SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QA
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 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)
DELAWARE 13-3873272
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER I.D. #)
INCORPORATION OR ORGANIZATION)
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
NO X
AT JUNE 30, 1996, 100 SHARES OF COMMON STOCK, PAR VALUE OF $.01, OF THE
REGISTRANT WERE OUTSTANDING.<PAGE>
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 1. LEGAL PROCEEDINGS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
-2-<PAGE>
PART 1
ITEM 1
AMF GROUP HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
ASSETS PREDECESSOR
------ 12/31/95 06/30/96
----------- --------
<CAPTION>
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,732 $ 45,094
Accounts and notes receivable, net
of allowance for doubtful
accounts of $3,373 and $3,007,
respectively 43,005 37,674
Inventories (Note 4) 39,821 46,387
Prepaid expenses and other 5,182 10,463
----------- ----------
Total current assets 97,740 139,618
Notes receivable 22,941 156
Property and equipment net 259,724 533,289
Deferred financing costs 0 41,492
Goodwill 0 783,469
Other assets 19,973 18,146
----------- ----------
Total assets $ 400,378 $1,516,170
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable to banks $ 0 $ 15,000
Long term debt, current (Note 6) 1,084 43,610
Accounts payable and book overdrafts 27,992 28,784
Accrued expenses 30,328 56,878
Income taxes payable 7,129 (6,820)
----------- ----------
Total current liabilities 66,533 137,452
Long-term debt less current
maturities (Note 6) 166,277 982,109
Other liabilities 5,856 1,994
Deferred income tax liabilities 174 18,816
----------- ----------
Total liabilities 238,840 1,140,371
----------- ----------
Commitments and contingencies (Note 5)
Stockholder's equity:
Common stock (Par value
$.01, 100 shares issued
and outstanding) 1,538 0
Paid-in capital 63,781 388,950
Retained earnings 101,080 (12,244)
Notes receivable - stock subscription (1,461) 0
Equity adjustment from foreign
currency translation (3,400) (907)
----------- ----------
Total stockholder's equity 161,538 375,799
----------- ----------
Total liabilities and
stockholder's equity $ 400,378 $1,516,170
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-3-<PAGE>
AMF GROUP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
PRO FORMA
PREDECESSOR COMPANY AMF GROUP AMF GROUP
------------------------------ HOLDINGS, INC. HOLDINGS, INC.
THREE MONTHS ONE MONTH THREE MONTHS THREE MONTHS
ENDED 06/30/95 ENDED 04/30/96 ENDED 06/30/96* ENDED 06/30/96
-------------- -------------- -------------- --------------
(NOTE 1) (NOTE 3)
<CAPTION>
<S> <C> <C> <C> <C>
Operating revenues:
Sales of products and services $137,631 $ 41,424 $ 73,178 $114,358
Revenue from operating lease activities 691 177 245 422
-------- --------- --------- --------
Total operating revenues 138,322 41,601 73,423 114,780
Operating expenses:
Cost of sales 48,219 12,590 24,368 37,192
Bowling center operating expenses 50,098 42,444 33,373 55,256
Selling, general and administrative 13,194 23,441 11,687 16,910
-------- -------- --------- ---------
Total operating expenses 111,511 78,475 69,428 109,358
-------- -------- --------- ---------
Operating income (loss) 26,811 (36,874) 3,995 5,422
Nonoperating expenses:
Interest expense (3,992) (702) (22,273) (25,678)
Other expenses, net (124) (528) (229) (759)
Interest income 522 217 2752 2,969
Foreign currency transaction
gain (loss) 239 (7) (94) (101)
--------- --------- ---------- ---------
Income before income taxes 23,456 (37,894) (15,849) (18,147)
Income tax expense 3,744 (4,451) (3,971) 6,506
--------- --------- ---------- ---------
Net income (loss) $ 19,712 $ (33,443) $ (11,878) $ (11,641)
========= ========= ========== =========
Pro Forma Financial Information:
Income (loss) before income taxes
and pro forma adjustments $ 23,456 $ (37,894)
Pro forma C corporation -
tax provision 9,619 (14,316)
Pro forma net income (loss) $ 13,837 $ (23,578)
========= =========
</TABLE>
* Includes the results of operations from May 1, 1996 (date of the
Acquisition) through June 30, 1996
The accompanying notes are an integral part
of these financial statements.
-4-<PAGE>
AMF GROUP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
PRO FORMA
PREDECESSOR COMPANY AMF GROUP AMF GROUP
------------------------------ HOLDINGS, INC. HOLDINGS, INC.
SIX MONTHS FOUR MONTHS SIX MONTHS SIX MONTHS
ENDED 06/30/95 ENDED 04/30/96 ENDED 06/30/96* ENDED 06/30/96
-------------- -------------- -------------- --------------
(NOTE 1) (NOTE 3)
<CAPTION>
<S> <C> <C> <C> <C>
Operating revenues:
Sales of products and services $294,167 $164,371 $73,178 $236,705
Revenue from operating lease activities 1,026 573 245 818
-------- -------- -------- --------
Total operating revenues 295,193 164,944 73,423 237,523
Operating expenses:
Cost of sales 96,931 43,909 24,368 67,975
Bowling center operating expenses 102,588 94,613 33,373 103,498
Selling, general and administrative 27,206 35,406 11,687 35,079
-------- -------- -------- --------
Total operating expenses 226,725 173,928 69,428 206,552
-------- -------- -------- --------
Operating income (loss) 68,468 (8,984) 3,995 30,971
Nonoperating expenses:
Interest expense (7,719) (4,504) (23,873) (48,541)
Other expenses, net (750) (692) (229) (923)
Interest income 925 611 3,752 4,363
Foreign currency transaction gain (loss) 17 (29) (94) (123)
-------- -------- -------- --------
Income before income taxes 60,941 (13,598) (16,449) (14,253)
Income tax expense 7,049 (1,731) (4,205) (4,365)
-------- -------- -------- --------
Net income (loss) $ 53,892 $ (11,867) $(12,244) $(9,888)
======== ========= ======== ========
Pro Forma Financial Information:
Income (loss) before income taxes
and pro forma adjustments $60,941 $(13,598)
Pro forma C corporation -
tax provision 23,577 (5,071)
-------- --------
Pro forma net income (loss) $ 37,364 $ (8,527)
========= =========
</TABLE>
* Includes the results of operations from May 1, 1996 (date of the
Acquisition) through June 30, 1996
The accompanying notes are an integral part
of these financial statements.
