10-Q 1 bwl-a20200329_10q.htm FORM 10-Q bwl-a20200329_10q.htm
 

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: March 29, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

COMMISSION FILE NUMBER: 001-7829

 

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 each class  

Trading Symbol(s)

Name of each exchange on which registered  

Class A Common stock (par value $.10)

BWL-A

NYSE American

 

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 ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “ large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐  Accelerated Filer ☐

Non-Accelerated Filer ☐ Smaller Reporting Company  ☒     Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act)

    Yes ☐    No ☒

 

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

  

May 08, 2020

Class A Common Stock,

  

$.10 par value

3,746,454

  

  

Class B Common Stock,

  

$.10 par value

1,414,517

 

 

 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

 

  BOWL AMERICA INCORPORATED AND SUBSIDIARIES

  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

  (Unaudited)

 

   

Thirteen Weeks Ended

   

Thirty-nine Weeks Ended

 
   

March 29,

   

March 31,

   

March 29,

   

March 31,

 
   

2020

   

2019

   

2020

   

2019

 

Operating Revenues:

                               

Bowling and other

  $ 4,455,810     $ 5,258,124     $ 12,376,206     $ 13,501,062  

Food, beverage and merchandise sales

    1,803,800       2,184,623       5,172,874       5,711,098  

Total Operating Revenues

    6,259,610       7,442,747       17,549,080       19,212,160  
                                 

Operating Expenses:

                               

Employee compensation and benefits

    2,648,427       2,843,147       8,106,410       8,346,536  

Cost of bowling and other services

    1,462,254       1,583,435       4,477,990       4,626,868  

Cost of food, beverage and merchandise sales

    532,943       629,794       1,537,259       1,635,012  

Depreciation and amortization

    243,808       240,294       714,560       719,224  

General and administrative

    277,030       232,678       884,369       663,917  

Total Operating Expenses

    5,164,462       5,529,348       15,720,588       15,991,557  
                                 

Operating Income

    1,095,148       1,913,399       1,828,492       3,220,603  

Interest, dividend and other income

    96,842       101,150       313,163       297,739  

Change in value of investments

    (1,000,868

)

    367,820       (410,933

)

    173,985  

Earnings before provision for income taxes

    191,122       2,382,369       1,730,722       3,692,327  

Provision for income taxes

    33,800       576,126       410,400       888,261  
                                 

Net Earnings

  $ 157,322     $ 1,806,243     $ 1,320,322     $ 2,804,066  
                                 

Earnings per share-basic & diluted

  $ .03     $ .35     $ .26     $ .54  
                                 

NET EARNINGS PER SHARE

  $ .03     $ .35     $ .26     $ .54  
                                 

Weighted average shares outstanding

    5,160,971       5,160,971       5,160,971       5,160,971  
                                 

Dividends paid

  $ 903,170     $ 903,170     $ 2,709,511     $ 2,683,706  
                                 

Per share, dividends paid, Class A

  $ .175     $ .175     $ .525     $ .52  
                                 

Per share, dividends paid, Class B

  $ .175     $ .175     $ .525     $ .52  

 

The operating results for the thirteen (13) and thirty-nine (39) week periods ended March 29, 2020 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 Balance Sheets

(Unaudited)

 

   

As of

 
   

March 29,

   

June 30,

 
   

2020

   

2019

 

ASSETS

 

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 3,154,121     $ 269,844  

Short-term investments

    134,170       433,249  

Marketable investment securities

    5,646,551       7,029,916  

Inventories

    486,706       518,121  

Prepaid expenses and other

    98,217       740,476  

Income taxes refundable

    322,106       441,402  

TOTAL CURRENT ASSETS

    9,841,871       9,433,008  

LAND, BUILDINGS & EQUIPMENT, net of accumulated depreciation of $40,908,439 and $41,706,408

    17,900,928       18,141,526  

OTHER ASSETS:

               

