10-Q 1 r10qmr03.txt FORM 10-Q FOR PERIOD ENDED MARCH 30, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Quarter Ended March 30, 2003 Commission file Number 0-1830 BOWL AMERICA INCORPORATED (Exact name of registrant as specified in its charter.) MARYLAND 54-0646173 (State of Incorporation) (I.R.S. Employer Identification No.) 6446 Edsall Road, Alexandria, Virginia 22312 (Address of principal executive offices) (Zip Code) (703)941-6300 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Shares Outstanding at April 27, 2003 Class A Common Stock, 3,665,906 $.10 par value Class B Common Stock 1,468,462 $.10 par value Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 under the Exchange Act). YES [ ] NO [X] ITEM 1. FINANCIAL STATEMENTS BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended March 30, March 31, March 30, March 31, 2003 2002 2003 2002 _______________________ _________________________ Operating Revenues Bowling and other $6,204,957 $6,343,476 $15,746,609 $16,367,505 Food, beverage and merchandise sales 2,639,884 2,652,796 6,751,115 6,929,940 _________ _________ __________ __________ 8,844,841 8,996,272 22,497,724 23,297,445 Operating Expenses Compensation and benefits 3,437,520 3,445,331 9,813,584 9,791,895 Cost of bowling and other 1,535,587 1,530,203 4,485,005 4,472,522 Cost of food, beverage and merchandise sales 812,340 847,715 2,186,994 2,356,453 Depreciation and amortization 403,570 436,758 1,248,292 1,325,950 General and administrative 219,657 201,206 592,486 649,817 _________ _________ __________ __________ 6,408,674 6,461,213 18,326,361 18,596,637 Operating Income 2,436,167 2,535,059 4,171,363 4,700,808 Interest and dividend income 130,696 175,713 368,974 446,813 _________ _________ __________ __________ Earnings before provision for income taxes 2,566,863 2,710,772 4,540,337 5,147,621 Provision for income taxes 926,600 973,172 1,639,000 1,848,000 _________ _________ __________ __________ Net Earnings $1,640,263 $1,737,600 $ 2,901,337 $ 3,299,621 Earnings per share-basic & diluted $.31 $.33 $.56 $.64 Weighted average shares outstanding 5,149,238 5,146,828 5,149,689 5,128,095 Dividends paid $617,957 $592,044 $1,853,956 $1,779,882 Per share, Class A $.12 $.115 $.36 $.345 Per share, Class B $.12 $.115 $.36 $.345 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS Net Earnings $1,640,263 $1,737,600 $ 2,901,337 $3,299,621 Other comprehensive earnings-net of tax Unrealized gain (loss) on available for sale securities (370,400) (537,358) (439,042) (745,064) _________ _________ _________ _________ Comprehensive earnings $1,269,863 $1,200,242 $ 2,462,295 $2,554,557
The operating results for the thirteen (13) and thirty-nine (39) week periods ended March 30, 2003 are not necessarily indicative of results to be expected for the year. See notes to condensed consolidated financial information. BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
March 30, 2003 June 30, 2002 ________________ _____________ ASSETS Current Assets Cash and cash equivalents $ 2,615,139 $ 1,633,817 Short-term investments 10,666,444 8,183,932 Inventories 483,117 541,027 Prepaid expenses and other 837,189 479,289 Income taxes refundable - 699,768 __________ __________ Total Current Assets 14,601,889 11,537,833 Property, Plant and Equipment less accumulated depreciation of $27,824,334 and $26,996,091 20,616,265 20,505,586 Other Assets Marketable equity securities 3,293,693 3,990,248 Cash surrender value-life insurance 434,040 431,249 Other long-term assets 67,267 97,662 __________ __________ TOTAL ASSETS $39,013,154 $36,562,578 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 686,235 $ 701,671 Accrued expenses and payroll ded 780,920 749,245 Income taxes payable 158,438 - Other current liabilities 2,472,624 369,027 __________ __________ Total Current Liabilities 4,098,217 1,819,943 Long-term Deferred Compensation 132,496 132,496 Noncurrent Deferred Income Taxes 1,670,594 1,928,000 __________ __________ TOTAL LIABILITIES 5,901,307 3,880,439 __________ __________ Stockholders' Equity Preferred stock, par value $10 a share: Authorized and unissued 2,000,000 shares Common stock, par value $.10 per share Authorized 10,000,000 shares Class A issued and outstanding - 3,665,906 and 3,666,376 shares 366,591 366,638 Class B issued and outstanding - 1,468,462 and 1,483,620 146,846 148,362 Additional paid-in capital 7,431,429 7,603,646 Unrealized gain on securities available-for-sale, 1,604,020 2,043,062 Retained earnings 23,562,961 22,520,431 __________ __________ TOTAL STOCKHOLDERS' EQUITY $33,111,847 $32,682,139 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $39,013,154 $36,562,578 See notes to condensed consolidated financial information.