-5-<PAGE>
AMF GROUP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
AMF GROUP
PREDECESSOR COMPANY HOLDINGS, INC.
------------------------------
SIX MONTHS FOUR MONTHS SIX MONTHS ENDED
ENDED 06/30/95 ENDED 04/30/96 06/30/96
-------------- -------------- --------------
(NOTE 1)
<CAPTION>
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 53,892 $ (11,867) $ (12,244)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,169 15,097 11,650
Deferred income taxes 282 1,018 5,871
(Gain) loss on the sale of property
and equipment, net 171 0 (31)
Changes in assets and liabilities:
Accounts and notes receivable (8,158) 5,614 (3,678)
Receivable and payables - affiliates (808) 0 0
Inventories (4,573) (3,793) (3,396)
Other assets (2,198) (1,417) (47,342)
Accounts payable and accrued expenses (11,608) 9,442 21,418
Income taxes payable (3,955) (5,833) (8,602)
Other liabilities (83) (2,228) (517)
-------- --------- ---------
Net cash provided (used) by operating
activities 42,131 6,033 (36,871)
Cash flows used for investing activities:
Acquisitions of operating units, net of cash acquired 0 0 (1,341,748)
Purchases of property and equipment (11,612) (6,874) (3,318)
Proceeds from sales of property and equipment 75 0 47
Other (290) 244 39
-------- --------- ---------
Net cash used for investing activities (11,827) (6,630) (1,344,980)
Cash flows used for financing activities:
Increase in notes payable and long term debt 2,802 0 1,038,756
(Decrease) in notes payable and long term debt 0 (159,780) (233)
Payment of noncompete obligations 0 (36) (190)
Proceeds from note receivable - shareholder (721) 20,870 0
Capital contribution 2,424 188,009 388,950
Dividends paid (34,583) (36,488) 0
Other 51 0 0
-------- --------- ---------
Net cash provided (used) for
financing activities (30,027) 12,575 1,427,283
Effect of exchange rates on cash (780) 565 (338)
-------- --------- ---------
Net increase (decrease) in cash (503) 12,543 45,094
Cash at beginning of period 8,174 9,732 0
--------- ---------- ----------
Cash at end of period $ 7,671 $ 22,275 $ 45,094
========= ========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-6-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- ORGANIZATION
AMF Group Inc. (the "Company") is a wholly owned subsidiary of AMF
Group Holdings Inc. ("Holdings").
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, Holdings acquired AMF Bowling
Group 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, the Company owns or
operates 204 domestic bowling centers and 78 international bowling
centers. The purchase price for the Acquisition was $1.363 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 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 Acquisition occurred on May 1, 1996. Accordingly, the comparative
results of operations of the Predecessor Company for the six months and
three months ended June 30, 1995 have been presented. Additionally,
the Predecessor Company results of operations for the periods from
January 1, 1996 and April 1, 1996 through the Closing (May 1, 1996)
have been presented with the results of operations of the Company from
the Closing through June 30, 1996.
Holdings is a wholly owned subsidiary of AMF Holdings Inc. ("Parent").
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
-7-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
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 Exchange
Commission on August 9, 1996 (SEC File No. 333-4877). The results of
operations for the six months ended June 30, 1996 reflect the results
of AMF Group Holdings Inc. since the inception date of January 12, 1996
and the subsidiaries acquired as of May 1, 1996 as part of AMF Bowling
Group. The results of operations for the six months ended June 30,
1996 and 1995 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, pro
forma statements of income have been presented for the six month and
three month periods ending June 30, 1996 as if the Acquisition of the
Predecessor Company had occurred on January 1, 1996. The pro forma
statements of income are based upon the Predecessor Company's
statements of income for the four month and one month periods ending
April 30, 1996 and Holdings' statements of income for the six month and
three month periods ending June 30, 1996 and are 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 for special bonuses and payments made
in April, 1996 by the Sellers for $44 million.
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 six months ended June 30, 1995 and 1996, respectively. The pro
forma results are for illustrative purposes only, and do not purport to
be indicative of the actual results which would have occurred, nor are
they indicative of future results of operations.
1995 1996
---- ----
Total operating revenues $294,593 $237,523
Operating income 55,991 30,971
Income (loss) before income taxes 7,463 (14,253)
-8-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 4 -- INVENTORIES
Inventories by major classification are as follows:
PREDECESSOR
-----------
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
Raw materials $10,590 $ 9,587
Work-in-process 1,522 1,779
Finished goods and spare parts 24,920 32,880
Merchandise inventory 4,045 2,947
------- -------
41,077 47,193
Inventory valuation reserves (1,256) ( 806)
------- -------
$39,821 $46,387
======= =======
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
Certain litigation is disclosed in Part II, Item 1 to this Form 10-Q.
NOTE 6 -- LONG-TERM DEBT
Long-term debt at December 31, 1995 and June 30, 1996 consists of the
following:
PREDECESSOR |
----------- |
DECEMBER 31, | JUNE 30,
1995 | 1996
------------ | --------
Exchange notes $0 | $508,756
Mortgage and equipment notes 14,469 | 1,963
Industrial development bond 1,354 | 0
Bank debt 0 | 515,000
Note payable to bank 3,764 | 15,000
Note payable to affiliates 146,727 | 0
Other 1,047 | 0
-------- |---------
167,361 |1,040,719
-------- |---------
Current maturities (1,084) | (58,610)
-------- |---------
Long-term portion $166,277 |$ 982,109
======== |=========
|
The Exchange Senior Subordinated Notes (together with the Exchange
Senior Subordinated Discount Notes, the "Exchange 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 commencing September 15,
1996.
-9-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
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 accrue or be payable prior to March 15, 2001 (the
"Full Accretion Date"). Commencing March 15, 2001 interest will accrue
and will be payable in cash semi-annually in arrears on each 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 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 are subordinated to the guarantees of
the Bank debt of $515.0 million outstanding at June 30, 1996, referred
to in the table above ("Senior Debt") issued by the Guarantors.
