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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 June 27, 2004 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 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 an accelerated filer (as
defined in Exchange Act Rule 12 b-2). YES [ ] NO [X]
As of December 28,2003, which was the last business day of the registrant's
most recently completed second quarter, 3,670,112 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 was approximately $33 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 28, 2003, the total aggregate market value for
both classes of common stock held by nonaffiliates would be approximately $34
million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statements, which will be filed
with the Commission not later than 120 days after June 27, 2004 are
incorporated into Part III of this Form 10-K. Portions of Bowl America's 2004
Annual Report to shareholders are incorporated by reference in Part II,
Items 5,6,7 and 8.
BOWL AMERICA INCORPORATED
INDEX TO FISCAL 2004 10-K FILING
PART I
Page
Cover Page
Documents Incorporated by Reference
Index
ITEM 1. Business
(a) General Development of Business 1
(b) Financial Information about Industry Segments 1
(c) Narrative Description of Business 1
(d) Foreign Operations 1
ITEM 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 2
ITEM 7a. Quantitative and Qualitative Disclosure About Market Risk 2
ITEM 8. Financial Statements and Supplementary Data 3
ITEM 9. Changes in and Disagreements with Accountants and
Financial Disclosure 3
ITEM 9A. Controls and Procedures 3
PART III
ITEM 10. Directors and Executive Officers of the Registrant 3
ITEM 11. Executive Compensation 3
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners 3
(b) Security Ownership of Management 3
(c) Changes in Control 3
(d) Securities Authorized for Issuance Under Equity
Compensation Plans 3
BOWL AMERICA INCORPORATED
INDEX TO FISCAL 2004 10-K FILING
PART III
(Continued)
Page
ITEM 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others 3
(b) Certain Business Relationships 3
(c) Indebtedness of Management 3
(d) Transactions with Promoters 3
ITEM 14. Principal Accountant Fees and Services 4
PART IV
ITEM 15. Exhibits, Financial Statements and Reports on Form 8-K
(a)1. Financial Statements 4
(a)2. Exhibits 4
(b) Reports on Form 8-K 5
Signatures 6-7
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 18 bowling centers.
In February 2004 the Company purchased land in the Richmond, Virginia
area using funds received from the sale of Bowl America Silver Spring in
August 2003. The sale and purchase are classified as a like-kind exchange,
effectively deferring the tax on $1.9 million of the $2.2 million gain on the
sale. Building of a new 40 lane bowling center is expected to begin when all
permits have been received. The center is expected to open in the first
quarter of fiscal year 2006.
(b) Financial Information about Industry Segments
The Company operates in one segment. Its principal source of
revenue consists of fees charged for the use of bowling lanes and other
facilities and from the sale of food and beverages for consumption on the
premises. Merchandise sales, including food and beverages, were approximately
29% of operating revenues. The balance of operating revenues (approximately
71%) represents fees for bowling and related services.
(c) Narrative Description of Business
As of September 1, 2004 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 three bowling centers in the
greater metropolitan area of Richmond, Virginia. These 18 bowling centers
contain a total of 716 lanes.
These establishments are fully air-conditioned with facilities for
service of food and beverages, game rooms, rental lockers, and playroom
facilities. All centers provide shoes for rental, and bowling balls are
provided free. In addition, each center retails bowling accessories. Most
locations are equipped for glow-in-the-dark bowling, popular for parties and
non-league bowling.
The bowling equipment essential for the Company's operation is
readily available. The major source of its equipment is Brunswick Corporation.
The bowling business is a seasonal one, and most of the business takes
place from October through May. It is highly competitive, but the Company has
managed to maintain its position in the field. The principal method of
competition is the quality of service furnished to the Company's customers.
Its primary competitors are two large bowling equipment manufacturers,
Brunswick Corporation and AMF Bowling Worldwide, Inc.
Compliance with federal, state and local environmental protection laws
has not materially affected the Company.
The number of persons employed by the Company and its subsidiaries is
approximately 700.
(d) Foreign Operations
The Company has no foreign operations.
-1-
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 sixteen 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 June 27, 2004.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) The information set forth in the section entitled "Market
Information", "Holders", and "Dividends" on page 3 of the Company's June 27,
2004 Annual Report is incorporated by reference herein.
(b) Not applicable
(c) On June 21, 2004, the Registrant repurchased 801 shares of its
Class A Common Stock from one stockholder at a price of $14.20 per share.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in the section entitled "Selected Financial
Data" on page 3 of the Company's June 27, 2004 Annual Report is incorporated by
reference herein. Such information should be read in conjunction with the
audited financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 2 of the Company's June 27, 2004 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 $11,681,729 and $9,505,678 at June 27,
2004 and June 29, 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 June 27, 2004, a 10% decline in the average yield would not
have a material impact on our interest income.