BOWL AMERICA INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE THIRTY-NINE WEEKS ENDED MARCH 30, 2003 AND MARCH 31, 2002
March 30, March 31, 2003 2002 Cash Flows From Operating Activities: Net earnings $2,901,337 $3,299,621 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 1,248,292 1,325,950 Changes in assets and liabilities Decrease in inventories 57,910 187,568 Increase in prepaid expenses & other (358,550) (243,609) Decrease in income taxes refundable 699,768 - Decrease in other long-term assets 30,395 157,991 Decrease in accounts payable (15,436) (393,357) Increase in accrued expenses 31,675 201,191 Increase in income taxes payable 158,438 664,063 Increase in other current liabilities 2,103,597 2,120,878 _________ _________ Net cash provided by operating activities $6,857,426 $7,320,296 _________ _________ Cash flows from investing activities Expenditures for property,plant,equip (1,358,971) (1,054,241) Net purchases of short-term investments (2,482,512) (2,499,951) _________ _________ Net cash used in investing activities (3,841,483) (3,554,192) _________ _________ Cash flows from financing activities Payment of cash dividends (1,853,956) (1,779,882) Purchase of Class A Common Stock (180,665) (142,663) _________ _________ Net cash used in financing activities (2,034,621) (1,922,545) _________ _________ Net Increase in Cash and Equivalents 981,322 1,843,559 Cash and Equivalents, Beginning of Period 1,633,817 1,338,420 _________ _________ Cash and Equivalents, End of Period $2,615,139 $3,181,979 Supplemental Disclosures of Cash Flow Information Cash paid during the period for Income taxes $ 780,794 $1,183,963 See notes to condensed consolidated financial information.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION For the Thirty-nine Weeks Ended March 30, 2003 1. Basis for Presentation The accompanying unaudited condensed consolidated financial statements of Bowl America Incorporated and subsidiaries (the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated balance sheet as of June 30, 2002 has been derived from the Company's June 30, 2002 audited financial statements. Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for the fair presentation for the periods presented. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report to the Securities and Exchange Commission on Form 10-K for the year ended June 30, 2002. 2. Marketable Equity Securities Marketable equity securities are carried at fair value in accordance with the provisions of SFAS No. 115. The telecommunications stocks included in the portfolio as of March 30, 2003 were: 16,835 shares of AT&T Wireless 2,209 shares of Agere 3,946 shares of Alltel 669 shares of Avaya 27,572 shares of Bell South 8,028 shares of Lucent Technologies 9,969 shares of Qwest Communications 45,580 shares of SBC 32,000 shares of SprintFon 16,000 shares of SprintPCS 18,784 shares of Verizon 13,560 shares of Vodafone/AirTouch 3. Commitments and Contingencies In November 2002, the Company signed an agreement with Brunswick Corporation for approximately $189,000 for the purchase of bowling equipment for one center. These assets were received and installed in the quarter ended March 30, 2003. The Company entered into an agreement to sell the building and ground lease housing the Silver Spring location for $2,300,000. Closing on the sale is expected in the current fiscal year, however, it can occur on any date prior to August 30, 2003, that is selected by the Company. The gain on the sale will approach $2,000,000. BOWL AMERICA INCORPORATED Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS March 30, 2003 Liquidity and Capital Resources Short-term investments consisting mainly of U.S. Treasury Bills and Notes, and cash totaled $13,282,000 at the end of the third quarter of fiscal 2003, or $1,982,000 higher than at the beginning of the quarter. The increased funds resulted primarily from operations and reflect the seasonal nature of the business. During the nine-month period ended March 30, 2003, the Company expended approximately $1,359,000 for the purchase of bowling and restaurant equipment and some amusement games as existing locations were upgraded. The Company is actively seeking property for the development of additional bowling centers. Cash and cash flow are sufficient to finance all contemplated purchases and construction. The Company's holdings of marketable equity securities, primarily consisting of telecommunications stocks, are another potential source of expansion capital. These marketable securities are carried at their fair value on the last day of the quarter. For the three-month period ended March 30, 2003, the market value decreased by $587,000 to approximately $3,294,000. Current liabilities include approximately $2,133,000 in league deposits of prize fund monies that are returned to the leagues at the end of the bowling season, generally during the fourth quarter. While no factors requiring a change in the dividend rate are apparent, the Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state of the business and its estimate of future opportunities. On March 18, 2003, the Board of Directors declared a cash dividend of $.12 per share on its Class A and Class B Common Stock, payable May 14, 2003, to holders of record as of April 23, 2003. The Company has entered into an agreement to sell the building and ground lease for its only money-losing bowling center, for $2.3 million. The center closed to the public in May 2003, and while settlement is expected in this fiscal year, it can be extended by the Company to any date prior to August 30, 2003. The gain resulting from this sale will approach $2,000,000. Results of Operations In fiscal year 2002, two centers were closed at the expiration of their leases. One center, operating at break-even, was closed at the end of the first quarter of fiscal 2002, and a profitable center was closed in May 2002 