10-Q 1 bwl-a20180401_10q.htm FORM 10-Q bwl-a20180401_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: April 1, 2018

 

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)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No __

 

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

Yes X No __

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 X     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 X

 

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

 

  

Shares Outstanding at

  

May 10, 2018

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

 
   

April 1,

   

April 2,

   

April 1,

   

April 2,

 
   

2018

   

2017

   

2018

   

2017

 

Operating Revenues:

                               

Bowling and other

  $ 5,423,321     $ 5,298,395     $ 13,656,336     $ 13,254,733  

Food, beverage and merchandise sales

    2,202,898       2,192,397       5,602,158       5,534,939  

Total Operating Revenues

    7,626,219       7,490,792       19,258,494       18,789,672  
                                 

Operating Expenses:

                               

Employee compensation and benefits

    2,801,415       2,782,206       8,205,986       8,200,918  

Cost of bowling and other services

    1,547,889       1,559,551       4,523,872       4,501,128  

Cost of food, beverage and merchandise sales

    611,579       631,312       1,658,804       1,690,770  

Depreciation and amortization

    238,026       260,568       712,136       828,460  

General and administrative

    226,641       236,785       662,672       678,126  

Total Operating Expenses

    5,425,550       5,470,422       15,763,470       15,899,402  
                                 

Gain on sale of assets

    -       34,376       -       34,376  

Operating Income

    2,200,669       2,054,746       3,495,024       2,924,646  

Interest, dividend and other income

    107,130       110,801       292,596       315,703  

Interest expense

    -       980       -       6,296  
                                 

Earnings before provision for income taxes

    2,307,799       2,164,567       3,787,620       3,234,053  
                                 

Provision for income taxes

    705,000       757,700       552,895       1,132,000  
                                 

Net Earnings

  $ 1,602,799     $ 1,406,867     $ 3,234,725     $ 2,102,053  
                                 

Earnings per share-basic & diluted

  $ .31     $ .27     $ .63     $ .41  
                                 

NET EARNINGS PER SHARE

  $ .31     $ .27     $ .63     $ .41  
                                 

Weighted average shares outstanding

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

Dividends paid

  $ 877,365     $ 877,365     $ 2,632,095     $ 2,632,095  
                                 

Per share, dividends paid, Class A

  $ .17     $ .17     $ .51     $ .51  
                                 

Per share, dividends paid, Class B

  $ .17     $ .17     $ .51     $ .51  

 

 

The operating results for the thirteen (13) and thirty-nine (39) week periods ended April 1, 2018 are not necessarily indicative of results to be expected for the year.  See notes to condensed consolidated financial statements.

 

2

 

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)

(Unaudited)

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

   

Thirteen Weeks Ended

   

Thirty-nine Weeks Ended

 
   

April 1,

   

April 2,

   

April 1,

   

April 2,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Net Earnings

  $ 1,602,799     $ 1,406,867     $ 3,234,725     $ 2,102,053  

Other comprehensive earnings- net of tax

                               

Unrealized (loss) gain on available-for-sale securities net of tax (benefit) of ($132,929) and ($81,372) for 13 weeks, and ($41,737) and ($140,372) for 39 weeks

    (394,356

)

    (132,005

)

    (245,396

)

    (228,013

)

Reclassification adjustment for loss (gain) included in Net Income net of tax (benefit) of ($2,167) and ($2,227)

    -       -       (3,520

)

    3,619  
                                 

Comprehensive earnings

  $ 1,208,443     $ 1,274,862     $ 2,985,809     $ 1,877,659  


 

The operating results for the thirteen (13) and thirty-nine (39) week periods ended April 1, 2018 are not necessarily indicative of results to be expected for the year.

 

See notes to condensed consolidated financial statements.