-2-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes thereto, the
Reports of Independent Registered Public Accounting Firms and the Selected
Quarterly Financial Data (unaudited), as contained on pages 4 through 13 of the
Company's June 27, 2004 Annual Report, are incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
A Form 8-k dated May 12, 2004, confirming the change in the
Registrant's certifying accountants (Item 4) as reported on Form 8-K filed
April 6, 2004, was filed on May 17, 2004.
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 June 27, 2004.
There were no changes 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 June 27, 2004 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item regarding directors is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
-3-
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(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:
Reports of Independent Registered Public Accounting Firms
Consolidated balance sheets - June 27, 2004 and June 29, 2003
Consolidated statements of earnings and comprehensive earnings
- years ended June 27, 2004, June 29, 2003, and June 30, 2002
Consolidated statements of stockholders' equity - years ended
June 27, 2004, June 29, 2003, and June 30, 2002
Consolidated statements of cash flows - years ended
June 27, 2004, June 29, 2003, and June 30, 2002
Notes to the consolidated financial statements - years ended
June 27, 2004, June 29, 2003, and June 30, 2002
(a)2. Exhibits:
3(a) Articles of Incorporation of the Registrant and amendments
through December 1988 thereto (Incorporated by reference from
exhibit number 3 to the Annual Report for 1989 on Form 10-K for
fiscal year ended July 2, 1989.)
3(b) Amendment to and restatement of Article FIFTH (b) III 2.2
of the Registrant's Articles of Incorporation (Incorporated by
reference from the Registrant's Form 8-K filed December 9, 1994.)
3(c) By-laws of the Registrant (Incorporated by reference from
exhibit 3 to the Annual Report for 1989 on Form 10-K for fiscal
year ended July 2, 1989.)
21 Subsidiaries of registrant (Incorporated by reference from
exhibit number 1 to the Registrant's Annual Report on Form 10-K
for fiscal year ended June 30, 2002.
31.1 Written statement of Chief Executive Officer (Rule 13a-14a
Certification)
31.2 Written statement of Chief Financial Officer (Rule 13a-14a
Certification)
32 Written statement of Chief Executive and Chief Financial
Officers (Section 1350 Certifications)
-4-
(b) Reports on Form 8-K:
A Form 8-K dated May 12, 2004, confirming the change in the
Registrant's certifying accountants (Item 4) as reported on
Form 8-K filed April 6, 2004, was filed on May 17, 2004.
-5-
BOWL AMERICA INCORPORATED
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BOWL AMERICA INCORPORATED
Leslie H. Goldberg
President and Principal Executive
& Operating Officer
Date: September 23, 2004
Cheryl A. Dragoo
Chief Financial Officer,
Assistant Treasurer and Controller
Principal Accounting Officer
Date: September 23, 2004
-6-
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 23, 2004
Ruth Macklin A. Joseph Levy
Senior Vice President-Treasurer Senior Vice President-Secretary
and Director and Director
Date: September 23, 2004 Date: September 23, 2004
Warren T. Braham Stanley H. Katzman
Director Director
Date: September 23, 2004 Date: September 23, 2004
Allan L. Sher Merle Fabian
Director Director
Date: September 23, 2004 Date: September 23, 2004
Irvin Clark
Director
Date: September 23, 2004
-7-
BOWL AMERICA INCORPORATED
PRESIDENT'S LETTER
September 20, 2004
Dear Fellow Owners:
WOW!!!
For the first time in ten years, we are building a bowling center from scratch.
This one is Irv Clark's baby from start to finish which gives us the feeling it
will be the best one we have ever built. Located just north of Richmond, it is
in the center of a growing commercial area and will serve an expanding
population. It will add to our standing as the best and oldest continually
operating bowling company in the Richmond area.
Good new locations are necessary to provide us as owners with real income from
our investment in Bowl America. "Real" has meant that increases in our
dividends have more than offset inflation. The record of 32 consecutive years
of dividend increases has enabled us to meet that objective without requiring
us to dispose of our Bowl America stock.
The word "increase" suggests building on something that existed before. That
is fundamental to our approach. While we generate great enthusiasm for each
new project, it is important that we continue to wisely use our existing assets.
Two of our most successful bowling centers today-Bowl America Shirley and Bowl
America Falls Church-were our first two bowling centers and are over forty
years old. We try to capture the enthusiasm generated by new projects and
apply it broadly in the Company. There is no return like the return on an
investment that is already paid for.
Location in any retail business is important, but we have always felt that
longevity flows from great customer service and great customer service flows
from people who enjoy what they do. I have always been pleased that so many
of our employees are bowling enthusiasts.
You should note this will be the first bowling center we have ever built in
which the owners will get to keep half the profits generated from the business.
Prior to the recent reduction in dividend tax rates to 5% and 15%,
Bowl America owners had to pay $2.00 in taxes to keep $1.00 of the earnings
the Company generated. This was the result of our relatively unsheltered
corporate tax rate combined with personal taxes on dividends. That, of course,
isn't the end of it. If you happen to die at a time when our market price
exceeds our per share retained earnings, the Government might extract an
amount greater than what the company earned on your behalf.
