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) and twenty-six (26) week periods ended December 29, 2019 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 information.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

 

 

 

 

 

 

 

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

For the Twenty-six Weeks Ended

December 29, 2019

(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 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 and to provide a secure source of income.  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 historically had relatively low volatility. The Company has long been invested in a Government National Mortgage Association (“Ginnie Mae”) fund and equity securities, primarily telecommunications stocks, with the perceived potential of appreciation. The Company considers that this diversity also provides a measure of safety of principal.

 

With the exception of 13,120 shares of Verizon, the equity securities 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 from one insurance company acquired at no cost when that company demutualized. Since the original purchases at an approximate cost of $630,000, we have received approximately $967,000 from mergers and sales, and over $5,300,000 in dividends, the majority of which received favorable tax treatment in the form of a dividends received deduction from federal taxable income. While the favorable tax treatment continues into this fiscal year, the Tax Cuts and Jobs Act (“Tax Act”) reduces the percent deductible. These equity securities are carried at their fair value on the last day of each reporting period. The fair value of the securities on December 29, 2019 was approximately $5,685,000 and on June 30, 2019 was approximately $5,100,000.

 

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. In August 2019, $1,000,000 of this fund was redeemed to meet the August 2019 dividend payment. The fund is carried at fair value on the last day of the reporting period. At December 29, 2019, the fair value was approximately $957,000 and at June 30, 2019, the fair value was $1,930,000.

 

Short-term investments including Certificates of Deposits, and cash and cash equivalents totaled $1,942,000 at the end of the fiscal second quarter of 2020 compared to $703,000 at June 30, 2019.

 

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 and any use of this reserve at its quarterly meetings.

 

The Company closed its leased Mathis Avenue location in Manassas, Virginia, which had been operating with a negative cash flow, on July 28, 2019. Most of the equipment was transferred to our other locations.

 

In the six-month period ended December 29, 2019, the Company expended approximately $455,000 for the purchase of building, entertainment and restaurant equipment. The Company has no long-term debt and has no plans to obtain 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 six-month decreases in the categories of Prepaid expenses and other, Accounts Payable and Accrued Expenses are primarily due to seasonal timing of 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 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 December 29, 2019, league deposits of approximately $1,386,000 were included in the current liabilities category.

 

Cash flow provided by operating activities in the twenty-six weeks ended December 29, 2019 was $2,501,000 which, along with cash on hand, and redemption of a portion of the Vanguard GNMA fund, mentioned above, was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $903,000, or $.175 per share, were paid to shareholders during the quarter ended December 29, 2019, and the six months total was approximately $1,806,000 or $.35 per share.   In December 2019, the Company declared a regular quarterly dividend of $.175 per share, payable February 12, 2020 to shareholders of record on January 10, 2020. 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 and trends 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 also vulnerable to sequestration or other downsizing of the federal government.

 

RESULTS OF OPERATIONS

 

The following tables set forth the items in our consolidated summary of operations for the fiscal quarters and year-to-date periods ended December 29, 2019, and December 30, 2018, and the dollar and percentage changes therein.

 

		Thirteen weeks ended
		December 29, 2019 and December 30, 2018
		Dollars in thousands
		12/29/2019				12/30/2018				$ Change				% Change
Operating Revenues:
Bowling and other		$	4,311			$	4,410			$	(99	)			(2.2	)%
Food, beverage and merchandise sales			1,854				1,918				(64	)			(3.3	)
Total Operating Revenue			6,165				6,328				(163	)			(2.6	)
Operating Expenses:
Employee Compensation and benefits			2,723				2,762				(39	)			(1.4	)
Cost of bowling and other services			1,413				1,507				(94	)			(6.2	)
Cost of food, beverage and merchandise sales			560				522				38				7.3
Depreciation and amortization			236				247				(11	)			(4.4	)
General and administrative			339				223				116				52.0
Total Operating Expenses			5,271				5,261				10				.2
Operating Income			894				1,067				(173	)			(16.2	)
Interest, dividend and other income			110				91				19				20.9
Change in value of marketable securities			160				(432	)			592				137.0
Earnings before taxes			1,164				726				438				59.0
Income taxes (benefit) provision			286				169				117				69.2
Net Earnings		$	878				557				321				57.6	%

 

 

