<PAGE> 1
Filed pursuant to Rule 424(b)(3)
File No. 333-4877
AMF GROUP INC.
SUPPLEMENT NO. 8 TO PROSPECTUS DATED AUGUST 12, 1996, AS SUPPLEMENTED BY
SUPPLEMENT NO. 1 DATED SEPTEMBER 9, 1996,
SUPPLEMENT NO. 2 DATED SEPTEMBER 9, 1996,
SUPPLEMENT NO. 3 DATED SEPTEMBER 10, 1996,
SUPPLEMENT NO. 4 DATED SEPTEMBER 11, 1996,
SUPPLEMENT NO. 5 DATED SEPTEMBER 27, 1996,
SUPPLEMENT NO. 6 DATED OCTOBER, 10, 1996, AND
SUPPLEMENT NO. 7 DATED OCTOBER 24, 1996
The date of this Supplement No. 8 is November 14, 1996
On November 13, 1996, AMF Group Inc. filed the attached Quarterly Report
on Form 10-Q for the period ended September 30, 1996.
On November 14, 1996, AMF Group Inc. issued the attached press release.
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the period ended September 30, 1996
or
- ----- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------- ----------
Commission file number 333-4877
AMF GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3873272
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. employer I.D. #)
incorporation or organization)
</TABLE>
AMF GROUP INC.
8100 AMF Drive
Richmond, Virginia 23111
(804) 730-4000
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
------ ------
At November 1, 1996, 100 shares of common stock, par value of $.01, of the
registrant were outstanding.
<PAGE> 3
AMF GROUP HOLDINGS INC.
--------------------------------------------
INDEX
PART I. - Financial Information
Item 1. Financial Statements
Balance Sheets
Statements of Income
Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. - Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE> 4
Part 1
Item 1
AMF GROUP HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
12/31/95 09/30/96
------------ -----------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,732 $ 27,244
Accounts and notes receivable, net
of allowance for doubtful
accounts of $3,373 and $3,012,
respectively 43,005 50,242
Inventories (Note 4) 39,821 45,619
Prepaid expenses and other 5,182 15,229
---------- ----------
Total current assets 97,740 138,334
Notes receivable 22,941 605
Property and equipment, net 259,724 531,506
Deferred financing costs 0 41,206
Goodwill 0 761,995
Other assets 19,973 38,657
---------- ----------
Total assets $ 400,378 $1,512,303
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 27,992 $ 32,356
Accrued expenses 30,328 39,652
Income taxes payable 7,129 3,132
Note payable to bank (Note 6) 0 15,000
Long term debt, current (Note 6) 1,084 39,450
---------- ----------
Total current liabilities 66,533 129,590
Long-term debt (Note 6) 166,277 989,759
Other long-term liabilities 5,856 1,849
Deferred income taxes 174 20,775
---------- ----------
Total liabilities 238,840 1,141,973
---------- ----------
Commitments and contingencies (Note 5)
Stockholder's equity:
Common stock (Par value $.01,
100 shares issued and
outstanding at
September 30, 1996) 1,538 0
Paid-in capital 63,781 389,117
Retained earnings (deficit) 101,080 (17,498)
Notes receivable - stock sub. (1,461) 0
Equity adjustment from foreign
currency translation (3,400) (1,289)
---------- ----------
Total stockholder's equity 161,538 370,330
---------- ----------
Total liabilities and
stockholder's equity $ 400,378 $1,512,303
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
AMF GROUP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PREDECESSOR AMF GROUP
COMPANY HOLDINGS INC.
THREE MONTHS THREE MONTHS
ENDED 09/30/95 ENDED 09/30/96
-------------- --------------
(NOTE 1)
<S> <C> <C>
Operating revenues $130,426 $131,760
Operating expenses:
Cost of goods sold 45,827 44,998
Bowling center operating expenses 41,490 42,577
Selling, general and administrative expenses 11,668 11,973
Depreciation and amortization 9,322 17,882
-------- --------
Total operating expenses 108,307 117,430
-------- --------
Operating income 22,119 14,330
Nonoperating expenses:
Interest expense 4,237 26,284
Other expenses, net 165 513
Interest income (647) (383)
Foreign currency transaction loss 609 246
-------- --------
Income (loss) before income taxes 17,755 (12,330)
Provision (benefit) for income taxes 2,821 (7,076)
-------- --------
Net income (loss) $ 14,934 $ (5,254)
======== ========
Pro Forma Financial Information:
Income before income taxes
and pro forma adjustments $ 17,755
Pro forma C corporation -
tax provision 6,573
--------
Pro forma net income $ 11,182
========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE> 6
AMF GROUP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
PREDECESSOR COMPANY AMF GROUP AMF GROUP
------------------------------- HOLDINGS INC. HOLDINGS INC.
NINE MONTHS FOUR MONTHS NINE MONTHS NINE MONTHS
ENDED 09/30/95 ENDED 04/30/96 ENDED 09/30/96* ENDED 09/30/96
-------------- -------------- -------------- --------------
(NOTE 1) (NOTE 3)
<S> <C> <C> <C> <C>
Operating revenues $425,619 $164,944 $205,183 $369,283
Operating expenses:
Cost of goods sold 141,037 43,118 68,511 111,521
Bowling center operating expenses 126,621 80,196 69,366 125,111
Selling, general and administrative expenses 38,883 35,516 19,345 34,667
Depreciation and amortization 28,491 15,098 29,636 52,733
--------- --------- ---------- ---------
Total operating expenses 335,032 173,928 186,858 324,032
--------- --------- ---------- ---------
Operating income (loss) 90,587 (8,984) 18,325 45,251
Nonoperating expenses:
Interest expense 11,956 4,504 50,157 78,526
Other expenses, net 915 692 742 1,436
Interest income (1,572) (611) (4,135) (4,746)
Foreign currency transaction loss 592 29 340 369
--------- --------- ---------- ---------
Income (loss) before income taxes 78,696 (13,598) (28,779) (30,334)
Provision (benefit) for income taxes 9,870 (1,731) (11,281) (9,737)
--------- --------- ---------- ---------
Net income (loss) $ 68,826 $(11,867) $(17,498) $(20,597)
========= ========= ========== =========
Pro Forma Financial Information:
Income (loss) before income taxes
and pro forma adjustments $ 78,696 $(13,598)
Pro forma C corporation -
tax provision (benefit) 30,150 (5,071)
--------- ---------
Pro forma net income (loss) $ 48,546 $ (8,527)
========= =========
</TABLE>
* Includes the results of operations from May 1, 1996 (date of the
Acquisition) through September 30, 1996.
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
AMF GROUP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
AMF GROUP
---------
PREDECESSOR COMPANY HOLDINGS INC.
--------------------------------- ------------
NINE MONTHS FOUR MONTHS NINE MONTHS
ENDED 09/30/95 ENDED 04/30/96 ENDED 09/30/96*
-------------- -------------- --------------
(NOTE 1)
-------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 68,826 $ (11,867) $ (17,498)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,491 15,097 29,636
Deferred income taxes 407 1,018 (5,527)
Gain on the sale of property
and equipment, net (124) 0 (25)
Changes in assets and liabilities:
Accounts and notes receivable 239 5,614 (17,448)
Receivable and payables - affiliates (5,581) 0 0
Inventories (10,088) (3,793) (2,488)
Other assets (1,252) (1,417) (51,905)
Accounts payable and accrued expenses (4 ,670) 9,442 8,133
Income taxes payable (3,619) (5,833) 1,754
Other liabilities (810) (2,228) 397
--------- --------- ----------
Net cash provided (used) by operating
activities 71,819 6,033 (54,971)
--------- --------- ----------
Cash flows from investing activities:
Acquisitions of operating units, net of cash acquired 0 0 (1,340,682)
Purchases of property and equipment, net (17,122) (6,874) (7,886)
Other (127) 244 849
--------- --------- ----------
Net cash used for investing activities (17,249) (6,630) (1,347,719)
--------- --------- ----------
Cash flows from financing activities:
Increase in notes payable and long term debt 3,949 0 1,051,796
(Decrease) in notes payable and long term debt 0 (159,780) (9,550)
Proceeds from note receivable - shareholder (721) 20,870 0
Capital contribution 2,348 188,009 389,117
Dividends paid (52,892) (36,488) 0
Other (2,714) (36) (575)
--------- --------- ----------
Net cash provided (used) for
financing activities (50,030) 12,575 1,430,788
-------- --------- ----------
Effect of exchange rates on cash (1,294) 565 (854)
--------- --------- ----------
Net increase in cash 3,246 12,543 27,244
Cash and cash equivalents at beginning of period 8,174 9,732 0
--------- --------- ----------
Cash and cash equivalents at end of period $ 11,420 $ 22,275 $ 27,244
========= ========= ==========
</TABLE>
* Includes the results of operations from May 1, 1996 (date of the
Acquisition) through September 30, 1996.
