<PAGE>
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
PRESIDENT'S LETTER
September 18, 2000
Dear Fellow Employees and Owners:
Recently a customer approached me while I was having lunch at Bowl America
Shirley. He asked if I thought the bowling industry would survive. His
question was based in part on the July 10 Washington Post article, "After
Gutter Balls, AMF Looks for a Strike," written by Jerry Knight. It related
the financial problems of AMF to some of the social changes noted by Robert
Putnam and first discussed here in 1995. Dr.Putnam has put his findings in
a new book called BOWLING ALONE. Furthurmore, stories about the AMF debt
repayment difficulties have appeared in THE WALL STREET JOURNAL and THE NEW
YORK TIMES.
I thought it was important to make the distinction between the approaches
to financing taken by AMF and Bowl America. I therefore responded to the
Post article with the following letter (which they did not print).
* * *
Mr. Jerry Knight July 12, 2000
THE WASHINGTON POST
Dear Jerry:
I hoped as I read your article that you would emphasize that the AMF
problem was a financial problem and not a bowling problem by citing Bowl
America's success in adjusting to "Bowling Alone" (both the book and the
phenomenon). We first discussed Dr. Putnam's findings in our 1995 Annual
Report and expressed our confidence in being able to deal with it. After all,
the four families that went into the bowling business together in 1938 are
still associated in Bowl America today. We have been through gas rationing,
the advent of television, color television, VCRs, cable television and the
increase in the number of women in the workplace. All of these items
changed how people participate in recreation and entertainment activities and,
in fact, contributed to what Dr.Putnam defines as a "loss of social capital."
I am enclosing the press release from our nine-month earnings report,
which shows that we have completed our eleventh consecutive year-to-year
quarterly profit improvement. (You may not have come across it, because the
Post did not print this report or the ten quarterly improvements that preceded
it.)
We are, of course, in the entertainment business and, like other
entertainment activities, subject to continuing swings in public tastes. We
think that among the reasons we have been able to deal with the events noted
above are:
1. OUR STRONG FINANCIAL POSITION. Bowl America has no debt. In addition, we
have substantial reserves to adapt to changes in public taste, both now
and in the future. Casino operators (among other masters of statistics)
are quick to tell you that you have to have the cash to outlast a bad run
so that you can capitalize on the good run that inevitably follows.
2. WE HAVE BEEN AT IT A LONG TIME. As a result, from Board level to the
bowling center level, we are experienced in dealing with swings in
public taste.
Bowl America could have been damaged the most by the decline in
league bowling. Over time, more that any other bowling chain, we have
emphasized service to the league bowlers. But even as our league participation
declined, our well-run bowling centers have been able to adapt. Your weekly
summary of local stocks shows our profit has improved by 26% in the trailing
twelve months, and this morning's Post had a small "u" next to our stock price.
This is not a flash in the pan. Bowl America has increased its dividend for
28 consecutive years and twice in the last twelve months.
And there is a sometimes ignored comment by Dr. Putnam that suggests
the future may be even better. He has observed that those who reverse the
process of retreating from communal activities have a lower mortality rate.
I can see the headlines now:
BOWL TOGETHER: LIVE LONGER
Join a Bowl America League Before It's Too Late.
Now, wouldn't that be a 300 game?
Sincerely
Leslie H. Goldberg
President
* * *
Since my reply things have gotten even better for us. Trailing twelve month
per share earnings are now up 36% and we now have our TWELFTH consecutive
quarterly year-to-year profit improvement. Our stock price is even higher.
But I still remember that after the 1972 market "correction" it took us 17
years of annual earnings increases before our stock price returned to its
1972 level (Coca-Cola followed the same pattern for most of those years, so
it was not a small company problem). Despite that great earnings growth, our
P/E during those years dropped to 4. Of course, the market recovery was
delayed by the surge in inflation brought on by skyrocketing oil prices
(which of course can never happen again).