 

3

 

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

Condensed  Consolidated Balance Sheets

(Unaudited)

 

   

As of

 
   

April 1,

   

July 2,

 
   

2018

   

2017

 

ASSETS

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 3,120,867     $ 604,671  

Short-term investments

    2,051,498       2,951,315  

Inventories

    502,198       534,741  

Prepaid expenses and other

    491,514       555,687  

TOTAL CURRENT ASSETS

    6,166,077       4,646,414  

LAND, BUILDINGS & EQUIPMENT

               

Net of accumulated depreciation of $41,087,005 and $40,978,609

    18,861,503       18,860,778  

OTHER ASSETS:

               

Marketable securities

    5,029,117       5,272,318  

Cash surrender value-life insurance

    772,326       772,326  

Other

    66,315       66,315  

TOTAL OTHER ASSETS

    5,867,758       6,110,959  

TOTAL ASSETS

  $ 30,895,338     $ 29,618,151  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

               

Accounts payable

  $ 596,866     $ 673,786  

Accrued expenses

    758,498       1,069,668  

Dividends payable

    877,365       877,365  

Income taxes payable

    57,997       22,543  

Other current liabilities

    2,266,527       342,324  

TOTAL CURRENT LIABILITIES

    4,557,253       2,985,686  

LONG-TERM DEFERRED COMPENSATION

    18,413       18,413  

DEFERRED INCOME TAXES

    1,379,565       2,027,659  

TOTAL LIABILITIES

    5,955,231       5,031,758  
                 

COMMITMENTS AND CONTINGENCIES (Note 3)

               
                 

STOCKHOLDERS' EQUITY

               

Preferred stock, par value $10 a share:

               

Authorized and unissued, 2,000,000 shares

    -       -  

Common stock, par value $.10 a share:

               

Authorized, 10,000,000 shares

               

Class A issued and outstanding 3,746,454

    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  

Accumulated other comprehensive earnings-

               

Unrealized gain on available-for-sale securities, net of tax

    2,233,072       2,481,988  

Retained earnings

    14,336,830       13,734,200  

TOTAL STOCKHOLDERS' EQUITY

    24,940,107       24,586,393  
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 30,895,338     $ 29,618,151  

 

See notes to condensed consolidated financial statements.

 

4

 

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS  OF CASH FLOWS

(Unaudited)

 

   

Thirty-nine Weeks Ended

 
   

April 1,

   

April 2,

 
   

2018

   

2017

 

Cash Flows From Operating Activities

               

Net earnings

  $ 3,234,725     $ 2,102,053  

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

               

Depreciation and amortization

    712,136       828,460  

Gain on sale of assets

    -       (34,376

)

Loss on involuntary cancellation of available-for-sale securities

    -       5,845  

Gain on sale of available-for-sale securities

    (8,531

)

    -  

Provisional estimate for reduction in deferred tax from tax act

    (604,190

)

       

Changes in assets and liabilities

               

Decrease in inventories

    32,543       52,295  

Decrease in prepaid & other

    64,173       117,874  

(Decrease) increase in accounts payable

    (76,920

)

    (102,190

)

Decrease in accrued expenses

    (311,170

)

    (434,184

)

Increase (decrease) in income taxes payable

    35,454       (134,763

)

Increase in other current liabilities

    1,924,203       1,917,874  

Net cash provided by operating activities

    5,002,423       4,318,888  
                 

Cash Flows From Investing Activities

               

Expenditures for land, building and equip

    (712,861

)

    (238,948

)

Sale of assets

    -       40,750  

Net purchases of short-term investments

    (176

)

    (970,717

)

Proceeds from sale of available-for-sale securities

    1,000,000       -  

Purchases of marketable securities

    (141,095

)

    (66,811

)

Net cash provided by (used in)

               

Investing activities

    145,868       (1,235,726

)

                 

Cash Flows From Financing Activities

               

Proceeds from note payable

    -       500,000  

Payment of note payable

    -       (500,000

)

Payment of cash dividends

    (2,632,095

)

    (2,632,095

)

                 

Net cash used in financing activities

    (2,632,095

)

    (2,632,095

)

                 

Net Increase in Cash and Equivalents

    2,516,196       451,067  
                 

Cash and Equivalents, Beginning of period

    604,671       986,193  
                 

Cash and Equivalents, End of period

  $ 3,120,867     $ 1,437,260  
                 

Supplemental Disclosures of Cash Flow Information

               

Cash Paid During the Period for:

               

Interest

  $ -     $ 6,296  

Income taxes

  $ 1,119,800     $ 1,266,763  

 

See notes to condensed consolidated financial information.

