10-K 1 bwl-a20130920_10k.htm FORM 10-K bwl-a20130920_10k.htm

 

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 30, 2013                        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

 

 

 

Class A Common stock (par value $.10)

 

NYSE MKT

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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. [ ]

 

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 28, 2012, which was the last business day of the registrant's most recently completed second quarter, 3,683,009 Class A common shares were outstanding, and the aggregate market value of the Class A common shares (based upon the closing price of these shares on the NYSE MKT of Bowl America Incorporated held by non-affiliates of the registrant 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 stock 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, 2012, the total aggregate market value for both classes of common stock held by non-affiliates would be approximately $39 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 15, 2013

Class A Common Stock

 

 

$.10 par value

 

3,746,454

 

 

 

Class B Common Stock    
$.10 par value   1,414,517
                                                                                                                                                                                                                                                                                                                                           

 
 

 

 

 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 30, 2013, are incorporated by reference into Part III of this Form 10-K. The Selected Financial Data (Item 6), Management’s Discussion & Analysis (Item 7), financial statements (Item 8) and Management’s Annual Report on Internal Control Over Financial Reporting (Item 9A) attached to this filing as exhibits are incorporated herein by reference.

 

 
 

 

  

BOWL AMERICA INCORPORATED

INDEX TO FISCAL 2013 10-K FILING

 

PART I

 

  Page
   

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. Mine Safety Disclosures

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 Controls and Procedures

3

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

  4
   

ITEM 13. Certain Relationships and Related Transactions and Director Independence

4

   

ITEM 14. Principal Accountant Fees and Services

4

   

PART IV

 
   

ITEM 15. Exhibits and Financial Statement Schedules

 

            (a) Financial Statements

5

            (b) Exhibits

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 fiscal year 2013, the Company and its wholly-owned subsidiaries operated 18 bowling centers. Bowl America Winter Park located in metropolitan Orlando, Florida, operating with a negative cash flow, was sold for $2,850,000 on May 30, 2013.

 

         (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. At the end of the fiscal year 2013, the Company had operating revenues from continuing operations of approximately $23.9 million, and approximately $37 million in total assets. 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. Earnings per share for fiscal 2013 were $0.61, including $0.32 cents per share from the after tax gain on the sale and discontinued operation of the Bowl America Winter Park location of $1,669,449.

 

         (c) Narrative Description of Business

         As of September 1, 2013 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, three bowling centers in the greater metropolitan area of Jacksonville, Florida, and four bowling centers in the greater metropolitan area of Richmond, Virginia. These 18 bowling centers contain a total of 726 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 Brunswick Corporation, a large bowling equipment manufacturer, and Bowlmor AMF.

 

         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 500 including approximately 250 full time employees.

 

         (d) Financial Information about Geographic Areas

 

         The Company has no foreign operations.

 

 
-1-

 

 

ITEM 2. PROPERTIES

 

         The Company owns its general offices which 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. As of August 2, 2013, the Company's leases expire from 2014 through 2019. 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. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

 PART II

 

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

 Market Information

         The principal market on which the Company's Class A Common Stock is traded is the NYSE MKT. The

Company's Class B Common Stock is not listed on any exchange and is not traded. Each share of Class B Common Stock can be converted to one share of Class A Common Stock at any time.

 

         The table below presents the high and low sales price of the Company's Class A Common Stock in each quarter of fiscal years 2013 and 2012.

 

2013

 

1st Qtr

   

2nd Qtr

   

3rd Qtr

   

4th Qtr

 
                                 

High

  $ 13.50     $ 13.24     $ 13.61     $ 13.25  

Low

  $ 11.84     $ 11.60     $ 12.00     $ 12.32  

 

2012

 

1st Qtr

   

2nd Qtr

   

3rd Qtr

   

4th Qtr

 
                                 

High

  $ 13.50     $ 13.33     $ 14.85     $ 13.81  

Low

  $ 12.07     $ 12.09     $ 12.49     $ 12.50  

 

Holders

      As of June 30, 2013, the approximate number of holders of record of the Company's Class A Common Stock was 312 and of the Company's Class B Common Stock was 23.

 

 Cash Dividends

      The table below presents the quarterly cash dividends per share of Class A Common Stock and Class B Common Stock paid, and the quarter in which the payment was made during fiscal 2013 and 2012.

 

Class A Common Stock

Quarter

2013

2012

     

First

16 cents

16 cents

Second

83 cents

16 cents

Third

0 cents

16 cents

Fourth

16.5 cents

16 cents

 

 
-2-

 

 

Class B Common Stock

Quarter

2013

2012

     

First

16 cents

16 cents

Second

83 cents

16 cents

Third

0 cents

16 cents

Fourth

16.5 cents

16 cents

       

         The Board of Directors decides the amount and timing of any dividend at its quarterly meetings based on its appraisal of the state of the business, the economic climate and estimate of future opportunities at such time.

 

 

ITEM 6. SELECTED FINANCIAL DATA

 

         The information is set forth in the section of Exhibit 99(a) entitled "Selected Financial Data" on page 14 of this Form 10-K and is incorporated herein by reference. 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 of Exhibit 99(b) entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on Pages 9 through 12 of this Form 10-K and is incorporated herein by reference.

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         

 The financial statements and notes thereto are set forth in Exhibit 99(c) on pages 15 through 27 of this Form 10-K and is incorporated herein by reference.

         Supplementary data is not required.

