10-K 1 r10kjn03.txt FORM 10-K AND ANNUAL REPORT FOR YEAR ENDED JUNE 29, 2003 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 29, 2003 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 August 18, 2003, 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 $47 million; 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 August 18, 2003, the total aggregate market value for both classes of common stock would be approximately $66 million. (This includes the amount of shares held by all officers and directors as a group and by anyone known to own more than 5% of the stock.) 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 29, 2003 are incorporated into Part III of this Form 10-K. Portions of Bowl America's 2003 Annual Report to shareholders are incorporated by reference in Part II, Items 5,6,7 and 8. BOWL AMERICA INCORPORATED INDEX TO FISCAL 2003 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 and Related Stockholder Matters 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 2003 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 3 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 4 Signatures 5-6 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 May of fiscal year 2003 the Company closed Bowl America Silver Spring, operating in a negative cash flow position, after reaching an agreement For the sale of the building and ground lease. Consummation of the sale of that center was effected on August 25, 2003, subsequent to the end of the fiscal year. (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 30% of operating revenues. The balance of operating revenues (approximately 70%) represents fees for bowling and related services. (c) Narrative Description of Business As of September 1, 2003 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. 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 seventeen 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 29, 2003. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The information set forth in the section entitled "Market Information", "Holders", and "Dividends" on page 3 of the Company's June 29, 2003 Annual Report is incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA The information set forth in the section entitled "Selected Financial Data" on page 3 of the Company's June 29, 2003 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 29, 2003 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 $9,505,768 and $8,183,932 at June 29, 2003 and June 30, 2002, 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 29, 2003, a 10% decline in the average yield would not have a material impact on our interest income. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and related notes thereto, the Independent Auditors' Report and the Selected Quarterly Financial Data (unaudited), as contained on pages 4 through 12 of the Company's June 29, 2003 Annual Report, are incorporated by reference herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 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 the end of the period covered by this report, based on their evaluation of these controls and procedures in accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934. There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) under the Securities Exchange Act of 1934 that occurred during the fourth quarter of the Company's fiscal year ended June 29, 2003 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. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND EXPENSES 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: Independent auditors' report Consolidated balance sheets - June 29, 2003 and June 30, 2002 Consolidated statements of earnings and comprehensive earnings - years ended June 29, 2003, June 30, 2002, and July 1, 2001 Consolidated statements of stockholders' equity - years ended June 29, 2003, June 30, 2002, and July 1, 2001 Consolidated statements of cash flows - years ended June 29, 2003, June 30, 2002, and July 1, 2001 Notes to the consolidated financial statements - years ended June 29, 2003, June 30, 2002, and July 1, 2001 (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) (b) Reports on Form 8-K: None 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 25, 2003 Cheryl A. Dragoo Chief Financial Officer, Assistant Treasurer and Controller Principal Accounting Officer Date: September 25, 2003 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 25, 2003 Ruth Macklin A. Joseph Levy Senior Vice President-Treasurer Senior Vice President-Secretary and Director and Director Date: September 25, 2003 Date: September 25, 2003 Warren T. Braham Stanley H. Katzman Director Director Date: September 25, 2003 Date: September 25, 2003 Allan L. Sher Merle Fabian Director Director Date: September 25, 2003 Date: September 25, 2003 Irvin Clark Director Date: September 25, 2003 BOWL AMERICA INCORPORATED PRESIDENT'S LETTER September 22, 2003 Dear Fellow Owners: I concluded last year's Annual Report with another commercial for our 30-year old dividend policy. Specifically, I said that, "More and more respected voices are now supporting dividends as a method of rewarding ownership and promoting corporate honesty. Dividends have the benefit of being paid in cash, not accounting fantasy. The disadvantage is that they are subject to double taxation. But tax laws can and should be changed." Imagine my surprise when the tax treatment of dividends did change. I hope this is only the first step on the part of public policy makers in recognizing the advantages of investors profiting from owning businesses rather than profiting from selling pieces of paper. A dividend allows an owner to profit without selling his assets. If you have to sell your stake to profit, you face a problem of buying something to replace it. If you think you will get a fair shake on that transaction, please