PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. More recent risks and uncertainties include the ongoing effects of the business disruption related to the current COVID-19 pandemic on revenues, operating income, the ability to reopen locations, governmental regulations to limit the spread of COVID-19 such as social distancing and enhanced safety measures, times of operation and reaction should the virus rise again. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business, our sales and the industry in which we operate and our management’s beliefs and assumptions. These statements are not guarantees of future performance or development and involve risks, uncertainties and other factors that are in some cases beyond our control. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as the date hereof. We are under no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
COVID-19
The Company closed all bowling centers on March 18, 2020, as required by the orders from the state and federal governments in an effort to stop the spread of COVID-19. Most employees were laid off temporarily but will be called back as needed for their services as we reopen. While this center closure is expected to be temporary, with no known time frame for reopening, or what steps will have to been taken for a reopening, we cannot currently estimate the full financial impact to the Company. However, because the center closure occurred near the end of the quarter ended March 29, 2020, the impact was not as great as it will be for the fourth quarter ending June 28, 2020 during which we will have no revenues unless our centers are able to reopen prior to the end of the quarter. Many leagues decided to end their seasons early as it became clear that a reopening would not occur quickly. The Company did not receive league lineage fees for the weeks during which there was no bowling. Restrictions on operations upon reopening in our operating areas will likely result in few summer leagues and modified hours of operation assuming our centers are able to re-open. The Company suspended its quarterly dividend and expects to use cash on hand and, if necessary, its reserves, until the centers reopen.
LIQUIDITY AND CAPITAL RESOURCES
The Company has long viewed a strong financial position as a major benefit to shareholders and has invested a portion of earnings to create a reserve to protect the Company in downturns in business, to capitalize on opportunities for expansion and modernization and to provide a secure source of income. For these reasons, the Company prefers a conservative approach to investing rather than taking greater risk for possible rapid growth. The Company balances market volatility by using both fixed income and equity investments in managing its reserve funds. Any equity security is subject to price fluctuation; however, the stocks held by the Company have historically had relatively low volatility. The Company has long been invested in a Government National Mortgage Association (“Ginnie Mae”) fund and domestically domiciled stocks with the perceived potential of appreciation, primarily telecommunications stocks. The Company considers that this diversity also provides a measure of safety of principal. Regulatory orders requiring the closure of our bowling centers in March 2020 with an uncertain time for reopening could require use of those reserves.
With the exception of 13,120 shares of Verizon, the equity securities in our portfolio have come from spin-offs, mergers and acquisitions of AT&T and United Telecommunications (now Sprint) purchased in 1979 and 1984 and from one insurance company acquired at no cost when that company demutualized. While not all stocks in the portfolio are domestic American companies any longer, since the original purchases at an approximate cost of $630,000, we have received approximately $967,000 from mergers and sales, and over $5,300,000 in dividends, the majority of which received favorable tax treatment in the form of a dividends received deduction from federal taxable income. While the deduction continues into this fiscal year, the Tax Cuts and Jobs Act (“Tax Act”) reduces the percent deductible. These equity securities are carried at their fair value on the last day of each reporting period. The fair value of the securities on March 29, 2020 was approximately $4,661,000 and on June 30, 2019 was approximately $5,100,000.
The Company’s original investment in the Vanguard GNMA bond fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. In August 2019, $1,000,000 of this fund was redeemed to meet the August 2019 dividend payment. The fund is carried at fair value on the last day of the reporting period. At March 29, 2020, the value was approximately $985,000 and at June 30, 2019, the value was $1,930,000.
Short-term investments, including Certificates of Deposits, Treasury Bills and cash and cash equivalents totaled $3,288,000 at the end of the fiscal third quarter of 2020 compared to $703,000 at June 30, 2019.
The Company’s position in all the above investments is a source of capital for use as needed to pay league prize funds and expenses during the COVID-19 shutdown and reopening. Barring additional catastrophic or unknown events, cash on hand and the investments noted above should provide funding for the Company through September 2020 should the locations remain closed. Potential volatility in the trading prices of the marketable securities held by the Company could impact the Company’s available resources. The Board of Directors reviews the portfolio and any use of this reserve at its quarterly meetings.