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

         None

 

ITEM 9A. 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 30, 2013. Additionally, the Company’s officers concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2013 to ensure that information required to be disclosed in the reports filed under 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.

 

 
-3-

 

 

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 Regulation S-K, the report of management on the Company’s internal control over financial reporting is set forth in Exhibit 99(d) in this Annual Report on Form 10-K and is included herein by reference.

 

         (b) Changes in Internal Control Over Financial Reporting

 

         There was no change in the Company’s internal control over financial reporting that occurred during the fourth quarter ended June 30, 2013 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.

 

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.

 

 
-4-

 

 

 PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

         (a) 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 as of June 30, 2013 and July 1, 2012

 

               Consolidated statements of earnings and comprehensive earnings - years ended June 30, 2013 and July 1, 2012

 

               Consolidated statements of stockholders' equity - years ended June 30, 2013 and July 1, 2012

 

               Consolidated statements of cash flows - years ended June 30, 2013 and July 1, 2012

 

               Notes to the consolidated financial statements - years ended June 30, 2013 and July 1, 2012

 

         (b) 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.)

 

               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 Registrant’s Annual Report on Form 10-K for fiscal year ended July 2, 1989.)

 

               10.1     Amended Employment Agreement, dated as of June 18, 2013, between the Company and Leslie H. Goldberg (incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 19, 2013).

 

               10.2     Amended Employment Agreement, dated as of October 19, 2012, between the Company and Cheryl A. Dragoo (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 19, 2012).

 

               20 Press release dated September 26, 2013

 

               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)

 

               99(a) Selected Financial Data (Item 6), set forth as page 14 hereof

 

               99(b) Management’s Discussion & Analysis of Financial Condition and Results of Operations (Item 7), set forth as pages 9-12 hereof

 

               99(c) Consolidated Financial Statements (Item 8), set forth as pages 15-27 hereof

 

               99(d) Management’s Annual Report on Internal Control Over Financial Reporting, (Item 9-A) set forth as page 8 hereof

 

             101 Interactive files formatted in XBRL (Extensible Business Reporting Language)

 

 
-5-

 

 

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

 

 

/s/ Leslie H. Goldberg

Leslie H. Goldberg

President

Chief Executive and Operating Officer

 

Date: September 26, 2013

 

 

/s/ Cheryl A. Dragoo

Cheryl A. Dragoo

Chief Financial Officer,

Senior Vice President

Principal Financial and Accounting Officer

 

Date: September 26, 2013

 

 
-6-

 

 

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

 

/s/ Leslie H. Goldberg

 

Leslie H. Goldberg

 

President, Principal Executive

 

& Operating Officer and Director

 
   

Date: September 26, 2013

 
   
   
   

/s/ Ruth Macklin

/s/ Cheryl A. Dragoo

Ruth Macklin

Cheryl A Dragoo

Senior Vice President, Secretary,

Senior Vice President, Principal Financial

Treasurer and Director

& Accounting Officer and Director

   

Date: September 26, 2013

Date: September 26, 2013

   
   
   

/s/ Warren T. Braham

/s/ Stanley H. Katzman

Warren T. Braham

Stanley H. Katzman

Director

Director

   

Date: September 26, 2013

Date: September 26, 2013

   
   
   

/s/ Allan L. Sher

/s/ Merle Fabian

Allan L. Sher

Merle Fabian

Director

Director

   

Date: September 26, 2013 

Date: September 26, 2013

   
   
   

/s/ Arthur H. Bill

 

Arthur H. Bill

 

Director

 
   

Date: September 26, 2013

 

 

 

 
-7-

 

 

Exhibit 99(d) Management’s Annual Report on Internal Control Over Financial Reporting

 

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 Regulation S-K, the annual report of management of 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 30, 2013. 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 30, 2013, was effective. No material weaknesses in the Company’s internal control over financial reporting were identified by management. 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 independent registered public accounting firm pursuant to a permanent exemption for non-accelerated filers from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

 

 
-8-

 

 

Exhibit 99(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

    This Annual Report of Form 10-K contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. These statements are not guarantees of future performance or development and involve risks, uncertainties and other factors that are in some cases beyond our control. The forward-looking statements included in this Annual Report on Form 10-K are made as of the date hereof. We are under no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

LIQUIDITY AND CAPITAL RESOURCES

 

    The Company views a strong financial position as a major benefit to shareholders and emphasizes payment of dividends as part of its financial plan. A portion of earnings has consistently been invested to create a reserve to protect the Company in downturns in business, to capitalize on opportunities for expansion and modernization and to provide a secure source of income. For these reasons, the Company prefers a conservative approach to investing rather than taking greater risk for possible rapid growth. The Company balances market volatility by using both fixed income and equity investments in managing its reserve funds. Any equity security is subject to price fluctuation, however, the stocks held by the Company have relatively low volatility. The Company has long been invested in a Government National Mortgage Association (“Ginnie Mae”) fund and domestically domiciled stocks with the perceived potential of appreciation, primarily telecommunications stocks. This diversity also provides a measure of safety of principal.

 

     The Company sold its Winter Park, Florida center, which had been operating with a negative cash flow, for $2,850,000 in May 2013. The gain on the sale, which included the land, building and equipment, was $2,768,000.