count the number of stock exchange members who make the newspapers for violating your trust. In the classic "fox guarding the henhouse" approach, it is the stock exchanges that decide the standards for corporate governance of public companies. The current panacea is control of companies by "independent" directors. I favor "dependent" control on boards. This has nothing to do with honesty. Honesty is not based on the dependence or independence of individual board members. My preference is, however, related to the fact that the "dependent" directors will be more likely to share in any loss caused by their decision making. If a director shares with the other owners the risk of loss from collapse of the enterprise, he or she is more likely to focus on the company's survival. It is, therefore, satisfying that our policy of increasing dividends at a rate greater than inflation has survived for 31 years and that we have already started on year thirty-two. Our conservative financial management gives us a cushion for the future, but we would clearly prefer to find additional bowling center opportunities for a portion of that cushion. An emphasis on survival does not mean the avoidance of prudent risk. We have been aggressively working to improve the profitability of our existing centers. We are seeing signs of our broadening appeal to age groups we previously underserved. Our Glow-in-the-Dark bowling continues to be successful and our "All You Can Bowl Nights" made an important contribution to earnings in the second half of the year. Furthermore, we have grown more sophisticated in our promotion of bowling parties. In fact, the web site www.bowlingparty.com belongs to Bowl America and will be running beginning this holiday season. As often happens, precipitation has influenced our results. While the winter storms closed us down in the North, we gained throughout the spring and the first part of fiscal year 2004 from a record number of rainy days. Customers substituted bowling for outdoor activities. However Hurricane Isabel provided more rain than our power companies could handle, causing closings in our bowling centers and disruption of the water supply that is essential to selling food. We will not have the drain caused by the operating losses at the bowling center in Silver Spring, which we have sold. We considered various proposals for remodeling the facility but were not convinced that we could operate profitably even with a major physical upgrade. We look forward to fiscal 2004 as being yet another year during which we can sustain the returns you receive as an owner of this business. Regards, 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 2003 was $5,451,000 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 $11,009,000 at the end of fiscal 2003 compared to $9,818,000 at the end of fiscal 2002. During fiscal year 2003, the Company expended approximately $1,525,000 for the purchase of bowling equipment, primarily plastic lane overlays, and restaurant equipment to improve its facilities. The Company is actively seeking property for the development of new bowling centers. Cash and cash flows are sufficient to finance all contemplated purchases and construction and to meet short-term purchase commitments and operating lease commitments. 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 29, 2003 was $3.9 million compared to approximately $4 million at June 30, 2002. Cash dividends of $.48 per share, totaling $2.5 million were paid to shareholders during the 2003 fiscal year. This was the thirty-first consecutive year of increased dividends per share. In June 2003, the Company declared a $.125 per share dividend, an increase over the previous quarterly dividend, to be paid in August 2003. While no factors requiring 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 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. In May 2003, the Company ceased operating the facility, and on August 25, 2003, the Company consummated the final closing of the sale and received the cash proceeds. The Company will record a gain of approximately $2.1 million in fiscal 2004. Two leased locations were closed during fiscal 2002. One, operating at break- even, was closed at the end of the first quarter and the second ceased operation during the fourth quarter after the Company was unable to negotiate a new lease for this profitable location. RESULTS OF OPERATIONS During the peak bowling season of fiscal 2003 nineteen centers were in operation. In the comparable fiscal 2002 season, twenty locations were operating and in fiscal 2001, there were twenty-one centers in operation. The changes in the number of centers in operation affected all income, expense and comparisons for the periods presented in this report. Fiscal years 2003, 2002 and 2001 each consisted of 52 weeks. Operating revenues decreased by $525,000 or 2% in fiscal 2003 as like percentage decreases occurred in both the bowling and other and the food, beverage and merchandise sales categories. In the prior fiscal year operating revenue increased $500,000 or 2%. During fiscal 2003 winter snowstorms caused the closing of all locations in the Company's northern market. The fourth quarter benefited not only from league play make-up games, but also from rainy weather which caused people to seek indoor activities. Linage increased over the prior year despite the operation of one fewer center. While the average game rate was down in fiscal 2003, promotional pricing during normally slow times resulted in increased traffic. Ancillary services revenue increased 3% in the current year and 2% in the prior year. Food and beverage sales were flat in the current year period, however, merchandise sales were lower than in the prior year when we reduced sales prices on merchandise to eliminate overstock. In the current