Relying on dividends to share our Company's success has a positive impact on
corporate governance. The dividend has to have cash to support it. Virtually
all of the financial misdeeds we have noted in the last few years have been
driven by an attempt to run up the price of a stock so that the perpetrators
could either borrow against it or sell it before the bubble burst.
Another group shares the need for price increases, but has an even shorter
horizon. These are the so-called money managers, whether they be mutual funds,
pension funds or insurance companies, that are threatened with investor
defection it they didn't "match market performance". It is ironic that all
the proposals for changing corporate governance would place more control into
this group's hands even though we now know they simply do not operate in the
interests of the real owners of the shares. We can't justify overlaying an
"ownership economy" on the current foundation.
The combination of the fund managers with a next morning price horizon and
company managements required to spend their time on accounting minutia rather
than stimulating innovation and growth will probably eventually push us into
the European type of supervisory board of directors. If that results in a 12%
unemployment rate here as it has elsewhere, we might hear it called "an
unforeseen consequence." Of course, all those people with time on their hands
may want to go bowling.
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 2004 was $5,502,000
which was sufficient to meet day-to-day cash needs. Short-term investments
consisting mainly of U.S. Treasury Notes and Bills, cash and cash equivalents
totaled $13,002,000 at the end of fiscal 2004 compared to $11,009,000 at the
end of fiscal 2003.
In February 2004 the Company acquired land in Henrico County, Virginia.
Financing for the property was provided by the $2.3 million received from the
sale of the Silver Spring building and assignment of ground lease in August
2003. The transaction completed a like-kind exchange under Section 1031 of
the Internal Revenue Code enabling taxes on approximately $2.0 million of the
$2.2 million gain on the sale of Silver Spring to be deferred.
Although no building or equipment contracts for the location have been
signed, the Company is currently in the process of obtaining all necessary
permits to begin construction of a 40-lane bowling center at an estimated cost
of $5 million, which, barring unforeseen circumstances, is expected to open in
the first quarter of fiscal 2006.
During fiscal year 2004, the Company expended approximately $1,000,000 for
the purchase of bowling and restaurant equipment and amusement games, continuing
to upgrade current facilities. Approximately $689,000 of the funds were from
operating activities and the remaining $311,000 was provided by escrow funds
from the building sale. The Company has signed purchase agreements totaling
approximately $860,000 to replace all remaining wooden bowling lanes and to
purchase bowling pins for the new season.
The Company is actively seeking property for the development of new bowling
centers. Cash and cash flows are sufficient to finance all contemplated
construction and purchases and to meet short-term purchase commitments and
operating lease commitments, detailed in the table below. 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 June 27, 2004 was $4.0 million compared to approximately
$3.9 million at June 29, 2003.
Contractual Less than 1-3 3-5 More than
Obligations Total 1 year Years Years 5 years
Operating lease
obligations $1,867,581 $283,721 $567,442 $567,442 $448,976
Purchase
Obligations 860,000 860,000 - - -
Total $2,727,581 $1,143,721 $567,442 $567,442 $448,976
Cash dividends of $.52 per share, totaling $2.7 million were paid to
shareholders during the 2004 fiscal year making this the thirty-second
consecutive year of increased dividends per share. In June 2004, the Company
declared a $.135 per share dividend that was paid in August 2004. While no
factors calling for 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.
In May 2003, the Company ceased operating the Silver Spring facility after
entering into an agreement to sell the building. Two leased locations were
closed during fiscal 2002.
RESULTS OF OPERATIONS
Eighteen centers were in operation during 2004 while nineteen centers were
in operation during the peak season of fiscal 2003. In the comparable fiscal
2002 season, twenty locations were operating. The changes in the number of
centers in operation affected all income, expense and comparisons for the
periods presented in this report. Fiscal years 2004, 2003 and 2002 each
consisted of 52 weeks.
Operating revenues excluding the $2.2 million gain on the sale of Silver
Spring, mentioned above, decreased by $942,000 or 3% in fiscal 2004. Bowling
and other revenue declined 2%. However, at comparable locations, this category
of revenue was up slightly as an increase in the average game rate helped to
offset the decrease in games bowled.
Food, beverage and merchandise sales decreased 6% in the current year
primarily as a result of the closing of Silver Spring and the end of the full
service restaurant operation at Gaithersburg. The change resulted in increased
profitability as costs declined at a higher rate than the decline in sales.
The Company established a website for the sale of merchandise directly to
consumers.
In fiscal 2003 operating revenues decreased by 2% overall and like
percentages in both the bowling and other and food, beverage and merchandise
sales categories. During fiscal 2003 winter snowstorms caused the closing of
all locations in the Company's northern market although the fourth quarter
benefited from league play make-up games and rainy weather.