Right to use asset

    1,852,765       -  

Cash surrender value-life insurance

    225,164       747,102  

Other

    65,115       67,315  

TOTAL OTHER ASSETS

    2,143,044       814,417  

TOTAL ASSETS

  $ 29,885,843     $ 28,388,951  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

CURRENT LIABILITIES:

               

Accounts payable

  $ 385,954     $ 820,491  

Accrued expenses

    661,313       1,032,823  

Dividends payable

    -       903,170  

Other current liabilities

    2,394,398       308,794  

TOTAL CURRENT LIABILITIES

    3,441,665       3,065,278  

Lease liability

    1,711,184       -  

DEFERRED INCOME TAXES

    1,298,847       1,403,507  

TOTAL LIABILITIES

    6,451,696       4,468,785  
                 

COMMITMENTS AND CONTINGENCIES

               
                 

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 3,746,454

    374,645       374,645  

Class B issued and outstanding 1,414,517

    141,452       141,452  

Additional paid-in capital

    7,854,108       7,854,108  

Retained earnings

    15,063,942       15,549,961  

TOTAL STOCKHOLDERS' EQUITY

    23,434,147       23,920,166  
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 29,885,843     $ 28,388,951  

 

See notes to condensed consolidated financial statements.

 

3

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS  OF CASH FLOWS

(Unaudited)

 

   

Thirty-nine Weeks Ended

 
   

March 29,

   

March 31,

 
   

2020

   

2019

 

Cash Flows From Operating Activities

               

Net earnings

  $ 1,320,322     $ 2,804,066  

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

               

Depreciation and amortization

    714,560       719,224  

Amortization of right to use asset

    124,758          

(Decrease) increase in deferred taxes

    (104,660

)

    43,861  

Unrealized loss (gain) on marketable investment securities

    415,137       (173,985

)

Net purchases of marketable investment securities

    (22,285

)

    (42,269

)

Gain on sale of available-for-sale securities

    (9,487

)

    -  

Changes in assets and liabilities

               

Decrease (increase) in inventories

    31,415       (65,900

)

Decrease in prepaid & other

    644,459       216,193  

Decrease in accounts payable

    (434,537

)

    (254,057

)

Decrease in accrued expenses

    (371,510

)

    (362,929

)

Decrease (increase) income taxes refundable

    119,296       (169,025

)

Decrease in long-term deferred compensation

    -       (17,440

)

Decrease in lease liability

    (115,667

)

    -  

Increase in other current liabilities

    1,934,932       2,046,729  

Net cash provided by operating activities

    4,246,733       4,744,468  
                 

Cash Flows From Investing Activities

               

Expenditures for land, building and equip

    (473,962

)

    (389,734

)

Net sales and maturities (purchases) of short-term investments

    299,079       (297,691

)

Proceeds from sale of available-for-sale securities

    1,000,000       -  

Decrease in cash surrender value of officers life insurance

    521,938       -  

Net cash provided by (used in)

               

Investing activities

    1,347,055       (687,425

)

                 

Cash Flows From Financing Activities

               

Payment of cash dividends

    (2,709,511

)

    (2,683,706

)

                 

Net cash used in financing activities

    (2,709,511

)

    (2,683,706

)

                 

Net Increase in Cash and Equivalents

    2,884,277       1,373,337  
                 

Cash and Equivalents, Beginning of period

    269,844       1,008,433  
                 

Cash and Equivalents, End of period

  $ 3,154,121     $ 2,381,770  
                 
                 

Supplemental Disclosures of Cash Flow Information

               

Cash Paid During the Period for:

               

Income taxes

  $ 401,200     $ 997,300  

 

See notes to condensed consolidated financial statements.

