-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J4QBfS0n/z402RaOt7xsPqcBIWp3PCl+cwePSu52jlWnsux9rqHkoogq43eCxNUS 5S0Zyx88noXrn4rCIdZj7g== 0000013573-04-000015.txt : 20040923 0000013573-04-000015.hdr.sgml : 20040923 20040923172556 ACCESSION NUMBER: 0000013573-04-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040627 FILED AS OF DATE: 20040923 DATE AS OF CHANGE: 20040923 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOWL AMERICA INC CENTRAL INDEX KEY: 0000013573 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 540646173 STATE OF INCORPORATION: MD FISCAL YEAR END: 0627 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07829 FILM NUMBER: 041043424 BUSINESS ADDRESS: STREET 1: 6446 EDSALL RD CITY: ALEXANDRIA STATE: VA ZIP: 22312 BUSINESS PHONE: 7039416300 MAIL ADDRESS: STREET 1: P O BOX 1288 CITY: SPRINGFIELD STATE: VA ZIP: 22151 10-K 1 rf10k604.txt FORM 10-K FOR YEAR ENDED JUNE 27, 2004 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 27, 2004 Commission file Number 1-7829 BOWL AMERICA INCORPORATED (Exact name of registrant as specified in its charter.) MARYLAND 54-0646173 (State of Incorporation) (I.R.S. Employer Identification No.) 6446 Edsall Road, Alexandria, Virginia 22312 (Address of principal executive offices) (Zip Code) (703)941-6300 Registrant's telephone number, including area code Securities Registered Pursuant to Section 12(b) of the Act: Title of Class Name of Exchange on which registered Common stock (par value $.10) American Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K, Section 229.405 of this Chapter, is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive Proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12 b-2). YES [ ] NO [X] As of December 28,2003, which was the last business day of the registrant's most recently completed second quarter, 3,670,112 Class A common shares were outstanding, and the aggregate market value of the common shares (based upon the closing price of these shares on the American Stock Exchange) of Bowl America Incorporated held by nonaffiliates was approximately $33 million. As of that date 1,468,462 Class B common shares were outstanding. Class B common shareholders have the right to convert their Class B common to Class A common stock on a share for share basis. If the Class B shares were converted to Class A shares as of December 28, 2003, the total aggregate market value for both classes of common stock held by nonaffiliates would be approximately $34 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of registrant's definitive proxy statements, which will be filed with the Commission not later than 120 days after June 27, 2004 are incorporated into Part III of this Form 10-K. Portions of Bowl America's 2004 Annual Report to shareholders are incorporated by reference in Part II, Items 5,6,7 and 8. BOWL AMERICA INCORPORATED INDEX TO FISCAL 2004 10-K FILING PART I Page Cover Page Documents Incorporated by Reference Index ITEM 1. Business (a) General Development of Business 1 (b) Financial Information about Industry Segments 1 (c) Narrative Description of Business 1 (d) Foreign Operations 1 ITEM 2. Properties 2 ITEM 3. Legal Proceedings 2 ITEM 4. Submission of Matters to a Vote of Security Holders 2 PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 2 ITEM 6. Selected Financial Data 2 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 2 ITEM 7a. Quantitative and Qualitative Disclosure About Market Risk 2 ITEM 8. Financial Statements and Supplementary Data 3 ITEM 9. Changes in and Disagreements with Accountants and Financial Disclosure 3 ITEM 9A. Controls and Procedures 3 PART III ITEM 10. Directors and Executive Officers of the Registrant 3 ITEM 11. Executive Compensation 3 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (a) Security Ownership of Certain Beneficial Owners 3 (b) Security Ownership of Management 3 (c) Changes in Control 3 (d) Securities Authorized for Issuance Under Equity Compensation Plans 3 BOWL AMERICA INCORPORATED INDEX TO FISCAL 2004 10-K FILING PART III (Continued) Page ITEM 13. Certain Relationships and Related Transactions (a) Transactions with Management and Others 3 (b) Certain Business Relationships 3 (c) Indebtedness of Management 3 (d) Transactions with Promoters 3 ITEM 14. Principal Accountant Fees and Services 4 PART IV ITEM 15. Exhibits, Financial Statements and Reports on Form 8-K (a)1. Financial Statements 4 (a)2. Exhibits 4 (b) Reports on Form 8-K 5 Signatures 6-7 PART I ITEM 1. BUSINESS (a) General Development of Business Bowl America Incorporated (herein referred to as the Company) was incorporated in 1958. The Company commenced business with one bowling center in 1958, and at the end of the past fiscal year, the Company and its wholly- owned subsidiaries operated 18 bowling centers. In February 2004 the Company purchased land in the Richmond, Virginia area using funds received from the sale of Bowl America Silver Spring in August 2003. The sale and purchase are classified as a like-kind exchange, effectively deferring the tax on $1.9 million of the $2.2 million gain on the sale. Building of a new 40 lane bowling center is expected to begin when all permits have been received. The center is expected to open in the first quarter of fiscal year 2006. (b) Financial Information about Industry Segments The Company operates in one segment. Its principal source of revenue consists of fees charged for the use of bowling lanes and other facilities and from the sale of food and beverages for consumption on the premises. Merchandise sales, including food and beverages, were approximately 29% of operating revenues. The balance of operating revenues (approximately 71%) represents fees for bowling and related services. (c) Narrative Description of Business As of September 1, 2004 the Registrant and its subsidiaries operated 10 bowling centers in the greater metropolitan area of Washington, D.C., one bowling center in the greater metropolitan area of Baltimore, Maryland, one bowling center in Orlando, Florida, three bowling centers in the greater metropolitan area of Jacksonville, Florida, and three bowling centers in the greater metropolitan area of Richmond, Virginia. These 18 bowling centers contain a total of 716 lanes. These establishments are fully air-conditioned with facilities for service of food and beverages, game rooms, rental lockers, and playroom facilities. All centers provide shoes for rental, and bowling balls are provided free. In addition, each center retails bowling accessories. Most locations are equipped for glow-in-the-dark bowling, popular for parties and non-league bowling. The bowling equipment essential for the Company's operation is readily available. The major source of its equipment is Brunswick Corporation. The bowling business is a seasonal one, and most of the business takes place from October through May. It is highly competitive, but the Company has managed to maintain its position in the field. The principal method of competition is the quality of service furnished to the Company's customers. Its primary competitors are two large bowling equipment manufacturers, Brunswick Corporation and AMF Bowling Worldwide, Inc. Compliance with federal, state and local environmental protection laws has not materially affected the Company. The number of persons employed by the Company and its subsidiaries is approximately 700. (d) Foreign Operations The Company has no foreign operations. -1- ITEM 2. PROPERTIES The Company's general offices are located at 6446 Edsall Road, Alexandria, Virginia 22312. Two of the Company's bowling centers are located in leased premises, and the remaining sixteen centers are owned by the Company. The Company's leases expire from 2009 through 2014. The specific locations of the bowling centers are discussed under Item 1 (c). ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings other than ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter ended June 27, 2004. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) The information set forth in the section entitled "Market Information", "Holders", and "Dividends" on page 3 of the Company's June 27, 2004 Annual Report is incorporated by reference herein. (b) Not applicable (c) On June 21, 2004, the Registrant repurchased 801 shares of its Class A Common Stock from one stockholder at a price of $14.20 per share. ITEM 6. SELECTED FINANCIAL DATA The information set forth in the section entitled "Selected Financial Data" on page 3 of the Company's June 27, 2004 Annual Report is incorporated by reference herein. Such information should be read in conjunction with the audited financial statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 2 of the Company's June 27, 2004 Annual Report is incorporated by reference herein. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk. Our short-term investments and certain cash equivalents are subject to interest rate risk. We manage this risk by maintaining an investment portfolio of available-for-sale instruments with high credit quality and relatively short average maturities. The fair value of marketable debt securities held was $11,681,729 and $9,505,678 at June 27, 2004 and June 29, 2003, respectively. The fair value of certain fixed rate debt securities will change depending on movements in interest rates. Declines in interest rates will affect our interest income. Based on our portfolio of debt securities at June 27, 2004, a 10% decline in the average yield would not have a material impact on our interest income. -2- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and related notes thereto, the Reports of Independent Registered Public Accounting Firms and the Selected Quarterly Financial Data (unaudited), as contained on pages 4 through 13 of the Company's June 27, 2004 Annual Report, are incorporated by reference herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE A Form 8-k dated May 12, 2004, confirming the change in the Registrant's certifying accountants (Item 4) as reported on Form 8-K filed April 6, 2004, was filed on May 17, 2004. ITEM 9A. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of June 27, 2004. There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation that occurred during the fourth quarter of the Company's fiscal year ended June 27, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. -3- ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a)1. Financial Statements The following consolidated financial statements of Bowl America Incorporated and its subsidiaries are incorporated by reference in Part II, Item 8: Reports of Independent Registered Public Accounting Firms Consolidated balance sheets - June 27, 2004 and June 29, 2003 Consolidated statements of earnings and comprehensive earnings - years ended June 27, 2004, June 29, 2003, and June 30, 2002 Consolidated statements of stockholders' equity - years ended June 27, 2004, June 29, 2003, and June 30, 2002 Consolidated statements of cash flows - years ended June 27, 2004, June 29, 2003, and June 30, 2002 Notes to the consolidated financial statements - years ended June 27, 2004, June 29, 2003, and June 30, 2002 (a)2. Exhibits: 3(a) Articles of Incorporation of the Registrant and amendments through December 1988 thereto (Incorporated by reference from exhibit number 3 to the Annual Report for 1989 on Form 10-K for fiscal year ended July 2, 1989.) 3(b) Amendment to and restatement of Article FIFTH (b) III 2.2 of the Registrant's Articles of Incorporation (Incorporated by reference from the Registrant's Form 8-K filed December 9, 1994.) 3(c) By-laws of the Registrant (Incorporated by reference from exhibit 3 to the Annual Report for 1989 on Form 10-K for fiscal year ended July 2, 1989.) 21 Subsidiaries of registrant (Incorporated by reference from exhibit number 1 to the Registrant's Annual Report on Form 10-K for fiscal year ended June 30, 2002. 31.1 Written statement of Chief Executive Officer (Rule 13a-14a Certification) 31.2 Written statement of Chief Financial Officer (Rule 13a-14a Certification) 32 Written statement of Chief Executive and Chief Financial Officers (Section 1350 Certifications) -4- (b) Reports on Form 8-K: A Form 8-K dated May 12, 2004, confirming the change in the Registrant's certifying accountants (Item 4) as reported on Form 8-K filed April 6, 2004, was filed on May 17, 2004. -5- BOWL AMERICA INCORPORATED SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOWL AMERICA INCORPORATED Leslie H. Goldberg President and Principal Executive & Operating Officer Date: September 23, 2004 Cheryl A. Dragoo Chief Financial Officer, Assistant Treasurer and Controller Principal Accounting Officer Date: September 23, 2004 -6- BOWL AMERICA INCORPORATED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and the dates indicated. Name, Title, Capacity Leslie H. Goldberg President, Principal Executive & Operating Officer & Director Date: September 23, 2004 Ruth Macklin A. Joseph Levy Senior Vice President-Treasurer Senior Vice President-Secretary and Director and Director Date: September 23, 2004 Date: September 23, 2004 Warren T. Braham Stanley H. Katzman Director Director Date: September 23, 2004 Date: September 23, 2004 Allan L. Sher Merle Fabian Director Director Date: September 23, 2004 Date: September 23, 2004 Irvin Clark Director Date: September 23, 2004 -7- BOWL AMERICA INCORPORATED PRESIDENT'S LETTER September 20, 2004 Dear Fellow Owners: WOW!!! For the first time in ten years, we are building a bowling center from scratch. This one is Irv Clark's baby from start to finish which gives us the feeling it will be the best one we have ever built. Located just north of Richmond, it is in the center of a growing commercial area and will serve an expanding population. It will add to our standing as the best and oldest continually operating bowling company in the Richmond area. Good new locations are necessary to provide us as owners with real income from our investment in Bowl America. "Real" has meant that increases in our dividends have more than offset