Total operating expense decreased approximately $724,000 or 3% in the
current year and 1% in the prior year. Costs for employee compensation and
benefits were down $287,000 or 2% in the current year although group health
insurance costs were up $49,000 or 10% over the prior year period. In the
current year employees benefited from the gain on the sale of Silver Spring as
the Company's contribution to the profit-sharing and employee stock ownership
plans increased by $86,000 or 30% over the prior year. In the prior year
employee compensation and benefit costs were flat despite a 12% increase in
health insurance premiums.
Maintenance costs decreased 9% in the current year after an increase of 7%
in fiscal year 2003. This year no lanes were resurfaced as the remaining wooden
lanes are being replaced by plastic overlays. Lanes at several centers were
resurfaced last year. Snow removal costs were also responsible for the prior
year increase.
Supplies expenses were up 5% in fiscal 2004 and down 1% in the prior fiscal
year. Advertising costs were up 17% in the current year primarily from
campaigns to increase awareness of our websites and facilities for corporate
outings. Last year advertising costs were up 3%. Utility costs declined
slightly in fiscal 2004 compared to a 6% decrease in the prior year.
Rent expense decreased 2% in the current year and 19% in the prior year
primarily as a result of fewer leased locations in operation. Insurance
expense, excluding health and life, was down 8% in fiscal 2004 as the market
softened. In the prior year insurance costs increased 15%.
Depreciation expenses decreased by $81,000 and $151,000 or 5% and 8% in
fiscal 2004 and 2003, respectively. Large assets reaching full depreciation and
fewer locations in operation were responsible for the decreases in both years.
Interest and dividend income declined from the prior year. The 14% increase
in common stock dividends received was more than offset by the lower interest
rates on debt securities.
Effective income tax rates for the Company were 37.4% for fiscal 2004,
35.9% in 2003 and 36.1% in 2002, 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. For fiscal
2004, although the tax on the gain from the sale of Silver Spring is deferred,
it is accounted for at current effective tax rates as required by accounting
standards.
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.
-2-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPERATIONS
Selected Financial Data
For the Years Ended
June 27, June 29, June 30, July 1, July 2,
2004 2003 2002 2001 2000
__________________________________________________________
Operating Revenues $28,433,689 $29,375,692 $29,809,586 $29,400,903 $28,902,200
Operating Expenses 23,539,032 24,262,944 24,416,010 24,508,226 23,151,241
Interest and dividend
Income 413,738 475,598 598,982 1,035,712 823,470
Gain on Sale of Land,
Buildings and
Equipment 2,201,240 - - - -
__________ __________ __________ __________ __________
Earnings before pro-
vision for income
taxes 7,509,635 5,588,346 5,992,558 5,928,389 6,574,429
Provision for income
taxes 2,807,896 2,005,000 2,174,000 2,060,000 2,361,000
__________ __________ __________ __________ __________
Net Earnings $ 4,701,739 $ 3,583,346 $ 3,818,558 $ 3,868,389 $ 4,213,429
Weighted Average
Shares Outstanding
Basic & Diluted 5,138,559 5,145,934 5,132,083 5,222,876 5,587,892
Earnings Per Share
Basic & Diluted $.91 $.70 $.74 $.74 $.75
Net Cash Provided by
Operating Activities $5,501,857 $5,450,867 $5,954,909 $4,795,680 $6,636,768
Cash Dividends Paid $2,672,062 $2,470,081 $2,371,121 $2,256,182 $2,197,659
Cash Dividends Paid
Per Share-Class A $.52 $.46 $.46 $.45 $.43
-Class B $.52 $.48 $.46 $.45 $.43
Total Assets $40,579,581 $37,536,507 $36,562,578 $37,509,243 $40,622,676
Stockholders' Equity $34,896,581 $32,953,150 $32,682,139 $32,614,517 $34,779,772
Net Book Value Per
Share $6.79 $6.41 $6.35 $6.64 $7.11
Net Earnings as a %
of Beginning Stock-
holders' Equity 14.3% 11.0% 11.7% 11.1% 11.9%
Lanes in Operation 716 716 746 820 854
Centers in Operation 18 18 19 21 22
All share and per share amounts (excluding Net Book Value Per Share) have
been adjusted to reflect both the 5% stock dividend distributed on July 26,
2001 and the 5% stock dividend distributed on July 26, 2000.
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 2004 and 2003.
2004 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_________________________________________________________
High 13.10 14.00 15.25 14.70
Low 10.67 12.81 14.00 14.05
2003 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_______________________________________________________
High 12.00 12.15 11.95 11.73
Low 11.00 11.50 11.50 11.12
Holders
The approximate number of holders of record of the Company's Class A Common
Stock as of June 27, 2004 is 423 and of the Company's Class B Common Stock
is 28.
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 2004
and 2003.