 

4

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

 

   

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 1, 2018

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ 2,102,745     $ 14,010,725  

Cash dividends declared Sept 2018 paid November 2018

    -       -       -       -       -       -       (903,170

)

Reclassification of unrealized gain on available-for-sale securities from other comprehensive income to retained earnings

    -       -       -       -       -       (2,102,745

)

    2,102,745  

Net earnings for the quarter

    -       -       -       -       -       -       440,381  

Balance, September 30, 2018

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ -     $ 15,650,681  

Cash dividends declared Dec 2018 paid February 2019

    -       -       -       -       -       -       (903,170

)

Net earnings for the quarter

    -       -       -       -       -       -       557,442  

Balance, December 30, 2018

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ -     $ 15,304,953  

Cash dividends declared Mar 2019 paid May 2019

    -       -       -       -       -       -       (903,171

)

Net earnings for the quarter

    -       -       -       -       -       -       1,806,243  

Balance, March 31, 2019

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108               16,208,025  

 

 

   

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, June 30, 2019

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ -     $ 15,549,961  

Cash dividends declared Sept 2019 paid November 2019

    -       -       -       -       -       -       (903,170

)

Net earnings for the quarter

    -       -       -       -       -       -       285,325  

Balance, September 29, 2019

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ -     $ 14,932,116  

Cash dividends declared Dec 2019 paid February 2020

    -       -       -       -       -       -       (903,171

)

Net earnings for the quarter

    -       -       -       -       -       -       877,675  

Balance, December 29, 2019

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ -     $ 14,906,620  

Net earnings for the quarter

                                                    157,322  

Balance, March 29, 2020

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108               15,063,942  

 

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

 

5

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Weeks Ended

March 29, 2020

 

(Unaudited)

 

 

1.    Basis for Presentation

 

The accompanying unaudited condensed consolidated financial statements of Bowl America Incorporated and subsidiaries (collectively, the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  The condensed consolidated balance sheet as of June 30, 2019 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.  These condensed consolidated financial statements should 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 June 30, 2019.

 

 

2.    Investments

 

The Company’s investments are categorized as available-for-sale. Short-term investments consist of certificates of deposits and Treasury bills with maturities of generally three months to one year. Equity securities consist primarily of telecommunications stocks and a mutual fund that invests in federal agency mortgage backed securities (Ginnie Mae). The fair value of the Company’s investments at March 29, 2020 and June 30, 2019 were as follows:

 

March 29, 2020

Description

 

 

Fair Value

   

 

Cost basis

   

Unrealized Gain/

(loss)

 

Short-term investments

  $ 134,170     $ 134,170     $ -  

Equity securities

  $ 4,660,915     $ 1,279,914     $ 3,381,001  

Mutual fund

  $ 985,636     $ 953,185     $ 32,451  

 

June 30, 2019

Description

 

 

Fair Value

   

 

Cost basis

   

Unrealized Gain/

(loss)

 

Short-term investments

  $ 433,249     $ 433,249     $ -  

Equity securities

  $ 5,100,341     $ 1,279,914     $ 3,820,427  

Mutual funds

  $ 1,929,575     $ 1,921,413     $ 8,162  

 

6

 

The fair values of the Company’s investments were determined as follows:

 

March 29, 2020

 

 

Description

 

Quoted

Price for

Identical Assets

(Level 1)

   

Significant Other Observable Inputs

(Level 2)

   

 

Significant

Unobservable Inputs

(Level 3)

 
                         

Certificates of deposits and Treasury bills

  $ -     $ 134,170     $ -  

Equity securities

    4,660,915       -       -  

Mutual fund

    985,636       -       -  
                         

Total

  $ 5,646,551     $ 134,170     $ -  

 

June 30, 2019

 

 

 

Description

 

Quoted

Price for

Identical Assets

(Level 1)

   

Significant Other Observable Inputs

(Level 2)

   

 

Significant

Unobservable Inputs

(Level 3)

 
                         

Certificates of deposits

  $ -     $ 433,249     $ -  

Equity securities

    5,100,341       -       -  

Mutual fund

    1,929,575       -       -  
                         

Total

  $ 7,029,916     $ 433,249     $ -  

 

The shares of common stock included in the equity securities portfolio as of March 29, 2020 were:

 

AT&T shares

    82,112  

Manulife shares

    2,520  

Uniti Group shares (formerly CSAL)

    815  

NCR shares

    774  

Teradata shares

    774  

Vodafone shares

    6,471  

CenturyLink shares

    4,398  

Frontier Communications shares

    300  

Sprint shares

    40,000  

Verizon shares

    31,904  

Windstream shares

    135  

 

On April 1, 2020, T-Mobile and Sprint completed their merger exchanging 40,000 shares of Sprint for 4,102 shares of T-Mobile.   

