,053,704
Depreciation and amortization expense for buildings and equipment for
fiscal years 2007, 2006, and 2005 was $1,918,595, $1,665,637, and $1,463,188,
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
In February 2007, the Company temporarily closed an existing bowling center
in Falls Church, Virginia when its roof was damaged by an ice storm. The
center remains closed for repairs which are currently in progress. The date of
reopening remains uncertain. The Company has business interruption insurance
that management believes will cover the lost income of the center while repairs
are being made. At July 1, 2007, no final settlement of the loss has taken
place. The Company believes that a reasonable estimate for the amount to be
recovered is at least $440,000 from the date of the roof damage through July 1,
2007. This amount has been recognized as revenue evenly over the time period
and a receivable for that amount is included in Prepaid expenses and other on
the Consolidated Balance Sheets at July 1, 2007. The estimate was based on the
average yearly percentage change in revenues between 2007 fiscal year and
2006 fiscal year multiplied by the prior year earnings of that center and
subtracting the year to date earnings up until the roof collapse.
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 1, 2007, the minimum fixed rental commitments related to all
non-cancelable leases, were as follows:
Year Ending
2008 $272,951
2009 272,951
2010 103,413
2011 88,000
2012 88,000
Thereafter 168,667
_________
Total minimum lease payments $ 993,982
Net rent expense was as follows:
For the Years Ended
July 1, July 2, July 3,
2007 2006 2005
Minimum rent under operating leases $272,704 $270,296 $277,394
Excess percentage rents 46,562 28,840 23,098
_______ _______ _______
$319,266 $299,136 $300,492
Purchase Commitments
The Company's purchase committments at July 1, 2007 are for materials,
supplies, services and equipment as part of the normal course of business.
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 1, 2007,
July 2, 2006, and July 3, 2005, contributions in the amount of $140,000,
$140,000, and $150,000, 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 2007, 2006, and 2005 was $140,000, $140,000, and
$150,000, respectively.
The Company has no defined benefit plan or other post retirement plan.
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7. INCOME TAXES
The significant components of the Company's deferred tax assets and
liabilities were as follows:
July 1, July 2,
2007 2006
Deferred tax:
Land, buildings, and equipment $1,412,809 $1,357,001
Unrealized gain on available-
for-sale securities 1,969,749 1,371,666
Prepaid expenses and other (34,994) (40,781)
_________ _________
Deferred tax liabilities $3,347,564 $2,687,886
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
2007 2006 2005
Taxes computed at
statutory rate 34.0% 34.0% 34.0%
State income taxes, net
of Federal income tax
benefit 2.0 2.3 2.8
Dividends received
exclusion (.9) (.7) (.6)
All other-net (.7) (.7) (.4)
____ ____ _____
34.4% 34.9% 35.8%
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 1, 2007, and July 2, 2006, the Company had $39,093 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 1/2% to 5% and are payable over a term
of three years from the date of the agreements which range from 2005 to 2007.
These employee loans have been recorded as a reduction of additional paid-in
capital.
9. RELATED PARTIES AND DEFERRED COMPENSATION
Deferred compensation payable to non-related parties was a total of $59,224
at July 1, 2007 and $57,766 at July 2, 2006. The current portion of these
amounts is $7,272 at July 1, 2007 and $11,564 at July 2, 2006, 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 2007 and 2006 (dollars in thousands, except for
earnings per share):
Earnings
Operating Operating Before Earnings
Revenues Income Income Net Per
Taxes Earnings Share
2007
July 1, 2007 $6,940 $ 771 $1,008 $ 718 $.14
April 1, 2007 9,615 2,545 2,762 1,778 .35
December 31, 2006 8,277 1,548 1,813 1,179 .23
October 1, 2006 7,142 629 786 514 .10
2006
July 2, 2006 $7,036 $ 687 $ 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
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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 1, 2007 and July 2, 2006,
and the related Consolidated Statements of Earnings and Comprehensive Earnings,
Stockholders' Equity and Cash Flows for each of the three years in the period
ended July 1, 2007. 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 the 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 1, 2007 and July 2, 2006,
and the results of their operations and their cash flows for each of the
three years in the period ended July 1, 2007 in conformity with accounting
principles generally accepted in the United States of America.
Aronson & Company
Rockville, Maryland
September 14, 2007
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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 27, 2007
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 27, 2007
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 1, 2007, (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 27, 2007