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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Quarter Ended March 28, 2004 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 by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12 b-2).
YES [ ] NO [X]
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
April 25, 2004
Class A Common Stock, 3,670,112
$.10 par value
Class B Common Stock 1,468,462
$.10 par value
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
March 28, March 30, March 28, March 30,
2004 2003 2004 2003
_______________________ _________________________
Operating Revenues
Bowling and other $6,262,066 $6,204,957 $15,751,126 $15,746,609
Food, beverage and
merchandise sales 2,521,203 2,639,884 6,484,835 6,751,115
_________ _________ __________ __________
8,783,269 8,844,841 22,235,961 22,497,724
Operating Expenses
Compensation and benefits 3,287,212 3,437,520 9,628,495 9,813,584
Cost of bowling and other 1,556,491 1,535,587 4,648,706 4,485,005
Cost of food, beverage and
merchandise sales 754,646 812,340 2,095,004 2,186,994
Depreciation and
amortization 391,647 403,570 1,178,224 1,248,292
General and administrative 209,883 219,657 557,101 592,486
_________ _________ __________ __________
6,199,879 6,408,674 18,107,530 18,326,361
Net gain from sale of
building 2,168,117
Operating Income 2,583,390 2,436,167 6,296,548 4,171,363
Interest and dividend
income 105,947 130,696 305,289 368,974
_________ _________ __________ __________
Earnings before provision
for income taxes 2,689,337 2,566,863 6,601,837 4,540,337
Provision for income taxes 984,900 926,600 2,411,600 1,639,000
_________ _________ __________ __________
Net Earnings $1,704,437 $1,640,263 $ 4,190,237 $ 2,901,337
========= ========= ========= =========
Earnings per share-basic &
diluted $.33 $.31 $.81 $.56
Weighted average shares
outstanding 5,138,574 5,149,238 5,138,574 5,149,689
Dividends paid $693,708 $617,957 $1,978,353 $1,853,956
Per share, Class A $.135 $.12 $.385 $.36
Per share, Class B $.135 $.12 $.385 $.36
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Net Earnings $1,704,437 $1,640,263 $ 4,190,237 $2,901,337
Other comprehensive
earnings-net of tax
Unrealized gain (loss) on
available for sale
securities 134,662 (370,400) 101,151 (439,042)
_________ _________ _________ _________
Comprehensive earnings $1,839,099 $1,269,863 $ 4,291,388 $2,462,295
========= ========= ========= =========
The operating results for the thirteen (13) and thirty-nine (39) week
periods ended March 28, 2004 are not necessarily indicative of results
to be expected for the year.
See notes to condensed consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 28, 2004 June 29, 2003
________________ _____________
ASSETS
Current Assets
Cash and cash equivalents $ 2,312,472 $ 1,503,313
Short-term investments 12,513,981 9,505,678
Inventories 467,968 565,071
Prepaid expenses and other 679,504 590,555
Income taxes refundable 83,331 443,788
__________ __________
Total Current Assets 16,057,256 12,608,405
Property, Plant and Equipment
less accumulated depreciation of
$28,169,616 and $27,208,055 22,022,656 20,287,508
Assets Held for Sale (Note 3) - 117,948
Other Assets
Marketable equity securities 4,108,673 3,932,550
Cash surrender value-life insurance 465,794 463,579
Other long-term assets 67,767 126,517
__________ __________
TOTAL ASSETS $42,722,146 $37,536,507
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 603,359 $ 700,425
Dividends payable 693,708 642,323
Accrued expenses 766,077 910,087
Other current liabilities 2,666,953 354,854
Current deferred income taxes 103,266 103,300
__________ __________
Total Current Liabilities 4,833,363 2,710,989
Long-term Deferred Compensation 74,278 133,468
Noncurrent Deferred Income Taxes 2,599,954 1,738,900
__________ __________
TOTAL LIABILITIES 7,507,595 4,583,357
__________ __________
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 -
3,670,112 shares 367,012 367,012
Class B issued and outstanding -
1,468,462 146,846 146,846
Additional paid-in capital 7,480,008 7,480,257
Accumulated other comprehensive
earnings-Unrealized gain on
available-for-sale securities,
net of tax 2,073,664 1,972,513
Retained earnings 25,147,021 22,986,522
__________ __________
TOTAL STOCKHOLDERS' EQUITY $35,214,551 $32,953,150
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $42,722,146 $37,536,507
========== ==========
See notes to condensed consolidated financial statements.