Class A Common Stock
Quarter 2004 2003
___________________________________________
First 12.5 cents 12 cents
Second 12.5 cents 12 cents
Third 13.5 cents 12 cents
Fourth 13.5 cents 12 cents
Class B Common Stock
Quarter 2004 2003
____________________________________________
First 12.5 cents 12 cents
Second 12.5 cents 12 cents
Third 13.5 cents 12 cents
Fourth 13.5 cents 12 cents
-3-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 27, 2004 June 29, 2003
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 1,320,643 $ 1,503,313
Short-term investments (Note 4) 11,681,729 9,505,678
Inventories 583,466 565,071
Prepaid expenses and other 595,460 590,555
Income taxes refundable - 443,788
__________ __________
Total Current Assets 14,181,298 12,608,405
Land, Buildings and Equipment, Net (Note 5) 21,762,919 20,287,508
Assets Held for Sale (Note 3) - 117,948
Other Assets
Marketable equity securities (Note 4) 4,041,161 3,932,550
Cash surrender value-officers'life insurance 467,603 463,579
Other 126,600 126,517
__________ __________
Total Other Assets 4,635,364 4,522,646
---------- ----------
TOTAL ASSETS $40,579,581 $37,536,507
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 805,812 $ 700,425
Accrued expenses 891,289 910,087
Dividends payable 693,600 642,323
Income taxes payable 179,855 -
Other current liabilities 334,317 354,854
Current deferred income taxes 148,675 103,300
__________ __________
Total Current Liabilities 3,053,548 2,710,989
Long-Term Deferred Compensation 74,278 133,468
Non-current Deferred Income Taxes (Note 9) 2,555,174 1,738,900
__________ __________
TOTAL LIABILITIES 5,683,000 4,583,357
Commitments and Contingencies (Note 6)
Stockholders' Equity (Note 7)
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
3,669,311 and 3,670,112 shares 366,932 367,012
Class B outstanding 1,468,462 shares 146,846 146,846
Additional paid-in capital 7,479,072 7,480,257
Accumulated other comprehensive earnings-
Unrealized gain on available-for-sale
securities, net of tax 1,948,918 1,972,513
Retained earnings 24,954,813 22,986,522
__________ __________
TOTAL STOCKHOLDERS' EQUITY $34,896,581 $32,953,150
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,579,581 $37,536,507
=========== ==========
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
-4-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS
For the Years Ended
June 27, 2004 June 29, 2003 June 30, 2002
______________________________________________
Operating Revenues
Bowling and other $20,154,568 $20,574,413 $20,926,272
Food, beverage and
merchandise sales 8,279,121 8,801,279 8,974,870
__________ __________ __________
28,433,689 29,375,692 29,901,142
Operating Expenses
Compensation and benefits 12,688,709 12,976,056 12,962,448
Cost of bowling and other 5,925,753 5,983,292 5,893,138
Cost of food, beverage and
merchandise sales 2,603,609 2,771,356 2,989,809
Depreciation and amortization 1,532,587 1,613,379 1,763,931
General and administrative 788,374 918,861 898,240
__________ __________ __________
23,539,032 24,262,944 24,507,566
Operating Income 4,894,657 5,112,748 5,393,576
Interest and dividend income 413,738 475,598 598,982
Gain on sale of land, buildings
And equipment 2,201,240 - -
__________ __________ __________
Earnings before provision
for income taxes 7,509,635 5,588,346 5,992,558
Provision for income taxes(Note 8)
Current 1,946,247 2,050,000 1,923,000
Deferred 861,649 (45,000) 251,000
_________ __________ __________
2,807,896 2,005,000 2,174,000
Net Earnings $ 4,701,739 $ 3,583,346 $ 3,818,558
Other Comprehensive Loss
Net of Tax-unrealized loss
on available-for-sale securities (23,595) (70,549) (1,384,409)
_________ _________ _________
Comprehensive Earnings 4,678,144 3,512,797 2,434,149
Earnings Per Share-Basic &
Diluted $.91 $.70 $.74
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
-5-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK Accumulated
_______________________________________ Additional Other
Class A Class A Class B Class B Paid-In Comprehensive Retained
Shares Amount Shares Amount Capital Earnings(1) Earnings
Balance July 1, 2001 3,491,976 $349,197 1,416,427 $141,643 $4,987,131 $3,427,471 $23,709,075
Stock issued in 5% dividend 174,365 17,437 70,809 7,081 2,488,516 - (2,513,034)
Purchase of stock (59) (6) - - (86) - (544)
Conversion-Class B to Class A 3,616 362 (3,616) (362) - - -
Shares issued for ESOP plan 9,000 900 - - 101,700 - -
Settlement of employee stock loans (4,010) (401) - - 38,813 - (38,415)
Repayment of employee loans (8,512) (851) - - (12,428) - (84,088)
Cash dividends paid - - - - - - (2,371,121)
Change in unrealized gain on
available-for-sale securities - - - - - (1,384,409) -
Net earnings for the year - - - - - - 3,818,558
_________________________________________________________________________________________________________________________
Balance June 30, 2002 3,666,376 $366,638 1,483,620 $148,362 $7,603,646 $2,043,062 $22,520,431