In the nine-month period ended March 29, 2020, the Company expended approximately $473,000 for the purchase of building, entertainment and restaurant equipment. The Company has no long-term debt and currently has no plans to obtain third party funding as cash and cash flows are sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.
The nine-month decreases in the categories of Prepaid expenses and other, Accounts Payable and Accrued Expenses are primarily due to seasonal timing of payments including compensation, insurance and taxes and for contributions to benefit plans.
Current liabilities generally increase during the first three quarters of the fiscal year as leagues deposit prize fund monies with the Company throughout the league season. These funds are returned to the leagues at the end of the bowling season, generally in the fourth quarter. At March 29, 2020, league deposits of approximately $1,952,000 were included in the current liabilities category.
Cash flow provided by operating activities in the thirty-nine weeks ended March 29, 2020 was $4,247,000 which, along with cash on hand was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $903,000, or $.175 per share, were paid to shareholders during the quarter ended March 29, 2020, and the nine months total was approximately $2,710,000 or $.525 per share. In March 2020 the Company suspended its regular quarterly dividend due to the unpredictability of the business interruption from COVID-19. The economic climate is part of the consideration at the Directors’ quarterly reviews of future estimates of cash flows. The Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state and trends of the business and estimate of future opportunities at such time.
OVERVIEW
The Company is in the entertainment business which, by its nature, has ups and downs based on consumer tastes and preferences. Generally, promotional and open play bowling, which depends on the public’s discretionary budget dollars and their choices, accounts for more than half of our business. While bowling has the advantage of being an entertainment that is close to home and relatively inexpensive, new forms of sports and entertainment are offered to the public continually creating challenges, but our response is helped by having the resources to be able to promote the sport. Weather is also a factor, especially for casual bowlers. While extreme heat or rainy weather prompt people to look for indoor activities, heavy snow storms can keep customers from reaching the centers. Postponed league games are made up later in the season, but lost open play income is never recovered. The Company operates primarily in the Washington, DC area where its business is vulnerable to sequestration or other downsizing of the federal government. The Company currently operates 17 bowling centers, 16 of which are owned by the Company and 1 of which is a leased center. In March 2019, the Company elected not to renew the lease for its bowling center in Manassas due to the performance at the center. The lease terminated August 31, 2019.
RESULTS OF OPERATIONS
The following tables set forth the items in our consolidated summary of operations for the fiscal quarters and year-to-date periods ended March 29, 2020, and March 31, 2019, and the dollar and percentage changes therein
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|
Thirteen weeks ended
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|
|
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March 29, 2020 and March 31, 2019
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|
|
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Dollars in thousands
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
% Change
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bowling and other
|
|
$
|
4,456
|
|
|
$
|
5,258
|
|
|
$
|
(802
|
)
|
|
|
(15.3
|
)
|
Food, beverage and merchandise sales
|
|
|
1,804
|
|