 

    The Company purchased 5,000 shares of Verizon for $178,200 during the fiscal year ended July 1, 2012. The remainder of common stocks in our portfolio have come from spin-offs, mergers and acquisitions of AT&T and United Telecommunications (now Sprint) purchased in 1979 and 1984 and one insurance company acquired at no cost when that company demutualized. While not all stocks in the portfolio are domestic American companies any longer, since the original purchases at an approximate cost of $630,000, we have received approximately $962,000 from mergers and sales and over $3,400,000 in dividends, the majority of which are tax favored in the form of exclusion from federal taxable income. These marketable securities are carried at their fair value on the last day of the year. The value of the securities on June 30, 2013 was approximately $5.0 million. The value of securities held at July 1, 2012 was approximately $4.8 million.

 

     The Company’s original investment in the Vanguard GNMA bond fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. Except for a one time sale of approximately $666,000 in 1991, all earnings have been reinvested. The fund is carried at fair value on the last day of the reporting period. At June 30, 2013, the value was approximately $3,431,000.

 

     Short-term investments consisting mainly of Certificates of Deposits, cash and cash equivalents totaled $4,388,000 at the end of fiscal 2013 compared to $6,196,000 at the end of fiscal 2012. As noted below, short-term investments were used, along with cash on hand, to fund the dividends paid to shareholders during the quarter ended December 30, 2012.

 

    The Company's position in all the above investments is a source of expansion capital. Potential volatility in the trading prices of the marketable securities held by the Company could impact the Company’s opportunities for expansion. The Board of Directors reviews the portfolio weekly and any use of this reserve at its quarterly meetings. The Company has made no application for third party funding as cash and cash flows are currently sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.    

 

 
-9-

 

 

     Cash flow provided by operating activities for the year ended June 30, 2013, was $2,207,000. Equipment purchases during fiscal year 2013 used approximately $770,000. Proceeds from Ginnie Mae dividends totaling approximately $117,500 in fiscal year 2013 were used to purchase additional shares in the fund. Short-term cash was used to meet the balance of $5,950,000 required to pay regular dividends totaling $.655 per share during the fiscal year and a special dividend of $.50 per share, paid in December 2012.

 

    The change in Accrued Expenses generally relates to timing of payments including compensation and cash contributions to benefit plans.

  

    The Company paid cash dividends totaling approximately $5.9 million, or $1.155 per share, to shareholders during the 2013 fiscal year, making this the forty-first consecutive year of increased regular dividends per share. In June 2013, the Company declared a quarterly $.165 per share dividend, paid in August 2013. The economic climate is part of the consideration at the Directors quarterly reviews of future estimates of cash flows. The Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state of the business and estimate of opportunities at such time.

 

OVERVIEW

 

    The Company is in the entertainment business which, by its nature, has ups and downs based on consumer tastes and whims. Generally, promotional and open play bowling, which depends on the public’s discretionary budget dollars and their choices, accounts for more than half of our business. An unstable economy can lead many to participate in entertainment that is close to home and relatively inexpensive. Bowling has those advantages. However, the longer the economy remains unstable, the less willing people are to spend on other than necessities. Current economic conditions continue to create challenges, but our response is helped by having the resources to be able to promote the sport. Weather is also a factor, especially for casual bowlers. While extreme heat or rainy weather prompt people to look for indoor activities, heavy snow storms can keep customers from reaching the centers. Postponed league games are made up later in the season, but lost open play income is never recovered. Mild winter weather in fiscal years 2013 and 2012 caused few cancellations.

 

RESULTS OF OPERATIONS

 

    The following table sets forth the items in our consolidated summary of operations for the fiscal years ended June 30, 2013 and July 1, 2012, respectively, and the dollar and percentage changes therein.

 

   

Fifty-two weeks ended

 
   

June 30, 2013 and July 1, 2012

 
   

Dollars in thousands

 
   

2013

   

2012

   

Change

   

% Change

 

Operating Revenues:

                               

Bowling and other

  $ 16,914     $ 17,142     $ (228

)

    (1.3

)%

Food, beverage & merchandise sales

    6,943       7,201       (258

)

    (3.6

)

      23,857       24,343       (486

)

    (2.0

)

Operating Expenses:

                               

Compensation & benefits

    11,631       11,818       (187

)

    (1.6

)

Cost of bowling & other

    6,096       6,463       (367

)

    (5.7

)

Cost of food, beverage & merch sales

    2,021       2,073       (52

)

    (2.5

)

Depreciation & amortization

    1,422       1,457       (35

)

    (2.4

)

General & administrative

    926       932       (6

)

    (.6

)

      22,096       22,743       (647

)

    (2.8

)

Gain on sales of assets

    1       26       (25

)

    (96.1

)

Operating income from continuing operations

    1,762       1,626       136       8.4  

Interest & dividend income

    435       500       (65

)

    13.0  

Earnings from continuing operations before taxes

    2,197       2,126       71       3.4  

Income taxes

    711       627       84       13.5  

Earnings from continuing operations

    1,486       1,499       (13

)

    (.9

)

Gain (loss) from discontinued operations net of tax

    1,669       (74

)

    1,743       2355.4  

Net Earnings

  $ 3,155     $ 1,425     $ 1,730       121.4  

 

As noted above, the Bowl America Winter Park location was sold in May 2013, and its operations for the periods of fiscal 2013 and 2012 have been shown separately under Gain (loss) from discontinued operations, net of tax. The information included in Operating Revenues and Operating Expenses below relates to the eighteen centers that were in operation for the fiscal years ended 2013 and 2012. Fiscal 2013 and fiscal 2012 each consisted of 52 weeks.

