ITEM 1. BUSINESS
(a) General Development of Business Bowl America Incorporated (herein referred to as the Company) was incorporated in 1958. The Company commenced business with one bowling center in 1958, and at the end of the past fiscal year, the Company and its wholly- owned subsidiaries operated 18 bowling centers. Construction of Bowl America Short Pump, a 40-lane bowling center in metropolitan Richmond, Virginia, is underway and the location is expected to open in the second quarter of fiscal 2006. (b) Financial Information about Industry Segments The Company operates in one segment. Its principal source of revenue consists of fees charged for the use of bowling lanes and other facilities and from the sale of food and beverages for consumption on the premises. Merchandise sales, including food and beverages, were approximately 29% of operating revenues. The balance of operating revenues (approximately 71%) represents fees for bowling and related services.
(c) Narrative Description of Business As of September 1, 2005 the Registrant and its subsidiaries operated 10 bowling centers in the greater metropolitan area of Washington, D.C., one bowling center in the greater metropolitan area of Baltimore, Maryland, one bowling center in Orlando, Florida, three bowling centers in the greater metropolitan area of Jacksonville, Florida, and three bowling centers in the greater metropolitan area of Richmond, Virginia. These 18 bowling centers contain a total of 716 lanes. These establishments are fully air-conditioned with facilities for service of food and beverages, game rooms, rental lockers, and playroom facilities. All centers provide shoes for rental, and bowling balls are provided free. In addition, each center retails bowling accessories. Most locations are equipped for glow-in-the-dark bowling, popular for parties and non-league bowling. The bowling equipment essential for the Company's operation is readily available. The major source of its equipment is Brunswick Corporation. The bowling business is a seasonal one, and most of the business takes place from October through May. It is highly competitive, but the Company has managed to maintain its position in the field. The principal method of competition is the quality of service furnished to the Company's customers. Its primary competitors are two large bowling equipment manufacturers, Brunswick Corporation and AMF Bowling Worldwide, Inc. Compliance with federal, state and local environmental protection laws has not materially affected the Company. The number of persons employed by the Company and its subsidiaries is approximately 700.
(d) Foreign Operations
The Company has no foreign operations.
ITEM 2.
ITEM 2. PROPERTIES
The Company's general offices are located at 6446 Edsall Road, Alexandria, Virginia 22312. Two of the Company's bowling centers are located in leased premises, and the remaining sixteen centers are owned by the Company. The Company's leases expire from 2009 through 2014. The specific locations of the bowling centers are discussed under Item 1 (c).
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary routine litigation incidental to the business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter ended July 3, 2005.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The information set forth in the section entitled "Market Information", "Holders", and "Dividends" on page 3 of the Company's July 3, 2005 Annual Report is incorporated by reference herein. (b) Not applicable
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in the section entitled "Selected Financial Data" on page 3 of the Company's July 3, 2005 Annual Report is incorporated by reference herein. Such information should be read in conjunction with the audited financial statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 2 of the Company's July 3, 2005 Annual Report is incorporated by reference herein.
ITEM 7a.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk. Our short-term investments and certain cash equivalents are subject to interest rate risk. We manage this risk by maintaining an investment portfolio of available-for-sale instruments with high credit quality and relatively short average maturities. The fair value of marketable debt securities held was $11,273,191 and $11,681,729 at July 3, 2005 and June 27, 2004, respectively. The fair value of certain fixed rate debt securities will change depending on movements in interest rates. Declines in interest rates will affect our interest income. Based on our portfolio of debt securities at July 3, 2005, a 10% decline in the average yield would not have a material impact on our interest income.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes thereto, the Reports of Independent Registered Public Accounting Firms and the Selected Quarterly Financial Data (unaudited), as contained on pages 4 through 13 of the Company's July 3, 2005 Annual Report, are incorporated by reference herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of July 3, 2005. There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation that occurred during the fourth quarter of the Company's fiscal year ended July 3, 2005 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
ITEM 11.
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.