|
|
2,185
|
|
|
|
(381
|
)
|
|
|
(17.4
|
)
|
Total Operating Revenue
|
|
|
6,260
|
|
|
|
7,443
|
|
|
|
(1,183
|
)
|
|
|
(15.9
|
)
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and benefits
|
|
|
2,649
|
|
|
|
2,843
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|
|
|
(194
|
)
|
|
|
(6.8
|
)
|
Cost of bowling and other services
|
|
|
1,462
|
|
|
|
1,583
|
|
|
|
(121
|
)
|
|
|
(7.6
|
)
|
Cost of food, beverage and merchandise sales
|
|
|
533
|
|
|
|
630
|
|
|
|
(97
|
)
|
|
|
(15.4
|
)
|
Depreciation and amortization
|
|
|
244
|
|
|
|
240
|
|
|
|
4
|
|
|
|
1.7
|
|
General and administrative
|
|
|
277
|
|
|
|
233
|
|
|
|
44
|
|
|
|
18.9
|
|
Total Operating Expenses
|
|
|
5,165
|
|
|
|
5,529
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|
|
|
(364
|
)
|
|
|
(6.6
|
)
|
Operating Income
|
|
|
1,095
|
|
|
|
1,914
|
|
|
|
(819
|
)
|
|
|
(42.8
|
)
|
Interest, dividend and other income
|
|
|
97
|
|
|
|
101
|
|
|
|
(4
|
)
|
|
|
(4.0
|
)
|
Change in value of marketable investment securities
|
|
|
(1,001
|
)
|
|
|
367
|
|
|
|
(1,368
|
)
|
|
|
(372.7
|
)
|
Earnings before taxes
|
|
|
191
|
|
|
|
2,382
|
|
|
|
(2,191
|
)
|
|
|
(92.0
|
)
|
Income taxes
|
|
|
34
|
|
|
|
576
|
|
|
|
(542
|
)
|
|
|
(94.1
|
)
|
Net Earnings
|
|
$
|
157
|
|
|
|
1,806
|
|
|
|
(1,649
|
)
|
|
|
(91.3
|
)
|
|
|
Thirty-nine weeks ended
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|
|
|
March 29, 2020 and March 31, 2019
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|
|
|
Dollars in thousands
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
% Change
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bowling and other
|
|
$
|
12,376
|
|
|
$
|
13,501
|
|
|
$
|
(1,125
|
)
|
|
|
(8.3
|
)
|
Food, beverage and merchandise sales
|
|
|
5,173
|
|
|
|
5,711
|
|
|
|
(538
|
)
|
|
|
(9.4
|
)
|
Total Operating Revenues
|
|
|
17,549
|
|
|
|
19,212
|
|
|
|
(1,663
|
)
|
|
|
(8.7
|
)
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and benefits
|
|
|
8,107
|
|
|
|
8,346
|
|
|
|
(239
|
)
|
|
|
(2.9
|
)
|
Cost of bowling and other services
|
|
|
4,478
|
|
|
|
4,627
|
|
|
|
(149
|
)
|
|
|
(3.2
|
)
|
Cost of food, beverage and merchandise sales
|
|
|
1,537
|
|
|
|
1,635
|
|
|
|
(98
|
)
|
|
|
(6.0
|
)
|
Depreciation and amortization
|
|
|
715
|
|
|
|
719
|
|
|
|
(4
|
)
|
|
|
(0.6
|
)
|
General and administrative
|
|
|
884
|
|
|
|
664
|
|
|
|
220
|
|
|
|
33.1
|
|
Total Operating Expenses
|
|
|
15,721
|
|
|
|
15,991
|
|
|
|
(270
|
)
|
|
|
(1.7
|
)
|
Operating income
|
|
|
1,828
|
|
|
|
3,221
|
|
|
|
(1,393
|
)
|
|
|
(43.3
|
)
|
Interest, dividend and other income
|
|
|
313
|
|
|
|
297
|
|
|
|
16
|
|
|
|
5.4
|
|
Change in value of marketable investment securities
|
|
|
(411
|
)
|
|
|
174
|
|
|
|
(585
|
)
|
|
|
(336.2
|
)
|
Earnings before taxes
|
|
|
1,730
|
|
|
|
3,692
|
|
|
|
(1,962
|
)
|
|
|
(53.1
|
)
|
Income taxes
|
|
|
410
|
|
|
|
888
|
|
|
|
(478
|
)
|
|
|
(53.8
|
)
|
Net Earnings
|
|
$
|
1,320
|
|
|
$
|
2,804
|
|
|
$
|
(1,484
|
)
|
|
|
(52.9
|
)
|
The Company closed all bowling centers on March 18, 2020, as the orders from the state and federal governments required, in an effort to stop the spread of COVID-19. While this closure is expected to be temporary, with no known time frame for lifting the ban or for reopening, we cannot currently estimate the full financial impact to the Company. Many leagues decided to end their seasons early as it became clear that a reopening would not occur quickly. Because the closure occurred near the end of the quarter ended March 29, 2020 the impact was not as great as it will be for the fourth quarter.
Net earnings, including the decrease in the value of investment securities of $1,001,000 for the thirteen week period ended March 29, 2020, were $157,322 or $.03 per share. Net earnings for the thirty-nine week period ended March 29, 2020, including a decrease in the value of investment securities of $411,000 were $1,320,322 or $.26 per share.
