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 September 27, 1998 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 October 25, 1998 Class A Common Stock, 4,062,351 $.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 September 27, September 28, 1998 1997 _______________________ Operating Revenues Bowling and other $3,837,591 $3,830,878 Food, beverage and merchandise sales 1,569,635 1,585,876 _________ _________ 5,407,226 5,416,854 Operating Expenses Compensation and benefits 2,767,519 2,779,558 Cost of bowling and other 1,451,511 1,530,332 Cost of food,beverage and mdse sales 508,458 511,775 Depreciation and amortization 580,511 550,614 General and administrative 211,894 191,584 _________ _________ 5,519,893 5,563,863 Operating Loss (112,667) (147,009) Interest and dividend income 164,618 135,098 _________ _________ Earnings (loss) before provision for income taxes 51,951 (11,911) Income tax provision (benefit) 13,470 (12,615) _________ _________ Net Income $ 38,481 $ 704 Earnings per share $ .01 $ .00 Weighted average shares outstanding 5,651,497 5,662,144 Dividends paid $565,650 $566,214 Per share, Class A $.10 $.10 Per share, Class B $.10 $.10 The operating results for these thirteen (13) 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 September 27, 1998 June 28, 1998 __________________ _____________ ASSETS Current Assets Cash and cash equivalents $ 2,080,805 $ 1,944,462 Short-term investments 7,546,494 8,041,136 Inventories 836,449 697,571 Prepaid expenses and other 653,933 489,758 Income taxes refundable 15,532 - Deferred income taxes 21,000 - __________ __________ Total Current Assets 11,154,213 11,193,927 Property, Plant and Equipment less accumulated depreciation of $22,700,399 and $22,183,152 22,071,264 22,223,345 Other Assets Marketable equity securities 6,666,224 6,360,356 Cash surrender value-life insurance 386,134 383,343 Other long-term assets 217,332 274,479 __________ __________ TOTAL ASSETS $40,495,167 $40,435,450 BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 27, 1998 June 28, 1998 __________________ _____________ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 1,013,416 $ 848,330 Accrued expenses 791,018 776,051 Other current liabilities 553,691 343,496 __________ __________ Total Current Liabilities 2,358,125 1,967,877 Noncurrent Deferred Income Taxes 3,292,230 3,176,000 TOTAL LIABILITIES 5,650,355 5,143,877 __________ __________ 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 - 4,105,351 and 4,120,351 shares 410,535 412,035 Class B issued and outstanding - 1,536,146 153,614 153,614 Additional paid-in capital 4,884,654 4,893,504 Unrealized gain on securities available-for-sale, net of tax 3,524,969 3,335,331 Retained earnings 25,871,040 26,497,089 __________ __________ TOTAL STOCKHOLDERS' EQUITY $34,844,812 $35,291,573 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,495,167 $40,435,450 <FN> See notes to financial information. BOWL AMERICA INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997 September 27, September 28, 1998 1997 Cash Flows From Operating Activities: Net earnings (loss) $ 38,481 $ 704 Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization 580,511 550,614 Changes in assets and liabilities Increase in inventories (138,878) (200,782) Increase in prepaid and other (164,175) (80,071) Decrease in other long-term assets 54,356 244,352 Increase (decrease) in accounts payable 165,086 (378,319) Increase in accrued expenses 14,967 59,762 Increase in income taxes refundable (15,532) (79,615) Increase in other current liabilities 210,195 172,913 _________ _________ Net cash provided by operating activities $ 745,011 $ 289,558 _________ _________ Cash flows from investing activities Expenditures for property,plant,equip (428,430) (561,408) Net decrease in short-term investments 494,642 867,096 _________ _________ Net cash provided by investing activities 66,212 305,688 _________ _________ Cash flows from financing activities Payment of cash dividends (565,650) (566,214) Purchase of Class A common stock (109,230) - _________ _________ Net cash used in financing activities (674,880) (566,214) _________ _________ Net Increase in Cash and Equivalents 136,343 29,032 Cash and Equivalents, Beginning of Qtr 1,944,462 1,797,656 _________ _________ Cash and Equivalents, End of Quarter $2,080,805 $1,826,688 Supplemental Disclosures of Cash Flow Information Cash paid during the period for Income taxes $ 29,003 $ 67,000 <FN> See notes to financial information. BOWL AMERICA INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the Thirteen Weeks Ended September 27, 1998 1. Consolidated Financial Statements The consolidated balance sheets as of September 27, 1998, and the consolidated statements of earnings and cash flows for the three-month periods ended September 27, 1998 and September 28, 1997 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 September 27, 1998, 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 28, 1998. 