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Financial Statements The following consolidated financial statements of Bowl America Incorporated and its subsidiaries are incorporated by reference in Part II, Item 8:
Reports of Independent Registered Public Accounting Firms
Consolidated balance sheets - July 3, 2005 and June 27, 2004
Consolidated statements of earnings and comprehensive earnings - years ended July 3, 2005, June 27, 2004, and June 29, 2003
Consolidated statements of stockholders' equity - years ended July 3, 2005, June 27, 2004, and June 29, 2003
Consolidated statements of cash flows - years ended July 3, 2005, June 27, 2004, and June 29, 2003
Notes to the consolidated financial statements - years ended July 3, 2005, June 27, 2004, and June 29, 2003
(a)2. Exhibits: 3(a) Articles of Incorporation of the Registrant and amendments through December 1988 thereto (Incorporated by reference from exhibit number 3 to the Annual Report for 1989 on Form 10-K for fiscal year ended July 2, 1989.)
3(b) Amendment to and restatement of Article FIFTH (b) III 2.2 of the Registrant's Articles of Incorporation (Incorporated by reference from the Registrant's Form 8-K filed December 9, 1994.)
3(c) By-laws of the Registrant (Incorporated by reference from exhibit 3 to the Annual Report for 1989 on Form 10-K for fiscal year ended July 2, 1989.)
10(a) Extension of employment agreement with Leslie H. Goldberg (Incorporated by reference from the Registrant's Form 8-K filed June 23, 2005)
10(b) Employment agreement, dated December 31, 2004, between Registrant and Irvin Clark. (Incorporated by reference from Registrant's Form 8-K filed December 30, 2004)
10(c) Employment agreement, dated December 31, 2004, between Registrant and Cheryl A. Dragoo. (Incorporated by reference from Registrant's Form 8-K filed December 30, 2004)
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)
BOWL AMERICA INCORPORATED
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BOWL AMERICA INCORPORATED
Leslie H. Goldberg President and Principal Executive & Operating Officer
Date: September 29, 2005
Cheryl A. Dragoo Chief Financial Officer, Assistant Treasurer and Controller Principal Accounting Officer
Date: September 29, 2005
BOWL AMERICA INCORPORATED SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and the dates indicated.
Name, Title, Capacity
Leslie H. Goldberg President, Principal Executive & Operating Officer & Director
Date: September 29, 2005
Ruth Macklin A. Joseph Levy Senior Vice President-Treasurer Senior Vice President-Secretary and Director and Director
Date: September 29, 2005 Date: September 29, 2005
Warren T. Braham Stanley H. Katzman Director Director
Date: September 29, 2005 Date: September 29, 2005
Allan L. Sher Merle Fabian Director Director
Date: September 29, 2005 Date: September 29, 2005
Irvin Clark Director
Date: September 29, 2005
BOWL AMERICA INCORPORATED PRESIDENT'S LETTER
September 23, 2005
Dear Fellow Owners:
When drawings of the interior of Bowl America Short Pump began to come in, I was inspired to dig up a photo from about 1940 of the first floor of the Clarendon Bowling Center. The dimension of the lot allowed for two walls and eleven bowling lanes. Under normal circumstances, the odd numbered lane would be a problem since league matches require a pair of lanes. However, under the "if you have too many lemons, make lemonade" theory, the center was promoted as always having "open bowling" for non-league customers.
In the middle of the bowling lanes, attached to a building column, was a platform which faced the bowlers. During league matches, as a 12-year old, I sat there with a whistle. If a bowler crossed the line, I blew my whistle, and the bowler received a zero for that ball. Eventually, a simple electric eye device made the "foul line judge" job obsolete.
It is a long way from our first electric eye to our ability to show each of you, on the Internet, the progress of construction at our newest center. Our completion date has been moved up because of the inability of our local utility to hook us up to their power. Their crews have been loaned to the hurricane areas to deal with widespread outages that are threatening public health. When it is safe for them to return, we will get on with our job, and our internet site will give you a look at the completion process as it happens. Simply go to www.bowlamericainc.com and access Short Pump.
This integration of new technology with what may be the world's oldest sport is really important. Robert Putnam noted ten years ago in "Bowling Alone" the decline in membership of face-to-face groups. He mentioned the PTA, the Federation of Women's Clubs and Boy Scouts, but his title focused on bowling leagues. As our business shifts from the committed week-after-week bowler to what we call the casual bowler, it will become even more important to vary our entertainment, communication, and control capabilities. The new technology, much of which can be retrofitted to our older centers, enables us to better accomodate both groups simultaneously.