 

The Mutual fund included in the table above is Vanguard GNMA Admiral Shares #536 fund. The fair value of certificates of deposits is estimated using present value techniques and comparing the values derived from those techniques to certificates with similar values.

 

 

3.    Leasing arrangements

 

As of March 29, 2020, the Company leased one bowling center.  The lease is classified as an operating lease in accordance with ASU 2016-02.  For the 39 week period ended March 29, 2020, the Company recorded amortization of its right to use asset under the lease of $124,758 which is included as a component of rent expense.  The lease liability at March 29, 2020 was $1,861,856. The current portion of the lease liability of $150,672 is included in other current liabilities on the accompanying condensed consolidated balance sheet. 

 

7

 

 

4.   Commitments and Contingencies

 

The Company’s purchase commitments at March 29, 2020 are for materials, supplies, services and equipment as part of the normal course of business.

 

 

5.    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 post-retirement plan.

 

 

6.    New Accounting Standards

  

 In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The Company adopted this standard effective July 1, 2019. The result was the recognition of a right to use asset of $1,977,523 and a corresponding lease liability for the same amount.

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which creates a single, comprehensive revenue recognition model for all contracts with customers. Under this ASU and subsequently issued amendments, an entity should recognize revenue to reflect the transfer of promised goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods and services. ASU 2014-9 may be adopted either retrospectively or on a modified retrospective basis. The Company adopted the standard effective July 2, 2018 and determined there was no material effect on the financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. As part of the FASB's disclosure framework project, it has eliminated, amended and added disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of any interim or annual reporting period.  The Company does not believe it will materially impact disclosures.

 

 

7.    Reclassifications

 

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

 

8

 

 

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. More recent risks and uncertainties include the ongoing effects of the business disruption related to the current COVID-19 pandemic on revenues, operating income, the ability to reopen locations, governmental regulations to limit the spread of COVID-19 such as social distancing and enhanced safety measures, times of operation and reaction should the virus rise again. 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, our sales 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.

 

COVID-19

 

The Company closed all bowling centers on March 18, 2020, as required by the orders from the state and federal governments in an effort to stop the spread of COVID-19. Most employees were laid off temporarily but will be called back as needed for their services as we reopen. While this center closure is expected to be temporary, with no known time frame for reopening, or what steps will have to been taken for a reopening, we cannot currently estimate the full financial impact to the Company. However, because the center closure occurred near the end of the quarter ended March 29, 2020, the impact was not as great as it will be for the fourth quarter ending June 28, 2020 during which we will have no revenues unless our centers are able to reopen prior to the end of the quarter. Many leagues decided to end their seasons early as it became clear that a reopening would not occur quickly. The Company did not receive league lineage fees for the weeks during which there was no bowling. Restrictions on operations upon reopening in our operating areas will likely result in few summer leagues and modified hours of operation assuming our centers are able to re-open. The Company suspended its quarterly dividend and expects to use cash on hand and, if necessary, its reserves, until the centers reopen.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company has long viewed a strong financial position as a major benefit to shareholders and has invested a portion of earnings 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 historically had 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. The Company considers that this diversity also provides a measure of safety of principal. Regulatory orders requiring the closure of our bowling centers in March 2020 with an uncertain time for reopening could require use of those reserves.