after the Company was unable to negotiate a new lease. The Company also closed a leased location in the second quarter of fiscal 2001. The changes in the number of centers in operation affected all income, expense and comparisons for the periods presented in this report. Net earnings were $.31 per share for the thirteen-week period ended March 30, 2003, versus net earnings of $.33 per share for the thirteen- weeks ended March 31, 2002. For the current thirty-nine week period net earnings per share were $.56 compared to $.64 for the comparable period a year ago. Operating revenues decreased 2% for the three-month period ended March 30, 2003, during which snow storms resulted in closings at all of the Company's northern centers, versus a 1% decrease in the comparable period a year ago. For the current nine-month period operating revenues were down 3% versus a 1% increase in the prior year nine-month period. During the current quarter promotional pricing succeeded in increasing games bowled by 2%, and in comparable centers, by 6%, at the cost of a reduced average game rate. Food, beverage and merchandise sales were flat in the current year quarter and down 3% in the nine-month period. Cost of sales was down 4% in the current quarter and 7% in the year-to-date period. Operating expenses excluding depreciation and amortization were down slightly in the current three-month period and decreased 1% in the nine-month period ended March 2003. The prior year three-month comparable period showed a decrease of 1%, but the nine-month period expenses were up 2%. Employee compensation and benefits were flat in both the current quarter and nine- month period but were up 4% and 3%, respectively, last year. Maintenance and repair costs were up 5% in the three-month period ended March 30, 2003 due mainly to the cost of snow removal in our principal operating area. Advertising costs during the current nine-month period were up 6%. Utility costs were flat in the current quarter down 6% for the nine-month period. Last year costs were down 3% in the quarter and flat in the nine-month period. Bowling supplies and services costs were down 4% for the nine-month period. Depreciation and amortization expense decreased 6% in the current nine- month period and 10% in the prior year comparable period. Fewer centers are in operation and several large capital assets have reached full depreciation. Rent expense was down 16% in the current and prior year nine-month periods due to the closing of leased centers mentioned above. The Company's business insurance renews in February. The substantial premium increase following 9/11/01 was reflected in the periods February through December 2002. For the current nine-month insurance expense increase 30% and approximately 11% in three-month period ended March 30, 2003. CRITICAL ACCOUNTING POLICIES Critical accounting policies have the potential to have an impact on the Company's financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring at a specific point in time, events that are continuous in nature. Due to the nature of its business, the Company has no accounting policies that it considers critical to the understanding of the Company's financial reporting. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable 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 a date within 90 days prior to the filing of this report. There were no significant changes in internal controls or in other factors that significantly affect internal controls subsequent to the date of their most recent evaluation. BOWL AMERICA INCORPORATED AND SUBSIDIARIES S.E.C. FORM 10-Q March 30, 2003 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Written statement of Chief Executive Officer 99.2 Written statement of Chief Financial Officer (b) Reports on Form 8-K None Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOWL AMERICA INCORPORATED Registrant May 14, 2002 Leslie H. Goldberg Date President May 14, 2003 Cheryl A. Dragoo Date Controller CERTIFICATIONS I, Leslie H. Goldberg, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bowl America Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchanges Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsid- iaries is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectivness of the registrant's disclosure controls and procedures as of a date with 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifyig officer and I have indicated in this quarterly report whether there were significant changes in the internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 Leslie H. Goldberg Chief Executive Officer CERTIFICATIONS I, Cheryl A. Dragoo, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bowl America Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchanges Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsid- iaries is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectivness of the registrant's disclosure controls and procedures as of a date with 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifyig officer and I have indicated in this quarterly report whether there were significant changes in the internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 Cheryl A. Dragoo Chief Financial Officer Exhibit 99.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. 1350 Solely for the purposes of complying with 18 U.S.C. 1350, I, the undersigned President of Bowl America Incorporated (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 30, 2003 (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 May 14, 2003 EXHIBIT 99.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. 1350 Solely for the purposes of complying with 18 U.S.C. 1350, I, the undersigned Assistant Treasurer and Controller of Bowl America Incorporated (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 30, 2003, (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. Cheryl A. Dragoo May 14, 2003