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 8
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION
AMF Group Inc. (the "Company") is a wholly owned subsidiary of AMF Group
Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of AMF
Holdings Inc. ("Parent").
Pursuant to a Stock Purchase Agreement dated February 16, 1996 between Holdings
and the stockholders (the "Sellers") of AMF Bowling Group (the "Predecessor
Company"), on May 1, 1996 (the "Closing Date"), Holdings acquired the
Predecessor Company (the "Acquisition") through a stock purchase by Holdings'
subsidiaries of all the outstanding stock of the separate domestic and foreign
corporations that constituted substantially all of the Predecessor Company and
through the purchase of certain assets of the Predecessor Company's bowling
center operations in Spain and Switzerland. Holdings did not acquire the
assets of two bowling centers located in Madrid, Spain and Geneva, Switzerland
(both of which were retained by the Sellers). Accordingly, as a result of the
Acquisition and the post-Acquisition purchases of four bowling centers, as of
September 30, 1996, the Company owned or operated 208 U.S. bowling centers and
78 international bowling centers.
The purchase price for the Acquisition was $1.357 billion, less approximately
$2.0 million representing debt of the Predecessor Company which remained in
place following the closing of the Acquisition (the "Closing"). The purchase
price has been adjusted as a result of a post-Acquisition agreement between
Holdings and the Sellers pursuant to which Holdings received a payment of $17.5
million in exchange for the elimination of any future obligations due to
Holdings under a guarantee arrangement provided by the Sellers. The Sellers
paid $3.4 million to Holdings on October 1, 1996 which represented the net
proceeds after reducing the $17.1 million payment approximately $14.1 million
for purchase price adjustments originally due from Holdings to the Sellers.
The net proceeds will be used for general corporate purposes or to reduce debt.
The Acquisition was accounted for by the purchase method of accounting,
pursuant to which the purchase price was allocated among the acquired assets
and liabilities in accordance with estimates of fair market value on the date
of acquisition.
The results of operations of Holdings have been presented for the three and
nine months ended September 30, 1996, and include the results of operations of
the acquired business from May 1, 1996 (the date of Acquisition).
Additionally, results of operations of the Predecessor Company for the three
and nine months ended September 30, 1995, and for the period from January 1,
1996 through April 30, 1996, have been presented.
7
<PAGE> 9
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results of operations
for the interim periods. The interim financial information and notes thereto
should be read in conjunction with the December 31, 1995 audited combined
financial statements of the Predecessor Company and the March 7, 1996
consolidated financial statements of the Company presented in Registration
Statement on Form S-4 filed with the Securities and Exchange Commission on
August 9, 1996 (SEC File No. 333-4877). The results of operations for the nine
months ended September 30, 1996 reflect the results of Holdings since the
inception date of January 12, 1996 and the subsidiaries acquired as of May 1,
1996 as part of the Predecessor Company. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of results
to be expected for the entire year.
NOTE 3 -- PRO FORMA RESULTS OF OPERATIONS
To provide a more meaningful comparison of results of operations, a pro forma
statement of income is presented for the nine month period ending September 30,
1996 as if the Acquisition of the Predecessor Company had occurred on January
1, 1996. The pro forma statement of income is based upon the Predecessor
Company's statement of income for the four month period ending April 30, 1996
and Holdings' statement of income for the nine month period ended September 30,
1996 and is adjusted to give effect to (i) the financing of the Acquisition
through bank debt, senior subordinated notes and senior subordinated discount
notes; (ii) the amortization and depreciation resulting from the allocation of
the Acquisition purchase price to fixed assets and goodwill; (iii) the two
bowling centers which were retained by the Sellers; and (iv) the elimination of
a one time charge of $44 million for special bonuses and payments made by the
Sellers in April, 1996.
The following summary presents pro forma results of operations as if the
Acquisition occurred as of January 1, 1995 and 1996 with respect to the nine
months ended September 30, 1995 and 1996, respectively. The pro forma results
are presented for illustrative purposes only, do not purport to be indicative
of the actual results which would have occurred, and are not indicative of
future results of operations.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1995 1996
---- ----
<S> <C> <C>
Operating revenues $424,014 $369,283
Operating income 65,733 45,251
Loss before income taxes (12,697) (30,334)
</TABLE>
8
<PAGE> 10
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 -- INVENTORIES
Inventories by major classification are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
PREDECESSOR
-----------
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Raw materials $ 10,590 $ 10,203
Work-in-process 1,522 2,110
Finished goods and spare parts 24,920 31,001
Merchandise inventory 4,045 3,112
-------- --------
41,077 46,426
Inventory valuation reserves (1,256) (807)
-------- --------
$ 39,821 $ 45,619
======== ========
</TABLE>
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company is involved in certain lawsuits and claims arising out of normal
business operations. While the ultimate outcome of the litigation and claims
against the Company cannot presently be determined, management believes the
Company has made adequate provision for possible losses. Management also
believes that the ultimate outcome of the litigation and claims will not have a
significant effect on the financial position and results of operations of the
Company, and that the Company has adequate reserves to cover any costs.
NOTE 6 -- LONG-TERM DEBT
Long-term debt at December 31, 1995 and September 30, 1996 consists of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
PREDECESSOR
-----------
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Bank debt $ 0 $ 510,450
Exchange senior subordinated notes 0 250,000
Exchange senior subordinated discount notes 0 266,796
Mortgage and equipment notes 14,469 1,963
Note payable to bank 3,764 15,000
Note payable to affiliates 146,727 0
Other 2,401 0
-------- ---------
167,361 1,044,209
Current maturities and
short-term borrowing (1,084) (54,450)
-------- --------
Long-term $166,277 $ 989,759
======== ==========
</TABLE>
9
<PAGE> 11
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The exchange senior subordinated notes will mature on March 15, 2006. Interest
accrues from the date of issuance at an annual rate of 10 7/8% and is payable
in cash semi-annually in arrears on March 15 and September 15 of each year
which commenced on September 15, 1996.
The exchange senior subordinated discount notes will mature on March 15, 2006.
The exchange senior subordinated discount notes will result in an effective
yield of 12 1/4% per annum, computed on a semi-annual bond equivalent basis.
No interest (other than liquidated damages, if applicable) will be payable
prior to March 15, 2001 (the "Full Accretion Date"). Commencing March 15, 2001
interest will accrue and be payable in cash semi-annually in arrears on March
15 and September 15 of each year beginning with the first such date after the
Full Accretion Date.
The Company's payment obligations under the exchange senior subordinated notes
and the exchange senior subordinated discount notes (together, the "Exchange
Notes") are jointly and severally guaranteed on a senior subordinated basis
(the "Senior Subordinated Guarantees") by Holdings and each of the Company's
subsidiaries identified in Note 10 below (collectively, the "Guarantors").