 

With the exception of 13,120 shares of Verizon, the equity securities 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 $967,000 from mergers and sales, and over $5,300,000 in dividends, the majority of which received favorable tax treatment in the form of a dividends received deduction from federal taxable income. While the deduction continues into this fiscal year, the Tax Cuts and Jobs Act (“Tax Act”) reduces the percent deductible. These equity securities are carried at their fair value on the last day of each reporting period. The fair value of the securities on March 29, 2020 was approximately $4,661,000 and on June 30, 2019 was approximately $5,100,000.

 

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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.    In August 2019, $1,000,000 of this fund was redeemed to meet the August 2019 dividend payment. The fund is carried at fair value on the last day of the reporting period. At March 29, 2020, the value was approximately $985,000 and at June 30, 2019, the value was $1,930,000.

 

Short-term investments, including Certificates of Deposits, Treasury Bills and cash and cash equivalents totaled $3,288,000 at the end of the fiscal third quarter of 2020 compared to $703,000 at June 30, 2019.

 

The Company’s position in all the above investments is a source of capital for use as needed to pay league prize funds and expenses during the COVID-19 shutdown and reopening. Barring additional catastrophic or unknown events, cash on hand and the investments noted above should provide funding for the Company through September 2020 should the locations remain closed. Potential volatility in the trading prices of the marketable securities held by the Company could impact the Company’s available resources. The Board of Directors reviews the portfolio and any use of this reserve at its quarterly meetings.

 

In the nine-month period ended March 29, 2020, the Company expended approximately $473,000 for the purchase of building, entertainment and restaurant equipment. The Company has no long-term debt and currently has no plans to obtain 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 nine-month decreases in the categories of Prepaid expenses and other, Accounts Payable and Accrued Expenses are primarily due to seasonal timing of payments including compensation, insurance and taxes and for contributions to benefit plans.

 

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 March 29, 2020, league deposits of approximately $1,952,000 were included in the current liabilities category.

 

Cash flow provided by operating activities in the thirty-nine weeks ended March 29, 2020 was $4,247,000 which, along with cash on hand was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $903,000, or $.175 per share, were paid to shareholders during the quarter ended March 29, 2020, and the nine months total was approximately $2,710,000 or $.525 per share.   In March 2020 the Company suspended its regular quarterly dividend due to the unpredictability of the business interruption from COVID-19. 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 and trends of the business and estimate of future 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 preferences.  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. While bowling has the advantage of being an entertainment that is close to home and relatively inexpensive, new forms of sports and entertainment are offered to the public continually creating 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.  The Company operates primarily in the Washington, DC area where its business is vulnerable to sequestration or other downsizing of the federal government. The Company currently operates 17 bowling centers, 16 of which are owned by the Company and 1 of which is a leased center. In March 2019, the Company elected not to renew the lease for its bowling center in Manassas due to the performance at the center. The lease terminated August 31, 2019.

 

10

 

RESULTS OF OPERATIONS

 

The following tables set forth the items in our consolidated summary of operations for the fiscal quarters and year-to-date periods ended March 29, 2020, and March 31, 2019, and the dollar and percentage changes therein

 

   

Thirteen weeks ended

 
   

March 29, 2020 and March 31, 2019

 
   

Dollars in thousands

 
   

2020

   

2019

   

Change

   

% Change

 

Operating Revenues:

                               

Bowling and other

  $ 4,456     $ 5,258     $ (802

)

    (15.3

)

Food, beverage and merchandise sales

    1,804       2,185       (381

)

    (17.4

)

Total Operating Revenue

    6,260       7,443       (1,183

)

    (15.9

)

Operating Expenses:

                               

Employee Compensation and benefits

    2,649       2,843       (194

)

    (6.8

)

Cost of bowling and other services

    1,462       1,583       (121

)

    (7.6

)

Cost of food, beverage and merchandise sales

    533       630       (97

)

    (15.4

)

Depreciation and amortization

    244       240       4       1.7  

General and administrative

    277       233       44       18.9  

Total Operating Expenses

    5,165       5,529       (364

)

    (6.6

)

Operating Income

    1,095       1,914       (819

)

    (42.8

)