year cost of food, beverage and merchandise sales decreased 7% primarily as a result of lower sales. In the prior year cost of sales increased 12%. Total operating expense decreased approximately $245,000 or 1% in the current year and was flat in the prior year. Costs for employee compensation and benefits were flat in the current year although group health insurance costs were up 12% over the prior year period. Maintenance costs increased 7% in fiscal year 2003 following a decrease of 10% in the prior year. While the Company has changed to plastic lanes from wooden ones at most locations, several centers required resurfacing this year. Last year, no lanes were resurfaced. Snow removal costs were another item responsible for the current year increase. Supplies expenses were down 1% in the current fiscal year and 5% in the prior fiscal year. Advertising costs were up 3% and down 4%, respectively. Utility costs dropped 6% in the current year compared to a 1% decline in the prior year. Rent expense decreased 19% in the current year and 1% in the prior year primarily as a result of fewer leased locations in operation. Insurance expense increased 15% in fiscal 2003 and 32% in fiscal year 2002. Depreciation expenses decreased by $151,000 and $176,000 or 8% and 9% in fiscal 2003 and 2002, 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. Although dividend income was up 7% in the current fiscal year period, the increase could not offset the decline in interest primarily due to lower interest rates on investments. Effective income tax rates for the Company were 35.9% for fiscal 2003, 36.1% in 2002 and 34.7% in 2001, 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. 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 29, June 30, July 1, July 2, June 27, 2003 2002 2001 2000 1999 __________________________________________________________ Operating Revenues $29,375,692 $29,809,586 $29,400,903 $28,902,200 $27,547,490 Operating Expenses 24,262,944 24,416,010 24,508,226 23,151,241 22,995,118 Interest and dividend Income 475,598 598,982 1,035,712 823,470 684,781 __________ __________ __________ __________ __________ Earnings before pro- vision for income taxes 5,588,346 5,992,558 5,928,389 6,574,429 5,237,153 Provision for income taxes 2,005,000 2,174,000 2,060,000 2,361,000 1,902,000 __________ __________ __________ __________ __________ Net Earnings $ 3,583,346 $ 3,818,558 $ 3,868,389 $ 4,213,429 $ 3,335,153 Weighted Average Shares Outstanding Basic & Diluted 5,145,934 5,132,083 5,222,876 5,587,892 6,026,032 Earnings Per Share Basic & Diluted $.70 $.74 $.74 $.75 $.55 Net Cash Provided by Operating Activities $5,450,867 $5,954,909 $4,795,680 $6,636,768 $5,334,800 Cash Dividends Paid $2,470,081 $2,371,121 $2,256,182 $2,197,659 $2,249,628 Cash Dividends Paid Per Share-Class A $.48 $.46 $.45 $.43 $.41 -Class B $.48 $.46 $.45 $.43 $.41 Total Assets $37,536,507 $36,562,578 $37,509,243 $40,622,676 $41,659,313 Stockholders' Equity $32,953,150 $32,682,139 $32,614,517 $34,779,772 $35,388,822 Net Book Value Per Share $6.41 $6.35 $6.64 $7.11 $6.73 Net Earnings as a % of Beginning Stock- holders' Equity 11.0% 11.7% 11.1% 11.9% 9.5% Lanes in Operation 716 746 820 854 854 Centers in Operation 18 19 21 22 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 2003 and 2002.
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
2002 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr _______________________________________________________ High 11.25 11.30 12.00 12.25 Low 10.01 10.45 10.75 11.25
Holders The approximate number of holders of record of the Company's Class A Common Stock as of June 29, 2003 is 430 and of the Company's Class B Common Stock is 30. 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 2003 and 2002.
Class A Common Stock Quarter 2003 2002 ___________________________________________ First 12 cents 11.5 cents Second 12 cents 11.5 cents Third 12 cents 11.5 cents Fourth 12 cents 11.5 cents
Class B Common Stock Quarter 2002 2001 ___________________________________________ First 12 cents 11.5 cents Second 12 cents 11.5 cents Third 12 cents 11.5 cents Fourth 12 cents 11.5 cents
-3- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 29, 2003 June 30, 2002 ASSETS Current Assets Cash and cash equivalents (Note 2) $ 1,503,313 $ 1,633,817 Short-term investments (Note 4) 9,505,678 8,183,932 Inventories 565,071 541,027 Prepaid expenses and other 590,555 479,289 Income taxes refundable 443,788 699,768 __________ __________ Total Current Assets 12,608,405 11,537,833 Property, Plant and Equipment, Net (Note 5) 20,287,508 20,505,586 Assets Held for Sale (Note 3) 117,948 - Other Assets Marketable equity securities (Note 4) 3,932,550 3,990,248 Cash surrender value-officers'life insurance 463,579 431,249 Other 126,517 97,662 __________ __________ TOTAL ASSETS $37,536,507 $36,562,578 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 700,425 $ 701,671 Accrued expenses 1,552,410 749,245 Other current liabilities 354,854 369,027 Current deferred income taxes 103,300 - __________ __________ Total Current Liabilities 2,710,989 1,819,943 Long-Term Deferred Compensation 133,468 132,496 Non-current Deferred Income Taxes (Note 9) 1,738,900 1,928,000 __________ __________ TOTAL LIABILITIES 4,583,357 3,880,439 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 3,670,112 and 3,666,376 shares 367,012 366,638 Class B outstanding 1,468,462 and 1,483,620 shares 146,846 148,362 Additional paid-in capital 7,480,257 7,603,646 Accumulated other comprehensive earnings- Unrealized gain on available-for-sale securities, net of tax 1,972,513 2,043,062 Retained earnings 22,986,522 22,520,431 __________ __________ TOTAL STOCKHOLDERS' EQUITY $32,953,150 $32,682,139 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,536,507 $36,562,578 See notes to consolidated financial statements.