League bowling is not dead. Only this week I heard a report that sociologists have discovered that many of the declining neighborhood institutions are showing turnarounds. The reason given is the growth in the immigrant population, which is looking to community groups as a way to participate with their neighbors.
Rising gas prices have hit our mostly suburban customers, but it has also caused many of them to "vacation at home". And we are near these homes. But our energy costs will also increase. We cook and heat with natural gas. A catastrophe anywhere always results in increased insurance premiums even in unaffected areas. Keep in mind that we are following a 53rd week. This also means this fiscal year starts a week later and thus has an extra week of league bowling in its first quarter. In the fourth quarter, we lose both the 53rd week comparison with the prior year and that early week of league bowling. However, we expect an important profit contribution from Bowl America Short Pump in the second half.
There seems a greater uncertainty this year than we have faced recently. It is good to remember that this business essentially started near the end of the Great Depression (with teenage foul line judges). A we have noted often, the basic appeal of bowling has enabled us to prosper in both the good and bad times that followed.
Regards, Leslie H. Goldberg, President
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operating activities in fiscal 2005 was $5,503,000 which was sufficient to meet day-to-day cash needs. Short-term investments consisting mainly of U.S. Government securities, cash and cash equivalents totaled $12,980,000 at the end of fiscal 2005 compared to $13,002,000 at the end of fiscal 2004. The Company began building the 40-lane Bowl America Short Pump center during fiscal 2005 with cash outlays of approximately $1,831,000 toward the estimated construction and equipment cost of $5 million. This new location in metropolitan Richmond, Virginia, is expected to open during the second quarter of fiscal 2006. During fiscal year 2005, the Company expended approximately $1,353,000 for the purchase of bowling equipment and restaurant equipment and amusement games, continuing to upgrade current facilities. In July 2005, the Company signed purchase agreements totaling approximately $578,000 for point-of-sale cash systems to be installed during the first quarter of fiscal 2006 and for equipment for the new location. The Company is actively seeking property for the development of new bowling centers. Cash and cash flows are sufficient to finance all contemplated construction and purchases and to meet short-term purchase commitments and operating lease commitments, detailed in the table below. The Company's holdings of marketable equity securities, primarily telecommunication stocks, are an additional source of expansion capital. These marketable securities are carried at their fair value on the last day of the year. The value of the securities on July 3, 2005 was $4.2 million compared to approximately $4.0 million at June 27, 2004.
CONTRACTUAL Total Less than 1-3 3-5 More than OBLIGATIONS 1 year years years 5 years ------------------------------------------------------------------------- Operating lease obligations $1,555,441 $ 276,761 $553,522 $380,491 $344,667
Purchase obligations 3,161,000 3,161,000 - - - ------------------------------------------------------------------------- Total $4,716,441 $3,437,761 $553,522 $380,491 $344,667 =========================================================================
Cash dividends of $.54 per share totaling $2.8 million, were paid to shareholders during the 2005 fiscal year making this the thirty-third consecutive year of increased dividends per share. In June 2005, the Company declared a $.14 per share dividend to be paid in August 2005. While no factors requiring a change in the dividend rate are yet apparent, the Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state of the business and estimate of future opportunities. In May 2003, the Company ceased operating the Silver Spring facility after entering into an agreement, consummated in August 2003, to sell the building.