 

5

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Weeks Ended

April 1, 2018

(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 July 2, 2017 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 July 2, 2017.

 

 

 

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. Mutual funds consist of federal agency mortgage backed securities (Ginnie Mae). The fair value of the Company’s investments at April 1, 2018 and July 2, 2017 were as follows:

 

 

April 1, 2018

Description

 

 

Fair Value

   

 

Cost basis

   

Unrealized Gain/

(loss)

 

Short-term investments

  $ 233,174     $ 233,174     $ -  

Equity securities

  $ 5,029,117     $ 1,279,914     $ 3,749,203  

Mutual fund

  $ 1,818,323     $ 1,850,695     $ (32,372 )

July 2, 2017

Description

 

 

Fair Value

   

 

Cost basis

   

Unrealized Gain

(loss)

 

Short-term investments

  $ 133,922     $ 133,922     $ -  

Equity securities

  $ 5,272,318     $ 1,279,914     $ 3,992,404  

Mutual fund

  $ 2,817,392     $ 2,800,144     $ 17,248  

 

6

 

 

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

 

April 1, 2018

 

 

 

Description

 

Quoted

Price for

Identical Assets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

 

Significant

Unobservable

Inputs

(Level 3)

 
                         

Short term investments

  $ -     $ 233,174     $ -  

Equity securities

    5,029,117       -       -  

Mutual fund

    1,818,323       -       -  
                         

Total

  $ 6,847,440     $ 233,174     $ -  

July 2, 2017

 

 

 

Description

 

Quoted

Price for

Identical Assets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

 

Significant

Unobservable

Inputs

(Level 3)

 
                         

Certificates of deposits

  $ -     $ 133,922     $ -  

Equity securities

    5,272,318       -       -  

Mutual fund

    2,817,392       -       -  
                         

Total

  $ 8,089,710     $ 133,922     $ -  

 

The shares of common stock included in the equity securities portfolio as of April 1, 2018 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

    679  

 

On July 10, 2017, Frontier Communications completed a 1-for-15 reverse split reducing Bowl America’s holdings to 300 shares from 4,508. On August 1, 2016 Dex Media completed a financial restructuring. Previous shares of Dex Media’s common stock were cancelled with no distribution to shareholders resulting in a loss of $5,845 on the Company’s holdings.

 

Communications Sales & Leasing Inc (“CSAL”) changed its corporate name to Uniti Group Inc (“UNIT”) effective February 27, 2017.

 

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. In August 2017 the Company redeemed $1,000,000 of the mutual fund to meet the August 2017 dividend payment.

 

 

3. Commitments and Contingencies

 

The Company’s purchase commitments at April 1, 2018 are for materials, supplies, services and equipment as part of the normal course of business.

 

7

 

 

 

4.  Employee benefit plans

 

The Company has two defined contribution plans with Company contributions determined by the Board of Directors.  The Company has no defined benefit plan or other post-retirement plan.

 

 

5.  Income Taxes

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).  The Tax Act includes broad and complex changes to the U.S. tax code, including a reduction in the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018.  For fiscal 2018, the Company will record its income tax provision based on a blended U.S. statutory tax rate of 27.5 percent, which is based on a proration of the applicable tax rates before and after the effective date of the Tax Act.  The statutory tax rate of 21 percent will apply for fiscal 2019 and beyond.

