PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

  BOWL AMERICA INCORPORATED AND SUBSIDIARIES

  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

  (Unaudited)

                                    

 

The operating results for the thirteen (13) week period ended October 1, 2017 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 STATEMENTS OF EARNINGS (CONTINUED)

(Unaudited)

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

The operating results for the thirteen (13) week period ended October 1, 2017 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)

 

See notes to condensed consolidated financial statements.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS  OF CASH FLOWS

(Unaudited)

 

 

See notes to condensed consolidated financial statements.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

For the Thirteen Weeks Ended

October 1, 2017

(Unaudited)

 

 

 

 

 

 

 

 

 

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business, our sales and the industry in which we operate and our management’s beliefs and assumptions. These statements are not guarantees of future performance or development and involve risks, uncertainties and other factors that are in some cases beyond our control. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof. We are under no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company views a strong financial position as a major benefit to shareholders and emphasizes payment of dividends as part of its financial plan.  A portion of earnings has consistently been invested to create a reserve to protect the Company in downturns in business, to capitalize on opportunities for expansion and modernization, to provide a secure source of income and to provide a predictable return to its owners.  For these reasons, the Company prefers a conservative approach to investing rather than taking greater risk for possible rapid growth.  The Company balances market volatility by using both fixed income and equity investments in managing its reserve funds. Any equity security is subject to price fluctuation, however, the stocks held by the Company have relatively low volatility. The Company has long been invested in a Government National Mortgage Association (“Ginnie Mae”) fund and domestically domiciled stocks with the perceived potential of appreciation, primarily telecommunications stocks. The Company considers that this diversity also provides a measure of safety of principal.

 

With the exception of 13,120 shares of Verizon, the common stocks in our portfolio have come from spin-offs, mergers and acquisitions of AT&T and United Telecommunications (now Sprint) purchased in 1979 and 1984 and one insurance company acquired at no cost when that company demutualized. While not all stocks in the portfolio are domestic American companies any longer, since the original purchases at an approximate cost of $630,000, we have received approximately $967,000 from mergers and sales and over $4,700,000 in dividends, the majority of which were tax favored in the form of exclusion from federal taxable income. The exclusion continues into this fiscal year. These marketable securities are carried at their fair value on the last day of each reporting period. The value of the securities on October 1, 2017 was approximately $5.5 million. The value of securities held at July 2, 2017 was approximately $5.3 million.

 

The Company’s original investment in the Vanguard GNMA bond fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. The fund is carried at fair value on the last day of the reporting period. At October 1, 2017, the value was approximately $1,838,000. In August 2017, $1,000,000 of this fund was redeemed to meet the August 2017 dividend payment.

 

Short-term investments including the GNMA fund, mentioned above, that was reclassified to short term investments from the category of marketable securities in the prior year, Certificates of Deposits, cash and cash equivalents totaled $2,786,000 at October 1, 2017 compared to $3,557,000 at July 2, 2017.

 

The Company’s position in all the above investments is a source of capital for possible expansion. Potential volatility in the trading prices of the marketable securities held by the Company could impact the Company’s opportunities for expansion. The Board of Directors reviews the portfolio weekly and any use of this reserve at its quarterly meetings.

 

In August 2016 the Company obtained a $500,000 short-term loan to meet the August 2016 dividend obligation. The loan was paid in full January 6, 2017.

 

During the three-month period ended October 1, 2017, the Company expended approximately $388,000 for the purchase of building, entertainment and restaurant equipment.  Except as noted above, the Company has no current plans to obtain additional third party funding as cash and cash flows are sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.

 

The first quarter decreases in the categories of Prepaid expenses and other and of Accounts Payable were attributable primarily to the timing of the payments including compensation, insurance and taxes and for contributions to benefit plans.

 

 

Current liabilities generally increase during the first three quarters of the fiscal year as bowling leagues deposit prize fund monies with the Company throughout the league season. These funds are returned to the leagues at the end of the bowling season, generally in the fourth quarter. At October 1, 2017, league deposits of approximately $742,000 were included in the current liabilities category.

 

Cash flow provided by operating activities in the thirteen weeks ended October 1, 2017 was $491,000 which, along with cash on hand, and the redemption of GNMA funds, mentioned above, was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $877,000, or $.17 per share, were paid to shareholders during the three-month period ended October 1, 2017.  In September 2017, the Company declared a regular quarterly dividend of $.17 per share, payable November 15, 2017.  The economic climate is part of the consideration at the Directors’ quarterly reviews of future estimates of cash flows. 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 at such time.

 

Overview

 

The Company is in the entertainment business which, by its nature, has ups and downs based on consumer tastes and preferences.  Generally, promotional and open play bowling which depends on the public’s discretionary budget dollars and their choices, accounts for more than half of our business. While bowling has the advantage of being an entertainment that is close to home and relatively inexpensive, new forms of sports and entertainment are offered to the public continually creating challenges, but our response is helped by having the resources to be able to promote the sport. Weather is also a factor, especially for casual bowlers.  While extreme heat or rainy weather prompt people to look for indoor activities, heavy snow storms can keep customers from reaching the centers. Postponed league games are made up later in the season, but lost open play income is never recovered.  The Company operates primarily in the Washington, DC area where its business is vulnerable to sequestration or other downsizing of the federal government.

 

RESULTS OF OPERATIONS

 

The following table sets forth the items in our consolidated summary of operations for the fiscal quarters ended October 1, 2017 and October 2, 2016, and the dollar and percentage changes therein.