I am no better than anyone else at predicting the future. Timing the market
is beyond me. But a dividend that increases faster than prices provides
real income in any market and downside protection in a poor market. It gives
us a chance to share our success four times a year, something I hope we can
do for many years in the future.
Leslie H.Goldberg, President
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities in fiscal 2000 was $6,637,000 which
was sufficient to meet day-to-day cash needs. Short-term investments consist-
ing mainly of U.S. Treasury Bills and Notes, and cash totaled $10,397,000 at
the end of fiscal 2000 compared to $9,248,000 at the end of fiscal 1999.
The Company purchased 381,991 shares of its previously outstanding common stock
in fiscal year 2000 for a cost of $2,759,000. An additional 130,287 shares have
been purchased for approximately $1,042,000 since year end.
Approximately $528,000 was expended to acquire property and equipment during
fiscal 2000. The purchases included amusement game machines and Year 2000
upgrades for autoscoring systems. Currently the Company has a signed
contract with contingencies for approval of plans and permits on one site.
The Company is actively seeking land for additional locations. Since year
end, the Company purchased Bowl America Glen Burnie for $2,250,000 at the
expiration of its lease. Cash and cash flows are sufficient to finance all
planned purchases, modernization and construction. The Company's position
in telecommunication stocks is an additional source of expansion capital.
These marketable securities are carried at their fair value on the last day
of the quarter. The value of these securities on July 2, 2000 was $9.2 million
or $339,000 lower than at June 27, 1999. After year end, the Company received
$219,000 from the merger of AT&T and Media one, two of the stocks in the
portfolio.
Dividends per share increased for the twenty-eighth consecutive year. Cash
dividends paid to shareholders during fiscal 2000 were $2.2 million. A 5%
stock dividend was paid to all shareholders on July 26, 2000. Earnings per
share figures in this report have been adjusted to reflect this dividend.
While no factors requiring a change in the dividend rate are apparent, the Board
of Directors decides the amount and timing of any dividend at its quarterly
meeting based on its appraisal of the state of the business and its estimate
of future opportunities.
RESULTS OF CONSOLIDATED OPERATIONS
Fiscal 2000 was a 53-week year while fiscal 1999 and 1998 were 52-week years;
the additional week influenced all revenues and most expenses. The Company
operated one fewer center in fiscal 2000 as a location operating with a
negative cash flow was closed in the fourth quarter of fiscal 1999. Prior
year comparisons reflect the same number of centers in operation for the
peak bowling periods.
Operating revenues grew 5% in fiscal 2000 and 2% in fiscal 1999. Bowling
and other revenue gained like percentages for both periods. Increases in
the average game rate and ancillary revenues were primarily responsible.
Open play linage including Cosmic bowling was up for the year resulting
in an increase in total games bowled at comparable centers.
Total food, beverage and merchandise sales and cost of sales rose 4% in the
current year. In fiscal 1999 sales were up 1% and costs were down less than
1%.
Total operating expense increased less than 1% in both the current and prior
year periods. Costs for employee compensation and benefits increased 3% in
the current period partially due to overtime pay during this period of low
unemployment. The prior year increase in this category was 2%.
Maintenance costs fell 13% in the current fiscal year after rising 12% last
year when we resurfaced the majority of our wooden bowling lanes.
Glow-in-the-dark bowling advertising campaigns run during fiscal 2000 were
principally responsible for a 17% increase in advertising costs.
Overall equipment expenses, supplies expenses and utility costs declined 3%
in the current year, but natural gas expense jumped over 10%. In the prior
year the same categories of expenses were also down a total of 3%.
Rent expense decreased 11% in the current year due to the closing of a leased
location. Insurance costs were down 4% in the current fiscal year after a 6%
increase in the prior year.
Depreciation expenses decreased 7% in fiscal 2000 as several large capital
assets reached full depreciation. In the last fiscal year depreciation
expense was down 2%.
The Company's effective income tax rates were 35.9% in 2000, 36.3% in 1999 and
35.9% in 1998, the difference from statutory rates being primarily for the
partial exclusion of dividends received on investments and the state tax
exemption for interest on U.S. Government obligations.