The guarantees of the Exchange Notes are subordinated to the guarantees of the
bank debt of $510.5 million outstanding at September 30, 1996, referred to in
the table above ("Senior Debt"), which have been issued by the Guarantors. The
guarantees of the Exchange Notes are also subordinated to the guarantees of the
Working Capital Facility and the Acquisition Facility established as additional
Senior Debt by the credit agreement (the "Bank Credit Agreement") dated as of
May 1, 1996 between the Company and its lenders. As of September 30, 1996, the
commitments on the Working Capital Facility and the Acquisition Facility
totaled $50.0 million and $150.0 million, respectively.
The Exchange Notes are general, unsecured obligations of the Company, are
subordinated in right of payment to all Senior Debt, as defined, of the
Company, and rank pari passu with all existing and future subordinated debt of
the Company. The claims of the holders of the Exchange Notes are subordinated
to the claims of holders of Senior Debt, and will be effectively subordinated
to all other indebtedness and other liabilities (including trade payables and
capital lease obligations) of the Company's subsidiaries that are not
Guarantors and through which the Company will conduct a portion of its
operations. (See Note 10).
The documents governing Senior Debt contains certain covenants, including, but
not limited to covenants related to cash interest coverage, fixed charge
coverage, payments on other debt, mergers and acquisitions, sales of assets,
guarantees and investments. The indenture governing the exchange senior
subordinated notes (the "Exchange Senior Subordinated Note Indenture") and the
indenture governing the exchange senior subordinated discount notes (the
"Exchange Senior Subordinated Discount Notes Indenture" and, together with the
Exchange Senior Subordinated Note
10
<PAGE> 12
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Indenture, the "Exchange Note Indentures") contain certain covenants that,
among other things, limit the ability of the Company and its Restricted
Subsidiaries, as defined therein, to incur additional indebtedness and issue
Disqualified Stock, as defined therein, pay dividends or distributions or make
investments or make certain other Restricted Payments, as defined therein,
enter into certain transactions with affiliates, dispose of certain assets,
incur liens securing pari passu and subordinated indebtedness of the Company
and engage in mergers and consolidations.
NOTE 7 -- SUBSEQUENT EVENT
On October 10, 1996, the Company, through its wholly owned subsidiary, AMF
Bowling Centers, Inc., completed the acquisition of 50 bowling centers and
certain related assets and liabilities from Charan Industries, Inc. pursuant to
an Asset Purchase Agreement, dated as of September 10, 1996.
The purchase price was approximately $106.5 million, including certain
adjustments and transaction costs. It was funded with approximately $40
million from the sale of equity by Holdings to its institutional stockholders
and one of its directors, and with $66.5 million from available borrowing under
the Company's Acquisition Facility.
NOTE 8 -- BUSINESS SEGMENTS
The Company operates in two major lines of business: operation of bowling
centers and manufacturing of bowling and related products. Information
concerning operations in these business segments for the three months ended
September 30, 1996, and 1995 and identifiable assets at September 30, 1996, are
presented below.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
PREDECESSOR AMF GROUP
COMPANY HOLDINGS INC.
------- -------------
THREE THREE
MONTHS MONTHS
09/30/95 09/30/96
-------- --------
<S> <C> <C>
Revenue from unaffiliated (NOTE 1)
customers
Bowling Centers
U.S. $ 38,300 $ 39,600
International 25,400 25,800
-------- --------
63,700 65,400
Bowling Products 66,700 66,400
-------- --------
$130,400 $131,800
======== ========
Intersegment Sales
Bowling Products $ 2,000 $ 2,400
======== ========
</TABLE>
11
<PAGE> 13
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 -- BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
PREDECESSOR AMF GROUP
COMPANY HOLDINGS INC.
--------- ----------------
THREE THREE
MONTHS MONTHS
09/30/95 09/30/96
-------- --------
(NOTE 1)
<S> <C> <C>
Operating income (loss)
Bowling Centers
U.S. $ (1,100) $ (2,400)
International 5,800 3,200
-------- --------
4,700 800
Bowling Products 17,000 13,700
Corporate (400)
Eliminations 400 200
-------- --------
$ 22,100 $ 14,300
======== ========
Identifiable assets
Bowling Centers
U.S. $ 525,800
International 306,700
----------
832,500
Bowling Products 679,400
Corporate 400
----------
$1,512,300
==========
Depreciation and amortization
Bowling Centers
U.S. $ 7,100 $ 9,000
International 1,800 4,500
------- -------
8,900 13,500
Bowling Products 900 4,700
Eliminations (500) (300)
------- -------
$ 9,300 $17,900
======= =======
Capital expenditures
Bowling Centers
U.S. $ 3,900 $ 2,600
International 1,500 1,500
------- -------
5,400 4,100
Bowling Products 600 600
Corporate 100
Eliminations (100) (200)
------- -------
$ 5,900 $ 4,600
======= =======
</TABLE>
12
<PAGE> 14
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 -- BUSINESS SEGMENTS (CONTINUED)
Information concerning operations in these business segments for the nine
months ended September 30, 1996, and 1995 is presented below. The results of
operations of the Predecessor Company for the four months ended April 30, 1996
include a one time charge in the amount of $44.0 million for special bonuses
and payments to employees made in April, 1996 by the Predecessor Company at the
direction of the Sellers.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
---------------------------------
AMF GROUP
PREDECESSOR COMPANY HOLDINGS INC.
------------------- -------------
NINE MONTHS FOUR MONTHS NINE MONTHS
09/30/95 04/30/96 09/30/96
-------- -------- --------
(NOTE 1)
<S> <C> <C> <C>
Revenue from unaffiliated customers
Bowling Centers
U.S. $139,000 $ 75,000 $ 62,800
International 75,700 33,500 42,200
-------- -------- --------
214,700 108,500 105,000
Bowling Products 210,900 56,400 100,200
-------- -------- --------
$425,600 $164,900 $205,200
======== ======== ========
Intersegment sales
Bowling Products $ 11,700 $ 4,600 $ 4,400
======== ======== ========
Operating income (loss)
Bowling Centers
U.S. $ 13,500 $ 3,600 $(5,900)
International 18,600 (2,500) 5,500
-------- -------- --------
32,100 1,100 (400)
Bowling Products 59,600 (9,600) 19,300
Corporate (500)
Eliminations (1,100) (500) 0
------- -------- --------
$ 90,600 $(9,000) $ 18,400
======== ======== ========
</TABLE>
13
<PAGE> 15
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 -- BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------------
AMF GROUP
PREDECESSOR COMPANY HOLDINGS INC.
-------------------- -------------
NINE MONTHS FOUR MONTHS NINE MONTHS
09/30/95 04/30/96 09/30/96
-------- -------- --------
(NOTE 1)
<S> <C> <C> <C>
Depreciation and amortization
Bowling Centers
U.S. $21,500 $11,800 $15,000
International 5,400 2,600 7,300
------- ------- -------
26,900 14,400 22,300
Bowling Products 2,600 1,200 7,900
Corporate
Eliminations (1,000) (500) (600)
------- ------- ------
$28,500 $15,100 $29,600
======= ======= =======
Capital expenditures
Bowling Centers
U.S. $10,900 $ 5,100 $ 4,100
International 5,300 2,300 3,200
------- ------- -------
16,200 7,400 7,300
Bowling Products 3,400 400 1,000
Corporate 100
Eliminations (2,100) (900) (500)
------- ------- ------
$17,500 $ 6,900 $ 7,900
======= ======= =======
</TABLE>
NOTE 9 -- EMPLOYMENT AGREEMENTS AND STOCK INCENTIVE PLAN
The Parent has entered into three employment agreements with executives of the
Company, each for a term ending in May, 1999. Each agreement calls for
compensation consisting of a salary and an incentive bonus of up to 50% of the
executive's annual salary, if the Company meets certain operational and
financial targets. Each employment agreement also calls for a continuation of
certain benefits, under specified circumstances, following termination of
employment.