 

		Thirteen weeks ended
		October 1, 2017 and October 2, 2016
		Dollars in thousands
		2017				2016				Change				% Change
Operating Revenues:
Bowling and other		$	3,748			$	3,577			$	171				4.8
Food, beverage and merchandise sales			1,516				1,487				29				2.0
			5,264				5,064				200				3.9
Operating Expenses:
Employee Compensation and benefits			2,684				2,681				3				0.1
Cost of bowling and other services			1,468				1,469				(1	)			(0.1	)
Cost of food, beverage and merchandise sales			473				482				(9	)			(1.9	)
Depreciation and amortization			236				293				(57	)			(19.5	)
General and administrative			207				231				(24	)			(10.4	)
			5,068				5,156				(88	)			(1.7	)
Operating income (loss)			196				(92	)			288				313.0
Interest, dividend and other income			104				94				10				10.6
Interest expense			-				3				3				100.0
Earnings (loss) before tax			300				(1	)			301				301.6
Income tax			105				-				105				105.0
Net Earnings (loss)		$	195			$	(1	)		$	196				196.0

 

 

For the thirteen week period ended October 1, 2017 net income was $195,000 or $.04 per share. For the thirteen week period ended October 2, 2016 there was a loss of $720 or $.00 per share. Eighteen locations were in operation in both the current and prior year quarters. In September Hurricane Irma caused a two day closure of our Florida locations although the properties did not sustain damage. The bowling business is seasonal and the first quarter which includes summer months is typically the slowest. In the current year period, the increase in open play bowling more than offset a decline in league play resulting in an increase in both games bowled and bowling revenue. The operating results for the fiscal 2018 period included in this report are not necessarily indicative of results to be expected for the year.

 

Operating Revenues

 

Total operating revenues increased 3.9% or $200,000 to $5,264,000 in the thirteen-week period ended October 1, 2017, compared to an increase of 2.9% or $144,000 to $5,064,000 in the three-month period ended October 2, 2016.  Bowling and other revenue increased $171,000 or 4.8% in the current year fiscal quarter compared to an increase of $103,000 or 3% in the comparable prior year quarter. Food, beverage and merchandise sales were up $29,000 or 2% in the current year quarter due to increased traffic, compared to an increase of $41,000 or 2.8% in the prior year comparable quarter.  Cost of sales decreased $9,000 in the current year three-month period.

 

Operating Expenses

 

Operating expenses were down $88,000 or 1.7% to $5,068,000 in the three-month period ended October 1, 2017 compared to a decrease of $138,000 or 2.6% to $5,156,000 in the prior year quarter ended October 2, 2016.  Employee compensation and benefits were up $3,000 or 0.1% and down $65,000 or 2.4% in the fiscal first quarters of 2018 and 2017, respectively. In the current year group health insurance costs were lower due to changes in plan offerings with lower premiums.   Included in this category of expense are contributions to our two benefit plans, both of which are defined contribution plans. There is no additional obligation beyond the current year contribution.

 

Cost of bowling and other services decreased $1,000 or 0.1% in the quarter ended October 1, 2017 versus a decrease of $42,000 or 2.8% in the comparable quarter ended October 2, 2016. Maintenance and repair costs declined $2,000 or 1% and were up $22,000 or 10% in the current year and prior year quarters, respectively. Both the current and prior year periods included roof and building repairs at several locations. Advertising costs decreased $6,600 or 7.5% in the quarter ended October 1, 2017.  Utility costs were up $3,000 or 1% in the in both the current and prior year periods. Supplies and services expenses were down $21,000 or 11% and were up $20,000 or 10% in the thirteen-week periods ended October 1, 2017 and October 2, 2016, respectively, partially due to timing of bulk purchases.

 

Depreciation and amortization expense was down 19.5% in the three-month period ended October 1, 2017 as a large group of assets have reached full depreciation. Increased capital purchases in the current year will result in a smaller decline in depreciation expense in future quarters.

 

The first quarter of the fiscal year is seasonally the slowest and the quarter ended October 1, 2017 resulted in net operating income of $196,000 versus an operating loss of $92,000 in the prior year period.

 

 

Interest, Dividend and Other Income

 

Interest, dividend and other income increased $10,000 to $104,000 in the three month period ended October 1, 2017 primarily from the gain on the sale of the GNMA securities.

 

CRITICAL ACCOUNTING POLICIES

 

Management has identified accounting for marketable investment securities as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the captions of Short-term investments and Marketable 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 earnings, 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.

 

 

Management has identified accounting for the impairment of long-lived assets as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the caption of Land, Buildings and Equipment.  The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable.  In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets.  An impairment loss equal to the difference between the assets’ fair value and carrying value is recognized when the estimated future cash flows are less than the carrying amount.

 

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 October 1, 2017. 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 October 1, 2017, 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

 

PART II - OTHER INFORMATION

 

 

 

Item 6.  Exhibits.

 

20	Press release issued November 14, 2017 (furnished herewith)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith
32	Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 filed herewith
101	Interactive data files for the thirteen weeks ended October 1, 2017 in eXtensible Business Reporting Language

 

 

Pursuant to the requirements of the Securities 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)
Date: November 14, 2017	By:	/s/ Leslie H Goldberg
		Leslie H. Goldberg, President
Date: November 14, 2017	By:	/s/ Cheryl A. Dragoo
		Cheryl A. Dragoo, Controller

 

 

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