 

 
-10-

 

 

Operating Revenues

 

   Total operating revenue decreased 2.0% or $486,000 to $23.9 million in fiscal 2013 compared to a decrease of 6.9% or $1,811,000 to $24.3 million in fiscal 2012. Bowling and other revenue decreased $228,000 in fiscal 2013 versus a decrease of $1,348,000 in fiscal 2012. Food, beverage and merchandise sales decreased $258,000 in fiscal 2013 versus a decrease of $464,000 in fiscal 2012.

 

Management believes that the length and uncertainty of the economic recovery has adversely affected customers’ appetites for recreational spending for both league and open play games. The Company continues to review and adjust its budget in light of the current economic conditions.

 

Operating Expenses

 

    As discussed in more detail below, total operating expenses decreased 2.8%, or $647,000, in fiscal year 2013 versus a decrease of 6.2%, or $1,493,000 in fiscal 2012. Costs for employee compensation and benefits were down 1.6% or $187,000 in fiscal 2013 versus a decrease of 4.2% or $516,000 in fiscal 2012. The Company continued to make scheduling adjustments resulting in a decrease in compensation. In addition, group health insurance costs declined primarily due to lower premiums and fewer participants. This category includes contributions to our two benefit plans, both of which are defined contribution plans. The contribution, which can only be made from profits, increased for fiscal year 2013 by $147,500. There is no additional obligation beyond the current year contribution.

 

    Cost of bowling and other services decreased $367,000 or 5.7% in the year ended June 30, 2013 versus a decrease of $751,000 or 10.4% in the prior fiscal year. Maintenance expense declined 8% or $65,000 in fiscal year 2013 and was down 17% or $167,000 in the prior year. Both years included interior updating at several locations. Supplies expense was flat in fiscal 2013 versus a decrease of 5% or $49,000 in fiscal 2012. Advertising costs decreased $164,000, or 27%, in fiscal 2013 and decreased $343,000 or 36% in fiscal 2012. Utility costs decreased 6% in fiscal 2013 versus a decrease of 1% in fiscal 2012. Energy management and lower electric costs were primarily responsible for the decrease in fiscal year 2013. Fiscal 2012 included one of the warmest winters on record which resulted in lower natural gas prices and usage.

 

    Cost of food, beverage and merchandise sales decreased $52,000 or 3% in fiscal 2013 and $116,000 or 5% in fiscal 2012, primarily due to lower food and beverage sales.

 

    Depreciation expenses decreased approximately $35,000 or 2% and $77,000 or 5% in fiscal year 2013 and 2012 respectively.

 

    Operating income from continuing operations increased 8.4% or $136,000 to $1.8 million in fiscal year 2013 from $1.6 million in fiscal 2012.

 

Interest and Dividend Income

 

    Interest and dividend income declined 13% in fiscal 2013 and 14% in fiscal 2012 due to lower balances and lower average interest rates on investments. Dividend income was up slightly in fiscal 2013 versus an increase of 10% in fiscal year 2012, the first year of dividends on the purchase of additional Verizon shares.

 

Income taxes

 

    Effective income tax rates on continuing operations for the Company were 32.4% for fiscal 2013 and 29.5% for fiscal 2012, the difference from statutory rates being in part for the partial exclusion of dividends received on investments which, in fiscal 2012, was a higher portion of income than in prior years.

 

 
-11-

 

 

Net Earnings

 

    Net earnings from continuing operations in both fiscal 2013 and 2012 were $1.5 million, or $.29 per share.

 

Gain (loss) from discontinued operations – net of tax

 

     Income from discontinued operations, net of tax in fiscal year 2013 includes the $2,768,000 gain on the sale of our Winter Park, Florida location. Fiscal year 2012 includes the operating loss net of tax on that location.

 

CRITICAL ACCOUNTING POLICIES

 

    We have identified accounting for marketable investment 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 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. There were no impairment losses recorded in fiscal 2013 or 2012.

 

 
-12-

 

  

 805 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 30, 2013 and July 1, 2012, and the related Consolidated Statements of Earnings and Comprehensive Earnings, Stockholders' Equity and Cash Flows for the years then ended. Bowl America Incorporated and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included 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 consolidated financial statements, 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 30, 2013 and July 1, 2012, 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.

 

/s/ Aronson, LLC

 

Aronson, LLC

Rockville, Maryland

September 26, 2013

 

 
-13-

 

 

Exhibit 99(a) Selected Financial Data

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED SUMMARY OF OPERATIONS

 

 

Selected Financial Data

 

   

For the Years Ended

 
   

June 30,

   

July 1,

   

July 3,

   

June 27,

   

June 28,

 
   

2013

   

2012

   

2011

   

2010

   

2009

 

Operating revenues

  $ 23,857,281     $ 24,343,024     $ 26,154,437     $ 26,736,430     $ 29,351,611  

Operating expenses

    22,095,866       22,742,905       24,235,601       24,305,530       25,192,583  

Gain (loss) on sale of land, building and equipment

    980       25,924       14,187       41,427       (1,375

)

Interest and dividend income

    435,141       499,873       579,960       529,845       679,287  

Earnings from continuing operations before provision for income taxes

    2,197,536       2,125,916       2,512,983       3,002,172       4,836,940  

Provision for income taxes

    711,763       626,677       866,619       1,062,926       1,688,560  

Earnings from continuing operations

  $ 1,485,773     $ 1,499,239     $ 1,646,364     $ 1,939,246     $ 3,148,380  

Gain (loss) from discontinued operations - net of tax

    1,669,449       (74,398

)