These three executives were also granted options to purchase a total of 345,000
shares of common stock of the Parent, par value $.01 per share ("Parent Common
Stock"). Unless sooner exercised or forfeited as provided, the options expire
in May, 2006. Twenty percent of the options vest on each of the first five
anniversaries of the Closing Date. The exercise price of the options is $10.00
per share, which approximates the fair value of the Parent Common Stock at the
date of the grants.
14
<PAGE> 16
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In connection with the Acquisition, Parent adopted the AMF Holdings Inc. 1996
Stock Incentive Plan (the "Stock Incentive Plan") under which Parent may grant
incentive awards in the form of shares of Parent Common Stock, options to
purchase shares of Parent Common Stock ("Stock Options") and stock appreciation
rights to certain officers, employees, consultants and non-employee directors
("Participants") of Parent and its affiliates. The total number of shares of
Parent Common Stock initially reserved and available for grant under the Stock
Incentive Plan is 1,767,151. A committee of Parent's board of directors (the
"Committee") is authorized to make grants and various other decisions under the
Stock Incentive Plan and to make determinations as to a number of the terms of
awards granted under the Stock Incentive Plan. In August, 1996, the Committee
granted Stock Options to Participants to purchase a total of 713,000 shares of
Parent Common Stock at an exercise price of $10.00 per share.
The Stock Incentive Plan will terminate 10 years after its effective date;
however, awards outstanding as of such date will not be affected or impaired by
such termination. Parent's board of directors and the Committee have authority
to amend the Stock Incentive Plan and awards granted thereunder, subject to the
terms of the Stock Incentive Plan.
Statement of Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation," is effective for the Company for the year ending
December 31, 1996. As provided in the Statement, the Company has elected to
apply the accounting provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and will disclose in its 1996
audited financial statements the pro forma information required by SFAS No.
123.
NOTE 10 -- CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating information presents:
- Consolidating balance sheet as of September 30, 1996 and
consolidating statements of income and of cash flows for the nine
months ended September 30, 1996.
- Elimination entries necessary to combine the entities comprising the
Consolidated Companies.
15
<PAGE> 17
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Exchange Notes are jointly and severally guaranteed on a full and
unconditional basis by Holdings and by the first and second tier subsidiaries
as follows (together with Holdings, the "Guarantors"):
AMF Bowling Centers Holdings Inc.
AMF Bowling Holdings Inc.
AMF Bowling, Inc.
AMF Bowling Centers, Inc.
Bush River Corporation
King Louie Lenexa, Inc.
AMF Beverage Company of Oregon, Inc.
AMF Worldwide Bowling Centers Holdings Inc.
AMF Bowling Centers (Aust) International Inc.
AMF Bowling Centers (Canada) International Inc.
AMF BCO-France One, Inc.
AMF BCO-France Two, Inc.
AMF Bowling Centers Spain Inc.
AMF Bowling Centers (Hong Kong) International Inc.
AMF Bowling Centers International Inc. (Japan)
AMF Bowling Centers Mexico Holding, Inc.
Boliches AMF, Inc.
AMF BCO - UK One, Inc.
AMF BCO - UK Two, Inc.
AMF Bowling Centers China, Inc.
AMF BCO - China, Inc.
AMF Bowling Centers Switzerland Inc.
The following third-tier subsidiaries of the Company, all of which are wholly
owned subsidiaries of AMF Worldwide Bowling Centers Holdings Inc. have not
provided guarantees (collectively, the "Non-Guarantors"):
AMF Bowling (Unlimited)
Worthing North Properties Limited
AMF Bowling France SNC
AMF Bowling de Paris SNC
AMF Bowling de Lyon La Part Dieu SNC
Boliches y Compania
Operadora Mexicana de Boliches, S.A.
Promotora de Boliches, S.A. de C.V.
Immeubles Obispado, S.A.
Immeubles Minerva, S.A.
Boliches Mexicano, S.A.
AMF Bowling Centers (China) Company
AMF Garden Hotel Bowling Center Company
16
<PAGE> 18
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Non -
Guarantor Guarantor Consolidated
Companies Companies Eliminations Companies
--------- --------- ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 25,795 $ 1,449 $ $ 27,244
Accounts and notes receivable, net
of allowance for doubtful accounts 48,715 1,527 50,242
Accounts and notes receivable --
intercompany 2,302 1,089 (3,391) 0
Inventories 43,282 2,337 45,619
Prepaid expenses and other 13,606 1,623 15,229
---------- --------- ---------- ----------
Total current assets 133,700 8,025 (3,391) 138,334
Notes receivable 605 0 605
Property and equipment, net 501,615 28,923 968 531,506
Goodwill and other assets 897,528 929 (56,599) 841,858
---------- --------- ---------- ----------
Total assets $ 1,533,448 $ 37,877 $ (59,022) $1,512,303
========== ========= ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 29,951 $ 2,405 $ $ 32,356
Accounts & notes payable - intercompany 621 2,770 (3,391) 0
Accrued expenses 37,015 2,637 39,652
Income taxes payable 1,964 1,168 3,132
Note payable to banks 15,000 15,000
Long term debt, current 39,450 39,450
---------- --------- ---------- ----------
Total current liabilities 124,001 8,980 (3,391) 129,590
Long-term debt 989,759 989,759
Other long-term liabilities 1,849 1,849
Deferred income taxes 19,970 805 20,775
---------- --------- ---------- ----------
Total liabilities 1,135,579 9,785 (3,391) 1,141,973
---------- --------- ---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock 289 3,940 (4,229) 0
Paid-in capital 412,747 24,523 (48,153) 389,117
Retained earnings (deficit) ( 9,279) 4,277 (12,496) (17,498)
Equity adjustment from foreign
currency translation (5,888) (4,648) 9,247 (1,289)
---------- --------- ---------- ----------
Total stockholder's equity 397,869 28,092 (55,631) 370,330
---------- --------- ---------- ----------
Total liabilities and
stockholder's equity $ 1,533,448 $ 37,877 $ (59,022) $1,512,303
========== ======== ========= ==========
</TABLE>
17
<PAGE> 19
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
SEPTEMBER 30, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Companies Companies Eliminations Companies *
--------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Operating revenues $ 194,395 $ 11,461 $ (673) $ 205,183
Operating expenses:
Cost of goods sold 67,358 1,557 (404) 68,511
Bowling center operating expenses 65,331 4,209 (174) 69,366
Selling, general and administrative expenses 17,066 2,279 19,345
-
Depreciation and amortization 27,045 2,794 (203) 29,636
------------ ----------- ---------- ----------
Total operating expenses 176,800 10,839 (781) 186,858
------------ ----------- ---------- ----------
Operating income 17,595 622 108 18,325
Nonoperating expenses:
Interest expense 50,191 (34) 50,157
Other expenses, net 93 54 595 742
Interest income (4,135) (4,135)
Equity in earnings of subsidiaries 211 (211) 0
Foreign currency transaction loss 331 9 340
------------ ----------- ---------- ----------
Income (loss) before income taxes (29,096) 593 (276) (28,779)
Provision (benefit) for income taxes (12,085) 804 (11,281)
------------ ----------- ---------- ----------
Net loss $ (17,011) $ (211) $ (276) $ (17,498)
============ ============ ========== ==========
</TABLE>
* Includes the results of operations from May 1, 1996 (date of the
Acquisition) through September 30, 1996.
18
<PAGE> 20
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
SEPTEMBER 30, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
AMF Group
Holdings Inc.
