<PAGE> 1
REGISTRATION NO. 333-4877.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT
NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMF GROUP INC.*
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<S> <C> <C>
DELAWARE 7933, 3949 13-3873272
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification number)
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8100 AMF DRIVE
RICHMOND, VIRGINIA 23111
(804) 730-4000
(Address, including zip code, and telephone number, including
area code, of the Company's principal executive offices)
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<S> <C>
STEPHEN E. HARE Copy to:
CHIEF FINANCIAL OFFICER ANITA J. FINKELSTEIN, ESQ.
AMF GROUP INC. VENABLE, BAETJER, HOWARD & CIVILETTI, LLP
8100 AMF DRIVE 1201 NEW YORK AVENUE, NW
RICHMOND, VIRGINIA 23111 WASHINGTON, D.C. 20005
(804) 730-4000 (202) 962-4800
(Name, address, including zip code and telephone
number,
including area code, of agent for service)
</TABLE>
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G check the following box. [ ]
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*TABLE OF ADDITIONAL REGISTRANTS
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<CAPTION>
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD I.R.S. EMPLOYER
INCORPORATION OR INDUSTRY IDENTIFICATION
NAME, ADDRESS AND TELEPHONE NUMBER ORGANIZATION CLASSIFICATION NUMBER NUMBER
- ---------------------------------------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
AMF Group Holdings Inc.................. Delaware 6719 13-3873270
AMF Bowling Holdings Inc................ Delaware 6719 54-1790126
AMF Bowling Centers Holdings Inc........ Delaware 6719 54-1789642
AMF Bowling, Inc........................ Virginia 3949 54-1390740
AMF Worldwide Bowling Centers Holdings
Inc................................... Delaware 6719 54-1789643
AMF Bowling Centers, Inc................ Virginia 7933 54-1221662
Bush River Corporation.................. South Carolina 6719 57-0707033
AMF Beverage Company of Oregon, Inc..... Oregon 6719 54-1634960
King Louie Lenexa, Inc.................. Kansas 6719 54-1540814
AMF Beverage Company of W. Va., Inc..... West Virginia 6719 54-1800461
AMF Bowling Centers Switzerland
Inc................................... Delaware 7933 54-1792353
AMF Bowling Centers (Aust) International
Inc................................... Virginia 7933 54-1492964
AMF Bowling Centers (Canada)
International Inc..................... Virginia 7933 54-1492976
AMF Bowling Centers (Hong Kong)
International Inc..................... Virginia 7933 54-1493834
AMF Bowling Centers International
Inc................................... Virginia 7933 54-1493442
AMF BCO-UK One, Inc..................... Virginia 6719 54-1511045
AMF BCO-UK Two, Inc..................... Virginia 6719 54-1511040
AMF BCO-France One, Inc................. Virginia 6719 54-1513230
AMF BCO-France Two, Inc................. Virginia 6719 54-1513758
AMF Bowling Centers Spain Inc........... Delaware 7933 54-1792351
AMF Bowling Mexico Holding, Inc......... Delaware 6719 54-1467931
Boliches AMF, Inc....................... Virginia 6719 54-1529631
AMF BCO-China, Inc...................... Virginia 6719 54-1768882
AMF Bowling Centers China, Inc.......... Virginia 6719 54-1768871
</TABLE>
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The address of these additional registrants is 8100 AMF Drive, Richmond,
Virginia 23111. Their telephone number is (804) 730-4000.
<PAGE> 3
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE
INFORMATION REQUIRED BY PART I OF FORM S-4
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LOCATION
ITEM NUMBER AND CAPTION IN PROSPECTUS
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<C> <S> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................. Front Cover Page of the Registration
Statement; Outside Front Cover Page of the
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................... Inside Front Cover Page of the Prospectus;
Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information.... Prospectus Summary; Risk Factors; The
Company; Selected Financial Data; Pro Forma
Financial Data
4. Terms of the Transaction............... Prospectus Summary; Risk Factors; Description
of Exchange Notes
5. Pro Forma Financial Information........ Prospectus Summary; Pro Forma Consolidated
Financial Statements
6. Material Contacts with the Company
Being Acquired......................... *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.............. *
8. Interest of Named Experts and Counsel.. *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ *
B. Information About the Registrant
10. Information with Respect to S-3
Registrants........................... *
11. Incorporation of Certain Information
by Reference.............................. *
12. Information With Respect to S-2 or S-3
Registrants........................... *
13. Incorporation by Certain Information
by Reference.............................. *
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<CAPTION>
LOCATION
ITEM NUMBER AND CAPTION IN PROSPECTUS
------------------------------------------ ---------------------------------------------
<C> <S> <C>
14. Information With Respect to
Registrants Other than S-3 or S-2
Registrants........................... Prospectus Summary; Risk Factors; The
Company; The Acquisition; Selected Financial
Data; Pro Forma Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Transactions
C. Information About the Company Being
Acquired
15. Information With Respect to S-3
Companies............................. *
16. Information with Respect to S-2 or S-3
Companies............................. *
17. Information With Respect to Companies
Other Than S-3 or S-2 Companies....... *
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited.... *
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited, or in an Exchange Offer.... Management; Certain Transactions
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* Item is omitted because response is negative or item is inapplicable.
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EXPLANATORY NOTE
THE REGISTRATION STATEMENT TO WHICH THIS POST-EFFECTIVE AMENDMENT RELATES
ORIGINALLY COVERED THE REGISTRATION OF AN AGGREGATE PRINCIPAL AMOUNT OF
$250,000,000 OF 10 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006 (THE
"EXCHANGE SENIOR SUBORDINATED NOTES") AND $452,000,000 OF 12 1/4% SERIES B
SENIOR SUBORDINATED DISCOUNT NOTES DUE 2006 (THE "EXCHANGE SENIOR SUBORDINATED
DISCOUNT NOTES" AND, COLLECTIVELY WITH THE EXCHANGE SENIOR SUBORDINATED NOTES,
THE "EXCHANGE NOTES") OF AMF GROUP INC. (THE "COMPANY") THAT WERE OFFERED IN
EXCHANGE FOR EQUAL PRINCIPAL AMOUNTS OF THE COMPANY'S THEN-OUTSTANDING 10 7/8%
SERIES A SENIOR SUBORDINATED NOTES DUE 2006 (THE "SENIOR SUBORDINATED NOTES")
AND THE COMPANY'S THEN-OUTSTANDING 12 1/4% SERIES A SENIOR SUBORDINATED DISCOUNT
NOTES DUE 2006 (THE "SENIOR SUBORDINATED DISCOUNT NOTES" AND, COLLECTIVELY WITH
THE SENIOR SUBORDINATED NOTES, THE "NOTES"), RESPECTIVELY (THE "EXCHANGE
OFFER"). THAT REGISTRATION STATEMENT ALSO COVERED THE REGISTRATION OF THE
EXCHANGE NOTES FOR RESALE BY GOLDMAN, SACHS & CO. IN MARKET-MAKING TRANSACTIONS.
THE EXCHANGE OFFER EXPIRED ON SEPTEMBER 10, 1996. THEREFORE, THIS POST-EFFECTIVE
AMENDMENT RELATES TO ONLY THE MARKET-MAKING TRANSACTIONS OF GOLDMAN, SACHS & CO.
AND THE PROSPECTUS CONTAINED HEREIN CONSTITUTES THE MARKET-MAKING PROSPECTUS
WITH RESPECT THERETO.
<PAGE> 6
LOGO
AMF GROUP INC.
10 7/8% SENIOR SUBORDINATED NOTES DUE 2006
AND
12 1/4% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2006
(GUARANTEED BY CERTAIN AFFILIATED COMPANIES AS DESCRIBED HEREIN)
------------------------
The 10 7/8% Series B Senior Subordinated Notes due 2006 (the "Exchange
Senior Subordinated Notes") and the 12 1/4% Series B Senior Subordinated
Discount Notes due 2006 (the "Exchange Senior Subordinated Discount Notes" and,
collectively with the Exchange Senior Subordinated Notes, the "Exchange Notes")
have been issued by AMF Group Inc. (the "Company"), a Delaware corporation. The
Exchange Notes are fully and unconditionally guaranteed on a senior subordinated
basis, jointly and severally, by AMF Group Holdings Inc., a Delaware corporation
of which the Company is a wholly owned subsidiary, and by the Company's direct
and indirect domestic subsidiaries (the "Guarantors"). See "Description of
Exchange Notes."
As of the date of this Prospectus, the Exchange Notes are not senior in
priority to any outstanding indebtedness of the Company or its subsidiaries. The
Company has no current plan or intention to incur any indebtedness to which the
Exchange Notes would be senior in priority. The Exchange Senior Subordinated
Notes and the Exchange Senior Subordinated Discount Notes rank pari passu with
one another.
The Exchange Notes are general, unsecured obligations of the Company, are
subordinated to all Senior Debt of the Company and rank pari passu with all
senior subordinated debt of the Company and are senior in right of payment to
all future subordinated indebtedness, if any, of the Company. The claims of
holders of the Exchange Notes are effectively subordinated to the Senior Debt,
which, as of March 31, 1997, was approximately $595.6 million, $593.6 million of
which
(cover text continued on next page)
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SEE "RISK FACTORS," COMMENCING ON PAGE 16, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus has been prepared for and is to be used by Goldman, Sachs &
Co. in connection with offers and sales in market-making transactions of the
Exchange Notes. The Company will not receive any of the proceeds of such sales.
Goldman, Sachs & Co. may act as a principal or agent in such transactions. The
Exchange Notes may be offered in negotiated transactions or otherwise.
------------------------
GOLDMAN, SACHS & CO.
------------------------
The date of this Prospectus is June , 1997.
<PAGE> 7
was fully secured borrowings under the Bank Credit Agreement, and are
effectively subordinated to approximately $16.2 million of indebtedness and
other liabilities (including trade payables and capital lease obligations) of
the Company's subsidiaries that are not Guarantors. The Company's ratio of debt
to total capitalization at March 31, 1997 was approximately 73.6%. See "The
Acquisition."
The Exchange Senior Subordinated Notes bear interest at a rate equal to
10 7/8% per annum. Interest on the Exchange Senior Subordinated Notes is payable
semiannually on March 15 and September 15 of each year. The Exchange Senior
Subordinated Discount Notes will not bear interest until March 15, 2001, and
thereafter will bear interest at a rate equal to 12 1/4% per annum. Interest on
the Exchange Senior Subordinated Discount Notes will be payable semiannually on
March 15 and September 15 of each year commencing September 15, 2001. The
Exchange Senior Subordinated Discount Notes are considered to have been issued
with "original issue discount" for federal income tax purposes. See "Risk
Factors -- Original Issue Discount Consequences" and "Description of Certain
Federal Income Tax Consequences of an Investment in the Exchange Notes."
The Exchange Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after March 15, 2001, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the date of
redemption. See "Prospectus Summary -- Summary of Terms of Exchange Notes."
Prior to March 15, 1999, up to $100 million in aggregate principal amount
of Exchange Senior Subordinated Notes will be redeemable at the option of the
Company, on one or more occasions, from the net proceeds of public or private
sales of common stock of, or contributions to the common equity capital of, the
Company, at a price of 110.875% of the principal amount of the Exchange Senior
Subordinated Notes, together with accrued and unpaid interest, if any, to the
date of redemption; provided that at least $150 million in aggregate principal
amount of Exchange Senior Subordinated Notes remains outstanding immediately
after such redemption. In addition, prior to March 15, 1999, the Exchange Senior
Subordinated Discount Notes will be redeemable at the option of the Company, on
one or more occasions, from the net proceeds of public or private sales of
common stock of, or contributions to the common equity capital of, the Company,
at a price of 112.250% of the Accreted Value of the Exchange Senior Subordinated
Discount Notes; provided that at least $150 million in Accreted Value of
Exchange Senior Subordinated Discount Notes remains outstanding immediately
after such redemption. The selection of Exchange Notes to be redeemed pursuant
to the options described in this paragraph would be pro rata, by lot or by such
method as the applicable Trustee deems fair and appropriate.
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
may require the Company to repurchase all or a portion of such Holder's Exchange
Notes at 101% of the aggregate principal amount of the Exchange Senior
Subordinated Notes and 101% of the Accreted Value of the Exchange Senior
Subordinated Discount Notes, as applicable, together with accrued and unpaid
interest, if any, to the date of repurchase. There can be no assurance that the
Company will have sufficient funds, or will obtain the requisite consent of
Lenders under the Bank Credit Agreement, to satisfy the Change of Control
repurchase requirement if such requirement arises. See "Risk Factors -- Payment
Upon a Change of Control" and "Description of Exchange Notes."
2
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No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or Goldman, Sachs & Co. This
Prospectus does not constitute an offer to sell or the solicitation of an offer
to buy any security other than the Exchange Notes, nor does it constitute an
offer to sell or the solicitation of an offer to buy any of the Exchange Notes
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation to such person. Neither the delivery of this Prospectus nor any
sale made in connection herewith shall under any circumstances create any
implication that the information contained herein is correct as of any date
subsequent to the date hereof.
AVAILABLE INFORMATION
The Company and the Guarantors (as defined herein) have filed with the
Securities and Exchange Commission ("SEC") a Registration Statement on Form S-4
under the Securities Act for the registration of the Exchange Notes (together
with any supplements or post-effective amendments thereto, the "Registration
Statement"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the SEC. For
further information with respect to the Company or the Exchange Notes, reference
is made to the Registration Statement, including the exhibits and financial
statement schedules thereto, which may be inspected without charge at the public
reference facility maintained by the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of which may be obtained from the SEC at prescribed
rates. Statements made in this Prospectus concerning the contents of any
document referred to herein are not necessarily complete. With respect to each
such document filed with the SEC as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports and other information with the SEC. Such reports and other information
filed by the Company can be inspected and copied at the public reference
facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
regional offices of the SEC located at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies
of such materials may be obtained from the Public Reference Section of the SEC,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
public reference facilities in New York, New York and Chicago, Illinois at
prescribed rates. The SEC maintains a World Wide Web site that contains reports
and other information regarding registrants that file electronically with the
SEC. The address of the site is http://www.sec.gov.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the SEC to: (i) IBJ Schroder Bank and Trust Company as trustee (the "Senior
Subordinated Note Trustee"), under the Indenture dated as of March 21, 1996 (the
"Senior Subordinated Note Indenture") among the Company, the Guarantors and the
Senior Subordinated Note Trustee, pursuant to which the Exchange Senior
Subordinated Notes were issued; and (ii) American Bank National Association as
trustee (the "Senior Subordinated Discount Note Trustee" and, collectively with
the Senior Subordinated Note Trustee, the "Trustees"), under the Indenture dated
as of March 21, 1996 (the "Senior Subordinated Discount Note Indenture") among
the Company, the Guarantors and the Senior Subordinated Discount Note Trustee,
pursuant to which the Exchange Senior Subordinated Discount Notes were issued
and (iii) the holders of the Exchange Notes. The Company has agreed that, even
if it is not required under the Exchange Act to furnish such information to the
SEC, it nonetheless will continue to furnish information that would be required
to be furnished by the Company by Section 13 of the Exchange Act to the Trustees
and the holders of the Exchange Notes as if it were subject to such periodic
reporting requirements.
3
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in connection with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. As used in this
Prospectus, the "Company" refers to AMF Group Inc. Unless the context requires
otherwise, references to "AMF" or "AMF Bowling Group" include the AMF worldwide
bowling businesses, including AMF Bowling, Inc., AMF Bowling Centers, Inc., the
AMF worldwide bowling centers and their subsidiaries. Unless otherwise noted,
the historical AMF financial data presented in this section include two European
bowling centers that were retained by the Sellers (as defined herein). For the
effect on AMF of excluding these two bowling centers, see "Pro Forma
Consolidated Financial Statements" and "Note 3. Pro Forma Results of Operations"
in the Notes to Holdings' Consolidated Financial Statements as of and for the
period ended December 31, 1996 and as of and for the three months ended March
31, 1997 (collectively, "Holdings Consolidated Financial Statements")included
elsewhere herein. The two retained European centers, while included in the data
below, have no material impact on AMF's financial statements.
The financial information presented below includes operating results
expressed in terms of EBITDA, which represents earnings before net interest
expense, income taxes, depreciation and amortization, and other net income or
net expenses. EBITDA information is included as supplemental information herein
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 measures of, performance determined in
accordance with generally accepted accounting principles.
Information in this Prospectus relating to future prospects and performance
is "forward-looking" and, as such is subject to certain risks and uncertainties.
The Company's actual results may differ materially from those anticipated by
such statements. Factors that might affect actual results include, but are not
limited to, those set forth under the heading "Risk Factors," beginning on page
16 of this Prospectus. Readers should not place undue reliance on the
forward-looking statements contained herein, which reflect management's analysis
only as of the date hereof.
THE COMPANY
AMF
AMF is the largest owner and operator of commercial bowling centers in the
United States and worldwide. In addition, AMF is one of the world's leading
manufacturers of bowling center equipment, accounting for, management believes,
approximately 41% of the world's installed base of such equipment. AMF is
principally engaged in two business segments: (i) the ownership and operation of
bowling centers, consisting of 271 U.S. bowling centers and 84 international
bowling centers as of March 31, 1997 (318 U.S. bowling centers and 84
international bowling centers, as of May 20, 1997) ("Bowling Centers"); and (ii)
the manufacture and distribution of bowling equipment, such as 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"). For the three months ended March 31, 1997, on a
consolidated basis AMF had revenues of $157.6 million and EBITDA of $50.2
million, for an EBITDA margin of 31.9%. For the year ended December 31, 1996, on
a consolidated basis, AMF had pro forma revenue and pro forma EBITDA of $548.9
million and $145.5 million, respectively, for an EBITDA margin of 26.5%.
For the year ended December 31, 1996, on a pro forma basis, AMF had a net
loss of $21.6 million, a deficiency of earnings to fixed charges of $30.6
million, an interest coverage ratio of 1.37x, and a percentage of revenues
represented by interest expense of 19.3%. For the three months ended March 31,
1997, AMF had net income of $0.1 million, an earnings to fixed charges
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<PAGE> 10
ratio of 1.0x, an interest coverage ratio of 1.81x, and a percentage of revenues
represented by interest expense of 17.6%.
AMF Group Holdings Inc. ("Holdings") and its wholly owned subsidiary, AMF
Group Inc. (the "Company"), are Delaware corporations which were organized by GS
Capital Partners II, L.P. and other investment funds (collectively, "GSCP")
affiliated with Goldman, Sachs & Co. ("Goldman Sachs") to effect the acquisition
of AMF (the "Acquisition"). The Acquisition was completed on May 1, 1996. A
chart illustrating the corporate structure of AMF and its parent holding
companies appears on page 24.
BOWLING CENTERS
AMF is the largest owner and operator of commercial bowling centers in the
United States and worldwide, with (as of March 31, 1997) 271 U.S. centers
located in 34 states and one United States territory, and 84 international
centers, in Australia, Europe (United Kingdom, France, Spain, and Switzerland),
Asia (Hong Kong, Japan and China), Mexico and Canada (318 U.S. bowling centers
and 84 international bowling centers, as of May 20, 1997). Both the domestic and
international bowling center industries are highly fragmented. According to an
industry source, there were approximately 5,900 commercial bowling centers in
the U.S. as of December 1996, with the top five operators (including AMF)
accounting for less than 8% of the total number of commercial centers. The
United States bowling center industry consists of two relatively large bowling
center operators, AMF and Brunswick Corporation ("Brunswick") (which has
approximately 113 bowling centers in the U.S.), three medium-sized chains, which
together account for approximately 90 bowling centers, and over 5,400 bowling
centers owned by single-center operators or small-chain operators. Small-chain
operators typically own four or fewer centers. In other countries, management
estimates that there are typically a small number of operators with more than a
few centers and a large number of operators with only a single center.
For the year ended December 31, 1996, on a pro forma basis, AMF's Bowling
Centers operations had revenue and EBITDA of $307.3 million and $92.0 million,
respectively, for an EBITDA margin of 29.9%. AMF's Bowling Centers operations
accounted for 56.0% and 63.2% of AMF's consolidated revenue and EBITDA,
respectively, for 1996. Operating income for Bowling Centers operations was
$35.8 million in 1996, on a pro forma basis, representing 49.7% of AMF's
consolidated operating income for the year. For the three months ended March 31,
1997, Bowling Centers revenue and EBITDA were $108.5 million and $41.9 million,
respectively, for an EBITDA margin of 38.6% and Bowling Centers operations
accounted for 68.8% and 83.5% of AMF's consolidated revenue and EBITDA,
respectively, for that three month period. Operating income for Bowling Center
operations was $25.8 million in the three months ended March 31,1997,
representing 86.9% of AMF's consolidated operating income for the period.
AMF's large number of centers, their geographic clustering and average size
(an average of 37 lanes per AMF U.S. center versus an industry average of 21
lanes) provide both additional revenue opportunities and economies of scale.
These revenue opportunities include: (i) scheduling flexibility which improves
lane utilization; (ii) the ability to support an expanded food and beverage
operation; and (iii) increased concourse space for amusement games, billiards
and pro shops. Cost savings resulting from the economies of scale include: (i)
the ability to spread operating and corporate overhead costs over a larger
revenue base; and (ii) attractive pricing terms from certain of AMF's suppliers.
Internationally, AMF is also the largest owner and operator of commercial
bowling centers. Management believes that AMF's centers are, on average, larger
than those of its competitors. As with its U.S. operations, the number of
centers, geographic clustering, and size result in additional revenue
opportunities and economies of scale.
In contrast to the single-center and small-chain operators who, in
management's view, are generally less willing to invest in capital improvements,
AMF conducts an ongoing modernization
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program that results in its centers having upgraded physical plants and
generally newer and more attractive appearances than those of other operators.
Management believes that its historical spending level of 3.7% of Bowling
Centers revenue is adequate to cover all modernization and non-discretionary
capital expenditures. Management estimates that only 2.0% of Bowling Centers
revenue is required for non-discretionary capital expenditures alone. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Expenditures."
RECENT ACQUISITIONS
On October 10, 1996, AMF completed the acquisition of 50 bowling centers
and certain related assets and liabilities from Charan Industries, Inc.
("Charan"). The purchase price of the Charan acquisition was approximately
$106.5 million, subject to certain adjustments.
Subsequent to the Charan acquisition and prior to December 31, 1996, AMF
purchased an aggregate of 57 bowling centers and certain related assets and
liabilities from five unrelated sellers, including Charan. The combined purchase
price was approximately $113.5 million, including certain adjustments and
transaction costs.
On April 24, 1997, AMF completed the acquisition of American Recreation
Centers, Inc. ("ARC"), which operates 43 bowling centers in six states. The
aggregate price of the ARC acquisition was approximately $70.0 million,
including repayment of certain debt and the purchase of related joint venture
interests. In addition, subsequent to December 31, 1996 and through May 20,
1997, AMF had acquired 16 additional bowling centers in the United States and
six bowling centers in the United Kingdom from several unrelated single-center
and small-chain operators. The aggregate purchase price was approximately $44.5
million, including certain adjustments and transaction costs, and was funded
with $29.5 million from available borrowing under the Acquisition Facility and
the remainder from internally generated cash. As of May 20, 1997, $55.0 million
remained available under the Acquisition Facility, of which $13.0 million is
expected to fund remaining payments in connection with the ARC acquisition.
As a result of the foregoing acquisitions, and after giving effect to the
closing of four centers, the Company owned and operated 318 U.S. bowling centers
and 84 international bowling centers as of May 20, 1997.
In April 1997, the Company entered into a $40 million joint venture
arrangement with Hong Leong Corporation Limited, a Singapore based conglomerate.
Pursuant to the arrangement, during the next three years the joint venture is
expected to build and operate up to 20 bowling centers, accounting for up to 560
lanes, in the Philippines, Malaysia, Vietnam, Indonesia, Thailand and China.
In June 1997, the Company entered into a joint venture arrangement of
approximately $100 million with Playcenter S.A., a Sao Paulo based amusement and
entertainment company. During the next four years the joint venture is expected
to build or assume ownership of, and operate, up to 39 bowling centers,
accounting for up to 730 lanes, in Brazil and Argentina.
STRATEGIES (BOWLING CENTERS)
AMF is pursuing strategies to strengthen its position and increase sales
and profits in its Bowling Centers business including:
- - ACQUIRE BOWLING CENTERS IN THE U.S. AMF will continue to seek to acquire
additional U.S. bowling centers owned by single-center and small-chain
operators to capitalize on AMF's ability to integrate and enhance operating
performance of acquired centers.
- - MAINTAIN AND GROW LEAGUE PARTICIPATION. AMF intends to continue to conduct
marketing and promotional programs directed at maintaining existing league
participation and attracting new league bowlers.
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- - ATTRACT OPEN PLAY BOWLERS. With an emphasis on clean and attractive
facilities, AMF will continue to seek to attract additional open play bowlers,
including families and social groups. New marketing and promotional programs,
such as Extreme Bowling, in which glow-in-the-dark pins and equipment, black
lighting, music, and entertainment enhance the bowling experience, will also
be used to increase open play.
- - EXPAND INTERNATIONAL BOWLING CENTERS OPERATIONS. AMF expects to grow its
portfolio of bowling centers in attractive international markets, such as the
United Kingdom and Australia.
- - IMPROVE ANCILLARY REVENUE. Management believes that reinvestment and active
management can increase ancillary revenue from food and beverage operations,
amusement games and the addition of billiards in selected centers.
There can be no assurance that AMF will be able to maintain these
competitive strengths or implement these strategies successfully. See "Risk
Factors."
BOWLING PRODUCTS
AMF is one of the world's leading manufacturers of bowling center
equipment. Management believes that AMF accounts for approximately 41% of the
world's installed base of bowling center equipment and has supplied and is
supplying equipment to an estimated 10,000 bowling centers in over 50 countries.
AMF designs, manufactures and sells bowling center equipment, including
automatic pinspotters, automatic scoring equipment, bowling pins, lanes, ball
returns, and certain spare and replacement parts, and resells allied products
such as bowling balls, bags, shoes and certain other spare and replacement
parts.
AMF's Bowling Products business had revenue of $252.1 million and EBITDA of
$58.4 million for a 23.2% EBITDA margin for the year ended December 31, 1996, on
a pro forma basis. AMF's Bowling Products business accounted for 45.9% and 40.1%
of AMF's consolidated revenue and EBITDA, respectively, for 1996. Operating
income for Bowling Products was $39.9 million for 1996, on a pro forma basis,
representing 55.4% of AMF's consolidated operating income for the year. AMF's
Bowling Products business had revenue of $52.0 million and EBITDA of $12.0
million for a 23.1% EBITDA margin for three months ended March 31, 1997. AMF's
Bowling Products business accounted for 33.0% and 23.9% of AMF's consolidated
revenue and EBITDA, respectively, for that three month period. Operating income
for Bowling Products was $7.2 million for the three months ended March 31,1997,
representing 24.2% of AMF's consolidated operating income for the period.
AMF's Bowling Products business supplies two market channels: (i)
replacement and spare parts and supplies, resale products, and major
modernization equipment (collectively, "Modernization and Consumer" products)
for existing centers; and (ii) equipment necessary to outfit a new bowling
center or expand an existing bowling center ("New Center Packages" or "NCPs").
Each New Center Package includes a pinspotter, and the vast majority also
include all of the other equipment needed to outfit one new bowling lane.
AMF targets the sale of Modernization and Consumer products to mechanics
and operators of existing bowling centers worldwide, Bowling Products
distributors, and to bowlers. These products include both proprietary and
standard spare and replacement parts for existing AMF equipment, supplies such
as pins and shoes, resale items such as balls, and major modernization
equipment, such as automatic scoring. Some of these products, such as bowling
pins, are generally replaced approximately once a year to maintain a center,
while less frequent investments in other equipment are necessary to modernize a
center in order to maintain the customer base.
Bowling Products NCP sales follow the trends in the growth of bowling. Most
of the new bowling centers built in the world today are being built outside of
the U.S., especially in Asia. As bowling becomes popular in emerging markets,
local developers and entrepreneurs build new bowling centers, which need to be
outfitted with equipment, driving demand for NCPs. As bowling markets develop,
new centers continue to be built until the number of installed lanes serving the
7
<PAGE> 13
local population reaches a point at which the prospective economic returns from
the construction of a new bowling center begin to decline. Accordingly, the NCP
business has been characterized by rapid growth in sales of NCPs to a particular
market until such markets mature, at which time sales to that market decline,
sometimes rapidly.
AMF and Brunswick are the only full-line manufacturers of Modernization and
Consumer products that compete on a global basis. AMF's primary competitors for
Modernization and Consumer sales (other than Brunswick) are smaller companies
that tend to offer a narrower range of products and are often regionally
focused.
STRATEGIES (BOWLING PRODUCTS)
AMF is pursuing strategies to enhance its position and increase sales and
profits in Bowling Products, including the following:
- EXPAND POSITION IN MODERNIZATION AND CONSUMER PRODUCT SALES. As the
worldwide base of bowling equipment grows, management believes that AMF's
established direct sales force, distributor network and quality products
will position it to increase sales of Modernization and Consumer
products.
- GROW NEW CENTER PACKAGE SALES. AMF's brand name, its quality products
and its established sales force should continue to position it to take
advantage of increasing international NCP demand in emerging markets
around the world.
- MAINTAIN LOW-COST MANUFACTURING POSITION. AMF expects to continue to
maintain its low-cost manufacturing position by taking further advantage
of manufacturing efficiencies and productivity improvement programs.
- MAINTAIN SUPERIOR PRODUCTS. AMF expects to maintain superior products
through research and development.
There can be no assurance that AMF will be able to maintain or implement
these strategies successfully. See "Risk Factors."
THE ACQUISITION
Pursuant to a Stock Purchase Agreement dated February 16, 1996 (as amended,
the "Stock Purchase Agreement") between Holdings and the Sellers, on May 1,
1996, Holdings acquired AMF through a stock purchase by the Company's
subsidiaries of all the outstanding stock of the separate domestic and foreign
corporations (collectively, the "Predecessor Company") that constituted
substantially all of AMF, and through the purchase of the assets of AMF's
Bowling Centers operations in Spain and Switzerland. The Company 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 owned or operated 205 U.S. bowling
centers and 78 international bowling centers. The purchase price for the
Acquisition was $1.373 billion, less approximately $2.0 million representing
debt of AMF which remained in place following the closing of the Acquisition
(the "Closing").
The purchase price subsequently has been adjusted as a result of a
post-Acquisition agreement between Holdings and the Sellers, pursuant to which
Holdings received $17.5 million in exchange for the elimination of any future
obligations due to Holdings under a guarantee arrangement provided by the
Sellers in connection with the Acquisition.
8
<PAGE> 14
The following table sets forth the sources and uses of funds related to the
Acquisition:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS
Senior Debt(a)................................................ $ 517.0
10 7/8% Senior Subordinated Notes............................. 250.0
12 1/4% Senior Subordinated Discount Notes.................... 249.9
---------
Total Debt............................................... 1,016.9
Equity(b)..................................................... 389.5
Cash.......................................................... 11.3
---------
Total............................................... $ 1,417.7
=========
USES OF FUNDS
Purchase Price(a)............................................. $ 1,325.0
Transaction Costs(b)(c)....................................... 92.7
---------
Total............................................... $ 1,417.7
=========
</TABLE>
- ---------------
(a) Includes an existing mortgage payable by AMF in the amount of approximately
$2.0 million as of April 30, 1996. All other debt of AMF was extinguished at
or prior to the completion of the Acquisition.
(b) Includes warrants to purchase approximately 2.2% of the fully diluted common
stock of Holdings' parent company issued upon the closing of the Acquisition
to the Sellers' financial advisor in lieu of a cash fee. Such warrants have
been valued for accounting purposes at approximately $8.7 million.
(c) Includes $44.2 million of deferred financing costs associated with debt
incurred to fund the Acquisition.