    (89,435

)

    (88,534

)

    (91,098

)

Net Earnings

  $ 3,155,222     $ 1,424,841     $ 1,556,929     $ 1,850,712     $ 3,057,282  
                                         

Weighted average shares outstanding- Basic & Diluted

    5,151,784       5,151,471       5,147,117       5,141,102       5,133,375  
                                         

Earnings per share-Basic & diluted

                                       

Continuing operations

  $ .29     $ .29     $ .32     $ .38     $ .62  

Discontinued operations

    .32       (.01

)

    (.02

)

    (.02

)

    (.02

)

Net earnings per share-Basic & diluted

  $ .61     $ .28     $ .30     $ .36     $ .60  
                                         

Net cash provided by operating activities

  $ 2,206,533     $ 2,769,286     $ 3,529,193     $ 2,944,882     $ 6,502,922  
                                         

Cash dividends paid

  $ 5,949,951     $ 3,296,942     $ 3,242,593     $ 3,187,444     $ 3,105,700  

Cash dividends paid Per share  - Class A

  $ 1.155     $ 0.64     $ 0.63     $ 0.62     $ 0.605  

- Class B

  $ 1.155     $ 0.64     $ 0.63     $ 0.62     $ 0.605  
                                         

Total assets

  $ 36,725,050     $ 39,368,174     $ 40,917,762     $ 41,410,343     $ 42,966,669  
                                         

Stockholders' equity

  $ 31,031,801     $ 33,685,154     $ 35,301,391     $ 36,403,807     $ 37,579,197  
                                         

Net book value per share

  $ 6.01     $ 6.54     $ 6.85     $ 7.07     $ 7.31  
                                         

Net earnings as a % of beginning stock holders' equity

    9.4

%

    4.0

%

    4.3

%

    4.9

%

    8.0

%

                                         

Lanes in operation

    726       756       756       756       756  

Centers in operation

    18       19       19       19       19  

 

 
-14-

 

 

Exhibit 99(c) Consolidated Financial Statements

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

   

As of

 
   

June 30,

   

July 1,

 
   

2013

   

2012

 

ASSETS

 

CURRENT ASSETS:

               

Cash and cash equivalents (Note 2)

  $ 3,437,780     $ 2,332,022  

Short-term investments (Note 3)

    949,815       3,863,721  

Inventories

    519,179       535,412  

Prepaid expenses and other

    563,591       613,891  

Income taxes refundable

    58,129       313,518  

Current deferred income taxes (Note 7)

    6,658       -  

TOTAL CURRENT ASSETS

    5,535,152       7,658,564  

LAND, BUILDINGS & EQUIPMENT, net (Note 4)

    21,979,489       22,718,526  

OTHER ASSETS:

               

Marketable investment securities (Note 3)

    8,477,227       8,286,680  

Cash surrender value-life insurance

    648,717       619,624  

Other

    84,465       84,780  

TOTAL OTHER ASSETS

    9,210,409       8,991,084  

TOTAL ASSETS

  $ 36,725,050     $ 39,368,174  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

CURRENT LIABILITIES:

               

Accounts payable

  $ 694,454     $ 722,380  

Accrued expenses

    1,045,645       1,004,221  

Dividends payable

    851,561       824,235  

Other current liabilities

    311,284       295,978  

Income taxes payable

    151,227       -  

Current deferred income taxes (Note 7)

    -       65,552  

TOTAL CURRENT LIABILITIES

    3,054,171       2,912,366  

LONG-TERM DEFERRED COMPENSATION

    39,194       44,217  

NONCURRENT DEFERRED INCOME TAXES (Note 7)

    2,599,884       2,726,437  

TOTAL LIABILITIES

    5,693,249       5,683,020  
                 

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 a share: Authorized, 10,000,000 shares                

Class A issued and outstanding 3,746,454 and 3,683,009

    374,645       368,301  

Class B issued and outstanding 1,414,517 and 1,468,462

    141,452       146,846  

Additional paid-in capital

    7,849,814       7,727,264  

Accumulated other comprehensive earnings-Unrealized gain on available-for-sale securities, net of tax

    2,584,020       2,538,818  

Retained earnings

    20,081,870       22,903,925  

TOTAL STOCKHOLDERS' EQUITY

    31,031,801       33,685,154  
                 

TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY

  $ 36,725,050     $ 39,368,174  

 

 

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 EARNINGS AND COMPREHENSIVE EARNINGS

   
   

For the Years Ended

 
   

June 30,

   

July 1,

 
   

2013

   

2012

 

Operating Revenues:

               

Bowling and other

  $ 16,914,493     $ 17,142,379  

Food, beverage and merchandise sales

    6,942,788       7,200,645  

Total Operating Revenue

    23,857,281       24,343,024  
                 

Operating Expenses:

               

Employee compensation and benefits

    11,630,598       11,818,059  

Cost of bowling and other services

    6,096,111       6,463,229  

Cost of food, beverage and merchandise sales

    2,021,532       2,072,997  

Depreciation and amortization

    1,421,616       1,456,509  

General and administrative

    926,009       932,111  

Total Operating Expense

    22,095,866       22,742,905  

Gain on sale of land, buildings and equipment

    980       25,924  

Operating Income

    1,762,395       1,626,043  

Interest and dividend income

    435,141       499,873  
                 

Earnings from continuing operations before provision for income taxes

    2,197,536       2,125,916  

Provision for income taxes from continuing Operations (Note 7)