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
through which the Company will conduct a portion of its operations (See
Note 10).
The indenture governing the Exchange Senior Subordinated Notes
("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 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 cer-
tain transactions with affiliates, dispose of certain assets, incur
liens securing pari passu and subordinated indebtedness of the Company
and engage in mergers and consolidations.
-10-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 7 -- SUBSEQUENT EVENTS
PENDING TRANSACTIONS
Since completing the Acquisition, the Company has entered into letters
of intent with a number of sellers to purchase bowling centers,
including the Bowling Corporation of America centers. The total
purchase price is expected to be approximately $104.0 million, subject
to purchase price adjustments. Certain of the transactions are subject
to a number of conditions, including the negotiation of definitive
agreements and receipt of regulatory approvals. There is no assurance
that any of the pending acquisitions will be consummated.
NOTE 8 -- BUSINESS SEGMENTS
The Combined Companies operate 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 June 30, 1996, and 1995 and identifiable
assets at June 30, 1996, are presented below. The results of
operations of Predecessor Company for the one month ended April 30,
1996 include a one time charge for special bonuses and payments to
employees made in April 1996 by the Sellers for $44.0 million.
PREDECESSOR COMPANY AMF GROUP INC.
THREE
MONTHS ONE MONTH THREE MONTHS
06/30/95 04/30/96 06/30/96
Revenue from unaffiliated (Note 1)
customers
Bowling Centers
Domestic $ 40,100 $ 16,900 $ 23,300
International 25,200 8,500 16,200
65,300 25,400 39,500
Manufacturing 73,000 16,200 33,900
$138,300 $ 41,600 $ 73,400
Intersegment Sales
Bowling Centers
Domestic -- -- --
International -- -- --
-- -- --
Manufacturing 5,500 1,700 1,900
$ 5,500 $ 1,700 $ 1,900
-11-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 8 -- BUSINESS SEGMENTS (CONTINUED)
PREDECESSOR COMPANY AMF GROUP INC.
THREE MONTHS ONE MONTH THREE MONTHS
06/30/95 04/30/96 06/30/96
(Note 1)
Operating Income
Bowling Centers
Domestic 300 (11,800) (3,100)
International 6,300 (8,200) 2,300
6,600 (20,000) (800)
Manufacturing 21,500 (16,700) 6,100
Corporate (1,100)
Eliminations (1,300) (200) (200)
$26,800 ($36,900) $ 4,000
Identifiable Assets
Bowling Centers
Domestic $ 495,000
International 295,100
790,100
Manufacturing 654,400
Corporate 71,700
$1,516,200
Depreciation and Amortization Expense
Bowling Centers
Domestic $ 7,400 $ 3,400 $ 5,700
International 1,900 500 2,600
9,300 3,900 8,300
Manufacturing 800 300 2,700
Corporate 900
Eliminations (100) (100) (200)
$10,000 $ 4,100 $11,700
Capital Expenditures
Bowling Centers $ 4,600 $ 1,600 $ 1,500
Domestic 2,700 1,100 1,700
International 7,300 2,700 3,200
Manufacturing 1,300 100 400
Eliminations (1,300) (300) (300)
$ 7,300 $ 2,500 $ 3,300
-12-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 8 -- BUSINESS SEGMENTS (CONTINUED)
Information concerning operations in these business segments for the
six months ended June 30, 1996, and 1995 are presented below. The
results of operations of the Predecessor Company for the four months
ended April 30, 1996 include a one time charge for special bonuses and
payments to employees made in April 1996 by the Sellers for $44.0
million.
PREDECESSOR COMPANY AMF GROUP INC.
SIX MONTHS FOUR MONTHS SIX MONTHS
06/30/95 04/30/96 06/30/96
Revenue from unaffiliated customers (Note 1)
Bowling Centers
Domestic $100,800 $ 75,000 $ 23,300
International 50,300 33,500 16,200
151,100 108,500 39,500
Manufacturing 144,100 56,400 33,900
$295,200 $164,900 $ 73,400
Intersegment Sales
Bowling Centers
Domestic -- -- --
International -- -- --
-- -- --
Manufacturing 9,700 4,600 1,900
$ 9,700 $ 4,600 $ 1,900
Operating Income
Bowling Centers
Domestic $ 14,700 $ 3,600 ($3,100)
International 12,900 (2,500) 2,300
27,600 1,100 (800)
Manufacturing 42,600 (9,600) 6,100
Corporate (1,100)
Eliminations (1,700) (500) (200)
$ 68,500 $ (9,000) $ 4,000
-13-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 8 -- BUSINESS SEGMENTS (CONTINUED)
PREDECESSOR COMPANY AMF GROUP INC.
SIX MONTHS FOUR MONTHS SIX MONTHS
06/30/95 04/30/96 06/30/96
(Note 1)
Depreciation and Amortization Expense
Bowling Centers
Domestic $14,500 $11,900 $ 5,700
International 3,400 2,500 2,600
17,900 14,400 8,300
Manufacturing 1,700 1,200 2,700
Corporate 900
Eliminations (400) (500) (200)
$19,200 $15,100 $11,700
Capital Expenditures
Bowling Centers $ 7,000 $ 5,100 $ 1,500
Domestic 3,800 2,300 1,700
International 10,800 7,400 3,200
Manufacturing 2,800 400 400
Eliminations (2,000) (900) (300)
$11,600 $ 6,900 $ 3,300
-14-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 9 -- EMPLOYMENT AGREEMENTS AND STOCK INCENTIVE PLAN
The Parent has entered into three employment agreements with exe-
cutives 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
certain operational and financial targets are met. Each employ-
ment agreement also calls for a continuation of certain benefits,
under certain 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. 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 common stock at the date of the grant.
In connection with the Acquisition, Parent adopted the AMF Hold-
ings, 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 ("Restricted Stock Awards"), options
to purchase shares of Parent Common Stock ("Stock Options") and
stock appreciation rights ("Stock Appreciation Rights") to certain
officers, employees, consultants and non-employee directors ("Par-
ticipants") of Parent and its affiliates. The total number of
shares of Parent Company Stock initially reserved and available
for grant under the Stock Incentive Plan is 1,767,151. A commit-
tee of Parent's board of directors (the "Committee") is authorized
to make grants and various other decisions under the Stock Incen-
tive Plan and to make determinations as to a number of the terms
of awards granted under the Stock Incentive Plan.