RESULTS OF OPERATIONS Eighteen centers were in operation during both fiscal 2005 and 2004 while nineteen centers were in operation during the peak season of fiscal 2003. Fiscal years 2004 and 2003 each consisted of 52 weeks. Fiscal year 2005 was a 53-week year. The additional week contributed to operating revenues and most categories of expenses. Operating revenues increased $173,000 or about 1% in fiscal 2005 versus a decrease of $942,000 or 3%, excluding the gain on the sale of Silver Spring, mentioned above, in fiscal 2004. Bowling and other revenue increased $274,000 or 1% in fiscal 2005, primarily as a result of a higher average game rate and an increase in some ancillary services revenue. In the prior year period bowling and other revenue declined 2%. Food, beverage and merchandise sales decreased 1% in fiscal 2005 although profitability on sales increased as cost of sales declined at a greater rate. In fiscal 2004 food, beverage and merchandise sales decreased 6%, due in part to the closure of Silver Spring and a change in the food service operation at Gaithersburg. Total operating expense declined slightly in fiscal 2005 versus a decrease of 3% in the prior year. Costs for employee compensation and benefits were down less than 1% in fiscal 2005 and down 2% in the prior year. In the prior year an increase in the contribution to the pension plans was offset by the lower cost of operating one fewer center. In fiscal 2005 health insurance costs were up 2%, however, a significant increase is expected in the new plan year. Cost of bowling and other services increased 2% in the current year period versus a decrease of 1% in the prior year period. Maintenance expense was down 12% in fiscal 2005 due primarily to fewer building and air conditioning repairs. In the prior fiscal year, due to replacement of wooden lanes, there were no lane resurfacing costs. The 9% decrease in maintenance costs last year reflected the change. Supplies expense was flat in fiscal 2005 versus an increase of 5% in the prior fiscal year. Advertising costs increased $171,000 or 38% in fiscal 2005 and $65,000 or 17% in the prior year. Both years included campaigns to increase awareness of our websites and services for corporate outings. In fiscal 2005 the Company made heavier use of the cable and television media. Utility costs were up 4% in fiscal 2005 versus a slight decline in fiscal 2004. Rent expense decreased 4% in fiscal 2005 and 2% in the prior year. The decline in fiscal 2005 was primarily due to lower common area maintenance costs. Insurance expense, excluding health and life, increased 10% in fiscal 2005 and was down 8% in fiscal 2004. Depreciation expenses decreased by $69,000 or 4% in fiscal 2005 and by $81,000 or 5% in fiscal 2004. Large assets reaching full depreciation were responsible for the decreases in both years. Operating income increased 5.7% to $5.2 million from $4.9 million in fiscal 2004. Fiscal 2004 operating income declined approximately 4.3% from $5.1 million in fiscal 2003. Interest and dividend income increased 47% from the prior year due to higher interest rates on investments. Gain on the sale of land, building and equipment in fiscal 2004 was due principally to the sale of the Silver Spring building. Investment earnings of $152,000 on the mandatory exchange of AT&T Wireless stock for cash from Cingular Wireless were recorded in fiscal 2005. Effective income tax rates for the Company were 35.8% for fiscal 2005, 37.4% for fiscal 2004, and 35.9% in 2003, the difference from statutory rates being primarily for the partial exclusion of dividends received on investments and the state tax exemption for interest on U.S. Government obligations. Net earnings in fiscal 2005 were $3.8 million or $.75 per share, compared to $4.7 million or $.91 per share in fiscal 2004, and $3.5 million or $.70 per share in fiscal 2003.
CRITICAL ACCOUNTING POLICIES We have identified accounting for marketable investment securities under SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" as a critical accounting policy due to the significance of the amounts included in our balance sheet under the captions of Short-term investments and Marketable equity securities. The Company exercises judgment in determining the classification of its investment securities as available-for-sale and in determining their fair value. The Company records these investments at their fair value with the unrealized gain or loss recorded in accumulated other comprehensive 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. We have identified accounting for the impairment of long-lived assets under SFAS 144 " Accounting for the Impairment or Disposal of Long-Lived Assets" as a critical accounting policy due to the significance of the amounts included in our balance sheet under the caption of Land, Buildings and Equipment. The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable. In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets. An impairment loss equal to the difference between the assets' fair value and carrying value is recognized when the estimated future cash flows are less than the carrying amount.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPERATIONS
Selected Financial Data
All share and per share amounts (excluding Net Book Value Per Share) have been adjusted to reflect the 5% stock dividend distributed on July 26, 2001.
Market Information The principal market on which the Company's Class A Common Stock is traded is the American Stock Exchange. The Company's Class B Common Stock is not listed on any exchange and is not traded. This stock can be converted to Class A Common Stock at any time. The table below presents the price range of the Company's Class A stock in each quarter of fiscal 2005 and 2004.
Holders The approximate number of holders of record of the Company's Class A Common Stock as of July 3, 2005 is 423 and of the Company's Class B Common Stock is 28.