inflation. The record of 32 consecutive years of dividend increases has enabled us to meet that objective without requiring us to dispose of our Bowl America stock. The word "increase" suggests building on something that existed before. That is fundamental to our approach. While we generate great enthusiasm for each new project, it is important that we continue to wisely use our existing assets. Two of our most successful bowling centers today-Bowl America Shirley and Bowl America Falls Church-were our first two bowling centers and are over forty years old. We try to capture the enthusiasm generated by new projects and apply it broadly in the Company. There is no return like the return on an investment that is already paid for. Location in any retail business is important, but we have always felt that longevity flows from great customer service and great customer service flows from people who enjoy what they do. I have always been pleased that so many of our employees are bowling enthusiasts. You should note this will be the first bowling center we have ever built in which the owners will get to keep half the profits generated from the business. Prior to the recent reduction in dividend tax rates to 5% and 15%, Bowl America owners had to pay $2.00 in taxes to keep $1.00 of the earnings the Company generated. This was the result of our relatively unsheltered corporate tax rate combined with personal taxes on dividends. That, of course, isn't the end of it. If you happen to die at a time when our market price exceeds our per share retained earnings, the Government might extract an amount greater than what the company earned on your behalf. Relying on dividends to share our Company's success has a positive impact on corporate governance. The dividend has to have cash to support it. Virtually all of the financial misdeeds we have noted in the last few years have been driven by an attempt to run up the price of a stock so that the perpetrators could either borrow against it or sell it before the bubble burst. Another group shares the need for price increases, but has an even shorter horizon. These are the so-called money managers, whether they be mutual funds, pension funds or insurance companies, that are threatened with investor defection it they didn't "match market performance". It is ironic that all the proposals for changing corporate governance would place more control into this group's hands even though we now know they simply do not operate in the interests of the real owners of the shares. We can't justify overlaying an "ownership economy" on the current foundation. The combination of the fund managers with a next morning price horizon and company managements required to spend their time on accounting minutia rather than stimulating innovation and growth will probably eventually push us into the European type of supervisory board of directors. If that results in a 12% unemployment rate here as it has elsewhere, we might hear it called "an unforeseen consequence." Of course, all those people with time on their hands may want to go bowling. Leslie H. Goldberg, President MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operating activities in fiscal 2004 was $5,502,000 which was sufficient to meet day-to-day cash needs. Short-term investments consisting mainly of U.S. Treasury Notes and Bills, cash and cash equivalents totaled $13,002,000 at the end of fiscal 2004 compared to $11,009,000 at the end of fiscal 2003. In February 2004 the Company acquired land in Henrico County, Virginia. Financing for the property was provided by the $2.3 million received from the sale of the Silver Spring building and assignment of ground lease in August 2003. The transaction completed a like-kind exchange under Section 1031 of the Internal Revenue Code enabling taxes on approximately $2.0 million of the $2.2 million gain on the sale of Silver Spring to be deferred. Although no building or equipment contracts for the location have been signed, the Company is currently in the process of obtaining all necessary permits to begin construction of a 40-lane bowling center at an estimated cost of $5 million, which, barring unforeseen circumstances, is expected to open in the first quarter of fiscal 2006. During fiscal year 2004, the Company expended approximately $1,000,000 for the purchase of bowling and restaurant equipment and amusement games, continuing to upgrade current facilities. Approximately $689,000 of the funds were from operating activities and the remaining $311,000 was provided by escrow funds from the building sale. The Company has signed purchase agreements totaling approximately $860,000 to replace all remaining wooden bowling lanes and to purchase bowling pins for the new season. The Company is actively seeking property for the development of new bowling centers. Cash and cash flows are sufficient to finance all contemplated construction and purchases and to meet short-term purchase commitments and operating lease commitments, detailed in the table below. The Company's holdings of marketable equity securities, primarily telecommunication stocks, are an additional source of expansion capital. These marketable securities are carried at their fair value on the last day of the year. The value of the securities on June 27, 2004 was $4.0 million compared to approximately $3.9 million at June 29, 2003. Contractual Less than 1-3 3-5 More than Obligations Total 1 year Years Years 5 years Operating lease obligations $1,867,581 $283,721 $567,442 $567,442 $448,976 Purchase Obligations 860,000 860,000 - - - Total $2,727,581 $1,143,721 $567,442 $567,442 $448,976 Cash dividends of $.52 per share, totaling $2.7 million were paid to shareholders during the 2004 fiscal year making this the thirty-second consecutive year of increased dividends per share. In June 2004, the Company declared a $.135 per share dividend that was paid in August 2004. While no factors calling for a change in the dividend rate are yet apparent, the Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state of the business and estimate of future opportunities. In May 2003, the Company ceased operating the Silver Spring facility after entering into an agreement to sell the building. Two leased locations were closed during fiscal 2002. RESULTS OF OPERATIONS Eighteen centers were in operation during 2004 while nineteen centers were in operation during the peak season of fiscal 2003. In the comparable fiscal 2002 season, twenty locations were operating. The changes in the number of centers in operation affected all income, expense and comparisons for the periods presented in this report. Fiscal years 2004, 2003 and 2002 each consisted of 52 weeks. Operating revenues excluding the $2.2 million gain on the sale of Silver Spring, mentioned above, decreased by $942,000 or 3% in fiscal 2004. Bowling and other revenue declined 2%. However, at comparable locations, this category of revenue was up slightly as an increase in the average game rate helped to offset the decrease in