The senior debt portion of the financing for the Acquisition was provided
pursuant to a credit agreement (as amended, the "Bank Credit Agreement") with a
group of lenders. In connection with such financing, Goldman Sachs acted as
Syndication Agent, Goldman Sachs and Citicorp Securities, Inc. acted as
Arrangers, and Citibank, N.A. is acting as administrative agent. See
"Description of Senior Debt."
9
<PAGE> 15
RISK FACTORS
The Exchange Notes involve a high degree of risk. See "Risk Factors"
commencing on page 16.
SUMMARY FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT AVERAGE PRICE PER GAME)
The selected financial data set forth below for the fiscal years indicated
were derived from Holdings' audited consolidated financial statements for the
period ended December 31, 1996, and the Predecessor Company's audited combined
financial statements for the four months ended April 30, 1996, and the years
ended December 31, 1995, 1994, 1993, and unaudited combined financial statements
for the year ended December 31, 1992. The selected consolidated financial data
for the three month periods ended March 31, 1997 and 1996 were derived from
Holdings' unaudited, interim consolidated financial statements for the three
months ended March 31, 1997 and the Predecessor Company's unaudited combined
financial statements for the three months ended March 31, 1996.
The historical financial data of AMF presented below should be read in
conjunction with the financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The summary pro forma data below should
be read in conjunction with the unaudited pro forma consolidated financial
statements of the Company and notes thereto included elsewhere in this
Prospectus.
The financial information presented below includes operating results
expressed in terms of EBITDA, which represents earnings before net interest
expense, income taxes, depreciation and amortization, and other net income or
net expenses. EBITDA information is included as supplemental information herein
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, net income, cash flow or other measures of
performance determined in accordance with generally accepted accounting
principles.
10
<PAGE> 16
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31
(IN MILLIONS OF DOLLARS) -----------------------------------------
PRO FORMA PRO FORMA
AMF GROUP AMF GROUP AMF GROUP AMF GROUP PREDECESSOR
HOLDINGS INC. HOLDINGS INC. PREDECESSOR COMPANY HOLDINGS INC. HOLDINGS INC. COMPANY
------------- ------------- ---------------------------------------- ------------- ------------- -----------
1996(A) 1996(B) 1995 1994(C) 1993 1992 1997 1996 1996
------------- ------------- ------------- ------- ------- ------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
INCOME
STATEMENT
DATA:
Total operating
revenue...... $ 384.8 $ 548.9 $ 564.9 $517.8 $ 427.6 $ 391.2 $ 157.6 $ 122.7 $ 123.3
-------- -------- ------ ------- ------ ------
Cost of goods
sold......... 130.5 173.6 184.1 196.0 153.2 132.1 38.1 30.6 30.7
Bowling center
operating
expenses..... 123.7 178.8 166.5 115.2 108.5 103.1 55.3 41.7 42.2
Selling,
general and
administrative
expenses..... 35.1 51.0 50.8 57.1 41.9 43.2 14.0 11.5 11.5
Depreciation
and
amortization... 49.4 73.5 39.1 24.8 21.4 25.5 20.5 13.3 11.0
-------- -------- ------ ------- ------ ------
Operating
income....... 46.1 72.0 124.4 124.7 102.6 87.3 29.7 25.6 27.9
Interest
expense,
gross........ 78.0 106.2 15.7 7.4 5.0 7.9 27.7 26.6 3.8
Other income
(expense),
net.......... 3.7 3.6 0.2 (1.5) (0.1) 0.1 (0.8) 1.2 0.2
-------- -------- ------ ------- ------ ------
Income (loss)
before income
taxes........ (28.2) (30.6) 108.9 115.8 97.5 79.5 1.2 0.2 24.3
Provision
(benefit) for
income
taxes........ (8.6) (9.0) 12.1 16.5 15.1 15.4 1.1 0.1 2.7
-------- -------- ------ ------- ------ ------
Net income
(loss)....... $ (19.6) $ (21.6) $ 96.8 $ 99.3 $ 82.4 $ 64.1 $ 0.1 $ 0.1 $ 21.6
======== ======== ====== ======= ====== ======
Ratio of
earnings to
fixed charges
(d).......... -- -- 6.1x 10.3 x 11.0x 7.1x 1.0x 1.0x 5.5x
SELECTED DATA:
EBITDA......... $ 95.5 $ 145.5 $ 163.5 $149.5 $ 124.0 $ 112.8 $ 50.2 $ 38.9 $ 38.9
EBITDA
margin....... 24.8% 26.5% 28.9% 28.9% 29.0% 28.8% 31.9% 31.7% 31.5%
BALANCE SHEET
DATA (AT END
OF PERIOD):
Total assets... $ 1,593.9 $ 400.4 $410.2 $ 228.2 $ 231.1 $ 1,641.3
Total debt..... 1,091.3 167.4 186.1 75.7 98.0 1,128.6
Stockholder's
equity....... 408.7 161.5 132.4 88.6 75.8 404.4
Net working
capital
("NWC")(e)... 7.9 29.4 16.9 18.9 15.6 23.1
</TABLE>
- ---------------
(a) Represents results of operations of acquired business from May 1, 1996
through December 31, 1996.
(b) Represents results of operations from January 1, 1996 through December 31,
1996.
(c) Includes results of Fair Lanes, acquired on September 29, 1994.
(d) The ratios of earnings to fixed charges are computed by dividing earnings
by the fixed charges. Earnings consist of net income to which has been
added fixed charges and income taxes. Fixed charges consist of interest
expense, amortization of debt issuance costs, and the portion of rent
expense considered to represent interest. For the year ended December 31,
1996, on a pro forma basis, AMF had a deficiency of earning to fixed
charges of $30.6 million.
(e) Predecessor Company amounts reflect elimination of affiliates receivables
and payables.
11
<PAGE> 17
SUMMARY OF TERMS OF EXCHANGE NOTES
THE COMPANY................... AMF Group Inc.
SECURITIES OUTSTANDING........ $250.0 million principal amount of 10 7/8%
Series B Senior Subordinated Notes due 2006
(the "Exchange Senior Subordinated Notes") and
$274.7 million principal amount of 12 1/4%
Series B Senior Subordinated Discount Notes due
2006 (the "Exchange Senior Subordinated
Discount Notes" and, collectively with the
Exchange Senior Subordinated Notes, the
"Exchange Notes").
YIELD TO MATURITY............. 10 7/8%, in the case of the Exchange Senior
Subordinated Notes, and 12 1/4%, in the case of
the Exchange Senior Subordinated Discount
Notes, calculated on a semiannual
bond-equivalent basis from March 21, 1996.
INTEREST PAYMENT DATES........ Interest on the Exchange Senior Subordinated
Notes is payable on each March 15 and September
15. No interest will accrue on the Exchange
Senior Subordinated Discount Notes prior to
March 15, 2001. Thereafter, interest will be
payable on each March 15 and September 15,
commencing September 15, 2001. The Exchange
Senior Subordinated Discount Notes will bear
original issue discount, and the Holders of the
Exchange Senior Subordinated Discount Notes
(including cash basis holders) will be required
to include such original issue discount in
gross income for federal income tax purposes,
as interest, on a constant yield to maturity
basis in advance of the receipt of cash
payments of such interest.
For the year ended December 31, 1996, on a pro
forma basis, Holdings had a deficiency of
earnings to fixed charges of $30.6 million.
Although the Company believes it will be able
to meet its obligations under the Exchange
Notes, there is no assurance that there will be
adequate cash available to make interest
payments under the Exchange Notes when they
become due.
MATURITY DATE................. March 15, 2006.
OPTIONAL REDEMPTION........... The Exchange Notes will be redeemable, at the
option of the Company, on one or more
occasions, at any time on or after March 15,
2001, at the redemption prices set forth
herein, together with accrued interest, if any,
to the redemption date. Prior to March 15,
1999, up to $100 million in aggregate principal
amount of Exchange Senior Subordinated Notes
will be redeemable at the option of the
Company, on one or more occasions, from the net
proceeds of public or private sales of common
stock of, or contributions to the common equity
capital of, the Company, at a price of 110.875%
of the principal amount of the Exchange Senior
Subordinated Notes, together with accrued and
unpaid interest, if any, to
12
<PAGE> 18
the date of redemption; provided that at least
$150 million in aggregate principal amount of
Exchange Senior Subordinated Notes remains
outstanding immediately after such redemption.
In addition, prior to March 15, 1999, the
Exchange Senior Subordinated Discount Notes are
redeemable at the option of the Company, on one
or more occasions, from the net proceeds of
public or private sales of common stock of, or
contributions to the common equity capital of,
the Company, at a price of 112.250% of the
Accreted Value of the Senior Subordinated
Discount Notes; provided that at least $150
million in Accreted Value of Exchange Senior
Subordinated Discount Notes remains outstanding
immediately after such redemption. The
selection of Exchange Notes to be redeemed
pursuant to the options described in this
paragraph would be pro rata, by lot or by such
method as the applicable Trustee deems fair and
appropriate.
Upon the occurrence of a Change of Control,
each Holder of Exchange Notes may require the
Company to repurchase all or a portion of such
Holder's Exchange Notes at 101% of the
aggregate principal amount of the Exchange
Senior Subordinated Notes and 101% of the
Accreted Value of the Exchange Senior
Subordinated Discount Notes, as applicable,
together with accrued and unpaid interest, if
any, to the date of repurchase. There can be no
assurance that the Company will have sufficient
funds, or will obtain the requisite consent of
the Lenders under the Bank Credit Agreement, to
satisfy the Change of Control repurchase
requirement if such requirement arises. See
"Description of Exchange Notes."
MANDATORY SINKING FUND........ None.
GUARANTEES.................... The Company's payment obligations under the
Exchange Notes are jointly and severally
guaranteed on a senior subordinated basis (the
"Senior Subordinated Guarantees") by Holdings,
by each of the Company's direct and indirect
domestic subsidiaries and by any other
Subsidiaries of the Company that act as
guarantors under the Bank Credit Agreement
(collectively, the "Guarantors"). The Senior
Subordinated Guarantees are subordinated to the
guarantees of Senior Debt issued by the
Guarantors under the Bank Credit Agreement. See
"Description of Exchange Notes -- Senior
Subordinated Guarantees."
RANKING....................... The Exchange Notes are general, unsecured
obligations of the Company, are subordinated in
right of payment to all Senior Debt (as defined
herein) of the Company, rank pari passu with
all senior subordinated debt of the Company and
will be senior in right of payment to all
future subordinated debt, if any, of the
Company. The claims of the Holders of the
Exchange Notes are subordinated to the Senior
Debt, which, as of March 31, 1997, was
approximately $595.6 million, $593.6 million of
which consisted of fully secured borrowings
13
<PAGE> 19
under the Bank Credit Agreement. In addition,
the Exchange Notes are effectively subordinated
to all 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 "Capitalization" and
"Description of Exchange
Notes -- Subordination."
The Exchange Notes are not senior in priority
to any outstanding indebtedness of the Company
or its subsidiaries. The Company has no current
plan or intention to incur any indebtedness to
which the Exchange Notes would be senior in
priority. The Senior Subordinated Notes, the
Senior Subordinated Discount Notes, the
Exchange Senior Subordinated Notes and the
Exchange Senior Subordinated Discount Notes all
rank pari passu with one another.
FORM AND DENOMINATION......... The Exchange Notes are fully registered as to
principal and interest in minimum denominations
of $1,000 and integral multiples thereof. The
Exchange Notes were initially issued in the
form of one or more global notes and deposited
with a custodian for and registered in the name
of a nominee of The Depository Trust Company.
Exchange Notes will not be issued in
certificated, fully registered form, except in
the circumstances provided for in the
Indentures. See "Description of Exchange
Notes -- Book-Entry, Delivery and Form."
CERTAIN COVENANTS............. The Indenture governing the Exchange Senior
Subordinated Notes (the "Senior Subordinated
Note Indenture") and the Indenture governing
the Exchange Senior Subordinated Discount Notes
(the "Senior Subordinated Discount Exchange
Note Indenture" and, together with the Senior
Subordinated Note Indenture, the "Indentures")
contain certain covenants that, among other
things, limit the ability of the Company and
its Restricted Subsidiaries (as defined herein)
to incur additional indebtedness and issue
Disqualified Stock (as defined herein), pay
dividends or distributions or make investments
or make certain other Restricted Payments (as
defined herein), 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. See
"Description of Exchange Notes."
ORIGINAL ISSUE DISCOUNT....... For federal income tax purposes, each Exchange
Senior Subordinated Discount Note is considered
to have been issued with "original issue
discount" equal to the difference between the
issue price of the Senior Subordinated Discount
Note for which it is exchanged and the sum of
all cash payments (whether denominated as
principal or interest) to be made on such
Senior Subordinated Discount Note. Each Holder
of an Exchange Senior Subordinated Discount
Note must include in gross income for federal
income tax pur-
14
<PAGE> 20
poses the sum of the daily portions of such
original issue discount for each day during
each taxable year in which the Exchange Senior
Subordinated Discount Note is held, even though
no interest payments will be received prior to
September 15, 2001. Further, the acquisition of
an Exchange Note in a subsequent resale may
considered to have been purchased with market
discount or acquisition premium. See
"Description of Certain Federal Income Tax
Consequences of an Investment in the Exchange
Notes."
15
<PAGE> 21
RISK FACTORS
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness it has incurred in connection with the Acquisition,
and intends to incur to finance acquisitions and expand its operations. As of
March 31, 1997, the Company had total indebtedness of $1,128.6 million and
stockholder's equity of $404.4 million, resulting in a ratio of debt to total
capitalization of approximately 73.6%. The Company had an earnings to fixed
charges coverage ratio of 1.0x for the three months ended March 31, 1997.
Earnings were not sufficient to cover fixed charges by $30.6 million for the
year ended December 31, 1996, on a pro forma basis. Although the Company
believes it will be able to meet its debt obligations, there is no assurance
that there will be adequate cash available to make interest payments under the
Company's indebtedness when they become due. Interest expense for the three
months ended March 31, 1997 and for fiscal 1996 was $27.7 million and $78.0
million, respectively, of which $18.9 million and $53.0 million, respectively,
was cash interest expense. The Company may incur additional indebtedness in the
future, subject to limitations imposed by the Indentures and the Bank Credit
Agreement. See "Pro Forma Consolidated Financial Statements."
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 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 borrowings 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 of and interest on its Senior Debt, and interest on the Exchange
Notes. 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 indebtedness,
including the Exchange Notes, or make necessary capital expenditures, or that
any refinancing would be available on commercially reasonable terms or at all.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The degree to which the Company is now leveraged could have important
consequences to holders of the Exchange Notes, including, but not limited to,
the following: (i) a substantial portion of the Company's cash flow from
operations will be required to be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future could be limited; (iii) certain of the Company's
borrowings are at variable rates of interest, which could result in higher
interest expense in the event of increases in interest rates; and (iv) the
Indentures and the Bank Credit Agreement contain financial and restrictive
covenants that limit the ability of the Company to, among other things, borrow
additional funds, dispose of assets or pay cash dividends. Failure by the
Company to comply with such covenants could result in an event of default which,
if not cured or waived, could have a material adverse effect on the Company. In
addition, the degree to which the Company is leveraged could prevent it from
repurchasing all Exchange Notes tendered to it upon the occurrence of a Change
of Control. See "Description of Exchange Notes" and "Description of Senior
Debt."
A principal component of the Company's strategy for future growth is the
acquisition of additional bowling centers, which the Company expects to finance
with the Acquisition Facility under the Bank Credit Agreement. As of May 20,
1997, $55.0 million remained available under the Acquisition Facility. Actual
borrowing must meet certain financial tests under the Bank Credit Agreement and
the Indentures. The Company's leverage may adversely affect its ability to meet
these tests, and, as a result, to obtain such financing.
16
<PAGE> 22
SUBORDINATION; ASSET ENCUMBRANCES
The Exchange Notes are subordinated in right of payment to all existing and
future Senior Debt, including the principal of (and premium, if any) and
interest on and all other amounts due on or payable in connection with Senior
Debt. At March 31, 1997, there was outstanding approximately $595.6 million of
Senior Debt, $593.6 million of which was fully secured borrowings under the Bank
Credit Agreement. In addition, the Exchange Notes are effectively subordinated
to all indebtedness and other liabilities (including trade payables and capital
lease obligations) of the Company's subsidiaries that are not Guarantors, which
as of March 31, 1997, aggregated $16.2 million. By reason of such subordination,
in the event of the insolvency, liquidation, reorganization, dissolution or
other winding-up of the Company or upon a default in payment with respect to, or
the acceleration of, any Senior Debt, the holders of such Senior Debt and any
other creditors who are holders of Senior Debt and creditors of subsidiaries
that are not Guarantors must be paid in full before the Holders of the Exchange
Notes may be paid. If the Company incurs any additional pari passu debt, the
holders of such debt would be entitled to share ratably with the Holders of the
Exchange Notes in any proceeds distributed in connection with any insolvency,
liquidation, reorganization, dissolution or other winding-up of the Company.
This may have the effect of reducing the amount of proceeds paid to Holders of
the Exchange Notes. In addition, no payments may be made with respect to the
principal of (and premium, if any) or interest or Liquidated Damages, if any, on
the Exchange Notes if a payment default exists with respect to Senior Debt and,
under certain circumstances, no payments may be made with respect to the
principal of (and premium, if any) or interest or Liquidated Damages, if any, on
the Exchange Notes for a period of up to 179 days if a non-payment default
exists with respect to Senior Debt. In addition, the Indentures permit
subsidiaries of the Company to incur debt provided certain conditions are met.
Any debt incurred by a subsidiary of the Company that is not a Guarantor will be
structurally senior to the Exchange Notes. See "Description of Exchange Notes."
Holdings and the Company have granted to the lenders under the Bank Credit
Agreement security interests in all of the capital stock of the Company and
substantially all of the current and future assets of the Company, including a
pledge of all of the issued and outstanding shares of capital stock of certain
of the Company's subsidiaries. In addition, the Guarantors have granted to such
lenders security interests in all of the current and future assets of the
Guarantors (other than 35% of the outstanding capital stock of any foreign
subsidiary of any Guarantor). In the event of a default on secured indebtedness,
including the guarantees with respect to the Bank Credit Agreement (whether as a
result of the failure to comply with a payment or other covenant, a cross-
default, or otherwise), the parties granted such security interests will have a
prior secured claim on the capital stock of the Company and the assets of the
Company and the Guarantors. If such parties should attempt to foreclose on their
collateral, the Company's financial condition and the value of the Exchange
Notes will be materially adversely affected. In the event of a foreclosure on
the collateral consisting of the Company's stock, unless the purchaser of such
stock were an affiliate of Goldman Sachs, a Change of Control would occur, with
the consequences set forth below under "-- Payment Upon Change of Control." See
"Description of Senior Debt."
HOLDING COMPANY STRUCTURE
The Company conducts all of its business through subsidiaries and has no
operations of its own. The Company is dependent on the cash flow of its
subsidiaries and distributions thereof from its subsidiaries to the Company in
order to meet its debt service obligations. It is not expected that Holdings
will have any assets other than the common stock of the Company.
As a result of the holding company structure of the Company, the Holders of
the Exchange Notes are structurally junior to all creditors of the subsidiaries
that are not Guarantors, except to the extent that the Company or a Guarantor is
itself recognized as a creditor of such subsidiary, in which case the claims of
the Company or such Guarantor would still be subordinate to any security in the
assets of such subsidiary and any indebtedness of such subsidiary senior to that
held by the
17
<PAGE> 23
Company or a Guarantor. In the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the subsidiaries that are not
Guarantors, the Company will not receive funds available to pay to the Holders
of the Exchange Notes in respect of the Exchange Notes until after the payment
in full of the claims of the creditors of the subsidiaries. As of March 31, 1997
and December 31, 1996, the aggregate amount of indebtedness and other
obligations of the subsidiaries that are not Guarantors (including trade
payables and capital lease obligations) was approximately $16.2 million and $6.9
million, respectively. See Note 11 and Note 18 to Consolidated Financial
Statements of AMF Group Holdings Inc. for the three months ended March 31, 1997
and the period ended December 31, 1996, respectively.
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of key executive
officers: Douglas J. Stanard, Stephen E. Hare and Michael P. Bardaro. The loss
of the services of certain of these executives could have an adverse impact on
AMF. There can be no assurance that the services of such personnel will continue
to be made available to the Company. The Company does not maintain key-person
insurance with respect to its executive officers.
CONTROL BY GSCP
Goldman, Sachs & Co. ("Goldman Sachs") and its affiliates have certain
interests in the Acquisition and in the Company. Richard A. Friedman and Terence
M. O'Toole, each of whom is a Managing Director of Goldman Sachs, and Peter M.
Sacerdote, who is a limited partner of The Goldman Sachs Group, L.P. ("The
Goldman Sachs Group"), are directors of the Company. GSCP and The Goldman Sachs
Group, which has a 99% interest in Goldman Sachs, together beneficially own a
majority of the outstanding voting equity of Holdings' parent company; thus
Goldman Sachs will be deemed to be an "affiliate" of the Company. See "Ownership
of Capital Stock."
As a result of its ownership of a majority of the outstanding voting equity
of Holdings' parent company, GSCP controls Holdings and the Company and has the
ability to elect all of their directors, appoint new management and approve any
action requiring the approval of Holdings' or the Company's stockholders,
including adopting amendments to the Company's Certificate of Incorporation and
approving mergers or sales of substantially all of the Company's assets, in each
case subject to the restrictions contained in the stockholders' agreement among
GSCP and the other stockholders of Holdings' parent company (see "Ownership of
Capital Stock -- Stockholders Agreement") and subject to whatever contractual
restrictions apply to the Company. There can be no assurance that the interests
of GSCP will not conflict with the interests of the Holders of the Exchange
Notes. See "Management," "Ownership of Capital Stock" and "Certain
Transactions."
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
may require the Company to repurchase all or a portion of such Holder's Exchange
Notes at 101% of the principal amount of the Exchange Senior Subordinated Notes
and 101% of the Accreted Value of the Exchange Senior Subordinated Discount
Notes, as applicable, together with accrued and unpaid interest, if any, and
Liquidated Damages, if any, to the date of repurchase. The Indentures require
that prior to such a repurchase, the Company must either repay all outstanding
indebtedness under the Bank Credit Agreement or obtain any required consent to
such repurchase. If a Change of Control were to occur, the Company may not have
the financial resources to repay all of its obligations under the Bank Credit
Agreement, the Indentures and the other indebtedness that would become payable
upon the occurrence of such Change of Control. See "Description of Exchange
Notes -- Repurchase at the Option of Holders."
18
<PAGE> 24
BOWLING INDUSTRY CHARACTERISTICS
Bowling Centers. In the United States, the operation of bowling centers is
a mature industry characterized by slightly declining lineage offset by
increasing average price per game. Total lineage, according to an industry
source, has declined despite an average annual increase in the total number of
people bowling since 1987. This trend is largely a result of a shift in the
customer base from league participants to more open play bowlers, resulting in
more people bowling, but bowling less frequently. Bowling center operators have
offset the decrease in overall lineage by increasing prices and creating
additional sources of ancillary income. Contrary to the overall lineage trend in
the industry, AMF's U.S. lineage has remained relatively stable in recent years
due to AMF's ability to better maintain existing league bowlers and attract new
open play bowlers, while increasing prices. Internationally, although trends
vary by country, certain of the international markets in which AMF operates have
experienced increasing competition as they have transitioned from newly
developed to more mature markets, resulting in declining lineage. AMF has offset
these lineage declines through higher prices. There can be no assurance that AMF
will be able to maintain lineage or increase prices in the future.
In addition, bowling, both as a competitive sport and a recreational
activity, faces competition from numerous alternative activities. The continued
success of AMF's bowling operations is subject to consumers' continued interest
in recreational bowling, the availability and cost of other recreational and
entertainment alternatives and the amount of leisure time as well as various
other social and economic factors over which AMF has no control. There can be no
assurance that bowling will continue its current popularity or that AMF will
continue to compete effectively in the industry. See "Business -- Industry
Overview."
Bowling Products. The bowling products industry has been characterized by
relatively stable sales of Modernization and Consumer products to the installed
base of equipment operators, and more varied results in sales of New Center
Packages for newly constructed bowling centers. Periods of rapid growth in New
Center Package sales for newly constructed bowling centers have occurred as the
sport has become popular in particular countries and the economics of
constructing and operating a bowling center have become attractive to local
developers and entrepreneurs. Continued growth in AMF's sale of New Center
Packages depends on similar bowling growth patterns developing in other,
emerging markets, such as China, India and Indonesia, and on AMF's ability to
successfully predict the timing and location of such future international
expansion and to successfully exploit new demand. Sales of New Center Packages
for 1996 declined substantially from 1995, reflecting the maturing bowling
markets in Taiwan and Korea. NCP sales for the three months ended March 31, 1997
exceeded NCP sales for the three months ended March 31, 1996, by $7.0 million or
41.7%, reflecting continued progress in establishing a direct sales presence in
China. There can be no assurance that such future international expansion will
occur or that, if it does occur, AMF will be able to successfully compete in
such emerging markets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Backlog; Recent NCP Sales."
FOREIGN OPERATIONS
The Company's foreign operations are subject to the usual risks inherent in
operating abroad, including, but not limited to, risks with respect to currency
exchange rates, economic and political destabilization, other disruption of
markets, restrictive laws and actions by foreign governments (such as
restrictions on transfer of funds, export duties and quotas, foreign customs and
tariffs and unexpected changes in regulatory environments), difficulty in
obtaining distribution and support, nationalization, the laws and policies of
the United States affecting trade, foreign investment and loans, and foreign tax
laws. There can be no assurance that these factors will not have a material
adverse impact on the Company's ability to increase or maintain its foreign
sales or on its results of operations. For the three months ended March 31, 1997
and the year ended December 31, 1996, a substantial portion of AMF's revenue and
EBITDA, including substantially all of the revenue and
19
<PAGE> 25
EBITDA derived from sales of New Center Packages, were from foreign operations.
See "Summary Combined Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- International Operations"
and "-- Backlog; Recent NCP Sales."
The Company's ability to service its indebtedness will be dependent, in
part, on its ability to utilize the cash flow generated by its foreign
operations. In general, U.S. federal and international tax laws provide that
income of international subsidiaries is subject to tax only in the local
jurisdiction and is not subject to U.S. federal income tax unless, and only to
the extent that, such income is distributed as a dividend to the U.S. parent
company. The Company has not determined whether to cause its international
subsidiaries to pay dividends to the Company or to cause the net income of such
subsidiaries to be retained abroad. The Company may make loans to its foreign
subsidiaries, and, in that event, payments by the Company's foreign subsidiaries
to the Company on such intercompany loans may result in the repatriation of a
substantial portion of the cash flow of such subsidiaries without the payment of
taxes abroad. In addition, certain of the Company's subsidiaries may make
royalty payments to the Company. There can be no assurance, however, that the
interest payments on such intercompany loans or such royalty payments will not
be recharacterized as dividends, which could have adverse tax consequences to
the Company.
On December 28, 1995, the State Council of China announced the reform and
adjustment of its policy towards foreign invested joint ventures in China. With
effect from April 1, 1996, joint ventures importing capital equipment, including
bowling equipment, are required to pay customs duty and Value Added Tax ("VAT")
on such equipment, though certain grandfather rule exemptions will apply. For
bowling equipment, the current customs duty rate is 50%, while the VAT rate is
17%. Prior to the change in policy, the joint ventures were exempt from customs
duty and VAT on most imported capital equipment, including bowling equipment. As
a grandfather concession, the joint ventures that were approved to set up prior
to April 1, 1996, with a total investment of less than US $30 million had until
December 31, 1996 to import capital equipment duty free. This concession has
been extended until December 31, 1997. Accordingly, there is a risk that the
change in import duty policy in China may adversely affect the sale of NCP units
to China. Based on the information available to AMF, AMF believes that its
bowling industry competitors, as well as competitors in other recreational
industries dependent upon equipment subject to the import duty and VAT, will be
similarly affected by the new import policy. AMF thus believes that the new
policy will not put it at a competitive disadvantage with respect to its
competitors in such industries. However, to the extent that competitors in other
recreational industries are not dependent upon equipment affected by this change
in import duty policy, the change could adversely affect the Company's
competitive position.
TRADING MARKET FOR THE EXCHANGE NOTES
Although it is not obligated to do so, Goldman Sachs is making, and intends
to continue to make, a market in the Exchange Notes. Any such market-making
activity may be discontinued at any time, for any reason, without notice at the
sole discretion of Goldman Sachs. No assurance can be given as to the liquidity
of or the trading market for the Exchange Notes.
Goldman Sachs may be deemed to be an affiliate of the Company and, as such,
may be required to deliver a prospectus in connection with its market-making
activities in the Exchange Notes. Pursuant to the Registration Rights Agreement,
the Company agreed to file and maintain a registration statement that would
allow Goldman Sachs to engage in market-making transactions in the Exchange
Notes. Subject to certain exceptions set forth in the Registration Rights
Agreement, the registration statement will remain effective for as long as
Goldman Sachs may be required to deliver a prospectus in connection with
market-making transactions in the Exchange Notes. The Company has agreed to bear
substantially all the costs and expenses related to such registration statement.
20
<PAGE> 26
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Exchange Senior Subordinated Discount Notes were issued at a
substantial discount from their principal amount. Consequently, the purchasers
of the Exchange Senior Subordinated Discount Notes generally will be required to
include amounts in gross income for federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable. Further, the
acquisition of an Exchange Note in a subsequent resale may give rise to market
discount on acquisition premium. See "Description of Certain Federal Income Tax
Consequences of an Investment in the Exchange Notes" for a more detailed
discussion of the federal income tax consequences to the holders of the Exchange
Senior Subordinated Discount Notes of the purchase, ownership and disposition of
the Exchange Senior Subordinated Discount Notes.
The initial payment of interest on the Exchange Senior Subordinated
Discount Notes is required to be made on September 15, 2001. The Exchange Senior
Subordinated Discount Notes, therefore, are not a suitable investment for
investors seeking current income prior to that date.
FRAUDULENT CONVEYANCE
Management of the Company believes that the indebtedness represented by the
Exchange Notes and the Guarantees was incurred for proper purposes and in good
faith, and that, based on then-current forecasts, asset valuations and other
financial information, after the issuance of the Exchange Notes, the Company
would be solvent, would have sufficient capital for carrying on its business and
would be able to pay its debts as they mature. See "-- Substantial Leverage;
Ability to Service Indebtedness." Notwithstanding management's belief, however,
if a court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time of the incurrence of such
indebtedness, the Company or the Guarantors were insolvent, were rendered
insolvent by reason of such incurrence, were engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, intended to incur, or believed that they would incur, debts beyond
their ability to pay such debts as they matured, or intended to hinder, delay or
defraud their creditors, and that the indebtedness was incurred for less than
reasonably equivalent value, then such court could, among other things, (a) void
all or a portion of the Company's or the Guarantors' obligations to the Holders
of the Exchange Notes, the effect of which would be that the Holders of the
Exchange Notes may not be repaid in full and/or (b) subordinate the Company's or
the Guarantors' obligations to the Holders of the Exchange Notes to other
existing and future indebtedness of the Company to a greater extent than would
otherwise be the case, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Exchange
Notes or the Guarantees.
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the Exchange
Notes by Goldman Sachs in market-making transactions. The Company will not
receive any of the proceeds from such transactions.
21
<PAGE> 27
THE ACQUISITION
The Acquisition occurred on May 1, 1996, pursuant to a Stock Purchase
Agreement dated February 16, 1996 (the "Stock Purchase Agreement") between
Holdings and the then current stockholders of AMF (the "Sellers"), which
provided for the acquisition of AMF through a stock purchase by the Company's
subsidiaries of all the outstanding stock (the "Stock") of the separate domestic
and foreign corporations that constitute substantially all of AMF, and through
the purchase of the assets (the "Purchased Assets") of AMF's Bowling Centers
operations in Spain and Switzerland. The Company did not acquire the assets of
two bowling centers located, respectively, in Madrid, Spain and Geneva,
Switzerland (both of which were retained by the Sellers). Accordingly, as a
result of the Acquisition, the Company owned or operated 205 U.S. bowling
centers and 78 international bowling centers.
