-----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, We7MEaC0kl7vxJkyQbJ25eTdAAM2KPQxJRpwXyXVQEipqzL9fJeORvtZ/8TXYDIt Kdg9GIo7i5wUzIj4mOrtog== 0000013573-08-000012.txt : 20080929 0000013573-08-000012.hdr.sgml : 20080929 20080929114534 ACCESSION NUMBER: 0000013573-08-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20080629 FILED AS OF DATE: 20080929 DATE AS OF CHANGE: 20080929 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: 081092984 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 rf10k608cd.txt FORM 10-K FOR PERIOD ENDED JUNE 29, 2008 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, 2008 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES[ ] NO [X] 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) 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. [X] Indicate by check mark whether the registrant is a large accelerated filer an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [ ] Smaller reporting company [X] Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the act). YES [ ] NO [X] As of December 30, 2007, which was the last business day of the registrant's most recently completed second quarter, 3,667,228 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 of the registrant was approximately $37 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 30, 2007, the total aggregate market value for both classes of common stock held by nonaffiliates would be approximately $40 million. Indicate the number of shares outstanding of each of the registrant?s Classes of common stock, as of the latest practicable date: Shares outstanding at September 1, 2008 Class A Common Stock $.10 par value 3,667,228 Class B Common Stock $.10 par value 1,468,462 DOCUMENTS INCORPORATED BY REFERENCE Portions of registrant's definitive proxy statement, which will be filed with the Commission not later than 120 days after June 29, 2008, are incorporated into Part III of this Form 10-K. BOWL AMERICA INCORPORATED INDEX TO FISCAL 2008 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) Financial Information about Geographic Areas 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 3 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 3 ITEM 8. Financial Statements and Supplementary Data 3 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 3 ITEM 9A(T). Controls and Procedures 4 PART III ITEM 10. Directors, Executive Officers and Corporate Governance 4 ITEM 11. Executive Compensation 4 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 5 ITEM 13. Certain Relationships and Related Transactions, and Director Independence 5 ITEM 14. Principal Accountant Fees and Services 5 PART IV ITEM 15. Exhibits and Financial Statement Schedules (a)1. Financial Statements 5 (a)3. Exhibits 5-6 Signatures 7-8 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 19 bowling centers. The bowling center in Falls Church, Virginia, was closed in February 2007, due to damage from an ice storm. The center reopened March 31, 2008. (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, 2008 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 four bowling centers in the greater metropolitan area of Richmond, Virginia. These 19 bowling centers contain a total of 756 lanes. These establishments are fully air-conditioned with facilities for service of food and beverages, game rooms, rental lockers, and meeting room 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 markets in which it operates. 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 750. (d) Financial Information about Geographic Areas 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 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, 2008. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) 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 high and low sales price range of the Company's Class A stock in each quarter of fiscal 2008 and 2007. 2008 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr _______________________________________________________ High $17.35 $16.28 $15.91 $15.75 Low $16.10 $15.76 $15.20 $13.75 2007 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr _______________________________________________________ High $14.68 $15.85 $16.80 $17.05 Low $14.35 $14.31 $15.75 $16.52 (b) Holders The approximate number of holders of record of the Company's Class A Common Stock as of June 29, 2008 is 392 and of the Company's Class B Common Stock is 26. -2- (c) 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 2008 and 2007. Class A Common Stock Quarter 2008 2007 _________________________________________ First 14.5 cents 14 cents Second 14.5 cents 14 cents Third 25 cents 14.5 cents Fourth 15 cents 14.5 cents Class B Common Stock Quarter 2008 2007 _________________________________________ First 14.5 cents 14 cents Second 14.5 cents 14 cents Third 25 cents 14.5 cents Fourth 15 cents 14.5 cents (d) Securities Authorized for Issuance Under Equity Compensation Plans None (e) Performance Graph Not required ITEM 6. SELECTED FINANCIAL DATA The information is set forth in the section entitled "Selected Financial Data" on page 13 of this Form 10-K. 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 is set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on Pages 10 through 12 of this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements are set forth on pages 14 through 25 of this Form 10-K. Supplementary data is not required. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -3- ITEM 9A(T). CONTROLS AND PROCEDURES Disclosure Controls and Procedures The Company's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by it in its periodic reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. Based on an evaluation of the Company's disclosure controls and procedures conducted by the Company's Chief Executive Officer and Chief Financial Officer, such officers concluded that the Company's disclosure controls and procedures were effective as of June 29, 2008. Additionally, the Company's officers concluded that the Company's disclosure controls and procedures were effective as of June 29, 2008 to ensure that information required to be disclosed in the reports filed with the Exchange Act was accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Internal Control over Financial Reporting (a) Management's Annual Report on Internal Control Over Financial Reporting In accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item 308(a) of the Commission's Regulation S-K, the report of management on the Company's internal control over financial reporting is set forth immediately preceding the Company's financial statements included in this Annual Report on Form 10-K. (b) Changes in Internal Control Over Financial Reporting In accordance with Rule 13-a-15(d) under the Securities Exchange Act of 1934, management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, determined that there was no change in the Company's internal control over financial reporting that occurred during the fourth quarter ended June 29, 2008 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors and executive officers 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. -4- 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, AND DIRECTOR INDEPENDENCE 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 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 AND FINANCIAL STATEMENT SCHEDULES (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: Report of Independent Registered Public Accounting Firm Consolidated balance sheets - June 29, 2008 and July 1, 2007 Consolidated statements of earnings and comprehensive earnings - years ended June 29, 2008, and July 1, 2007 Consolidated statements of stockholders' equity - years ended June 29, 2008, and July 1, 2007 Consolidated statements of cash flows - years ended June 29, 2008, and July 1, 2007 Notes to the consolidated financial statements - years ended June 29, 2008, and July 1, 2007 (a)2. Exhibits: 3(i)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.) -5- 3(i)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(ii) 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.) 10(a) Employment Agreement, as amended June 17, 2008, between Registrant and Leslie H. Goldberg (filed herewith) 10(b) Employment agreement, dated December 5, 2006, between Registrant and Cheryl A. Dragoo. (Incorporated by reference from Registrant's Form 8-K filed December 7, 2006) 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) -6- BOWL AMERICA INCORPORATED SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOWL AMERICA INCORPORATED Leslie H. Goldberg President Chief Executive and Operating Officer Date: September 25, 2008 Cheryl A. Dragoo Chief Financial Officer, Assistant Treasurer and Controller Principal Accounting Officer Date: September 25, 2008 -7- 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, 2008 Ruth Macklin A. Joseph Levy Senior Vice President-Treasurer Senior Vice President-Secretary and Director and Director Date: September 25, 2008 Date: September 25, 2008 Warren T. Braham Stanley H. Katzman Director Director Date: September 25, 2008 Date: September 25, 2008 Allan L. Sher Merle Fabian Director Director Date: September 25, 2008 Date: September 25, 2008 -8- Management's Annual Report on Internal Control Over Financial Reporting The following sets forth, in accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item 308(a) of the Securities and Exchange Commission's Regulation S-K, the annual report of management of Bowl America Incorporated (the "Company") on the Company's internal control over financial reporting. 1. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting in a process designed by, or under the supervision of the Company's Chief Executive Officer and Chief Financial Officer and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: * Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; * Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and * Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. 2. Management of the Company, in accordance with Rule 13a-15(d) under the Securities Exchange Act of 1934 and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's internal control over financial reporting as of June 29, 2008. The framework on which management's evaluation of the Company's internal control over financial reporting is based is the "Internal Control-Integrated Framework" published in 1992 by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission. 3. Management has determined that the Company's internal control over financial reporting as of June 29, 2008, was effective. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 4. This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report. -9- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operating activities in fiscal 2008 was $3,500,000 which was sufficient to meet day-to-day cash needs. Short- term investments consisting mainly of Certificates of Deposits, cash and cash equivalents totaled $8,404,000 at the end of fiscal 2008 compared to $9,013,000 at the end of fiscal 2007. In the third quarter of fiscal 2007, a bowling center in Falls Church, Virginia, was temporarily closed due to roof damage caused by an ice storm. The building remained closed for repairs through the first three quarters of fiscal 2008, reopening on March 31, 2008, the first day of the fiscal fourth quarter. During fiscal year 2008, the Company expended approximately $740,000 for the purchase of entertainment and restaurant equipment. In May 2008, the Company purchased and received bowling pins totaling approximately $246,000. The Company is seeking property for the development of new bowling centers. The Company has made no application for third party funding as cash and cash flows are sufficient to finance all contemplated purchases and to meet