The Stock Incentive Plan will terminate 10 years after its effec-
tive date; however, awards outstanding as of such date will not be
affected or impaired by such termination. Parent's board of di-
rectors and the Committee have authority to amend the Stock Incen-
tive Plan and awards granted thereunder, subject to the terms of
the Stock Incentive Plan.
-15-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
NOTE 10 -- CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating information presents:
Consolidating balance sheet as of June 30, 1996 and consoli-
dating statements of income and of cash flows for the six
months ended June 30, 1996.
Elimination entries necessary to combine the entities com-
prising the Combined Companies.
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 "Guaran-
tor Companies"):
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 domestic 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-Guarantor Companies"):
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
-16-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
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
-17-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 30, 1996
<CAPTION>
Non -
Guarantor Guarantor Consolidated
Companies Companies Eliminations Companies
--------- --------- ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 44,461 $ 324 $ 309 $ 45,094
Accounts and notes receivable, net
of allowance for doubtful accounts 35,850 1,750 74 37,674
Accounts and notes receivable --
intercompany 1,568 1,372 (2,940) 0
Inventories 45,062 1,325 46,387
Prepaid expenses and other 8,979 1,484 10,463
---------- -------- --------- ----------
Total current assets 135,920 6,255 (2,557) 139,618
Notes receivable 156 0 156
Property and equipment, net 503,574 31,184 (1,469) 533,289
Other assets 872,405 934 (30,232) 843,107
---------- -------- --------- ----------
Total assets $1,512,055 $ 38,373 $ (34,258) $1,516,170
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable to banks $ 15,000 $ $ $ 15,000
Long term debt, current 43,610 43,610
Accounts payable and book
overdrafts 27,245 1,538 1 28,784
Accounts & notes payable -
intercompany 0 2,655 (2,655) 0
Accrued expenses 54,652 2,226 56,878
Income taxes payable (7,745) 925 (6,820)
---------- ------- -------- ---------
Total current liabilities 132,762 7,344 (2,654) 137,452
Long-term debt, less current
maturities 982,109 982,109
Other liabilities 1,994 1,994
Deferred income tax liabilities 18,019 797 18,816
---------- ------- --------- ----------
Total liabilities 1,134,884 8,141 (2,654) 1,140,371
---------- ------- --------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock 0 3,940 (3,940) 0
Paid-in capital 388,950 25,968 (25,968) 388,950
Retained earnings (10,872) 4,964 (6,336) (12,244)
Equity adjustment from foreign
currency translation (907) (4,640) 4,640 (907)
---------- -------- --------- ----------
Total stockholders' equity 377,171 30,232 (31,604) 375,799
---------- -------- --------- ----------
Total liabilities and
stockholders' equity $1,512,055 $ 38,373 $ (34,258) $1,516,170
========== ======== ========= ==========
</TABLE>
-18-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
JUNE 30, 1996
<CAPTION>
AMF Group
Non- Holdings Inc.
Guarantor Guarantor Six Months Ended
Companies Companies Eliminations 06/30/96
--------- --------- ------------ --------------
(Note 1)
--------
<S> <C> <C> <C> <C>
Operating revenues:
Sales of Products and services $ 69,646 $ 3,899 $ (367) $ 73,178
Revenue from operating lease
activities 128 117 0 245
-------- ------- ------- ---------
Total operating revenues 69,774 4,016 (367) 73,423
Operating expenses:
Cost of Sales 24,039 566 (237) 24,368
Bowling center operating expenses 30,752 2,716 (95) 33,373
Selling, general and
administrative 11,432 255 0 11,687
-------- ------- ------- ---------
Total operating expenses 66,223 3,537 (332) 69,428
Operating income (loss) 3,551 479 (35) 3,995
Nonoperating expenses:
Interest expense (23,794) (79) (23,873)
Other expenses, net 212 154 (595) (229)
Interest income (loss) 3,782 (30) 3,752
Equity in earnings of subsidiaries 226 0 (226) 0
Foreign currency transaction
gain (loss) (10) (84) 0 (94)
-------- ------- ------- ---------
Income before income taxes (16,033) 440 (856) (16,449)
Income tax expense (4,419) 214 0 (4,205)
-------- ------- ------- ---------
Net income (loss) $(11,614) $ 226 $ 856 $ (12,244)
========= ======= ======= =========
</TABLE>
-19-<PAGE>
AMF GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
JUNE 30, 1996
<CAPTION>
AMF Group
Non- Holdings Inc.
Guarantor Guarantor Six Months Ended
Companies Companies Eliminations 06/30/96
--------- --------- ------------ ------------
(Note 1)
--------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (11,614) $ 226 $ (856) $ (12,244)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and Amortization 11,033 667 (50) 11,650
Deferred income taxes 5,770 101 0 5,871
(Gain) loss on the sale of property
and equipment, net (31) 0 0 (31)
Changes in assets and liabilities: 0 0
Accounts and notes receivable (3,888) 210 0 (3,678)
Receivable and payables - affiliates (576) (518) 1,094 0
Inventories (3,806) 410 0 (3,396)
Other assets (60,574) (1,219) 14,451 (47,342)
Accounts payable and accrued expenses 22,664 (1,246) 0 21,418
Income taxes payable (8,532) (70) 0 (8,602)
Other liabilities (517) 0 0 (517)
------------ -------- -------- ---------
Net cash provided by operating
activities (50,071) (1,439) 14,639 (36,871)
Cash flows used for investing activities:
Acquisitions of operating units (1,344,819) 3,071 0 (1,341,748)
Purchases of property and equipment (3,191) (394) 267 (3,318)
Proceeds from sales of property
and equipment 47 0 0 47
Other 185 0 224 39
------------ ------- -------- -------------
Net cash used for investing
activities (1,348,148) 2,677 491 (1,344,980)
Cash flows used for financing activities:
Increase in notes payable
and long term debt 1,038,756 0 0 1,038,756
(Decrease) in notes payable
and long term debt (233) 0 0 (233)
Payment of noncompete obligations (190) 0 0 (190)
Proceeds from note receivable -
shareholder 0 0 0 0
Capital contribution (redemption)
of stock 404,675 0 (15,725) 388,950
Dividends paid 0 (595) 595 0
Other 0 0 0 0
------------ -------- -------- -------------
Net cash used for financing
activities 1,443,008 (595) (15,130) 1,427,283
Effect of exchange rates on cash (328) (10) 0 (338)
------------ -------- -------- -------------
Net increase (decrease) in cash 44,461 633 0 45,094
Cash at beginning of period 0 0 0 0
------------ -------- -------- -------------
Cash at end of period $ 44,461 $ 633 $ 0 $ 45,094
============ ======== ======== =============
</TABLE>
-20-<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMF
The financial information presented below 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 perfor-
mance determined in accordance with generally accepted accounting
principles.