 

The Tax Act also puts in place new tax laws that may impact the Company’s taxable income beginning in fiscal 2019, which include, but are not limited to (i) reducing the dividends received exclusion, (ii) adding a provision that could limit the amount of deductible interest expense, and (iii) limiting the deductibility of certain executive compensation. Shortly after the Tax Act was enacted, the SEC issued accounting guidance, which provides a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act.  To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete, the company may determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

 

During the second quarter of fiscal 2018, the Company recorded a provisional discrete tax benefit of $ 604,190 related to the Tax Act.  The Company adjusted its U.S. deferred tax liabilities by $604,190 due to the reduction in the U.S. federal corporate tax rate.  The resulting adjustment increased current quarter and year to date earnings per share by 11.7 cents. This net reduction in deferred tax liabilities also included the estimated impact on the Company’s net state deferred tax liabilities

 

 

 

6. New Accounting Standards

 

In January 2016, the Financial Accounting Standards Board (FASB) issued guidance on equity securities that requires entities to recognize changes in unrealized gains and losses on equity securities in income in the current period unless the entity is recording the related investment under the equity method or consolidating the related entity. This amendment is effective for the Company’s fiscal year ending June 2019 with earlier adoption permitted. Management is currently assessing the impact of this standard on the Company’s financial statements.

 

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. This amendment is effective for the Company’s fiscal year ending June 2020 with early adoption permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures

 

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Act. The amount of the reclassification is calculated based on the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of the enactment of the Tax Act related to items that remained in accumulated other comprehensive income (loss) at that time. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this standard on its financial statements and has not yet made a decision regarding adoption.

 

 

 

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. 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.

 

LIQUIDITY AND CAPITAL RESOURCES

 

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

 

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 shares 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 $4,700,000 in dividends, the majority of which received favorable tax treatment in the form of a dividends received exclusion from federal taxable income. The dividends received exclusion continues into this fiscal year. These marketable securities are carried at their fair value on the last day of each reporting period. The value of the securities on April 1, 2018 was approximately $5,029,000 and on July 2, 2017 was approximately $5,272,000.

 

The Company’s original investment in the Vanguard GNMA mutual fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. The fund is carried at fair value on the last day of the reporting period. At April 1, 2018, the value was approximately $1,818,000. In August 2017, the Company redeemed $1,000,000 of the fund to meet the August 2017 dividend payment.

 

Short-term investments including the GNMA fund mentioned above that was reclassified to short term investments from the category of marketable securities in the prior year, Certificates of Deposits, Treasury Bills and cash and cash equivalents totaled $5,172,000 at the end of the fiscal third quarter of 2018 compared to $3,556,000 at July 2, 2017.

 

The Company’s position in all the above investments is a source of capital for possible expansion and modernization. Potential volatility in the trading prices of the marketable securities held by the Company could impact the Company’s opportunities for expansion. The Board of Directors reviews the portfolio weekly and any use of this reserve at its quarterly meetings.

 

In August 2016 the Company obtained a $500,000 short-term loan to meet the August 2016 dividend obligation. The loan was paid in full on January 6, 2017.

 

In the nine-month period ended April 1, 2018, the Company expended approximately $713,000 for the purchase of building, entertainment and restaurant equipment. The Company has no long-term debt and has made no application for third party funding as cash and cash flows are sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.

 

The 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.

 

9

 

 

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 April 1, 2018, league deposits of approximately $1,886,000 were included in the current liabilities category.

 

Cash flow provided by operating activities in the thirty-nine weeks ended April 1, 2018 was $5,002,000 which, along with cash on hand, and redemption of a portion of the Vanguard GNMA fund, mentioned above, was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $877,000, or $.17 per share, were paid to shareholders during the quarter ended April 1, 2018, and the nine months total was approximately $2,632,000 or $.51 per share.   In March 2018 the Company declared a regular quarterly dividend of $.17 per share, payable May 16, 2018 to shareholders of record on April 19, 2018. 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.

 

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 April 1, 2018, and April 2, 2017, and the dollar and percentage changes therein.