short- term purchase commitments and operating lease commitments. The Company's position in marketable equity securities, primarily telecommunication stocks, is a further 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, 2008 was approximately $4.3 million compared to $6.1 million at July 1, 2007, prior to disposition of Alltel and Avaya stock. During the second quarter of fiscal 2008, the Company received approximately $291,000 from the combination of the sale of its Alltel holdings and the mandatory conversion of Avaya stock for cash. Cash dividends totaling $3.5 million, or $.69 per share, including a $.10 per share special dividend on the 50th anniversary of the opening of Bowl America's first location, were paid to shareholders during the 2008 fiscal year, making this the thirty-sixth consecutive year of increased dividends per share. In June 2008, the Company declared a quarterly $.15 per share dividend paid in August 2008. 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. RESULTS OF OPERATIONS Fiscal years 2008 and 2007 each consisted of 52 weeks. The Company temporarily closed its existing Falls Church, Virginia, bowling center in February 2007 when its roof was damaged by an ice storm. The center reopened on March 31, 2008. In fiscal 2008, eighteen centers were in operation for the first nine months and nineteen centers were operating during the final three months. In fiscal 2007, until the ice storm occurred about half-way through the third quarter, nineteen centers were in operation. All comparisons in this discussion and throughout the report are affected by the change in the number of centers in operation in fiscal years 2008 and 2007. Management has not completed its analysis of expected business interruption insurance recovery for the closed center, but the Company believes it will -10- recover $800,000 of lost income, included in Operating Revenues, for the period July 2, 2007 through June 29, 2008. Estimated insurance recovery of $440,000 was included in the same category in fiscal 2007. The amounts are net after expenses and are allocated to Bowling and other and Food, beverage and merchandise sales. Operating revenues decreased $1,870,000 or about 6% in fiscal 2008 and increased $1,654,000 or about 5% in fiscal 2007. Bowling and other revenue decreased $1,446,000 or 6% in fiscal 2008 and increased $1,241,000 or 6% in fiscal 2007. Food, beverage and merchandise sales declined $425,000 or 5% in fiscal 2008 and rose $413,000 or 5% in fiscal 2007. Total operating expense decreased $691,000 or 3% in fiscal 2008 and increased $1,071,000 or 4% in fiscal 2007. Costs for employee compensation and benefits were down 2% in fiscal 2008 and up 5% in the prior year period. Included in this category of expense are contributions to our two benefit plans, both of which are defined contribution plans. There is no additional obligation beyond the current year contribution. Cost of bowling and other services decreased 1% and increased 3% in fiscal years 2008 and 2007, respectively. Maintenance expense decreased 13% in fiscal 2008 and increased 4% in fiscal 2007. Supplies expense dropped 10% in fiscal 2008 and was up 17% in fiscal 2007. In the prior year point-of-sale systems and entertainment supplies were responsible for the majority of the increase. Advertising costs decreased $41,000 or 7% in fiscal 2008 compared to a decrease of $91,000 or 13% in fiscal 2007. Utility costs were up 3% in fiscal 2008 and 4% in fiscal 2007. Rent expense declined 13% in fiscal year 2008 and was up 7% fiscal year 2007 primarily as a result of changes in percentage rent at a leased location. Insurance expense, excluding health and life, increased 3% in fiscal 2008 and declined 6% in fiscal 2007. Depreciation expenses decreased $154,000 or 8% in fiscal year 2008 as no depreciation expense was recorded for Falls Church for the period of its closure. Depreciation expense increased $253,000 or 15% in fiscal 2007, the first full year of operation for the Short Pump location. Operating income in fiscal 2008 decreased approximately 21% to $4.3 million from $5.5 million in fiscal 2007. Interest and dividend income decreased 6% in fiscal 2008 as a result of lower investment balances and lower interest rates. In fiscal 2007 the same category increased 32% in part from a one-time dividend on a telecom stock. Investment earnings of $267,000 on the Alltel and Avaya transactions mentioned above, were recorded in fiscal 2008. Effective income tax rates for the Company were 35% for fiscal 2008, and 34.4% for fiscal 2007, 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. Net earnings in fiscal 2008 were $3.5 million or $.69 per share compared to $4.2 million or $.82 per share in fiscal 2007. -11- 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. 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 based on quoted market prices 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. We have identified accounting for the impairment of long-lived assets under SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets as a critical accounting policy due to the significance of the amounts included in our balance sheet under the caption of Land, Buildings and Equipment. The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable. In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets. An impairment loss equal to the difference between the assets' fair value and carrying value is recognized when the estimated undiscounted future cash flows are less than the carrying amount. -12- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED SUMMARY OF OPERATIONS Selected Financial Data For the Years Ended June 29, July 1, July 2, July 3, June 27, 2008 2007 2006 2005 2004 __________________________________________________________ Operating Revenues $30,103,846 $31,974,336 $30,320,251 $28,607,145 $28,433,689 Operating Expenses 25,790,753 26,481,388 