Non- Nine
Guarantor Guarantor Months Ended
Companies Companies Eliminations 09/30/96*
--------- --------- ------------ --------
(Note 1)
--------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (17,011) $ (211) $ (276) $ (17,498)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 26,961 2,794 (118) 29,636
Deferred income taxes (5,674) 147 (5,527)
Gain on the sale of property and equipment, net (25) (25)
Changes in assets and liabilities:
Accounts and notes receivable (17,881) 433 (17,448)
Receivable and payables - affiliates (156) 156 0
Inventories (1,886) (602) (2,488)
Other assets (69,100) (2,114) 19,308 (51,905)
Accounts payable and accrued expenses 8,562 (429) 8,133
Income taxes payable 1,581 173 1,754
Other liabilities 397 397
---------- -------- -------- ----------
Net cash provided (used) by operating
activities (74,232) 347 18,914 (54,971)
---------- -------- -------- ----------
Cash flows from investing activities:
Acquisitions of operating units (1,343,753) 3,071 (1,340,682)
Purchases of property and equipment, net (7,258) (628) (7,886)
Other 839 10 849
---------- -------- -------- ----------
Net cash provided (used) for investing
activities (1,350,172) 2,443 10 (1,347,719)
---------- -------- -------- ----------
Cash flows from financing activities:
Increase in notes payable and long term debt 1,051,796 1,051,796
(Decrease) in notes payable and long term debt (9,550) (9,550)
Capital contribution (redemption) of stock 408,636 (19,519) 389,117
Dividends paid (595) 595 0
Other (575) (575)
---------- -------- -------- ----------
Net cash provided (used) for financing
activities 1,450,307 (595) (18,924) 1,430,788
---------- -------- -------- ----------
Effect of exchange rates on cash (108) (746) (854)
---------- -------- -------- ----------
Net increase in cash 25,795 1,449 27,244
Cash at beginning of period 0 0 0
---------- -------- -------- ----------
Cash at end of period $ 25,795 $ 1,449 $ 0 $ 27,244
========== ======== ======== ==========
</TABLE>
* Includes the results of operations from May 1, 1996 (date of the
Acquisition) through September 30, 1996.
19
<PAGE> 21
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
The following discussion should be read in conjunction with the "Selected
Combined Financial Data", and all of the financial statements and notes thereto
included elsewhere in this report.
A comparison of the results of operations for the nine months ended September
30, 1996 and 1995 is not meaningful since the 1995 results include nine months
of activity for the Predecessor Company while the current period includes only
the five months from the Acquisition date for Holdings. Management believes a
more meaningful comparison of the results of operations for the nine months
ended September 30, 1996, is on a pro forma basis rather than an historical
basis. This is due to significant changes in depreciation and amortization
that result from the application of the purchase method of accounting for the
Acquisition, and from increased interest expense due to debt incurred relating
to the Acquisition. Accordingly, the following discussion of the results of
operations will include comparisons of the three months ended September 30,
1996 on an historical basis, and of the nine months ended September 30, 1996 on
a pro forma basis, with Predecessor Company results for the three and nine
months ended September 30, 1995 in each case on an historical basis.
The pro forma statement of income is based upon the Predecessor Company's
statement of income for the four month period ended April 30, 1996 and
Holdings' statement of income for the five months of activity for the period
ended September 30, 1996 and is adjusted to give effect to (i) the financing of
the Acquisition through bank debt, senior subordinated notes and senior
subordinated discount notes; (ii) the amortization and depreciation resulting
from the allocation of the Acquisition purchase price to fixed assets and
goodwill; (iii) the two bowling centers which were retained by the Sellers; and
(iv) the elimination of a one time charge in the amount of $44.0 million for
special bonuses and payments made in April, 1996 by the Sellers.
The "Selected Combined Financial Data" includes operating results expressed in
terms of EBITDA, which represents net income before net interest expense,
income taxes, depreciation and amortization, and other income and expenses,
net. EBITDA information is included because the Company understands that such
information is used by certain investors as one measure of an issuer's
historical ability to service debt. EBITDA is not intended to represent and
should not be considered more meaningful than, or an alternative to, other
measures of performance determined in accordance with generally accepted
accounting principles.
THE COMPANY
Pursuant to a Stock Purchase Agreement dated February 16, 1996 between Holdings
and the Sellers of the Predecessor Company, on May 1, 1996, Holdings acquired
the Predecessor Company through a stock purchase by Holdings' subsidiaries of
all the outstanding stock of the separate U.S. and international corporations
that constituted substantially all of the Predecessor Company and through the
purchase of certain assets of the
20
<PAGE> 22
Predecessor Company's bowling center operations in Spain and Switzerland.
Holdings did not acquire the assets of two bowling centers located in Madrid,
Spain and Geneva, Switzerland (both of which were retained by the Sellers).
Accordingly, as a result of the Acquisition and the post-Acquisition purchases
of four bowling centers, as of September 30, 1996, the Company owned or
operated 208 U.S. bowling centers and 78 international bowling centers.
The purchase price for the Acquisition was $1.357 billion, less approximately
$2.0 million representing debt of the Predecessor Company which remained in
place following the Closing of the Acquisition. The purchase price has been
adjusted as a result of a post-Acquisition agreement between Holdings and the
Sellers pursuant to which Holdings received a payment of $17.5 million in
exchange for the elimination of any future obligations due to Holdings under a
guarantee arrangement provided by the Sellers. The Sellers paid $3.4 million to
Holdings on October 1, 1996 which represents the net proceeds after reducing
the $17.5 million payment approximately $14.1 million for purchase price
adjustments originally due from Holdings to the Sellers. The net proceeds will
be used for general corporate purposes or to reduce debt.
Since the Acquisition and prior to September 30, 1996, the Company, through its
wholly owned subsidiary, AMF Bowling Centers, Inc., purchased four bowling
centers and certain related assets and liabilities from two unrelated sellers.
The combined purchase price was approximately $4.3 million, including certain
adjustments and transaction costs and was funded entirely from available
borrowing under the Company's Acquisition Facility established by the Bank
Credit Agreement dated as of May 1, 1996.
The Company is principally engaged in two businesses which, historically, have
been operated independently: (i) the ownership and operation of bowling
centers consisting of 208 U.S. bowling centers and 78 international bowling
centers ("Bowling Centers") as of September 30, 1996 and (ii) the design,
manufacture and sale of bowling center equipment, including automatic
pinspotters, automatic scoring equipment, bowling pins, lanes, ball returns,
and certain spare and replacement parts, and the resale of allied products such
as bowling balls, bags, shoes and certain other spare and replacement parts
("Bowling Products").
On October 10, 1996, the Company, through its wholly owned subsidiary, AMF
Bowling Centers, Inc., completed the acquisition of 50 bowling centers and
certain related assets and liabilities from Charan Industries, Inc. pursuant
to an Asset Purchase Agreement, dated as of September 10, 1996.
The purchase price was approximately $106.5 million, including certain
adjustments and transaction costs. It was funded with approximately $40 million
from the sale of equity by Holdings to its institutional stockholders and one
of its directors, and with $66.5 million from available borrowing under the
Company's Acquisition Facility.
As a result of the acquisitions described above, as of October 10, 1996, the
Company owns or operates 258 U.S. bowling centers and 78 international bowling
centers.
To facilitate a meaningful comparison, this Management's Discussion and
Analysis of Financial Condition and Results of Operations separately discusses
results of the Company's Bowling Centers and Bowling Products
21
<PAGE> 23
business segments. The results of Bowling Centers, Bowling Products, and the
combined companies are set forth below.
Information in this report relating to future prospects and performance are
"forward-looking statements" and, as such, are subject to certain risks and
uncertainties that could cause actual results to differ materially. Potential
risks and uncertainties include but are not limited to:
(i) continuing competitive pricing in the markets in which the Company
competes; (ii) the gain or loss of significant customers or the decrease in
demand from existing customers; (iii) the timing of significant orders received
from customers; (iv) seasonal changes in the demand for the Company's products;
(v) changes in the Company's product sales mix, and; (vi) continued success in
the integration of recently acquired businesses.