 

   

Thirteen weeks ended

 
   

April 1, 2018 and April 2, 2017

 
   

Dollars in thousands

 
   

2018

   

2017

   

Change

   

% Change

 

Operating Revenues:

                               

Bowling and other

  $ 5,423     $ 5,299     $ 124       2.3  

Food, beverage and merchandise sales

    2,203       2,192       11       0.5  

Total Operating Revenue

    7,626       7,491       135       1.8  

Operating Expenses:

                               

Employee Compensation and benefits

    2,801       2,782       19       0.7  

Cost of bowling and other services

    1,548       1,560       (12

)

    (0.8

)

Cost of food, beverage and merchandise sales

    611       631       (20

)

    (3.2

)

Depreciation and amortization

    238       260       (22

)

    (8.5

)

General and administrative

    227       237       (10

)

    (4.2

)

Total Operating Expenses

    5,425       5,470       (45

)

    (0.8

)

Gain on sale of assets

    -       34       (34

)

    (100.0

)

Operating Income

    2,201       2,055       146       7.1  

Interest, dividend and other income

    107       111       (4

)

    (3.6

)

Interest expense

    -       1       (1

)

    (100.0

)

                                 

Earnings before taxes

    2,308       2,165       143       6.6  

Income taxes

    705       758       (53

)

    (7.0

)

Net Earnings

  $ 1,603       1,407       196       13.9  

 

10

 

 

   

Thirty-nine weeks ended

 
   

April 1, 2018 and April 2, 2017

 
   

Dollars in thousands

 
   

2018

   

2017

   

Change

   

% Change

 

Operating Revenues:

                               

Bowling and other

  $ 13,656     $ 13,255     $ 401       3.0  

Food, beverage and merchandise sales

    5,602       5,535       67       1.2  

Total Operating Revenues

    19,258       18,790       468       2.5  

Operating Expenses:

                               

Employee Compensation and benefits

    8,206       8,201       5       0.1  

Cost of bowling and other services

    4,524       4,501       23       0.5  

Cost of food, beverage and merchandise sales

    1,659       1,691       (32

)

    (1.9

)

Depreciation and amortization

    712       828       (116

)

    (14.0

)

General and administrative

    662       678       (16

)

    (2.4

)

Total Operating Expenses

    15,763       15,899       (136

)

    (0.9

)

Gain on sales of assets

    -       34       (34

)

    (100.0

)

Operating income

    3,495       2,925       570       19.5  

Interest, dividend and other income

    293       315       (22

)

    (7.0

)

Interest expense

    -       6       (6

)

    (100.0

)

                                 

Earnings before taxes

    3,788       3,234       554       17.1  

Income taxes

    553       1,132       (579

)

    (51.1

)

                                 

Net Earnings

  $ 3,235     $ 2,102     $ 1,133       53.9  

 

 

Earnings were $1,602,799 or $.31 per share for the thirteen week period and $3,234,725, or $.63 per share for the thirty-nine week period ended April 1, 2018.    For the thirteen-week and thirty-nine week periods ended April 2, 2017, net earnings were $1,406,867 or $.27 per share and $2,102,053 or $.41 per share, respectively. Eighteen centers were in operation in both the current and prior year quarters. The current year quarter included colder than normal temperatures and winter storms while last year’s comparable quarter weather was unusually warm although there was a mid-March storm. Postponement of some league games occurred in both years. The operating results for fiscal 2018 periods included in this report are not necessarily indicative of results to be expected for the year.

 

Operating Revenues

 

Total operating revenues increased $135,000 to $7,626,000 in the most recent quarter compared to an increase of $69,000 to $7,491,000 in the three-month period ended April 1, 2017.  The current fiscal nine month period operating revenues were up $468,000 versus an increase of $442,000 in the comparable nine month period a year ago.  Bowling and other revenue increased $124,000 in the quarter and $401,000 year-to-date for the periods ended April 1, 2018 versus increases of $62,000 in the quarter and $378,000 for the nine-month period ended April 2, 2017.

 

Food, beverage and merchandise sales increased $11,000 or 0.5% in the current year quarter and were up $67,000 or 1.2% in the nine-month period.  Cost of sales decreased 3.2% in the fiscal three months and 1.9% in the nine month periods ended April 1, 2018.