25,410,113 23,435,145 23,539,032 Interest and dividend Income 811,205 863,983 655,818 609,963 413,738 Investment Earnings (loss) 267,237 (3,613) - 151,817 - Gain on Sale of Land, Buildings and Equipment 45,368 15,557 23,028 65,531 2,201,240 __________ __________ _________ _________ _________ Earnings before pro- vision for income taxes 5,436,903 6,368,875 5,588,984 5,999,311 7,509,635 Provision for income taxes 1,902,363 2,179,932 1,949,409 2,150,030 2,807,896 __________ __________ __________ __________ __________ Net Earnings $ 3,534,540 $ 4,188,943 $ 3,639,575 $ 3,849,281 $ 4,701,739 Weighted Average Shares Outstanding Basic & Diluted 5,135,693 5,136,499 5,136,968 5,137,773 5,138,559 Earnings Per Share Basic & Diluted $.69 $.82 $.71 $.75 $.91 Net Cash Provided by Operating Activities $3,499,703 $6,101,075 $4,292,512 $5,503,187 $5,501,857 Cash Dividends Paid $3,543,631 $2,927,853 $2,876,696 $2,774,419 $2,672,062 Cash Dividends Paid Per Share-Class A $.69 $.57 $.56 $.54 $.52 -Class B $.69 $.57 $.56 $.54 $.52 Total Assets $44,056,750 $45,834,730 $43,130,385 $42,548,998 $40,579,581 Stockholders' Equity $38,214,963 $39,337,237 $37,088,954 $36,191,662 $34,896,581 Net Book Value Per Share $7.44 $7.66 $7.22 $7.04 $6.79 Net Earnings as a % of Beginning Stock- holders' Equity 9.0% 11.3% 10.1% 11.0% 14.3% Lanes in Operation 756 756 756 716 716 Centers in Operation 19 19 19 18 18 -13- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 29, 2008 July 1, 2007 ASSETS Current Assets Cash and cash equivalents (Note 2) $ 2,129,512 $ 1,547,345 Short-term investments (Note 3) 6,274,274 7,465,611 Inventories 800,559 581,705 Prepaid expenses and other 1,959,849 1,067,523 Income taxes refundable 366,984 36,555 Current deferred income taxes (Note 7) 27,141 29,154 __________ __________ Total Current Assets 11,558,319 10,727,893 __________ __________ Land, Buildings and Equipment, Net (Note 4) 24,860,760 25,887,241 __________ __________ Other Assets Marketable investment securities (Note 3) 7,008,263 8,620,817 Cash surrender value-officers'life insurance 529,628 502,099 Other 99,780 96,680 __________ __________ Total Other Assets 7,637,671 9,219,596 __________ __________ TOTAL ASSETS $44,056,750 $45,834,730 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 919,760 $ 919,297 Accrued expenses 1,147,524 1,067,203 Dividends payable 770,353 744,679 Other current liabilities 332,385 330,372 _________ _________ Total Current Liabilities 3,170,022 3,061,551 Long-Term Deferred Compensation 54,621 59,224 Non-current Deferred Income Taxes (Note 7) 2,617,144 3,376,718 _________ _________ TOTAL LIABILITIES 5,841,787 6,497,493 _________ _________ Commitments and Contingencies (Note 5) Stockholders' Equity (Note 8) 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 3,667,228 and 3,667,254 366,722 366,725 Class B outstanding 1,468,462 shares 146,846 146,846 Additional paid-in capital 7,478,838 7,478,876 Accumulated other comprehensive earnings- Unrealized gain on available-for-sale securities, net of tax 2,281,121 3,368,192 Retained earnings 27,941,436 27,976,598 __________ __________ TOTAL STOCKHOLDERS' EQUITY $38,214,963 $39,337,237 __________ __________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,056,750 $45,834,730 =========== ========== The accompanying notes to the consolidated financial statements are an integral part of these financial statements. -14- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS For the Years Ended June 29, 2008 July 1, 2007 Operating Revenues Bowling and other $21,430,757 $22,876,620 Food, beverage and merchandise sales 8,673,089 9,097,716 __________ __________ 30,103,846 31,974,336 __________ __________ Operating Expenses Compensation and benefits 13,749,121 14,016,650 Cost of bowling and other 6,877,826 6,956,702 Cost of food, beverage and merchandise sales 2,532,285 2,673,667 Depreciation and amortization 1,764,226 1,918,595 General and administrative 867,295 915,774 __________ __________ 25,790,753 26,481,388 __________ __________ Operating Income 4,313,093 5,492,948 Interest and dividend income 811,205 863,983 Investment earnings (loss) 267,237 (3,613) Gain on sale of land, buildings and equipment 45,368 15,557 __________ __________ Earnings before provision for income taxes 5,436,903 6,368,875 __________ __________ Provision for income taxes(Note 7) Current 2,022,306 2,118,337 Deferred (119,943) 61,595 __________ __________ 1,902,363 2,179,932 __________ __________ Net Earnings $ 3,534,540 $ 4,188,943 __________ __________ Earnings Per Share-Basic & Diluted $.69 $.82 ___ ___ Net Earnings $ 3,534,540 $ 4,188,943 Other Comprehensive (Loss) Gain Net of Tax Unrealized gain on available-for-sale securities, net of (543,668) and 602,769 (926,896) 1,027,254 Reclassification adjustment for (gain) loss included in net income net of 98,797 and (1,335) (160,175) 2,373 __________ __________ Comprehensive Earnings $ 2,447,469 $ 5,218,570 __________ __________ The accompanying notes to the consolidated financial statements are an integral part of these financial statements. -15-
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 Earnings ___________________________________________________________________________________________________________ Balance, July 2, 2006 3,668,430 $366,843 1,468,462 $146,846 $7,480,615 $2,338,565 $26,756,085 Purchase of stock (1,176) (118) - - (1,739) - (15,063) Cash dividends paid - - - - - - (2,208,688) Accrued dividends declared June 19, 2007, payable August 10, 2007 - - - - - - (744,679) Change in unrealized gain on available-for-sale securities (shown net of tax) - - - - - 1,027,254 - Reclassification adjustment for loss included in net income, net of tax - - - - - 2,373 - Net earnings for the year - - - - - - 4,188,943 __________________________________________________________________________________________________________ Balance, July 1, 2007 3,667,254 $366,725 1,468,462 $146,846 $7,478,876 $3,368,192 $27,976,598 Purchase of stock (26) (3) - - (38) - (397) Cash dividends paid - - - - - - (2,798,952) Accrued dividends declared June 17, 2008, payable August 6, 2008 - - - - - - (770,353) Change in unrealized gain on available-for-sale securities (shown net of tax) - - - - - (926,896) - Reclassification adjustment for gain included in net income, net of tax - - - - - (160,175) - Net earnings for the year - - - - - - 3,534,540 __________________________________________________________________________________________________________ Balance, June 29 2008 3,667,228 $366,722 1,468,462 $146,846 $7,478,838 $2,281,121 $27,941,436 The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