22
<PAGE> 24
AMF GROUP HOLDINGS INC.
SELECTED COMBINED FINANCIAL DATA
(UNAUDITED)
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Pro Forma
AMF Group AMF Group AMF Group
Predecessor Holdings Inc. Predecessor Holdings Inc. Holdings Inc.
Three Months Three Months Nine Months Nine Months* Nine Months
------------ -------------- ----------- ------------ -----------
09/30/95 09/30/96 09/30/95 09/30/96 09/30/96
-------- -------- -------- -------- --------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
TOTAL COMPANY:
Total operating revenue $ 130.4 $ 131.8 $ 425.6 $ 205.2 $ 369.3
Cost of goods sold 45.8 45.0 141.0 68.5 111.5
-------- ------- --------- -------- -------
Gross profit 84.6 86.8 284.6 136.7 257.8
Bowling center operations expenses 41.5 42.6 126.6 69.4 125.1
Selling, general and administrative expenses 11.7 12.0 38.9 19.3 34.7
Depreciation and amortization 9.3 17.9 28.5 29.6 52.7
-------- ------- --------- -------- -------
Operating income 22.1 14.3 90.6 18.4 45.3
Interest expense, gross 4.2 26.3 12.0 50.2 78.5
Other income/(expense), net (0.1) (0.4) 0.1 3.0 2.9
-------- ------- --------- -------- -------
Income/(loss) before income taxes 17.8 (12.4) 78.7 (28.8) (30.3)
Provision (benefit) for income taxes 2.9 (7.1) 9.9 (11.3) (12.8)
-------- ------- --------- -------- -------
Net income (loss) $ 14.9 $ (5.3) $ 68.8 $ (17.5) $ (17.5)
======== ======= ========= ======== =======
BOWLING CENTERS (before intersegment eliminations):
Total operating revenue $ 63.7 $ 65.4 $ 214.7 $ 105.0 $ 212.6
Cost of goods sold 5.6 5.7 19.3 9.3 18.3
-------- ------- --------- -------- -------
Gross profit 58.1 59.7 195.4 95.7 194.3
Bowling center operations expenses 42.1 42.8 128.5 69.6 127.0
Selling, general and administrative expenses 2.4 2.6 7.9 4.2 7.3
Depreciation and amortization 8.9 13.5 26.9 22.3 38.9
-------- ------- --------- -------- -------
Operating income (loss) 4.7 0.8 32.1 (0.4) 21.1
Interest expense, gross 4.1 13.6 11.7 26.2 41.0
Other income/(expense), net (0.1) (0.4) (0.9) (0.6) (0.9)
-------- ------- --------- -------- -------
Income/(loss) before income taxes 0.5 (13.2) 19.5 (27.2) (20.8)
Provision (benefit) for income taxes 2.3 (6.2) 7.1 (10.3) (11.0)
-------- ------- --------- ------- -------
Net income (loss) $ (1.8) $ ( 7.0) $ 12.4 $ (16.9) $ (9.8)
======== ======= ========= ======== =======
BOWLING PRODUCTS (before intersegment eliminations):
Total operating revenue $ 68.7 $ 68.8 $ 222.6 $ 61.0 $ 165.6
Cost of goods sold 41.5 41.1 129.4 37.0 99.3
-------- ------- --------- -------- -------
Gross profit 27.2 27.7 93.2 24.0 66.3
Bowling center operations expenses 0.0 0.0 0.0 0.0 0.0
Selling, general and administrative expenses 9.3 9.3 31.0 32.4 27.4
Depreciation and amortization 0.9 4.7 2.6 1.2 13.9
-------- ------- --------- -------- -------
Operating income (loss) 17.0 13.7 59.6 (9.6) 25.0
Interest expense, gross 0.1 12.7 0.3 0.1 37.5
Other income/(expense), net (0.1) (0.2) 1.0 0.2 0.0
-------- ------- --------- -------- -------
Income/(loss) before income taxes 16.8 (0.8) 60.3 (9.5) (12.5)
Provision (benefit) for income taxes 0.5 (1.9) 2.8 (0.9) (2.9)
-------- ------- --------- -------- -------
Net income (loss) $ 16.3 $ 2.7 $ 57.5 $ (8.6) $ (9.6)
======== ======= ========= ========= =======
</TABLE>
* Includes the results of operations from May 1, 1996 (date of the
Acquisition) through September 30, 1996.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BOWLING CENTERS
OPERATING REVENUE
For the three months ended September 30, operating revenue increased $1.7
million, or 2.7%, from $63.7 million in 1995 to $65.4 million in 1996.
On a pro forma basis, for the nine months ended September 30, operating
revenue decreased $2.1 million, or 1.0%, from $214.7 million in 1995 to $212.6
million in 1996. Of this decrease, $0.8 million is attributable to the two
bowling centers in Spain and Switzerland owned by the Predecessor Company and
reflected in 1995 pro forma results, but which were not acquired in the
Acquisition. The remaining decrease is due to the closing of seven Fair Lanes
centers during 1995 and severe weather conditions which adversely affected
revenues in the United States during the first quarter of 1996.
OPERATING EXPENSES
For the three months ended September 30, operating expenses increased $0.7
million, or 1.7%, from $42.1 million in 1995 to 42.8 million in 1996.
On a pro forma basis, for the nine months ended September 30, operating
expenses decreased $1.5 million, or 1.2%, from $128.5 million in 1995 to $127.0
million in 1996. This decrease is a result of the closing of seven Fair Lanes
centers during 1995. Also, decreased operating expenses resulted from cost
reduction plans implemented in connection with adverse weather conditions in
the United States during the first quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE ("S, G & A")
For the three months ended September 30, S, G & A increased $0.2 million, or
8.3%, from $2.4 million in 1995 to $2.6 million in 1996.
On a pro forma basis, for the nine months ended September 30, S, G & A
decreased $0.6 million, or 7.6%, from $7.9 million in 1995 to $7.3 million in
1996. For the U.S. centers, S, G & A expenses decreased $1.0 million,
primarily due to non-recurring expenses incurred during the three months ended
March 31, 1995 resulting from the existence and subsequent closing of the Fair
Lanes corporate offices, the reduction of general liability and workers
compensation expenses and other nonrecurring costs as a result of integrating
the Fair Lanes centers into the Predecessor Company's risk management program,
and the closing of seven bowling centers. This decrease was partially offset
by an increase of $0.4 million in S,G & A expenses for the international
centers.
24
<PAGE> 26
BOWLING CENTERS OPERATIONS EBITDA
For the three months ended September 30, EBITDA increased $0.7 million, or
5.2%, from $13.6 million in 1995 to $14.3 million in 1996. EBITDA margin
(EBITDA as a percent of revenue) improved from 21.4% in 1995 to 21.9% in 1996.
On a pro forma basis, for the nine months ended September 30, EBITDA increased
$1.0 million, or 1.7%, from $59.0 million in 1995 to $60.0 million in 1996.
EBITDA margin improved from 27.5% in 1995 to 28.2% in 1996. The increases are
primarily attributable to the decreases in bowling centers operating expenses
and in S, G & A.
BOWLING PRODUCTS
OPERATING REVENUE
For the three months ended September 30, operating revenue increased $0.1
million, or 0.2%, from $68.7 million in 1995 to $68.8 million in 1996.
On a pro forma basis, for the nine months ended September 30, operating
revenue decreased $57.0 million, or 25.6%, from $222.6 million in 1995 to
$165.6 million in 1996. This decrease is a result of the decline in New Center
Products ("NCP") revenue, particularly from Korea and Taiwan. As a result of
the maturing state of the markets in Korea and Taiwan in 1996, management does
not expect NCP sales to these markets to return to the levels realized in 1995.
NCP orders from and resulting sales to China, however, are increasing and have
favorably impacted results for the three months ended September 30, 1996
compared to the same period in 1995. See the discussion of markets which
follows under "Seasonality and Cyclicality".