Douglas J. Stanard, the Chief Operating Officer of the Company, is the only
Seller currently affiliated with the Company or Goldman Sachs. Mr. Stanard's
interest in AMF prior to the Acquisition was less than 1% of the outstanding
equity of AMF at that time.
The corporate structure of AMF at its parent holding companies is
illustrated by the chart on page 24.
The following discussion summarizes the terms relating to the Acquisition
that the Company believes are material to an investor in the Exchange Notes.
This summary is qualified in its entirety by reference to the full text of the
agreements underlying this discussion, copies of which are filed as exhibits to
the Registration Statement of which this Prospectus is a part, and are
incorporated by reference herein.
PURCHASE PRICE; ADJUSTMENTS
The Company's subsidiaries purchased the Stock and Purchased Assets for a
cash purchase price of $1.373 billion less approximately $2.0 million
representing debt of AMF which remained in place following the Closing.
The purchase price subsequently has been adjusted as a result of a
post-Acquisition agreement between Holdings and the Sellers, pursuant to which
Holdings received $17.5 million in exchange for the elimination of any future
obligations due to Holdings under a guarantee arrangement provided by the
Sellers in connection with the Acquisition. On October 1, 1996, the Sellers paid
$3.4 million to Holdings, representing the net proceeds after reducing the $17.5
million payment by approximately $14.1 million for purchase price adjustments
originally due from Holdings to the Sellers.
22
<PAGE> 28
The following table sets forth the sources and uses of funds related to the
Acquisition:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS
Senior Debt(a).................................................. $ 517.0
10 7/8% Senior Subordinated Notes............................... 250.0
12 1/4% Senior Subordinated Discount Notes...................... 249.9
---------
Total Debt.................................................... 1,016.9
Equity(b)....................................................... 389.5
Cash............................................................ 11.3
---------
Total...................................................... $ 1,417.7
=========
USES OF FUNDS
Purchase Price(a)............................................... $ 1,325.0
Transaction Costs(b)(c)......................................... 92.7
---------
Total...................................................... $ 1,417.7
=========
</TABLE>
- ---------------
(a) Includes an existing mortgage payable by AMF in the amount of approximately
$2.0 million as of April 30, 1996. All other debt of AMF was extinguished at
or prior to the completion of the Acquisition.
(b) Includes warrants to purchase approximately 2.2% of the fully diluted common
stock of Holdings' parent company issued upon the closing of the Acquisition
to the Sellers' financial advisor in lieu of a cash fee. Such warrants have
been valued for accounting purposes at approximately $8.7 million.
(c) Includes $44.2 million of deferred financing costs associated with debt
incurred to fund the Acquisition.
23
<PAGE> 29
[ORGANIZATIONAL CHART]
24
<PAGE> 30
REPRESENTATIONS AND WARRANTIES; INDEMNITY
Generally, the Sellers did not provide indemnities to Holdings in
connection with the Acquisition. However, representations and warranties of
Sellers that survived the Closing are that (i) the Sellers will deliver to
Holdings good title to the Stock and the Purchased Assets free and clear of any
liens, claims, charges, security interests, options or other legal or equitable
encumbrances or restrictions, and all of the outstanding stock of the
corporations that constitute AMF is owned beneficially and of record by the
Sellers, and is validly issued, fully-paid and non-assessable; and (ii) each of
the corporations that constitute AMF was at the time of the Acquisition and has
been historically an "S corporation" (within the meaning of Section 1361(a) of
the Code) for each of such corporation's entire existence, and no action has
been or will be taken to terminate, and no condition exists which could result
in the termination of, such election prior to the Closing. The representations
and warranties in clause (i) above survive the Closing indefinitely, and the
representations and warranties in clause (ii) above survive the Closing until
the expiration of the relevant statute of limitations (including any extensions
thereof) or, if later, until the resolution of any disputes arising during such
period, in each case applicable to the income tax return (the "Applicable
Return") of each AMF entity for the period ending on the date of the Closing.
If any of the corporations that constitute AMF are found to have failed to
make a valid election to become an S corporation, or to have otherwise lost its
status as an S corporation, such corporation could be liable for taxes on income
for the periods in which S corporation status was not in effect. In addition,
loss of S corporation status could invalidate the step-up in the tax basis of
certain of AMF's assets that would otherwise result from the Acquisition,
causing the Company (or Holdings) to pay higher taxes on future income than
would be the case if the step-up in basis were allowed.
The Sellers agreed to indemnify Holdings and its affiliates against any
liabilities incurred in connection with any breach of the representations and
warranties that survive the Closing, including but not limited to the tax
liabilities referred to in the preceding paragraph. The Sellers also agreed to
indemnify Holdings and its affiliates against any liability arising from (i) the
ownership, conduct, condition or transfer at any time of any of the businesses
or other tangible or intangible assets or operations (a) transferred to the
Sellers or their affiliates prior to the Closing or (b) owned, operated or
conducted by the Sellers or certain affiliates on or prior to the Closing and
which were not owned, operated or conducted as part of AMF's Bowling Centers or
Bowling Products businesses; and (ii) certain litigation brought against AMF by
its former Korean distributor (see "Business -- Legal Proceedings"). The
indemnification excludes claims for incidental or consequential damages or
damages for lost profits. Each of the Sellers is liable for indemnified losses
only based on their percentage stock ownership of AMF prior to the Acquisition;
provided, however, that five irrevocable trusts (the "Trusts"), which as the
owners of a controlling interest of the Stock are together the principal selling
stockholder, will be jointly and severally liable for the aggregate
indemnification obligations of the Trusts. The Trusts are required to maintain,
collectively, a $500.0 million minimum net worth (based upon fair market value)
at all times from the Closing through the date that is the fourth anniversary of
the last filed Applicable Return and a $250.0 million minimum net worth (based
upon fair market value) at all times thereafter through the date that is the
sixth anniversary of the last filed Applicable Return, subject to extension
under certain circumstances. The beneficiaries of the Trusts separately agreed
to indemnify Holdings if the minimum net worth requirements are not satisfied
and if certain other circumstances occur.
OTHER AGREEMENTS
In connection with the Acquisition, AMF entered into Trademark License
Agreements, dated February 16, 1996 (the "License Agreements"), licensing the
AMF name and related trademark rights to certain corporations owned by the
Sellers (the "Licensees"), for use in connection with the sale by Licensees of
sewing equipment, baking equipment and golf equipment. Certain of these products
currently are being marketed under the AMF name. No consideration separate from
the Acquisition was paid by the Licensees in connection with the License
Agreements, and the license is
25
<PAGE> 31
royalty-free. The term of the licenses continues indefinitely. The Licensees
have expressly assumed and indemnified AMF against all liabilities resulting
from Licensees' use of the licensed trademarks.
In addition, Holdings entered into a Non-Competition Agreement, dated
February 16, 1996 (the "Non-Competition Agreement"), with an individual
affiliated with the Sellers (the "Affiliated Party"), restricting the Affiliated
Party and certain affiliates from participating in the same or similar business
as AMF anywhere in the world for a period of five years from the Closing. The
Affiliated Party has also agreed that, during a period of three years from the
Closing, the Affiliated Party and certain affiliates will not, without the prior
written approval of Holdings, solicit any person who is a management or other
key employee of Holdings, the Company, AMF or any of their subsidiaries or
affiliates as of the date of the Non-Competition Agreement to terminate his or
her employment. In consideration of the Non-Competition Agreement, Holdings has
agreed to pay the Affiliated Party $50,000 per year during the term of the
Non-Competition Agreement.
Holdings also entered into a Consulting and Non-Competition Agreement,
dated February 16, 1996 (the "Consulting and Non-Competition Agreement") with
one of the Sellers. This Seller has agreed to provide, for a period of two years
from the Closing, such consulting services to Holdings as may be requested from
time to time by the Board of Directors and/or the Chief Executive Officer of
Holdings. The Consulting and Non-Competition Agreement also restricts this
Seller and certain affiliates from participating in the same or similar business
as AMF anywhere in the world for a period of four years from the Closing. This
Seller also agreed that, during a period of three years from the Closing, the
Seller and certain affiliates will not, without the prior written approval of
Holdings, solicit any person who is a management or other key employee of
Holdings, the Company, AMF or any of their subsidiaries or affiliates as of the
date of the Consulting and Non-Competition Agreement to terminate his or her
employment. Holdings has agreed to pay this Seller $100,000 per year during the
two-year period that the Seller will provide consulting services.
26
<PAGE> 32
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma statements of income of Holdings, which includes
the Company, are presented for the years ended December 31, 1996, as if the
Acquisition had occurred on January 1, 1996. Holdings' pro forma statement of
income for the 12 months ended December 31, 1996, is based on the Predecessor
Company's statement of income for the four-month period ending April 30, 1996,
reported elsewhere herein, Holdings' statement of income for the period ended
December 31, 1996, and adjustments giving effect to the Acquisition under the
purchase method of accounting.
The Pro Forma Financial Statements and the accompanying notes should be
read in conjunction with AMF's historical Combined Financial Statements and
related notes thereto, and Holdings' consolidated balance sheet and notes
thereto, appearing elsewhere in this Prospectus.
The Pro Forma Financial Statements do not purport to be indicative of the
Company's financial condition or the results that would have actually been
obtained had such transactions been consummated as of the assumed dates and for
the periods presented, nor are they indicative of Holdings' results of operation
or financial condition for any future period or date.
27
<PAGE> 33
PRO FORMA RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
AMF GROUP PREDECESSOR AMF GROUP
HOLDINGS COMPANY HOLDINGS INC.
INC. FOUR MONTHS TWELVE MONTHS
PERIOD ENDED ENDED PRO FORMA ENDED
12/31/96(a) 4/30/96 ADJUSTMENTS 12/31/96
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operating revenues:......................... $384.8 $ 164.9 $ (0.8)(b) $ 548.9
------ ------- ------- -------
Operating expenses:
Cost of goods sold........................ 130.5 43.1 -- 173.6
Bowling center operating expenses......... 123.7 80.2 (25.1)(b)(c) 178.8
Selling, general, and administrative
expenses............................... 35.1 35.5 (19.6)(b)(c) 51.0
Depreciation and amortization............. 49.4 15.1 9.0 (d) 73.5
------ ------- ------- -------
Total operating expenses............. 338.7 173.9 (35.7) 476.9
------ ------- ------- -------
Operating income (loss).............. 46.1 (9.0) 34.9 72.0
Nonoperating expenses:
Interest expense.......................... 78.0 4.5 23.7 (e) 106.2
Other expenses, net....................... 1.9 0.7 -- 2.6
Interest income........................... (5.6) (0.6) -- (6.2)
Foreign currency transaction loss.........
------ ------- ------- -------
Income (loss) before income taxes........... (28.2) (13.6) 11.2 (30.6)
Provision (benefit) for income taxes........ (8.6) (1.7) 1.3 (f) (9.0)
------ ------- ------- -------
Net income (loss).................... $(19.6) $ (11.9) $ 9.9 $ (21.6)
====== ======= ======= =======
</TABLE>
- ---------------
(a) Includes the results of operations of the acquired business from May 1,
1996, through December 31, 1996.
(b) To reflect the impact of Holdings not acquiring the operations of one
bowling center in Switzerland and one bowling center in Spain.
(c) To eliminate a one-time charge of $44.0 million for special bonuses and
payments made by the Sellers in April 1996.
(d) To reflect the increase in depreciation and amortization expense resulting
from the allocation of the purchase price to fixed assets and goodwill and a
change in the method of depreciation of fixed assets. The Predecessor
Company principally used the double declining balance method. The amount of
the pro forma adjustment for depreciation was determined using the
straight-line method over the estimated lives of the assets acquired.
Goodwill is being amortized over 40 years.
(e) To reflect the incremental interest expense associated with the issuance of
debt which partially funded the Acquisition.
(f) To give effect to the change in status of the U.S. and international
subsidiaries of Holdings from S corporations to taxable corporations under
the IRC upon consummation of the Acquisition.
28
<PAGE> 34
SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT AVERAGE PRICE PER GAME DATA)
The selected financial data set forth below for the fiscal years indicated
were derived from Holdings' audited consolidated financial statements for the
period ended December 31, 1996, and the Predecessor Company's audited combined
financial statements for the four months ended April 30, 1996, and the years
ended December 31, 1995, 1994, 1993, and unaudited combined financial statements
for the year ended December 31, 1992. The selected consolidated financial data
for the three month periods ended March 31, 1997 and 1996 were derived from
Holdings' unaudited, interim consolidated financial statements for the three
months ended March 31, 1997 and the Predecessor Company's unaudited combined
financial statements for the three months ended March 31, 1996. The data should
be read in conjunction with Holdings' Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that appear elsewhere herein.
The "Selected Financial Data" includes operating results expressed in terms
of EBITDA, which represents earnings 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 a company'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.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------- -----------------------------------------
(IN MILLIONS OF DOLLARS)
PRO FORMA PRO FORMA
AMF GROUP AMF GROUP AMF GROUP AMF GROUP PREDECESSOR
HOLDINGS INC. HOLDINGS INC. PREDECESSOR COMPANY HOLDINGS INC. HOLDINGS INC. COMPANY
------------- ------------- ---------------------------------------- ------------- ------------- -----------
1996(A) 1996(B) 1995 1994(C) 1993 1992 1997 1996 1996
------------- ------------- ------------- ------- ------- ------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
INCOME
STATEMENT
DATA:
Total operating
revenue...... $ 384.8 $ 548.9 $ 564.9 $517.8 $ 427.6 $ 391.2 $ 157.6 $ 122.7 $ 123.3
------------- ------------- ------------- ------- ------- ------- ------------- ------------- -----------
Cost of goods
sold......... 130.5 173.6 184.1 196.0 153.2 132.1 38.1 30.6 30.7
Bowling center
operating
expenses..... 123.7 178.8 166.5 115.2 108.5 103.1 55.3 41.7 42.2
Selling,
general and
administrative
expenses..... 35.1 51.0 50.8 57.1 41.9 43.2 14.0 11.5 11.5
Depreciation
and
amortization... 49.4 73.5 39.1 24.8 21.4 25.5 20.5 13.3 11.0
------------- ------------- ------------- ------- ------- ------- ------------- ------------- -----------
Operating
income....... 46.1 72.0 124.4 124.7 102.6 87.3 29.7 25.6 27.9
Interest
expense,
gross........ 78.0 106.2 15.7 7.4 5.0 7.9 27.7 26.6 3.8
Other income
(expense),
net.......... 3.7 3.6 0.2 (1.5) (0.1) 0.1 (0.8) 1.2 0.2
------------- ------------- ------------- ------- ------- ------- ------------- ------------- -----------
Income (loss)
before income
taxes........ (28.2) (30.6) 108.9 115.8 97.5 79.5 1.2 0.2 24.3
Provision
(benefit) for
income
taxes........ (8.6) (9.0) 12.1 16.5 15.1 15.4 1.1 0.1 2.7
------------- ------------- ------------- ------- ------- ------- ------------- ------------- -----------
Net income
(loss)....... $ (19.6) $ (21.6) $ 96.8 $ 99.3 $ 82.4 $ 64.1 $ 0.1 $ 0.1 $ 21.6
=========== =========== ====== ======= ====== ====== =========== =========== ===========
Ratio of
earnings to
fixed
charges(d)... -- -- 6.1x 10.3 x 11.0x 7.1x 1.0x 1.0x 5.5x
SELECTED DATA:
EBITDA......... $ 95.5 $ 145.5 $ 163.5 $149.5 $ 124.0 $ 112.8 $ 50.2 $ 38.9 $ 38.9
EBITDA
margin....... 24.8% 26.5% 28.9% 28.9% 29.0% 28.8% 31.9% 31.7% 31.5%
</TABLE>
29
<PAGE> 35
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------------------------- -------------
AMF GROUP (IN MILLIONS OF DOLLARS) AMF GROUP
HOLDINGS INC. PREDECESSOR COMPANY HOLDINGS INC.
------------- ------------------------------------------------- -------------
1996(a) 1995 1994(c) 1993 1992 1997
------------- ------------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AS OF
DECEMBER 31):
Working capital(e).............. $ 7.9 $ 29.4 $ 16.9 $ 18.9 $ 15.6 $ 23.1
Goodwill, net................... 771.1 -- -- -- -- 766.2
Total assets.................... 1,593.9 400.4 410.2 228.2 231.1 1,641.3
Total debt...................... 1,091.3 167.4 186.1 75.7 98.0 1,128.6
Stockholder's equity............ 408.7 161.5 132.4 88.6 75.8 404.4
Total capital................... 1,500.0 328.9 318.5 164.3 173.8 1,533.0
</TABLE>
- ---------------
(a) Represents results of operations of acquired business from May 1, 1996
through December 31, 1996.
(b) Represents results of operations from January 1, 1996 through December 31,
1996.
(c) Includes results of Fair Lanes, acquired on September 29, 1994.
(d) The ratios of earnings to fixed charges are computed by dividing earnings by
the fixed charges. Earnings consist of net income to which has been added
fixed charges and income taxes. Fixed charges consist of interest expense,
amortization of debt issuance costs, and the portion of rent expense
considered to represent interest. For the year ended December 31, 1996, on a
pro forma basis, AMF had a deficiency of earning to fixed charges of $30.6
million.
(e) Predecessor Company amounts reflect elimination of affiliates receivables
and payables.
30
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMF
This discussion should be read in conjunction with the information
contained under the heading "Selected Financial Data" and in the Holdings'
Consolidated Financial Statements and Notes thereto included elsewhere herein.
The historical financial data presented in this section include the two
European bowling centers that were retained by the Sellers. For the effect on
AMF of excluding these two bowling centers, see "Pro Forma Consolidated
Financial Statements" and "Note 3. Pro Forma Results of Operations" in the Notes
to Holdings' Consolidated Financial Statements included elsewhere herein.
A comparison of the historical results of operations for the period ended
December 31, 1996 and 1995 is not meaningful since the 1995 results include 12
months of activity for the Predecessor Company while the 1996 results include
only the results of operations of acquired businesses for the eight months from
the Acquisition through December 31, 1996 for Holdings. Management believes that
a more meaningful comparison of the results of operations for the year ended
December 31, 1996 is on a pro forma 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
the increased interest expense due to the debt incurred related to the
Acquisition. Accordingly, the following discussion of the results of operations
for the year ended December 31, 1996 will include comparisons of the 12 months
ended December 31, 1996, on a pro forma basis, with Predecessor Company results
for the years ended December 31, 1995 and 1994, on historical bases. The
discussion of results of operations for the three months ended March 31, 1997
will include comparisons of the three months ended March 31, 1997, with
Predecessor Company results for the three months ended March 31, 1996, on a pro
forma basis.
The financial information presented below includes AMF's operating results
expressed in terms of EBITDA, which represents earnings before net interest
expense, income taxes, depreciation and amortization, and other net income or
net expenses. 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.
General
AMF is principally engaged in two businesses which, historically, have been
operated independently: (i) the ownership or operation of 271 U.S. bowling
centers and 84 international bowling centers as of March 31, 1997 (318 U.S.
bowling centers and 84 international centers, as of May 20, 1997) ("Bowling
Centers"); 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").
To facilitate a meaningful comparison, in addition to discussing the
consolidated results of AMF, this Management's Discussion and Analysis of
Financial Condition and Results of Operations separately discusses results of
Bowling Centers and Bowling Products.
The results of Bowling Centers, Bowling Products and the combined group are
set forth below. The two European centers that were not acquired by AMF, while
included in the data below, have no material impact on AMF's financial
statements or on the information presented in this section.
For 1995, Bowling Centers adopted a calendar month-end; accordingly, the
Bowling Centers results of operations for the year ended December 31, 1995
include the results of U.S. operations for the period from December 26, 1994
through December 31, 1995. Total revenue for the period from December 26, 1994
through December 31, 1994 was approximately $2.0 million.
31
<PAGE> 37
Results below are presented before intersegment eliminations as management
believes that this will provide a more accurate comparison of performance by
segment from year to year. The intersegment eliminations are not material.
Interest expense is presented on a gross basis.
Recent Transactions
On April 24, 1997, AMF Bowling Centers completed the acquisition of ARC,
which operates 43 bowling centers in six states. The aggregate purchase price
for ARC was approximately $70.0 million. See "Note 14. Acquisitions" in the
Notes to the Consolidated Financial Statements. In addition, subsequent to
December 31, 1996 and through May 20, 1997, the Company has acquired 16
additional bowling centers in the United States and six bowling centers in the
United Kingdom from several unrelated single-center and small-chain operators.
The aggregate purchase price was approximately $44.5 million, including certain
adjustments and acquisition costs, and was funded with $29.5 million from
available borrowing under the Acquisition Facility and the remainder from
internally generated cash. As of May 20, 1997, $55.0 million remained available
under the Acquisition Facility, of which $13.0 million is expected to fund
remaining payments in connection with the ARC acquisition. From time to time the
Company enters into letters of intent with sellers to purchase bowling centers.
Certain of these transactions, are subject to conditions. There is no assurance
that any such acquisitions will be consummated.
In April 1997, the Company entered into a $40 million joint venture
arrangement with Hong Leong Corporation Limited, a Singapore based conglomerate.
Pursuant to the arrangement, the joint venture is expected to build and operate
up to 20 bowling centers, accounting for up to 560 lanes, during the next three
years. These bowling centers will be located in the Philippines, Malaysia,
Vietnam, Indonesia, Thailand and China.
In June 1997, the Company entered into a joint venture arrangement of
approximately $100 million with Playcenter S.A., a Sao Paulo based amusement and
entertainment company. During the next four years the joint venture is expected
to build or assume ownership of, and operate, up to 39 bowling centers,
accounting for up to 730 lanes, in Brazil and Argentina.
PERFORMANCE BY BUSINESS SEGMENT
Bowling Centers
The results shown below reflect both the U.S. and international Bowling
Centers operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------- -------------------------------------------
(IN MILLIONS OF DOLLARS) (IN MILLIONS OF DOLLARS)
PRO FORMA PRO FORMA
AMF GROUP AMF GROUP PREDECESSOR AMF GROUP AMF GROUP PREDECESSOR
HOLDINGS INC. HOLDINGS INC. COMPANY HOLDINGS INC. HOLDINGS INC. COMPANY
------------- ------------- --------------- ------------- ------------- -----------
1996 (A) 1996 (B) 1995 1994 1997 1996 1996
------------- ------------- ------ ------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BOWLING CENTERS (before
intersegment eliminations):
Total operating revenue...... $ 199.7 $ 307.3 $292.3 $225.4 $ 108.5 $ 82.5 $ 83.1
------ ------ ------ ------ ------ ------ ------
Cost of goods sold........... 18.6 27.5 26.3 22.3 9.4 6.8 6.9
Bowling center operating
expenses................... 121.4 177.2 168.7 120.3 55.6 42.1 42.6
Selling, general, and
administrative expenses.... 6.9 10.6 10.5 17.0 1.6 1.2 2.2
Depreciation and
amortization............... 37.7 56.2 36.6 21.8 16.1 9.2 10.4
------ ------ ------ ------ ------ ------ ------
Operating income............. 15.1 35.8 50.2 44.0 25.8 23.2 21.0
Interest expense, gross...... 41.0 56.4 15.3 7.3 14.8 14.9 3.7
Other income/(expense), net.. (7.6) (7.9) (0.9) (1.9) (4.2) (0.1) (0.1)
------ ------ ------ ------ ------ ------ ------
Income/(loss) before income
taxes...................... (33.5) (28.5) 34.0 34.8 6.8 8.2 17.2
Provision (benefit) for
income taxes............... (10.5) (11.2) 7.8 9.5 2.9 0.1 2.4
------ ------ ------ ------ ------ ------ ------
Net income (loss)............ $ (23.0) $ (17.3) $ 26.2 $ 25.3 $ 3.9 $ 8.1 $ 14.8
====== ====== ====== ====== ====== ====== ======
SELECTED DATA:
EBITDA....................... 52.8 92.0 86.8 65.8 41.9 32.4 31.4
EBITDA margin................ 26.4% 29.9% 29.7% 29.2% 38.6% 39.3% 37.8%
</TABLE>
- ---------------
(a) Represents results of operations of acquired business from May 1, 1996
through December 31, 1996.
(b) Represents operations from January 1, 1996 through December 31, 1996.
32
<PAGE> 38
Three Months Ended March 31, 1996 and 1997
For the three months ended March 31, 1997, Bowling Centers total operating
revenue increased by $26.0 million, or 31.5%, from $82.5 million for the three
months ended March 31, 1996, on a pro forma basis, to $108.5 million for the
three months ended March 31, 1997. Of this increase, $25.5 million is
attributable to the new centers acquired since May, 1996, and $0.7 million is
attributable primarily to U.S. and international constant centers, partially
offset by a decrease of $0.2 million attributable to two U.S. centers closed in
May, 1996, and February, 1997, respectively. Of the increase in new centers
revenue, $24.0 million is from centers in the United States, while $1.5 million
is from centers in the United Kingdom. The increase in constant centers revenue
was primarily a result of an increase in revenue in the Northeast region of the
U.S., a region in which the Company has a large number of centers and which
experienced severe weather conditions during the first quarter of 1996. The
increase in constant centers revenue in the first quarter of 1997 compared to
the same period in 1996 is net of $1.0 million additional revenue in 1996 due to
leap year, and $0.5 million attributable to the Easter holiday which occurred in
the first quarter of 1997 versus the second quarter of 1996.
Bowling Centers cost of goods sold increased by $2.6 million, or 38.2%,
from $6.8 million for the three months ended March 31, 1996, on a pro forma
basis, to $9.4 million for the three months ended March 31, 1997. Of this
increase, $2.5 million is attributable to new centers of which $2.3 million is
attributable to U.S. centers and $0.2 million is attributable to U.K. centers.
Constant centers cost of goods sold rose $0.2 million, or 4.1%. These increases
were offset by a decrease of $0.1 million attributable to the closed centers
discussed above.
Bowling Centers operating expenses increased by $13.5 million, or 32.1%,
from $42.1 million for the three months ended March 31, 1996, on a pro forma
basis, to $55.6 million for the three months ended March 31, 1997. Of this
increase, $12.9 million is attributable to new centers of which $12.1 million is
attributable to U.S. centers and $0.8 million is attributable to U.K. centers.
Constant centers operating expenses increased by $0.7 million, or 1.7%. These
increases were offset by a decrease of $0.1 million attributable to the closed
centers discussed above. Operating expenses increased $0.3 million, or 1.1%, in
the U.S. constant centers and $0.4 million, or 2.9%, in the international
constant centers. The increase in the U.S. constant centers operating expenses
is primarily caused by increased advertising expenses aimed at improving
constant center lineage (games per lane per day), and increased travel expenses
related to a new management training program begun in January 1997 for centers
operating personnel. The increase in the U.S. constant centers is partially
offset by favorable general liability claims results. Also, operating expenses
were lower in 1996 due to cost controls implemented in response to the severe
weather conditions experienced during the first quarter of 1996. The increase in
international constant centers operating expenses is primarily attributable to
higher rents in Hong Kong and payroll in Australia resulting from one time
severance payments. As a percentage of total Bowling Centers revenue, Bowling
Centers operating expenses were 51.0% for the three months ended March 31, 1996,
on a pro forma basis, versus 51.2% for the three months ended March 31, 1997.
Bowling Centers selling, general and administrative expenses increased by
$0.4 million, or 33.3%, from $1.2 million for the three months ended March 31,
1996, on a pro forma basis, to $1.6 million for the three months ended March 31,
1997. This increase is due primarily to an increase in international center
expenses of which $0.2 is attributable to incremental costs related to the new
U.K. bowling centers and the remaining increase to all other centers combined.
Bowling Centers EBITDA increased by $9.5 million, or 29.3%, from $32.4
million for the three months ended March 31, 1996, on a pro forma basis, to
$41.9 million for the three months ended March 31, 1997. An increase of $10.1
million is attributable to new centers and is offset by a $0.5 million decrease
in constant centers and a $0.1 million decrease attributable to the closed
centers discussed above. Constant center EBITDA and EBITDA margin decreased from
$32.3 million and 39.5% during the first three months of 1996, to $31.8 million
and 38.3% during the first three months of 1997. These decreases are primarily
attributable to the impact of leap year and Easter week on
33
<PAGE> 39
revenues as discussed above. An increase in U.S. constant centers EBITDA of $0.2
million, or 0.9%, was partially offset by a decrease in international constant
centers EBITDA of $0.7 million, or 1.5%. The increase in U.S. EBITDA is largely
the result of the cost reduction plans developed by management to offset revenue
lost from the severe weather discussed above. The decrease in international
EBITDA is primarily attributable to the increase in expenses discussed above.
1995 to 1996
For the year ended December 31, 1996, Bowling Centers operating revenue
increased by $15.0 million, or 5.1%, from $292.3 million for the year ended
December 31, 1995 to $307.3 million for the year ended December 31, 1996. Of
this increase, $19.0 million is attributable to the addition of the 57 centers
during the last two quarters of 1996 and $0.5 million is attributable to
increases at continuing centers. The increases are offset by a total decrease of
$4.5 million, of which $2.2 million is attributable to the two bowling centers
which were not acquired as part of the Acquisition and $2.3 million is
attributable to the closure of seven centers originally purchased by the
Predecessor Company from Fair Lanes during 1994. For continuing centers, the
total revenue increase of $0.5 million, representing a 0.2% increase over 1995
revenue of $287.8 million, is attributable to an increase in international
revenue of $2.4 million, offset by a decrease in U.S. continuing center revenue
of $1.9 million. The decrease in U.S. continuing centers revenue was largely a
result of a decrease in revenues due to the severe weather conditions in the
Northeast, a region in which AMF has a large number of centers, during the first
quarter of 1996. An increase in bowling prices in the U.S. during 1996 was more
than offset by a decrease in U.S. lineage. The increase in international revenue
was primarily a result of a 4.4% increase in average price per game and
increased food and beverage revenue.
Bowling Centers worldwide gross profit increased by $13.8 million, or 5.2%,
to $279.8 million for the year ended December 31, 1996 from $266.0 million for
the year ended December 31, 1995. Of this increase, $17.1 million, or 123.9%,
was attributable to the addition of the 57 new centers acquired during the last
two quarters of 1996. The remaining gross profit decrease of $3.3 million is
primarily attributable to the two bowling centers not acquired and the closure
of seven centers originally purchased from Fair Lanes in 1994.
Bowling Centers operating expenses increased by $8.5 million, or 5.0%, from
$168.7 million for 1995 to $177.2 million for 1996. The increase is primarily
attributable to $10.0 million of operating expenses related to the inclusion of
the 57 centers acquired during the last two quarters of 1996. On a continuing
centers basis, operating expenses increased by $2.2 million, or 1.3%, from
$165.7 million in 1995 to $167.9 million in 1996. These increases were primarily
attributable to an increase in international operating expenses of $4.0 million
offset by a decrease in U.S. continuing centers operating expenses of $1.8
million. The remaining operating expense decrease of $3.7 million is
attributable to the two bowling centers not acquired and the closure of seven
centers originally purchased from Fair Lanes in 1994. The decrease in U.S.
operating expenses resulted in large part from the implementation of cost
reduction plans developed by management after assessing the impact of the severe
weather conditions during the first quarter of 1996. The increase in
international operating expenses was primarily due to increased rents and
payroll expenses. As a percentage of total revenue, Bowling Centers operating
expenses remained constant at 57.7% during 1996 and 1995.
Selling, general and administrative costs increased by $0.1 million, or
0.1%, from $10.5 million for 1995 to $10.6 million for 1996.
EBITDA increased by $5.2 million, or 6.0%, from $86.8 million for 1995 to
$92.0 million for 1996. Of this increase, the addition of the 57 centers
acquired during the last two quarters of 1996 contributed $7.1 million in EBITDA
for 1996, offset by a decrease in continuing center EBITDA of $1.2 million.