2. Reporting Comprehensive Income Effective June 29, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), that establishes rules for the reporting and display of comprehensive income and its components. Adoption of SFAS 130 requires unrealized gains and losses on the Company's available-for-sale securities adjustments to be included in other comprehensive income. The components of comprehensive income are as follows: September 27, September 28, 1998 1997 Net Income $ 38,481 $ 704 Other comprehensive income: Unrealized gain on available- for-sale equity securities, net of tax 189,638 111,488 _________ _________ Comprehensive income $ 228,119 $ 112,192 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 27, 1998 Liquidity and Capital Resources Short-term investments consisting mainly of U.S. Treasury Bills and Notes, and cash totaled $9,627,000 at the end of the first quarter of fiscal 1999 or $358,000 lower than at the beginning of the quarter. The decrease relates primarily to the seasonal nature of bowling participation. Marketable securities, primarily telecommunications stocks, are carried at their price on the last day of the quarter. For the three-month period ending September 27, 1998, the market value increased by approximately $306,000 with a net after tax gain of $190,000. There were no transactions in these stocks. During the quarter the Company expended approximately $370,000 for bowling lanes, bumper assemblies and amusement game machines purchases. The Company is actively seeking property for additional locations. While previous offers have not yet been accepted, the Company continues to pursue contracts on two sites. Cash and cash flows are sufficient to finance all currently planned purchases and construction. The Company has maintained its fiscal year end 1998 position in telecommunications stocks as a further source of expansion capital. The Company expended $109,000 for the purchase of 15,000 shares of previously outstanding Class A common stock. Subsequent to the end of the quarter, an additional 73,000 shares of Bowl America stock were purchased at a cost of $530,000. While no factors requiring a change in the dividend rate are apparent, the Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state of the business and its estimate of future opportunities. Results of Operations After several years of changes in the number of operating locations, the current year comparisons reflect the same number of centers in operation. All of the prior year's percentage changes were influenced by the change in the number of centers in operation. There was a $.01 per share profit for the quarter ending September 27, 1998, versus less than $.01 per share in the first quarter of last year. Operating revenues declined slightly in the current period versus a 1% increase in the prior year period. Increases in shoe rental revenue and amusement game income offset the decline in bowling income. Food and beverage sales were flat andmerchandise sale and costs were down slightly due to lower traffic. Operating expenses excluding depreciation and amortization decreased 1% in the current quarter versus a 3% decrease in in the comparable quarter last year. In the current period supplies and services expense decreased 14%. Last year's costs included large purchases of glow-in-the-dark and amusement game supplies. Advertising costs decreased 11% from the prior year period and decreased 9% in the first quarter a year ago. Equipment expense increased in the current year by 21% primarily due to the higher costs associated with bowling pins and rental shoes. Employee compensation and benefits expenses were down 1% this year and 2% in the prior year. Depreciation and amortization expense increased 5% in the current year quarter versus an increase of 10% in the comparable period last year. The increases in both years are partially due to amusement game machine and glow-in-the-dark equipment purchases. Rent expense increased 5% in the current period due to higher sales at some leased locations. Last year rent expense decreased 9%, the decrease mainly a result of the change in the number of leased locations. YEAR 2000 Bowl America considers Year 2000 issues to be a priority. The Company has assessed the computer and related systems and found most to be year 2000 ready. Final identification of requirements and steps to be implemented is expected to be complete in the second quarter of fiscal year 1999. All updates and replacements are expected to be completed by fiscal year end 1999. The cost of remediation does not appear to be material. The Company has received written verification from vendors and suppliers with whom it has material relationships that they are addressing the Year 2000 issue and expect to be 2000 ready by mid 1999. BOWL AMERICA INCORPORATED AND SUBSIDIARIES S.E.C. FORM 10-Q September 27, 1998 PART II - OTHER INFORMATION An 8K was filed in July 1998, which referred to changes in an employment contract. 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 November 10, 1998 Leslie H. Goldberg Date Leslie H. Goldberg President November 10, 1998 Cheryl A. Dragoo Date Cheryl A. Dragoo Controller