PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

  BOWL AMERICA INCORPORATED AND SUBSIDIARIES

  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

  (Unaudited)

 

 

 

The operating results for the thirteen (13) and twenty-six (26) week periods ended December 31, 2017 are not necessarily indicative of results to be expected for the year.  See notes to condensed consolidated financial statements.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)

(Unaudited)

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

The operating results for the thirteen (13) and twenty-six (26) week periods ended December 31, 2017 are not necessarily indicative of results to be expected for the year.

 

See notes to condensed consolidated financial statements.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

See notes to condensed consolidated financial statements.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS  OF CASH FLOWS

(Unaudited)

 

 

See notes to condensed consolidated financial information.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

For the Twenty-six Weeks Ended

December 31, 2017

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

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 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.

 

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 $4,700,000 in dividends, the majority of which received favorable tax treatment in the form of a dividends received deduction from federal taxable income. The dividends received deduction continues into this fiscal year. These equity securities are carried at their fair value on the last day of each reporting period. The fair value of the securities on December 31, 2017 was approximately $5,500,000 and on July 2, 2017 was approximately $5,300,000.

 

The Company’s original investment in the Vanguard GNMA bond fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. In August 2017, $1,000,000 of this fund was redeemed to meet the August 2017 dividend payment. The fund is carried at fair value on the last day of the reporting period. At December 31, 2017, the value was approximately $1,838,000 and at July 2, 2017, the value was $1,837,000..

 

Short-term investments 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, and cash and cash equivalents totaled $3,266,000 at the end of the fiscal second 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. 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 January 6, 2017.

 

In the six-month period ended December 31, 2017, the Company expended approximately $676,000 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 six-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 December 31, 2017, league deposits of approximately $1,394,000 were included in the current liabilities category.

 

Cash flow provided by operating activities in the twenty-six weeks ended December 31, 2017 was $2,149,000 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 December 31, 2017, and the six months total was approximately $1,754,000 or $.34 per share.   In December 2017 the Company declared a regular quarterly dividend of $.17 per share, payable February 14, 2018 to shareholders of record on January 10, 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 December 31, 2017, and January 1, 2017, and the dollar and percentage changes therein.

 

		Thirteen weeks ended
		December 31, 2017 and January 1, 2017
		Dollars in thousands
		12/31/ 2017				1/01/ 2017				Change				% Change
Operating Revenues:
Bowling and other		$	4,485			$	4,379			$	106				2.4
			1,884				1,856				28				1.5
Total Operating Revenue			6,369				6,235				134				2.2
Operating Expenses:
Employee Compensation and benefits			2,721				2,738				(17	)			(0.6	)
Cost of bowling and other services			1,508				1,472				36				2.4
Cost of food, beverage and merchandise sales			574				577				(3	)			(0.5	)
Depreciation and amortization			238				275				(37	)			(13.4	)
General and administrative			230				211				19				9.0
Total Operating Expenses			5,271				5,273				(2	)			(0.0	)
Operating Income			1,098				962				136				14.1
Interest, dividend and other income			82				112				(30	)			(26.8	)
Interest expense			-				3				(3	)			(100.0	)
Earnings before taxes			1,180				1,071				109				10.2
Income taxes (benefit) provision			(257	)			375				(632	)			(168.5	)
Net Earnings		$	1,437				696				741				106.5

 

 

		Twenty-six weeks ended
		December 31, 2017 and January 1, 2017
		Dollars in thousands
		12/31/2017				1/01/ 2017				Change				% Change
Operating Revenues:
Bowling and other		$	8,233			$	7,956			$	277				3.5
Food, beverage and merchandise sales			3,399				3,343				56				1.7
Total Operating Revenues			11,632				11,299				333				3.0
Operating Expenses:
Employee Compensation and benefits			5,405				5,419				(14	)			(0.3	)
Cost of bowling and other services			2,976				2,942				34				1.2
Cost of food, beverage and merchandise sales			1,047				1,059				(12	)			(1.1	)
Depreciation and amortization			474				568				(94	)			(16.5	)
General and administrative			436				441				(5	)			(1.1	)
Total Operating Expenses			10,338				10,429				(91	)			(0.9	)
Operating income			1,294				870				424				48.7
Interest, dividend and other income			186				205				(19	)			(9.3	)
Interest expense			-				5				(5	)			(100.0	)
Earnings before taxes			1,480				1,070				410				38.3
Income taxes (benefit) provision			(152	)			375				(527	)			(140.5	)
Net Earnings		$	1,632			$	695			$	937				134.8