Continuing center EBITDA and EBITDA margin decreased from $86.0 million and
29.9% during 1995, to $84.8 million and 29.4% for 1996. This decrease is
attributable to a decrease in international centers EBITDA of $1.7 million,
offset by an increase in U.S. continuing centers
34
<PAGE> 40
EBITDA of $0.5 million. The additional decrease of $0.7 million in international
EBITDA is primarily attributable to the loss of the two bowling centers not
acquired. The increase in U.S. EBITDA is largely the result of the cost
reduction plans developed by management to offset revenue lost from the severe
weather discussed above.
1994 to 1995
For the year ended December 31, 1995, Bowling Centers revenue increased by
$66.9 million, or 29.7%, from $225.4 million for the year ended December 31,
1994 to $292.3 million for the year ended December 31, 1995. Of this increase,
$3.6 million is attributable to the Predecessor Company's U.S. centers
(excluding Fair Lanes) and $67.2 million is attributable to the addition of the
Fair Lanes centers, offset by a decrease in international revenue of $3.9
million. For the U.S. centers (excluding Fair Lanes), the total revenue increase
of $3.6 million, representing a 3.7% increase over 1994 revenue of $96.2
million, was throughout all revenue categories. The increase in bowling revenue
was a result of an increase in both the U.S. centers' (excluding Fair Lanes)
average price per game and lineage. Additionally, in December 1995, management
increased U.S. shoe rental prices and U.S. food and beverage prices by 10.0% and
3.0%, respectively. Unseasonably dry, hot weather in several countries and
several unusual events including the Kobe earthquake and subway gas attacks in
Japan, the economic crisis in Mexico and general strikes in France resulted in a
decline in international Bowling Centers revenue. In particular, the Predecessor
Company's centers in Mexico had a revenue decline from U.S. $15.3 million for
1994 to U.S. $7.8 million for 1995, due to weakening of the local currency. The
overall decrease in international revenue was a result of an increase in the
international average price per game, expressed in U.S. dollars (despite the
devaluation of the Mexican peso), which was more than offset by a decrease in
international lineage.
Bowling Centers worldwide gross profit increased by $62.9 million, or
31.0%, to $266.0 million for the year ended December 31, 1995 from $203.1
million for the year ended December 31, 1994. Of this increase, $61.9 million,
or 98.4%, was attributable to the addition of acquired Fair Lanes centers. Fair
Lanes centers' cost of sales as a percentage of revenues declined from 10.5% for
the year ended December 31, 1994 to 8.5% for the year ended December 31, 1995.
This decrease in cost of sales is primarily attributable to the immediate
effects of implementing cost control procedures in food and beverage operations
at the Fair Lanes centers. The remaining gross profit increase of $1.0 million
is attributable to higher prices at Predecessor Company centers (excluding Fair
Lanes) and general reductions to cost of goods sold. During the year ended
December 31, 1995, management reviewed the U.S. food and beverage operations and
established more standardized menus which, management believes, resulted in an
overall lower cost of goods sold for food and beverage.
Bowling Centers operating expenses increased by $48.4 million, or 40.2%,
from $120.3 million for 1994 to $168.7 million for 1995, of which $44.0 million,
or 90.9%, was related to the inclusion of Fair Lanes. As a percentage of total
revenue, Bowling Centers operating costs increased from 53.4% to 57.7% from 1994
to 1995, respectively. The increase was also attributable to $2.3 million of
nonrecurring expenses in 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 risk management program and the
closing of seven bowling centers. Internationally, the increase in the
percentage of selling, general and administrative costs to revenue was due to
the following factors. During 1995, management assessed the international
Bowling Centers operations and implemented changes in management personnel in
Australia, France, Spain and Switzerland. In addition, the Predecessor Company
closed one center in the United Kingdom, which was damaged by fire, and one
center in Australia. As a result, the Predecessor Company incurred redundancy,
relocation, severance and other costs aggregating $0.3 million, which management
has identified as non-recurring.
Selling, general and administrative costs decreased by $6.5 million, or
38.2%, from $17.0 million for 1994 to $10.5 million for 1995, of which $4.6
million, or 70.8%, was related to Fair Lanes. Fair
35
<PAGE> 41
Lanes incurred $5.8 million of selling, general and administrative costs during
the three months ended December 31, 1994 (and before management assumed
operational control) compared with costs of $1.2 million during 1995. This
decrease is attributable to high salaries, professional fees and travel costs
incurred during 1994 by Fair Lanes. The remaining decrease represents a decrease
in selling, general and administrative costs for international centers of $2.1
million and an increase for U.S. centers (excluding Fair Lanes) of $0.2 million.
EBITDA increased by $21.0 million, or 31.9%, from $65.8 million for 1994 to
$86.8 million for 1995 (after certain nonrecurring costs of $2.3 million). Of
this increase, the addition of the Fair Lanes centers contributed $22.6 million
in EBITDA for 1995, after certain nonrecurring costs of $2.3 million. U.S.
EBITDA and the EBITDA margin increased from $32.3 million and 26.6% in 1994, to
$55.6 million and 28.9% in 1995. This increase is primarily attributable to the
inclusion of Fair Lanes in the fourth quarter of 1994, which experienced an
EBITDA margin of 12.6% for that quarter, compared to 27.8% for the year ended
December 31, 1995. The Predecessor Company did not assume operational control of
Fair Lanes until January 1995. Thus, the combined results for the Predecessor
Company for 1994 are depressed due to the lower EBITDA that Fair Lanes had
historically experienced under prior management. Internationally, EBITDA and
EBITDA margin decreased from $33.5 million and 32.3% in 1994, to $31.2 million
and 31.2% in 1995. This EBITDA decrease of $2.3 million and the related margin
decline were direct results of the impact on international revenue of the
unusual events referred to above occurring in countries with historically high
margins and the increase in selling, general and administrative costs discussed
above. Additionally, Bowling Centers in Mexico had an EBITDA decline from U.S.
$4.7 million for 1994 to U.S. $3.4 million for 1995, primarily due to the
weakening of the local currency.
Bowling Products
The two categories of Bowling Products operations are (i) recurring sales
of replacement and spare parts and supplies, resale products, and major
modernization equipment ("Modernization and Consumer" products) for existing
bowling centers; and (ii) sales of bowling equipment necessary to outfit new
bowling centers or expand an existing bowling center (New Center Packages or
NCPs). Financial results for Bowling Products are presented below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------- -------------------------------------
(IN MILLIONS OF DOLLARS)
PRO FORMA
PRO FORMA AMF GROUP AMF GROUP
AMF GROUP AMF GROUP PREDECESSOR COMPANY HOLDINGS HOLDINGS PREDECESSOR
HOLDINGS INC. HOLDINGS INC. INC. INC. COMPANY
------------- ------------- ----------------------------- ---------- ---------- -----------
1996 (A) 1996 (B) 1995 1994 1997 1996 1996
------------- ------------- ------------- ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BOWLING PRODUCTS (before
intersegment
eliminations):
Total operating revenue... $ 191.1 $ 252.1 $ 286.5 $ 301.7 $ 52.0 $ 43.0 $43.0
Cost of goods sold........ 116.2 153.3 166.9 178.9 31.2 25.6 25.6
------ ------ ------ ------
Gross profit.............. 74.9 98.8 119.6 122.8 20.8 17.4 17.4
Selling, general, and
administrative
expenses................ 28.2 40.4 40.3 38.2 8.8 7.8 9.3
Depreciation and
amortization............ 12.6 18.5 3.6 3.7 4.8 4.4 0.9
------ ------ ------ ------
Operating income.......... 34.1 39.9 75.7 80.9 7.2 5.2 7.2
Interest expense, gross... 36.9 49.8 0.4 0.1 12.8 10.1 0.1
Other income/(expense),
net..................... (5.2) (4.9) 1.0 0.4 (2.3) 0.3 0.3
------ ------ ------ ------
Income/(loss) before
income taxes............ (8.0) (14.8) 76.3 81.2 (7.9) (4.6) 7.4
Provision (benefit) for
income taxes............ (2.7) (3.6) 4.3 6.7 (2.8) -- 0.3
------ ------ ------ ------
Net income (loss)......... $ (5.3) $ (11.2) $ 72.0 $ 74.5 $ (5.1) $ (4.6) $ 7.1
====== ====== ====== ======
SELECTED DATA:
Gross profit margin....... 39.2% 39.2% 41.7% 40.7% 40.0% 40.5% 40.5%
EBITDA.................... $ 46.7 $ 58.4 $ 79.3 $ 84.6 $ 12.0 $ 9.6 $ 8.1
EBITDA margin............. 24.4% 23.2% 27.7% 28.0% 23.1% 22.3% 18.8%
</TABLE>
- ---------------
(a) Represents results of operations of acquired business from May 1, 1996
through December 31, 1996.
(b) Represents operations from January 1, 1996 through December 31, 1996.
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<PAGE> 42
Bowling Products' long-standing customer relationships, Bowling Centers'
predictable demand for Modernization and Consumer products, a steadily
increasing installed base and Bowling Products' ability to supply a full product
line have historically made the Modernization and Consumer category a stable and
recurring base of revenue and EBITDA. Revenue growth from 1991 to 1994 for the
NCP segment resulted primarily from increased unit sales to Taiwan and Korea and
since 1995 to China, where the popularity of bowling and consequent demand for
new bowling centers has increased dramatically. During 1995 and 1996, NCP
revenue declined primarily because the markets in Taiwan and Korea have matured.
The decline was partially offset by continued demand in China.
Three Months Ended March 31, 1996 and 1997
Bowling Products total operating revenue increased by $9.0 million, or
20.9%, from $43.0 million for the three months ended March 31, 1996, on a pro
forma basis, to $52.0 million for the three months ended March 31, 1997. This
figure is primarily attributable to an increase of $7.0 million, or 41.7%, in
NCP revenue, and an increase of $1.7 million, or 6.5%, in Modernization and
Consumer revenue. The increase in NCP revenue is due to an overall increase in
NCP sales of 331 units which occurred primarily in Malaysia, the Americas and
Japan. Sales to China for the three months ended March 31, 1997 also are
slightly higher versus the same period in 1996. See "Seasonality and
Cyclicality".
Total gross profit from Bowling Products increased by $3.4 million, or
19.5%, from a gross profit of $17.4 million for the three months ended March 31,
1996, on a pro forma basis, to a gross profit of $20.8 million for the three
months ended March 31, 1997, and is primarily the result of increased NCP sales.
This represents a gross profit margin of 40.5% and 40.0% for the first three
months of 1996 and 1997, respectively.
Bowling Products selling, general and administrative expenses increased by
$1.0 million, or 12.8%, from $7.8 million for the three months ended March 31,
1996, on a pro forma basis, to $8.8 million for the three months ended March 31,
1997. This increase is primarily attributable to increase payroll and facilities
expenses relating to the staffing of the Company's sales and service offices in
Hong Kong, which promote and support sales of Bowling Products equipment,
particularly NCPs, to markets in China and Asia.
EBITDA and EBITDA margin increased from $9.6 million and 22.3%,
respectively, for the three months ended March 31, 1996, on a pro forma basis,
to $12.0 million and 23.1%, respectively, for the three months ended March 31,
1997, primarily due to the increased NCP revenue, offset in part by the
increased expenses discussed above.
1995 to 1996
Operating revenue decreased by $34.4 million, or 12.0%, from $286.5 million
for 1995 to $252.1 million for 1996. This figure is primarily attributable to a
decrease of $35.3 million or a 22.7% decline in NCP revenue and an increase of
$0.9 million or a 0.7% increase in Modernization and Consumer revenue. The drop
in NCP revenue is due to an overall decrease in NCP sales by 1,695 units,
particularly for maturing markets including Korea and Taiwan, offset by an
increase in NCP sales to China. From 1995 to 1996, total NCP sales to Korea
decreased by 1,165 units and to Taiwan decreased by 1,323 units. Additionally,
there was a moderate increase in NCP units sold to the Americas and Southern
Europe during 1996. The increase in sales to China occurred during the last six
months of 1996 and although there can be no assurance, based on current orders
management expects 1997 sales to China to be higher than 1996. See
"-- Seasonality and Cyclicality."
The increase in Modernization and Consumer revenue is due in part to
increased sales of synthetic lanes and automatic scoring in the United States.
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<PAGE> 43
Total gross profit decreased by $20.8 million, or 17.4%, from a gross
profit of $119.6 million for 1995 to a gross profit of $98.8 million for 1996.
This represents a gross profit margin of 41.7% and 39.2% for 1995 and 1996,
respectively. Of this 2.5% decrease in the gross profit margin, 0.8% is
attributable to an increase in certain inventory and warranty reserves in the
Modernization and Consumer segment of $2.3 million, and 1.7% is attributable to
lower margins on decreased revenues particularly in Japan due to price cuts
implemented by management in response to stiffer competition in the
Modernization and Consumer segment.
Selling, general and administrative expenses increased by $0.1 million, or
0.2%, from $40.3 million for 1995 to $40.4 million for 1996. The increase of
$0.1 million is primarily attributable to increased payroll expenses related to
the staffing of the Company's sales and service offices in Hong Kong. The
increase was offset in part by lower variable expenses associated with the lower
volume of sales in 1996 compared to 1995.
EBITDA and EBITDA margin decreased from $79.3 million and 27.7%,
respectively, for 1995, to $58.4 million and 23.2%, respectively, for 1996,
primarily due to the decreased NCP revenue, the decrease in gross profit and
increased selling, general and administrative expenses discussed above.
1994 to 1995
Operating revenue decreased by $15.2 million, or 5.0%, from $301.7 million
for 1994 to $286.5 million for 1995. This figure represents a decrease of $15.1
million, or 8.8% decline in NCP revenue and a less than 1% decrease of $0.1
million in Modernization and Consumer revenue. The drop in NCP revenue is due to
an overall decrease in NCP sales, particularly for Korea and Taiwan, offset by
an increase in NCP sales to China. From 1994 to 1995, total NCP sales to Korea
decreased by 757 units and to Taiwan decreased by 519 units. Additionally, there
was a moderate increase in NCP units sold to India, Thailand and Egypt during
1995. A significant portion of the decrease occurred in sales to Taiwan and
Korea during November and December 1995, which had significantly lower sales
than the comparable period in 1994. Management believes that the expansion
period in Taiwan and Korea peaked during 1994. In Korea, the Predecessor Company
discontinued operations with its former distributor and opened a direct sales
office during 1995. Management believes that the decreased sales to Taiwan and
Korea are primarily attributable to the result of NCP sales to Taiwan and Korea
having peaked in 1994.
NCP sales in Japan were significantly affected by uncertain economic
conditions following the Kobe earthquake and the subway gas attacks, which
resulted in delayed investments in recreational activities. However, the Japan
branch increased its Modernization and Consumer revenue during the year ended
December 31, 1995 by approximately $2.8 million over the preceding year.
A net decrease in Modernization and Consumer revenue of $0.6 million was
realized by the German branch. Continued unprofitability of this branch and the
French branch prompted management to reorganize European operations. During the
year ended December 31, 1995, the general manager and controller positions in
Germany and France were consolidated into the central sales office in the United
Kingdom.
Total gross profit decreased by $3.2 million, or 2.6%, from a gross profit
of $122.8 million for 1994 to a gross profit of $119.6 million for 1995. This
represents a gross profit margin of 40.7% and 41.7% for 1994 and 1995,
respectively. This margin increase was partially due to the increase in margins
of New Center Packages. Additionally, total warranty costs, which aggregated
approximately $2.7 million for 1995, decreased from $5.0 million for 1994,
primarily resulting from increased quality control procedures and improved
training programs for center mechanics in the international markets. Offsetting
the overall gross profit margin increase, were $0.4 million in start-up expenses
incurred at the pool cue manufacturing plant, a $0.3 million charge relating to
the acquisition of manufacturing rights for one of the Predecessor Company's
bumper bowling products and an
38
<PAGE> 44
approximate $1.0 million increase in engineering expenses associated with the
Company's new automatic scoring products.
Selling, general and administrative expenses increased by $2.1 million, or
5.5%, from $38.2 million for 1994 to $40.3 million for 1995. This increase of
$2.1 million is primarily attributable to nonrecurring costs of $2.9 million in
1995, offset in part by net reversals of reserves of $0.9 million.
EBITDA and EBITDA margin decreased from $84.6 million and 28.0%,
respectively, for 1994 to $79.3 million and 27.7%, respectively, for 1995,
primarily due to the decreased revenue and increased selling, general and
administrative expenses discussed above. The 1995 EBITDA of $79.3 million was
depressed by the charges of $2.9 million described above, which management
believes are nonrecurring.
CONSOLIDATED RESULTS
Depreciation and Amortization
Depreciation and amortization increased by $7.2 million, or 54.1%, from
$13.3 million for the three months ended March 31, 1996, on a pro forma basis,
to $20.5 million for the three months ended March 31, 1997. Of this increase,
$6.9 million is attributable to Bowling Centers and is primarily due to
depreciation of property and equipment of centers acquired since May 1996. The
remainder can be attributed to incremental depreciation expense incurred as a
result of capital expenditures.
For the year ended December 31, 1996, depreciation and amortization
increased by $34.4 million, or 88.0%, from $39.1 million in 1995 to $73.5
million in 1996. This increase resulted primarily from recording fixed assets at
fair market value and goodwill in accordance with the purchase accounting method
applied to the Acquisition.
For the year ended December 31, 1995, depreciation and amortization
increased by $14.3 million, or 57.7%, from $24.8 million in 1994 to $39.1
million in 1995. This increase was primarily due to the inclusion of Fair Lanes
centers for the entire twelve months of 1995, as compared to three months during
1994.
Interest Expense
Gross interest expense increased by $1.1 million, or 4.1%, from $26.6
million for the three months ended March 31, 1996, on a pro forma basis, to
$27.7 million for the three months ended March 31, 1997. This increase is
primarily due to interest paid on increased levels of bank debt as a result of
the acquisitions described above. Non-cash bond interest amortization for the
three months ended March 31, 1997 totaled $8.3 million.
Gross interest expense increased by $90.5 million, or 576.4%, from $15.7
million in 1995 to $106.2 million in 1996. This increase is primarily due to
interest paid on debt incurred to finance the Acquisition and interest on the
Acquisition Facility. Cash interest paid by the Company for the year ended
December 31, 1996 totaled $43.6 million, while non-cash bond interest
amortization totaled $24.7 million.
Gross interest expense increased by $8.3 million, or 112.2%, from $7.4
million for the year ended December 31, 1994 to $15.7 million for the year ended
December 31, 1995. This increase is a result of additional debt incurred in
connection with the Fair Lanes acquisition on September 29, 1994. This debt was
subsequently paid in full by the Sellers of the Predecessor Company prior to the
Acquisition.
Net Income (Loss)
Net income remained constant at $0.1 million for the three months ended
March 31, 1996, on a pro forma basis, and the three months ended March 31, 1997.
Increases in revenues and EBITDA
39
<PAGE> 45
discussed above on a segment basis were offset by increases in depreciation
expense and the current tax provision for the Company.
On a pro forma basis, there was a net loss of $(21.6) million for the year
ended December 31, 1996. The decline of $118.4 million, or 122.3%, in net income
from $96.8 million in 1995 to a net loss of $(21.6) million in 1996 is primarily
a result of a decrease in Bowling Products EBITDA resulting from the decline in
NCP revenue and higher depreciation and amortization and interest expenses
resulting from the Acquisition after allowing for a $9.0 million tax benefit.
Net income decreased by $2.5 million, or 2.5%, from $99.3 million in 1994
to $96.8 million in 1995. This decrease was the result of higher depreciation
and amortization and interest expense in 1995 as compared to 1994. The higher
depreciation, amortization, and interest expense in 1995 was a result of the
full year impact of the Fair Lanes acquisition in the fourth quarter of 1994.
Income Taxes
Under the prior owners, certain of the companies within the Predecessor
Company elected S corporation status under the Internal Revenue Code. As S
corporations, the companies were historically liable for U.S. federal income
taxes under certain circumstances and liable for state income taxes in certain
jurisdictions; all other domestic 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. The prior owners historically received a tax credit,
subject to certain limitations, in their U.S. federal income tax returns for
international taxes paid by the international branches of the S corporations and
certain other international entities.
Upon consummation of the Acquisition, the domestic subsidiaries of AMF
became taxable corporations under the Internal Revenue Code. The 1995 pro forma
results of operations for the Predecessor Company, as presented in "Note 3. Pro
Forma Results of Operations" in the Notes to Consolidated Financial Statements,
include a pro forma tax provision for income taxes which would have been
recorded if the AMF companies had not been S corporations, based on tax laws in
effect during these periods, to give effect to the conversion of certain
entities from S corporation status to taxable corporation status.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion as it relates to the three months ended March 31,
1996 and 1997, will compare Holding's results for the three months ended March
31, 1997 with Predecessor Company results for the three months ended March 31,
1996, on a historical basis.
AMF's primary source of liquidity is cash provided by operations and credit
facilities as described below. Working capital at March 31, 1997, was $23.1
million, compared to $7.9 million on December 31, 1996, $29.4 million on
December 31, 1995, and $16.9 million at December 31, 1994. The increase of $15.2
million at March 31, 1997, from December 31, 1996 is primarily due to increases
in cash, accounts receivable and inventories, partially offset by increases in
accrued interest deposits from customers and trade accounts payable. The
decrease of $21.5 million from year end 1995 to 1996 is primarily due to
increases in interest payable and the current portion of Bank Debt as a result
of the debt incurred for the Acquisition, partially offset by an increase in
AMF's cash position.
Net cash flows provided by operating activities decreased $0.7 million from
$24.3 million for the three months ended March 31, 1996 to $23.6 million for the
three months ended March 31, 1997. A decrease in net income of $21.5 million due
to increased depreciation, amortization and interest expenses as a result of the
Acquisition is offset primarily by an increase in (non-cash) depreciation and
amortization of $17.8 million, and an increase in changes in assets and
liabilities of $3.0 million.
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<PAGE> 46
Net cash flows used in investing activities were $3.6 million for the three
months ended March 31, 1996 compared to net cash flows used of $40.3 million for
the three months ended March 31, 1997. The increase during the first three
months of 1997 was due primarily to the acquisition of nine bowling centers in
the United States and six bowling centers in the United Kingdom during that
period. During the three months ended March 31, 1996, capital spending was $4.4
million and other investing cash flows provided were $0.8 million. During the
three months ended March 31, 1997, acquisition of operating units, or bowling
centers, net of cash acquired, totaled $33.6 million, capital spending was $6.9
million, and other cash flows provided by investing activities were $0.2
million.
Net cash used in financing activities was $17.4 million for the three
months ended March 31, 1996 compared to net cash provided of $28.3 million for
the three months ended March 31, 1997. This change primarily resulted from
drawing down $19.0 million and $10.0 million from available borrowings under the
Acquisition Facility and the Working Capital Facility, respectively, to fund the
acquisitions of bowling centers discussed above and Company operations. The
Company paid a dividend of $0.5 million to the Parent on February 28, 1997, for
the repurchase of Robert L. Morin's shares in connection with his resignation
from the Company. See "Note 8 -- Employee Benefit Plans" in the Notes to
Consolidated Financial Statements.
As a result of the aforementioned, cash increased by $3.0 million for the
three months ended March 31, 1996 compared to an increase of $9.5 million for
the three months ended March 31, 1997.
Net cash flows from operating activities decreased $51.0 million from
$124.8 million for the year ended December 31, 1995 to $73.8 million for the
period ended December 31, 1996. This decrease was primarily due to the decrease
in net income from $96.8 million for the year ended December 31, 1995 to a net
loss of $(19.6) million for the year ended December 31, 1996 and higher
depreciation, amortization and interest expenses as a result of the Acquisition.
Net cash flows used in investing activities were $28.3 million for the year
ended December 31, 1995 compared to net cash flows provided of $1,467.1 million
for the period ended December 31, 1996. The change was due primarily to the
Acquisition. During the year ended December 31, 1995, capital spending was $30.0
million and other investing cash flows provided were $1.7 million. During the
period ended December 31, 1996, acquisitions of operating units, net of cash
acquired, including the Acquisition, totaled $1,450.9 million, capital spending
was $16.9 million, and other cash flows provided by investing activities were
$0.7 million.
Net cash used for financing activities was $94.7 million for the year ended
December 31, 1995 compared to net cash provided of $1,438.3 million for the year
ended December 31, 1996. This change primarily resulted from the issuance of
debt and capital contributions related to the Acquisition. During 1995, AMF made
distributions to stockholders of $71.9 million, net payments on notes payable to
stockholders of $3.8 million, net payments on credit note agreements and long-
term debt of $21.3 million and a payment for redemption of stock of $4.0
million. Additionally, cash of $8.3 million was received as capital
contributions by stockholders.
During the period ended December 31, 1996, AMF had borrowings, net of
deferred financing costs, of $1,059.3 million from debt incurred to finance the
Acquisition and from the Acquisition Facility, and made payments of $38.9
million on this debt. Additionally, a total of $420.8 million was received as
capital contributions by the institutional stockholders of AMF Holdings, Inc.,
the Company's ultimate parent (the "Parent") and one of its directors. Of the
total capital contributed, $380.8 was for the initial capitalization of AMF, and
$40.0 million was received as additional capital contributions in connection
with the Charan acquisition.
As a result of the aforementioned, cash increased by $1.6 million for the
year ended December 31, 1995 compared to an increase of $43.6 million for the
period ended December 31, 1996.
Net cash flow from operating activities increased from $119.7 million for
the year ended December 31, 1994 to $124.8 million for the year ended December
31, 1995. This increase was primarily a result of the fact that although net
income decreased from $99.3 million to $96.8 million
41
<PAGE> 47
and assets and liabilities changes which reflected a net use of cash of $5.3
million and $10.9 million for the year ended December 31, 1994 and for the year
ended December 31, 1995, respectively, depreciation and amortization increased
by $14.3 million, from $24.8 million for the year ended December 31, 1994 to
$39.1 million for the fiscal year ended December 31, 1995.
Net cash used for investing activities decreased from $32.6 million for the
year ended December 31, 1994 to $28.3 million for the year ended December 31,
1995. During 1994, cash of $17.3 million was used for the acquisition of
operating units, primarily for Fair Lanes. Capital spending was $17.8 million
for the year ended December 31, 1994 compared with $30.0 million for the year
ended December 31, 1995.
Net cash used for financing activities increased from $89.6 million for the
year ended December 31, 1994 to $94.7 million for the year ended December 31,
1995. During 1994, AMF made distributions to stockholders of $78.2 million, net
payments on notes payable to stockholders of $8.6 million and net payments on
credit note agreements and long-term debt of $4.8 million. Additionally, cash of
$2.1 million was received as capital contributions by stockholders. During 1995,
AMF made distributions to stockholders of $71.9 million, net payments on notes
payable to stockholders of $3.8 million, net payments on credit note agreements
and long-term debt of $21.3 million and a payment for redemption of stock of
$4.0 million. Additionally, cash of $8.3 million was received as capital
contributions by stockholders.
As a result of the aforementioned, cash increased by $0.2 million for the
year ended December 31, 1994 compared to an increase of $1.6 million for the
year ended December 31, 1995.
As a result of the Acquisition, AMF's total indebtedness has increased
substantially. At March 31, 1997, the Company's debt structure consisted of
Senior Debt of $595.6 million, senior subordinated notes of $250.0 million and
senior subordinated discount notes of $283.0 million. At March 31, 1997, the
Company was also capitalized with equity of $404.4 million. At December 31,
1996, AMF's debt structure consisted of Senior Debt of $566.6 million, Senior
Subordinated Notes of $250.0 million and Senior Subordinated Discount Notes of
$274.7 million. At December 31, 1996, AMF was also capitalized with equity of
$408.7 million. AMF also has the ability to borrow $50.0 million for general
corporate purposes pursuant to a Working Capital Facility and up to $150.0
million for acquisitions pursuant to the Acquisition Facility, subject to
certain conditions. At March 31, 1997, $27.5 million and $10.0 million was
outstanding under the Acquisition Facility and the Working Capital Facility,
respectively. Between March 31, 1997 and May 20, 1997, additional borrowings
under the Acquisition facility totaled $67.5 million and were used to fund the
acquisitions of bowling centers described above.
AMF is funding its cash needs through cash flow from operations, existing
cash balances and the Working Capital Facility and Acquisition Facility. A
substantial portion of AMF's available cash will be applied to service the
indebtedness incurred to finance the Acquisition. For the period ended December
31, 1996, AMF incurred cash interest expense of $53.0 million, representing
55.5% of EBITDA of $95.5 million for the period. For the three months ended
March 31, 1997, AMF incurred cash interest expense of $18.9 million,
representing 37.6% of EBITDA of $50.2 million for the three month period.
The indentures and the Bank Credit Agreement of AMF contain financial and
operating covenants and significant restrictions on the ability of AMF to pay
dividends, incur indebtedness, make investments and take certain other corporate
actions.
AMF'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 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 AMF believes that available cash flow,
together with available borrowings under the Bank Credit Agreement and other
sources of liquidity, will be adequate to meet AMF's anticipated future
requirements for working capital, capital expenditures and scheduled payments of
principal
42
<PAGE> 48
of, and interest on, its Senior Debt, and interest on the Exchange Notes. There
can be no assurance that AMF's business will generate sufficient cash flow from
operations or that future borrowings will be available in an amount sufficient
to enable AMF to service its indebtedness, including the Exchange Notes, or that
any refinancing would be available on commercially reasonable terms or at all.
CAPITAL EXPENDITURES (HISTORICAL AND BUDGETED)
For the three months ended March 31, 1997, the Company's actual capital
expenditures were $6.9 million compared to $4.4 million for the three months
ended March 31, 1996.
For the period ended December 31, 1996, AMF's actual capital expenditures
were $16.9 million, compared to the budgeted amount of $17.7 million. For the
year ended December 31, 1995, AMF's actual capital expenditures were $30.0
million, including $9.7 million for the construction of new centers, compared to
the budgeted amount of $27.5 million. In 1994, AMF's actual capital expenditures
were $17.8 million, compared to the budgeted amount of $15.7 million. The
projected capital expenditures for 1997 are $36.0 million excluding the
acquisition or construction of new centers. The 1996 actual expenditures level
is lower than the 1995 level in part because in 1995 three new bowling centers
were constructed at a cost of approximately $9.7 million.
AMF funds its capital expenditures from cash generated by operations and,
with respect to the construction and acquisition of new centers, the Acquisition
Facility. In addition to the 43 centers acquired in the ARC acquisition, between
January 1, 1997 and May 20, 1997, AMF had acquired 16 bowling centers in the
U.S. and six bowling centers in the United Kingdom from several unrelated
single-center and small-chain operators. The total purchase price was
approximately $44.5 million, including certain adjustments and transaction
costs, and was funded with $29.5 million from available borrowing under AMF's
Acquisition Facility and the remainder from internally generated cash. See
"Business."
AMF is planning to construct a new 40-lane, state-of-the-art family
entertainment center at Chelsea Piers in New York City, at a total cost of
approximately $6.6 million. In March 1997, AMF entered into a $4.4 million
contract with a building contractor to construct the Chelsea Piers Bowling
Center. The cost to build this center will ultimately be funded by the
Acquisition Facility.
AMF conducts an ongoing modernization and maintenance program that results
in its centers having upgraded physical plants and generally new and attractive
appearances. Management believes that its historical spending level of 3.7% of
Bowling Centers revenue is fully adequate to cover all modernization and
maintenance capital expenditures. Management estimates that approximately 2.0%
of Bowling Centers revenue is required for maintenance capital expenditures
alone. The revenue of new centers, such as Hanover Lanes in Richmond, Virginia,
the Garden Hotel center in China and Okegawa in Japan, is excluded from the
revenue figure used to calculate the budget for modernization and maintenance
capital expenditures. In addition to the 3.7% budgeted amount, AMF spent $1.6
million for the major modernization of a 60-lane center located in Milford,
Connecticut, and for the installation of automatic scoring in a 64-lane center
in Akron, Ohio, both of which are former Fair Lanes centers. AMF spent a total
of $1.1 million on the installation of the new point-of-sale information system
in its U.S. centers in 1996. In 1995, $0.2 million was spent on the system.