GENERAL
Pursuant to a Stock Purchase Agreement dated February 16, 1996 between
AMF Group Holdings, Inc. ("Holdings") and the stockholders (the
"Sellers") of AMF Bowling Group (the "Predecessor Company"), on May 1,
1996, Holdings acquired AMF Bowling Group 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 Swit-
zerland. 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,
AMF Group Inc. (the "Company") owns or operates 204 domestic bowling
centers and 78 international bowling centers. The purchase price for
the Acquisition was $1.363 billion, less approximately $2.0 million
representing debt of the Predecessor which remained in place following
the closing of the Acquisition (the "Closing").
The Company is principally engaged in two businesses which, histori-
cally, have been operated independently: (i) the ownership and
operation of 204 domestic bowling centers and 78 international bowling
centers (bowling center operations) as of June 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 (manufacturing).
-21-<PAGE>
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 operations and
manufacturing. The results of bowling center operations, manufacturing
and the combined companies are set forth below.
A comparison of the historical combined results of the Predecessor for
the six months ended June 30, 1995 and the historical consolidated
results of the Company from inception (January 12, 1996) through June
30, 1996 has been provided. This results in a comparison of six months
of operations and two months of operations, as the historical
consolidated results of the Company includes the results of bowling
operations from the date of the Acquisition (May 1, 1996) through June
30, 1996. To facilitate a more meaningful comparison, an additional
comparison of the historical combined results of the Predecessor
Company for the six months ended June 30, 1995 and the pro forma (see
Note 3 to the Notes to the Consolidated Financial Statements) results
of operations for the six months ended June 30, 1996 has been provided.
-22-<PAGE>
<TABLE>
AMF GROUP HOLDINGS INC.
SELECTED COMBINED FINANCIAL DATA
(UNAUDITED)
(IN MILLIONS OF DOLLARS)
<CAPTION>
Predecessor Results AMF Group Inc. Predecessor Results AMF Group Inc.
------------------- -------------- -------------------- --------------
Six Months Four Months Six Months Three Months One Month Three Months
---------- ----------- ---------- ------------ --------- ------------
6/30/95 4/30/96 6/30/96 6/30/95 4/30/96 6/30/96
------- ------- ------- ------- ------- -------
INCOME STATEMENT DATA:
CONSOLIDATED COMPANY:
<S> <C> <C> <C> <C> <C> <C>
Total operating revenue $ 295.2 $ 164.9 $ 73.4 $ 138.3 $ 41.6 $ 73.4
Cost of sales 95.2 43.1 23.6 47.0 12.4 23.6
--------- --------- --------- --------- --------- ---------
Gross profit 200.0 121.8 49.8 91.3 29.2 49.8
Bowling center operations expenses 85.1 80.2 26.7 40.7 38.2 26.7
Selling, general and administrative expenses 27.2 35.5 7.4 13.8 23.8 7.4
Depreciation and amortization 19.2 15.1 11.7 10.0 4.1 11.7
--------- --------- --------- --------- --------- ---------
Operating income 68.5 (9.0) 4.0 26.8 (36.9) 4.0
Interest expense, gross 7.8 4.5 23.9 4.0 0.7 22.3
Other income/(expense), net 0.2 (0.1) 3.5 0.7 (0.3) 2.4
Income/(loss) before income taxes 60.9 (13.6) (16.4) 23.5 (37.9) (15.9)
Provision for income taxes 7.0 (1.7) (4.2) 3.8 (4.5) (4.0)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 53.9 ($11.9) ($12.2) $19.7 ($33.4) ($11.9)
========= ========= ========= ========= ========= =========
BOWLING CENTER OPERATIONS (before intersegment eliminations):
Total operating revenue $ 151.1 $ 108.5 $ 39.5 $ 65.3 $ 25.4 $ 39.5
Cost of sales 13.7 9.1 3.6 6.1 2.3 3.6
--------- --------- --------- --------- --------- ---------
Gross profit 137.4 99.4 35.9 59.2 23.1 35.9
Bowling center operations expenses 86.4 80.8 26.9 41.3 38.4 26.9
Selling, general and administrative expenses 5.5 3.1 1.5 2.0 0.8 1.5
Depreciation and amortization 17.9 14.4 8.3 9.3 3.9 8.3
--------- --------- --------- --------- --------- ---------
Operating income 27.6 1.1 (0.8) 6.6 (20.0) (0.8)
Interest expense, gross 7.6 4.4 0.1 3.9 0.7 0.1
Other income/(expense), net (0.9) (0.4) (0.1) 0.1 (0.2) (0.1)
Income/(loss) before income taxes 19.1 (3.7) (1.0) 2.8 (20.9) (1.0)
Provision for income taxes 4.8 (0.8) 1.4 2.3 (3.2) 1.4
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 14.3 ($2.9) ($2.4) $ 0.5 ($17.7) ($2.4)
========= ========= ========= ========= ========= =========
BOWLING PRODUCTS (MANUFACTURING) (before intersegment eliminations):
Total operating revenue $ 153.8 $ 61.0 $ 35.8 $ 78.5 $ 17.9 $ 35.8
Cost of sales 87.8 37.0 21.2 44.4 11.2 21.2
--------- --------- --------- --------- --------- ---------
Gross profit 66.0 24.0 14.6 34.1 6.7 14.6
Bowling center operations expenses 0.0 0.0 0.0 0.0 0.0 0.0
Selling, general and administrative expenses 21.7 32.4 5.8 11.8 23.1 5.8
Depreciation and amortization 1.7 1.2 2.7 0.8 0.3 2.7
--------- --------- --------- --------- --------- ---------
Operating income 42.6 (9.6) 6.1 21.5 (16.7) 6.1
Interest expense, gross 0.1 0.1 0.0 0.0 0.0 0.0
Other income/(expense), net 0.9 0.2 (0.0) 0.2 (0.2) (0.0)
Income/(loss) before income taxes 43.4 (9.5) 6.1 21.7 (16.9) 6.1
Provision for income taxes 2.2 (0.9) 1.9 1.4 (1.2) 1.9
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 41.2 ($8.6) $ 4.2 $ 20.3 ($15.7) $ 4.2
========= ========= ========= ========= ========= =========
</TABLE>
-23-<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BOWLING CENTER OPERATIONS
OPERATING REVENUE
For the six months ended June 30, 1996, operating revenue de-
creased by $111.6 million, or 73.9%, from $151.1 million for
the six months ended June 30, 1995 to $39.5 million for the six
months ended June 30, 1996. For the three months ended June
30, 1996, operating revenue decreased by $25.8 million, or
39.5%, from $65.3 million for the three months ended June 30,
1995 to $39.5 million for the three months ended June 30, 1996.