 

 

Earnings were $1,436,734 or $.28 per share for the thirteen week period and $1,631,926 or $.32 per share for the twenty-six week period ended December 31, 2017.   For the thirteen-week and twenty-six periods ended January 1, 2017, net earnings were $695,906 and $695,186 or $.14 per share, respectively. Eighteen centers were in operation in both the current and prior year periods. In addition, both the current and prior year periods included the holiday week between Christmas and New Year’s Day. 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 $134,000 to $6,369,000 in the quarter ended December 31, 2017 compared to an increase of $229,000 to $6,235,000 in the three-month period ended January 1, 2017.  The current fiscal six-month period operating revenues were up $333,000 versus an increase of $373,000 in the comparable six-month period a year ago.  Bowling and other revenue increased $106,000 in the quarter and increased $277,000 year-to-date for the periods ended December 31, 2017 versus an increase of $213,000 in the quarter and of $316,000 for the six-month period ended January 1, 2017.

 

Food, beverage and merchandise sales increased $28,000 or 1.5% in the current year quarter and were up $56,000 or 1.7% in the six-month period.  Cost of sales decreased 0.5% in the current fiscal three month period and 1.1% for the six month period ended December 31, 2017.

 

Operating Expenses

 

Operating expenses were down $2,000 in the current three month period and down $91,000 in six-month period or less than 1%, respectively, versus decreases of  $44,000 or 0.8% and $183,000 or 1.7% in the three and six month periods, respectively, last year.  Employee compensation and benefits for the three and six month periods were down $17,000 and $14,000 or less than 1%, respectively, in the periods ended December 31, 2017. Group health insurance costs decreased 7.3% as a result of changes in plan offerings and lower participation. 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 increased $36,000 or 2.4% and $34,000 or 1.2% in the six-month periods ended December 31, 2017, respectively. In the twenty-six weeks ended December 31, 2017, maintenance and repair costs increased $47,000 or 12.1%, primarily the result of interior upgrades to two locations. Advertising costs during the current year twenty-six week period ended December 31 2017, were up $3,000 or 1.6%. For the fiscal six month period ended December 31, 2017 utility costs were up 0.9%. Supplies and services expenses were down $34,000 or 8.7% in the current year six-month period primarily the result of a decrease in the cost of amusement game supplies as a result of outsourcing our amusement game business.

 

Insurance expense excluding health insurance increased 5% in the current year-to-date period versus a decrease of 1% in last year’s comparable period.

 

Depreciation and amortization expense was down 16.5% in the current six-month period and down 15.9% in the prior year six-month period.

 

As a result of the above, the first six-month period of fiscal 2018 resulted in operating income of $1,294,000 compared to operating income of $869,900 in the prior year comparable six-month period.

 

Interest, Dividend and Other Income

 

Interest, dividend and other income decreased $19,000 in the fiscal 2018 six-month period and decreased $36,000 in the comparable 2017 year-to-date period, respectively. The current year decrease 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. In addition the Tax Act required an adjustment to the Company’s deferred tax account in this second quarter resulting in credits to income tax expense for both the current year quarter and six month period.

 

CRITICAL ACCOUNTING POLICIES

 

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

 

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

 

ITEM 4. CONTROLS AND PROCEDURES.

 

The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of December 31, 2017. There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the quarter ended December 31, 2017, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

S.E.C. FORM 10-Q

 

PART II - OTHER INFORMATION

 

 

Item 6.  Exhibits.

 

20	Press release issued February 13, 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 twenty six weeks ended December 31, 2017 in eXtensible Business Reporting Language

 

 

 

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Bowl America Incorporated
	(Registrant)
Date: February 13, 2018	By: /s/ Leslie H Goldberg
	Leslie H. Goldberg, President
Date: February 13, 2018	By: /s/ Cheryl A Dragoo
	Cheryl A. Dragoo, CFO

 

 

 

 

 

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