-2-
<PAGE>
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF OPERATIONS
Selected Financial Data
<TABLE>
<CAPTION>
For the Years Ended
July 2, June 27, June 28, June 29, June 30,
2000 1999 1998 1997 1996
__________________________________________________________
<S> <C> <C> <C> <C> <C>
Operating Revenues $28,902,200 $27,547,490 $27,086,822 $26,995,056 $27,326,958
Operating Expenses 23,151,241 22,995,118 22,984,246 23,585,519 23,829,561
Interest and dividend
Income 823,470 684,781 675,302 632,927 663,550
__________ __________ __________ __________ __________
Earnings before pro-
vision for income
taxes 6,574,429 5,237,153 4,777,878 4,042,464 4,160,947
Provision for income
taxes 2,361,000 1,902,000 1,716,000 1,552,000 1,567,000
__________ __________ __________ __________ __________
Net Earnings $ 4,213,429 $ 3,335,153 $ 3,061,878 $ 2,490,464 $ 2,593,947
Weighted Average
Shares Outstanding
Basic & Diluted 5,321,802 5,739,078 5,942,857 5,964,446 6,014,592
Earnings Per Share
Basic & Diluted $.79 $.58 $.52 $.42 $.43
Net Cash Provided by
Operating Activities $6,636,768 $5,334,800 $5,261,518 $4,513,157 $5,174,075
Dividends Paid $2,197,659 $2,249,628 $2,264,293 $2,187,567 $2,177,956
Dividends Paid Per
Share-Class A $.43 $.41 $.40 $.385 $.38
-Class B $ 43 $.41 $.40 $.385 $.38
Total Assets $40,711,299 $41,747,936 $40,435,450 $38,002,571 $37,901,254
Stockholders' Equity $34,868,395 35,477,445 $35,291,573 $33,381,832 $32,903,833
Net Book Value Per
Share $6.55 $6.18 $5.94 $5.60 $5.47
Net Earnings as a %
of Beginning Stock-
holders' Equity 11.9% 9.5% 9.2% 7.6% 8.0%
Lanes in Operation 854 854 886 886 936
Centers in Operation 22 22 23 23 25
</TABLE>
All share and per share amounts have been adjusted to reflect the 5% stock
dividend distributed on July 26,2000
<PAGE>
Market Information
The principal market on which the Company's Class A Common Stock is traded is
the American Stock Exchange. The Company's Class B Common Stock is not listed
on any exchange and is not traded. This stock can be converted to Class A
Common Stock at any time. The table below presents the price range of the
Company's Class A stock in each quarter of fiscal 2000 and 1999.
<TABLE>
<CAPTION>
2000 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_______________________________________________________
<S> <C> <C> <C> <C>
High 7 5/16 7 1/2 7 5/8 7 7/8
Low 6 7/8 6 7/8 7 7 1/4
</TABLE>
<TABLE>
<CAPTION>
1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
_______________________________________________________
<S> <C> <C> <C> <C>
High 9 7 3/4 7 3/4 7 3/8
Low 7 3/16 6 7/8 6 3/4 6 3/8
</TABLE>
Holders
The approximate number of holders of record of the Company's Class A Common
Stock as of July 2, 2000 is 498 and of the Company's Class B Common Stock
is 39.
Dividends
The table below presents the dividends per share of Class A and Class B stock
paid, and the quarter in which the payment was made during fiscal 2000 and 1999.