BOWL AMERICA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THIRTY-NINE WEEKS ENDED MARCH 28, 2004 AND MARCH 30, 2003
March 28, March 30,
2004 2003
Cash Flows From Operating Activities:
Net earnings $4,190,237 $2,901,337
Adjustments to reconcile net
earnings to net cash provided
by operating activities
Depreciation and amortization 1,178,224 1,248,292
Changes in assets and liabilities
Decrease in inventories 97,103 57,910
Decrease (increase) in prepaid
expenses & other 28,999 (358,550)
Decrease in income taxes refundable - 699,768
Decrease in other long-term assets 56,535 30,395
Decrease in accounts payable (97,066) (15,436)
(Decrease) increase in accrued expenses (144,010) 31,675
Increase in income taxes payable 1,161,899 158,438
Increase in other current liabilities 2,312,099 2,103,597
Decrease in long-term deferred comp (59,190) -
_________ _________
Net cash provided by operating activities $8,724,830 $6,857,426
_________ _________
Cash flows from investing activities
Expenditures for property,plant,equip (2,913,372) (1,358,971)
Net purchases of short-term investments (3,025,071) (2,482,512)
Proceeds from AMF cash merger 1,125 -
_________ _________
Net cash used in investing activities (5,937,318) (3,841,483)
_________ _________
Cash flows from financing activities
Payment of cash dividends (1,978,353) (1,853,956)
Purchase of Class A & B Common Stock - (180,665)
_________ _________
Net cash used in financing activities (1,978,353) (2,034,621)
_________ _________
Net Increase in Cash and Equivalents 809,159 981,322
Cash and Equivalents, Beginning of Period 1,503,313 1,633,817
_________ _________
Cash and Equivalents, End of Period $2,312,472 $2,615,139
========= =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Income taxes $1,249,700 $ 780,794
See notes to condensed consolidated financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirty-nine Weeks Ended
March 28, 2004
1. Basis for Presentation
The accompanying unaudited condensed consolidated financial statements of
Bowl America Incorporated and subsidiaries (the "Company"), have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. The condensed consolidated balance sheet as of June 29, 2003
has been derived from the Company's June 29, 2003 audited financial statements.
Certain information and note disclosures normally included in the annual
financial statements, prepared in accordance with accounting principles
generally accepted in the United States of America, have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments and reclassifications (all of
which are of a normal, recurring nature) that are necessary for the fair
presentation for the periods presented. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's latest annual report to the Securities and Exchange Commission
on Form 10-K for the year ended June 29, 2003.
2. Marketable Equity Securities
Marketable equity securities are carried at fair value in accordance
with the provisions of SFAS No. 115. The telecommunications stocks included
in the portfolio as of March 28, 2004 were:
16,835 shares of AT&T Wireless 2,209 shares of Agere
3,946 shares of Alltel 669 shares of Avaya
27,572 shares of Bell South 8,028 shares of Lucent Technologies
9,969 shares of Qwest Communications 45,580 shares of SBC
32,000 shares of SprintFon 16,000 shares of SprintPCS
18,784 shares of Verizon 13,560 shares of Vodafone/AirTouch
3. Assets Held for Sale
On August 25, 2003, the Company consummated the final closing on the sale of
the Silver Spring building and assignment of the ground lease and recorded
the pre-tax gain of $2,168,117 on the sale.
4. Reclassifications
Certain previous period amounts have been reclassified to conform with current
period presentation.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 28, 2004
Liquidity and Capital Resources
Short-term investments consisting mainly of U.S. Treasury Bills and Notes,
and cash totaled $14,826,000 at the end of the third quarter of fiscal 2004,
or $2,694,000 higher than at the beginning of the quarter and $3,817,000 higher
than at the beginning of the fiscal year. The increased funds resulted
primarily from operations and reflect the seasonal nature of the business which
is strongest from September through May.
On February 20, 2004, the Company completed the purchase of land in Henrico
County, Virginia, for approximately $1,924,000. The land was acquired for
construction of a bowling center and the Company is moving to satisfy
requirements for the development of the property. Financing for this
transaction was provided by the funds held in escrow from the gain on the
sale of the Silver Spring building and assignment of ground lease. This
transaction is expected to qualify as a like-kind exchange, enabling taxes
on the gain to be reclassified as non-current deferred tax.
During the nine-month period ended March 28, 2004, the Company also expended
approximately $989,000 for the purchase of bowling and restaurant equipment
and some amusement games as existing locations were upgraded. The Company is
actively seeking property for the development of additional bowling centers.
Cash and cash flow are sufficient to finance all contemplated purchases and
construction. The Company's holdings of marketable equity securities,
primarily consisting of telecommunications stocks, are another potential
source of expansion capital.
These marketable securities are carried at their fair value on the last day
of the quarter. For the three-month period ended March 28, 2004, the market
value increased by $193,000 to approximately $4,109,000.
Current liabilities include approximately $2,242,000 in league deposits of
prize fund monies made throughout the winter league bowling season, that are
returned to the leagues at the end of the bowling schedule, generally during
the fourth quarter.
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.
On March 23, 2004, the Board of Directors declared a cash dividend of
$.135 per share on its Class A and Class B Common Stock, payable May 12, 2004,
to holders of record as of April 30, 2004.
Results of Operations
The Company ceased operations at its unprofitable Silver Spring location in
the fourth quarter of fiscal 2003, consummating the sale of the building in
August 2003. In fiscal year 2002, two centers were closed at the expiration
of their leases. One center, operating at break-even, was closed at the end
of the first quarter of fiscal 2002, and a profitable center was closed in
May 2002 after the Company was unable to negotiate a new lease. The changes
in the number of centers in operation affected all income, expense and
comparisons for the periods presented in this report.