This decrease is due to the fact that the 1995 results include
six and three months of activity while the current periods in-
clude two months of activity.
On a pro forma basis, for the six months ended June 30, 1996,
operating revenue decreased by $3.9 million, or 2.6%, from
$151.1 million for the six months ended June 30, 1995 to $147.2
million for the six months ended June 30, 1996. Of this de-
crease, $0.6 million is attributable to the two bowling centers
in Spain and Switzerland which were not acquired in the Acqui-
sition. The remaining decrease is due to the closing during
1995 of seven Fair Lanes centers and severe weather conditions
in the United States during the first quarter of 1996.
GROSS PROFIT
For the six months ended June 30, 1996, gross profit decreased
by $101.5 million, or 73.9%, from $137.4 million for the six
months ended June 30, 1995 to $35.9 million for the six months ended
June 30, 1996. For the three months ended June 30, 1996, gross
profit decreased by $23.3 million, or 39.4%, from $59.2 million
for the three months ended June 30, 1995 to $35.9 million for
the three months ended June 30, 1996. This decrease is due to
the fact that the 1995 results included six months of activity
while the current periods include two months of activity.
On a pro forma basis, for the six months ended June 30, 1996,
gross profit decreased by $2.7 million, or 2.0%, from $137.4
million for the six months ended June 30, 1995 to $134.7 mil-
lion for the six months ended June 30, 1996. This decrease is
due to the decrease in operating revenues discussed above, and
an increase in cost of sales of $1.2 million.
-24-<PAGE>
BOWLING CENTER OPERATING EXPENSES
For the six months ended June 30, 1996, operating expenses de-
creased by $59.5 million, or 68.9%, from $86.4 million for the
six months ended June 30, 1995 to $26.9 million for the six
months ended June 30, 1996. For the three months ended June
30, 1996, operating expenses decreased by $14.4 million, or
34.9%, from $41.3 million for the three months ended June 30,
1995 to $26.9 million for the three months ended June 30, 1996.
This decrease is due to the fact that the 1995 results include
six and three months of activity while the current periods in-
clude two months of activity.
On a pro forma basis, for the six months ended June 30, 1996,
operating expenses decreased by $3.8 million, or 4.4%, from
$86.4 million for the six months ended June 30, 1995 to $82.6
million for the six months ended June 30, 1996. This decrease
is a result of the closing during 1995 of seven Fair Lanes cen-
ters and management's efforts to decrease operating costs after
weather conditions had a negative impact on revenues in 1996.
SELLING, GENERAL AND ADMINISTRATIVE ("S, G & A")
For the six months ended June 30, 1996, S, G & A decreased by
$4.0 million, or 72.7%, from $5.5 million for the six months
June 30, 1995 to $1.5 million for the six months ended June 30,
1996. For the three months ended June 30, 1996, S, G & A de-
creased by $0.5 million, or 25.0%, from $2.0 million for the
three months ended June 30, 1995 to $1.5 million for the three
months ended June 30, 1996. This decrease is due to the fact
that the 1995 results include six and three months of activity,
while the current periods include two months of activity.
On a pro forma basis, for the six months ended June 30, 1996,
S, G & A decreased by $0.8 million, or 14.5%, from $5.5 million
for the six months ended June 30, 1995 to $4.7 million for the
six months ended June 30, 1996.
For the domestic centers, S, G & A expenses decreased by $1.1
million, primarily due to non-recurring expenses incurred dur-
ing 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 compen-
sation expenses and other nonrecurring costs as a result of
integrating the Fair Lanes centers into the Predecessor Com-
pany's risk management program and the closing of seven bowling
centers. This decrease was partially offset by an increase of
$0.3 million for the international centers.
-25-<PAGE>
EBITDA
For the six months ended June 30, 1996, EBITDA decreased by
$38.0 million, or 83.5%, from $45.5 million for the six months
June 30, 1995 to $7.5 million for the six months ended June 30,
1996. For the three months ended June 30, 1996, EBITDA de-
creased by $8.4 million, or 52.8%, from $15.9 million for the
three months ended June 30, 1995 to $7.5 million for the three
months ended June 30, 1996. This decrease is due to the fact
that the 1995 results include six and three months of activity,
respectively, while the current periods include only two months
of activity.
On a pro forma basis, for the six months ended June 30, 1996,
EBITDA increased by $1.3 million, or 2.90%, from $45.5 million
for the six months ended June 30, 1995 to $46.8 million for the
six months ended June 30, 1996. This increase is primarily
attributable to the decreases in bowling centers operations
costs and in S, G & A.