-4- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS
For the Years Ended June 29, 2003 June 30, 2002 July 1, 2001 ______________________________________________ Operating Revenues Bowling and other $20,574,413 $20,926,272 $20,807,378 Food, beverage and merchandise sales 8,801,279 8,974,870 8,593,525 __________ __________ __________ 29,375,692 29,901,142 29,400,903 Operating Expenses Compensation and benefits 12,976,056 12,962,448 12,601,235 Cost of bowling and other 5,983,292 5,893,138 5,676,633 Cost of food, beverage and merchandise sales 2,771,356 2,989,809 2,679,472 Depreciation and amortization 1,613,379 1,763,931 1,940,368 General and administrative 918,861 898,240 1,610,518 __________ __________ __________ 24,262,944 24,507,566 24,508,226 Operating Income 5,112,748 5,393,576 4,892,677 Interest and dividend income 475,598 598,982 1,035,712 __________ __________ __________ Earnings before provision for income taxes 5,588,346 5,992,558 5,928,389 Provision for income taxes(Note 8) Current 2,050,000 1,923,000 2,218,000 Deferred (45,000) 251,000 (158,000) _________ __________ __________ 2,005,000 2,174,000 2,060,000 Net Earnings $ 3,583,346 $ 3,818,558 $ 3,868,389 Other Comprehensive (Loss)Earnings Net of Tax-unrealized (loss) on available-for-sale securities (70,549) (1,384,409) (1,818,950) _________ _________ _________ Comprehensive Earnings 3,512,797 2,434,149 2,049,439 Earnings Per Share-Basic & Diluted $.70 $.74 $.74 All share and per share amounts 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.
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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 2, 2000 3,406,070 $340,607 1,488,826 $148,883 $3,870,546 $5,246,421 $25,173,315 Stock issued in 5% dividend 170,112 17,011 74,431 7,443 1,901,322 - (1,925,776) Purchase of stock (100,206) (10,021) (143,830) (14,383) (916,037) - (1,150,671) Conversion-Class B to Class A 3,000 300 (3,000) (300) - - - Shares issued for ESOP plan 13,000 1,300 - - 131,300 - - Cash dividends paid(45 cents/sh) - - - - - - (2,256,182) Change in unrealized gain on available-for-sale securities - - - - (1,818,950) - Net earnings for the year - - - - - - 3,868,389 _________________________________________________________________________________________________________________________ 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(46 cents/sh) - - - - - - (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(48 cents/sh) - - - - - - (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 stock 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 (1)Unrealized gains and losses are shown net of tax See notes to consolidated financial statements.