 

Operating Expenses

 

Operating expenses were down $45,000 or 0.8% and $136,000 or 0.9% in the current three month and nine month periods versus decreases of  $95,000 % and $278,000 or 1.7% in both the three and nine month periods last year.  Employee compensation and benefits for the fiscal 2018 third quarter were up $19,000 or 0.7% and $5,000 or 0.1% in the nine month period. In the comparable prior year quarter there was an increase of $18,000 or 0.7% and the nine month period ended April 2, 2017 showed a decrease of $46,000 or 0.6%. Group health insurance costs for the current nine month period decreased 8.7% as a result of changes in plan offerings and lower enrollment. 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 declined $12,000 or 0.8% and increased 23,000 or 0.5% in the three month and nine month periods ended April 1, 2018, respectively. In the thirteen weeks ended April 1, 2018, maintenance and repair costs declined $35,000 or 13.2% primarily due to lower snow removal costs in the current year. The same category for the current year thirty-nine week period was up $11,000 primarily due to interior upgrades at two locations. Advertising costs during the current year thirty-nine week period ended April 1, 2018, were down $4,000 or 1.7%.

 

11

 

 

For the fiscal nine-month period ended April 1, 2018 utility costs were up $27,000 or 2.6 % primarily a result of higher gas costs during the unusually cold winter months. Supplies and services expenses were down $70,000 or 11.3% in the current year nine-month period primarily due to the decline in amusement game supplies as a result of outsourcing our amusement game business.

 

Insurance expense excluding health insurance increased 5.7% in the current year-to-date period versus a decrease of 3.0% in last year’s comparable period.

 

Depreciation and amortization expense was down 14.0% in the current nine-month period and down 17.9% in the prior year comparable period.

 

In the prior year nine month period the Company recorded a $34,000 gain on the sale of some of its amusement games as it transitioned from owning games to outsourcing to a third party vendor as described above.

  

As a result of the above, the nine-month period of fiscal 2018 resulted in operating income of $3,495,024 compared to operating income of $2,924,646 in the prior year comparable nine-month period.

 

Interest, Dividend and Other Income

 

Interest, dividend and other income decreased $23,000 in the fiscal 2018 nine-month period and decreased $25,000 in the comparable 2017 year-to-date period, respectively. The decrease in the current year relates primarily to lower investment balances.

 

Income Taxes

 

On December 22, 2017 the U.S. government enacted comprehensive tax legislation, the Tax Cuts and Jobs Act (“Tax Act”), which reduced the corporate tax rate from 35% to 21%. The provisions call for a blended tax rate for fiscal year companies resulting in a reduction of the effective tax rate from 34.4% last year to approximately 30.5% in the current year. A required adjustment to the Company’s deferred tax account was made in the current year second quarter.

 

 

CRITICAL ACCOUNTING POLICIES

 

Management has identified accounting for marketable investment securities as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the captions of Short-term investments and Marketable securities.  The Company exercises judgment in determining the classification of its investment securities as available-for-sale and in determining their fair value.  The Company records these investments at their fair value with the unrealized gain or loss recorded in accumulated other comprehensive earnings, a component of stockholders’ equity, net of deferred taxes.  Additionally, from time to time the Company must assess whether write-downs are necessary for other than temporary declines in value.

 

Management has identified accounting for the impairment of long-lived assets as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the caption of Land, Buildings and Equipment.  The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable.  In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets.  An impairment loss equal to the difference between the assets’ fair value and carrying value is recognized when the estimated future cash flows are less than the carrying amount.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of April 1, 2018. 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 April 1, 2018, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

12

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

S.E.C. FORM 10-Q

 

PART II - OTHER INFORMATION

 

 

Item 6.  Exhibits.

 

20

Press release issued May 15, 2018 (furnished herewith)

  

  

31.1

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

  

  

31.2

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

  

  

32

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

   

101

Interactive data files for the thirteen and thirty-nine weeks ended April 1, 2018 in eXtensible Business Reporting Language

 

13

 

 

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 15, 2018

By: /s/ Leslie H Goldberg

  

Leslie H. Goldberg, President

  

  

  

  

  

  

Date: May 15, 2018

By: /s/ Cheryl A Dragoo  

  

Cheryl A. Dragoo, CFO

 

 

 

14