10-Q 1 bowl_10q-123012.htm FORM 10-Q Unassociated Document
 
FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

FOR THE QUARTERLY PERIOD ENDED: DECEMBER 30, 2012

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)

 
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 Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company.  See the definitions of “accelerated filer,” “large 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 check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act)
    Yes __    No X

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

 
Shares Outstanding at
 
January 27, 2013
Class A Common Stock,
 
$.10 par value
3,683,009
   
Class B Common Stock,
 
$.10 par value
1,468,462

 
 

 
 
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
   
December 30,
   
January 1,
   
December 30,
   
January 1,
 
   
2012
   
2012
   
2012
   
2012
 
Operating Revenues:
                       
Bowling and other
 
$
4,368,238
   
$
4,503,640
   
$
 8,042,718
   
$
 8,401,703
 
Food, beverage and merchandise sales
   
1,836,735
     
1,926,499
     
3,349,499
     
3,524,037
 
     
6,204,973
     
6,430,139
     
11,392,217
     
11,925,740
 
                                 
Operating Expenses:
                               
Employee compensation and benefits
   
2,911,780
     
3,052,849
     
 5,866,644
     
 6,098,248
 
Cost of bowling and other services
   
1,570,084
     
1,713,475
     
3,195,785
     
3,545,326
 
Cost of food, beverage and merchandise sales
 
548,273
     
566,451
     
1,002,550
     
1,048,795
 
Depreciation and amortization
   
386,728
     
398,634
     
  777,115
     
  822,401
 
General and administrative
   
206,199
     
259,288
     
470,126
     
513,308
 
     
5,623,064
     
5,990,697
     
11,312,220
     
12,028,078
 
                                 
Operating Income (loss)
   
  581,909
     
  439,442
     
   79,997
 
   
  (102,338
)
Interest and dividend income
   
119,065
     
145,595
     
250,284
     
264,032
 
                                 
Earnings before provision for income taxes
   
  700,974
     
  585,037
     
  330,281
     
  161,694
 
Provision for income taxes
   
  245,300
     
204,770
     
   115,600
     
   56,600
 
                                 
Net Earnings
 
$
  455,674
   
$
  380,267
   
$
   214,681
   
$
   105,094
 
                                 
Earnings per share-basic & diluted
 
$
.09
   
$
.07
   
$
.04
   
$
.02
 
                                 
Weighted average shares outstanding
   
5,151,471
     
5,151,471
     
5,151,471
     
5,151,471
 
                                 
Dividends paid
 
$
4,275,723
   
$
  824,236
   
$
5,099,957
   
$
1,648,471
 
                                 
Per share, dividends paid, Class A
 
$
.83
   
$
.16
 
 
$
.99
   
$
.32
 
                                 
Per share, dividends paid, Class B
 
$
.83
   
$
.16
   
$
.99
   
$
.32
 
 
 
The operating results for the thirteen (13) and twenty-six (26) week periods ended December 30, 2012 are not necessarily indicative of results to be expected for the year.
 
See notes to condensed consolidated financial statements.
 
 
2

 
 
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)
(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
 
   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
   
December 30,
   
January 1,
   
December 30,
   
January 1,
 
   
2012
   
2012
   
2012
   
2012
 
                         
Net Earnings
 
$
  455,674
   
$
  380,267
   
$
  214,681
   
$
   105,094
 
Other comprehensive earnings- net of tax
                               
Unrealized (loss) gain on available-for-sale securities net of tax (benefit) of ($209,501) and $79,288 for 13 weeks, and ($85,622) and ($71,207) for 26 weeks
   
 (340,373
)
   
  128,819
     
 (139,108
)
   
 (115,686
)
                                 
Comprehensive earnings (loss)
 
$
  115,301
   
$
  509,086
   
$
    75,573
 
 
$
  (10,592
)

 
The operating results for the thirteen (13) and twenty-six (26) week periods ended December 30, 2012 are not necessarily indicative of results to be expected for the year.

See notes to condensed consolidated financial statements.
 