Commencing in 1995, Bowling Centers undertook a program to replace in
certain centers wood lanes having little or no remaining useful life with new
synthetic lanes, manufactured by Bowling Products. In 1994, Bowling Centers
identified about 964 (approximately 16.9%) of its lanes worldwide that had
reached the end of their useful lives (generally, 30 to 35 years), or would
reach such end in the next two to three years. In 1995, 316 lanes of the 964
lanes were replaced at a total cost of $1.5 million, at approximately $4,750 per
lane. In 1996, 252 lanes were replaced at a total cost of $1.2 million, at
approximately $4,750 per lane. In 1997, an additional 463 lanes are scheduled to
be replaced at a cost of approximately $2.2 million. This capital spending is in
addition to the 3.7% of revenue spent annually on maintenance and modernization
capital expenditure program. Upon
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<PAGE> 49
the acquisition of the Fair Lanes centers, AMF identified a total of 448 lanes
in Fair Lanes centers, or about 12.4% of total Fair Lanes, also in need of
replacement. In 1995, 154 of those lanes were replaced at a total cost of $0.6
million. Management believes that, on completion of this and replacement
program, future lane replacements will be covered by the modernization and
maintenance capital expenditure program.
Bowling Products has relatively modest capital investment requirements, and
AMF has followed a relatively conservative approach to capital investment.
Maintenance and replacement investments have been made when clearly needed but
as close to the end of the useful lives of assets as possible. Investment in
production machinery and equipment has received the highest investment priority
and has focused on projects with projected payback periods of one to three
years. Management is not planning significant changes in the policy for
non-strategic projects.
AMF has the potential opportunity to acquire and build additional bowling
centers, both in the U.S. and internationally. Management plans to acquire
centers with funding provided to the maximum extent possible under the
Acquisition Facility. Under the Acquisition Facility, AMF has the ability to
borrow up to $150.0 million for acquisitions, subject to certain conditions. As
discussed under "-- Liquidity and Capital Resources," at May 20, 1997, there was
$95.0 million outstanding on the Acquisition Facility. The Company expects to
utilize an additional $13.0 million under the Acquisition Facility to fund
remaining payments in connection with the ARC acquisition. AMF is prepared to
acquire or build additional bowling centers as appropriate opportunities arise.
AMF is engaged in ongoing evaluations of and discussions with third parties
regarding possible acquisitions and joint ventures. Management's plans to expand
the Bowling Centers operations are subject to the continuation of favorable
economic and financial conditions, which are generally not within AMF's control.
SEASONALITY AND CYCLICALITY
On a consolidated basis, revenue and EBITDA of AMF's businesses are neither
highly seasonal nor highly cyclical. The geographic diversity of AMF's Bowling
Centers operations across different regions of the U.S. and across ten different
countries, along with the bowling industry's historic resistance to recessions,
has provided stability to AMF'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 AMF's Bowling Centers operations has helped reduce this
seasonality. In Australia, where AMF has its largest number of international
centers, the reversal of seasons relative to the U.S. helps mitigate the
seasonality in worldwide operations. AMF's cash flows are further stabilized by
the location of many centers in markets where the climates have high average
temperatures and high humidity. In the United States, during the summer months
when league bowling is generally less active, AMF's bowling centers in the
southern U.S. continue to show strong performance. The same applies
internationally in countries with warm summer climates such as Hong Kong and
Mexico, where bowling in air-conditioned centers may be more attractive than
outdoor activities. Given this predictable revenue pattern, AMF is able to
adjust its payroll and other expenses to match the revenue stream.
Modernization and Consumer sales display significant seasonality. The U.S.
market, which is the largest market for Modernization and Consumer products, is
driven by the beginning of leagues in the Fall. Operators typically sign buying
agreements, particularly for replacement equipment, during the first four months
of the year, after they receive winter league revenue indications. Equipment is
shipped and installed during the summer months, when leagues are generally less
active. Sales of modernization equipment, such as automatic scoring and
synthetic lane overlays, is less predictable and fluctuates more than the
replacement equipment because of the extended life cycles of these major
products, which range from four to ten years.
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<PAGE> 50
The NCP segment of Bowling Products experiences significant fluctuations
due to changes in demand for NCP 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.
INTERNATIONAL OPERATIONS
For the three months ended March 31, 1997, 23.9% of the Company's Bowling
Centers operations revenue was generated by its international centers. For the
year ended December 31, 1996, 33.8% of AMF's Bowling Centers revenue was
generated by its international centers. Historically, AMF has not engaged in any
significant hedging activities.
For the three months ended March 31, 1997, 52.1% of Bowling Products sales
were made through international affiliates and distributors. For the year ended
December 31, 1996, approximately 62.7% of Bowling Products sales were made
through international affiliates and distributors. To minimize credit and
international exchange risk, equipment is sold primarily on Free on Board
(F.O.B.)-U.S. plant using letters of credit denominated in U.S. dollars. Letters
of credit are usually collected before shipments leave U.S. Ports. Affiliate
offices sell some products in local currency, but adjust pricing, to the extent
that market conditions permit, with changes in exchange rates. This policy
historically has enabled the Company's Bowling Products operations generally to
avoid any material adverse effect from exchange rate fluctuations. Management
believes that this policy should continue to protect the Company from material
adverse consequences of exchange rate fluctuations, except in the event of
severe international exchange rate volatility.
BACKLOG; RECENT NCP SALES
The total NCP backlog as of March 31, 1997 was approximately 1,625 units.
This figure represents an increase of 199 units from the backlog of 1,426 units
at December 31, 1996, and an increase of 137 units from the backlog of 1,488
units as of March 31, 1996. The increase from March 31, 1996 to March 31, 1997
is primarily composed of increases in the backlogs in China, Malaysia, the
Americas and Japan, partially offset by decreases in the backlogs in Korea and
Taiwan. Management believes that the decrease in the backlog of orders for
Taiwan and Korea is primarily the result of NCP sales to these countries having
peaked in 1994. NCP sales for the three months ended March 31, 1997 exceeded NCP
sales for the three month ended March 31, 1996, by $7.0 million, or 41.7%,
reflecting continued progress in establishing a direct sales presence in China.
The Chinese bowling market is in the early stages of development which
management believes should provide several years of activity to follow. The
total NCP backlog of approximately 1,426 units as of December 31, 1996
represents an increase of 486 units from the backlog of 940 units at December
31, 1995. This increase is primarily composed of increases in the backlogs in
China, the United States and Malaysia, partially offset by decreases in the
backlogs in Korea and Taiwan. Based on average backlog levels for the three
years ended December 31, 1996, an average of 20% of signed orders in AMF's
backlog is eventually canceled.
Reflecting the decline in orders in the fourth quarter of 1995,
manufacturing revenue from NCP sales declined very substantially during the
first six months of 1996 reflecting a decrease of over 59.0% compared with NCP
sales during the first six months of 1995. Overall NCP sales in the second half
of 1996 exceeded NCP sales for the first half of 1996, reflecting continued
progress in establishing a direct sales presence in China. The drop in NCP
revenue for the year ended December 31, 1996 is due to a decrease in NCP unit
sales, particularly in Korea and Taiwan. For the full year 1996, total NCP sales
to Korea decreased by 1,165 units and to Taiwan decreased by 1,323 units
compared to the full year 1995. The decrease in sales to Korea and Taiwan during
1996 is offset in part by an increase in NCP sales to China of 825 units.
Management believes that the initial expansion period in both Korea and Taiwan
peaked during 1994. Management believes that the decreased sales to Korea were
also partially attributable to the effect of AMF's decreased presence
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<PAGE> 51
in Korea while it was in the process of establishing a direct sales office to
replace its former distributor. 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 1994.
On December 28, 1995, the State Council of China announced the reform and
adjustment of its policy towards foreign invested joint ventures in China. With
effect from April 1, 1996, joint ventures importing capital equipment, including
bowling equipment, are required to pay customs duty and Value Added Tax ("VAT")
on such equipment, though certain grandfather rule exemptions will apply. For
bowling equipment, the current customs duty rate is 50%, while the VAT rate is
17%. Prior to the change in policy, the joint ventures were exempt from customs
duty and VAT on most imported capital equipment, including bowling equipment. As
a grandfather concession, the joint ventures that were approved to set up prior
to April 1, 1996, with a total investment of less than US $30 million had until
December 31, 1996 to import capital equipment duty free. This concession has
been extended until December 31,1997. Accordingly, there is a risk that the
change in import duty policy in China may adversely affect the sale of NCP units
to China. Based on the information available to AMF, AMF believes that its
bowling industry competitors, as well as competitors in other recreational
industries dependent upon equipment subject to the import duty and VAT, will be
similarly affected by the new import policy. AMF thus believes that the new
policy will not put it at a competitive disadvantage with respect to its
competitors in such industries. However, to the extent that competitors in other
recreational industries are not dependent upon equipment affected by this change
in import duty policy, the change could adversely affect the Company's
competitive position.
IMPACT OF INFLATION
AMF has historically offset the impact of inflation through price increases
and expense reductions. Periods of high inflation could have an adverse effect
on AMF to the extent that increased borrowing costs for floating rate debt may
not be offset by increases in revenue.
ENVIRONMENTAL MATTERS
AMF's operations are subject to federal, state, local, foreign and
international environmental laws and regulations that impose limitations on the
discharge of and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of certain materials,
substances and wastes. AMF believes that its operations are in material
compliance with the terms of all applicable environmental laws and regulations
as currently interpreted. See "Business -- Environmental Regulation."
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<PAGE> 52
BUSINESS
AMF is the largest owner and operator of commercial bowling centers in the
United States and worldwide. In addition, AMF is one of the world's leading
manufacturers of bowling center equipment, accounting for, management believes,
approximately 41% of the world's installed base of such equipment. AMF is
principally engaged in two business segments: (i) the ownership and operation of
bowling centers consisting of 271 U.S. bowling centers and 84 international
bowling centers as of March 31, 1997 (318 U.S. bowling centers and 84
international bowling centers, as of May 20, 1997) ("Bowling Centers"); and (ii)
the manufacture and distribution of bowling equipment, such as 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"). For the three months ended March 31, 1997, on a
consolidated basis AMF had revenues of $157.6 million and EBITDA of $50.2
million, for an EBITDA margin of 31.9%. For the year ended December 31, 1996,
AMF, on a consolidated basis, had pro forma revenue and Pro Forma EBITDA of
$548.9 million and $145.5 million, respectively, for a margin of 26.5%.
The historical AMF financial data presented in this section include the two
European bowling centers that have been retained by the Sellers. For the effect
on AMF of excluding these two bowling centers, see "Pro Forma Consolidated
Financial Statements" and "Note 3. Pro Forma Results of Operations" in the Notes
to Holdings' Consolidated Financial Statements included elsewhere herein. The
two retained European centers have no material impact on AMF's financial
statements.
INDUSTRY OVERVIEW
Bowling Centers
The U.S. bowling center industry is highly fragmented. According to an
industry source, there were approximately 5,900 commercial bowling centers in
the U.S. as of December 31, 1996, with the top five operators (including AMF)
accounting for less than 8% of the total number of centers. The domestic bowling
center industry consists of two relatively large bowling center operators, AMF
(which has 318 U.S. centers as of May 20, 1997) and Brunswick (which has
approximately 113 U.S. centers), three medium-sized chains, which together
account for 90 bowling centers, and over 5,400 bowling centers owned by
single-center and small-chain operators, the vast majority of which are owned by
single-center operators. Small-chain operators typically own four or fewer
centers. In other countries, management estimates that there are typically a
small number of operators with more than a few centers and a large number of
operators with only a single center. See "-- Competition (Bowling Centers)"
The international bowling center industry is also highly fragmented. There
are typically few chain operators in any given country and a large number of
single-center operators.
Bowling Products
Historically, the worldwide market for new bowling center equipment has
been characterized by two competitors, AMF and Brunswick. Management believes
that AMF's worldwide market share of the installed base of bowling equipment is
approximately 41%.
The Bowling Products business consists of two categories: (i) Modernization
and Consumer products (which includes replacement and spare parts, modernization
equipment and allied products); and (ii) New Center Packages (all of the
equipment necessary to outfit a new bowling center or expand an existing bowling
center). AMF and Brunswick are the only full-line manufacturers of Modernization
and Consumer products that compete on a global basis. AMF's competitors for
Modernization and Consumer sales (other than Brunswick) are much smaller
companies that tend to offer a narrower range of products and are often
regionally focused.
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<PAGE> 53
Industry wide sales of Modernization and Consumer products typically have
been relatively stable. Such sales target the mechanics and operators of
existing bowling centers worldwide, Bowling Products distributors and bowlers.
Modernization and Consumer products include both proprietary and standard spare
and replacement parts for existing equipment, supplies, such as pins and shoes,
resale items, such as balls, and major modernization equipment, such as
automatic scoring equipment. Some of these products, such as bowling pins, are
generally replaced approximately once a year to maintain a center, while less
frequent investments in other equipment are necessary to modernize a center in
order to maintain the customer base.
Bowling Products NCP sales follow the trends in the growth of bowling. Most
of the new bowling centers built in the world today are being built outside of
the U.S., especially in Asia. As bowling becomes popular in emerging markets,
local developers and entrepreneurs build new bowling centers, which need to be
outfitted with equipment, driving demand for NCPs. As bowling markets develop,
new centers continue to be built until the number of installed lanes serving the
local population reaches a point at which the prospective economic returns from
the construction of a new bowling center begin to decline.
Industry Statistics
The fragmented nature of the bowling centers business makes it difficult to
compile accurate industrywide statistics, even in the United States.
Accordingly, industry statistics provided in this Prospectus should be regarded
as approximations with a significant margin of error.
AMF BOWLING CENTERS
In the United States, AMF is the largest owner and operator of commercial
bowling centers, with (as of March 31, 1997) 271 bowling centers in 34 states
and one U.S. territory. Outside the United States, AMF owns and operates (as of
March 31, 1997) 84 bowling centers in ten countries: Australia (36), the United
Kingdom (21), Mexico (9), Japan (5), Hong Kong (5), France (3), Spain (2),
Switzerland (1), Canada (1), and China (1). Of the foregoing international
centers, 78 were acquired as part of the Acquisition and six, all located in the
United Kingdom, were acquired thereafter. Since March 31, 1997, the Company has
acquired 59 U.S. bowling centers and six bowling centers in the United Kingdom
from several unrelated single-center and small-chain operators.
The Company's number of centers, geographic clustering and average size (an
average of 37 lanes per U.S. center versus an industry average of 21 lanes)
provide both additional revenue opportunities and economies of scale. These
revenue opportunities include: (i) scheduling flexibility, which improves lane
utilization; (ii) the ability to support an expanded food and beverage
operation; and (iii) increased concourse space for amusement games, billiards
and pro shops. Cost savings resulting from the economies of scale include: (i)
the ability to distribute operating and corporate overhead costs over a larger
revenue base; and (ii) attractive pricing terms from certain of the Company's
suppliers.
Internationally, the Company is the largest owner or operator of commercial
bowling centers. Management believes that the Company's centers are, on average,
larger than those of its competitors. As with its U.S. operations, the number of
centers, geographic clustering and size result in additional revenue
opportunities and economies of scale.
The Company generally enjoys a relative size advantage (i.e., a larger
number of lanes per center), and is competitively well-positioned in markets
such as the United Kingdom and Australia. Although trends vary by country,
certain of the international markets in which the Company operates have
experienced increasing competition as they have transitioned from newly
developed to more mature markets, resulting in declining lineage. The Company
has attempted to offset these lineage declines through higher prices.
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<PAGE> 54
The geographic diversity of AMF's Bowling Centers operations across
different regions of the U.S. and across ten different countries, along with the
bowling industry's historic resistance to recessions, has provided stability to
AMF's annual cash flows. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Cyclicality."
In contrast to single-center and small-chain operators who, in management's
view, are generally less willing to invest in capital improvements, the Company
has an ongoing modernization program that results in its centers having upgraded
physical plants and more attractive appearances than those of other operators.
Management believes that its historical spending level of 3.7% of Bowling
Centers revenue is adequate to cover all modernization and non-discretionary
capital expenditures. Management estimates that only 2% of Bowling Centers
revenue is required for non-discretionary capital expenditures alone. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Expenditures."
AMF's Bowling Centers business derives its revenue and profits from three
principal sources: (i) bowling; (ii) food and beverage sales; and (iii)
ancillary sources, such as shoe rental, amusement games, billiards and pro
shops. Historically, bowling, food and beverage and ancillary revenues have
represented approximately 62% to 64%, 21% to 24%, and 14% to 16%, of total
Bowling Centers revenue, respectively.
Bowling revenue, the largest portion of a bowling center's revenue and
profitability, is derived from league play, tournament play and open play. A
center's annual bowling revenue is determined by the product of its average
price per game, lineage, the number of lanes in the center, and the number of
days of operation (typically 365 days per year).
The sale of food and beverages is the next largest source of AMF's Bowling
Centers revenue. Most centers offer food service to bowlers through snack bars.
The offerings generally include hamburgers, pizza, french fries and soft drinks,
among other items. Many centers also serve beer, wine and other alcoholic
beverages.
The last portion of AMF's Bowling Centers revenue consists of revenue from
ancillary sources, such as shoe rental and the operation of amusement games,
billiards and pro shops. The shoe rental business is driven primarily by open
play customers who usually do not own a pair of bowling shoes. Open play
customers are also the primary users of amusement games and billiards tables as
they are more likely to have to wait for a lane to become available.
RECENT ACQUISITIONS
On October 10, 1996, AMF completed the acquisition of 50 bowling centers
and certain related assets and liabilities from Charan Industries, Inc.
("Charan"). The purchase price of the Charan acquisition was approximately
$106.5 million, subject to certain adjustments. The Charan acquisition was
funded with approximately $40 million from the sale of equity by AMF Holdings
Inc., the ultimate parent of the Company, to its institutional stockholders and
one of its directors, and with approximately $66.5 million from available
borrowings under the Acquisition Facility.
Subsequent to the Charan acquisition and prior to December 31, 1996, AMF
purchased an aggregate of 57 bowling centers and certain related assets and
liabilities from five unrelated sellers including Charan. The combined purchase
price was approximately $113.5 million, including certain adjustments and
transaction costs.
On April 24, 1997, AMF completed the acquisition of American Recreation
Centers, Inc. ("ARC"), which operates 43 bowling centers in six states. The
aggregate price of the ARC acquisition was approximately $70.0 million,
including repayment of certain debt and the purchase of related joint venture
interests. In addition, subsequent to December 31, 1996 and through May 20,
1997, the Company had acquired an additional 16 bowling centers in the United
States and six bowling centers in the United Kingdom from several unrelated
single-center and small-chain operators. The aggregate purchase price was
approximately $44.5 million, including certain adjustments and transaction
costs, and was funded with $29.5 million of available borrowing under the
Acquisition Facility and the remainder from internally generated cash. As of May
20, 1997,
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<PAGE> 55
$55.0 million remained available under the Acquisition Facility, of which $13.0
million is expected to fund remaining payments in connection with the ARC
acquisition.
The foregoing discussion summarizes the terms of the acquisitions by the
Company since the Acquisition that the Company believes are material to an
investor in its securities. This summary is qualified in its entirety by
reference to the full text of the agreements governing the transactions
described above, copies of which are on file with the SEC, and are incorporated
by reference herein.
As a result of the foregoing acquisitions and after giving effect to the
closing of four centers, the Company owned and operated 318 U.S. bowling centers
and 84 international bowling centers as of May 20, 1997.
In April 1997, the Company entered into a $40 million joint venture
arrangement with Hong Leong Corporation Limited, a Singapore based conglomerate.
Pursuant to the arrangement, the joint venture is expected to build and operate
up to 20 bowling centers, accounting for up to 560 lanes, during the next three
years. These bowling centers, the first of which is expected to open during 1997
in Tianjin, China, will be located in the Philippines, Malaysia, Vietnam,
Indonesia, Thailand and China.
In June 1997, the Company entered into a joint venture arrangement of
approximately $100 million with Playcenter S.A., a Sao Paulo based amusement and
entertainment company. During the next four years the joint venture is expected
to build or assume ownership of, and operate, up to 39 bowling centers,
accounting for up to 730 lanes, in Brazil and Argentina.
STRATEGIES (BOWLING CENTERS)
AMF is pursuing strategies to strengthen its position and increase sales
and profits in its Bowling Centers business including:
- - ACQUIRE BOWLING CENTERS IN THE U.S. AMF will continue to seek to acquire
additional U.S. bowling centers owned by single-center and small-chain
operators to capitalize on AMF's ability to integrate and enhance operating
performance of acquired centers.
- - MAINTAIN AND GROW LEAGUE PARTICIPATION. AMF intends to continue to conduct
marketing and promotional programs directed at maintaining existing league
participation and attracting new league bowlers.
- - ATTRACT OPEN PLAY BOWLERS. With an emphasis on clean and attractive
facilities, AMF will continue to seek to attract additional open play bowlers,
including families and social groups. New marketing and promotional programs,
such as Extreme Bowling, in which glow-in-the-dark pins and equipment, black
lighting, music, and entertainment enhance the bowling experience, will also
be used to increase open play.
- - EXPAND INTERNATIONAL BOWLING CENTERS OPERATIONS. AMF expects to grow its
portfolio of bowling centers in attractive international markets, such as the
United Kingdom and Australia.
- - IMPROVE ANCILLARY REVENUE. Management believes that reinvestment and active
management can increase ancillary revenue from food and beverage operations,
amusement games and the addition of billiards in selected centers.
There can be no assurance that AMF will be able to maintain these
competitive strengths or implement these strategies successfully. See "Risk
Factors."
COMPETITION (BOWLING CENTERS)
Bowling, both as a competitive sport and a recreational activity, faces
competition from numerous alternative activities. The ongoing success of the
Company's Bowling Centers operations is subject to the level of interest in
recreational bowling, the availability and relative cost of other recreational
and entertainment alternatives, the amount of leisure time, as well as various
other social and economic factors over which AMF has no control. There can be no
assurance that bowling will continue to be popular or that the Company will
continue to compete effectively in the industry. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Performance by
Business Segment -- Bowling Centers."
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The Company's centers also compete with other bowling centers. The Company
competes primarily through the quality and appearance of its facilities and
through the range of amenities offered.
In the United States, the operation of bowling centers is a mature industry
characterized by slightly declining lineage offset by increasing average price
per game. Total lineage, according to an industry source, has declined despite
an average annual increase in the total number of people bowling since 1987.
This trend is largely a result of a shift in the customer base from league
participants to more open play bowlers, resulting in more people bowling, but
bowling less frequently. Bowling center operators have offset the decrease in
overall lineage by increasing prices and creating additional sources of
ancillary income. Management believes that AMF's U.S. lineage has remained
relatively stable in recent years due to AMF's ability to better maintain
existing league bowlers and attract new open play bowlers.
U.S. BOWLING INDUSTRY(A)
<TABLE>
<CAPTION>
OPERATOR NUMBER OF LOCATIONS % OF TOTAL
- -------------------------------------------------------------- ------------------- ----------
<S> <C> <C>
AMF(b)(c)..................................................... 263 4.5%
Brunswick..................................................... 113 1.9
American Recreation Centers(c)................................ 43 0.7
Bowl America.................................................. 25 0.4
ConBow........................................................ 22 0.4
----- -----
Subtotal.................................................... 466 7.9
Single-center and small-chain operators....................... 5,437 92.1
----- -----
Total....................................................... 5,903 100.0%
===== =====
</TABLE>
- ---------------
(a) AMF estimate at December 31, 1996. Single-center and small-chain operators
are operators of 20 or fewer centers, the vast majority of which are
operators of between one and four centers.
(b) Number of centers as of December 31, 1996. As of May 20, 1997, AMF had 318
U.S. centers, including the 43 centers attributed to American Recreation
Centers, which were acquired by AMF on April 24, 1997.
(c) On January 17, 1997, AMF entered into an Agreement and Plan of Merger with
ARC. The merger was consummated on April 24, 1997. See discussion in "Note
14. Acquisitions" in the Notes to Consolidated Financial Statements as of
December 31, 1996.
The international bowling center industry is also highly fragmented. There
are typically few chain operators in any given country and a large number of
single-center operators. AMF generally enjoys a relative size advantage (i.e., a
larger number of lanes per center), and is competitively well-positioned in
markets such as the United Kingdom and Australia. Although trends vary by
country, certain of the international markets in which AMF operates have
experienced increasing competition as they have transitioned from newly
developed to more mature markets, resulting in declining lineage. AMF has
attempted to offset these lineage declines through higher prices.
FACILITIES (BOWLING CENTERS)
As of March 31, 1997, AMF owned or operated 271 bowling centers in the
United States and 84 centers in ten other countries. A regional list of these
facilities is set forth below:
U.S. CENTERS
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF OWNED/
REGION CLUSTERS LOCATIONS(a) LEASED
----------------------------------------------------- --------- ------------ ------
<S> <C> <C> <C>
Baltimore/Washington................................. 7 40 26/14
Northeast............................................ 7 39 18/21
Mid-Atlantic......................................... 8 35 26/9
Southern............................................. 8 34 23/11
Great Lakes.......................................... 7 42 30/12
Midwest.............................................. 9 41 29/12
Pacific.............................................. 6 38 20/18
-- --- -------
Total...................................... 52 269 172/97
== === =======
</TABLE>
- ---------------
(a) AMF manages two centers for an unrelated party. The two managed centers are
neither owned nor leased by AMF.
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<PAGE> 57
INTERNATIONAL CENTERS
<TABLE>
<CAPTION>
NUMBER OF OWNED/
COUNTRY LOCATIONS LEASED
----------------------------------------------------------------- --------- -------
<S> <C> <C>
Australia........................................................ 36 23/13
United Kingdom................................................... 21 5/16
Mexico........................................................... 9 5/4
Hong Kong........................................................ 5 0/5
Japan............................................................ 5 0/5
France........................................................... 3 0/3
Spain............................................................ 2 0/2
Switzerland...................................................... 1 0/1
Canada........................................................... 1 1/0
China............................................................ 1 0/1
-- -----
Total.................................................. 84 34/50
== =====
</TABLE>
AMF's leases are subject to periodic renewal. Twenty-five of the U.S.
centers have leases which expire during the next three years. Nineteen of such
leases have renewal options. Seventeen of the international centers have leases
which expire during the next three years. Seven of such leases have renewal
options. AMF generally does not have difficulty renewing leases.
EMPLOYEES (BOWLING CENTERS)
As of December 31, 1996, AMF's Bowling Center operations had approximately
9,177 full- and part-time employees. Since that date, the number of employees in
Bowling Center operations has increased due to the Company's acquisition of
additional bowling centers. See "-- Recent Acquisitions."
NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
NUMBER OF
COUNTRY EMPLOYEES(a)
- ------------------------------------------------------------------------------- -------------
<S> <C>
United States.................................................................. 7,032
-----
International:
Australia.................................................................... 1,093
United Kingdom............................................................... 343
Mexico....................................................................... 252
Hong Kong.................................................................... 91
Japan........................................................................ 142
France....................................................................... 92
Spain........................................................................ 36
Switzerland.................................................................. 21
Canada....................................................................... 24
China........................................................................ 51
-----
Total International.................................................. 2,145
-----
Total Worldwide...................................................... 9,177
=====
</TABLE>
- ---------------
(a) Numbers vary depending on the time of year.
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AMF BOWLING PRODUCTS
AMF is one of the world's leading manufacturers of bowling center
equipment. Management believes that AMF, accounts for approximately 41% of the
world's installed base of bowling center equipment and has supplied or is
supplying equipment to an estimated 10,000 bowling centers in over 50 countries.
The Company designs, manufactures and sells bowling center equipment, including
automatic scoring equipment, bowling pins, lanes, ball returns, and certain
spare and replacement parts and resells allied products such as bowling balls,
bags, shoes and certain other spare and replacement parts.
The two market channels supplied by AMF's Bowling Products business are (i)
recurring sales of replacement and spare parts and supplies, resale products,
and major modernization equipment (collectively, "Modernization and Consumer"
products) for existing bowling centers and (ii) sales of the bowling equipment
necessary to outfit a new bowling center or to expand an existing bowling center
("New Center Packages" or "NCPs"). New Center Packages include a pinspotter, and
the vast majority also include all of the other equipment needed to outfit one
new bowling lane.
AMF and Brunswick, a publicly traded producer of marine and recreational
products, are the two largest manufacturers of bowling center equipment, and are
the only full-line manufacturers of NCPs and Modernization and Consumer products
that compete on a global basis. The Company also competes with smaller, often
regionally focused companies in certain product lines. For example, DACOS, a
Korean-based manufacturer, competes with the Company in the Asia-Pacific region,
primarily in China and Korea.
AMF positions its products as the highest quality, most technologically
advanced products in the industry, allowing AMF generally to command premium
prices. AMF's long history of bowling equipment innovation began 50 years ago
when AMF revolutionized ten-pin bowling with the introduction of the automatic
pinspotter. Today, AMF manufactures the fastest pinspotter (for play conducted
under conditions specified by the American Bowling Congress), the
highest-scoring lanes and the most durable pins. The superior speed of AMF's
pinspotter directly influences the amount of bowling revenue a bowling center
can generate, and the reliability and ease of repair is an important marketing
tool against sellers of refurbished equipment. AMF's synthetic lanes, introduced
in 1988, are the performance leaders. In the annual American Bowling Congress
tournament, where AMF and Brunswick supply the equipment in alternating years,
every major scoring record has been set on AMF's synthetic lanes. The lives of
both the pinspotter and lanes, when properly maintained, typically exceed 35
years. Internal tests demonstrate that AMF pins are more durable under stress
conditions and less likely to break. In general, AMF's products are developed
through internal research and development efforts. AMF holds over 40 U.S.
patents for its various proprietary products and technologies.
MODERNIZATION AND CONSUMER PRODUCTS
The potential customers for Modernization and Consumer products include all
bowling centers in operation today, and the number of these potential customers
will continue to grow as the number of centers increases. In order for a bowling
center to remain competitive and satisfy its customers, the center operator must
make certain periodic investments in the center's equipment. Some of these
investments must be made on approximately an annual basis, such as certain
replacement parts and replacement pins. These annual investments represent
relatively modest expenditures necessary to maintain the center. Other
equipment, such as automatic scoring systems, replacement lanes and upgraded
automated lane maintenance equipment, require less frequent but more significant
investments by center operators. Management believes that many of these
modernizations are necessary for a center to maintain its existing customer
base.
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<PAGE> 59
NEW CENTER PACKAGES
Each New Center Package includes a pinspotter, and the vast majority also
include the other equipment needed to outfit one new bowling lane. A complete
New Center Package consists of an automatic pinspotter, a lane package,
automatic scoring equipment, seating, a ball lift and ball return, and various
other supplies and miscellaneous items.
AMF and Brunswick are the only two full-line manufacturers of equipment
comprising a New Center Package that compete on a global basis. Used equipment
dealers or refurbishers combine used pinspotters with other used and some new
equipment to create their own version of an "NCP."
Bowling Products NCP sales follow the trends in the growth of bowling. Most
of the new bowling centers built in the world today are being built outside of
the U.S., especially in Asia. As bowling becomes popular in emerging markets,
local developers and entrepreneurs build new bowling centers, which need to be
outfitted with equipment, driving demand for NCPs. As bowling markets develop,
new centers continue to be built until the number of installed lanes serving the
local population reaches a point at which the prospective economic returns from
the construction of a new bowling center begin to decline. Accordingly, the NCP
business has been characterized by rapid growth in sales of NCPs to a particular
market until such markets mature, at which time sales to that market decline,
sometimes rapidly.