Interest, dividend and other income

    97       101       (4

)

    (4.0

)

Change in value of marketable investment securities

    (1,001

)

    367       (1,368

)

    (372.7

)

Earnings before taxes

    191       2,382       (2,191

)

    (92.0

)

Income taxes

    34       576       (542

)

    (94.1

)

Net Earnings

  $ 157       1,806       (1,649

)

    (91.3

)

 

 

   

Thirty-nine weeks ended

 
   

March 29, 2020 and March 31, 2019

 
   

Dollars in thousands

 
   

2020

   

2019

   

Change

   

% Change

 

Operating Revenues:

                               

Bowling and other

  $ 12,376     $ 13,501     $ (1,125

)

    (8.3

)

Food, beverage and merchandise sales

    5,173       5,711       (538

)

    (9.4

)

Total Operating Revenues

    17,549       19,212       (1,663

)

    (8.7

)

Operating Expenses:

                               

Employee Compensation and benefits

    8,107       8,346       (239

)

    (2.9

)

Cost of bowling and other services

    4,478       4,627       (149

)

    (3.2

)

Cost of food, beverage and merchandise sales

    1,537       1,635       (98

)

    (6.0

)

Depreciation and amortization

    715       719       (4

)

    (0.6

)

General and administrative

    884       664       220       33.1  

Total Operating Expenses

    15,721       15,991       (270

)

    (1.7

)

Operating income

    1,828       3,221       (1,393

)

    (43.3

)

Interest, dividend and other income

    313       297       16       5.4  

Change in value of marketable investment securities

    (411

)

    174       (585

)

    (336.2

)

Earnings before taxes

    1,730       3,692       (1,962

)

    (53.1

)

Income taxes

    410       888       (478

)

    (53.8

)

Net Earnings

  $ 1,320     $ 2,804     $ (1,484

)

    (52.9

)

 

11

 

The Company closed all bowling centers on March 18, 2020, as the orders from the state and federal governments required, in an effort to stop the spread of COVID-19. While this closure is expected to be temporary, with no known time frame for lifting the ban or for reopening, we cannot currently estimate the full financial impact to the Company. Many leagues decided to end their seasons early as it became clear that a reopening would not occur quickly. Because the closure occurred near the end of the quarter ended March 29, 2020 the impact was not as great as it will be for the fourth quarter.

 

Net earnings, including the decrease in the value of investment securities of $1,001,000 for the thirteen week period ended March 29, 2020, were $157,322 or $.03 per share. Net earnings for the thirty-nine week period ended March 29, 2020, including a decrease in the value of investment securities of $411,000 were $1,320,322 or $.26 per share.

 

For the thirteen-week and thirty-nine week periods ended March 31, 2019,including increases in the value of investment securities of $367,000 and $174,000, respectively, net earnings were $1,806,243 or $.35 per share and $2,804,066 or $.54 per share, respectively.

 

Seventeen centers were in operation for 8 of the 9 months in the current year period following the closing of the Mathis Avenue, Manassas center on July 28, 2019. Expenses related to the center closing were approximately $104,000 and were reported in the current year first quarter. Eighteen centers were in operation throughout the prior year periods.

 

The operating results for fiscal 2020 periods included in this report are not necessarily indicative of results to be expected for the year.

 

Operating Revenues

 

Total operating revenues decreased $1,183,000 to $6,260,000 in the most recent quarter compared to a decrease of $183,000 to $7,443,000 in the three-month period ended March 31, 2019.  The current fiscal nine month period operating revenues were down $1,663,000 versus a decrease of $46,000 in the comparable nine month period a year ago.  Bowling and other revenue decreased $802,000 in the quarter and $1,125,000 year-to-date for the periods ended March 29, 2020 versus decreases of $165,000 in the quarter and $155,000 for the nine-month period ended March 31, 2019.

 

Food, beverage and merchandise sales decreased $381,000 or 17.4% in the current year quarter and were down $538,000 or 9.4% in the nine-month period.  Cost of sales decreased 15.4% in the fiscal three months and decreased 6.0% in the nine month periods ended March 29, 2020.