               

Current

    888,027       547,193  

Deferred

    (176,264

)

    79,484  
      711,763       626,677  

Earnings from continuing operations

  $ 1,485,773     $ 1,499,239  

Gain (loss) from discontinued operations, net of tax (Note 10)

    1,669,449       (74,398

)

Net Earnings

  $ 3,155,222     $ 1,424,841  

Earnings per share-basic & diluted

               

Continuing operations

  $ .29     $ .29  

Discontinued operations

    .32       (.01

)

Net Earnings

  $ .61     $ .28  
                 

Weighted average shares outstanding

    5,151,784       5,151,471  
                 

Dividends paid

  $ 5,949,951     $ 3,296,942  
                 

Per share, dividends paid, Class A

  $ 1.155     $ .64  
                 

Per share, dividends paid, Class B

  $ 1.155     $ .64  
                 

Net Earnings

  $ 3,155,222     $ 1,424,841  

Other comprehensive earnings- net of tax

               

Unrealized gain on available-for–sale securities net of tax of $27,800 and $157,484

    45,202       255,864  

Comprehensive earnings

  $ 3,200,424     $ 1,680,705  

 

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 STOCKHOLDERS' EQUITY

 

   

COMMON STOCK

           

Accumulated

         
   

Class A

Shares

   

Class A

Amount

   

Class B

Shares

   

Class B

Amount

   

Additional

Paid-In

Capital

   

Other Comprehensive Earnings

   

Retained

Earnings

 

Balance, July 3, 2011

    3,683,009     $ 368,301       1,468,462     $ 146,846     $ 7,727,264     $ 2,282,954     $ 24,776,026  

Cash dividends paid

    -       -       -       -       -       -       (2,472,707

)

Accrued dividends declared June 19, 2012 payable August 22, 2012

    -       -       -       -       -       -       (824,235

)

Change in unrealized gain on available-for-sale securities (shown net of tax benefit)

    -       -       -       -       -       255,864       -  

Net earnings for the year

    -       -       -       -       -       -       1,424,841  

Balance, July 1, 2012

    3,683,009     $ 368,301       1,468,462     $ 146,846     $ 7,727,264     $ 2,538,818     $ 22,903,925  

Conversion of shares - Class B to Class A

    53,945       5,394       (53,945

)

    (5,394

)

    -       -       -  

Cash dividends paid

    -       -       -       -       -       -       (5,125,716

)

Shares issued for ESOP

    9,500       950       -       -       122,550       -       -  

Accrued dividends declared June 18, 2013, payable August 7, 2013

    -       -       -       -       -       -       (851,561

)

Change in unrealized gain on available-for-sale securities (shown net of tax)

    -       -       -       -       -       45,202       -  

Net earnings for the year

    -       -       -       -       -       -       3,155,222  

Balance, June 30, 2013

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,849,814     $ 2,584,020     $ 20,081,870  

 

 

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

 

 
-17-

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

For the Years Ended

 
   

June 30,

   

July 1,

 
   

2013

   

2012

 

Cash Flows From Operating Activities

               

Net earnings

  $ 3,155,222     $ 1,424,841  

Adjustments to reconcile net earnings to net cash provided by operating activities:

               

Depreciation and amortization (including discontinued operations)

    1,426,175       1,465,149  

(Decrease) increase in deferred income tax

    (226,563

)

    79,485  

Gain on disposition of assets-net

    (2,769,046

)

    (25,924

)

Stock issuance – ESOP plan

    123,500       -  

Changes in assets and liabilities

               

Decrease (increase) in inventories

    16,233       (55,094

)

Decrease in prepaid and other

    50,300       87,820  

Decrease (increase) in income taxes refundable

    255,389       (37,671

)

Increase in income taxes payable

    151,227       -  

Decrease in other long-term assets

    315       1,000  

(Decrease) increase in accounts payable

    (27,926

)

    55,596  

Increase (decrease) in accrued expenses

    41,424       (220,016

)

Increase (decrease) in other current liabilities

    15,306       (6,416

)

(Decrease) increase in long-term deferred compensation

    (5,023

)

    516  
                 

Net cash provided by operating activities

    2,206,533       2,769,286  
                 

Cash Flows From Investing Activities

               

Expenditures for land, building and equipment

    (770,342

)

    (1,608,587

)

Sale of assets

    2,852,250       32,150  

Net sales and maturities of short-term investments

    2,913,906       2,434,101  

Purchases of marketable securities

    (117,545

)

    (335,000

)

Increase in cash surrender value

    (29,093

)

    (24,832

)

                 

Net cash provided by investing activities

    4,849,176       497,832  
                 

Cash Flows From Financing Activities

               

Payment of cash dividends

    (5,949,951

)

    (3,296,942

)

                 

Net cash used in financing activities

    (5,949,951

)

    (3,296,942

)

                 

Net Increase (decrease) in Cash and Equivalents

    1,105,758       (29,824

)

                 

Cash and Equivalents, Beginning of period

    2,332,022       2,361,846  
                 

Cash and Equivalents, End of period

  $ 3,437,780     $ 2,332,022  
                 

Supplemental Disclosures of Cash Flow Information

               

Cash Paid During the Period for:

               

Income taxes

  $ 1,555,930     $ 548,430  

                                    

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

 

 
-18-

 

 

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, four centers in metropolitan Richmond, Virginia, and three centers in metropolitan Jacksonville, Florida. These 18 centers contain a total of 726 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 2013 ended June 30, 2013, and fiscal year 2012 ended July 1, 2012. Both years consisted of 52 weeks.