games bowled. Food, beverage and merchandise sales decreased 6% in the current year primarily as a result of the closing of Silver Spring and the end of the full service restaurant operation at Gaithersburg. The change resulted in increased profitability as costs declined at a higher rate than the decline in sales. The Company established a website for the sale of merchandise directly to consumers. In fiscal 2003 operating revenues decreased by 2% overall and like percentages in both the bowling and other and food, beverage and merchandise sales categories. During fiscal 2003 winter snowstorms caused the closing of all locations in the Company's northern market although the fourth quarter benefited from league play make-up games and rainy weather. Total operating expense decreased approximately $724,000 or 3% in the current year and 1% in the prior year. Costs for employee compensation and benefits were down $287,000 or 2% in the current year although group health insurance costs were up $49,000 or 10% over the prior year period. In the current year employees benefited from the gain on the sale of Silver Spring as the Company's contribution to the profit-sharing and employee stock ownership plans increased by $86,000 or 30% over the prior year. In the prior year employee compensation and benefit costs were flat despite a 12% increase in health insurance premiums. Maintenance costs decreased 9% in the current year after an increase of 7% in fiscal year 2003. This year no lanes were resurfaced as the remaining wooden lanes are being replaced by plastic overlays. Lanes at several centers were resurfaced last year. Snow removal costs were also responsible for the prior year increase. Supplies expenses were up 5% in fiscal 2004 and down 1% in the prior fiscal year. Advertising costs were up 17% in the current year primarily from campaigns to increase awareness of our websites and facilities for corporate outings. Last year advertising costs were up 3%. Utility costs declined slightly in fiscal 2004 compared to a 6% decrease in the prior year. Rent expense decreased 2% in the current year and 19% in the prior year primarily as a result of fewer leased locations in operation. Insurance expense, excluding health and life, was down 8% in fiscal 2004 as the market softened. In the prior year insurance costs increased 15%. Depreciation expenses decreased by $81,000 and $151,000 or 5% and 8% in fiscal 2004 and 2003, respectively. Large assets reaching full depreciation and fewer locations in operation were responsible for the decreases in both years. Interest and dividend income declined from the prior year. The 14% increase in common stock dividends received was more than offset by the lower interest rates on debt securities. Effective income tax rates for the Company were 37.4% for fiscal 2004, 35.9% in 2003 and 36.1% in 2002, the difference from statutory rates being primarily for the partial exclusion of dividends received on investments and the state tax exemption for interest on U.S. Government obligations. For fiscal 2004, although the tax on the gain from the sale of Silver Spring is deferred, it is accounted for at current effective tax rates as required by accounting standards. CRITICAL ACCOUNTING POLICIES We have identified accounting for marketable investment securities under SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" as a critical accounting policy due to the significance of the amounts included in our balance sheet under the captions of Short-term investments and Marketable equity securities. The Company exercises judgment in determining the classification of its investment securities as available-for-sale and in determining their fair value. The Company records these investments at their fair value with the unrealized gain or loss recorded in accumulated other comprehensive income, a component of stockholders' equity, net of deferred taxes. Additionally, from time to time the Company must assess whether write-downs are necessary for other than temporary declines in value. -2- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED SUMMARY OF OPERATIONS Selected Financial Data
For the Years Ended June 27, June 29, June 30, July 1, July 2, 2004 2003 2002 2001 2000 __________________________________________________________ Operating Revenues $28,433,689 $29,375,692 $29,809,586 $29,400,903 $28,902,200 Operating Expenses 23,539,032 24,262,944 24,416,010 24,508,226 23,151,241 Interest and dividend Income 413,738 475,598 598,982 1,035,712 823,470 Gain on Sale of Land, Buildings and Equipment 2,201,240 - - - - __________ __________ __________ __________ __________ Earnings before pro- vision for income taxes 7,509,635 5,588,346 5,992,558 5,928,389 6,574,429 Provision for income taxes 2,807,896 2,005,000 2,174,000 2,060,000 2,361,000 __________ __________ __________ __________ __________ Net Earnings $ 4,701,739 $ 3,583,346 $ 3,818,558 $ 3,868,389 $ 4,213,429 Weighted Average Shares Outstanding Basic & Diluted 5,138,559 5,145,934 5,132,083 5,222,876 5,587,892 Earnings Per Share Basic & Diluted $.91 $.70 $.74 $.74 $.75 Net Cash Provided by Operating Activities $5,501,857 $5,450,867 $5,954,909 $4,795,680 $6,636,768 Cash Dividends Paid $2,672,062 $2,470,081 $2,371,121 $2,256,182 $2,197,659 Cash Dividends Paid Per Share-Class A $.52 $.46 $.46 $.45 $.43 -Class B $.52 $.48 $.46 $.45 $.43 Total Assets $40,579,581 $37,536,507 $36,562,578 $37,509,243 $40,622,676 Stockholders' Equity $34,896,581 $32,953,150 $32,682,139 $32,614,517 $34,779,772 Net Book Value Per Share $6.79 $6.41 $6.35 $6.64 $7.11 Net Earnings as a % of Beginning Stock- holders' Equity 14.3% 11.0% 11.7% 11.1% 11.9% Lanes in Operation 716 716 746 820 854 Centers in Operation 18 18 19 21 22
All share and per share amounts (excluding Net Book Value Per Share) have been adjusted to reflect both the 5% stock dividend distributed on July 26, 2001 and the 5% stock dividend distributed on July 26, 2000. Market Information The principal market on which the Company's Class A Common Stock is traded is the American Stock Exchange. The Company's Class B Common Stock is not listed on any exchange and is not traded. This stock can be converted to Class A Common Stock at any time. The table below presents the price range of the Company's Class A stock in each quarter of fiscal 2004 and 2003.
2004 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr _________________________________________________________ High 13.10 14.00 15.25 14.70 Low 10.67 12.81 14.00 14.05
2003 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr _______________________________________________________ High 12.00 12.15 11.95 11.73 Low 11.00 11.50 11.50 11.12
Holders The approximate number of holders of record of the Company's Class A Common Stock as of June 27, 2004 is 423 and of the Company's Class B Common Stock is 28. Cash Dividends The table below presents the cash dividends per share of Class A and Class B stock paid, and the quarter in which the payment was made during fiscal 2004 and 2003.