<TABLE>
<CAPTION>
Class A Common Stock
Quarter 2000 1999
___________________________________________
<S> <C> <C>
First 10.5 cents 10 cents
Second 10.5 cents 10 cents
Third 11 cents 10.5 cents
Fourth 11 cents 10.5 cents
</TABLE>
<TABLE>
<CAPTION>
Class B Common Stock
Quarter 2000 1999
___________________________________________
<S> <C> <C>
First 10.5 cents 10 cents
Second 10.5 cents 10 cents
Third 11 cents 10.5 cents
Fourth 11 cents 10.5 cents
</TABLE>
-3-
<PAGE>
<PAGE>
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 2, 2000 June 27, 1999
____________ ____________
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 1,523,242 $ 1,557,225
Short-term investments (Note 3) 8,873,682 7,690,576
Inventories 657,628 618,875
Prepaid expenses and other 440,318 482,279
Income taxes refundable - 89,194
Deferred income taxes (Note 8) - 15,000
__________ __________
Total Current Assets 11,494,870 10,453,149
Property, Plant and Equipment, Net (Note 4) 19,367,989 20,908,976
Other Assets
Marketable equity securities (Note 3) 9,168,446 9,506,955
Cash surrender value-officers'life insurance 388,184 384,925
Other 291,810 493,931
__________ __________
TOTAL ASSETS $40,711,299 $41,747,936
</TABLE>
<PAGE>
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 2, 2000 June 27, 1999
_____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 688,213 $ 738,040
Accrued expenses 893,493 977,400
Income taxes payable 129,390 -
Deferred income taxes (Note 8) 23,000 -
Other current liabilities 430,808 349,051
__________ __________
Total Current Liabilities 2,164,904 2,064,491
Noncurrent Deferred Income Taxes (Note 8) 3,678,000 4,206,000
__________ __________
TOTAL LIABILITIES 5,842,904 6,270,491
Commitments and Contingencies (Note 5)
Stockholders' Equity (Note 6)
Preferred stock,
par value $10 a share: Authorized
and unissued 2,000,000 shares
Common stock,
par value $.10 per share
Authorized 10,000,000 shares
Class A issued
3,406,070 and 3,746,171 shares 340,607 374,617
Class B issued
1,488,826 and 1,508,716 shares 148,883 150,871
Additional paid-in capital 3,959,169 4,265,443
Accumulated other comprehensive earnings-
Unrealized gain on securities
available-for-sale, net of tax 5,246,421 5,285,930
Retained earnings 25,173,315 25,400,584
__________ __________
TOTAL STOCKHOLDERS' EQUITY $34,868,395 $35,477,445
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,711,299 $41,747,936
<FN>
See notes to consolidated financial information.
</TABLE>
-4-
<PAGE>
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
For the Years Ended
July 2,2000 June 27, 1999 June 28, 1998
______________________________________________
<S> <C> <C> <C>
Operating Revenues
Bowling and other $20,715,004 $19,696,199 $19,327,793
Food, beverage and
merchandise sales 8,187,196 7,851,291 7,759,029
__________ __________ __________
28,902,200 27,547,490 27,086,822
Operating Expenses
Compensation and benefits 12,229,408 11,820,526 11,608,348
Cost of bowling and other 5,479,160 5,654,989 5,762,553
Cost of food, beverage and
merchandise sales 2,523,687 2,414,579 2,434,639
Depreciation and amortization 2,099,928 2,268,267 2,322,999
General and administrative 819,058 836,757 855,707
__________ __________ __________
23,151,241 22,995,118 22,984,246
Operating Income 5,750,959 4,552,372 4,102,576
Interest and dividend income 823,470 684,781 675,302
__________ __________ __________
Earnings before provision
for income taxes 6,574,429 5,237,153 4,777,878
Provision for income taxes(Note 8)
Current 2,552,000 2,062,000 1,801,000
Deferred (191,000) (160,000) (85,000)
_________ __________ __________
2,361,000 1,902,000 1,716,000
Net Earnings $ 4,213,429 $ 3,335,153 $ 3,061,878
Other Comprehensive (Loss)Earnings
Net of Tax-unrealized (loss)
gain on available-for-sale
securities (39,509) 1,950,599 1,162,298
Comprehensive Earnings 4,173,920 5,285,752 4,224,176
Earnings Per Share-Basic &
Diluted $.79 $.58 $.52
<FN>
All share and per share amounts have been adjusted to reflect the 5% stock
dividend distributed on July 26, 2000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK Accumulated