 
3

 
 
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
Condensed  Consolidated Balance Sheets
(Unaudited)
 
   
As of
 
   
December 30,
   
July 1,
 
   
2012
   
2012
 
ASSETS
 
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
1,627,475
   
$
2,332,022
 
Short-term investments
   
  948,519
 
   
3,863,721
 
Inventories
   
583,964
     
535,412
 
Prepaid expenses and other
   
511,630
     
  613,891
 
Income taxes refundable
   
290,918
     
313,518
 
TOTAL CURRENT ASSETS
   
 3,962,506
     
 7,658,564
 
LAND, BUILDINGS & EQUIPMENT
               
Net of accumulated depreciation of $38,735,118 and $38,021,911
   
22,355,900
 
   
22,718,526
 
OTHER ASSETS:
               
Marketable securities
   
8,136,764
     
8,286,680
 
Cash surrender value-life insurance
   
619,624
     
619,624
 
Other
   
84,780
     
84,780
 
TOTAL OTHER ASSETS
   
8,841,168
 
   
8,991,084
 
TOTAL ASSETS
 
$
35,159,574
   
$
39,368,174
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
               
Accounts payable
 
$
 522,160
   
$
722,380
 
Accrued expenses
   
755,352
 
 
 
1,004,221
 
Dividends payable
   
-
     
824,235
 
Other current liabilities
   
1,646,473
     
295,978
 
Current deferred income taxes
   
   65,552
     
 65,552
 
TOTAL CURRENT LIABILITIES
   
2,989,537
     
2,912,366
 
LONG-TERM DEFERRED COMPENSATION
   
44,217
     
44,217
 
NONCURRENT DEFERRED INCOME TAXES
   
2,640,815
     
2,726,437
 
TOTAL LIABILITIES
   
5,674,569
     
5,683,020
 
                 
COMMITMENTS AND CONTINGENCIES (Note 3)
               
                 
STOCKHOLDERS' EQUITY
               
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 3,683,009
   
368,301
     
368,301
 
Class B issued and outstanding 1,468,462
   
146,846
     
146,846
 
Additional paid-in capital
   
7,727,264
     
7,727,264
 
Accumulated other comprehensive earnings-Unrealized gain on available-for-sale securities, net of tax
   
2,399,710
 
   
2,538,818
 
Retained earnings
   
18,842,884
     
22,903,925
 
TOTAL STOCKHOLDERS' EQUITY
   
29,485,005
     
33,685,154
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
35,159,574
   
$
39,368,174
 
 
See notes to condensed consolidated financial statements.
 
 
4

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS  OF CASH FLOWS
(Unaudited)
 
   
Twenty-six Weeks Ended
 
   
December 30,
   
January 1,
 
   
2012
   
2012
 
Cash Flows From Operating Activities
           
Net earnings
 
$
   214,681
   
$
   105,094
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
   
 777,115
 
   
  822,401
 
Changes in assets and liabilities
               
Increase in inventories
   
(48,552
)
   
(80,901
)
Decrease in prepaid & other
   
  102,261
 
   
 229,425
 
Decrease (increase) in income taxes refundable
   
22,600
 
   
(61,400
)
Decrease in other long-term assets
   
-
   
  
2,500
 
Decrease in accounts payable
   
 (200,220
)
   
 (94,451
)
Decrease in accrued expenses
   
(248,869
)
   
(467,139
)
Increase in other current liabilities
   
1,350,495
     
1,338,055
 
Net cash provided by operating activities
   
1,969,511
     
1,793,584
 
                 
Cash Flows From Investing Activities
               
Expenditures for land, building and equip
   
(414,489
)
   
(1,298,545
)
Net sales & maturities of short-term Investments
   
2,915,202
     
1,632,795
 
Purchases of marketable securities
   
(74,814
)
   
(274,445
)
Net cash provided by Investing activities
   
  2,425,899
 
   
  59,805
 
                 
Cash Flows From Financing Activities
               
Payment of cash dividends
   
(5,099,957
)
   
(1,648,471
)
Net cash used in financing activities
   
(5,099,957
)
   
(1,648,471
)
                 
Net (Decrease) Increase in Cash and Equivalents
   
 (704,547
)
   
 204,918
 
                 
Cash and Equivalents, Beginning of period
   
2,332,022
     
2,361,846
 
                 
Cash and Equivalents, End of period
 
$
1,627,475
   
$
2,566,764
 
                 
                 
Supplemental Disclosures of Cash Flow Information
               
Cash Paid During the Period for:
               
Income taxes
 
$
93,000
   
$
  118,000
 
 
See notes to condensed consolidated financial information.
 