Class A Common Stock Quarter 2004 2003 ___________________________________________ First 12.5 cents 12 cents Second 12.5 cents 12 cents Third 13.5 cents 12 cents Fourth 13.5 cents 12 cents
Class B Common Stock Quarter 2004 2003 ____________________________________________ First 12.5 cents 12 cents Second 12.5 cents 12 cents Third 13.5 cents 12 cents Fourth 13.5 cents 12 cents
-3- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 27, 2004 June 29, 2003 ASSETS Current Assets Cash and cash equivalents (Note 2) $ 1,320,643 $ 1,503,313 Short-term investments (Note 4) 11,681,729 9,505,678 Inventories 583,466 565,071 Prepaid expenses and other 595,460 590,555 Income taxes refundable - 443,788 __________ __________ Total Current Assets 14,181,298 12,608,405 Land, Buildings and Equipment, Net (Note 5) 21,762,919 20,287,508 Assets Held for Sale (Note 3) - 117,948 Other Assets Marketable equity securities (Note 4) 4,041,161 3,932,550 Cash surrender value-officers'life insurance 467,603 463,579 Other 126,600 126,517 __________ __________ Total Other Assets 4,635,364 4,522,646 ---------- ---------- TOTAL ASSETS $40,579,581 $37,536,507 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 805,812 $ 700,425 Accrued expenses 891,289 910,087 Dividends payable 693,600 642,323 Income taxes payable 179,855 - Other current liabilities 334,317 354,854 Current deferred income taxes 148,675 103,300 __________ __________ Total Current Liabilities 3,053,548 2,710,989 Long-Term Deferred Compensation 74,278 133,468 Non-current Deferred Income Taxes (Note 9) 2,555,174 1,738,900 __________ __________ TOTAL LIABILITIES 5,683,000 4,583,357 Commitments and Contingencies (Note 6) Stockholders' Equity (Note 7) Preferred stock, par value $10 a share Authorized and unissued 2,000,000 shares Common stock, par value $.10 per share Authorized 10,000,000 shares Class A outstanding 3,669,311 and 3,670,112 shares 366,932 367,012 Class B outstanding 1,468,462 shares 146,846 146,846 Additional paid-in capital 7,479,072 7,480,257 Accumulated other comprehensive earnings- Unrealized gain on available-for-sale securities, net of tax 1,948,918 1,972,513 Retained earnings 24,954,813 22,986,522 __________ __________ TOTAL STOCKHOLDERS' EQUITY $34,896,581 $32,953,150 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,579,581 $37,536,507 =========== ========== The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
-4- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS
For the Years Ended June 27, 2004 June 29, 2003 June 30, 2002 ______________________________________________ Operating Revenues Bowling and other $20,154,568 $20,574,413 $20,926,272 Food, beverage and merchandise sales 8,279,121 8,801,279 8,974,870 __________ __________ __________ 28,433,689 29,375,692 29,901,142 Operating Expenses Compensation and benefits 12,688,709 12,976,056 12,962,448 Cost of bowling and other 5,925,753 5,983,292 5,893,138 Cost of food, beverage and merchandise sales 2,603,609 2,771,356 2,989,809 Depreciation and amortization 1,532,587 1,613,379 1,763,931 General and administrative 788,374 918,861 898,240 __________ __________ __________ 23,539,032 24,262,944 24,507,566 Operating Income 4,894,657 5,112,748 5,393,576 Interest and dividend income 413,738 475,598 598,982 Gain on sale of land, buildings And equipment 2,201,240 - - __________ __________ __________ Earnings before provision for income taxes 7,509,635 5,588,346 5,992,558 Provision for income taxes(Note 8) Current 1,946,247 2,050,000 1,923,000 Deferred 861,649 (45,000) 251,000 _________ __________ __________ 2,807,896 2,005,000 2,174,000 Net Earnings $ 4,701,739 $ 3,583,346 $ 3,818,558 Other Comprehensive Loss Net of Tax-unrealized loss on available-for-sale securities (23,595) (70,549) (1,384,409) _________ _________ _________ Comprehensive Earnings 4,678,144 3,512,797 2,434,149 Earnings Per Share-Basic & Diluted $.91 $.70 $.74
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. -5-
BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY COMMON STOCK Accumulated _______________________________________ Additional Other Class A Class A Class B Class B Paid-In Comprehensive Retained Shares Amount Shares Amount Capital Earnings(1) Earnings Balance July 1, 2001 3,491,976 $349,197 1,416,427 $141,643 $4,987,131 $3,427,471 $23,709,075 Stock issued in 5% dividend 174,365 17,437 70,809 7,081 2,488,516 - (2,513,034) Purchase of stock (59) (6) - - (86) - (544) Conversion-Class B to Class A 3,616 362 (3,616) (362) - - - Shares issued for ESOP plan 9,000 900 - - 101,700 - - Settlement of employee stock loans (4,010) (401) - - 38,813 - (38,415) Repayment of employee loans (8,512) (851) - - (12,428) - (84,088) Cash dividends paid - - - - - - (2,371,121) Change in unrealized gain on available-for-sale securities - - - - - (1,384,409) - Net earnings for the year - - - - - - 3,818,558 _________________________________________________________________________________________________________________________ Balance June 30, 2002 3,666,376 $366,638 1,483,620 $148,362 $7,603,646 $2,043,062 $22,520,431 Purchase of stock (470) (47) (15,158) (1,516) (174,250) - (4,851) Shares issued for ESOP plan 4,206 421 - - 48,579 - - Cash dividends paid - - - - - - (2,470,081) Accrued dividends declared June 24, 2003, payable August 12, 2003 - - - - - - (642,323) Change in unrealized gain on available-for-sale securities - - - - - (70,549) - Repayment of employee loan - - - - 2,282 - - Net earnings for the year - - - - - - 3,583,346 _______________________________________________________________________________________________________________________ Balance June 29, 2003 3,670,112 $367,012 1,468,462 $146,846 $7,480,257 $1,972,513 $22,986,522 Purchase of stock (801) (80) - - (1,185) - (10,109) Cash dividends paid - - - - - - (2,029,739) Accrued dividends declared June 22, 2004, payable August 18, 2004 - - - - - - (693,600) Change in unrealized gain on available-for-sale securities - - - - - (23,595) - Net earnings for the year - - - - - - 4,701,739 ________________________________________________________________________________________________________________________ Balance, June 27, 2004 3,669,311 $366,932 1,468,462 $146,846 $7,479,072 $1,948,918 $24,954,813 (1)Unrealized gains and losses are shown net of tax The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
-6- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