BOWLING PRODUCTS (MANUFACTURING)
OPERATING REVENUES
For the six months ended June 30, 1996, operating revenue de-
creased by $118 million, or 76.7%, from $153.8 million for the
six months ended June 30, 1995 to $35.8 million for the six
months ended June 30, 1996. For the three months ended June
30, 1996, operating revenue decreased by $42.7 million, or
54.4%, from $78.5 million for the three months ended June 30,
1995 to $35.8 million for the three months ended June 30, 1996.
This decrease is due to the fact that the 1995 results include
six and three months of activity while the current periods in-
clude two months of activity and due to a decrease in New Cen-
ter Products ("NCP") revenues in 1996 compared to 1995.
On a pro forma basis, for the six months ended June 30, 1996,
operating revenues decreased by $57.0 million, or 37.1%, from
$153.8 million for the six months ended June 30, 1995 to $96.8
million for the six months ended June 30, 1996. This decrease
is a result of the decline in NCP revenue, particularly from
Korea and Taiwan. As a result of the maturing state of the
markets in Korea and Taiwan, management does not expect NCP
sales to these markets to return to the levels realized in
1995.
GROSS PROFIT
For the six months ended June 30, 1996, gross profit decreased
by $51.4 million, or 77.9%, from $66.0 million for the six
months ended June 30, 1995 to $14.6 million for the six months
-26-<PAGE>
ended June 30, 1996. For the three months ended June 30, 1996,
gross profit decreased by $19.5 million, or 57.2%, from $34.1
million for the three months ended June 30, 1995 to $14.6 mil-
lion for the three months ended June 30, 1996. This decrease
is due to the fact that 1995 results include six and three
months of activity, respectively, while the 1996 periods in-
clude two months of activity and due to a decrease in NCP rev-
enues in 1996 compared to 1995.
On a pro forma basis, for the six months ended June 30, 1996,
gross profit decreased by $29.5 million, or 44.7%, from $66.0
million for the six months ended June 30, 1995 to $36.5 million
for the six months ended June 30, 1996. This decrease was pri-
marily a result of the decreased operating revenue.
SELLING, GENERAL, AND ADMINISTRATIVE ("S, G, & A")
For the six months ended June 30, 1996, S, G, & A decreased by
$15.9 million, or 73.3%, from $21.7 million for the six months
ended June 30, 1995 to $5.8 million for the six months ended
June 30, 1996. For the three months ended June 30, 1996, S, G
& A decreased by $6.0 million, or 50.8%, from $11.8 million for
the three months ended June 30, 1995 to $5.8 million for the
three months ended June 30, 1996. This decrease is due to the
fact that the 1995 results include six and three months of ac-
tivity, respectively, while the current periods included two
months of activity and due to lower variable costs associated
with a lower volume of sales in 1996 compared to 1995.
On a pro forma basis, for the six months ended June 30, 1996,
S, G & A decreased by $3.2 million, or 14.7%, from $21.7 mil-
lion for the six months ended June 30, 1995 to $18.5 million
for the six months ended June 30, 1996. This decrease is pri-
marily attributable to lower variable costs associated with a
lower volume of sales.
EBITDA
For the six months ended June 30, 1996, EBITDA decreased by
$35.5 million, or 80.1%, from $44.3 million for the six months
ended June 30, 1995 to $8.8 million for the six months ended
June 30, 1996. For the three months ended June 30, 1996,
EBITDA decreased by $13.5 million, or 60.5%, from $22.3 million
for the three months ended June 30, 1995 to $8.8 million for
the three months ended June 30, 1996. This decrease is pri-
marily due to the fact that the 1995 results include six and
three months of activity, respectively, while the current peri-
ods include two months of activity and to a decrease in NCP
revenues in 1996 compared to 1995.
-27-<PAGE>
On a pro forma basis, for the six months ended June 30, 1996,
EBITDA decreased by $23.6 million, or 53.3%, from $44.3 million
for the six months ended June 30, 1995 to $20.7 million for the
six months ended June 30, 1996. This decrease is attributable
to the decreased operating revenues offset by the decrease in
S, G & A costs.
CONSOLIDATED
DEPRECIATION AND AMORTIZATION
For the six months ended June 30, 1996, depreciation and amor-
tization decreased by $7.5 million, or 39.1%, from $19.2 mil-
lion for the six months ended June 30, 1995 to $11.7 million
for the six months ended June 30, 1996. For the three months
ended June 30, 1996, depreciation and amortization increased
$1.7 million, or 17%, from $10.0 million for the three months
ended June 30, 1995 to $11.7 million for the three months ended
June 30, 1996. This change is primarily due to the fact that
the 1995 results included six and three months of activity
while the current periods include only two months of activity.
Additionally, the higher 1996 depreciation and amortization
results from recording the fixed assets at fair value and good-
will in accordance with purchase accounting.
On a pro forma basis, for the six months ended June 30, 1996,
depreciation and amortization increased by $15.7 million, or
81.8%, from $19.2 million for the six months ended June 30,
1995 to $34.9 million for the six months ended June 30, 1996.
This increase is due to the increased depreciation and amorti-
zation resulting from recording the fixed assets at fair value
and goodwill in accordance with purchase accounting.
INTEREST EXPENSE
For the six months ended June 30, 1996, interest expense in-
creased by $16.1 million, or 206.4%, from $7.8 million for the
six months ended June 30, 1995 to $23.9 million for the six
months ended June 30, 1996. For the three months ended June
30, 1996 interest expense increased by $18.3 million, or
457.5%, from $4.0 million for the three months ended June 30,
1995, to $22.3 million for the three months ended June 30,
1996. This increase was due to the debt incurred in March 1996
and on May 1, 1996 relating to the Acquisition.
On a pro forma basis, for the six months ended June 30, 1996,
interest expense increased by $40.7 million, from $7.8 million
for the six months ended June 30, 1995 to $48.5 million for the
six months ended June 30, 1996. This increase was due to the
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debt incurred in March 1996 and on May 1, 1996 relating to the
Acquisition.
NET INCOME
For the six months ended June 30, 1996, net income decreased by
$66.1 million, or 122.6%, from $53.9 million for the six months
ended June 30, 1995, to a loss of $12.2 million for the six
months ended June 30, 1996. For the three months ended June
30, 1996, net income decreased by $31.6 million, or 160.4%,
from $19.7 million for the three months ended June 30, 1995, to
a loss of $11.9 million in 1996. This decrease is the result
of the fact that the 1996 results include two months of opera-
tions while the 1995 results include six months, the decrease
in NCP revenues, and higher depreciation and amortization
charges and higher interest expense in 1996, both as a result
of the Acquisition.