		Twenty-six weeks ended
		December 29, 2019 and December 30, 2018
		Dollars in thousands
		12/29/2019				12/30/2018				$ Change				% Change
Operating Revenues:
Bowling and other		$	7,920			$	8,243			$	(323	)			(3.9	)%
Food, beverage and merchandise sales			3,369				3,526				(157	)			(4.5	)
Total Operating Revenues			11,289				11,769				(480	)			(4.1	)
Operating Expenses:
Employee Compensation and benefits			5,458				5,503				(45	)			(0.8	)
Cost of bowling and other services			3,016				3,044				(28	)			(0.9	)
Cost of food, beverage and merchandise sales			1,004				1,005				(1	)			(0.1	)
Depreciation and amortization			471				479				(8	)			(1.7	)
General and administrative			607				431				176				40.8
Total Operating Expenses			10,556				10,462				94				.9
Operating income			733				1,307				(574	)			(43.9	)
Interest, dividend and other income			217				197				20				10.2
Change in value of marketable securities			590				(194	)			784				404.1
Earnings before taxes			1,540				1,310				230				17.6
Income taxes (benefit) provision			377				312				65				20.8
Net Earnings		$	1,163			$	998			$	165				16.5	%

 

 

Earnings were $877,675 or $.17 per share for the thirteen week period and $1,163,000 or $.23 per share for the twenty-six week period ended December 29, 2019.  For the thirteen-week and twenty-six week periods ended December 30, 2018, net earnings were $557,442 or $.11 per shares and $997,823 or $.19 per share, respectively. Eighteen locations were in operation in the first month of the current 26 week period, before the Manassas closing, mentioned above, and throughout the prior year 26 week period. The operation of one fewer center in the current year period impacted comparisons of revenues and expenses shown in this report. Expenses related to closing the Manassas center were approximately $104,000 in the first quarter. Management believes that weather conducive to outdoor activities during the current year 26 week period contributed to a decline in open play bowling. The operating results for the fiscal 2020 periods included in this report are not necessarily indicative of results to be expected for the year.

 

Operating Revenues

 

Total operating revenues decreased $163,000 or 2.6% to $6,165,000 in the quarter ended December 29, 2019 compared to a decrease of $41,000 or 0.6% to $6,328,000 in the three-month period ended December 30, 2018.  The current fiscal six-month period operating revenues were down $480,000 or 4.0% versus an increase of $137,000 or 1.2% in the comparable six-month period a year ago.  Bowling and other revenue decreased $99,000 in the quarter and decreased $323,000 year-to-date for the periods ended December 29, 2019 versus a decrease of $75,000 in the quarter and an increase of $10,000 for the six-month period ended December 30, 2018.

 

Food, beverage and merchandise sales decreased $64,000 or 3.3% in the current year quarter and were down $157,000 or 4.5% in the six-month period.  Cost of sales increased 7.3% in the current fiscal three month period and decreased 0.9% for the six month period ended December 29, 2019.

 

Operating Expenses

 

Operating expenses were up $10,000 or 0.2% in the current three month period and increased $94,000 in six-month period or less than 1%, versus a decrease of $10,000 or 0.2% and an increase of $124,000 or 1.2% in the three and six month periods last year, respectively.  Employee compensation and benefits for the current three and six month periods were down $39,000 or 1.4% and $45,000 or 0.8%, respectively, primarily the result of the closing of a location, mentioned above, although the Company continues to contend with the tight labor market and increased overtime. 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 $28,000 or 0.9% and increased $68,000 or 2.3% in the six-month periods ended December 29, 2019 and December 30, 2018, respectively. In the twenty-six weeks ended December 29, 2019, building maintenance and repair costs increased $29,000 or 34.9% primarily due to a major plumbing repair at one location.

 

 

Advertising costs during the current year twenty-six week period ended December 29, 2019 were down $23,000 or11.1%. For the fiscal six month period ended December 29, 2019 utility costs declined $14,000 or 1.9%. Supplies and services expenses were up $25,000 or 7.4% in the current year six-month period.

 

Insurance expense excluding health insurance decreased 4.9% in the current year-to-date period however spring renewal premiums are expected to increase over the prior year.

 

Depreciation and amortization expense decreased 1.7% in the current six-month period versus an increase of 1.1% in the prior year six-month period.

 

As a result of the above, the first six-month period of fiscal 2020 resulted in operating income of $733,000 compared to operating income of $1,307,000 in the prior year comparable six-month period.

 

Interest, Dividend and Other Income

 

Interest, dividend and other income increased $20,000 in the fiscal 2020 six-month period and increased $11,000 in the comparable 2019 year-to-date period, respectively.

 

Income Taxes

 

The Tax Act of December 2017 reduced the federal corporate tax rate from 34% to 21%. Taxes for both the fiscal 2020 and 2019 periods reflect the reduced rate.

 

 

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 investment securities.  The Company exercises judgment in determining their fair value.  The Company records these investments at their fair value with the unrealized gain or loss recorded in income or loss in the current period.  

 

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 has concluded that the Company’s disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of December 29, 2019. 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 December 29, 2019, 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 February 11, 2020 (furnished herewith)
31	Certification of Chief Executive Officer and 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 and twenty six weeks ended December 29, 2019 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: February 11, 2020	By: /s/ Cheryl A Dragoo
	Cheryl A. Dragoo, CEO and CFO

 

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