 
5

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Thirteen and Twenty-six Weeks Ended
December 30, 2012
(Unaudited)

1.  Basis for Presentation
 
The accompanying unaudited condensed consolidated financial statements of Bowl America Incorporated and subsidiaries (the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  The condensed consolidated balance sheet as of July 1, 2012 has been derived from the Company's audited financial statements.  Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.
 
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented.  It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended July 1, 2012.

2.  Investments

     The Company’s investments are categorized as available-for-sale.  Short-term investments consist of certificates of deposits with maturities of generally three months to one year.  Equity securities consist primarily of telecommunications stocks.  Mutual funds consist of federal agency mortgage backed securities (Ginnie Mae).  The fair value of the Company’s investments at December 30, 2012 and July 1, 2012 were as follows:
 
December 30, 2012
Description
 
Fair Value
   
Cost basis
   
Unrealized Gain
 
Short-term investments
  $ 948,519     $ 948,519     $ -  
Equity securities
  $ 4,608,647     $ 888,998     $ 3,719,649  
Mutual funds
  $ 3,528,117     $ 3,371,014     $ 157,103  
July 1, 2012
Description
 
Fair Value
   
Cost basis
   
Unrealized Gain
 
Short-term investments
  $ 3,863,721     $ 3,863,721     $ -  
Equity securities
  $ 4,788,498     $ 888,998     $ 3,899,500  
Mutual funds
  $ 3,498,182     $ 3,296,201     $ 201,981  

 
6

 

The fair values of the Company’s investments were determined as follows:
 
December 30, 2012
 
Description
 
Quoted Price for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
                   
Certificates of deposits
  $ -     $ 948,519     $ -  
Equity securities
    4,608,647       -       -  
Mutual funds
    3,528,117       -       -  
                         
Total
  $ 8,136,764     $ 948,519     $ -  
July 1, 2012
 
Description
 
Quoted Price for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
                         
Certificates of deposits
  $ -     $ 3,863,721     $ -  
Equity securities
    4,788,498       -       -  
Mutual funds
    3,498,182       -       -  
                         
Total
  $ 8,286,680     $ 3,863,721     $ -  
 
The stocks included in the equity securities portfolio as of December 30, 2012 were:
 
82,112
 shares of AT&T
354
 shares of Fairpoint Communications
939
 shares of Supermedia
774
 shares of NCR
774
 shares of Teradata
11,865
 shares of Vodafone
2,520
 shares of Manulife
4,398
 shares of CenturyLink
4,508
 shares of Frontier Communications
475
 shares of LSI
40,000
 shares of Sprint
23,784
 shares of Verizon
 4,079  shares of Windstream
 
      The Mutual fund included in the table above is Vanguard GNMA Admiral Shares #536 fund.

3.  Commitments and Contingencies

The Company’s purchase commitments at December 30, 2012 are for materials, supplies, services and equipment as part of the normal course of business.

4.  Employee benefit plans
 
The Company has two defined contribution plans with Company contributions determined by the Board of Directors.  The Company has no defined benefit plan or other postretirement plan.

5.  Subsequent Events

      The Company has evaluated subsequent events through the time of filing these financial statements with the Securities and Exchange Commission on February 12, 2013, and has determined that no material subsequent events have occurred.

6.  Reclassifications
 
Certain previous year amounts have been reclassified to conform with current year presentation.
 
 
7

 
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q are made as 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” or “GNMA”) fund and domestically domiciled stocks with the perceived potential of appreciation, primarily telecommunications stocks.  The Company considers that this diversity also provides a measure of safety of principal.

The Company purchased 5,000 shares of Verizon for $178,200 in the quarter ended January 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 from 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 $3,200,000 in dividends, the majority of which are tax favored in the form of exclusion from federal taxable income.  The fair value of the securities on December 30, 2012 was approximately $4,609,000.

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 December 30, 2012, the value was approximately $3,528,000.
 
Short-term investments consisting mainly of Certificates of Deposits, cash and cash equivalents totaled $2,576,000 at the end of the fiscal second quarter of 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.