GROSS PROFIT
For the three months ended September 30, gross profit increased $0.5 million,
or 1.8%, from $27.2 million in 1995 to $27.7 million in 1996. Gross profit
margin improved from 39.6% in 1995 to 40.3% in 1996.
On a pro forma basis, for the nine months ended September 30, gross profit
decreased $26.9 million, or 28.9%, from $93.2 million in 1995 to $66.3 million
in 1996. This decrease was primarily a result of the decrease in NCP revenues
in 1996 compared to 1995. Gross profit margin declined from 41.9% in 1995 to
40.0% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE ("S, G & A")
For the three months ended September 30, S, G & A remained constant at $9.3
million in both 1995 and 1996.
On a pro forma basis, for the nine months ended September 30, S, G & A
decreased $3.6 million, or 11.6%, from $31.0 million in 1995 to $27.4
25
<PAGE> 27
million in 1996. This decrease is primarily attributable to lower variable
costs associated with a lower volume of sales in 1996 compared to 1995.
BOWLING PRODUCTS EBITDA
For the three months ended September 30, EBITDA increased $0.5 million, or
2.8%, from $17.9 million in 1995 to $18.4 million in 1996. EBITDA margin
improved from 26.1% in 1995 to 26.7% in 1996.
On a pro forma basis, for the nine months ended September 30, EBITDA decreased
$23.3 million, or 37.5%, from $62.2 million in 1995 to $38.9 million in 1996.
EBITDA margin declined from 27.9% in 1995 to 23.5% in 1996. The decreases are
attributable to decreased operating revenues partially offset by a decrease in
S, G & A costs, all as discussed above.
CONSOLIDATED
DEPRECIATION AND AMORTIZATION
For the three months ended September 30, depreciation and amortization
increased $8.6 million, or 92.5%, from $9.3 million in 1995 to $17.9 million in
1996. Higher 1996 depreciation and amortization resulted from recording fixed
assets at fair market value and goodwill in accordance with the purchase
accounting method applied to the Acquisition.
On a pro forma basis, for the nine months ended September 30, depreciation and
amortization increased $24.2 million, or 84.9%, from $28.5 million in 1995 to
$52.7 million in 1996. This increase is due to the purchase accounting effects
discussed above.
INTEREST EXPENSE
For the three months ended September 30, interest expense increased $22.1
million, or 526.2%, from $4.2 million in 1995, to $26.3 million in 1996.
On a pro forma basis, for the nine months ended September 30, interest expense
increased $66.5 million, or 554.2%, from $12.0 million in 1995 to $78.5 million
in 1996. The increase for the third quarter and on a pro forma basis was due
to the debt incurred in March, 1996 and on May 1, 1996 relating to the
Acquisition.
NET INCOME
For the three months ended September 30, net income decreased $20.2 million,
or 135.6%, from $14.9 million in 1995, to a loss of $5.3 million in 1996. The
decrease is caused by higher depreciation, amortization, and interest expense
in 1996 as a result of the Acquisition.
On a pro forma basis, for the nine months ended September 30, net income
decreased $86.3 million, or 125.4%, from $68.8 million in 1995 to a loss of
$17.5 million in 1996. The decrease is caused by the decline in NCP
26
<PAGE> 28
revenues during the first six months of the year and higher depreciation,
amortization, and interest expense in 1996 as a result of the Acquisition.
INCOME TAXES
Prior to the Acquisition, certain of the companies within the Predecessor
Company elected S corporation status under the Internal Revenue Code. As S
corporations, these companies were liable for U.S. federal income taxes under
certain circumstances and liable for state income taxes in certain
jurisdictions; all other U.S. income taxes were the responsibility of the
stockholders. The international branches of the S corporations and other
international entities historically filed income tax returns and paid taxes in
their respective countries.
Upon consummation of the Acquisition, the U.S. and international subsidiaries
of Holdings became taxable corporations under the Internal Revenue Code. The
primary permanent differences between book and tax income are certain interest
expenses, goodwill amortization, and meals and entertainment expenses permitted
for book purposes but disallowed for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities decreased from $71.8 million for the
nine months ended September 30, 1995 to a use of cash of $55.0 million for the
nine months ended September 30, 1996. The decrease was due primarily to a
reduction of net income of $86.3 million and deferred financing costs incurred
as a result of the Acquisition.
Net cash flows used for investing activities increased from $17.2 million for
the nine months ended September 30, 1995 to $1,340.7 million for the nine
months ended September 30, 1996. This was primarily caused by the Acquisition
on May 1, 1996. Included within cash used for investing activities were
purchases of property and equipment of $17.5 million and $7.9 million for the
nine months ended September 30, 1995 and 1996, respectively.
Net cash used for financing activities was $50.0 million in 1995 while net cash
of $1,430.8 million was provided in 1996. This change primarily resulted from
the issuance of debt and from capital contributions related to the Acquisition.
The Company is funding its cash needs through cash flow from operations,
existing cash balances and the Working Capital and Acquisition facilities under
the Company's credit agreement with a group of lenders (the "Bank Credit
Agreement"). A substantial portion of the Company's available cash will be
applied to service the indebtedness incurred to finance the Acquisition.
The Company's ability to make scheduled principal and interest payments or
refinance its indebtedness (including the Exchange Notes) depends on its
27
<PAGE> 29
future performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control. Based upon the current level of operations and anticipated growth,
management of the Company believes that available cash flow, together with
available borrowing under the Bank Credit Agreement and other sources of
liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments
of principal and interest on its Senior Debt and the Exchange Notes. However,
a portion of the principal payments at maturity on the Exchange Notes may
require refinancing. There can be no assurance that the Company's business
will generate sufficient cash flow from operations or that future borrowing
will be available in an amount sufficient to enable the Company to service its
indebtedness, including the Exchange Notes, or to make necessary capital
expenditures, or that any refinancing would be available.
SEASONALITY AND CYCLICALITY
On a combined basis, revenue and EBITDA of the combined businesses are neither
highly seasonal nor highly cyclical. The geographic diversity of the Company's
bowling center operations across different regions of the U.S. and across 10
different countries has provided stability to the Company's annual cash flows.
Although financial performance is still seasonal in nature, with cash flows
typically peaking in the winter months and reaching their lows in the summer
months, the geographic diversity of the Company's bowling center operations has
helped reduce this seasonality.
The NCP segment of the manufacturing business experiences significant
fluctuations due to changes in demand for NCPs as certain markets experience
high growth followed by market maturity. Market cycles for individual
countries have, in the past, spanned several years with periods of high demand
for small and medium sized markets (e.g., Japan, Korea, Taiwan) lasting from
three to five years. These growth patterns do not seem to be closely tied to
general economic cycles.
28
<PAGE> 30
PART II:
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule for the period ended September 30, 1996.
(SEC filing only.)
99 Third Quarter, 1996 earnings release dated November 13, 1996.
(b) Reports on Form 8-K:
1. A current report was filed October 24, 1996 describing the
October 10, 1996 acquisition of 50 bowling centers and certain
related assets and liabilities from Charan Industries, Inc.
29
<PAGE> 31
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMF Group Inc.
(Registrant)
/s/ Stephen E. Hare
- ---------------------------------
Stephen E. Hare
Executive Vice President,
Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
November 13, 1996
[EXHIBITS NOT ATTACHED]
30
<PAGE> 32
EARNINGS RELEASE
[AMF LOGO]
================================================================================
8100 AMF Drive Contact: Stephen E. Hare
Richmond, VA 23111 Chief Financial Officer
(804) 730-4401
================================================================================
FOR IMMEDIATE RELEASE
NOVEMBER 13, 1996
AMF REPORTS THIRD QUARTER RESULTS
Richmond, VA, November 13, 1996 -- AMF Group Inc. today reported revenue of
$131.8 million, operating cash flow (earnings before interest, taxes,
depreciation and amortization or "EBITDA") of $32.2 million, and operating
income of $14.3 million for the third quarter ended September 30, 1996. This
compares to revenue of $130.4 million, operating cash flow of $31.4 million,
and operating income of $22.1 million for the third quarter of 1995.