-6- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
June 29, June 30, July 1, 2003 2002 2001 Cash Flows From Operating Activities Net earnings $3,583,346 $3,818,558 $3,868,389 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,613,379 1,763,931 1,940,368 (Decrease)increase in deferred income tax (45,000) 251,000 (158,000) Loss (gain) on disposition of assets-net 11,932 63,789 (35,647) Stock issuance-ESOP Plan 49,000 102,600 132,600 Gain on sale-available-for-sale securities - - (290,951) Changes in assets and liabilities: (Increase) decrease in inventories (24,044) 179,478 (62,877) (Increase) decrease in prepaid expenses and other (111,266) 388,649 (427,620) Decrease (increase) in income taxes refundable 255,980 (250,675) (578,483) (Increase) decrease in other long-term assets (28,855) 91,836 13,689 (Decrease) increase in accounts payable (1,246) (369,862) 383,350 Increase (decrease) in accrued expenses 160,842 (32,533) 40,781 Decrease in other current liabilities (14,173) (31,862) (29,919) Decrease in long-term deferred compensation 972 (20,000) - _________ _________ _________ Net cash provided by operating activities $5,450,867 $5,954,909 $4,795,680 _________ _________ _________ Cash Flows from Investing Activities Expenditures for property,plant,equipment (1,525,181) (1,254,521) (3,615,517) Net (purchases) sales and maturities of short-term investments (1,371,706) (2,013,396) 2,786,311 Increase in cash surrender value (32,330) (19,838) (23,227) Net (purchases) proceeds from purchases or sale of marketable securities (1,409) - 219,225 _________ _________ _________ Net cash used in investing activities (2,930,626) (3,287,755) (633,208) _________ _________ _________ Cash Flows from Financing Activities Payment of cash dividends (2,470,081) (2,371,121) (2,256,182) Purchase of Class A Common Stock (5,589) (636) (923,400) Purchase of Class B Common Stock (175,075) - (1,167,712) _________ _________ _________ Net cash used in financing activities (2,650,745) (2,371,757) (4,347,294) _________ _________ _________ Net (Decrease) Increase in Cash and Cash Equivalents (130,504) 295,397 (184,822) Cash and Cash Equivalents, Beginning of Year 1,633,817 1,338,420 1,523,242 _________ _________ _________ Cash and Cash Equivalents, End of Year $1,503,313 $1,633,817 $1,338,420 Supplemental Disclosures of Cash Flow Information Cash paid during the year for Income taxes $2,324,881 $2,633,781 $2,852,134 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 - See notes to consolidated financial statements.
-7- BOWL AMERICA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business 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 2003 ended June 29, 2003, fiscal year 2002 ended June 30, 2002, and fiscal year 2001 ended July 1, 2001. Fiscal years 2003, 2002 and 2001 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 10-30 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 5,145,934, 5,132,083 and 5,222,876, for fiscal years 2003, 2002 and 2001, respectively, and 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. 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 29, 2003. -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. 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 29, 2003, and June 29, 2002 other current liabilities included $352,800, and $365,000, respectively, in prize fund monies. New Accounting Pronouncements In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" was issued. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for the hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 will not have a material effect on the Company's financial position or results of operations. In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, "Elements of Financial Statements." The remaining provisions of this Statement are consistent with the FASB's proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No.150 did not have any effect on the Company's financial statements. 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 29, June 30, 2003 2002 Demand deposits and cash on hand $ 517,874 $ 688,048 Money market funds 286,439 286,769 Repurchase agreements 699,000 659,000 _________ _________ $1,503,313 $1,633,817 3. ASSETS HELD FOR SALE AND REMAINING LEASE OBLIGATIONS 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 approximately $118,000. On August 25, 2003, the Company consummated the final closing of the sale and received cash proceeds and recorded the gain on the sale of the building. 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 29, 2003, the fair value of short-term investments was $9,505,678 with an unrealized gain of $56,875. At June 30, 2002, the fair value of short-term investments was $8,183,932 with an unrealized gain of $108,946. 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 29, 2003, and June 30, 2002 as follows:
Original Unrealized Fair Cost Gain Value June 29, 2003 Securities available-for-sale $859,191 $3,073,359 $3,932,550 June 30 2002 Securities available-for-sale $857,782 $3,132,466 $3,990,248
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 32,000 shares of Sprint Fon 16,000 shares of Sprint PCS 18,784 shares of Verizon 13,560 shares of Vodafone -9- There were no sales of available-for-sale securities in the years ended June 29, 2003 and June 30, 2002. In the year ended July 1, 2001, proceeds from the sale of available-for-sale securities were $2,072,112 with a corresponding gross realized gain of $290,951 recorded as interest and dividend income. 5. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment, as cost, consist of the following:
June 29, June 30, 2003 2002 Bowling lanes and equipment $18,450,048 $17,864,384 Amusement games 908,480 948,045 Buildings and building improvements 19,013,470 19,667,611 Leasehold improvements 309,898 317,398 Land 8,572,206 8,572,206 Bowling lanes and equipment not yet in use 241,461 132,033 __________ __________ 47,495,563 47,501,677 Less accumulated depreciation and amortization 27,208,055 26,996,091 __________ __________ $20,287,508 $20,505,586
Depreciation and amortization expense for Property, Plant and Equipment for fiscal years 2003, 2002, and 2001 was $1,613,379, $1,763,931, and $1,940,368 respectively. Bowling lanes and equipment not yet in use are not depreciated. 6. COMMITMENTS AND CONTINGENCIES Lease Commitments The Company and its subsidiaries are obligated under long-term real estate lease agreements for three 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 29, 2003, the minimum fixed rental commitments related to all non-cancelable leases, were as follows: Year Ending 2004 $298,720 2005 298,720 2006 298,720 2007 298,720 2008 298,720 Thereafter 1,478,386 _________ Total minimum lease payments $2,971,986 The table above includes a $15,000 annual ground lease through 2058 Which was subsequently assigned at the sale of the Silver Spring building. Net rent expense was as follows: For the Years Ended 2003 2002 2001 Minimum rent under operating leases $296,557 $333,060 $366,097 Excess percentage rents 27,321 92,497 89,807 _______ _______ _______ $323,878 $425,557 $455,904 Other Commitments The Company has placed an order totaling approximately $226,800 for the purchase of bowling pins to be delivered after July 1, 2003. 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 29, 2003 and June 30, 2002, the Company had $41,956 and $43,956, respectively, 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 2001 to 2003. 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 29, 2003, June 30, 2002, and July 1, 2001, contributions in the amount of $145,000, $165,000, and $160,000, 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 2003, 2002, and 2001 was $145,000, $162,600, and $165,100, respectively. -10- 9. INCOME TAXES The significant components of the Company's deferred tax assets and liabilities were as follows: June 29, June 30, 2003 2002 Deferred tax assets: Other 95,000 64,000 _________ _________ Total deferred tax assets 95,000 64,000 Deferred tax liabilities: Property, plant and equipment 582,200 596,000 Unrealized gain on available- for-sale securities 1,157,000 1,199,000 Prepaid expenses 198,000 140,000 Other - 57,000 _________ _________ Total deferred tax liabilities 1,937,200 1,992,000 _________ _________ Net deferred income taxes $1,842,200 $1,928,000 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 2003 % 2002 % 2001 % Taxes computed at statutory rate $1,900,000 34.0% $2,045,000 34.0% $2,016,000 34.0% State income taxes, net of Federal income tax benefit 161,000 2.9 175,000 2.9 85,000 1.4 Dividends received exclusion (40,000) (.72) (22,000) (.36) (37,000) (.62) All other-net (16,000) (.28) (24,000) (.41) (4,000) (.07) _________ ____ _________ ____ _________ ____ $2,005,000 35.9% $2,174,000 36.1% $2,060,000 34.7%
10. RELATED PARTIES At June 29, 2003 and June 30, 2002, the Company had recorded $99,600 and $102,200, respectively, in deferred compensation payable to one officer and one major shareholder. The amounts are payable over the next ten years. Deferred compensation payable to non-related parties was a total of $59,500 at June 29, 2003 and $57,100 at June 30, 2002. The current portion of these amounts, $25,632 at June 29, 2003 and $26,800 at June 30, 2002 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 2003 and 2002 (dollars in thousands, except for earnings per share):
Earnings Operating Operating Before Earnings Revenues Income Income Net Per Taxes Earnings Share 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 2002 June 30, 2002 $6,603 $ 693 $ 845 $ 519 $.10 March 31, 2002 8,997 2,535 2,711 1,738 .33 December 30, 2001 7,867 1,694 1,832 1,174 .23 September 30, 2001 6,434 472 605 388 .08
Per share amounts 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. -11- INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Bowl America Incorporated Alexandria, Virginia We have audited the accompanying consolidated balance sheets of Bowl America Incorporated and subsidiaries ("the Company")as of June 29, 2003 and June 30, 2002, and the related consolidated statements of earnings and comprehensive earnings, stockholders' equity and cash flows for each of the three 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 auditing standards generally accepted in the United States of America. 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 June 30, 2002, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 29, 2003, in conformity with accounting principles generally accepted in the United States of America. Deloitte and Touche LLP McLean, Virginia September 12, 2003 -12- 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-14 and 15d-14) 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 fourth 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 25, 2003 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-14 and 15d-14) 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 fourth 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 25, 2003 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 29, 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 Chief Executive Officer Cheryl A. Dragoo Chief Financial Officer Date: September 25, 2003