June 27, June 29, June 30, 2004 2003 2002 Cash Flows From Operating Activities Net earnings $4,701,739 $3,583,346 $3,818,558 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,532,587 1,613,379 1,763,931 Increase(decrease) in deferred income tax 861,649 (45,000) 251,000 (Gain) Loss on disposition of assets-net (2,201,240) 11,932 63,789 Stock issuance-ESOP Plan - 49,000 102,600 Changes in assets and liabilities: (Increase) decrease in inventories (18,395) (24,044) 179,478 (Increase) decrease in prepaid expenses and other (4,905) (111,266) 388,649 Decrease (increase) in income taxes refundable 443,788 255,980 (250,675) (Increase) decrease in other long-term assets (83) (28,855) 91,836 Increase (decrease) in accounts payable 105,387 (1,246) (369,862) (Decrease) increase in accrued expenses (18,798) 160,842 (32,533) Increase in income taxes payable 179,855 - - Decrease in other current liabilities (20,537) (14,173) (31,862) (Decrease) increase in long-term deferred compensation (59,190) 972 (20,000) _________ _________ _________ Net cash provided by operating activities $5,501,857 $5,450,867 $5,954,909 _________ _________ _________ Cash Flows from Investing Activities Expenditures for land,buildings,equipment (688,810) (1,525,181) (1,254,521) Net (purchases) sales and maturities of short-term investments (2,309,382) (1,371,706) (2,013,396) Increase in cash surrender value (4,024) (32,330) (19,838) Net proceeds (purchases) from purchases or sale of marketable securities 1,125 (1,409) - _________ _________ _________ Net cash used in investing activities (3,001,091) (2,930,626) (3,287,755) _________ _________ _________ Cash Flows from Financing Activities Payment of cash dividends (2,672,062) (2,470,081) (2,371,121) Purchase of Class A Common Stock (11,374) (5,589) (636) Purchase of Class B Common Stock - (175,075) - _________ _________ _________ Net cash used in financing activities (2,683,436) (2,650,745) (2,371,757) _________ _________ _________ Net (Decrease) Increase in Cash and Cash Equivalents (182,670) (130,504) 295,397 Cash and Cash Equivalents, Beginning of Year 1,503,313 1,633,817 1,338,420 _________ _________ _________ Cash and Cash Equivalents, End of Year $1,320,643 $1,503,313 $1,633,817 Supplemental Disclosures of Cash Flow Information Cash paid during the year for Income taxes $1,907,467 $2,324,881 $2,633,781 Non-cash Investing and Financing Activities Settlement of employee stock loans by acquisition of common stock $ - - 44,667 Repayment of employee loans by acquisition of common stock $ - - 88,877 Exchange of property $2,351,800 - - The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
-7- BOWL AMERICA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Bowl America Incorporated is engaged in the operation of 18 bowling centers, with food and beverage service in each center. Ten centers are located in metropolitan Washington D.C., one center in metropolitan Baltimore, Maryland, one center in metropolitan Orlando, Florida, three centers in metropolitan Richmond, Virginia, and three centers in metropolitan Jacksonville, Florida. These 18 centers contain a total of 716 lanes. The Company operates in one segment. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiary corporations. All significant inter- company items have been eliminated in the consolidated financial statements. Fiscal Year The Company's fiscal year ends on the Sunday nearest to June 30. Fiscal year 2004 ended June 27, 2004, fiscal year 2003 ended June 29, 2003, and fiscal year 2002 ended June 30, 2002. Fiscal years 2004, 2003 and 2002 each consisted of 52 weeks. Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates include the deferred compensation liability for executives and key employees including survivor benefits, cash surrender value of officers' life insurance, the Federal and State income taxes (current and deferred), and market assumptions used in estimating the fair value of certain assets such as marketable securities. Revenue Recognition The Company records revenue for fees charged for use of bowling lanes and other facilities at the time the services are provided. Food, beverage and merchandise sales are recorded as revenue at the time the product is given to the customer. Depreciation and Amortization Depreciation and amortization for financial statement purposes are calculated by use of the straight-line method. Amortization of leasehold improvements is calculated over the estimated useful life of the asset or term of the lease, whichever is shorter. The categories of property, plant, and equipment and the ranges of estimated useful lives on which depreciation and amortization rates are based are as follows: Bowling lanes and equipment 3-10 years Building and building improvements 10-39 years Leasehold improvements 10 years Amusement games 3-5 years Maintenance and repairs and minor replacements are charged to expense when incurred. Major replacements and betterments are capitalized. The accounts are adjusted for the sale or other disposition of property, and the resulting gain or loss is credited or charged to income. Impairment of Long-Lived Assets The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable. In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets. An impairment loss, equal to the difference between the assets' fair value and carrying value, is recognized when the estimated future cash flows are less that the carrying amount. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Income Taxes Income taxes are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under this method, deferred income tax liabilities and assets are based on the differences between the financial statement and tax bases of assets and liabilities, using tax rates currently in effect. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. Fair Value of Financial Instruments The fair value of short-term investments and the non-current marketable security portfolio is disclosed in Note 4. Investment Securities The Company accounts for its investments in accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities". All of the Company's readily marketable debt and equity securities are classified as available-for-sale. Accordingly these securities are recorded at fair value with any unrealized gains and losses excluded from earnings and reported, net of deferred taxes, within a separate component of stockholders' equity until realized. Realized gains or losses on the sale of debt and equity securities are reported in earnings and determined using the adjusted cost of the specific security sold. Earnings Per Share Earnings per share basic and diluted, have been calculated using the weighted average number of shares of Class A and Class B common stock outstanding of 5,138,559, 5,145,934 and 5,132,083, for fiscal years 2004, 2003 and 2002, respectively, and have been adjusted to reflect the 5% stock dividend distributed on July 26, 2001. Comprehensive Earnings In accordance with SFAS No. 130 "Reporting Comprehensive Income", a consolidated statement of comprehensive earnings reflecting the aggregation of net earnings and unrealized gain or loss on available-for-sale securities, the Company's principal components of other comprehensive earnings, has been presented for each of the three years in the period ended June 27, 2004. -8- Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers money market funds, certificates of deposits, repurchase agreements and treasury securities with original maturities of three months or less to be cash equivalents. The Company maintains cash accounts which may exceed Federally insured limits during the year, but does not believe that this results in any significant credit risk. Assets Held for Sale The Company accounts for assets held for sale at the lower of cost or fair value less costs to sell in accordance with the criteria for SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." Assets held for sale are not depreciated. Other Current Liabilities Other current liabilities include prize fund monies held by the Company for bowling leagues. The funds are returned to the leagues at the end of the league bowling season. At June 27, 2004, and June 29, 2003 other current liabilities included $328,014, and $352,800, respectively, in prize fund monies. Reclassifications Certain previous year amounts have been reclassified to conform with the current year presentation. 2. CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following: June 27, June 29, 2004 2003 Demand deposits and cash on hand $ 611,552 $ 517,874 Money market funds 175,644 286,439 Repurchase agreements 533,447 699,000 _________ _________ $1,320,643 $1,503,313 3. ASSETS HELD FOR SALE AND GAIN ON SALE In March 2003, the Company entered into an agreement to sell the Silver Spring building and assign the ground lease for $2.3 million subject to certain conditions precedent to final closing. The facility is classified as Assets Held for Sale at June 29, 2003 and is carried at its net book value of $117,948. On August 25, 2003, the Company consummated the final closing of the sale and recorded the gain on the sale of the building. The sale was part of a tax free exchange under 1031 of the U.S. Internal Revenue Code and, as such, the taxable gain on the sale is deferred. The operating results of the bowling center along with a $2,168,117 gain, have been recorded as part of net gain on sale of building in the accompanying consolidated financial statements. 4. INVESTMENTS Short-term investments consist of certificates of deposits, U.S. Treasury securities and a mutual fund which invests in mortgage backed securities (maturities of generally three months to one year). At June 27, 2004, the fair value of short-term investments was $11,681,729 with an unrealized loss of $89,923. At June 29, 2003, the fair value of short-term investments was $9,505,678 with an unrealized gain of $56,875. Non-current investments are marketable equity securities which consist primarily of telecommunications stocks. The Company has classified all readily marketable debt and equity securities as available-for-sale. These available-for-sale securities are carried at fair value in accordance with the provisions of SFAS No. 115. The following table summarizes the cost and approximate fair values of equity securities available-for-sale as of June 27, 2004, and June 29, 2003 as follows:
Original Unrealized Fair Cost Gain Value June 27, 2004 Securities available-for-sale $857,782 $3,183,379 $4,041,161 June 29, 2003 Securities available-for-sale $859,191 $3,073,359 $3,932,550
This portfolio includes the following telecommunications stocks: 16,835 shares of AT&T Wireless 2,209 shares of Agere 3,946 shares of Alltel 669 shares of Avaya 27,572 shares of Bell South 8,028 shares of Lucent Technologies 9,969 shares of Qwest 45,580 shares of SBC Communications 40,000 shares of Sprint Fon 18,784 shares of Verizon 13,560 shares of Vodafone During the year ended June 27, 2004, the Company received proceeds of approximately $1,000 from the conversion of a publicly traded company into a private enterprise. There were no sales of available-for-sale securities in the years ended June 29, 2003 and June 30, 2002. 5. LAND, BUILDINGS, AND EQUIPMENT Land, buildings, and equipment, as cost, consist of the following:
June 27, June 29, 2004 2003 Buildings $14,384,416 $14,384,416 Leasehold and building improvements 5,107,091 4,938,952 Bowling lanes and equipment 18,983,657 18,450,048 Land 10,590,450 8,572,206 Amusement games 873,011 908,480 Bowling lanes and equipment not yet in use 218,497 241,461 __________ __________ 50,157,122 47,495,563 Less accumulated depreciation and amortization 28,394,203 27,208,055 __________ __________ $21,762,919 $20,287,508
Depreciation and amortization expense for buildings and equipment for fiscal years 2004, 2003, and 2002 was $1,532,587, $1,613,379, and $1,763,931, respectively. Bowling lanes and equipment not yet in use are not depreciated. -9- 6. COMMITMENTS AND CONTINGENCIES Lease Commitments The Company and its subsidiaries are obligated under long-term real estate lease agreements for two bowling centers. Certain of the Company's real estate leases provide for additional annual rents based upon total gross revenues and increases in real estate taxes and insurance. At June 27, 2004, the minimum fixed rental commitments related to all non-cancelable leases, were as follows: Year Ending 2005 $283,721 2006 283,721 2007 283,721 2008 283,721 2009 283,721 Thereafter 448,976 _________ Total minimum lease payments $1,867,581 Net rent expense was as follows: For the Years Ended June 27, June 29, June 30, 2004 2003 2002 Minimum rent under operating leases $283,721 $296,557 $333,060 Excess percentage rents 27,165 27,321 92,497 _______ _______ _______ $310,886 $323,878 $425,557 7. STOCKHOLDERS' EQUITY The Class A shares have one vote per share voting power. The Class B shares may vote ten votes per share and are convertible to Class A shares at the option of the stockholder. At June 27, 2004 and June 27, 2003, the Company had $41,956 in employee loans related to the issuance of shares. These loans are secured by the shares of the Company's common stock acquired and are full recourse notes. The notes bear interest at rates of 5% to 6 1/2% and are payable over a term of three years from the date of the agreements which range from 2002 to 2004. These employee loans have been recorded as a reduction of additional paid-in capital. The Company distributed a 5% stock dividend on July 26, 2001, where Class A and B stockholders received one share of common stock for each twenty shares of Class A and Class B common stock held as of the date of record. 8. PROFIT-SHARING AND ESOP PLAN The Company has a profit-sharing plan which, generally, covers all individuals who were employed at the end of the fiscal year and had one thousand or more hours of service during that fiscal year. The Plan provides for Company contributions as determined by the Board of Directors. For the years ended June 27, 2004, June 29, 2003, and June 30, 2002, contributions in the amount of $188,000, $145,000, and $165,000, respectively, were charged to operating expense. Effective March 31, 1987, the Company adopted an Employee Stock Ownership Plan (ESOP) which generally covers all employees who on the last day of the fiscal year or December 29 have been employed for one year with at least one thousand hours of service. The Plan provides for Company contributions as determined by the Board of Directors. Prior to fiscal year 1995, the contributions were allocated to participants based on compensation and years of service. Contributions since fiscal year 1995 are allocated based on compensation only in order to comply with Internal Revenue Service code requirements. The value of the Company's contributions to the Plan for fiscal years 2004, 2003, and 2002 was $188,000, $145,000, and $162,600, respectively. 9. INCOME TAXES The significant components of the Company's deferred tax assets and liabilities were as follows: June 27, June 29, 2004 2003 Deferred tax: Land, buildings, and equipment $1,317,905 $ 582,200 Unrealized gain on available- for-sale securities 1,237,269 1,157,000 Prepaid expenses 191,619 198,000 Other (42,944) (95,000) _________ _________ Deferred tax liabilities $2,703,849 $1,842,200 Income tax expense differs from the amounts computed by applying the U.S. Federal income tax rate to income before tax for the following reasons:
For the Years Ended 2004 % 2003 % 2002 % Taxes computed at statutory rate $2,553,276 34.0% $1,900,000 34.0% $2,045,000 34.0% State income taxes, net of Federal income tax benefit 337,032 4.5 161,000 2.9 175,000 2.9 Dividends received exclusion (35,889) (.5) (40,000) (.72) (22,000) (.36) All other-net (46,523) (.6) (16,000) (.28) (24,000) (.41) _________ ____ _________ ____ _________ ____ $2,807,896 37.4% $2,005,000 35.9% $2,174,000 36.1%
10. RELATED PARTIES At June 27, 2004, the Company had recorded $20,020 in deferred compensation payable to one officer and at June 29, 2003, the Company recorded $99,600 in deferred compensation payable to one officer and one major shareholder. Deferred compensation payable to non-related parties was a total of $60,875 at June 27, 2004 and $59,500 at June 29, 2003. The current portion of these amounts, $6,617 at June 27, 2004 and $25,632 at June 29, 2003 is included in accrued expenses. 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following summary represents the results of operations for each of the quarters in fiscal years 2004 and 2003 (dollars in thousands, except for earnings per share):
Earnings Operating Operating Before Earnings Revenues Income Income Net Per Taxes Earnings Share 2004 June 27, 2004 $6,198 $ 767 $ 909 $ 512 $.10 March 28, 2004 8,783 2,583 2,689 1,704 .33 December 28, 2003 7,308 1,312 1,415 912 .17 September 28, 2003 6,145 233 2,497 1,574 .31 2003 June 29, 2003 $6,878 $ 942 $1,047 $ 682 $.14 March 30, 2003 8,845 2,436 2,567 1,640 .31 December 29, 2002 7,527 1,479 1,602 1,024 .20 September 29, 2002 6,126 256 372 237 .05
12. PURCHASE OBLIGATIONS In June 2004, the Company executed purchase agreements to replace all remaining wooden bowling lanes for an estimated cost of $600,000 and for the purchase of bowling pins at an estimated cost of $260,000. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Bowl America Incorporated Alexandria, Virginia We have audited the accompanying consolidated Balance Sheet of Bowl America Incorporated and Subsidiaries as of June 27, 2004 and the related Consolidated Statements of Earnings and Comprehensive Earnings, Stockholders' Equity and Cash Flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bowl America Incorporated and Subsidiaries as of June 27, 2004, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Aronson & Company Rockville, Maryland August 27, 2004 -12- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Bowl America Incorporated Alexandria, Virginia We have audited the accompanying consolidated balance sheet of Bowl America Incorporated and subsidiaries ("the Company") as of June 29, 2003, and the related consolidated statements of earnings and comprehensive earnings, stockholders' equity and cash flows for each of the two fiscal years in the period ended June 29, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 29, 2003, and the results of their operations and their cash flows for each of the two fiscal years in the period ended June 29, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP McLean, Virginia September 12, 2003 -13- EX-31.1 Exhibit 31.1 to Form 10-K Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) Or 15d-14(a) under the Securities Exchange Act of 1934 I, Leslie H. Goldberg, certify that: 1. I have reviewed this Annual Report on Form 10-K of Bowl America Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting: and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 23, 2004 Leslie H. Goldberg Chief Executive Officer Exhibit 31.2 Exhibit 31.2 to Form 10K Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) Or 15d-14(a) under the Securities Exchange Act of 1934 I, Cheryl A. Dragoo, certify that: 1. I have reviewed this Annual Report on Form 10-K of Bowl America Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting: and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 23, 2004 Cheryl A. Dragoo Chief Financial Officer Exhibit 32 Exhibit 32 to Form 10K Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 Solely for the purposes of complying with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Bowl America Incorporated (the "Company"), hereby certify, based on our knowledge, that the Annual Report on Form 10-K of the Company for the year ended June 27, 2004, (the "Report") fully complies with the requirements of Section 13(a) of the Securities Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Leslie H. Goldberg Chief Executive Officer Cheryl A. Dragoo Chief Financial Officer Date: September 23, 2004 EX-20 2 rpr0904.txt PRESS RELEASE DATED SEPTEMBER 23, 2004 Press Release date September 23, 2004 For Immediate Release September 23, 2004 Better Fiscal Year at Bowl America Earnings for Bowl America's fiscal year which ended June 27, 2004, increased to $.91 per share from $.70 in the prior year. The increase was caused by the sale of a money-losing bowling property in August 2003. Without the profit from the sale, earnings for this year would have been $0.66. Unusually heavy spring rains last year caused a bump in earnings. The Company has benefited from the weather at the start of its new fiscal year with both July and August profits slightly ahead of fiscal 2004. The impact of this year's Florida hurricanes should be similar to that experienced from Isabel last year. However, the first quarter of fiscal 2005 will have one fewer week of league bowling because of the later than usual Labor Day. This late start will add one week of league lineage to the fourth quarter. In addition, this is a 53-week year for financial purposes which will also add to profitability in the fourth quarter. The Board of Directors today declared a dividend of $.135. Unless circumstances change, this will be the thirty-third consecutive year of increased dividends for Bowl America. The Company will construct its new Richmond bowling center with funds currently on hand and does not see the need to borrow. Bowl America operates eighteen bowling centers in Maryland, Virginia and Florida and its stock trades on the American Stock Exchange with the symbol BWLA. The Company's SEC Form 10-K is available at www.bowlamericainc.com. Bowl America Incorporated Results of Operations (Unaudited) Thirteen weeks ended Fifty-two weeks ended June 27, June 29, June 27, June 29, 2004 2003 2004 2003 Revenues Bowling and other $4,403,442 $4,827,804 $20,154,568 $20,574,413 Food, beverage and merchandise sales 1,794,286 2,050,164 8,279,121 8,801,279 TOTAL REVENUES $6,197,728 $6,877,968 $28,433,689 $29,375,692 Operating expenses excluding depreciation and amortization 5,077,139 5,571,496 22,006,445 22,649,565 Depreciation and amortization 354,363 365,087 1,532,587 1,613,379 Net gain on sale of building 33,123 - 2,201,240 - Interest and dividend income 108,449 106,624 413,738 475,598 Earnings before taxes 907,798 1,048,009 7,509,635 5,588,346 Net Earnings $ 511,502 $ 682,009 $ 4,701,739 $ 3,583,346 Weighted average shares outstanding 5,138,511 5,134,599 5,138,559 5,145,934 EARNINGS PER SHARE .10 .14 .91 .70 Summary of Financial Position (Unaudited) Dollars in Thousands 06/27/04 06/29/03 ASSETS Total current assets including cash and short-term investments of $13,002 & $11,009 $14,181 $12,608 Property and investments 26,399 24,929 TOTAL ASSETS $40,580 $37,537 LIABILITIES AND STOCKHOLDERS' EQUITY Total current liabilities $ 3,054 $ 2,711 Other liabilities 2,629 1,873 Stockholders' equity 34,897 32,953 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,580 $37,537 -----END PRIVACY-ENHANCED MESSAGE-----