Since NCP sales decline as various markets mature, continued growth in NCP
sales depends on similar bowling growth patterns developing in other emerging
markets, such as China, India and Indonesia. In addition, the Company must
establish local sales and service capability to participate in future
international expansion and to exploit new demand successfully. There can be no
assurance that such future international expansion will occur or that, if it
does occur, the Company will be able to compete successfully in such emerging
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Performance by Business Segment -- Bowling Products."
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Backlog; Recent NCP Sales."
STRATEGIES (BOWLING PRODUCTS)
AMF is pursuing strategies to enhance its position and increase sales and
profits in Bowling Products, including:
- EXPAND POSITION IN MODERNIZATION AND CONSUMER PRODUCT SALES. As the
worldwide base of bowling equipment grows, management believes that AMF's
established direct sales force, distributor network and quality products
will position it to increase sales of Modernization and Consumer
products.
- GROW NEW CENTER PACKAGE SALES. AMF's brand name, its quality products
and its established sales force should continue to position it to take
advantage of increasing international NCP demand in emerging markets
around the world.
- MAINTAIN LOW-COST MANUFACTURING POSITION. AMF expects to continue to
maintain its low-cost manufacturing position by taking further advantage
of manufacturing efficiencies and productivity improvement programs.
- MAINTAIN SUPERIOR PRODUCTS. AMF expects to maintain superior products
through research and development.
There can be no assurance that AMF will be able to maintain or implement
these strategies successfully. See "Risk Factors."
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<PAGE> 60
COMPETITION (BOWLING PRODUCTS)
AMF is one of the largest manufacturers of bowling center equipment in the
world. Management estimates that AMF accounts for approximately 41% of the
worldwide installed base of bowling center equipment.
AMF and Brunswick are the only full-line manufacturers of Modernization and
Consumer products that compete on a global basis. AMF's primary competitors for
Modernization and Consumer sales (other than Brunswick) are much smaller
companies that tend to offer a narrower range of products and are often
regionally focused.
Because of bowling equipment's relatively long useful life, used equipment
can be refurbished and sold, often to builders of new centers. The Company
actively purchases and resells used equipment in new high growth markets in
order to compete with refurbishers who often are U.S. based.
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<PAGE> 61
PROPERTIES (BOWLING PRODUCTS)
As of March 31, 1997, AMF owned or leased facilities at four locations in
the U.S. -- three for its Bowling Products business and one for its billiards
business. AMF also leased facilities at nine international locations, which are
used as offices or warehouses. These facilities are listed below.
U.S. FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION PRODUCTS SQUARE FOOTAGE LEASED
- ------------------ -------------------------------------- -------------- ------
<S> <C> <C> <C>
Richmond, VA...... Pinspotters, automatic scoring, 360,000 Owned
synthetic lanes, other capital
equipment, consumer products
Used pinspotters 54,000 Leased
Lowville, NY...... Pins and wood lanes 121,000 Owned
50,000 Owned
Golden, CO........ Lane maintenance equipment (Century) 50,000 Leased
Bland, MO......... Billiard tables (PlayMaster) 37,210 Owned
33,373 Leased
32,000 Owned
24,000 Owned
16,000 Owned
11,000 Leased
</TABLE>
INTERNATIONAL FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION FUNCTIONS SQUARE FOOTAGE LEASED
----------------------------------------- --------------- -------------- ------
<S> <C> <C> <C>
Emu Plains, Australia.................... Office 400 Leased
Warehouse 10,100 Leased
Hong Kong................................ Office 2,500 Leased
Office 1,125 Leased
Levallois-Perret, France................. Office 984 Leased
Warehouse 1,470 Leased
Mainz-Kastel, Germany.................... Office 656 Leased
Warehouse 1,650 Leased
Yokohama, Japan.......................... Office 4,626 Leased
Warehouse 8,880 Leased
Service Center 1,634 Leased
Seoul, Korea............................. Office 5,119 Leased
Warehouse 7,472 Leased
Mexico City, Mexico...................... Office 1,300 Leased
Warehouse 11,431 Leased
Granna, Sweden........................... Office 4,515 Leased
Warehouse 12,705 Leased
Hemel Hempstead, United Kingdom.......... Office 11,500 Leased
Warehouse 11,770 Leased
</TABLE>
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<PAGE> 62
EMPLOYEES (BOWLING PRODUCTS)
As of December 31, 1996, AMF's Bowling Products business had approximately
861 full-time employees. Employees are divided along functional lines as shown
in the table below.
EMPLOYEES
<TABLE>
<CAPTION>
SEGMENT NUMBER OF EMPLOYEES
----------------------------------------------------------------- -------------------
<S> <C>
Manufacturing.................................................... 634
---
Sales
Australia...................................................... 8
Americas....................................................... 48
Europe......................................................... 35
Asia-Pacific................................................... 80
Japan.......................................................... 41
Sweden......................................................... 15
---
Total Sales................................................. 227
---
Total Worldwide........................................ 861
===
</TABLE>
EMPLOYEES (CORPORATE)
As of December 31, 1996, the Company had approximately 134 full-time
corporate employees.
LEGAL PROCEEDINGS
The Company currently and from time to time is subject to claims and suits
arising in the ordinary course of its business, including employment
discrimination claims, workers' compensation claims, and minor personal injury
claims from customers of Bowling Centers. In certain such actions, plaintiffs
request punitive or other damages that may not be covered by insurance. It is
the opinion of management that the various asserted claims and litigation in
which the Company currently is involved will not have a material adverse effect
on its financial position or results of operations. However, no assurance can be
given as to the ultimate outcome with respect to such claims and litigation.
AMF Bowling, Inc. ("AMF Bowling") is a defendant in a patent infringement
action (The Kegel Company, Inc. v. AMF Bowling, Inc.) with respect to the oil
application system used in a lane cleaning machine manufactured by AMF Bowling.
The plaintiffs, competitors of AMF Bowling, obtained a summary judgment on the
issue of liability in December 1994. AMF Bowling appealed the court's final
judgment and the appeal is currently pending. A trial on damages will not occur
unless and until the liability issue is resolved against AMF Bowling. The
plaintiff is claiming damages of approximately $3.0 million, and alleges a right
to increased damages up to three times that amount for "willful infringement."
Immediately after the summary judgment, AMF Bowling changed its manufacturing
method to one that does not use the disputed oil application system and has
recently introduced an advanced lane cleaning machine that uses new technology.
AMF Bowling has been charged with infringement by Joseph Gentiluomo, the
owner of a patent relating to certain bowling balls. Although no action has been
filed against AMF Bowling, Mr. Gentiluomo has filed an infringement suit against
Brunswick Bowling & Billiards Corporation and Columbia 300, Inc. (Gentiluomo v.
Brunswick Bowling & Billiards Corporation, et al.), and has informed AMF Bowling
that he "intends to pursue all available rights and remedies against AMF
[Bowling] and all other infringers . . . prior to or upon conclusion of the
pending lawsuit."
Actions have been brought against the Predecessor Company by its former
Korean distributor, in both Korea and New York State. These actions arise from
the same factual circumstances, and
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<PAGE> 63
allege that certain notices of termination of plaintiff's distributorship
agreement were deficient. On February 16, 1996, the Korean Court dismissed the
litigation on jurisdictional grounds, although such decision is subject to
appeal. In the New York Supreme Court action, the plaintiff is seeking $41.8
million in general damages as well as $100.0 million in punitive damages. The
parties to this pending litigation have agreed in principle to settle the claims
involved without the necessity of any payment by AMF and the litigation has been
dismissed with prejudice subject to the parties' execution and delivery of
mutually acceptable settlement and release documentation. The parties have not
yet agreed on the form of such documentation. Under the terms of the
Acquisition, the Sellers have agreed to indemnify AMF for any loss related to
this litigation.
REGULATORY MATTERS
There are no unique federal or state regulations applicable to bowling
center operations or equipment manufacturing. State and local governments
require establishments to hold permits to sell alcoholic beverages and, although
regulations vary from state to state, once permits are issued, they generally
remain in place indefinitely (except for routine renewals) without burdensome
reporting or supervision other than revenue tax reports.
The Predecessor Company purchased the Fair Lanes bowling center chain
consisting of 106 centers in 1994. In September 1995, the Justice Department
informed AMF of the results of an investigation that it had conducted in early
1994 at six Fair Lanes bowling centers, prior to Fair Lanes' Chapter 11 filing.
The investigation was to evaluate compliance with the Americans with
Disabilities Act. The Justice Department concluded that there were violations,
because Fair Lanes had apparently failed to respond appropriately or to take
corrective action while it was in Chapter 11. Since informing AMF of the results
of this investigation, the Justice Department has inspected an additional four
bowling centers. Although it has not formally reported any violations at these
four centers, it has indicated by telephone that its inspector believed that
there were some violations. The Company believes that many of the potential
violations at the six Fair Lanes bowling centers have been corrected since the
Company took control of Fair Lanes. The Company has provided the Justice
Department with the details of the corrective action taken at the Fair Lanes
centers.
ENVIRONMENTAL MATTERS
AMF's operations are subject to federal, state, local and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the handling, generation, emission, release,
discharge, treatment, storage and disposal of, certain materials, substances and
wastes. AMF believes that its operations are in material compliance with the
terms of all applicable environmental laws and regulations as currently
interpreted.
AMF Bowling's Century Division ("Century") leases a facility in Golden,
Colorado. In connection with the landlord's attempted sale of the facility, a
potential buyer conducted exploratory groundwater sampling that yielded evidence
of potential groundwater contamination in one monitoring well on the site. In
1996, the landlord conducted additional tests to determine the existence and
extent of any such contamination. AMF believes that, pursuant to the 1990 asset
purchase agreement by which AMF Bowling acquired Century, it is indemnified by
the former shareholders of Century for the costs of any necessary remediation at
the Golden, Colorado facility for contamination that occurred prior to 1990. To
the extent that contamination may have been caused by AMF Bowling since 1990,
AMF Bowling would not be indemnified. AMF is not, however, aware of any
post-1990 contamination. AMF cannot at this time estimate the potential costs of
investigation or cleanup, if any, but, based on currently available information,
AMF believes that its liability with respect to any such investigation or
cleanup is unlikely to have a material adverse effect on AMF's business or
financial condition or its financial statements taken as a whole.
AMF's Trinity Avenue site, which is part of its facility in Lowville, New
York, is undergoing groundwater remediation in connection with solvent
contamination dating to 1986, when under-
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<PAGE> 64
ground storage tanks were removed. The site is listed on the New York State
Registry of Inactive Hazardous Waste Sites. AMF believes that liability for the
remediation rests with a third party under the 1986 agreement pursuant to which
the Sellers acquired from such third party the core bowling equipment
manufacturing business. Such third party has taken responsibility to date and is
implementing the remedy. In the event that such third party were unable to meet
its obligations with respect to the remediation, AMF could be held responsible
for such remediation.
Another property, AMF's bowling center at Bristol Pike Lanes, Croydon,
Pennsylvania, is located within the boundaries of the Croydon TCE Spill
Superfund site, which has been listed on the National Priorities List ("NPL")
under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund"). The site includes an area of
groundwater contamination of approximately 3.5 square miles, and the bowling
center is close to properties identified by the U.S. Environmental Protection
Agency ("EPA") as potential sources of the contamination. The bowling center
does not appear to have contributed to the groundwater contamination, and the
EPA has not listed AMF as a potentially responsible party. AMF does not believe
that the groundwater contamination at either of the sites described in this
paragraph and the preceding paragraph is likely to have a material adverse
effect on AMF's business or financial condition or on its financial statements
taken as a whole.
AMF has received notices of potential liability under CERCLA or analogous
state statutes at eight off-site disposal facilities. AMF believes that the
entity involved was a de minimis contributor of waste at each of these sites. In
addition, in connection with the Acquisition, AMF Reece Inc., which is owned by
the Sellers, will be required to indemnify AMF for the liability at three of
these sites under an indemnity agreement which the Sellers were obliged to
procure. AMF does not believe that CERCLA liabilities for these eight sites in
the aggregate will have a material adverse effect on AMF's business or financial
condition or on its financial statements taken as a whole.
AMF cannot predict with any certainty whether future events, such as
changes in existing laws and regulations, may give rise to additional
environmental costs. Furthermore, actions by federal, state, local and foreign
governments concerning environmental matters could result in laws or regulations
that could increase the cost of producing AMF's products, or providing its
services, or otherwise adversely affect the demand for its products or services.
The Company's principal executive offices are located at 8100 AMF Drive,
Richmond, VA 23111, telephone (804) 730-4000.
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<PAGE> 65
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the individuals who
are expected to be the executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Richard A. Friedman.............. 39 Director and President
Terence M. O'Toole............... 38 Director
Peter M. Sacerdote............... 59 Director
Charles M. Diker................. 62 Director
Paul B. Edgerley................. 41 Director
Howard A. Lipson................. 33 Director
Thomas R. Wall IV................ 38 Director
Douglas J. Stanard............... 50 Director; Chief Operating Officer; and President --
Bowling Center Operations
Stephen E. Hare.................. 43 Director; Executive Vice President; Chief Financial
Officer; and Treasurer
Michael P. Bardaro............... 46 Vice President; Secretary; and Corporate Controller
</TABLE>
RICHARD A. FRIEDMAN is a Managing Director of Goldman Sachs where he is the
head of the Principal Investment Area. He joined Goldman Sachs in 1981. Mr.
Friedman is on the Advisory Committees or Boards of Directors of Diamond Cable
Communications PLC, Globe Manufacturing Co., Marcus Cable Company, L.P., and
Polo Ralph Lauren Enterprises, L.P. He received an A.B. from Brown University
and an M.B.A. from The University of Chicago.
TERENCE M. O'TOOLE is a Managing Director of Goldman Sachs in the Principal
Investment Area. He joined Goldman Sachs in 1983. Mr. O'Toole serves on the
Boards of Directors of Concentric Network Corporation, Insilco Corporation,
Rollerblade, Inc. and Western Wireless Corporation. He holds a B.S. degree from
Villanova University and an M.B.A. from the Stanford Graduate School of
Business.
PETER M. SACERDOTE is a limited partner in The Goldman Sachs Group, L.P. He
joined Goldman Sachs in 1964 and served as a general partner from 1973 to 1990.
Mr. Sacerdote is Chairman of Goldman Sachs & Co. Investment Committee. Mr.
Sacerdote serves on the Boards of Directors of Franklin Resources, Inc.,
QUALCOMM Incorporated and Weis Markets, Inc. Mr. Sacerdote has a B.E.E. from
Cornell University and an M.B.A. from the Harvard Graduate School of Business
Administration.
CHARLES M. DIKER has been a limited partner of Weiss, Peck & Greer, an
investment management firm, since 1975. He has been Chairman of the Board of
Cantel Industries since 1986. Mr. Diker serves as a director of BeautiControl
Cosmetics, International Specialty Products, Data Broadcasting and Chyron
Corporation. He received an A.B. from Harvard College and an M.B.A. from the
Harvard Graduate School of Business Administration.
PAUL B. EDGERLEY has been Managing Director of Bain Capital, Inc., an
investment firm, since 1993. From 1990 to 1993 he was a General Partner of Bain
Venture Capital, and from 1988 to 1990 he was a principal of Bain Capital
Partners. He serves on the Boards of Directors of Masland Corporation and GS
Industries Inc. Mr. Edgerley received a B.S. from Kansas State University and an
M.B.A. with distinction from the Harvard Graduate School of Business
Administration.
HOWARD A. LIPSON is Senior Managing Director of The Blackstone Group, and
has been involved in the firm's principal activities since 1988. He serves on
the Boards of Directors of UCAR International Inc., Volume Services, Inc. and
Ritvik Holdings, Inc. Mr. Lipson received a B.S. in Economics from the Wharton
School of The University of Pennsylvania.
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<PAGE> 66
THOMAS R. WALL IV has been a Managing Director of Kelso & Co. since 1990.
He serves as a director of CCA Holdings Corp., General Medical, Inc., IXL
Holdings, Inc., Mitchell Supreme Fuel Company, Mister Inc. and Peebles Inc.
DOUGLAS J. STANARD is the President and Chief Operating Officer of AMF
Group Inc. He served as President of AMF Worldwide Bowling Centers from 1993 to
1995 and President of AMF U.S. Bowling Centers in 1992. He joined AMF in 1992
after having been President of Stewart Foods, Inc. from 1989 to 1992 and
President of Beatrice International Food (Europe) S.A. from 1984 to 1988. Mr.
Stanard received a B.S. degree from Northern Illinois University and a J.D.
degree from The College of William and Mary.
STEPHEN E. HARE has been Executive Vice President and Chief Financial
Officer of AMF Group Inc. since he joined AMF in May 1996. Prior to joining AMF,
Mr. Hare was Senior Vice President and Chief Financial Officer of James River
Corporation of Virginia, beginning in 1992. Before joining James River
Corporation, he was Senior Vice President of Investment Banking at Kidder,
Peabody & Co. in New York. Mr. Hare holds a Certified Public Accountant license.
He received a B.B.A. from Notre Dame and an M.B.A. from the Harvard Graduate
School of Business Administration.
MICHAEL P. BARDARO is a Vice President, Secretary and Corporate Controller
of AMF Group Inc. He joined AMF in 1994 after having been Controller at General
Medical Manufacturing Co. in Richmond, Virginia between 1989 and 1994 and Vice
President/Controller at Virginia Linen Service, Inc. between 1986 and 1989. Mr.
Bardaro holds a Certified Public Accountant License in Virginia. He received a
B.S. degree in Accounting from the University of Cincinnati.
EXECUTIVE COMPENSATION
The following table shows for each of the three years ended December 31,
1996, 1995, and 1994, all annual compensation paid or accrued by AMF and its
subsidiaries and the Predecessor Company, as applicable, to AMF's chief
executive officer and its three most highly compensated executive officers,
other than the chief executive officer, whose annual compensation exceeds
$100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ------------------------
--------------------- SECURITIES ALL OTHER
SALARY BONUS UNDERLYING LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#)(a) ($) ($)(b)
- --------------------------- ----- ------- -------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Stanard......... 1994 180,000 112,500 -- -- --
President/Chief 1995 225,000 204,750 -- -- --
Operating Officer 1996 308,333 229,167 130,000 -- 7,500
Stephen E. Hare............ 1994 N/A N/A N/A N/A N/A
Executive Vice President/ 1995 N/A N/A N/A N/A N/A
Chief Financial Officer/ 1996 178,333(c) 100,000 105,000 -- --
Treasurer
Robert L. Morin(d)......... 1994 103,000 59,950 -- -- --
Executive Vice President/ 1995 180,286 60,125 -- -- --
Director of Worldwide 1996 228,341 83,325 110,000 860,100(e) 7,500
Market Development
Michael P. Bardaro......... 1994 44,371(f) 4,500 -- -- --
Vice President/Secretary 1995 95,833 29,958 -- -- 2,327
and Corporate Controller 1996 117,622 40,046 25,000 -- 168,338(g)
</TABLE>
- ---------------
(a) Options to purchase shares of Parent Common Stock under the AMF Holdings
Inc. 1996 Stock Incentive Plan.
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<PAGE> 67
(b) Unless otherwise indicated, all other compensation represents 401(k) plan
and profit-sharing contributions made by AMF.
(c) Mr. Hare's employment began on May 28, 1996.
(d) Resigned all positions with AMF and its affiliates as of February 28, 1997.
(e) Prior to the Acquisition, Mr. Morin held 10,000 shares of phantom stock in
the Capital Equipment Division ("CED") of the Predecessor Company under a
Phantom Stock Plan (the "Phantom Stock Plan"). Under the Phantom Stock
Plan, the phantom stock was valued at five times the average earnings of
CED for the current and two preceding fiscal years. In connection with the
Acquisition, the shares of phantom stock issued under the Phantom Stock
Plan were exchanged for $86.01 per share and the Phantom Stock Plan was
terminated.
(f) Mr. Bardaro's employment began on July 5, 1994.
(g) Includes a "special one-time bonus" in the amount of $161,388 paid by the
Predecessor Company in connection with the Acquisition.
OPTION GRANTS
The following table provides information on grants of stock options in 1996
to the Named Executive Officers under the AMF Holdings Inc. 1996 Stock Incentive
Plan as described below.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE GRANT DATE
GRANTED IN FISCAL PER PRESENT
NAME (SHARES) 1996 SHARE EXPIRATION DATE VALUE(1)
- --------------------------- ---------- ---------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Douglas J. Stanard......... 130,000 10.6% $10.00 May 1, 2006 $ 3.05
Stephen E. Hare............ 105,000 8.6% $10.00 May 28, 2006 $ 3.05
Robert L. Morin............ 110,000 9.0% $10.00 May 1, 2006 $ 3.05
Michael P. Bardaro......... 25,000 2.0% $10.00 August 28, 2006 $ 3.08
</TABLE>
- ---------------
(1) The present value of the grant at the date of grant is estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for these grants: risk-free rate of 6.5 percent; expected
dividend yield of zero; expected lives of ten years; expected volatility of
zero based on the minimum value method. No adjustments were made to reflect
forfeiture risk.
OPTION EXERCISES AND YEAR-END VALUES
The following table provides information for the Named Executive Officers
regarding the number and value of all their unexercised stock options at
December 31, 1996. No such officers exercised any options in fiscal year 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 (SHARES) DECEMBER 31, 1996($)(1)
------------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------- ------------------------------- -------------------------
<S> <C> <C>
Douglas J. Stanard...................... 0 / 130,000 $ 0 / 0
Stephen E. Hare......................... 0 / 105,000 $ 0 / 0
Robert L. Morin......................... 0 / 110,000 $ 0 / 0
Michael P. Bardaro...................... 0 / 25,000 $ 0 / 0
</TABLE>
- ---------------
(1) The fair market value of options granted as of December 31, 1996 was assumed
to be $10.00 per share, equal to the grant price, due to the lack of a
public trading market for the securities underlying the options.
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<PAGE> 68
EMPLOYMENT AGREEMENTS
Mr. Stanard and Mr. Hare each have an employment agreement with the Parent
and AMF. Mr. Stanard's employment agreement is for an employment period ending
on May 1, 1999, and Mr. Hare's is for an employment period ending on May 28,
1999. Pursuant to these agreements, each receives compensation consisting of
salary and an incentive bonus of up to 50% of the executive's annual salary if
certain operational and financial targets are met. Mr. Stanard's annual base
salary is $350,000 and Mr. Hare's annual base salary is $300,000. Both
employment agreements provide for the payment of an annual bonus equal to 50% of
the annual base salary if certain operational and financial targets determined
by AMF's board of directors (the "Targets") are attained, and that the executive
will earn an annual bonus of less than 50% of his annual base salary if less
than 100% but more than 90% of the Targets are attained. Notwithstanding this
provision, Mr. Hare's employment agreement additionally states that his annual
bonus will not be less than $100,000 for the fiscal year ending December 31,
1996, and will not be less than $50,000 for the fiscal year ending December 31,
1997.
Under their respective employment agreements, Mr. Stanard holds the
position of Chief Operating Officer of AMF and Mr. Hare holds the position of
Chief Financial Officer of AMF. In addition, Mr. Stanard is currently serving as
President of AMF Bowling Centers, Inc., AMF Bowling, Inc. and certain other
related entities. The employment agreements provide for payment of accrued
compensation, continuation of certain benefits and payment of a portion of the
executive's bonus (if the applicable targets are later met) following
termination of employment by AMF. The agreements further provide for a severance
payment equal to the executive's annual base salary if termination by AMF is not
due to death or disability. The executive's employment will be deemed to have
been terminated by AMF if all or substantially all of the stock or assets of AMF
are sold or disposed of to an unaffiliated third party and the executive is not
thereafter employed by the Parent or one of its continuing affiliates, however
neither Parent nor AMF will have any obligations with respect to accrued salary,
continuation of benefits, allocated portion of bonus and, if applicable,
severance payments to either Mr. Stanard or Mr. Hare upon termination of his
employment if he is hired by the purchaser of AMF's stock or assets, or if his
employment is continued by AMF.
Mr. Stanard purchased, pursuant to his employment agreement, 150,000 shares
of Parent Common Stock (the "Purchased Stock") for the payment of $500,000 in
cash plus a non-recourse promissory note for $1,000,000, payable to Parent and
secured by the Purchased Stock which has been pledged pursuant to a stock pledge
agreement between Mr. Stanard and Parent. Mr. Hare purchased 150,000 shares of
Parent Common Stock for the payment of $333,167 in cash plus a non-recourse
promissory note for $1,000,000 and a full recourse promissory note of $62,614,
payable to Parent and secured by the Purchased Stock which has been pledged
pursuant to a stock pledge agreement between Mr. Hare and the Parent. In
addition, Mr. Stanard and Mr. Hare were granted options to purchase 130,000 and
105,000 shares of Parent Common Stock (together, the "Options"), respectively.
Unless sooner exercised or forfeited as provided, the Options expire on May 1,
2006, and May 28, 2006, respectively. To the extent not inconsistent with the
employment agreements, the Options are governed by Parent's 1996 Stock Incentive
Plan (the "Stock Incentive Plan"), described below. Twenty percent of Mr.
Stanard's Options vest on May 1, 1997 and on each May 1 thereafter through the
year 2001; twenty percent of Mr. Hare's Options vest on May 28, 1997 and on each
May 28 thereafter through the year 2001.
The employment agreements further provide that, prior to the consummation
of an initial public offering or offerings by Parent with gross proceeds in the
aggregate of at least $100 million (an "IPO"), Parent may, upon termination of
the executive's employment for any reason (including death), repurchase all of
the shares of Purchased Stock and any shares of Parent Common Stock issued upon
exercise of the Options (together, "Restricted Stock") held by him for fair
market value as of a specified date. The executive or his legal representative
may, prior to such an initial public offering or offerings, require Parent to
repurchase all of his Restricted Stock at fair market value (in the case of
death or disability) or otherwise at the original price paid for the shares, if
AMF
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<PAGE> 69
terminates his employment for any reason. Immediately prior to certain change in
control transactions any then unvested Options will vest.
If any successor to Parent or AMF acquires all or substantially all of the
business and/or assets of Parent or AMF, Parent may purchase all of the
Restricted Stock held by the executive for its fair market value, and any
Options then held by him for the fair market value of the underlying Parent
Common Stock less the exercise price of the Options.
Prior to February 28, 1997, Mr. Morin was employed by Parent and a
subsidiary of AMF pursuant to an employment agreement on terms substantially
similar to those of Mr. Stanard's agreement as described above. Mr. Morin's
annual base salary was $250,000. Pursuant to his employment agreement, Mr. Morin
purchased 150,000 shares of Parent Common Stock ("Morin Purchased Stock") for
the payment of $500,000 in cash plus a non-recourse promissory note for
$1,000,000 (the "Morin Note") , payable to Parent and secured by the Morin
Purchased Stock. In addition, Mr. Morin was awarded options to purchase 110,000
shares of Parent Common Stock.
As of February 28, 1997, Mr. Morin's employment was terminated by AMF and
he resigned all positions with AMF and its related entities. Pursuant to the
terms of his employment agreement, Mr. Morin received a cash payment of $270,000
representing severance pay equal to his annual base salary and an allocable
bonus in the amount of $20,000. Mr. Morin is also entitled to receive an amount
equal to the full balance of his 401(k) plan as of the close of business on
February 28, 1997. In addition Parent repurchased the Morin Purchased Stock for
the payment of $500,000 in cash plus the cancellation of the Morin Note,
including interest thereon. Finally, the options granted to Mr. Morin were
canceled.
AMF HOLDINGS INC. 1996 STOCK INCENTIVE PLAN
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 ("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 ("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. As of March 31, 1997, 1,169,000 Stock Options were outstanding, at an
exercise price of $10.00 per share. 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. Unless otherwise determined by
the Committee, any Participant granted an award under the Stock Incentive Plan
must become a party to, and agree to be bound by, the Stockholders Agreement (as
defined below).
Stock Option awards under the Stock Incentive Plan may include incentive
Stock Options, nonqualified Stock Options, or both types of Stock Options, in
each case with or without Stock Appreciation Rights. Stock Options are
nontransferable (except under certain limited circumstances) and, unless
otherwise determined by the Committee, have a term of ten years. Upon a
Participant's death or when the Participant's employment with Parent or the
applicable affiliate of Parent is terminated for any reason, such Participant's
previously unvested Stock Options are forfeited and the Participant or his legal
representative may, within three months (if termination of employment is for any
reason other than death) or one year (in the case of the Participant's death),
exercise any previously vested Stock Options.
Stock Appreciation Rights may be granted in conjunction with all or part of
any Stock Option award, and are exercisable, subject to certain limitations,
only in connection with the exercise of the related Stock Option. Upon the
termination or exercise of the related Stock Option, Stock Appreciation Rights
terminate and are no longer exercisable. Stock Appreciation Rights are
transferable only with the related Stock Options.
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<PAGE> 70
Unless otherwise provided in the related award agreement or, if applicable,
the Stockholders Agreement, immediately prior to certain change of control
transactions described in the Stock Incentive Plan, all outstanding Stock
Options and Stock Appreciation Rights will, subject to certain limitations,
become fully exercisable and vested and any restrictions and deferral
limitations applicable to any Restricted Stock Awards will lapse.
The Stock Incentive Plan will terminate ten 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.
During fiscal 1996, Stock Options to purchase 1,226,500 shares of Parent
Common Stock were granted under the Stock Incentive Plan. The exercise price for
all such Stock Options is $10.00 per share.
Pursuant to an Option Agreement dated May 1, 1996, Charles M. Diker, a
director of Parent, Holdings and the Company, pursuant to the Stock Incentive
Plan, was granted non-qualified Stock Options to purchase 100,000 shares of
Parent Common Stock at an exercise price of $10.00 per share. One third of such
options vested on May 1, 1996, one third vest on May 1, 1997 and the remaining
options vest on May 1, 1998. Mr. Diker's Option Agreement provides that, prior
to the consummation of an IPO, Parent may, upon termination of Mr. Diker's
service as a director of Parent for any reason (including death), repurchase of
all of the shares of Restricted Stock held by him for fair market value as of a
specified date. Mr. Diker or his legal representative may, prior to an IPO,
require the Parent to repurchase all of his Restricted Stock at fair market
value (in the case of death or disability) or otherwise at the original price
paid for the shares, if Parent terminates his service as a director of Parent
for any reason. If any successor to Parent acquires all or substantially all of
the business and/or assets of Parent, Parent may purchase all of the Stock
Options then held by Mr. Diker for the fair market value of the underlying
Parent Common Stock less the exercise prior of the Stock Options. Mr. Diker is a
party to the Stockholders Agreement and any shares of Parent Common Stock held
by Mr. Diker will be subject to the terms of the Stockholders Agreement in
addition to the terms of his Option Agreement.
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information, as of March 5, 1997,
regarding beneficial ownership of the common stock ("Parent Common Stock") of
the Holdings' parent company, AMF Holdings Inc., by each stockholder who is
known by AMF to own beneficially more than 5% of the outstanding Parent Common
Stock, each director of AMF, each named Executive Officer of AMF and all
directors and executive officers of AMF as a group. Except as set forth in the
footnotes to the table, each stockholder listed below has informed AMF that such
stockholder has (i) sole voting and investment power with respect to such
stockholder's shares of Parent Common Stock and
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<PAGE> 71
(ii) record and beneficial ownership with respect to such stockholder's shares
of Parent Common Stock.
