UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Quarter Ended December 28, 1997 Commission file Number 0-1830 BOWL AMERICA INCORPORATED (Exact name of registrant as specified in its charter.) MARYLAND 54-0646173 (State of Incorporation) (I.R.S. Employer Identification No.) 6446 Edsall Road, Alexandria, Virginia 22312 (Address of principal executive offices) (Zip Code) (703)941-6300 Registrant's telephone number, including area code Indicate by 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Shares Outstanding at January 26, 1998 Class A Common Stock, 4,123,431 $.10 par value Class B Common Stock 1,536,146 $.10 par value BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS PART I - FINANCIAL INFORMATION Thirteen Weeks Ended Twenty-six Weeks Ended December 28, December 29, December 28, December 29, 1997 1996 1997 1996 _______________________ __________________________ Operating Revenues Bowling and other $5,246,651 $5,056,951 $ 9,077,529 $ 8,800,684 Food and merchandise sales 2,100,224 2,093,810 3,686,200 3,715,566 _________ _________ __________ __________ 7,346,875 7,150,761 12,763,729 12,516,250 Operating Expenses Compensation and benefits 2,964,446 3,025,047 5,744,004 5,865,894 Cost of bowling and other 1,599,550 1,555,266 3,129,882 3,145,660 Cost of food and mdse sales 749,536 693,570 1,261,311 1,266,227 Depreciation and amortization 581,806 502,741 1,132,420 1,003,621 General and administrative 229,732 184,486 421,316 366,011 _________ _________ __________ __________ 6,125,070 5,961,110 11,688,933 11,647,413 Operating Income 1,221,805 1,189,651 1,074,796 868,837 Interest and dividend income 149,940 124,746 285,038 246,213 _________ _________ __________ __________ Earnings before provision for income taxes 1,371,745 1,314,397 1,359,834 1,115,050 Provision for income taxes 512,912 491,356 500,297 407,624 _________ _________ __________ __________ Net Earnings $ 858,833 $ 823,041 $ 859,537 $ 707,426 Earnings per share $.15 $.14 $.15 $.12 Weighted average shares outstanding 5,662,144 5,682,156 5,662,144 5,682,306 Dividends paid $566,215 $539,834 $1,132,429 $1,077,881 Per share, Class A $.10 $.095 $.20 $.19 Per share, Class B $.10 $.095 $.20 $.19 The operating results for these thirteen (13) and twenty-six (26) week periods are not necessarily indicative of results to be expected for the year. See notes to financial information. BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 28, 1997 June 29, 1997 _______________ _____________ ASSETS Current Assets Cash and cash equivalents $ 1,942,991 $ 1,797,656 Short-term investments 7,584,716 6,375,039 Inventories 759,164 700,200 Prepaid expenses and other 501,565 459,652 Income taxes refundable - 32,982 __________ __________ Total Current Assets 10,788,436 9,365,529 Property, Plant and Equipment less accumulated depreciation of $21,110,904 and $20,052,750 23,159,615 23,454,699 Other Assets Marketable securities avail-fr-sale 5,287,995 4,363,058 Cash surrender value-life insurance 358,429 354,206 Other long-term assets 217,332 465,079 __________ __________ TOTAL ASSETS $39,811,807 $38,002,571 BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 28, 1997 June 29, 1997 _______________ ____________ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 825,196 $ 992,397 Accrued expenses and payroll ded 828,740 840,502 Income taxes payable 249,914 - Other current liabilities 1,469,080 382,840 Current deferred income taxes 70,000 70,000 __________ __________ Total Current Liabilities 3,442,930 2,285,739 Noncurrent Deferred Income Taxes 2,686,476 2,335,000 TOTAL LIABILITIES 6,129,406 4,620,739 __________ __________ Stockholders' Equity Preferred stock, par value $10 a share: Authorized and unissued 2,000,000 shares Common stock, par value $.10 per share Authorized 10,000,000 shares Class A issued and outstanding - 4,145,410 and 4,146,310 shares 412,600 412,600 Class B issued and outstanding - 1,536,146 153,614 153,614 Additional paid-in capital 4,896,835 4,896,835 Unrealized gain on securities available-for-sale, 2,746,494 2,173,033 Retained earnings 25,472,858 25,745,750 __________ __________ TOTAL STOCKHOLDERS' EQUITY $33,682,401 $33,381,832 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $39,811,807 $38,002,571 <FN> See notes to financial information. BOWL AMERICA INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996 December 28, December 29, 1997 1996 Cash Flows From Operating Activities: Net earnings $ 859,537 $ 707,426 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 1,058,154 1,003,621 Loss (gain) on sale/abandonment of assets net 16,631 3,330 Changes in assets and liabilities Increase in inventories (58,964) (31,129) (Increase) decrease in prepaid and other (46,135) 201,162 Decrease in other long-term assets 247,746 302,008 Decrease in accounts payable (167,201) (854,428) Decrease in accrued expenses and payroll deductions (11,762) (68,101) Increase in income taxes payable 249,914 104,005 Decrease in income taxes refundable 32,982 204,662 Increase in other current liabilities 1,086,240 1,048,614 _________ _________ Net cash provided by operating activities $3,267,142 $2,621,170 _________ _________ Cash flows from investing activities Expenditures for property,plant,equip (779,701) (1,444,667) Net (increase) decrease in short-term investments (1,209,677) 373,940 _________ _________ Net cash used in investing activities (1,989,378) (1,070,727) _________ _________ Cash flows from financing activities Payment of cash dividends (1,132,429) (1,077,881) Purchase of Class A Common Stock - (6,131) _________ _________ Net cash used in financing activities (1,132,429) (1,084,012) _________ _________ Net Increase in Cash and Equivalents 145,335 466,431 Cash and