 

Operating Expenses

 

Operating expenses decreased $364,000 or 6.6% and $270,000 or 1.7% in the current three month and nine-month periods versus increases of  $104,000 or 1.9% and $228,000 or 1.5%, respectively, in the three and nine month periods last year.  Employee compensation and benefits for the fiscal 2020 third quarter were down $194,000 or 6.8% and $239,000 or 2.9% in the nine month period.   In the comparable prior year quarter there was an increase of $42,000 or 1.5% and the nine month period ended March 31, 2019 showed an increase of $140,000 or 1.7%. 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 $121,000 or 7.6% and $149,000 or 3.2% in the three month and nine month periods ended March 29, 2020, respectively. In the prior year comparable three month and nine month periods the same category showed increases of $35,000 and $103,000, or 2.3% each, respectively. In the thirty-nine weeks ended March 29, 2020 maintenance and repair costs decreased $65,000 or 9.2% and in the comparable period last year costs increased $38,000 or 5.6%. Both periods included repairs to roofs and changeover to LED lighting in signs and parking lot lights, however the prior year period included snow removal costs of $38,000. Advertising costs during the current year thirty-nine week period ended March 29, 2020, decreased $7,000 or 2.6%. For the fiscal nine-month period ended March 29, 2020 utility costs were down $39,000 or 3.7 %. Supplies and services expenses were up less than 1% for the current nine month period.

 

Insurance expense excluding health insurance decreased 3.5% in the current year-to-date period versus a decrease of less than 1% in last year’s comparable period.

 

Depreciation and amortization expense was up approximately 1.0% in both the current and prior year nine-month periods due to capital expenditures.

 

12

 

As a result of the above, the nine-month period of fiscal 2020 resulted in operating income of $1,828,492 compared to operating income of $3,220,603 in the prior year comparable nine-month period.

 

Interest, Dividend and Other Income

 

Interest and dividend income decreased however an increase in parking space rental income resulted in an overall increase of $15,000 in the category in the fiscal 2020 nine-month period.

 

Income Taxes

 

The Tax Act of December 2017 reduced the federal corporate tax rate from 34% to 21%. Taxes for both the fiscal 2020 and 2019 periods reflect the reduced federal rate.

 

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 investment securities.  The Company exercises judgment in determining their fair value.  The Company records these investments at their fair value with the unrealized gain or loss recorded in income or loss in the current period.

 

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 has concluded that the Company’s disclosure controls and procedures are effective based on the evaluation of such controls and procedures as of March 29, 2020. 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 March 29, 2020, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

13

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

S.E.C. FORM 10-Q

 

PART II - OTHER INFORMATION

 

 

Item 1A,      Risk Factors.

 

The COVID-19 outbreak is having a material adverse effect on our business and liquidity

 

The COVID-19 pandemic is having an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis, which has created significant uncertainties. These uncertainties include, but are not limited to, the material adverse effect of the pandemic on the economy, our employees and customers, customer sentiment in general, and our bowling centers. The pandemic has materially adversely effected our near-term revenues, earnings, liquidity and cash flows, and has required significant actions in response, including but not limited to, employee furloughs and center closings, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. The Company cannot reasonably estimate the severity of COVID-19 on our operations but it currently anticipates a material adverse impact on our financial position, cash flows and results of operations. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.

 

Item 6.  Exhibits.

 

20

Press release issued May 12, 2020 (furnished herewith)

  

  

31

Certification of Interim Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith

   

32

Written Statement of the Interim Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 filed herewith

   

101

Interactive data files for the thirteen and thirty-nine weeks ended March 29, 2020 in eXtensible Business Reporting Language

 

14

 

SIGNATURES

 

 

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: May 12, 2020

By: /s/ Cheryl A Dragoo                          

  

Cheryl A. Dragoo,  CEO and CFO

  

  

 

 

 

 

 

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