<TABLE>
<CAPTION>
SHARES OF PARENT COMMON
STOCK
BENEFICIALLY OWNED
----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE
- ---------------------------------------------------------------- ------------- ----------
<S> <C> <C>
The Goldman Sachs Group, L.P. (a)............................... 29,612,254.45 68.5%
85 Broad Street
New York, New York 10004
The Blackstone Group(b)......................................... 5,527,356.62 13.0%
375 Park Avenue
New York, New York 10154
Kelso & Company(c).............................................. 5,527,356.62 13.0%
350 Park Avenue
New York, New York 10022
Richard A. Friedman(d).......................................... -- --
Terence M. O'Toole(e)........................................... -- --
Peter M. Sacerdote(f)........................................... -- --
Charles M. Diker................................................ 204,849.9(g) *
Paul B. Edgerley(h)............................................. -- --
Howard A. Lipson(i)............................................. -- --
Thomas R. Wall, IV(j)........................................... -- --
Douglas J. Stanard.............................................. 176,000(k) 0.4%
Stephen E. Hare................................................. 150,000 0.4%
Michael P. Bardaro.............................................. -- --
All directors and officers as a group (11 persons).............. 530,849.9 1.3%
</TABLE>
- ---------------
* Less than 1%.
(a) Of the total number of shares beneficially owned by The Goldman Sachs
Group, L.P. ("The Goldman Sachs Group"), 870,000 shares are owned by The
Goldman Sachs Group, 18,528,225.83 are owned by GS Capital Partners II,
L.P., 7,365,729.13 shares are owned by GS Capital Partners II Offshore,
L.P., 683,418.18 shares are owned by Goldman, Sachs & Co. Verwaltungs GmbH,
as nominee for GS Capital Partners II Germany, C.L.P., 462,807.6 shares are
owned by Stone Street Fund 1995, L.P., 711,728.27 shares are owned by Stone
Street Fund 1996, L.P., 489,180.94 shares are owned by Bridge Street Fund
1995, L.P. and 501,164.5 shares are owned by Bridge Street Fund 1996, L.P.
The 870,000 shares beneficially owned by The Goldman Sachs Group represent
870,000 warrants to purchase shares of Parent Common Stock, which were
issued upon the closing of the Acquisition. GS Capital Partners II, L.P.,
GS Capital Partners II Offshore, L.P., GS Capital Partners II Germany,
C.L.P., Stone Street Fund 1995, L.P., Stone Street Fund 1996, L.P., Bridge
Street Fund 1995, L.P. and Bridge Street Fund 1996, L.P., are investment
partnerships that are managed by Goldman Sachs, which has full dispositive
power with respect to the holdings of such partnerships. Affiliates of The
Goldman Sachs Group are the general or managing partners of such
partnerships and have full voting and investment power with respect to the
holdings of such partnerships.
(b) Of the total number of shares beneficially owned by The Blackstone Group,
3,972,542.12 shares are owned by Blackstone Capital Partners II Merchant
Banking Fund L.P., 1,160,891.9 shares are owned by Blackstone Offshore
Capital Partners II L.P. and 393,922.6 shares are owned by Blackstone
Family Investment Partnership L.P.
(c) Of the total number of shares beneficially owned by Kelso & Company,
5,195,715.22 shares are owned by Kelso Investment Associates V, L.P. and
331,641.4 are owned by Kelso Equity Partners V, L.P.
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<PAGE> 72
(d) Mr. Friedman, who is a managing director of Goldman, Sachs & Co., disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates.
(e) Mr. O'Toole, who is a managing director of Goldman, Sachs & Co., disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates.
(f) Mr. Sacerdote, who is a limited partner of Goldman, Sachs & Co., disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates.
(g) Includes 66,666 shares which may be acquired upon exercise of options
within 60 days.
(h) Mr. Edgerley, who is (i) a managing director of the general partner of the
general partner of Bain Capital Fund V, L.P. and Bain Capital Fund V-B,
L.P. and (ii) a general partner of BCIP Associates and BCIP Trust
Associates, L.P., disclaims beneficial ownership of the shares owned by
those entities. Bain Capital Fund V, L.P. owns 385,479.613 shares, Bain
Capital Fund V-B, L.P. owns 1,012,444.151 shares, BCIP Associates owns
181,943.223 shares and BCIP Trust Associates, L.P. owns 78,340 shares.
(i) Mr. Lipson, who is a member of the limited liability company which acts as
the general partner of Blackstone Capital Partners II Merchant Banking Fund
L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone Family
Investment Partnership L.P. (the "Blackstone Entities"), disclaims
beneficial ownership of the shares owned by the Blackstone Entities.
(j) Mr. Wall, who is (i) a general partner of Kelso Partners V, L.P., the
general partner of Kelso Investment Associates V, L.P. and (ii) a general
partner of Kelso Equity Partners V, L.P., disclaims beneficial ownership of
the shares owned by Kelso Investment Associates V, L.P. and Kelso Equity
Partners V, L.P.
(k) Includes 26,000 shares which may be acquired upon exercise of options
within 60 days.
STOCKHOLDERS AGREEMENT
On April 30, 1996, Parent, GSCP, Blackstone Capital Partners II Merchant
Banking Fund L.P., Blackstone Offshore Capital Partners II L.P. and Blackstone
Family Investment Partnership L.P. (collectively, "Blackstone"), Kelso Equity
Partners V, L.P. and Kelso Investment Associates V, L.P. (collectively,
"Kelso"), Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP
Associates and BCIP Trust Associates, L.P. (collectively, "Bain" and, with
Blackstone and Kelso, the "Governance Investors"), Citicorp North America, Inc.
("Citibank"), Charles M. Diker ("Diker" and, collectively with Blackstone,
Kelso, Bain and Citibank, the "Investors"), Robert L. Morin ("Morin") and
Douglas J. Stanard ("Stanard" and, with Morin, the "Management Investors," and,
with the Investors, the "Stockholders") entered into a Stockholders Agreement
(the "Stockholders Agreement"), which regulates the relationship among Parent
and the Stockholders. Subsequently, Stephen E. Hare and other members of
management who have received Stock Option awards under the Stock Incentive Plan
have become parties to the Stockholders Agreement as additional Management
Investors and Stockholders. The following discussion summarizes the terms of the
Stockholders Agreement that AMF believes are material to holders of AMF's
securities. This summary is qualified in its entirety by reference to the full
text of the Stockholders Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and is
incorporated by reference herein.
The Stockholders Agreement confers on GSCP the right to increase or
decrease the board of directors (the "Board") from its initial size of nine
members. GSCP has the right to nominate five directors, and to nominate a
majority (not limited to a simple majority) of the members of the Board, so long
as GSCP and its affiliates hold a majority of the outstanding shares of Parent
Common Stock. Each Governance Investor has the right to nominate, subject to
GSCP consent, one member of the Board, so long as the number of shares held by
it and certain of its permitted transferees under the Stockholders Agreement is
equal to at least one-half the sum of the number of shares initially purchased
by it plus the number of additional shares that the Governance Investor may be
required to purchase pursuant to the "overcall" provisions of the Stockholders
Agreement de-
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<PAGE> 73
scribed below (in each case subject to appropriate adjustment). If a Governance
Investor is no longer entitled to nominate a director, the director is required
to resign or be subject to removal by the Stockholders. Each of GSCP and the
Governance Investors has the right to recommend removal, with or without cause,
of any director nominated by it, in which case such director must resign
immediately or be subject to removal by the Stockholders. In the event of death,
removal or resignation of a director nominated by a Governance Investor, so long
as the Governance Investor continues to have the right to nominate a director
for such position, the Governance Investor has the right to nominate (subject to
GSCP consent) a director to fill the vacancy created. A quorum may be
constituted by a majority of the number of directors then in office, but not
less than one-third of the whole Board, including at least one GSCP director.
Pursuant to the "overcall" provisions of the Stockholders Agreement, each
of GSCP and the Investors (other than Mr. Diker) has agreed to purchase
additional shares of Parent Common Stock having an aggregate purchase price of
up to 20% of the amount initially invested by such funding investor (i.e.,
collectively up to a total of $75.6 million) upon the request of the Board. In
October 1996 in connection with the Charan acquisition, GSCP and the Investors
purchased an additional $40.0 million in additional shares of Parent Common
Stock. Any such additional investments are required to be made pro rata by the
funding investors. The commitment to purchase additional shares terminates on
May 1, 1998. Funds raised through such additional investments may only be used
to finance acquisitions of businesses or assets, capital expenditures,
investments in partnerships or joint ventures or other investments in the
business of Parent and its subsidiaries, or any similar transactions or
expenditures.
The Stockholders Agreement provides for the continual existence of an
Executive Committee, consisting of two directors designated by GSCP. The
Executive Committee may exercise all the powers and authority of the Board
(subject to any restrictions under Delaware law) except with respect to those
actions requiring a Special Vote and, in the case of matters requiring a prior
meeting of the Board, only after such meeting has occurred. A Special Vote is
required for (i) the issuance of capital stock below fair market value, (ii) the
grant or issuance of options or warrants exercisable or exchangeable for more
than 2,877,151 shares, (iii) entering into transactions with affiliates of GSCP,
and (iv) amendments to the Stockholders Agreement or Parent's Charter or By-Laws
which amendments would adversely affect the rights and obligations of Blackstone
and Kelso, provided that any amendment affecting a Stockholder differently from
any other Stockholder requires such Stockholder's approval. Matters requiring a
Special Vote must be approved by a majority of the GSCP directors who are
partners or employees of Goldman Sachs and who are not employees of Parent and
its subsidiaries, and at least one investor Director nominated by Blackstone or
Kelso (if there is one serving at such time).
Under the Stockholders Agreement, Goldman Sachs has the exclusive right to
perform all consulting, financing, investment banking and similar services for
Parent and its subsidiaries, for customary compensation and on terms customary
for similar engagements with unaffiliated third parties. Neither Parent nor its
subsidiaries are allowed to engage any person to perform such services during
the term of the Stockholders Agreement, except to the extent Goldman Sachs shall
consent thereto or shall decline, at its sole election, to perform such
services.
Certain provisions in the Stockholders Agreement relate to the possibility
that the Parent Common Stock may be the subject of an underwritten initial
public offering, pursuant to a registration statement under the Securities Act
of 1933, as amended, with aggregate gross proceeds to Parent of at least $100
million (an "IPO"). The rights of the Stockholders under the Stockholders
Agreement will terminate upon the consummation of an IPO, other than certain
rights relating to transfer, registration rights and certain governance
provisions. The remaining rights and obligations (other than registration
rights) will terminate after an IPO, upon the first to occur of: (i) GSCP, the
Investors and their Permitted Transferees holding in the aggregate less than 50%
of the sum of the number of shares of Parent Common Stock outstanding, on a
fully diluted basis, immediately after giving effect to the transactions
contemplated by the Subscription Agreement
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<PAGE> 74
(which agreement was entered into on the same date and by the same parties as
the Stockholders Agreement, except for the Management Investors) and the number
of additional shares, if any, issued pursuant to the overcall provisions of the
Stockholders Agreement, and (ii) GSCP, the Investors and their Permitted
Transferees holding in the aggregate less than 40% of Parent's fully diluted
shares then outstanding. Notwithstanding these provisions, in the event of any
merger, recapitalization, consolidation, reorganization or other restructuring
of the Parent as a result of which the Stockholders and their Permitted
Transferees own less than a majority of the outstanding voting power of the
entity surviving such transaction, the Stockholders Agreement terminates.
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<PAGE> 75
CERTAIN TRANSACTIONS
Goldman Sachs and its affiliates have certain interests in AMF in addition
to being the initial purchasers of the registered debt securities of AMF in
connection with the Acquisition. Richard A. Friedman and Terence M. O'Toole,
each of whom is a Managing Director of Goldman, Sachs & Co., and Peter M.
Sacerdote, who is a limited partner of The Goldman Sachs Group, L.P., are
directors of AMF. Goldman Sachs and its affiliates together currently
beneficially own a majority of the outstanding voting equity of the Parent; thus
Goldman Sachs will be deemed to be an "affiliate" of the Company. See "Security
Ownership of Certain Beneficial Owners and Management". Goldman Sachs received
an underwriting discount of approximately $19.0 million in connection with the
purchase and resale of Exchange Notes. Goldman Sachs also served as financial
advisor to the Sellers in connection with the Acquisition and received a fee in
the form of 10-year warrants to purchase 2.2% of the Parent Common Stock, on a
fully diluted basis. The warrants are valued for accounting purposes at
approximately $8.7 million. AMF and Goldman Sachs are parties to an engagement
letter pursuant to which Goldman Sachs is engaged as AMF's financial advisor to
provide investment banking and financial advisory services, including in
connection with any acquisitions, dispositions or financings. Pursuant to the
engagement, AMF has agreed to reimburse Goldman Sachs for its out-of-pocket
expenses and indemnify Goldman Sachs in connection with its services arising
under the engagement.
In connection with the Senior Debt, Goldman Sachs acted as Syndication
Agent, Goldman Sachs and Citicorp Securities, Inc. acted as Arrangers, and
Citibank, N.A. is acting as administrative agent. Goldman Sachs received a fee
of approximately $9.5 million and was reimbursed for expenses in connection with
such services. Goldman Sachs also received a cash fee of $5.0 million from AMF
in connection with the Acquisition and was reimbursed for related expenses.
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DESCRIPTION OF SENIOR DEBT
The Company has entered into a Credit Agreement amended and restated as of
December 20, 1996 (the "Credit Agreement") with Goldman Sachs, its affiliate
Pearl Street, L.P. ("Pearl Street"), Citibank, N.A. ("Citibank") and its
affiliates Citicorp Securities, Inc. and Citicorp USA, Inc. and certain other
banks, financial institutions and institutional lenders (collectively, the
"Lenders") providing for (i) syndicated senior secured term loan facilities
aggregating $580.00 million (the "Term Facilities"), (ii) a senior secured
multiple-draw term facility of $150.00 million (the "Acquisition Facility") and
(iii) a senior secured revolving credit facility of up to $50.0 million (the
"Working Capital Facility", and together with the Term Facilities and the
Acquisition Facility, the "Senior Facilities"). In connection with such
financing, Goldman Sachs acted as Syndication Agent, Goldman Sachs and Citicorp
Securities, Inc. acted as Arrangers, and Citibank, N.A. is acting as
administrative agent.
The execution of the Credit Agreement, the borrowings necessary to complete
the Acquisition and the delivery of required documentation thereunder occurred
simultaneously with the closing of the Acquisition.
The following summary of the material provisions of the Credit Agreement
does not purport to be complete, and is qualified by reference to the full text
of the Credit Agreement, which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $250.0 million, (ii) an AXELs(SM) Series A Facility of $190.0
million and (iii) an AXELs(SM) Series B Facility of $140.0 million. The Term
Loan Facility will bear interest, at the Company's option, at Citibank's
customary base rate plus 1.5 percent or at Citibank's Eurodollar rate plus 2.5
percent. The AXELs Series A Facility will bear interest, at the Company's
option, at Citibank's customary base rate plus 1.875 percent or at Citibank's
Eurodollar rate plus 2.875 percent. The AXELs Series B Facility will bear
interest, at the Company's option, at Citibank's customary base rate plus 2.125
percent or at Citibank's Eurodollar rate plus 3.125 percent. The Term Facilities
provide for quarterly amortization until final maturity. The Term Loan Facility
has a term of five years, the AXELs(SM) Series A Facility has a term of seven
years, and the AXELs(SM) Series B Facility has a term of eight years.
Average amounts outstanding and average borrowing rates for the period
ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
OUTSTANDING
AT AVERAGE AVERAGE
DECEMBER 31, AMOUNTS BORROWING
DESCRIPTION MATURITY DATES 1996 OUTSTANDING RATES
-------------------------------- -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Term Loan....................... March 31, 2001 $228,125 $243,074 8.20%
AXEL A.......................... March 31, 2003 $188,750 $188,164 8.58%
AXEL B*......................... March 31, 2004 $ 74,250 $ 74,218 8.84%
</TABLE>
- ---------------
* Balance increased to $139,250 on January 10, 1997 when the amounts under the
Credit Agreement were refinanced.
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The Company will be required to make scheduled amortization payments on the
Term Facilities as follows (dollars in millions):
<TABLE>
<CAPTION>
TERM AXELS(SM) AXELS(SM)
TWELVE MONTHS LOAN SERIES A SERIES B
ENDING DECEMBER 31, FACILITY FACILITY FACILITY TOTAL
- ------------------- -------- -------- -------- ------
<S> <C> <C> <C> <C>
1997 $ 38.1 $ 2.0 $ 2.3 $ 42.4
1998 43.1 2.0 2.2 47.3
1999 51.3 2.0 2.2 55.5
2000 67.5 2.0 2.3 71.8
2001 28.1 50.8 2.2 81.1
2002 -- 92.5 2.3 94.8
2003 -- 37.5 78.9 116.4
2004 -- -- 46.8 46.8
------ ------ ----- ------
$ 228.1 $188.8 $139.2 $556.1
====== ====== ===== ======
</TABLE>
In addition, the Company will be required to make prepayments on the Senior
Facilities under certain circumstances, including upon certain asset sales,
issuances of debt and public issuance of equity securities. The Company will
also be required to make prepayments on the Senior Facilities in an amount equal
to (i) 75% (to be reduced to 50% for years in which the Company's Total
Debt/EBITDA ratio for the prior 12 months is less than 4.0 to 1.0) of the
Company's Excess Cash Flow (as defined in the Credit Agreement) or (ii) during
each of the first three years after the closing of the Senior Facilities, if
less than the amount described in clause (i), the amount by which the Company's
Excess Cash Flow for such year exceeds $10.0 million (during the first two years
after closing) or $20.0 million (during the third year after closing). These
mandatory prepayments will be applied to prepay the Senior Facilities in the
following order: first, to the Term Facilities, ratably among each tranche, and
the Acquisition Facility, to be applied to the installments of each such
Facility on a pro rata basis, and second, to the permanent reduction of the
Working Capital Facility. Notwithstanding the foregoing, in the event that
prepayments of the AXELs(SM) Series A Facility and the AXELs(SM) Series B
Facility on or prior to the second anniversary of the closing have reached an
aggregate amount of $25 million, the Lenders in such Facilities can refuse to
accept additional prepayments during such period, in which case the amounts so
refused instead shall be allocated first to the Acquisition Facility and the
Term Loan Facility on a pro rata basis, and second, to the permanent reduction
of the Working Capital Facility.
The Company has the ability to borrow an additional $50.0 million for
general corporate purposes pursuant to the Working Capital Facility and up to
$150.0 million to finance acquisitions and to refinance new center construction
pursuant to the Acquisition Facility, subject to the Company meeting certain pro
forma financial covenants and limitations imposed on the amount borrowed,
including that the amount borrowed under the Acquisition Facility shall not
exceed 4.5 times the Deemed EBITDA of the business to be acquired or the newly
constructed center. "Deemed EBITDA" is the product of Specified Revenues and the
Average EBITDA Margin. "Specified Revenues" means at any time (a) in the case of
any acquisition of a new center, aggregate revenues of such new center for the
immediately preceding 12-month period, and (b) in the case of any construction
of a new center, an amount equal to (i) at any time during the first full
12-months of operations, the aggregate revenues of such new center for each full
month it has operated times 12 divided by the number of full months such new
center has operated and (ii) at any time thereafter, aggregate revenues of such
new center for the immediately preceding 12-month period. "Average EBITDA
Margin" means, at any time of determination, an amount equal to (a) the sum of
consolidated EBITDA of AMF Bowling Centers and its subsidiaries and consolidated
EBITDA of AMF Worldwide and its subsidiaries divided by (b) the sum of
consolidated revenues of AMF Bowling Centers and its subsidiaries and
consolidated revenues of AMF Worldwide and its
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subsidiaries, in each case for the 12-month period reflected in the Company's
most recent financial statements.
The Acquisition Facility has a term of five years. The Acquisition Facility
will begin to amortize in November 1999, with final maturity at April 30, 2001.
The Acquisition Facility will bear interest, at the Company's option, at
Citibank's customary base rate plus 1.5% or at Citibank's Eurodollar rate plus
2.5%. At December 31, 1996, $65.0 million of the Acquisition Facility bore
interest at 9.75 percent, while $8.5 million bore interest at 8.125%. On January
10, 1997, $65.0 million of the Acquisition Facility was refinanced as part of
the AXELs Series B Facility and the interest rate was adjusted to 8.69%. See
"Note 9. Long-Term Debt" in the Notes to Consolidated Financial Statements for
the period ended December 31, 1996. As of March 31, 1997, $27.5 million was
outstanding under the Acquisition Facility.
The Working Capital Facility has a term of five years and will be fully
revolving until final maturity. The Working Capital Facility will bear interest,
at the Company's option, at Citibank's customary base rate plus 1.5% or at
Citibank's Eurodollar rate plus 2.5%. As of March 31, 1997, there was an
outstanding balance of $10.0 million under the Working Capital Facility.
Beginning May 1, 1997 the margins above Citibank's customary base rate and
Citibank's Eurodollar rate, at which the Term Loan Facility, the Working Capital
Facility and the Acquisition Facility will bear interest, may be reduced
pursuant to a floating performance pricing grid which is based on the Total
Debt/EBITDA ratio for the four fiscal quarter rolling period then most recently
ended.
The Senior Facilities are guaranteed by Holdings and by each of the
Company's present and future domestic Subsidiaries and are secured by all of the
stock of the Company and the Company's present and future domestic Subsidiaries
and Second-Tier Subsidiaries, and by 66% of the stock of the Company's present
and future international subsidiaries, and by substantially all of the Company's
and its present and future domestic Subsidiaries' present and future property
and assets. Any additional present or future subsidiaries of the Company that
become guarantors under the Senior Facilities will also jointly and severally
guarantee the Company's payment obligations on the Exchange Notes on a senior
subordinated basis.
COVENANTS
The Senior Facilities contain certain financial covenants, as well as
additional affirmative and negative covenants, constraining the Company. The
Company must maintain a minimum EBITDA (as defined in the Credit Agreement) of
not less than the sum of (i) an amount ranging from $140 million for the Rolling
Period (each a calendar quarter together with the three consecutive immediately
preceding calendar quarters) ending September 30, 1996, to $200 million for the
Rolling Period ending September 30, 2003 and thereafter, and (ii) the EBITDA
Adjustment Amount for such Rolling Period, which is equal to 80% of the
aggregate amount of the EBITDA of each bowling center acquired or constructed by
the Company or any of its Subsidiaries after May 1, 1996 and acquired or
constructed at least 15 months prior to such time of determination.
The Company must also maintain a Cash Interest Coverage Ratio (defined in
the Credit Agreement as the ratio of (a) consolidated EBITDA of the Company and
its Subsidiaries during a Rolling Period, as modified with respect to certain
bowling centers acquired or constructed after May 1, 1996 ("Modified
Consolidated EBITDA") to (b) cash interest payable on all Debt (as defined in
the Credit Agreement) of the Company and its Subsidiaries) at an amount ranging
from not less than 2.00 for the Rolling Period ending September 30, 1996, to not
less than 2.50 for the Rolling Period ending September 30, 2004 and thereafter.
The Company is required to maintain a Fixed Charge Coverage Ratio (defined in
the Credit Agreement as the ratio of (a) Modified Consolidated EBITDA less the
sum of (i) cash taxes paid plus (ii) Capital Expenditures made by the Company
and its Subsidiaries during such Rolling Period to (b) the sum of (i) cash
interest payable on all Debt plus (ii) principal amounts of all Debt payable by
the Company and its Subsidiaries during such Rolling Period) at an amount
ranging from not less than 1.05 for the Rolling Period
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ending September 30, 1996, to not less than 1.10 for the Rolling Period ending
March 31, 2004 and thereafter. A Senior Debt to EBITDA Ratio (defined in the
Credit Agreement as the ratio of Consolidated Debt (other than Subordinated Debt
and Hedge Agreements, as defined in the Credit Agreement) of the Company and its
Subsidiaries to Modified Consolidated EBITDA for that Rolling Period) must be
maintained at levels ranging from not more than 3.5 for the Rolling Period
ending September 30, 1996 to not more than 1.50 for the Rolling Period ending
September 30, 2003 and thereafter. A Total Debt to EBITDA Ratio (defined in the
Credit Agreement as the ratio of consolidated total Debt (other than Hedge
Agreements) of the Company and its Subsidiaries to Modified Consolidated EBITDA)
must be maintained at levels ranging from not more than 6.95 for the Rolling
Period ended September 30, 1996 to not more than 4.00 for the Rolling Period
ended September 30, 2003 and thereafter. In each case, the above-mentioned
ratios are calculated on a quarterly basis.
The chart on the following page summarizes the financial covenants
described in the preceding paragraph.
<TABLE>
<CAPTION>
ROLLING 12-MONTH PERIOD ENDING:
-------------------------------------------------------------------------------------------
3/31/97 9/30/97 9/30/98 9/30/99 9/30/00 9/30/01 9/30/02 9/30/03 9/30/04
THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH AND
FINANCIAL COVENANT 6/30/97 6/30/98 6/30/99 6/30/00 6/30/01 6/30/02 6/30/03 6/30/04 THEREAFTER
- ------------------------------------ ------- ------- ------- ------- ------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MODIFIED CONSOLIDATED EBITDA(1)
Not less than the following
amounts (in $ millions) plus the
then applicable EBITDA
Adjustment Amount(2)............ 150 150 155 165 175 185 195 200 200
CASH INTEREST COVERAGE RATIO(3)
Not less than:.................... 2.00 2.25 2.50 2.75 3.00 2.00 2.25 2.25 2.50
FIXED CHARGE COVERAGE RATIO(4)
Not less than:.................... 1.05 1.10 1.15 1.20 1.20 1.05 1.10 1.10 1.10
SENIOR DEBT TO EBITDA RATIO(5)
Not more than:.................... 3.50 3.25 2.75 2.25 1.50 1.50 1.50 1.50 1.50
TOTAL DEBT TO EBITDA RATIO(6)
Not more than:.................... 6.75 6.60 6.50 6.25 5.50 4.75 4.25 4.00 4.00
</TABLE>
- ---------------
(1) Defined as, for any Rolling Period, Consolidated EBITDA of the Company and
its Subsidiaries for such Rolling Period, provided, however, that at any
time of determination, (i) solely with respect to any constructed New
Center, Modified Consolidated EBITDA shall be calculated using Adjusted
EBITDA of such New Center and (ii) solely with respect to any New Center
acquired within the immediately preceding 15 months, Modified Consolidated
EBITDA shall be calculated using the actual EBITDA of such New Center for
such Rolling Period. Adjusted EBITDA means, at any time, in the case of a
New Center, the product of (a) the Average EBITDA Margin calculated as of
the end of the fiscal quarter immediately preceding the fiscal quarter in
which the acquisition or the construction of the New Center occurs and (b)
the Specified Revenues of such new center. "Average EBITDA Margin" means, at
any time of determination, an amount equal to (a) the sum of Consolidated
EBITDA of AMF Bowling Centers and its subsidiaries and Consolidated EBITDA
of AMF Worldwide and its subsidiaries divided by (b) the sum of consolidated
revenues of AMF Bowling Centers and its subsidiaries and consolidated
revenues of AMF Worldwide and its subsidiaries, in each case for the
12-month period reflected in the most recent financial statements.
"Specified Revenues" means at any time (a) in the case of any acquisition of
a New Center, aggregate revenues of such New Center for the immediately
preceding 12-month period, and (b) in the case of any construction of a New
Center, an amount equal to (i) at any time during its first 12 full months
of operations, the aggregate revenues of such New Center for each full month
it has operated times twelve divided by the number of full months such New
Center has operated and (ii) at any time thereafter, aggregate revenues of
such New Center for the immediately preceding 12-month period. "New Center"
means, at any time of determination, any bowling center acquired (whether by
means of a stock or asset acquisition) or constructed by the Company or any
of its Subsidiaries after the Closing Date and less than 15 months prior to
such date of determination, provided that the time of any such acquisition
shall be the date of consummation of such acquisition and the time of any
such construction shall be the date of the opening of such bowling center
for business.
(2) Defined as 80% of the aggregate amount of EBITDA of each bowling center
acquired or constructed by the Company or any of its subsidiaries after May
1, 1996 and acquired or constructed at least 15 months prior to such time of
determination.
(3) The ratio of Modified Consolidated EBITDA to cash interest payable on all
debt of the Company and its Subsidiaries on a consolidated basis.
(4) Ratio of (A) Modified Consolidated EBITDA during the Rolling Period less the
sum of (1) cash taxes paid plus(2) Capital Expenditures made, in each case,
by the Company and its Subsidiaries during such Rolling Period to (B) the
sum of (i) cash interest payable on all debt plus (ii) principal amounts of
all debt payable (other than the principal amount of debt to the extent it
has been refinanced), in each case, by the Company and its Subsidiaries
during such Rolling Period.
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(5) Ratio of Consolidated debt (other than Subordinated debt and Hedge
Agreements) of the Company and its Subsidiaries to Modified Consolidated
EBITDA.
(6) Ratio of Consolidated total debt (other than Hedge Agreements) of the
Company and its Subsidiaries to Modified Consolidated EBITDA.
Affirmative covenants under the Senior Facilities oblige the Company and
its Subsidiaries to comply with all laws and regulations, as well as to pay all
taxes not being contested in good faith, to comply with environmental laws and
permits, to maintain insurance coverage, preserve its corporate existence,
permit the examination of its records and books of account by the agents or any
of the Lenders, to prepare environmental reports upon the reasonable request of
the administrative agent (in the case of a Default under the Credit Agreement or
based on the belief that hazardous materials contamination not otherwise
disclosed may be present on any property described in the mortgages), to keep
proper books of record and account, to maintain its properties in good working
condition, to comply with the terms of leaseholds and to perform and observe all
terms and provisions of each Related Document (defined as the purchase
agreement, the subordinated debt documents, the tax agreement, the stockholders
agreement and the support agreement). The Company is also required to conduct,
and cause each of its Subsidiaries to conduct, all transactions permitted under
the loan documents with any affiliates on fair and reasonable terms, to maintain
cash concentration accounts with Citibank, N.A. into which substantially all
proceeds of collateral are to be paid, and to guarantee obligations and give
security (upon the request of Citicorp USA, Inc. (together with any successor
appointed pursuant to the Credit Agreement, the "Collateral Agent"), at such
time as any new direct or indirect Subsidiary of the Company is formed or
acquired by the Company and the Guarantors (each, a "Loan Party"), or when any
property is acquired by any Loan Party). The Company has entered into, and must
maintain until the aggregate outstanding amount under the Term Facilities is
less than $400 million, interest rate hedge agreements, covering a notional
amount of not less than 50% of the commitments under all the facilities and the
other floating rate debt of the Loan Parties.
Negative covenants under the Senior Facilities prohibit the Company and its
Subsidiaries from incurring any liens (except for those created under the loan
documents or otherwise permitted under the Credit Agreement, including those
securing the Company's obligations as borrower not to exceed $5 million at any
time outstanding). The Company and its Subsidiaries are also prohibited from
incurring any debt, other than (in the case of the Company) debt owed to its
Subsidiaries or in respect of hedge agreements not entered into for speculative
purposes or (in the case of any Subsidiary) debt owed to the Company or any of
its wholly owned Subsidiaries, to the extent permitted under the Credit
Agreement or (in the case of either the Company or its Subsidiaries) debt
secured by permitted liens, capitalized leases not to exceed $10 million at any
time outstanding and any debt existing at the time of the Acquisition, among
other things. The Company and its Subsidiaries may not incur any obligations
under leases having a term of one year or more that would cause their direct and
contingent liabilities for any 12 months to exceed (i) $25 million, (ii) the
product of (x) $200,000 and (y) the number of leased bowling centers acquired by
the Company or any Subsidiaries after May 1, 1996 and (iii) in each calendar
year after 1996, an amount equal to 4% of the amount permitted by this provision
in the immediately preceding calendar year. The Company is also prohibited from
entering into a merger of which it is not the survivor or to sell, lease, or
otherwise transfer its asset other than in the ordinary course of business,
except as otherwise permitted by the Credit Agreement. Investments by the
Company or its Subsidiaries in any other Person is also limited by formulas set
forth in the Credit Agreement. The negative covenants also relate to the payment
of dividends, prepayments of, and amendments of the terms of, other debt
(including the Exchange Notes), amendment of Related Documents, ownership
change, negative pledges, partnerships, speculative transactions, capital
expenditures and payment restrictions affecting subsidiaries. The Company is
also subject to certain financial and other reporting requirements.