For the thirteen-week and thirty-nine week periods ended March 31, 2019,including increases in the value of investment securities of $367,000 and $174,000, respectively, net earnings were $1,806,243 or $.35 per share and $2,804,066 or $.54 per share, respectively.
Seventeen centers were in operation for 8 of the 9 months in the current year period following the closing of the Mathis Avenue, Manassas center on July 28, 2019. Expenses related to the center closing were approximately $104,000 and were reported in the current year first quarter. Eighteen centers were in operation throughout the prior year periods.
The operating results for fiscal 2020 periods included in this report are not necessarily indicative of results to be expected for the year.
Operating Revenues
Total operating revenues decreased $1,183,000 to $6,260,000 in the most recent quarter compared to a decrease of $183,000 to $7,443,000 in the three-month period ended March 31, 2019. The current fiscal nine month period operating revenues were down $1,663,000 versus a decrease of $46,000 in the comparable nine month period a year ago. Bowling and other revenue decreased $802,000 in the quarter and $1,125,000 year-to-date for the periods ended March 29, 2020 versus decreases of $165,000 in the quarter and $155,000 for the nine-month period ended March 31, 2019.
Food, beverage and merchandise sales decreased $381,000 or 17.4% in the current year quarter and were down $538,000 or 9.4% in the nine-month period. Cost of sales decreased 15.4% in the fiscal three months and decreased 6.0% in the nine month periods ended March 29, 2020.
Operating Expenses
Operating expenses decreased $364,000 or 6.6% and $270,000 or 1.7% in the current three month and nine-month periods versus increases of $104,000 or 1.9% and $228,000 or 1.5%, respectively, in the three and nine month periods last year. Employee compensation and benefits for the fiscal 2020 third quarter were down $194,000 or 6.8% and $239,000 or 2.9% in the nine month period. In the comparable prior year quarter there was an increase of $42,000 or 1.5% and the nine month period ended March 31, 2019 showed an increase of $140,000 or 1.7%. Included in this category of expense are contributions to our two benefit plans, both of which are defined contribution plans. There is no additional obligation beyond the current year contribution.
Cost of bowling and other services decreased $121,000 or 7.6% and $149,000 or 3.2% in the three month and nine month periods ended March 29, 2020, respectively. In the prior year comparable three month and nine month periods the same category showed increases of $35,000 and $103,000, or 2.3% each, respectively. In the thirty-nine weeks ended March 29, 2020 maintenance and repair costs decreased $65,000 or 9.2% and in the comparable period last year costs increased $38,000 or 5.6%. Both periods included repairs to roofs and changeover to LED lighting in signs and parking lot lights, however the prior year period included snow removal costs of $38,000. Advertising costs during the current year thirty-nine week period ended March 29, 2020, decreased $7,000 or 2.6%. For the fiscal nine-month period ended March 29, 2020 utility costs were down $39,000 or 3.7 %. Supplies and services expenses were up less than 1% for the current nine month period.
Insurance expense excluding health insurance decreased 3.5% in the current year-to-date period versus a decrease of less than 1% in last year’s comparable period.
Depreciation and amortization expense was up approximately 1.0% in both the current and prior year nine-month periods due to capital expenditures.
As a result of the above, the nine-month period of fiscal 2020 resulted in operating income of $1,828,492 compared to operating income of $3,220,603 in the prior year comparable nine-month period.
Interest, Dividend and Other Income
Interest and dividend income decreased however an increase in parking space rental income resulted in an overall increase of $15,000 in the category in the fiscal 2020 nine-month period.
Income Taxes
The Tax Act of December 2017 reduced the federal corporate tax rate from 34% to 21%. Taxes for both the fiscal 2020 and 2019 periods reflect the reduced federal rate.
CRITICAL ACCOUNTING POLICIES
Management has identified accounting for marketable investment securities as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the captions of Short-term investments and Marketable investment securities. The Company exercises judgment in determining their fair value. The Company records these investments at their fair value with the unrealized gain or loss recorded in income or loss in the current period.
Management has identified accounting for the impairment of long-lived assets as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the caption of Land, Buildings and Equipment. The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable. In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets. An impairment loss equal to the difference between the assets’ fair value and carrying value is recognized when the estimated future cash flows are less than the carrying amount.