-16- BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS June 29, July 1, 2008 2007 Cash Flows From Operating Activities Net earnings $3,534,540 $4,188,943 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,764,226 1,918,595 (Decrease) increase in deferred income tax (119,943) 61,595 Gain on disposition of assets-net (45,368) (15,557) (Gain) loss on sale of available-for-sale securities (267,237) 3,613 Changes in assets and liabilities: (Increase) decrease in inventories (218,854) 43,762 Increase in prepaid expenses and other (892,326) (20,615) (Increase) decrease in income taxes refundable (330,429) 136,318 Increase in other long-term assets (3,100) (4,205) Increase in accounts payable 463 8,747 Increase (decrease) in accrued expenses 80,321 (147,577) Increase (decrease) in other current liabilities 2,013 (65,547) Decrease in long-term deferred compensation (4,603) (6,997) _________ _________ Net cash provided by operating activities $3,499,703 $6,101,075 _________ _________ Cash Flows from Investing Activities Expenditures for land, buildings, equipment (740,277) (802,065) Sale of assets 47,900 59,650 Sales and maturities (purchases) of short-term investments 1,191,337 (1,820,315) Purchases of marketable securities (135,831) (124,425) (Increase) decrease in cash surrender value (27,528) 3,565 Proceeds from sale of marketable securities 290,932 18,946 _________ _________ Net cash provided by (used in) investing activities 626,533 (2,664,644) _________ _________ Cash Flows from Financing Activities Payment of cash dividends (3,543,631) (2,927,853) Purchase of Class A Common Stock (438) (16,920) _________ _________ Net cash used in financing activities (3,544,069) (2,944,773) _________ _________ Net Increase in Cash and Cash Equivalents 582,167 491,658 _________ _________ Cash and Cash Equivalents, Beginning of Year 1,547,345 1,055,687 _________ _________ Cash and Cash Equivalents, End of Year $2,129,512 $1,547,345 ========= ========= Supplemental Disclosures of Cash Flow Information Cash paid during the year for Income taxes $2,352,735 $1,993,078 The accompanying notes to the consolidated financial statements are an integral part of these financial statements. -17- 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 19 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, four centers in metropolitan Richmond, Virginia, and three centers in metropolitan Jacksonville, Florida. These 19 centers contain a total of 756 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 2008 ended June 29, 2008, and fiscal year 2007 ended July 1, 2007. Fiscal years 2008 and 2007 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 consolidated 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, depreciation expense, 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 and long-lived assets. 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 -18- and amortization rates are based are as follows: Bowling lanes and equipment 3-10 years Building and building improvements 10-39 years Leasehold improvements 5-10 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 undiscounted future cash flows are less than the carrying amount. Dividends It is the Company's policy to accrue a dividend liability at the time the dividends are declared. Advertising Expense It is the Company's policy to expense advertising expenditures as they are incurred. The Company's advertising expenses for the years ending June 29, 2008, and July 1, 2007, were $549,548 and $590,767, respectively. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist of resale merchandise including food and beverage and bowling supplies. 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. 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. -19- 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 5,135,693, and 5,136,499, for fiscal years 2008 and 2007, respectively. 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 two years in the period ended June 29, 2008. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers money market funds, certificates of deposits, and repurchase agreements 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. 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, 2008, and July 1, 2007 other current liabilities included $334,785, and $317,973, respectively, in prize fund monies. Reclassifications Certain previous year amounts have been reclassified to conform with the current year presentation. New Accounting Standards Financial Accounting Standards Board Interpretation (FIN) No. 48, " Accounting for Uncertainty in Income Taxes" was issued in July 2006 and interprets FASB Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". FIN 48 requires all taxpayers to analyze all material positions they have taken or plan to take in all tax returns that have been filed or should have been filed with all taxing authorities for all years still subject to challenge by those taxing authorities. If the position taken is "more-likely-than-not" to be sustained by the taxing authority on its technical merits and if there is more than a 50% likelihood that the position would be sustained if challenged and considered by the highest court in the