Net earnings were $.33 per share for the thirteen-week period ended March 28,
2004, versus net earnings of $.31 per share for the thirteen-weeks ended
March 30, 2003. For the current thirty-nine week period net earnings per
share were $.81 compared to $.56 for the comparable period a year ago. The
sale of Silver Spring, after taxes, provided approximately $.25 per share of
the net earnings for the current nine-month period. Excluding that gain, net
earnings would have been $.56 per share.
Operating revenues decreased 1% for the three-month period ended March 28,
2004, versus a 2% decrease in the comparable period a year ago during which
snow storms resulted in closings at all of the Company's northern centers.
For the current nine-month period operating revenues were down 1% versus a 3%
decrease in the prior year nine-month period.
Bowling and other revenue increased 1% during the current quarter partially
due to a higher average price per game that helped to offset the lower number
of games bowled. For the current nine-month period bowling and other revenue
was flat. Food, beverage and merchandise sales were down 4% for both the
current quarter and year-to-date periods. In order to counter declining
merchandise sales, Bowl America instituted the website babowlingstore.com in
late March 2004, making merchandise available directly to consumers at more
competitive prices.
Food and beverage sales were down due to the closure of the Silver Spring
location and the change in food service operations at Gaithersburg placing
emphasis on serving bowlers. This change has resulted in improved
profitability as food costs and labor costs declined at a higher rate than
the decline in sales. In the prior year, sales for the quarter were flat and
were down 3% in the nine-month period. Cost of sales was down 7% in the
current quarter and 4% in the year-to-date period as a result of reduced sales.
Operating expenses excluding depreciation and amortization were down 3%
in the current three-month period and decreased 1% in the nine-month period
ended March 2004. In the prior year the three-month comparable period showed
a slight decrease, but the nine-month period expenses were down 1%. Employee
compensation and benefits were down 4% and 2% in the current quarter and nine-
month periods, respectively, despite an increase in health insurance costs,
and were flat in both comparable periods last year.
Cost of bowling and other services was up 1% in the current quarter and 4% in
the current nine-month period. In that regard, maintenance and repair costs
were down 24% in the current quarter versus an increase of 5% in the three-
month period ended March 30, 2003 when snow removal costs were higher than
normal. For the nine-month period ended March 28, 2004, maintenance and
repair costs were down 1%. During the current nine-month period the Company
spent 7% more on advertising compared to the prior year comparable period.
Utility costs were up 1% in the current quarter down 1% for the nine-month
period. Last year costs were flat in the quarter and down 6% in the nine-
month period. Bowling supplies and services costs were up 5% for the nine-
month period partially the result of timing of bulk purchases of maintenance
supplies.
Depreciation and amortization expense decreased 6% in the current and prior
nine-month periods primarily as a result of fewer centers in operation. Rent
expense was up 1% in the current nine-month period and down 16% in the prior
year comparable period due to the closing of centers mentioned above. For
the current nine-month period insurance expense, excluding health and life
insurance, increased 6% versus a 30% increase for the nine-month period ended
March 30, 2003 that included premium increases following September 11, 2001.
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 caption 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 the temporary declines in value.
ITEM 3. 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 $12,514,000 and $10,666,000 at March 28, 2004 and
March 30, 2003, 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 March 28, 2004, a 10% decline in the average yield
would have no material impact on annual interest income.
ITEM 4. 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 March 28,
2004. There was no change in the Company's internal control over financial
reporting identified in connection with the evaluation that occurred during
the quarter ended March 28, 2004, that materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
S.E.C. FORM 10-Q
March 28, 2004
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32 Written Statement of the Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. 1350
(b) Reports on Form 8-K
A Form 8-K dated March 31, 2004, reporting a change in the Registrant's
Certifying Accountants (Item 4) was filed on April 6, 2004, and an
amendment to that report was filed on April 13, 2004
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
May 12, 2004 Leslie H. Goldberg
Date President
May 12, 2004 Cheryl A. Dragoo
Date Controller
Exhibit 31.1 to Form 10-Q
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 quarterly report on Form 10-Q of Bowl America
Incorporated;
2. Based on my knowledge, this quarterly 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 quarterly 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 effectivness 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 the internal control over financial reporting,
to the registrant's auditors and the audit committee of the 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 control 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: May 12, 2004 Leslie H. Goldberg
Chief Executive Officer
Exhibit 31.2 to Form 10-Q
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 quarterly report on Form 10-Q of Bowl America
Incorporated;
2. Based on my knowledge, this quarterly 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 quarterly 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 effectivness 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 the internal control over financial reporting,
to the registrant's auditors and the audit committee of the 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 control 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: May 12, 2004 Cheryl A. Dragoo
Chief Financial Officer
Exhibit 32
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
Quarterly Report on Form 10-Q of the Company for the quarter ended March 28,
2004 (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: May 12, 2004