 

Subsequent Events

    The Company has evaluated subsequent events through the date of filing these financial statements with the Securities and Exchange Commission on September 26, 2013.

    In August 2013, the Company exercised its option to extend the lease for one location for a five year period such that the lease now expires in 2019.

 

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 and amortization rates are based are as follows:

 

Bowling lanes and equipment (in years)

3

-

10

Building and building improvements (in years)

10

-

39

Leasehold improvements (in years)

5

-

15

Amusement games (in years)

3

-

5
 

 
-19-

 

 

    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 30, 2013, and July 1, 2012, were $449,710 and $616,148, 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

    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

    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 5,151,784, and 5,151,471, for fiscal years 2013 and 2012, respectively.

 

 
-20-

 

 

Comprehensive Earnings

    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 the years ended June 30, 2013 and July 1, 2012.

 

Cash and Cash Equivalents

    For purposes of the consolidated statements of cash flows, the Company considers money market funds and certificates of deposits, 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 30, 2013 and July 1, 2012 other current liabilities included $289,521 and $287,273, respectively, in prize fund monies.

 

Reclassifications

     Certain previous year amounts have been reclassified to conform with the current year presentation.

 

New Accounting Standards

     In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-02 “Testing Indefinite-Lived Intangible Assets for Impairment”. This update provides entities with the option of first assessing qualitative factors to determine whether it is more likely than not that indefinite lived intangible assets are impaired. This standard is effective for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company’s does not believe this standard will have an impact on the Company’s financial statements as the Company holds no indefinite lived intangibles.

 

2. CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consisted of the following:

 
   

June 30, 2013

   

July 1, 2012

 
                 

Demand deposits and cash on hand

  $ 2,216,729     $ 1,486,497  

Money market funds

    1,221,051       845,525  
    $ 3,437,780     $ 2,332,022  

 

 The account balances at times exceed federally insured limits. The Company does not believe this poses any significant risk.

 

3. INVESTMENTS

     The Company’s marketable securities are categorized as available-for-sale securities. The cost for marketable securities was determined using the specific identification method. The fair values of marketable securities are based on the quoted market price for those securities. Short-term investments consist of certificates of deposits with maturities of generally three months to one year. At June 30, 2013, the fair value of short-term investments was $949,815. At July 1, 2012, the fair value of short-term investments was $3,863,721. 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.

 

 
-21-

 

 

 

   As of June 30, 2013, the Company had $16,925 of gross unrealized gains from its investments in federal agency mortgage backed securities which had a fair value of $3,430,670. As of July 1, 2012, $201,981 in gross unrealized gains were from its investments in federal agency mortgage backed securities which had a fair value of $3,498,182. The Company’s investments were was follows:

 
   

Original

Cost

   

Unrealized

Gain

   

Unrealized

Loss

   

Fair

Value

 

June 30, 2013

                               

Equity securities

  $ 888,998     $ 4,159,182     $ (1,623 )   $ 5,046,557  
                                 

Mutual fund

    3,413,745       16,925       -       3,430,670  
                                 

Certificates of deposits

    949,815       -       -       949,815  
                                 

July 1, 2012

                               

Equity securities

  $ 888,998     $ 3,904,987     $ (5,487 )   $ 4,788,498  
                                 

Mutual fund

    3,296,201       201,981       -       3,498,182  
                                 

Certificates of deposits

    3,863,721       -       -       3,863,721  

         

    During fiscal 2013 and fiscal 2012, the Company had certain equity securities with cumulative unrealized losses of $1,623 and $5,487 respectively. Management believes the unrealized losses are temporary and the Company has the ability and intent to hold these securities long enough to recover its investment.

 

   

Less than 12 months

   

12 Months or greater

   

Total

 

June 30, 2013

 

Fair

Value

   

Unrealized

loss

   

Fair

Value

   

Unrealized

loss

   

Fair

Value

   

Unrealized

loss

 
                                                 

Equity securities

  $ -     $ -     $ 3,392     $ (1,623 )   $ 3,392     $ (1,623 )

 

 

   

Less than 12 months

   

12 Months or greater

   

Total

 

July 1, 2012

 

Fair

Value

   

Unrealized

loss

   

Fair

Value

   

Unrealized

loss

   

Fair

Value

   

Unrealized

loss

 
                                                 
 Equity securities   $ -     $ -     $ 5,373     $ (5,487 )   $ 5,373     $ (5,487 )
 

 
-22-

 

 

  The equity securities portfolio includes the following stocks:

 

82,112

 

shares of AT&T

4,508

 

shares of Frontier Communications

412

 

shares of DexMedia

40,000

 

shares of Sprint Nextel

11,865

 

shares of Vodafone

2,520

 

shares of Manulife

4,398

 

shares of CenturyLink

774

 

shares of Teradata

475

 

shares of LSI

23,784

 

shares of Verizon

4,079

 

shares of Windstream

774

 

shares of NCR

 

     There were no sales or exchanges of holdings in the years ended June 30, 2013 and July 1, 2012 other than the exchange of the Company’s shares of SuperMedia for shares of DexMedia as a result of the merger on April 30, 2013. The Company purchased 5,000 shares of Verizon during fiscal 2012.