relevant jurisdiction, the tax consequences of that position should be reflected in the taxpayer's GAAP financial statements. Earlier proposed interpretations of SFAS 109 had recommended a "probable" standard for recognition of tax consequences rather than the "more-likely-than-not" standard finally adopted. The Company was required to implement FIN 48 on July 2, 2007. Consequently, the Company analyzed its tax positions and determined that no material tax positions recognition criteria are different under the new standard. In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the -20- sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles. SFAS No. 162 is effective 60 days following approval by the Securities and Exchange Commission of the Public Company Accounting Oversight Board's amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not believe this statement will have a material impact on its financial position or results of operations. In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - An interpretation of FASB Statement No. 60". SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance disclosures about the insurance enterprise's risk-management activities. SFAS No. 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The Company does not believe this statement will have a material impact on its financial position or results of operations. 2. CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following: June 29, July 1, 2008 2007 Demand deposits and cash on hand $1,015,558 $ 482,667 Money market funds 175,645 175,645 Repurchase agreements 938,309 889,033 _________ _________ $2,129,512 $1,547,345 3. INVESTMENTS The Company's marketable securities are categorized as available-for-sale securities as defined by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The cost for marketable securities was determined using the specific identification method. The fair values of marketable securities are estimated based on the quoted market price for those securities. Short-term investments consist of certificates of deposits and U.S. Treasury securities with maturities of generally three months to one year. At June 29, 2008, the fair value of short-term investments was $6,274,274. At July 1, 2007, the fair value of short-term investments was $7,465,611. Non-current investments are marketable securities which primarily consist of telecommunications stocks and a mutual fund that invests in mortgage backed securities. Unrealized gains and losses are reported as a component of accumulated other comprehensive earnings in Stockholders' Equity. As of June 29, 2008, the Company had $21,130 of gross unrealized losses from its investments in federal agency mortgage backed securities which had a fair value of $2,673,962. As of July 1, 2007, $81,216 gross unrealized losses were -21- from its investments in federal agency mortgage backed securities which had a fair value of $2,479,493. The following table shows the gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other- than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 29, 2008. Less Than 12 Months 12 Months or Greater Total ___________________ ____________________ __________________ Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses ___________________ ____________________ ___________________ Mutual fund $ - $ - $2,673,962 $21,130 $2,673,962 $21,130 During fiscal 2008, the cumulative losses on the Company's investments in the mutual fund holding mortgage-backed securities, primarily Government National Mortgage Association ("Ginnie Mae"), decreased by approximately $60,000 from $80,000 at the end of the previous year to an unrealized loss of $20,000 as of June 29, 2008. The value of these investments fluctuate based upon the market interest rates and credit quality. To mitigate credit quality risk, the contractual cash flows of the underlying investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the cost of the Company's investment. The Company does not consider these investments to be other-than- temporarily impaired at June 29, 2008. The following table summarizes the cost and approximate fair values of equity securities available-for-sale as of June 29, 2008, and July 1, 2007 as follows: Original Unrealized Fair Cost Gain Value ___________________________________________________________________________ June 29, 2008 Securities available-for-sale $710,799 $3,623,502 $4,334,301 July 1, 2007 Securities available-for-sale $734,496 $5,406,828 $6,141,324 This portfolio includes the following telecommunications stocks: 82,112 shares of AT&T 2,000 shares of Embarq 354 shares of Fairpoint Communications 939 shares of Idearc 475 shares of LSI 9,969 shares of Qwest 40,000 shares of Sprint Nextel 18,784 shares of Verizon 11,865 shares of Vodafone 4,079 shares of Windstream -22- In the year ended June 29, 2008, the Company recorded a pre-tax gain of $267,237 from the combination of the sale of its holdings in Alltel and the mandatory conversion of Avaya stock for cash. In the year ended July 1, 2007, the Company sold its holdings in Lucent Technologies for a pre-tax loss of $3,613. 4. LAND, BUILDINGS, AND EQUIPMENT Land, buildings, and equipment, as cost, consisted of the following: June 29, July 1, 2008 2007 Buildings $17,541,393 $17,541,393 Leasehold and building improvements 7,031,329 6,787,535 Bowling lanes and equipment 22,079,218 21,884,653 Land 10,590,450 10,590,450 Amusement games 844,343 814,345 Bowling lanes and equipment not yet in use 171,630 150,107 __________ __________ 58,258,363 57,768,483 Less accumulated depreciation and amortization 33,397,603 31,881,242 __________ __________ $24,860,760 $25,887,241 Depreciation and amortization expense for buildings and equipment for fiscal years 2008 and 2007 was $1,764,226, and $1,918,595, respectively. No depreciation expense was recorded for Bowl America Falls Church during the period when it was closed. The Company includes construction in progress costs in the bowling lanes and equipment not yet in use category until completion of the project. Bowling lanes and equipment not yet in use are not depreciated. 