Purchase of stock (470) (47) (15,158) (1,516) (174,250) - (4,851)
Shares issued for ESOP plan 4,206 421 - - 48,579 - -
Cash dividends paid - - - - - - (2,470,081)
Accrued dividends declared
June 24, 2003, payable
August 12, 2003 - - - - - - (642,323)
Change in unrealized gain on
available-for-sale securities - - - - - (70,549) -
Repayment of employee loan - - - - 2,282 - -
Net earnings for the year - - - - - - 3,583,346
_______________________________________________________________________________________________________________________
Balance June 29, 2003 3,670,112 $367,012 1,468,462 $146,846 $7,480,257 $1,972,513 $22,986,522
Purchase of stock (801) (80) - - (1,185) - (10,109)
Cash dividends paid - - - - - - (2,029,739)
Accrued dividends declared
June 22, 2004, payable
August 18, 2004 - - - - - - (693,600)
Change in unrealized gain on
available-for-sale securities - - - - - (23,595) -
Net earnings for the year - - - - - - 4,701,739
________________________________________________________________________________________________________________________
Balance, June 27, 2004 3,669,311 $366,932 1,468,462 $146,846 $7,479,072 $1,948,918 $24,954,813
(1)Unrealized gains and losses are shown net of tax
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
-6-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 27, June 29, June 30,
2004 2003 2002
Cash Flows From Operating Activities
Net earnings $4,701,739 $3,583,346 $3,818,558
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,532,587 1,613,379 1,763,931
Increase(decrease) in deferred income tax 861,649 (45,000) 251,000
(Gain) Loss on disposition of assets-net (2,201,240) 11,932 63,789
Stock issuance-ESOP Plan - 49,000 102,600
Changes in assets and liabilities:
(Increase) decrease in inventories (18,395) (24,044) 179,478
(Increase) decrease in prepaid expenses
and other (4,905) (111,266) 388,649
Decrease (increase) in income taxes
refundable 443,788 255,980 (250,675)
(Increase) decrease in other long-term
assets (83) (28,855) 91,836
Increase (decrease) in accounts payable 105,387 (1,246) (369,862)
(Decrease) increase in accrued expenses (18,798) 160,842 (32,533)
Increase in income taxes payable 179,855 - -
Decrease in other current liabilities (20,537) (14,173) (31,862)
(Decrease) increase in long-term
deferred compensation (59,190) 972 (20,000)
_________ _________ _________
Net cash provided by operating activities $5,501,857 $5,450,867 $5,954,909
_________ _________ _________
Cash Flows from Investing Activities
Expenditures for land,buildings,equipment (688,810) (1,525,181) (1,254,521)
Net (purchases) sales and maturities of
short-term investments (2,309,382) (1,371,706) (2,013,396)
Increase in cash surrender value (4,024) (32,330) (19,838)
Net proceeds (purchases) from purchases
or sale of marketable securities 1,125 (1,409) -
_________ _________ _________
Net cash used in investing activities (3,001,091) (2,930,626) (3,287,755)
_________ _________ _________
Cash Flows from Financing Activities
Payment of cash dividends (2,672,062) (2,470,081) (2,371,121)
Purchase of Class A Common Stock (11,374) (5,589) (636)
Purchase of Class B Common Stock - (175,075) -
_________ _________ _________
Net cash used in financing activities (2,683,436) (2,650,745) (2,371,757)
_________ _________ _________
Net (Decrease) Increase in Cash and
Cash Equivalents (182,670) (130,504) 295,397
Cash and Cash Equivalents, Beginning of Year 1,503,313 1,633,817 1,338,420
_________ _________ _________
Cash and Cash Equivalents, End of Year $1,320,643 $1,503,313 $1,633,817
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Income taxes $1,907,467 $2,324,881 $2,633,781
Non-cash Investing and Financing Activities
Settlement of employee stock loans by
acquisition of common stock $ - - 44,667
Repayment of employee loans by
acquisition of common stock $ - - 88,877
Exchange of property $2,351,800 - -
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
-7-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Bowl America Incorporated is engaged in the operation of 18 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, three
centers in metropolitan Richmond, Virginia, and three centers in metropolitan
Jacksonville, Florida. These 18 centers contain a total of 716 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 2004 ended June 27, 2004, fiscal year 2003 ended June 29, 2003, and fiscal
year 2002 ended June 30, 2002. Fiscal years 2004, 2003 and 2002 each consisted
of 52 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 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, 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.
Revenue Recognition
The Company records revenue for fees charged for use of bowling lanes and
other facilities at the time the services are provided. Food, beverage and
merchandise sales are recorded as revenue at the time the product is given to
the customer.