In the six-month period ended December 30, 2012, the Company expended approximately $414,000 for the purchase of building, entertainment and restaurant equipment.  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 six-month changes in the categories of Accounts Payable and Accrued Expenses are primarily due to seasonal timing of payments including cash contribution to a benefit plan.

 
8

 
 
Current liabilities generally increase during the first three quarters of the fiscal year as leagues deposit prize fund monies with the Company throughout the league season.  These funds are returned to the leagues at the end of the bowling season, generally in the fourth quarter.  At December 30, 2012, league deposits of approximately $1,432,000 were included in the current liabilities category.

Cash flow provided by operating activities in the twenty-six weeks ended December 30, 2012 was $1,969,000 which, along with cash on hand and short-term investments, was sufficient to meet day-to-day cash needs and pay dividends.  In December 2012, after reviewing cash and other reserves, the economic climate, and possible changes to federal tax rates on dividends, the Board of Directors declared a special dividend of $.50 per share to be paid December 28, 2012.  Additionally, the Company declared a regular quarterly dividend of $.165 per share, usually paid in February, to be paid December 28, 2012.  Total cash dividends of approximately $4,276,000, or $.83 per share, were paid to shareholders during the quarter ended December 30, 2012, and the six months total was approximately $5,100,000 or $.99 per share.   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 future opportunities.

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.  Weather is also a factor, especially for casual bowlers.  While rainy weather prompts 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.  Current economic conditions continue to create challenging times but our response will be helped by having the resources to be able to promote the sport.

RESULTS OF OPERATIONS

The following table sets forth the items in our consolidated summary of operations for the fiscal year-to-date periods ended December 30, 2012, and January 1, 2012, and the dollar and percentage changes therein.

   
Twenty-six weeks ended
 
   
December 30, 2012 and January 1, 2012
 
   
Dollars in thousands
 
 
 
12/30/2012
   
01/01/2012
   
Change
   
% Change
 
Operating Revenues:
                       
Bowling and other
 
$
 8,043
   
$
8,402
   
$
(359
)
   
(4.3
)%
Food, beverage & merchandise sales
   
3,349
     
3,524
     
(175
)
   
(5.0
)
     
11,392
     
11,926
     
(534
)
   
(4.5
)
Operating Expenses:
                               
Compensation & benefits
   
5,867
     
6,098
     
(231
)
   
(3.8
)
Cost of bowling & other
   
3,196
     
3,545
     
(349
)
   
(9.8
)
Cost of food, beverage & merch sales
   
1,002
     
1,049
     
  (47
)
   
 .(4.5
)
Depreciation & amortization
   
777
     
823
     
(46
)
   
(5.6
)
General & administrative
   
470
     
513
     
 (43
)
   
 (8.4
)
     
11,312
     
12,028
     
(716
)
   
(6.0
)
                                 
Operating Income (loss)
   
80
 
   
(102
)
   
182
 
   
 178.4
 
                                 
Interest & dividend income
   
250
     
264
     
(14
)
   
(5.3
)
                                 
Earnings before taxes
   
330
     
 162
     
 168
 
   
 103.7
 
Income taxes
   
 115
     
 57
     
58
 
   
101.8
 
                                 
Net Earnings
 
$
                215
   
$
 105
   
$
 110
 
   
107.8
 

 
9

 
 
Net earnings were $455,674 or $.09 per share for the thirteen-week period ended December 30, 2012, and $380,267 or $.07 per share for the thirteen weeks ended January 1, 2012.  For the current year and prior year twenty-six week periods net earnings were $214,681 or $.04 per share and $105,094, or $.02 per share, respectively. The prior year second quarter included New Year’s Eve and Day business, however the holiday will be reflected in the third quarter of fiscal 2013.  Management believes that the continuing uncertainty of an economic recovery and the consequences of federal tax and spending provisions are influencing the public’s view of discretionary spending.  The operating results for fiscal 2013 periods included in this report are not necessarily indicative of results to be expected for the year.

                Operating Revenues

Total operating revenues decreased $225,000 to $6,205,000 in the most recent quarter compared to a decrease of $50,000 to $6,430,000 in the three-month period ended January 1, 2012.  For the current fiscal six-month period operating revenues were down $534,000 versus a decrease of $204,000 in the comparable six-month period a year ago.  Bowling and other revenue declined $135,000 in the quarter and $359,000 year-to-date for the periods ended December 30, 2012.  Prior year comparable three and six month period revenues showed decreases of $50,000 and $159,000, respectively.