_______________________________________ Additional Other
Class A Class A Class B Class B Paid-In Comprehensive Retained
Shares Amount Shares Amount Capital Earnings(1) Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 29, 1997 4,125,998 $412,600 1,536,146 $153,614 $4,896,835 $2,173,033 $25,745,750
Purchase of stock (5,647) (565) - - (3,331) - (46,246)
Cash dividends paid(40 cents/sh) - - - - - (2,264,293)
Change in unrealized gain on
available-for-sale securities - - - - - 1,162,298 -
Net earnings for the year - - - - - - 3,061,878
_________________________________________________________________________________________________________________________
Balance June 28, 1998 4,120,351 $412,035 1,536,146 $153,614 $4,893,504 $3,335,331 $26,497,089
Purchase of stock (374,180) (37,418) (27,430) (2,743) (628,061) - (2,182,030)
Cash dividends paid(41 cents/sh) - - - - - - (2,249,628)
Change in unrealized gain on
available-for-sale securities - - - - - 1,950,599 -
Net earnings for the year - - - - - - 3,335,153
_______________________________________________________________________________________________________________________
Balance June 27, 1999 3,746,171 $374,617 1,508,716 $150,871 $4,265,443 $5,285,930 $25,400,584
Purchase of stock (362,101) (36,210) (19,890) (1,988) (477,324) - (2,243,039)
Shares issued for ESOP plan 22,000 2,200 - - 171,050 - -
Cash dividends paid(43 cents/sh) - - - - - - (2,197,659)
Change in unrealized gain on
available-for-sale securities - - - - - (39,509) -
Net earnings for the year - - - - - - 4,213,429
________________________________________________________________________________________________________________________
Balance, July 2, 2000 3,406,070 $340,607 1,488,826 $148,883 $3,959,169 $5,246,421 $25,173,315
<FN> (1)Unrealized gains and losses are shown net of tax
See notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 2, June 27, June 28,
2000 1999 1998
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net earnings $4,213,429 $3,335,153 $3,061,878
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,099,928 2,268,267 2,322,999
Increase in deferred income taxes (191,000) (160,000) (85,000)
Loss (gain) on disposition of assets-net (30,775) 17,237 13,397
Stock issuance-ESOP Plan 173,250 - -
Changes in assets and liabilities:
(Increase) decrease in inventories (38,753) 78,696 2,629
Decrease (increase) in prepaid expenses
and other 41,961 7,479 (30,106)
Decrease (increase) in income taxes
refundable 218,584 (89,194) 32,982
Decrease (increase) in other long-term
assets 202,121 (219,452) 190,600
Decrease in accounts payable (49,827) (110,290) (144,066)
(Decrease) increase in accrued expenses
and payroll deductions (83,907) 201,349 (64,451)
Increase (decrease) in other current
liabilities 81,757 5,555 (39,344)
_________ _________ _________
Net cash provided by operating activities $6,636,768 $5,334,800 $5,261,518
_________ _________ _________
Cash Flows from Investing Activities
Expenditures for property,plant,equipment (528,166) (971,135) (1,105,043)
Net (increase) decrease in short-term
investments (1,183,106) 350,560 (1,666,097)
Increase in cash surrender value (3,259) (1,582) (29,137)
_________ _________ _________
Net cash used in investing activities (1,714,531) (622,157) (2,800,277)
_________ _________ _________
Cash Flows from Financing Activities
Payment of cash dividends (2,197,659) (2,249,628) (2,264,293)
Purchase of Class A Common Stock (2,474,664) (2,654,813) (50,142)
Purchase of Class B Common Stock (283,897) (195,439) -
_________ _________ _________
Net cash used in financing activities (4,956,220) (5,099,880) (2,314,435)
_________ _________ _________
Net (Decrease) Increase in Cash
and Cash Equivalents (33,983) (387,237) 146,806
Cash and Cash Equivalents, Beginning of Year 1,557,225 1,944,462 1,797,656
_________ _________ _________
Cash and Cash Equivalents, End of Year $1,523,242 $1,557,225 $1,944,462
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for
Income taxes $2,524,045 $2,282,560 $1,969,113
Interest - $1,528 $1,528
See notes to financial information.