Cash Dividends The table below presents the cash dividends per share of Class A and Class B stock paid, and the quarter in which the payment was made during fiscal 2005 and 2004.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization Bowl America Incorporated is engaged in the operation of 18 bowling centers, with food and beverage service in each center. Ten centers are located in metropolitan Washington D.C., one center in metropolitan Baltimore, Maryland, one center in metropolitan Orlando, Florida, three centers in metropolitan Richmond, Virginia, and three centers in metropolitan Jacksonville, Florida. These 18 centers contain a total of 716 lanes. The Company operates in one segment.
Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiary corporations. All significant inter- company items have been eliminated in the consolidated financial statements.
Fiscal Year The Company's fiscal year ends on the Sunday nearest to June 30. Fiscal year 2005 ended July 3, 2005 and consisted of 53 weeks. Fiscal year 2004 ended June 27, 2004, and fiscal year 2003 ended June 29, 2003. Fiscal years 2004 and 2003 each consisted of 52 weeks.
Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates include the deferred compensation liability for executives and key employees including survivor benefits, 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 3-10 years Building and building improvements 10-39 years Leasehold improvements 10 years Amusement games 3-5 years
Maintenance and repairs and minor replacements are charged to expense when incurred. Major replacements and betterments are capitalized. The accounts are adjusted for the sale or other disposition of property, and the resulting gain or loss is credited or charged to income.
Impairment of Long-Lived Assets The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable. In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets. An impairment loss, equal to the difference between the assets' fair value and carrying value, is recognized when the estimated future cash flows are less that the carrying amount.
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 Ju;y 3, 2005, June 27, 2004 and June 29, 2003 were $623,322, $451,860 and $386,625, respectively.
Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market.
Income Taxes Income taxes are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under this method, deferred income tax liabilities and assets are based on the differences between the financial statement and tax bases of assets and liabilities, using tax rates currently in effect. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
Investment Securities The Company accounts for its investments in accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities". All of the Company's readily marketable debt and equity securities are classified as available-for-sale. Accordingly these securities are recorded at fair value with any unrealized gains and losses excluded from earnings and reported, net of deferred taxes, within a separate component of stockholders' equity until realized. Realized gains or losses on the sale of debt and equity securities are reported in earnings and determined using the adjusted cost of the specific security sold.
Earnings Per Share Earnings per share basic and diluted, have been calculated using the weighted average number of shares of Class A and Class B common stock outstanding of 5,137,773, 5,138,559 and 5,145,934, for fiscal years 2005, 2004 and 2003, respectively, and have been adjusted to reflect the 5% stock dividend distributed on July 26, 2001.
Comprehensive Earnings In accordance with SFAS No. 130 "Reporting Comprehensive Income", a consolidated statement of comprehensive earnings reflecting the aggregation of net earnings and unrealized gain or loss on available-for-sale securities, the Company's principal components of other comprehensive earnings, has been presented for each of the three years in the period ended July 3, 2005.
Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers money market funds, certificates of deposits, repurchase agreements and treasury securities with original maturities of three months or less to be cash equivalents. The Company maintains cash accounts which may exceed Federally insured limits during the year, but does not believe that this results in any significant credit risk.
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 July 3, 2005, and June 27, 2004 other current liabilities included $369,317, and $328,014, respectively, in prize fund monies.
Reclassifications Certain previous year amounts have been reclassified to conform with the current year presentation.
New Accounting Standards In December 2004, the FASB issued SFAS No. 151 "Inventory Costs". This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing", to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This statement requires that those items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption of this statement did not have any impact on the Company's financial position or results of operations.
In December 2004, the FASB issued SFAS No. 152 "Accounting for Real Estate Time Sharing Transactions". This statement amends FASB Statement No. 66, "Accounting for Sales of Real Estate", to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time Sharing Transactions". This statement also amends FASB No. 67 "Accounting for Costs and Initial Rental Operations of Real Estate Projects", to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. Adoption did not have any impact on the Company's consolidated financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share Based Payment" ("SFAS 123R"), which is a revision to SFAS 123 and supercedes APB 25 and SFAS 148. This statement requires that the cost resulting from all share-based payment transactions be recognized in the fiinancial statements. This statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair- value based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by share ownership plans. The adoption of this statement did not have any impact on the Company's consolidated financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153, entitled "Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29". SFAS No. 153 amends Opinion 29 to eliminate the exception for nonmonetary exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The adoption of SFAS 153 did not have any impact on the Company's consolidated financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154, entitled "Accounting Changes and Error Corrections - a Replacement of APB Opinion No. 20 and FASB Statement No. 3". This statement replaces APB Opinion No. 20, "Accounting Changes", and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements", and changes the requirements for the accounting for and reporting of a change in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transaction provisions. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new principle. This statement requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This statement defines retrospective application as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. This statement also redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The adoption of SFAS 154 did not have any impact on the Company's consolidated financial position or results of operation.
2. CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following:
July 3, June 27, 2005 2004 Demand deposits and cash on hand $ 316,380 $ 611,552 Money market funds 175,645 175,644 Repurchase agreements 1,215,360 533,447 _________ _________ $1,707,385 $1,320,643
3. INVESTMENTS Short-term investments consist of certificates of deposits, U.S. Treasury securities and a mutual fund which invests in mortgage backed securities (maturities of generally three months to one year). At July 3, 2005, the fair value of short-term investments was $11,273,191 with an unrealized gain of $30,617. At June 27, 2004, the fair value of short-term investments was $11,681,729 with an unrealized loss of $89,923. Non-current investments are marketable equity securities which consist primarily of telecommunications stocks. The Company has classified all readily marketable debt and equity securities as available-for-sale. These available-for-sale securities are carried at fair value in accordance with the provisions of SFAS No. 115.
The following table summarizes the cost and approximate fair values of equity securities available-for-sale as of July 3, 2005, and June 27, 2004 as follows:
This portfolio includes the following telecommunications stocks:
220 shares of Agere 3,946 shares of Alltel 669 shares of Avaya 27,572 shares of Bell South 8,028 shares of Lucent Technologies 9,969 shares of Qwest 45,580 shares of SBC Communications 40,000 shares of Sprint Fon 18,784 shares of Verizon 13,560 shares of Vodafone
In the year ended July 3, 2005, the Company received $252,525 as merger compensation from Cingular Wireless for the mandatory exchange of 16,835 shares of AT&T Wireless stock held by the Company. In the year ended June 27, 2004, the Company received proceeds of approximately $1,000 from the conversion of a publicly traded company into a private enterprise. There were no sales of available-for-sale securities in the year ended June 29, 2003.
4. LAND, BUILDINGS, AND EQUIPMENT Land, buildings, and equipment, as cost, consist of the following:
Depreciation and amortization expense for buildings and equipment for fiscal years 2005, 2004, and 2003 was $1,463,188, $1,532,587, and $1,613,379, respectively. 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.
At July 3, 2005, the minimum fixed rental commitments related to all non-cancelable leases, were as follows:
Year Ending 2006 $276,761 2007 276,761 2008 276,761 2009 276,761 2010 103,730 Thereafter 344,667 _________ Total minimum lease payments $1,555,441
Net rent expense was as follows: For the Years Ended July 3, June 27, June 29, 2005 2004 2003
Minimum rent under operating leases $277,394 $283,721 $296,557 Excess percentage rents 23,098 27,165 27,321 _______ _______ _______ $300,492 $310,886 $323,878
Purchase Commitments At July 3, 2005, contracts relating to the construction and equipping of the new center in Richmond, Virginia, totaled approximately $4,296,000, of which approximately $1,135,000 had been paid. In late September 2004, the Company signed a contract for approximately $770,000 for site preparation relating to the building, to be paid out as work was completed. Revisions to the contract through July 3, 2005, increased the contract amount to $1,037,000, of which approximately $348,000 has been paid. In February 2005, the Company signed a contract for the purchase of bowling equipment for the new location totaling approximately $379,000. Delivery is expected in the second quarter of fiscal 2006. During the quarter ended March 27, 2005, the Company signed a contract for approximately $1,526,000 for construction of the building shell. Additional requests and revisions for construction increased the contract amount to approximately $2,880,000 at July 3, 2005, of which approximately $787,000 had been paid. In July 2005, further changes increased the contract sum to $2,983,000.