Food, beverage and merchandise sales were down $90,000 or 3.5% in the current year quarter and down $175,000 or 5% in the six-month period.  Cost of sales was down 3.2% and 4.5%, respectively, in the three month and six month periods ended December 30, 2012.

                Operating Expenses

Operating expenses were down $368,000 or 6% and $716,000 or 6% in the current three and six-month periods, respectively, versus decreases of  $229,000 or 4% and $307,000 or 3% each in the three and six month periods, respectively, last year.  Employee compensation and benefits for the three and six month periods were down $141,000 and $231,000, respectively, or 4.6% and 3.8% in the periods ended December 30, 2012, as the Company continued to make scheduling adjustments in response to customer traffic.  In addition, group health insurance costs decreased as a result of lower premiums, fewer participants and the end of costs incurred in establishing health savings accounts.  In the prior year comparable periods operating expenses were down $65,000 in the three month period and down $111,000 in the six-month period, or 2% each period respectively.   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 $349,000 or 10% and $172,000 or 5% in the six-month periods ended December 30, 2012 and January 1, 2012, respectively. In the twenty-six weeks ended December 30, 2012, maintenance and repair costs were down $12,000 or 6% primarily the result of fewer building repairs.  In the prior year twenty-six week period costs were down $85,000 or 17%.  Advertising costs during the current year twenty-six week period were down $24,000  versus a decrease of $66,000 in the prior year comparable period, or 14% in each period due in part to the change in media used.  For the six month periods ended December 30, 2012 and January 1, 2012, respectively, utility costs were down $28,000 or 8% and down $32,000 or 4%.  Lower fuel costs and our efforts in energy management are primarily responsible for the decreases.  Supplies and services expenses were down 9% in the current year six-month period and down 3% in the six-month period in the prior year.  Changes in the timing of purchases and lower costs of some supplies are the primary reasons for the decreases.

Insurance expense excluding health insurance decreased 11% in the current year-to-date period versus an increase of 7% in last year’s comparable period when the Company made policy and coverage changes.

Depreciation and amortization expense was down 6% in the current six-month period and 5% in the prior year six-month period.
 
As a result of the above, the current six-month period of fiscal 2013 showed operating income of $80,000 compared to the prior year six-month period that showed an operating loss of $102,000.

                Interest and Dividend Income

Interest and dividend income decreased $14,000 in the fiscal 2013 six-month period and decreased $67,000 in the comparable 2012 year-to-date period, respectively. The current year decrease is a result of lower investment balances, lower interest rates and lower capital gains from the Ginnie Mae fund.
 
 
10

 
 
CRITICAL ACCOUNTING POLICIES

Management has identified accounting for marketable investment securities as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the captions of Short-term investments and Marketable securities.  The Company exercises judgment in determining the classification of its investment securities as available-for-sale and in determining their fair value.  The Company records these investments at their fair value with the unrealized gain or loss recorded in accumulated other comprehensive earnings, 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.

Management has identified accounting for the impairment of long-lived assets as a critical accounting policy due to the significance of the amounts included in the Company’s 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 future cash flows are less than the carrying amount.

ITEM 4. CONTROLS AND PROCEDURES.

The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of December 30, 2012. There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the quarter ended December 30, 2012, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
11

 
 
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
S.E.C. FORM 10-Q

PART II - OTHER INFORMATION
 
Item 6.  Exhibits.
 
20
Press release issued February 12, 2013 (furnished herewith)
   
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith
   
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith
   
32
Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 filed herewith
   
101
Interactive data files for the thirteen and twenty six weeks ended December 30, 2012 in eXtensible Business Reporting Language
 
 
12

 
 
Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Bowl America Incorporated
 
(Registrant)
   
Date: February 12, 2013
By:  /s/ Leslie H. Goldberg
 
Leslie H. Goldberg, President
   
   
   
Date: February 12, 2013
By:  /s/ Cheryl A. Dragoo
 
Cheryl A. Dragoo, Controller
 
 
13