</TABLE>
-6-
<PAGE>
BOWL AMERICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Bowl America Incorporated is engaged in the operation of 22 bowling
centers, with food and beverage service in each center. Thirteen centers are
located in metropolitan Washington D.C., two centers in metropolitan
Baltimore, Maryland, one center in metropolitan Orlando, Florida, three
centers in metropolitan Richmond, Virginia, and three centers in metropolitan
Jacksonville, Florida. These 22 centers contain a total of 854 lanes.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiary corporations. All significant inter-
company items have been eliminated in the consolidated financial statements.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest to June 30. Fiscal
year 2000 ended July 2, 2000, fiscal year 1999 ended June 27, 1999, and fiscal
year 1998 ended June 28, 1998. Fiscal year 2000 consisted of 53 weeks. Fiscal
years 1999 and 1998 each consisted of 52 weeks.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation and Amortization
Depreciation and amortization for financial statement purposes are calcu-
lated by use of the straight-line method. Amortization of leasehold improve-
ments is calculated over the estimated useful life of the asset or term of the
lease, whichever is shorter. The categories of property, plant, and equipment
and the ranges of estimated useful lives on which depreciation and amortization
rates are based are as follows:
Bowling lanes and equipment 3-10 years
Building and building improvements 10-30 years
Leasehold improvements 10 years
Amusement games 3-5 years
Maintenance and repairs and minor replacements are charged to expense when
incurred. Major replacements and betterments are capitalized. The accounts
are adjusted for the sale or other disposition of property, and the resulting
gain or loss is credited or charged to income.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
<PAGE>
Income Taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". Under this method, deferred income tax liabilities and assets
are based on the differences between the financial statement and tax bases
of assets and liabilities,using tax rates currently in effect. A valuation
allowance is provided when it is more likely than not that a deferred tax
asset will not be realized.
Fair Value of Financial Instruments
The fair value of the noncurrent marketable security portfolio is disclosed
in Note 3. The cost of all other financial instruments approximates fair value.
Investment Securities
The Company accounts for its investments in accordance with SFAS No. 115
entitled "Accounting for Certain Investments in Debt and Equity Securities".
All of the Company's readily marketable debt and equity securities are
classified as available-for-sale. Accordingly these securities are recorded
at fair value with any unrealized gains and losses excluded from earnings and
reported, net of deferred taxes, within a separate component of stockholders'
equity until realized. Realized gains and losses on the sale of debt and
equity securities are reported in earnings and determined using the adjusted
cost of the specific security sold.
Earnings Per Share
Earnings per share basic and diluted have been calculated using the weighted
average number of shares of Class A and Class B common stock outstanding
adjusted to reflect the 5% stock dividend distributed on July 26, 2000 of
5,321,802, 5,739,078 and 5,942,857, respectively.
Comprehensive Earnings
In accordance with SFAS No. 130, "Reporting Comprehensive Income", a
consolidated statement of comprehensive earnings reflecting the aggregation
of net earnings and unrealized gain or loss on available-for-sale securities,
the Company's principal components of other comprehensive earnings, has been
presented for each of the three years in the period ended July 2, 2000.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers money market funds, certificates of deposits, repurchase agreements
and treasury securities with original maturities of three months or less to be
cash equivalents.
New Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. In May 1999, SFAS No. 137, was issued to defer
the implementation of SFAS No. 133 for one year. SFAS No. 133 establishes
standards for the accounting and reporting of derivative instruments and
hedging activities and requires that all derivative financial instruments,
including certain derivative instruments embedded in other contracts, be
measured at fair value and recognized as assets or liabilities in the financial
statements. This statement is to be effective for all annual and interim
periods beginning after June 15, 2000. SFAS No. 133 will be adopted by the
Company during fiscal 2001, and the Company is currently evaluating the
impact of such adoption. However, the Company does not presently believe
the adoption of SFAS No. 133 will have a material effect on the Company's
consolidated financial position or results of operations in fiscal 2001.