Subsequent to July 3, 2005, the Company signed a purchase order for $140,000 for the purchase of point-of-sale cash systems to be installed during the first quarter of fiscal 2006 and purchase orders totaling $438,000 for bowling equipment expected to be installed during the second quarter of fiscal 2006. Payment is due in full ten days after acceptance of the working systems.
6. PROFIT-SHARING AND ESOP PLAN The Company has 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 for Company contributions as determined by the Board of Directors. For the years ended July 3, 2005, June 27, 2004, and June 29, 2003, contributions in the amount of $150,000, $188,000, and $145,000, respectively, were charged to operating expense.
Effective March 31, 1987, the Company adopted an Employee Stock Ownership Plan (ESOP) which generally covers all individuals who were employed at the end of the fiscal year and had one thousand or more hours of service during that fiscal year. The Plan provides for Company contributions as determined by the Board of Directors. The value of the Company's contributions to the Plan for fiscal years 2005, 2004, and 2003 was $150,000, $188,000, and $145,000, respectively.
7. INCOME TAXES The significant components of the Company's deferred tax assets and liabilities were as follows: July 3, June 27, 2005 2004 Deferred tax: Land, buildings, and equipment $1,506,179 $1,317,905 Unrealized gain on available- for-sale securities 1,287,270 1,237,269 Prepaid expenses 181,762 191,619 Other (39,115) (42,944) _________ _________ Deferred tax liabilities $2,936,096 $2,703,849
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:
8. STOCKHOLDERS' EQUITY The Class A shares have one vote per share voting power. The Class B shares may vote ten votes per share and are convertible to Class A shares at the option of the stockholder.
At July 3, 2005 and June 27, 2004, the Company had $41,956 in employee loans related to the issuance of shares. These loans are secured by the shares of the Company's common stock acquired and are full recourse notes. The notes bear interest at rates of 3% to 3 1/2% and are payable over a term of three years from the date of the agreements which range from 2004 to 2005. These employee loans have been recorded as a reduction of additional paid-in capital.
9. RELATED PARTIES AND DEFERRED COMPENSATION At July 3, 2005, the Company had recorded $20,020 in deferred compensation payable to one officer. Deferred compensation payable to non-related parties was a total of $63,019 at July 3, 2005 and $60,875 at June 27, 2004. The current portion of these amounts, $11,564 and $6,617 at July 3, 2005 and June 27, 2004, respectively, is included in accrued expenses.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following summary represents the results of operations for each of the quarters in fiscal years 2005 and 2004 (dollars in thousands, except for earnings per share):
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 July 3, 2005 and June 27, 2004, and the related Consolidated Statements of Earnings and Comprehensive Earnings, Stockholders' Equity and Cash Flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, 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 July 3, 2005 and June 27, 2004, 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.
Aronson & Company Rockville, Maryland August 25, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders Bowl America Incorporated Alexandria, Virginia
We have audited the accompanying consolidated statements of earnings and comprehensive earnings, stockholders' equity and cash flows of Bowl America Incorporated and Subsidiaries for the fiscal year in the period ended June 29, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company was 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the results of Bowl America Incorporated and Subsidiaries' operations and their cash flows for the fiscal year in the period ended June 29, 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP McLean, Virginia September 12, 2003
EX-31.1 Exhibit 31.1 to Form 10-K Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) Or 15d-14(a) under the Securities Exchange Act of 1934
I, Leslie H. Goldberg, certify that:
1. I have reviewed this Annual Report on Form 10-K of Bowl America Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting: and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 29, 2005
Leslie H. Goldberg Chief Executive Officer
Exhibit 31.2 Exhibit 31.2 to Form 10K
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) Or 15d-14(a) under the Securities Exchange Act of 1934
I, Cheryl A. Dragoo, certify that:
1. I have reviewed this Annual Report on Form 10-K of Bowl America Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting: and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: September 29, 2005
Cheryl A. Dragoo Chief Financial Officer
Exhibit 32 Exhibit 32 to Form 10K
Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350
Solely for the purposes of complying with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Bowl America Incorporated (the "Company"), hereby certify, based on our knowledge, that the Annual Report on Form 10-K of the Company for the year ended July 3, 2005, (the "Report") fully complies with the requirements of Section 13(a) of the Securities Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Leslie H. Goldberg Chief Executive Officer
Cheryl A. Dragoo Chief Financial Officer
Date: September 29, 2005