For the nine months ended September 30, 1996, the Company reported, on a pro
forma basis, revenue of $369.3 million, operating cash flow of $98.0 million,
and operating income of $45.3 million. This compares to revenue of $425.6
million, operating cash flow of $119.1 million, and operating income of $90.6
million for the nine months ended September 30, 1995.
OPERATING RESULTS BY BUSINESS
AMF's Bowling Centers generated a revenue increase of 2.7% to $65.4 million,
and an operating cash flow increase of 5.1% to $14.3 million for the three
months ended September 30, 1996 versus 1995. EBITDA margin (EBITDA as a
percent of revenue) improved from 21.4% to 21.9%. For the nine months ended
September 30, 1996, Bowling Centers generated, on a pro forma basis, revenue of
$212.6 million and operating cash flow of $60.0 million. This compares to
revenue of $214.7 million and operating cash flow of $59.0 million for the nine
months ended September 30, 1995. EBITDA margin improved for the nine months
ended September 30 from 27.5% in 1995 to 28.2% in 1996.
Compared to 1995, year-to-date revenue was adversely affected by lower volume
of games bowled which was primarily attributed to two bowling centers in Spain
and Switzerland which were not acquired by the Company, the closing of seven
Fair Lanes centers during 1995, and severe winter weather in the U.S. which
reduced games bowled during the first quarter of 1996. Operating cash flow
improved as a result of higher pricing and a reduction of operating costs.
<PAGE> 33
Page 2 - AMF Reports Third Quarter Results
AMF's Bowling Products generated revenue of $68.8 million, flat with last year,
and an increase in operating cash flow of 2.8% to $18.4 million for the three
months ended September 30, 1996 versus 1995. EBITDA margin improved from 26.1%
to 26.7%. For the nine months ended September 30, 1996, Bowling Products
generated, on a pro forma basis, revenue of $165.6 million and operating cash
flow of $38.9 million. This compares to revenue of $222.6 million and
operating cash flow of $62.2 million for the nine months ended September 30,
1995. EBITDA margin declined for the nine months ended September 30 from 27.9%
in 1995 to 23.5% in 1996 primarily because of lower sales of New Center
Products.
Third quarter performance represented a significant improvement over the first
half of 1996 which lagged 1995 as a result of the maturing state of the markets
for New Center Products in Korea and Taiwan. During the third quarter,
improved orders and shipments from developing markets, especially China, offset
the decline from Korea and Taiwan and led to an overall increase in Bowling
Products cash flow and margin.
COMPARABILITY OF PRO FORMA RESULTS
The comparability of results for the nine months ended September 30, 1996 was
impacted by the following pro-forma adjustments: (i) the increased
depreciation and amortization related to the write-up of fixed assets and
recognition of goodwill in connection with the acquisition of the company on
May 1, 1996 by a group of investors led by an affiliate of Goldman, Sachs &
Co. (the "Acquisition"); (ii) the two bowling centers retained by the Sellers;
and (iii) elimination of a one-time charge for special bonus payments of $44
million which were substantially funded by the selling shareholders (the
"Sellers") prior to the Acquisition.
ACQUISITION PROGRAM
During the third quarter, the Company purchased four bowling centers in the
U.S. On October 10, 1996, the Company completed the acquisition of the Bowling
Corporation of America chain consisting of 50 bowling centers from Charan
Industries, Inc. The combined purchase price for these acquisitions was
approximately $111 million, including certain adjustments and transaction
costs, and was funded with $40 million from the sale of equity by the Company
to its institutional stockholders and one of its directors, and with $71
million from the Acquisition Facility under its current Bank Credit Agreement.
As a result of these acquisitions, AMF owns or operates 258 U.S. bowling
centers and 78 international bowling centers.
RECENT DEVELOPMENTS
The Company announced on October 9, 1996 that it will construct Manhattan's
first bowling center in more than 30 years -- a $5 million, 40-lane,
state-of-the-art, family entertainment facility which will become one of only
three bowling centers in Manhattan. The announcement and lease marks the final
addition to the Chelsea Piers Sports and Entertainment Complex, located along
the Hudson River. AMF Chelsea Piers Bowling Center is scheduled to open next
summer.
Douglas J. Stanard, President of AMF Group Inc., said "We are very excited
about the AMF Chelsea Piers Bowling Center and look forward to introducing the
'AMF bowling experience' to New York City. This center will be a spectacular
showcase for AMF's bowling products and services and will serve as a model
development for us in other high profile markets around the world."
<PAGE> 34
Page 3 - AMF Reports Third Quarter Results
AMF also completed an agreement with the Sellers to receive a payment of $17.5
million in exchange for the elimination of any future obligations due to AMF
Group Inc. under a guarantee arrangement provided by the Sellers. This payment
was reduced by approximately $14.1 million of purchase price adjustments due
from the Company to the Sellers. The net proceeds of approximately $3.4
million will be used for general corporate purposes or to reduce debt. The
Sellers paid $3.4 million to the Company on October 1, 1996.
OUTLOOK
Commenting on the results through September 30, 1996, Stephen E. Hare, Chief
Financial Officer of AMF Group Inc., said, "We are pleased to report another
solid quarter of improved operating performance which reflects substantial
progress in each of our major business strategies."
--------------------------------------
AMF Group, Inc., headquartered in Richmond, Virginia, is the largest owner and
operator of bowling centers in the world. AMF is also one of the world's
leading manufacturers and marketers of bowling products.
<PAGE> 35
FINANCIAL SUMMARY
AMF GROUP INC.
FOR THE QUARTER AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------- -----------
Pro Forma
1996 1995 1996(1) 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $131.8 $130.4 $369.3 $425.6
EBITDA(2) 32.2 31.4 98.0 119.1
Operating Income(3) 14.3 22.1 45.3 90.6
</TABLE>
--------------------------------------------
(1) Pro forma operating results have been presented to provide a more
meaningful comparison with the prior periods. The pro forma results include
operations for the Predecessor Company ("AMF Bowling Group") through April
30, 1996 and for the company ("AMF Group Inc.") since May 1, 1996 (the
closing date of the Acquisition). Pro forma adjustments include (i)
additional depreciation and amortization resulting from allocation of the
Acquisition purchase price to fixed assets and goodwill; (ii) two bowling
centers retained by the Sellers; and (iii) the elimination of a one-time
charge for special bonus payments of $44 million which were substantially
funded by the Sellers prior to the Acquisition.
(2) Represents a measure of operating cash flow defined as net income before net
interest expense, income taxes, depreciation and amortization, and other
income and expenses, net.
(3) Before net interest expense, other income and expenses, net, and income
tax expense.
<PAGE> 36
SEGMENT INFORMATION
AMF GROUP INC.
FOR THE QUARTER AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------- -----------
Pro Forma
1996 1995 1996(1) 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Bowling Centers $65.4 $ 63.7 $212.6 $214.7
Bowling Products 68.8 68.7 165.6 222.6
Intersegment Elimination (2.4) (2.0) (8.9) (11.7)
------ ------ ------ ------
TOTAL $131.8 $130.4 $369.3 $425.6
EBITDA(2)
Bowling Centers $14.3 $13.6 $60.0 $59.0
Bowling Products 18.4 17.9 38.9 62.2
Intersegment Elimination (0.5) (0.1) (0.9) (2.1)
------ ------ ------ ------
TOTAL $32.2 $31.4 $98.0 $119.1
</TABLE>
----------------------------------------
(1)(2) See notes (1)(2) to Financial Summary.