5. COMMITMENTS AND CONTINGENCIES In February 2007, the Company temporarily closed an existing bowling center in Falls Church, Virginia when its roof was damaged by an ice storm. The center reopened on March 31, 2008. The Company has business interruption insurance that management believes will cover the lost income of the center while repairs were being made. At June 29, 2008, no final settlement of the loss has taken place. The Company believes that a reasonable estimate for the amount to be recovered is $1,240,000 from the date of the roof damage through June 29, 2008. In fiscal years 2008 and 2007, $800,000 and $440,000, respectively, were recognized as revenue and receivables for those amounts are included in Prepaid expenses and other on the Consolidated Balance Sheets at June 29, 2008 and July 1, 2007, respectively. The estimate was based on the average yearly percentage change in revenues between 2007 fiscal year and 2006 fiscal year multiplied by the prior year earnings of that center and subtracting the year to date earnings up until the roof collapse. -23- 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 29, 2008, the minimum fixed rental commitments related to all non-cancelable leases, were as follows: Year Ending 2009 $272,951 2010 103,413 2011 88,000 2012 88,000 2013 88,000 Thereafter 80,667 _______ Total minimum lease payments $721,031 Net rent expense was as follows: For the Years Ended June 29, July 1, 2008 2007 Minimum rent under operating leases $272,950 $272,704 Excess percentage rents 4,744 46,562 _______ _______ $277,694 $319,266 Purchase Commitments The Company's purchase commitments at June 29, 2008 are for materials, supplies, services and equipment as part of the normal course of business. 6. PROFIT-SHARING AND ESOP PLAN The Company has two defined contribution plans. The first is a profit- sharing plan 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. For the years ended June 29, 2008, and July 1, 2007, contributions in the amount of $125,000, and $140,000, respectively, were charged to operating expense. Effective March 31, 1987, the Company adopted an Employee Stock Ownership Plan (ESOP) 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. The value of the Company's contributions to the Plan for fiscal years 2008 and 2007 was $125,000, and $140,000, respectively. The Company has no defined benefit plan or other post retirement plan. -24- 7. INCOME TAXES The significant components of the Company's deferred tax assets and liabilities were as follows: June 29, July 1, 2008 2007 Deferred tax: Land, buildings, and equipment $1,259,692 $1,412,809 Unrealized gain on available- for-sale securities 1,356,702 1,969,749 Prepaid expenses and other (26,391) (34,994) _________ _________ Deferred tax liabilities $2,590,003 $3,347,564 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 2008 2007 Taxes computed at statutory rate 34.0% 34.0% State income taxes, net of Federal income tax benefit 3.8 2.0 Dividends received exclusion (2.5) (.9) All other-net (.3) (.7) ____ ____ 35.0% 34.4% 8. 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, 2008, and July 1, 2007, the Company had $39,093 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 3 1/2% to 5% and are payable over a term of three years from the date of the agreements which range from 2007 to 2008. These employee loans have been recorded as a reduction of additional paid-in capital. 9. DEFERRED COMPENSATION Deferred compensation payable was a total of $54,621 at June 29, 2008, and $59,224 at July 1, 2007. The current portion of these amounts is $8,113 at June 29, 2008, and $7,272 at July 1, 2007, and is included in accrued expenses. -25- Aronson & Company 700 King Farm Boulevard Rockville, Maryland 20850 Phone 301.231.6200 Fax 301.231.7630 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Bowl America Incorporated Alexandria, Virginia We have audited the accompanying consolidated Balance Sheets of Bowl America Incorporated and Subsidiaries as of June 29, 2008 and July 1, 2007, and the related Consolidated Statements of Earnings and Comprehensive Earnings, Stockholders' Equity and Cash Flows for the years 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 audits. We conducted our audits in accordance with the 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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. 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 29, 2008 and July 1, 2007, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109", July 2, 2007. Aronson & Company Rockville, Maryland September 24, 2008 -26- 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent 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, 2008 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent 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, 2008 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, 2008, (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, 2008 Exhibit 10(a) Exhibit 10(a) to Form 10-K AMENDED EMPLOYMENT AGREEMENT THIS AMENDED AGREEMENT made this 17th day of June 2008, by and between BOWL AMERICA INCORPORATED, hereinafter called "Corporation", and LESLIE H. GOLDBERG, hereinafter called "Goldberg", WITNESSETH: WHEREAS Corporation's prior Employment Agreement with Goldberg expires on June 29, 2008; WHEREAS the parties desire to enter into a new Employment Contract to go into effect on June 30, 2008; WHEREAS Goldberg is an important and valuable executive with recognized leadership and experience in the bowling industry, and the Corporation deems it to be in its interest and in the interest of its stockholders to secure Goldberg's services for the Corporation and subsidiaries as may be designated by the Corporation; NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter contained, the parties hereby agree as follows: 1. Corporation hereby employs Goldberg, and Goldberg hereby agrees to work for Corporation for a term of one year commencing June 30, 2008, and expiring at the end of Corporation's next fiscal year on June 28, 2009. 