-7-
<PAGE>
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
July 2, June 27,
2000 1999
Demand deposits and cash on hand $ 462,807 $ 172,671
Money market funds 378,435 367,554
Repurchase agreements 682,000 1,017,000
________ _________
$1,523,242 $1,557,225
3. INVESTMENTS
Short-term investments consist of certificates of deposits, U.S. Treasury
securities and a mutual fund which invests in mortgage backed securities
(maturities of generally three months to one year). Non-current investments
are marketable equity securities which consist of eleven telecommunications
stocks. The Company has classified all readily marketable debt and equity
securities as available-for-sale. These available-for-sale securities are
carried at fair value in accordance with the provisions of SFAS No. 115.
For the U.S. Treasury securities and the mutual fund, the cost of these
investments approximates fair value.
The following table summarizes the cost and approximate fair values of
equity securities available-for-sale as of July 2, 2000, and June 27, 1999
as follows:
<TABLE>
<CAPTION>
Original Unrealized Fair
Cost Gain Value
<S> <C> <C> <C>
July 2, 2000
Securities available-for-sale $857,782 $8,310,664 $9,168,446
June 27, 1999
Securities available-for-sale $857,782 $8,649,173 $9,506,955
</TABLE>
This portfolio includes the following telecommunications stocks:
9,291 shares of American Telephone & Telegraph
3,946 shares of Alltel
18,784 shares of Verizon
27,572 shares of Bell South
8,028 shares of Lucent Technologies
5,612 shares of Media One
9,969 shares of Quest
45,580 shares of SBC Communications
32,000 shares of Sprint Fon
16,000 shares of Sprint PCS
13,560 shares of Vodafone
There were no sales of these available-for-sale securities in the years
ended July 2, 2000, June 27, 1999 and June 28, 1998.
<PAGE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, as cost, consist of the following:
<TABLE>
<CAPTION>
July 2, June 27,
2000 1999
<S> <C> <C>
Bowling lanes and equipment $17,778,725 $17,575,699
Amusement games 758,990 779,012
Buildings and building improvements 17,415,875 17,389,469
Leasehold improvements 866,707 866,707
Land 7,698,228 7,698,228
Bowling lanes and equipment not yet in use 265,957 303,095
__________ __________
44,784,482 44,612,210
Less accumulated depreciation and
amortization 25,416,493 23,703,234
__________ __________
$19,367,989 $20,908,976
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company and its subsidiaries are obligated under long-term real estate
lease agreements for seven bowling centers. Certain of the Company's real
estate leases provide for additional annual rents based upon total gross
revenues and increases in real estate taxes and insurance. Generally, the
leases contain renewal options ranging from 5 to 10 years.
At July 2, 2000, the minimum fixed rental commitments related to all
noncancelable leases, were as follows:
Year Ending
2001 $300,305
2002 70,880
2003 15,000
2004 15,000
2005 15,000
Thereafter 793,750
_________
Total minimum lease payments $1,209,935
Net rental expense was as follows:
For the Years Ended
2000 1999 1998
Minimum rental under operating leases $421,515 $453,166 $442,400
Excess percentage rentals 125,612 124,587 277,785
_______ _______ _______
$547,127 $577,753 $720,185
6. STOCKHOLDERS' EQUITY
The Class A shares have one vote per share voting power. The Class B
shares may vote ten votes per share and are convertible to Class A shares at
the option of the stockholder.
-8-
<PAGE>
7. PROFIT-SHARING AND ESOP PLAN
The Company has a profit-sharing plan which, generally, covers all individ-
uals who were employed at the end of the fiscal year and had one thousand or
more hours of service during that fiscal year. The Plan provides for Company
contributions as determined by the Board of Directors. For the years ended
July 2, 2000, June 27, 1999, and June 28, 1998, contributions in the amount of
$170,000, $137,500, and $125,000, respectively, were charged to operations.