 

     As stated in Note 1, the Company records its readily marketable debt and equity securities at fair value. These assets are valued in accordance with a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

 

Level 1.

 

Observable inputs such as quoted prices in active markets for identical assets or liabilities;

 

Level 2.

 

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and         

 

Level 3.

 

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

  

 

The fair value of these assets as of June 30, 2013 is as follows:

 

Description

 

Quoted

Price for

Identical

Assets

(Level 1)

   

Significant
Other
Observable
Inputs

(Level 2)

   

Significant
Unobservable
Inputs
(Level 3)

   

Unrealized
gains/(losses)

for the
Year Ended
June 30, 2013

   

Cumulative

Unrealized

gains/(losses)

as of
June 30, 2013

 
                                         

Equity securities

  $ 5,046,557     $ -     $ -     $ 258,058     $ 4,157,559  
                                         

Mutual fund

    3,430,670       -       -       (185,056 )     16,925  
                                         

Certificates of deposits

    -       949,815       -       -       -  

TOTAL

  $ 8,477,227     $ 949,815       -     $ 73,002     $ 4,174,484  

 

 
-23-

 

 

The fair value of these assets as of July 1, 2012 was as follows:

 

Description

 

Quoted

Price for

Identical

Assets

(Level 1)

   

Significant
Other
Observable
Inputs

(Level 2)

   

Significant
Unobservable
Inputs
(Level 3)

   

Unrealized
gains/(losses)

for the
Year Ended
July 1, 2012

   

Cumulative

Unrealized

gains/(losses)

as of
July 1, 2012

 
                                         

Equity securities

  $ 4,788,498     $ -     $ -     $ 374,386     $ 3,899,500  
                                         

Mutual fund

    3,498,182       -       -       38,962       201,981  
                                         

Certificates of deposits

    -       3,863,721       -       -       -  

TOTAL

  $ 8,286,680     $ 3,863,721       -     $ 413,348     $ 4,101,481  

 

     The fair value of certificates of deposits is estimated using net present value techniques and comparing the values to certificates with similar terms.

 

4. LAND, BUILDINGS, AND EQUIPMENT

    Land, buildings, and equipment, as cost, consisted of the following:

 

   

June 30,

2013

   

July 1,

2012

 

Buildings

  $ 18,114,523     $ 18,205,337  

Leasehold and building improvements

    7,922,989       7,958,366  

Bowling lanes and equipment

    22,155,815       22,891,473  

Land

    10,555,210       10,590,450  

Amusement games

    790,222       818,190  

Bowling lanes and equipment not yet in use

    585,379       276,621  
      60,124,138       60,740,437  

Less accumulated depreciation and amortization

    38,144,649       38,021,911  
    $ 21,979,489     $ 22,718,526  
                                                                                 
     

    Depreciation and amortization expense for buildings and equipment for fiscal years 2013 and 2012 was $1,426,175, and $1,465,149, respectively. 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

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.

 

 
-24-

 

 

    At June 30, 2013, the minimum fixed rental commitments related to all non-cancelable leases, were as follows:

        

Year Ending

       

2014

  $ 280,667  

2015

    16,667  

Total minimum lease payments

  $ 297,334  
 

    Net rent expense was as follows:

     
   

For the Years Ended

 
   

June 30,

2013

   

July 1,

2012

 
                 

Minimum rent under operating leases

  $ 288,000     $ 288,000  

Excess percentage rents

    -       -  
    $ 288,000     $ 288,000  
 

Purchase Commitments

    The Company's purchase commitments at June 30, 2013 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 30, 2013 and July 1, 2012, contributions in the amounts of $124,000 and $50,000, 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. For fiscal year 2013, the Company contributed 9,500 shares of Bowl America common stock valued at $123,500, based on the market price on the date of contribution. The Company contributed $50,000 for fiscal year 2012. The Company has no defined benefit plan or other post retirement plan.

 

7. INCOME TAXES

     The Company is required to analyze all material positions it has taken or plans 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 financial statements.

 

 
-25-

 

 

The Company had no material unrecognized tax benefits at June 30, 2013 nor does it expect any significant change in that status during the next twelve months. No accrued interest or penalties on uncertain tax positions have been included on the consolidated statements of earnings and comprehensive earnings or the consolidated balance sheet. Should the Company adopt tax positions for which it would be appropriate to accrue interest and penalties, such costs would be reflected in the tax expense for the period in which such costs accrued. The Company is subject to U.S. Federal income tax and to several state jurisdictions. Returns filed for tax periods ending after June 28, 2009 are still open to examination by those relevant taxing authorities.

 

    The significant components of the Company's deferred tax assets and liabilities were as follows:

 

   

June 30,

2013

   

July 1,

2012

 

Deferred tax:

               

Land, buildings, and equipment

  $ 1,031,993     $ 1,255,699  

Unrealized gain on available-for-sale securities

    1,590,479       1,563,743  

Dividends received

               

Prepaid expenses and other

    (29,247 )     (27,453 )

Deferred tax liabilities

  $ 2,593,225     $ 2,791,989  
 

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

 
   

2013

   

2012

 

Taxes computed at statutory rate

    34.0 %     34.0 %

State income taxes, net of Federal income tax benefit

    4.0       2.4  

Dividends received exclusion