2. Goldberg shall serve as President of the Corporation, performing the functions and duties normally performed by such an officer. 3. Goldberg shall devote his full time and attention to the affairs of the Corporation. In the event of a change in the managerial control of the Corporation, Goldberg shall have the option of not performing any services outside of the Greater Washington Area. 4. Goldberg shall be entitled by way of remuneration for his services the sum of $76,000 per year to be paid in bi-weekly installments. Goldberg shall receive as additional annual compensation payable within seventy-five (75) days after the close of Corporation's fiscal year, two percent (2%) of the consolidated annual net profits prior to income taxes of the Corporation and its subsidiaries that exceeds $2,500,000.00. 5. In the event that Goldberg leaves the employ of the Corporation at the termination of the contract or in the event that he becomes disabled during the term of this contract so that he cannot carry on his duties as President, he shall act as consultant to the Corporation. He shall receive as compensation an annual sum equal to one-half of the average of his previous 3 years compensation, payable in monthly installments for a term of ten (10) years. Goldberg shall have the option to remain covered by the Corporation's Health Insurance Plan and shall pay the same proportionate amount of the premium as the other Officers of the Corporation. 6. This Agreement is purely personal with Leslie Goldberg and in the event of his death during the contract period or during the period that he receives income pursuant to Provision No. 5, this Agreement shall terminate and the obligations of the Corporation to make any payments shall cease. 7. Goldberg hereby agrees that he will not associate himself in any manner with any bowling company or other enterprise, which is or would be in competition with Corporation in the Greater Washington, D.C., area; Greater Baltimore, Maryland, area; Greater Richmond, Virginia, area; and Greater Jacksonville and Orlando, Florida, areas; or in any other area in which Corporation should open a future bowling center during the period that Goldberg is receiving payments pursuant to Provision 5 hereof. BOWL AMERICA INCORPORATED By Cheryl A. Dragoo Assistant Treasurer ATTEST: Michael T. Dick Assistant Secretary Leslie H. Goldberg EX-99 2 rprl908.txt PRESS RELEASE DATED SEPTEMBER 26, 2008 Press Release dated September 26, 2008 For Immediate Release September 26, 2008 BOWL AMERICA REPORTS FISCAL YEAR EARNINGS Bowl America Incorporated today reported earnings per share for its fiscal year ended June 29, 2008, declined to $.69 from $.82 in the prior year. Fourth quarter earnings per share were $.11, down from $.14 in the comparable quarter last year. The Company's Falls Church location, temporarily closed in February 2007, reopened in the fiscal 2008 fourth quarter and is adding to cash flow. However, management believes that the persistent unstable economic climate will put pressure on customers' discretionary spending while operating expenses for the Company continue to rise. The Company first noted the decline in traffic in June 2007 and has been working to offset the effects. A more detailed explanation of results is available in the Company's S.E.C. Form 10-K filing available through the website www.bowlamericainc.com. Irvin Clark, Senior Vice President, General Manager and a director of the Company died September 7, 2008. His bowling experience began in the 1930's in his father's bowling center. He had been a vital part of Bowl America's management for over 30 years and became General Manager in 1998. Fiscal 2008 was the 36th year of increased per share dividends and included a $.10 per share special dividend on the fiftieth anniversary of the opening of the first Bowl America location. The Board of Directors declared a quarterly $.15 dividend on September 25, 2008. Bowl America operates 19 bowling centers and its stock trades on the American Stock Exchange with the symbol BWLA. *** Bowl America Incorporated Results of Operations (Unaudited) Thirteen Thirteen Fifty-two Fifty-two weeks ended weeks ended weeks ended weeks ended 06/29/08 07/01/07 06/29/08 07/01/07 Operating Revenues Bowling and other $4,832,388 $4,943,891 $21,430,757 $22,876,620 Food, beverage and merchandise sales 2,069,983 1,995,755 8,673,089 9,097,716 _________ _________ __________ __________ TOTAL REVENUES $6,902,371 $6,939,646 $30,103,846 $31,974,336 Operating expenses excluding depreciation and amortization 5,937,479 5,679,453 24,026,527 24,562,793 Depreciation and amortization 388,590 489,407 1,764,226 1,918,595 Investment loss - - 267,237 (3,613) Net gain on sale of Assets 45,368 15,557 45,368 15,557 Interest and dividend income 188,223 221,742 811,205 863,983 Earnings before taxes 809,893 1,008,085 5,436,903 6,368,875 Net Earnings $ 579,530 $ 718,153 $ 3,534,540 $ 4,188,943 Weighted average shares outstanding 5,135,690 5,135,716 5,135,693 5,136,499 EARNINGS PER SHARE .11 .14 .69 .82 Summary of Financial Position Dollars in Thousands 06/29/08 07/01/07 ASSETS Total current assets including cash and short-term investments of $8,404 & $9,013 $11,558 $10,728 Property and investments 32,499 35,107 ______ ______ TOTAL ASSETS $44,057 $45,835 LIABILITIES AND STOCKHOLDERS' EQUITY Total current liabilities $ 3,170 $ 3,062 Other liabilities 2,672 3,436 Stockholders' equity 38,215 39,337 ______ ______ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,057 $45,835 -----END PRIVACY-ENHANCED MESSAGE-----