Depreciation and Amortization
Depreciation and amortization for financial statement purposes are
calculated by use of the straight-line method. Amortization of leasehold
improvements is calculated over the estimated useful life of the asset or
term of the lease, whichever is shorter. The categories of property, plant,
and equipment and the ranges of estimated useful lives on which depreciation
and amortization rates are based are as follows:
Bowling lanes and equipment 3-10 years
Building and building improvements 10-39 years
Leasehold improvements 10 years
Amusement games 3-5 years
Maintenance and repairs and minor replacements are charged to expense when
incurred. Major replacements and betterments are capitalized. The accounts
are adjusted for the sale or other disposition of property, and the resulting
gain or loss is credited or charged to income.
Impairment of Long-Lived Assets
The Company reviews long-lived assets whenever events or changes indicate
that the carrying amount of an asset may not be recoverable. In making such
evaluations, the Company compares the expected future cash flows to the
carrying amount of the assets. An impairment loss, equal to the difference
between the assets' fair value and carrying value, is recognized when
the estimated future cash flows are less that the carrying amount.
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.
Fair Value of Financial Instruments
The fair value of short-term investments and the non-current marketable
security portfolio is disclosed in Note 4.
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 5,138,559, 5,145,934 and 5,132,083, for fiscal years 2004,
2003 and 2002, respectively, and have been adjusted to reflect the 5% stock
dividend distributed on July 26, 2001.
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 June 27, 2004.
-8-
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers money market funds, certificates of deposits, repurchase agreements
and treasury securities 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.
Assets Held for Sale
The Company accounts for assets held for sale at the lower of cost or fair
value less costs to sell in accordance with the criteria for SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets." Assets held
for sale are not depreciated.
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 June 27, 2004, and June 29, 2003 other current
liabilities included $328,014, and $352,800, respectively, in prize fund monies.
Reclassifications
Certain previous year amounts have been reclassified to conform with the
current year presentation.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
June 27, June 29,
2004 2003
Demand deposits and cash on hand $ 611,552 $ 517,874
Money market funds 175,644 286,439
Repurchase agreements 533,447 699,000
_________ _________
$1,320,643 $1,503,313
3. ASSETS HELD FOR SALE AND GAIN ON SALE
In March 2003, the Company entered into an agreement to sell the Silver
Spring building and assign the ground lease for $2.3 million subject to
certain conditions precedent to final closing. The facility is classified as
Assets Held for Sale at June 29, 2003 and is carried at its net book value of
$117,948. On August 25, 2003, the Company consummated the final closing of
the sale and recorded the gain on the sale of the building. The sale was part
of a tax free exchange under 1031 of the U.S. Internal Revenue Code and, as
such, the taxable gain on the sale is deferred. The operating results of the
bowling center along with a $2,168,117 gain, have been recorded as part of net
gain on sale of building in the accompanying consolidated financial statements.
4. 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 June 27, 2004, the
fair value of short-term investments was $11,681,729 with an unrealized loss of
$89,923. At June 29, 2003, the fair value of short-term investments was
$9,505,678 with an unrealized gain of $56,875. 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 June 27, 2004, and June 29, 2003
as follows:
Original Unrealized Fair
Cost Gain Value
June 27, 2004
Securities available-for-sale $857,782 $3,183,379 $4,041,161
June 29, 2003
Securities available-for-sale $859,191 $3,073,359 $3,932,550
This portfolio includes the following telecommunications stocks:
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
45,580 shares of SBC Communications
40,000 shares of Sprint Fon
18,784 shares of Verizon
13,560 shares of Vodafone
During the year ended June 27, 2004, the Company received proceeds of
approximately $1,000 from the conversion of a publicly traded company into a
private enterprise. There were no sales of available-for-sale securities in the
years ended June 29, 2003 and June 30, 2002.
5. LAND, BUILDINGS, AND EQUIPMENT
Land, buildings, and equipment, as cost, consist of the following:
June 27, June 29,
2004 2003
Buildings $14,384,416 $14,384,416
Leasehold and building improvements 5,107,091 4,938,952
Bowling lanes and equipment 18,983,657 18,450,048
Land 10,590,450 8,572,206
Amusement games 873,011 908,480
Bowling lanes and equipment not yet in use 218,497 241,461
__________ __________
50,157,122 47,495,563
Less accumulated depreciation and
amortization 28,394,203 27,208,055
__________ __________
$21,762,919 $20,287,508
Depreciation and amortization expense for buildings and equipment for
fiscal years 2004, 2003, and 2002 was $1,532,587, $1,613,379, and $1,763,931,
respectively. Bowling lanes and equipment not yet in use are not depreciated.
-9-
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company and its subsidiaries are obligated under long-term real estate
lease agreements for two bowling centers. Certain of the Company's real
estate leases provide for additional annual rents based upon total gross
revenues and increases in real estate taxes and insurance.
