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BWL-A > SEC Filings for BWL-A > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for BOWL AMERICA INC

Form 10-Q for BOWL AMERICA INC


14-Nov-2012

Quarterly Report


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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management's beliefs and assumptions. These statements are not guarantees of future performance or development and involve risks, uncertainties and other factors that are in some cases beyond our control. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as the date hereof. We are under no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

LIQUIDITY AND CAPITAL RESOURCES

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

The Company purchased 5,000 shares of Verizon for $178,200 during the fiscal year ended July 1, 2012. The remainder of common stocks in our portfolio have come from spin-offs, mergers and acquisitions of AT&T and United Telecommunications (now Sprint) purchased in 1979 and 1984 and one insurance company acquired at no cost when the company demutualized. While not all stocks in the portfolio are domestic American companies any longer, since the original purchases at an approximate cost of $630,000, we have received approximately $962,000 from mergers and sales and over $3,200,000 in dividends, the majority of which are tax favored in the form of exclusion from federal taxable income. These marketable securities are carried at their fair value on the last day of each reporting period. The value of the securities on September 30, 2012 was approximately $5.1 million, an increase of approximately $300,000 from July 1, 2012. Short-term investments consisting mainly of Certificates of Deposits, cash and cash equivalents totaled $5,652,000 at September 30, 2012 compared to $6,196,000 at July 1, 2012.

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

In the three-month period ended September 30, 2012, the Company expended approximately $286,000 for the purchase of building, entertainment and restaurant equipment. The Company has no current 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 first quarter decreases in the categories of Prepaid expenses and other and of Accrued expenses is attributable primarily to the timing of the payments including compensation, insurance and taxes and for contributions to two benefit plans.

Current liabilities generally increase during the first three quarters of the fiscal year as bowling 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 September 30, 2012, league deposits of approximately $740,000 were included in the current liabilities category.

Cash flow provided by operating activities in the thirteen weeks ended September 30, 2012 was $593,000 which, along with cash on hand, was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $824,000, or $.16 per share, were paid to shareholders during the three-month period ended September 30, 2012. In September 2012, the Company declared an increase in the regular quarterly dividend to $.165 per share, payable November 14, 2012. The economic climate is part of the consideration at the Directors' quarterly reviews of future estimates of cash flows. The Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state of the business and estimate of future opportunities at such time.


Overview

The Company is in the entertainment business which, by its nature, has ups and downs based on consumer tastes and whims. Generally, promotional and open play bowling which depends on the public's discretionary budget dollars and their choices, accounts for more than half of our business. An unstable economy can lead many to participate in entertainment that is close to home and relatively inexpensive. Bowling has those advantages. However the longer the economy remains unstable, the less willing people are to spend on other than necessities. Weather is also a factor, especially for casual bowlers. While 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 in the Washington DC area where its business would be vulnerable to sequestration or other downsizing of the federal government. Current economic conditions continue to create challenging times but our response will be helped by having the resources to be able to promote the sport.

RESULTS OF OPERATIONS

For the thirteen-week period ended September 30, 2012 there was a net loss of $240,993, or $.05 loss per share. For the prior year thirteen-week period ended October 2, 2011, there was a net loss of $275,173, or $.05 loss per share. Nineteen locations were in operation in both periods. The bowling business is seasonal and the first quarter which includes summer months is typically the slowest. Management believes that the length and uncertainty of economic conditions are negatively influencing the public's discretionary spending. The operating results for the fiscal 2013 period included in this report are not necessarily indicative of results to be expected for the year.

The following table sets forth the items in our consolidated summary of operations for the fiscal quarter ended September 30, 2012, and October 2, 2011, and the dollar and percentage changes therein.

                                                                 Thirteen weeks ended
                                                        September 30, 2012 and October 2, 2011
                                                                 Dollars in thousands
                                                2012              2011           Change        % Change
Operating Revenues:
Bowling and other                            $     3,674       $     3,898     $     (224 )          (5.7 )
Food, beverage & merchandise sales                 1,513             1,597            (84 )          (5.3 )
                                                   5,187             5,495           (308 )          (5.6 )
Operating Expenses:
Compensation & benefits                            2,955             3,045            (90 )          (3.0 )
Cost of bowling & other                            1,626             1,832           (206 )         (11.2 )
Cost of food, beverage & merchandise sales           454               482            (28 )          (5.8 )
Depreciation & amortization                          390               424            (34 )          (8.0 )
General & administrative                             264               254             10             3.9
                                                   5,689             6,037           (348 )          (5.8 )

Operating Loss                                      (502 )            (542 )           40             7.4

Interest & dividend income                           131               119             12            10.1

Loss before taxes                                   (371 )            (423 )           52            12.3
Income tax benefit                                  (130 )            (148 )          (18 )         (12.1 )

Net Loss                                     $      (241 )     $      (275 )   $       34            12.4


Operating Revenues

Total operating revenues decreased $308,000 to $5,187,000 in the thirteen-week period ended September 30, 2012, compared to a decrease of $155,000 to $5,495,000 in the three-month period ended October 2, 2011. Bowling and other revenue decreased $224,000 in the current year fiscal quarter compared to a decrease of $109,000 in the comparable prior year quarter. Food, beverage and merchandise sales were down $84,000 or 5% in the current year quarter due to lower traffic, compared to a decrease of $46,000 or 3% in the prior year comparable quarter. Cost of sales declined $28,000 or 6% in the current year three-month period due to lower sales.

Operating Expenses

Operating expenses were down $348,000 or 6% in the three-month period ended September 30, 2012 compared to a decrease of $78,000 or 1% in the prior year quarter ended October 2, 2011. Employee compensation and benefits were down $90,000 or 3% and $46,000 or 2% in each of the fiscal first quarters of 2013 and 2012, respectively. The Company continued to make scheduling adjustments in response to lower traffic. In addition, group health insurance costs decreased as a result of lower premiums, fewer participants and the end of costs incurred in establishing health savings accounts. 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 $206,000 or 11% in the quarter ended September 30, 2012 versus a decrease of $37,000 or 2% in the comparable quarter ended October 2, 2011. Maintenance and repair costs were down $40,000 or 17% in the current year quarter versus a decrease of $10,000 or 4% in the comparable quarter of fiscal 2012 as fewer high cost repairs were needed in the current year period Advertising costs decreased $97,000 or 42% in the quarter ended September 30, 2012 as the Company reduced summer months ad campaigns. For the three month period ended September 30, 2012, utility costs were down $27,000 or 6%. In the prior year quarter costs were down less than 1%. Supplies and services expenses were down $15,000 or 7% in the current year thirteen-week period and were flat in the prior year comparable period.

Depreciation and amortization expense was down 8% in the three-month period ended September 30, 2012, and down 3% in the prior year comparable three-month period as some large assets reached full depreciation.

As stated above, the first quarter of the fiscal year is seasonally the slowest and the quarter ended September 30, 2012 resulted in an operating loss of $502,000. The comparable quarter last year produced an operating loss of $542,000.

Interest and Dividend Income

Interest and dividend income increased $12,000 or 10% versus a decrease of $26,000 or 18% in the fiscal 2013 and 2012 year-to-date periods, respectively. Interest income in the current year period declined due to lower balances and interest rates, however dividend income was up in part due to the increase holdings in Verizon, mentioned above.

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.


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