Effective March 31, 1987, the Company adopted an Employee Stock Ownership
Plan (ESOP) which generally covers all employees who on the last day of the
fiscal year or December 29 have been employed for one year with at least one
thousand hours of service. The Plan provides for Company contributions as
determined by the Board of Directors. Prior to fiscal year 1995, the
contributions were allocated to participants based on compensation and years
of service. Since fiscal year 1995 contributions are allocated based on
compensation only in order to comply with Internal Revenue Service code
requirements. The Company's contributions to the Plan for fiscal years 2000,
1999, and 1998 were $178,080, $137,500, and $125,000, respectively.
9. INCOME TAXES
The significant components of the Company's deferred tax assets and liabil-
ities were as follows:
July 2, June 27,
2000 1999
Deferred tax assets:
Accrued expenses $ - $ 66,000
Other 67,000 43,000
_________ _________
Total deferred tax assets 67,000 109,000
Deferred tax liabilities:
Property, plant and equipment 557,000 786,000
Unrealized gain on available-
for-sale securities 3,064,000 3,363,000
Prepaid expenses 90,000 94,000
Other 57,000 57,000
_________ _________
Total deferred tax liabilities 3,768,000 4,300,000
_________ _________
Net deferred income taxes $3,701,000 $4,191,000
Income tax expense differs from the amounts computed by applying the U.S.
Federal income tax rate to income before tax for the following reasons:
<TABLE>
<CAPTION>
For the Years Ended
2000 % 1999 % 1998 %
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at statutory rate $2,235,000 34.0% $1,781,000 34.0% $1,624,000 34.0%
State income taxes, net of Federal
income tax benefit 162,000 2.47 156,000 3.0 241,000 5.0
Dividends received exclusion (33,000) (.51) (32,000) (0.6) (91,000) (1.9)
All other-net (3,000) (.05) (3,000 (.07) (58,000) (1.2)
_________ ____ _________ ____ _________ ____
$2,361,000 35.9% $1,902,000 36.3% $1,716,000 35.9%
</TABLE>
<PAGE>
9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the results of operations for each of the
quarters in fiscal years 2000 and 1999 (dollars in thousands, except for
earnings per share):
<TABLE>
<CAPTION>
Earnings
Operating Operating Before Earnings
Revenues Income Income Net Per
(Loss) Taxes Earnings Share
<S> <C> <C> <C> <C> <C>
2000
July 2, 2000 $6,879 $1,212 $1,443 $ 918 $.17
March 26, 2000 8,682 2,610 2,823 1,807 .35
December 26, 1999 7,374 1,599 1,776 1,141 .21
September 26, 1999 5,967 330 532 347 .06
1999
June 27, 1999 $6,259 $ 682 $ 860 $ 509 $.08
March 28, 1999 8,709 2,586 2,765 1,778 .32
December 27, 1998 7,172 1,397 1,560 1,010 .17
September 27, 1998 5,407 (113) 52 38 .01
</TABLE>
10. Subsequent Events
The Company declared a 5% stock dividend distributed on July 26, 2000,
where Class A and Class B stockholders received one share of common
stock for each twenty shares of Class A and Class B common stock held as of
the date of record. All prior years earnings per share amounts have been
restated to reflect the impact of this transaction.
-9-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Bowl America Incorporated
Alexandria, Virginia
We have audited the accompanying consolidated balance sheets of Bowl
America Incorporated and subsidiaries as of July 2, 2000 and June 27, 1999,
and the related consolidated statements of earnings & comprehensive earnings,
stockholders' equity and cash flows for each of the three years in the period
ended July 2, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Bowl America Incorporated
and subsidiaries as of July 2, 2000 and June 27, 1999, and the results of
their operations and their cash flows for each of the three years in the
period ended July 2, 2000, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte and Touche LLP
McLean, VA
August 29, 2000
-10-
<PAGE>