At June 27, 2004, the minimum fixed rental commitments related to all
non-cancelable leases, were as follows:
Year Ending
2005 $283,721
2006 283,721
2007 283,721
2008 283,721
2009 283,721
Thereafter 448,976
_________
Total minimum lease payments $1,867,581
Net rent expense was as follows:
For the Years Ended
June 27, June 29, June 30,
2004 2003 2002
Minimum rent under operating leases $283,721 $296,557 $333,060
Excess percentage rents 27,165 27,321 92,497
_______ _______ _______
$310,886 $323,878 $425,557
7. 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 June 27, 2004 and June 27, 2003, the Company had $41,956 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 5% to 6 1/2% and are payable over a term of three
years from the date of the agreements which range from 2002 to 2004. These
employee loans have been recorded as a reduction of additional paid-in capital.
The Company distributed a 5% stock dividend on July 26, 2001, where
Class A and B stockholders received one share of common stock for each
twenty shares of Class A and Class B common stock held as of the date of record.
8. PROFIT-SHARING AND ESOP PLAN
The Company has a profit-sharing plan 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. For the
years ended June 27, 2004, June 29, 2003, and June 30, 2002, contributions in
the amount of $188,000, $145,000, and $165,000, respectively, were charged to
operating expense.
Effective March 31, 1987, the Company adopted an Employee Stock Ownership
Plan (ESOP) 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. Prior to fiscal year 1995, the
contributions were allocated to participants based on compensation and years
of service. Contributions since fiscal year 1995 are allocated based on
compensation only in order to comply with Internal Revenue Service code
requirements. The value of the Company's contributions to the Plan for fiscal
years 2004, 2003, and 2002 was $188,000, $145,000, and $162,600, respectively.
9. INCOME TAXES
The significant components of the Company's deferred tax assets and
liabilities were as follows:
June 27, June 29,
2004 2003
Deferred tax:
Land, buildings, and equipment $1,317,905 $ 582,200
Unrealized gain on available-
for-sale securities 1,237,269 1,157,000
Prepaid expenses 191,619 198,000
Other (42,944) (95,000)
_________ _________
Deferred tax liabilities $2,703,849 $1,842,200
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
2004 % 2003 % 2002 %
Taxes computed at
statutory rate $2,553,276 34.0% $1,900,000 34.0% $2,045,000 34.0%
State income taxes, net
of Federal income tax
benefit 337,032 4.5 161,000 2.9 175,000 2.9
Dividends received
exclusion (35,889) (.5) (40,000) (.72) (22,000) (.36)
All other-net (46,523) (.6) (16,000) (.28) (24,000) (.41)
_________ ____ _________ ____ _________ ____
$2,807,896 37.4% $2,005,000 35.9% $2,174,000 36.1%
10. RELATED PARTIES
At June 27, 2004, the Company had recorded $20,020 in deferred compensation
payable to one officer and at June 29, 2003, the Company recorded $99,600 in
deferred compensation payable to one officer and one major shareholder.
Deferred compensation payable to non-related parties was a total of $60,875 at
June 27, 2004 and $59,500 at June 29, 2003. The current portion of these
amounts, $6,617 at June 27, 2004 and $25,632 at June 29, 2003 is included in
accrued expenses.
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the results of operations for each of the
quarters in fiscal years 2004 and 2003 (dollars in thousands, except for
earnings per share):
Earnings
Operating Operating Before Earnings
Revenues Income Income Net Per
Taxes Earnings Share
2004
June 27, 2004 $6,198 $ 767 $ 909 $ 512 $.10
March 28, 2004 8,783 2,583 2,689 1,704 .33
December 28, 2003 7,308 1,312 1,415 912 .17
September 28, 2003 6,145 233 2,497 1,574 .31
2003
June 29, 2003 $6,878 $ 942 $1,047 $ 682 $.14
March 30, 2003 8,845 2,436 2,567 1,640 .31
December 29, 2002 7,527 1,479 1,602 1,024 .20
September 29, 2002 6,126 256 372 237 .05
12. PURCHASE OBLIGATIONS
In June 2004, the Company executed purchase agreements to replace all
remaining wooden bowling lanes for an estimated cost of $600,000 and for the
purchase of bowling pins at an estimated cost of $260,000.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Bowl America Incorporated
Alexandria, Virginia
We have audited the accompanying consolidated Balance Sheet of Bowl
America Incorporated and Subsidiaries as of June 27, 2004 and the related
Consolidated Statements of Earnings and Comprehensive Earnings, Stockholders'
Equity and Cash Flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing 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
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, as well as
evaluating the overall financial statement presentation. 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 June 27, 2004, and the results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
Aronson & Company
Rockville, Maryland
August 27, 2004
-12-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Bowl America Incorporated
Alexandria, Virginia
We have audited the accompanying consolidated balance sheet of Bowl
America Incorporated and subsidiaries ("the Company") as of June 29, 2003, and
the related consolidated statements of earnings and comprehensive earnings,
stockholders' equity and cash flows for each of the two fiscal years in the
period ended June 29, 2003. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
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, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of June 29,
2003, and the results of their operations and their cash flows for each of the
two fiscal years in the period ended June 29, 2003, in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
McLean, Virginia
September 12, 2003
-13-
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 23, 2004
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 23, 2004
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 June 27, 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: September 23, 2004