Equivalents, Beginning of Year 1,797,656 2,120,862 _________ _________ Cash and Equivalents, End of Period $1,942,991 $2,587,293 Supplemental Disclosures of Cash Flow Information Cash paid during the period for Income taxes $ 217,401 $ 98,957 <FN> See notes to financial information. BOWL AMERICA INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the Twenty-six Weeks Ended December 28, 1997 1. Consolidated Financial Statements The consolidated balance sheets as of December 28, 1997, and the consolidated statements of earnings and cash flows for the three-month and six-month periods ended December 28, 1997 and December 29, 1996, have been prepared by the Company, without audit. This quarterly financial information is submitted in response to the requirements of Form 10-Q and does not purport to be financial statements prepared in accordance with generally accepted accounting principles. They therefore do not include all disclosures which might be associated with such statements. In the opinion of management such information includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position at December 28, 1997, and for all periods presented. For a summary of significant accounting principles, which have been continued without change, refer to Note 1 to the financial statements for the year ended June 29, 1997. 2. Earnings Per Share The Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share" in February 1997. The effect of adopting this standard has no impact on the earnings per share calculation for the periods ended December 28, 1997, and December 29, 1996. BOWL AMERICA INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS December 28, 1997 Liquidity and Capital Resources Short-term investments consisting mainly of U.S. Treasury Bills and Notes, and cash totaled $9,528,000 at the end of the second quarter of fiscal 1998 or $2,193,000 higher than at the beginning of the quarter. The increase relates primarily to the seasonal nature of bowling participation. The Company expended approximately $240,000 during the quarter primarily for amusement games as the Company continues its program of replacing leased amusement game machines with owned machines. Expenditures are also planned as the Company continues to modernize other existing centers. Cash and cash flow are sufficient to finance all currently planned purchases and construction. The Company has maintained its fiscal year end 1997 position in telecommunications stocks as a further source of expansion capital. On February 1, 1997, the 16-lane expansion from 32 to 48 lanes at Bowl America Dranesville began operation. During the fourth quarter of fiscal 1997, the Company closed two centers which, at the expiration of their leases, were operating with negative cash flows. Results of Operations As noted above, the Company operated two fewer centers in the fiscal 1998 period than in the prior year period and one fewer in the first quarter of fiscal 1997 than in fiscal 1996. All comparisons in this report are significantly influenced by the change in the number of operating locations. There was a $.15 per share profit for the thirteen-week period ending December 28, 1997, versus a $.14 per share profit for the thirteen weeks ended December 29, 1996. For the current twenty-six week period earnings per share were $.15 compared to $.12 for the comparable period a year ago. Operating revenues increased 2% for the current six-month period, versus a decrease of 7% in the comparable period a year ago. Linage for the six month period was up, however, our "Rolling Rewards" summer promotion kept the average game rate below the rate in the prior year period. Amusement game income continues to improve as the number of Company owned machines increases. Food and beverage sales were down in the current period overall, but at comparable locations there was a 4% increase. Cost of food and beverage sales decreased due to the lower sales. Operating expenses excluding depreciation and amortization decreased 1% in the current period versus a 5% decrease in the comparable period last year. Employee compensation and benefits were down 2% this period versus a 4% decrease in the prior year period. Advertising costs decreased 15% from the prior year period mainly due to our use of print media, newspapers and direct mail, as our primary advertising vehicle. Glow-in-the-dark bowling and amusement game supplies have been largely responsible for an increase in the supplies and services expense. Utility costs decreased 6% in the current period compared to a 5% decrease in the prior year period. The decrease in both periods reflected the decrease in the number of centers in operation. Increases in depreciation and amortization expense of 13% in the current period relate to the purchases of amusement games and glow-in-the-dark bowling equipment during the last 12 months and the Dranesville expansion. Rent expense increased 7% in the current year period as a one-time termination payment under an expired lease more than offset the reduction in rent from fewer leased locations. In the prior year period rent expense decreased 10% as a result of reduced sales at some leased locations. BOWL AMERICA INCORPORATED AND SUBSIDIARIES S.E.C. FORM 10-Q December 28, 1997 PART II - OTHER INFORMATION No material unusual charges or credits to income or changes in independent accountants occurred during the quarter which would require the filing of a Form 8-K. BOWL AMERICA INCORPORATED AND SUBSIDIARIES SIGNATURES Pursuant to the requirement 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 Registrant February 10, 1998 Leslie H. Goldberg Date Leslie H. Goldberg President February 10, 1998 Cheryl A. Dragoo Date Cheryl A. Dragoo Controller