On a pro forma basis, for the six months ended June 30, 1996,
net income decreased by $63.8 million from $53.9 million for
the six months ended June 30, 1995 to a loss of $9.9 million
for the six months ended June 30, 1996. This decrease is a
result of the decrease in NCP revenues and the higher deprecia-
tion and amortization charges and interest expense in 1996,
resulting from the Acquisition.
INCOME TAXES
Under the Predecessor Company, certain of the companies within
the Company elected S corporation status under the Internal
Revenue Code. As S corporations, the companies were histori-
cally liable for U.S. federal income taxes under certain cir-
cumstances and liable for state income taxes in certain juris-
dictions; all other domestic income taxes were the responsi-
bility 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 domestic and interna-
tional subsidiaries of Holdings became taxable corporations
under the Internal Revenue Code. The primary permanent differ-
ences between book and tax income are certain interest ex-
penses, goodwill, amortization, and meals and entertainment
expenses permitted for book purposes but disallowed for tax
purposes.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities decreased from $42.1
million for the six months ended June 30, 1995 to a use of cash
of $36.9 million for the six months ended June 30, 1996. The
decrease was due primarily to a reduction of net income of
$66.1 million.
Net cash flows used for investing activities increased from
$11.8 million for the six months ended June 30, 1995 to
$1,345.0 million for the six months ended June 30, 1996. This
was primarily caused by the Acquisition of the Company on
May 1, 1996. Included within cash used for investing activi-
ties were capital expenditures used for the purchase of prop-
erty and equipment of $11.6 million for the six months ended
June 30, 1995 and $10.2 million for the six months ended June
30, 1996.
Net cash used for financing activities was $30.0 million for
1995 while net cash of $1,427.3 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 fa-
cility and acquisition facility under the Company's credit
agreement with a group of lenders (the "New Bank Credit Agree-
ment"). 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 payments of principal
of, or to pay interest on, or to refinance its indebtedness
(including the Exchange Notes) depends on its future perfor-
mance, which, to a certain extent, is subject to general eco-
nomic, 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 bor-
rowings under the New Bank Credit Agreement and other sources
of liquidity, will be adequate to meet the Company's antici-
pated future requirements for working capital, capital expendi-
tures and scheduled payments of principal of, and interest on,
its Senior Debt, and interest on 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 borrowings will be available in an
amount sufficient to enable the Company to service its indebt-
edness, including the Exchange Notes, or to make necessary cap-
ital expenditures, or that any refinancing would be available
on commercially reasonable terms or at all.
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SEASONALITY AND CYCLICALITY
On a combined basis, revenue and EBITDA of the combined busi-
nesses 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 sig-
nificant fluctuations due to changes in demand for NCPs as cer-
tain markets experience high growth followed by market matu-
rity. 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.
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PART II:
ITEM 1: LEGAL PROCEEDINGS
The Predecessor Company terminated its Korean distribution agreement.
The Korean distributor filed suit against the company in Korea seeking
an injunction against the Predecessor Company's Seoul, Korea branch to
prevent the Predecessor Company from selling bowling and bowling
related products in Korea. On February 16, 1996, the Korean court dis-
missed the litigation on jurisdictional grounds. Such decision is
subject to appeal.
On January 10, 1996, the Korean distributor filed a second suit in the
Supreme Court of the State of New York against the Predecessor Company.
The suit alleges a number of complaints related to the conduct and
termination of the Korean distributorship agreement and alleges that
the defendants caused the Korean distributor's insolvency. The Korean
distributor is seeking compensatory damages of at least $41,759,000 and
punitive damages of at least $100,000,000 or ten times the amount of
compensatory damages awarded, whichever is greater, under each of seven
causes of action set forth in the suit.
Management believes that the Korean distributorship agreement was
properly terminated and the actions against the Predecessor Company are
without merit. Management intends to vigorously defend against this
claim. Under the terms of the Acquisition, the Sellers have agreed to
indemnify Holdings for any loss related to this litigation.
On March 5, 1996, the defendant in an action entitled Northland Bowl
and Sports Center, Inc. and Recreation Associates, II v. Golden Giant,
Inc. d/b/a Golden Giant Building Systems, Court of Common Pleas, Centre
County, Pa. (Index No. 96-75), asserted a third-party claim against AMF
Bowling, Inc. ("AMF Bowling") and other parties. Defendant, Golden
Giant, a construction company, was previously named as defendant by a
bowling center (not owned or operated by the Combined Companies) in
connection with the collapse of the center's roof in early 1994.
Golden Giant has now named AMF Bowling, charging it with negligence and
breach of implied warranty for installing scoring monitors (four years
before the roof collapsed) on a portion of the building that allegedly
could not adequately support the additional weight of the equipment.
The bowling center plaintiff claims total damages in amounts exceeding
$3,500,000 and Golden Giant asserts that, if plaintiff is entitled to
any recovery, it should be in whole or part against AMF Bowling.
AMF Bowling is involved in a patent infringement suit. The plaintiff
in the case, a competitor of AMF Bowling's Century division, obtained a
summary judgment on the issue of liability
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in December 1994. The court recently issued an order which will permit
AMF to appeal. The plaintiff claims damages in the range of $3,000,000
to $9,000,000. A trial on damages will not occur unless and until the
liability issue is resolved against AMF Bowling. Management believes
the claim is without merit and intends to vigorously contest the claim.
AMF Bowling Centers, Inc. and AMF Bowling are defendants in a wrongful
death suit related to an employee. The employee's estate is seeking
compensatory damages up to $3,000,000 plus $3,000,000 in punitive
damages. However, the plaintiff's counsel has verbally offered to
settle the case for $350,000. Management believes the claim is without
merit and expects to vigorously contest the claim.
In addition, the Company is involved in certain other lawsuits and
claims arising out of normal business operations. The majority of
these relate to accidents at the bowling centers.
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 of the Company,
and that the Company has adequate reserves to cover any costs.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
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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)
AUGUST 14, 1996
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