So long as the Company is not in default of the covenants contained in the
Credit Agreement, it may i) declare and pay dividends in common stock; ii)
declare and pay cash dividends to Holdings to the extent necessary to make
payments of approximately $0.15 million due in May 1997 under
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certain noncompete agreements with the Sellers; iii) declare and pay cash
dividends to the Parent for general administrative expenses of the Parent not to
exceed $0.25 million; and iv) declare and pay cash dividends not to exceed $2.0
million to the Parent for the repurchase of Parent Common Stock. As of December
31, 1996, the Company is in compliance with all of its covenants.
EVENTS OF DEFAULT
The Senior Facilities contain customary Events of Default for
highly-leveraged financings. These include:
(a) the failure of the Company to pay the principal of, interest on,
or other amounts payable in connection with, any advance under the Senior
Facilities when they become due (in the case of principal) or within three
days after they become due;
(b) the incorrectness in any material respect of any representation or
warranty of a Loan Party under or in connection with any loan document;
(c) the failure of any Loan Party to perform or observe any term,
covenant or agreement with regard to the use of proceeds covenant, certain
affirmative covenants, any negative covenants, the obligation of the
Company to give notice to the administrative agent and the lenders of any
default or any event likely to have a materially adverse effect and any
financial covenants under the Credit Agreement;
(d) the failure of any Loan Party to perform any other term, covenant
or agreement in any loan document, if such failure remains unremedied for
15 days after knowledge by an officer of any Loan Party or its Subsidiaries
or notice by the administrative agent or any Lender;
(e) the failure by any Loan Party or any material subsidiary to pay
any principal of, premium or interest on or any other amount payable in
respect of any debt outstanding in a principal amount of at least $25
million or any other event shall occur that would permit the acceleration
of any such debt or such debt is accelerated;
(f) the failure of any Loan Party or any material subsidiaries to
generally pay debts as they become due, or its seeking of liquidation,
reorganization, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization, or such a proceeding
instituted against it remains undismissed and unstayed for a period of 30
days;
(g) the rendering of any judgment or order for the payment of money in
excess of $25 million against any Loan Party or any material subsidiary and
either any enforcement proceedings shall have commenced or 15 days shall
have passed during which no stay shall be in place;
(h) the rendering of any non-monetary judgment or order against any
Loan Party or any of material subsidiary that could reasonably be likely to
have a material adverse effect, and there is a period of 15 days during
which no stay of such judgment or order is in effect;
(i) any provision of any loan document after delivery for any reason
ceases to be valid and binding on or enforceable against any Loan Party
which is a party to it;
(j) any provision relating to the subordination of the debt under the
Notes and any other debt of any Loan Party or any material subsidiary that
is subordinated to the obligations of such Loan Party to the Lenders or the
agents for any reason ceases to be valid and binding on or enforceable
against any Loan Party which is a party to it;
(k) any collateral document (excluding mortgages covering collateral
which, in the aggregate, is immaterial) after delivery ceases to create a
valid and perfected first priority lien on and security interest in the
collateral purported to be protected thereby;
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(l) AMF Holdings Inc. ceases to own and control legally and
beneficially all of the outstanding shares of capital stock of AMF Group
Holdings Inc.;
(m) AMF Group Holdings Inc. ceases to own and control legally and
beneficially all of the outstanding shares of capital stock of the Company;
(n) a change of control (as defined in the Credit Agreement) occurs;
(o) an ERISA event occurs with respect to a single or multiple
employer plan, and the sum of insufficiency as to such Plan, aggregated
with the insufficiency of any other plans as to which an ERISA event
occurred, exceeds $25 million;
(p) any Loan Party or any ERISA affiliate is notified by the sponsor
of a multiemployer plan that it has incurred withdrawal liability with
respect to such plan, which, aggregated with other amounts required to be
paid to multiemployer plans by the Loan Parties and ERISA affiliates,
exceeds $25 million (or requires payments exceeding $7.5 million per
annum); or
(q) any Loan Party or ERISA affiliate is notified by the sponsor of a
multiemployer plan that such plan is in reorganization or being terminated,
within the meaning of Title IV of ERISA, resulting in an increase of
aggregate annual contributions in specified amounts.
Upon the occurrence of an Event of Default, the administrative agent
may declare the commitment of the Lenders terminated and may declare the
Senior Facilities and all interest thereon and all other amounts payable
under the Credit Agreement and the other loan documents due, and may also
take certain actions in respect of any outstanding letters of credit. In
the event of an actual or deemed entry of an order of relief with respect
to any Loan Party or any of its subsidiaries under the federal bankruptcy
code, the commitment of the Lenders will automatically terminate, and the
Senior Facilities and all interest thereon will automatically become due
and payable.
Other Senior Debt
A mortgage having a principal amount of approximately $2.0 million as of
March 31, 1997, secured by a bowling center in Independence, Missouri, remains
outstanding as an obligation of AMF. The original obligation was for
approximately $1.7 million, with interest at a rate of 8.81% through October 1,
2013.
AMF is obligated to make future payments under a noncompetition agreement
that provides that such obligation will be secured by AMF's bowling center in
Hickory, North Carolina. The amount remaining to be paid as of March 31, 1997
was $0.3 million, and the final payment is due in 1999. This obligation is
reflected in other liabilities on the balance sheet of AMF Bowling Group.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Senior Subordinated Notes and the Exchange Senior Subordinated
Discount Notes were offered in exchange for the Company's then-outstanding
10 7/8% Series A Senior Subordinated Notes due 2006 and the Company's
then-outstanding 12 1/4% Series A Senior Subordinated Discount Notes due 2006,
respectively (collectively, the "Notes").
The Exchange Senior Subordinated Notes were issued by the Company pursuant
to the same Indenture (the "Senior Subordinated Note Indenture") among the
Company, the Guarantors and IBJ Schroder Bank & Trust Company, as trustee (the
"Senior Subordinated Note Trustee"), under which the Senior Subordinated Notes
were issued. The Exchange Senior Subordinated Discount Notes were issued by the
Company pursuant to an Indenture (the "Senior Subordinated Discount Note
Indenture" and, together with the Senior Subordinated Note Indenture, the
"Indentures") among the Company, the Guarantors and Firstar Bank of Minnesota,
N.A., as successor to American Bank National Association, as trustee (the
"Senior Subordinated Discount Note Trustee" and, together with the Senior
Subordinated Note Trustee, the "Trustees"), under which the Senior Subordinated
Discount Notes were issued. The terms of the Exchange Notes include those stated
in the Indentures and those made part of the Indentures by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Exchange Notes are
subject to all such terms, and Holders of Exchange Notes are referred to the
Indentures and the Trust Indenture Act for a statement thereof. The discussion
below summarizes the terms of the Exchange Notes that the Company believes are
material to an investor in the Exchange Notes. This summary is qualified in its
entirety by reference to the full text of the agreements underlying this
discussion, copies of which are filed as exhibits to the Registration Statement
of which this Prospectus is a part, and are incorporated by reference herein.
The definitions of certain terms used in the following summary are set forth
below under the caption "-- Certain Definitions."
As of December 31, 1996, all of the Company's Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indentures.
SUBORDINATION
The payment of principal of, premium, if any, and interest, including
Liquidated Damages, if any, on the Exchange Notes will be subordinated in right
of payment, in certain circumstances as set forth in the Indentures, to the
prior payment in full of all Senior Debt, whether outstanding on the date of the
Indentures or thereafter incurred.
The Indentures provide that, upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the documents relating to the applicable
Senior Debt, whether or not the claim for such interest is allowed as a claim in
such proceeding) before the Holders of Exchange Notes will be entitled to
receive any payment with respect to the Exchange Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Exchange Notes would be entitled will be made to the
holders of Senior Debt (except that Holders of Exchange Notes may receive
payments made from the trust described under "-- Legal Defeasance and Covenant
Defeasance").
The Indentures also provide that the Company may not make any payment upon
or in respect of the Exchange Notes (except from the trust described under "--
Legal Defeasance and Covenant
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Defeasance") if (i) a default in the payment of the principal of, premium, if
any, or interest on Designated Senior Debt occurs and is continuing, or any
judicial proceeding is pending to determine whether any such default has
occurred, or (ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits, or would permit, with the passage of time
or the giving of notice or both, holders of the Designated Senior Debt as to
which such default relates to accelerate its maturity and the relevant Trustee
receives a notice of such default (a "Payment Blockage Notice") from the Company
or the holders of any Designated Senior Debt. Payments on the Exchange Notes may
and shall be resumed (a) in the case of a payment default, upon the date on
which such default is cured or waived or shall have ceased to exist, unless
another default, event of default or other event that would prohibit such
payment shall have occurred and be continuing, or all Obligations in respect of
such Designated Senior Debt shall have been discharged or paid in full and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received by the relevant Trustee. No new
period of payment blockage may be commenced unless and until 360 days have
elapsed since the first day of effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the relevant Trustee shall
be, or be made, the basis for a subsequent Payment Blockage Notice unless such
default shall have been subsequently cured or waived for a period of not less
than 180 days.
The Indentures further require that the Company promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. See "Risk
Factors." The principal amount of Senior Debt outstanding at March 31, 1997 was
approximately $595.6 million. The Indentures limit, subject to certain financial
tests, the amount of additional Indebtedness, including Senior Debt, that the
Company and its Restricted Subsidiaries can incur. See "--Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock."
"Designated Senior Debt" means (i) so long as the Senior Bank Debt is
outstanding, the Senior Bank Debt, (ii) the Senior Bank Hedging Obligations and
(iii) any other Senior Debt permitted under the Indentures the principal amount
of which is $25.0 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Senior Bank Debt" means all Obligations in respect of the Indebtedness
outstanding under the Bank Credit Agreement, together with any refunding,
refinancing or replacement (in whole or part) of such Indebtedness.
"Senior Bank Hedging Obligations" means all present and future Hedging
Obligations of the Company, whether existing now or in the future, that are
secured by the Bank Credit Agreement or any of the collateral documents executed
from time to time in connection therewith.
"Senior Debt" means (i) the Senior Bank Debt, (ii) the Senior Bank Hedging
Obligations and (iii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indentures, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Exchange Notes. Notwithstanding anything
to the contrary in the foregoing, Senior Debt does not include (1) any liability
for federal, state, local or other taxes owed or owing by the Company, (2) any
Indebtedness of the Company to any of its Restricted Subsidiaries or other
Affiliates (other than Goldman, Sachs & Co. and its Affiliates, including Pearl
Street L.P.), (3) any trade payables, (4) that portion of any Indebtedness that
is incurred in violation of the Indentures, (5) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company, (6) any Indebtedness,
Guarantee or obligation of the Company which is contractually subordinate in
right of payment to any other Indebtedness, Guarantee or obligation of the
Company;
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provided, however, that this clause (6) does not apply to the subordination of
liens or security interests covering particular properties or types of assets
securing Senior Debt, (7) Indebtedness evidenced by the Exchange Notes and (8)
Capital Stock.
The Exchange Notes rank pari passu or senior in right of payment to all
Subordinated Indebtedness of the Company. The Exchange Senior Subordinated Notes
and the Exchange Senior Subordinated Discount Notes rank pari passu with each
other.
SENIOR SUBORDINATED GUARANTEES
The Company's payment obligations under 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 direct and indirect domestic
subsidiaries. The obligations of each Guarantor under its Senior Subordinated
Guarantee is subordinated to its Guarantee of all Obligations under the Bank
Credit Agreement (the "Senior Guarantees") and is limited so as not to
constitute a fraudulent conveyance under applicable law. See, however, "Risk
Factors -- Fraudulent Conveyance."
The Indentures provide that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustees, under the Exchange Notes and the Indentures; (ii) immediately after
giving effect to such transaction, no Default or Event of Default exists; and
(iii) except in the case of a merger of such Guarantor with or into the Company
or another Guarantor, the Company would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio to incur, immediately after giving effect
to such transaction, at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described below under
the caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock."
The Indentures provide that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor (other than Holdings),
by way of merger, consolidation or otherwise, or a sale or other disposition
(including, without limitation, by foreclosure) of all of the Capital Stock of
any Guarantor (other than Holdings), then such Guarantor (in the event of a sale
or other disposition, by way of such a merger, consolidation or otherwise
(including, without limitation, by foreclosure), of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Guarantor) will be automatically released and relieved of any obligations under
its Senior Subordinated Guarantee; provided that the Net Proceeds of such sale
or other disposition are applied in accordance with the applicable provisions of
the Indentures. See "-- Repurchase at the Option of Holders -- Asset Sales." The
Indentures also provide that upon the merger, consolidation, sale or other
disposition (including, without limitation, by foreclosure) of all or
substantially all of the assets of the Company, then Holdings will be
automatically released and relieved of any obligations under its Senior
Subordinated Guarantee; provided that such merger, consolidation or sale
complies with the applicable provisions of the Indentures. See "-- Certain
Covenants -- Merger, Consolidation, or Sale of All or Substantially All Assets."
Certain of the operations of the Company are conducted through Subsidiaries
that are not Guarantors and the Company is dependent upon the cash flow of those
Subsidiaries to meet its obligations, including its obligations under the
Exchange Notes. The Exchange Notes are effectively subordinated to all
indebtedness and other liabilities (including trade payables and capital lease
obligations) of the Company's Subsidiaries that are not Guarantors. Such
indebtedness and liabilities aggregated approximately $16.2 million (excluding
inter-company payables to the Com-
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pany) at March 31, 1997. Any right of the Company to receive assets of any of
such Subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the Holders of the Exchange Notes to participate in those
assets) are effectively subordinated to the claims of such Subsidiary's
creditors, except to the extent that the Company or a Guarantor is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company or a Guarantor. See "Risk Factors -- Holding Company Structure" and Note
12 to the Consolidated Balance Sheet of AMF Group Holdings Inc.
PRINCIPAL, MATURITY AND INTEREST OF THE EXCHANGE SENIOR SUBORDINATED NOTES
The Exchange Senior Subordinated Notes are general unsecured obligations of
the Company, limited in aggregate principal amount to $250.0 million and will
mature on March 15, 2006. Interest on the Exchange Senior Subordinated Notes
accrues at the rate of 10 7/8% per annum and is payable in cash semi-annually in
arrears on March 15 and September 15, to Holders of record on the immediately
preceding March 1 and September 1. Interest on the Exchange Senior Subordinated
Notes accrues from the most recent date to which interest has been paid or, if
no interest has been paid, from March 21, 1996. Interest is computed on the
basis of a 360-day year consisting of twelve 30-day months. Principal, premium,
if any, and interest, including Liquidated Damages, if any, on the Exchange
Senior Subordinated Notes is payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest, including Liquidated Damages, if
any, may be made by check mailed to the Holders of the Exchange Senior
Subordinated Notes at their respective addresses set forth in the register of
Holders of Exchange Senior Subordinated Notes; provided, however, that all
payments with respect to Global Notes and definitive Notes the Holders of which
have given wire transfer instructions to the Company at least ten Business Days
prior to the applicable payment date are required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Senior Subordinated Note Trustee maintained for
such purpose. The Exchange Senior Subordinated Notes will be issued in minimum
denominations of $1,000 and integral multiples thereof.
PRINCIPAL, MATURITY AND INTEREST OF THE EXCHANGE SENIOR SUBORDINATED DISCOUNT
NOTES
The Exchange Senior Subordinated Discount Notes are general unsecured
obligations of the Company, limited in aggregate principal amount at maturity to
$452.0 million and will mature on March 15, 2006. Until March 15, 2001 (the
"Full Accretion Date"), no interest (other than Liquidated Damages, if
applicable) will be paid in cash on the Exchange Senior Subordinated Discount
Notes, but the Accreted Value will accrete (representing the amortization of
original issue discount) between the Issuance Date and the Full Accretion Date,
on a semi-annual bond equivalent basis using a 360-day year comprised of twelve
30-day months such that the Accreted Value shall be equal to the full principal
amount at maturity of the Exchange Senior Subordinated Discount Notes on the
Full Accretion Date. Beginning on the Full Accretion Date, interest on the
Exchange Senior Subordinated Discount Notes will accrue at the rate of 12 1/4%
per annum and will be payable in cash semi-annually in arrears on March 15 and
September 15, commencing on September 15, 2001, to Holders of record on the
immediately preceding March 1 and September 1. Interest on the Exchange Senior
Subordinated Discount Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Full Accretion
Date. Interest will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Principal, premium, if any, and interest, including
Liquidated Damages, if any, on the Exchange Senior Subordinated Discount Notes
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the Company,
payment of interest, including Liquidated Damages, if any, may be made by check
mailed to the Holders of the Exchange Senior Subordinated Discount Notes at
their respective addresses set forth in the register of
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<PAGE> 87
Holders of Exchange Senior Subordinated Discount Notes; provided, however, that
all payments with respect to Global Notes and definitive Notes the Holders of
which have given wire transfer instructions to the Company at least ten Business
Days prior to the applicable payment date will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Exchange Senior Subordinated
Discount Note Trustee maintained for such purpose. The Exchange Senior
Subordinated Discount Notes will be issued in minimum denominations of $1,000
and integral multiples thereof.
SETTLEMENT AND PAYMENT
Payments by the Company in respect of the Exchange Notes (including
principal, premium, if any, interest and Liquidated Damages, if any) will be
made in immediately available funds as provided above. The Exchange Notes trade
in the Depository's Same-Day Funds Settlement System, and any secondary market
trading activity in the Exchange Notes will, therefore, be required by the
Depository to be settled in immediately available funds. No assurance can be
given as to the effect, if any, of such settlement arrangements on trading
activity in the Exchange Notes.
Because of time-zone differences, the securities account of Euroclear or
Cedel Bank participants (each, a "Member Organization") purchasing an interest
in a Global Note from a Participant (as defined herein) that is not a Member
Organization will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Cedel Bank, as the case may be)
immediately following the DTC settlement date. Transactions in interests in a
Global Note settled during any securities settlement processing day will be
reported to the relevant Member Organization on the same day. Cash received in
Euroclear or Cedel Bank as a result of sales of interests in a Global Note by or
through a Member Organization to a Participant that is not a Member Organization
will be received with value on the DTC settlement date, but will not be
available in the relevant Euroclear or Cedel Bank cash account until the
business day following settlement in DTC.
OPTIONAL REDEMPTION
EXCHANGE SENIOR SUBORDINATED NOTES. Except as described below, the
Exchange Senior Subordinated Notes are not redeemable at the Company's option
prior to March 15, 2001. From and after March 15, 2001, the Exchange Senior
Subordinated Notes will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' written
notice, at the Exchange Senior Subordinated Note Redemption Prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest, including Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on March
15 of each of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
--------------------------------------------------------------- -------------
<S> <C>
2001........................................................... 105.438%
2002........................................................... 103.625%
2003........................................................... 101.813%
2004 and thereafter............................................ 100.000%
</TABLE>
Prior to March 15, 1999, the Company may, at its option, on any one or more
occasions, redeem up to $100.0 million in aggregate principal amount of Exchange
Senior Subordinated Notes at a redemption price equal to 110.875% of the
principal amount thereof, plus accrued and unpaid interest, including Liquidated
Damages, if any, thereon to the redemption date, with the net proceeds of public
or private sales of common stock of, or contributions to the common equity
capital of, the Company; provided that at least $150.0 million in aggregate
principal amount of Exchange Senior Subordinated Notes remains outstanding
immediately after the occurrence of such
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redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of the related sale of common stock of, or
capital contribution to, the Company.
EXCHANGE SENIOR SUBORDINATED DISCOUNT NOTES. Except as described below,
the Senior Subordinated Discount Notes are not redeemable at the Company's
option prior to March 15, 2001. From and after March 15, 2001, the Exchange
Senior Subordinated Discount Notes will be subject to redemption at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' written notice, at the Exchange Senior Subordinated Discount Note
Redemption Prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest (including Liquidated Damages, if any)
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on March 15 of each of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT
--------------------------------------------------------------- -------------
<S> <C>
2001........................................................... 106.125%
2002........................................................... 104.083%
2003........................................................... 102.042%
2004 and thereafter............................................ 100.000%
</TABLE>
Prior to March 15, 1999, the Company may, at its option, on any one or more
occasions, redeem the Exchange Senior Subordinated Discount Notes at a
redemption price equal to 112.250% of the Accreted Value thereof, plus accrued
and unpaid Liquidated Damages, if any, thereon to the redemption date, with the
net proceeds of public or private sales of common stock of, or contributions to
the common equity capital of, the Company; provided that at least $150.0 million
in aggregate Accreted Value of Exchange Senior Subordinated Discount Notes
remains outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of the related sale of common stock of, or capital contribution
to, the Company.
SELECTION AND NOTICE
If less than all of the Exchange Senior Subordinated Notes and/or Exchange
Senior Subordinated Discount Notes, as the case may be, are to be redeemed at
any time, selection of such Exchange Notes for redemption will be made by the
applicable Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Exchange Notes are listed, or, if the
Exchange Notes are not so listed, on a pro rata basis, by lot or by such method
as the applicable Trustee shall deem fair and appropriate; provided that,
subject to the limitations described above, the Company may, at its option,
elect to redeem either Exchange Senior Subordinated Notes, Exchange Senior
Subordinated Discount Notes, or both Exchange Senior Subordinated Notes and
Exchange Senior Subordinated Discount Notes; and provided further, that no
Exchange Notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Exchange
Notes to be redeemed at such Holder's registered address. If any Exchange Note
is to be redeemed in part only, the notice of redemption that relates to such
Exchange Note shall state the portion of the principal amount thereof to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Exchange Note. On and after the redemption date,
unless the Company defaults in payment of the redemption price, interest ceases
to accrue on Exchange Notes or portions of them called for redemption.
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<PAGE> 89
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each Holder
of Exchange Notes will have the right to require the Company to repurchase all
or any part (equal to $1,000 or an integral multiple thereof) of such Holder's
Exchange Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash (the "Change of Control Payment") equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
including Liquidated Damages, if any, thereon to the date of repurchase (or if
such Change of Control Offer is with respect to the Exchange Senior Subordinated
Discount Notes prior to the Full Accretion Date, 101% of the Accreted Value
thereof on the date of repurchase plus accrued and unpaid Liquidated Damages, if
any). Within 30 days following any Change of Control, the Company will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Exchange Notes pursuant to the
procedures required by the Indentures and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Exchange
Notes as a result of a Change of Control.
The Indentures provide that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding amounts under the Bank Credit
Agreement or offer to repay in full all outstanding amounts under the Bank
Credit Agreement and repay the Obligations held by each lender who has accepted
such offer or obtain the requisite consents, if any, under the Bank Credit
Agreement to permit the repurchase of the Exchange Notes required by this
covenant. There can be no assurance that the Company will have sufficient funds,
or will obtain the requisite consent of the Lenders under the Bank Credit
Agreement, to satisfy the Change of Control repurchase requirement if such
requirement arises.
The definition of a Change of Control includes transfers of "substantially
all" of the assets of the Company and its Restricted Subsidiaries. There is no
definitive quantitative test under New York law (the governing law of the
Indentures) as to what portion of the assets would constitute "substantially
all." Accordingly, there may be transactions that result in uncertainty as to
whether the Company is obligated to make a Change of Control Offer.
On a date that is no earlier than 30 days nor later than 60 days from the
date that the Company mails notice of the Change of Control to the Holders (the
"Change of Control Payment Date"), the Company will, to the extent lawful, (1)
accept for payment all Exchange Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agents an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustees for cancellation the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions thereof being purchased by the Company. The Paying Agents will
promptly mail to each Holder of Exchange Notes so tendered the Change of Control
Payment for such Exchange Notes, and the Trustees will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Exchange
Note equal in principal amount to any unpurchased portion of the Exchange Notes
surrendered, if any; provided that each such new Exchange Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indentures are applicable. Except as
described above with respect to a Change of Control, the Indentures do not
contain provisions that permit the Holders of the Exchange Notes to require that
the Company repurchase or redeem the Exchange Notes in the event of a takeover,
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<PAGE> 90
recapitalization or similar transaction. Such a transaction could occur, and
could have an effect on the Exchange Notes, without constituting a Change of
Control.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indentures applicable to a Change of Control Offer made by the Company
and purchases all Exchange Notes validly tendered and not withdrawn under such
Change of Control Offer.
The existence of a Holder's right to require the Company to repurchase such
Holder's Exchange Notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
ASSET SALES
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset Sale
unless (i) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustees) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) except in the case of
a Permitted Asset Swap, at least 80% of the consideration therefor received by
the Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Exchange Notes or any
guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the Bank Credit Agreement (and to
correspondingly reduce commitments with respect thereto) or other Senior Debt or
Pari Passu Indebtedness, (ii) to secure Letter of Credit Obligations to the
extent related letters of credit have not been drawn upon or returned undrawn,
(iii) to an investment in any one or more businesses, capital expenditures or
acquisitions of other assets, in each case, used or useful in a Principal
Business, (iv) to an investment in properties or assets that replace the
properties and assets that are the subject of such Asset Sale and/or (v) in the
case of a sale of a bowling center or bowling centers, deem such Net Proceeds to
have been applied pursuant to the immediately preceding clause (iv) to the
extent of any expenditures made to acquire or construct one or more bowling
centers in the general vicinity of the bowling center(s) sold within 365 days
preceding the date of the Asset Sale. Pending the final application of any such
Net Proceeds, the Company or such Restricted Subsidiary may temporarily reduce
Indebtedness under a revolving credit facility, if any, or otherwise invest such
Net Proceeds in Cash Equivalents. The Indentures will provide that any Net
Proceeds from the Asset Sale that are not invested as provided and within the
time period set forth in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $25.0 million, the Company will be required to make an offer to all
Holders of Exchange Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes, that is an integral multiple of $1,000, that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid
interest, including Liquidated Damages, if any (or, if such Asset Sale Offer is
with respect to the Exchange Senior Subordinated Discount Notes prior to the
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<PAGE> 91
Full Accretion Date, 100% of the Accreted Value thereof on the date of purchase,
plus accrued and unpaid Liquidated Damages, if any), to the date fixed for the
closing of such offer, in accordance with the procedures set forth in the
Indentures. The Company will commence an Asset Sale Offer with respect to Excess
Proceeds within ten Business Days after the date that the aggregate amount of
Excess Proceeds exceeds $25.0 million by mailing the notice required pursuant to
the terms of the Indentures, with a copy to the Trustees. To the extent that the
aggregate amount of Exchange Notes tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company may use any remaining Excess Proceeds
(x) to offer to redeem Subordinated Indebtedness (a "Subordinated Asset Sale
Offer") in accordance with the provisions of the indenture or other agreement
governing such Subordinated Indebtedness or (y) for any purpose not prohibited
by the Indentures. If the aggregate principal amount of Exchange Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustees shall select the Exchange Notes to be purchased on a pro rata basis,
based upon the Accreted Value of Exchange Senior Subordinated Discount Notes and
the principal amount of Exchange Senior Subordinated Notes tendered. Upon
completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Exchange Notes as a result of an Asset Sale.
The Bank Credit Agreement prohibits the Company from purchasing any
Exchange Notes, and also provides that certain change of control events with
respect to the Company will constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs or an Asset Sale Offer is required to be made at a time
when the Company is prohibited from purchasing Exchange Notes, the Company could
seek the consent of its lenders to the purchase of Exchange Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Exchange Notes. In such case, the
Company's failure to purchase tendered Exchange Notes would constitute an Event
of Default under the Indentures. In such circumstances, the subordination
provisions in the Indentures would likely restrict payments to the Holders of
Exchange Notes.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or dividends or distributions payable to the Company or
any Restricted Subsidiary of the Company); (ii) purchase, redeem, defease or
otherwise acquire or retire for value any Equity Interests of the Company or any
direct or indirect parent of the Company; (iii) make any principal payment on,
or purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness, except at final maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
immediately after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph
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of the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indentures (including Restricted Payments permitted
by clause (i) of the next succeeding paragraph, but excluding all other
Restricted Payments permitted by the next succeeding paragraph), is less
than the sum of (i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indentures to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds
and the fair market value, as determined in good faith by the Board of
Directors, of marketable securities received by the Company from the issue
or sale since the date of the Indentures of Equity Interests (including
Retired Capital Stock (as defined below)) of the Company (except in
connection with the Acquisition) or of debt securities of the Company that
have been converted into such Equity Interests (other than Refunding
Capital Stock (as defined below) or Equity Interests or convertible debt
securities of the Company sold to a Restricted Subsidiary of the Company
and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock), plus (iii) 100% of the aggregate
amounts contributed to the common equity capital of the Company since the
date of the Indentures (except amounts contributed to finance the
Acquisition), plus (iv) 100% of the aggregate amounts received in cash and
the fair market value of marketable securities (other than Restricted
Investments) received from (x) the sale or other disposition of Restricted
Investments made by the Company and its Restricted Subsidiaries since the
date of the Indentures or (y) the sale of the stock of an Unrestricted
Subsidiary or the sale of all or substantially all of the assets of an
Unrestricted Subsidiary to the extent that a liquidating dividend is paid
to the Company or any Subsidiary from the proceeds of such sale, plus (v)
100% of any dividends received by the Company or a Wholly Owned Restricted
Subsidiary of the Company after the date of the Indentures from an
Unrestricted Subsidiary of the Company, plus (vi) $10.0 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would
have complied with the provisions of the Indentures;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary (the
"Retired Capital Stock") or any Subordinated Indebtedness, in each case,
in exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of Equity
Interests of the Company (other than any Disqualified Stock) (the
"Refunding Capital Stock"); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of
the immediately preceding paragraph;
(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(iv) the redemption, repurchase or other acquisition or retirement
for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of
its Restricted Subsidiaries') management pursuant to any management
equity subscription agreement or stock option or similar agreement;
provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed the sum
of $5.0 million in any twelve-month period plus the aggregate cash
proceeds received by the Company during such twelve-month
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<PAGE> 93
period from any issuance of Equity Interests by the Company to members
of management of the Company and its Restricted Subsidiaries; provided
that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(ii) of the immediately preceding paragraph;
(v) Investments in Unrestricted Subsidiaries or in Joint Ventures
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (v) that are at that time
outstanding, not to exceed 5% of Total Assets at the time of such
Investment (with the fair market value of each Investment being measured
at the time made and without giving effect to subsequent changes in
value);
(vi) repurchases of Equity Interests deemed to occur upon exercise
or conversion of stock options, warrants, convertible securities or
other similar Equity Interests if such Equity Interests represent a
portion of the exercise or conversion price of such options, warrants,
convertible securities or other similar Equity Interests;
(vii) the making and consummation of a Subordinated Asset Sale
Offer in accordance with the provisions described under the caption
entitled "-- Repurchase at the Option of Holders -- Asset Sales"; and
(viii) any dividend or distribution payable on or in respect of any
class of Equity Interests issued by a Restricted Subsidiary of the
Company; provided that such dividend or distribution is paid on a pro
rata basis to all of the holders of such Equity Interests in accordance
with their respective holdings of such Equity Interests;
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iv) or (v) above, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof.
As of March 31, 1997, all of the Company's Subsidiaries are Restricted
Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except pursuant to the last sentence of the definition
of "Unrestricted Subsidiary." For purposes of designating any Restricted
Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid) in the
Subsidiary so designated will be deemed to be Restricted Payments in an amount
equal to the book value of such Investment at the time of such designation. Such
designation will only be permitted if a Restricted Payment in such amount would
be permitted at such time and if such Subsidiary otherwise meets the definition
of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to
any of the restrictive covenants set forth in the Indentures.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustees) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustees an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur" and correlatively, an
"incurrence" of) any Indebtedness (including Acquired Debt) and that the Company
will not issue any Disqualified Stock; provided, however, that the Company may
incur Indebtedness (including
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Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for the Company for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such incurrence would have been at least 2.00 to 1.0 if
such date is on or prior to September 15, 1997, 2.25 to 1.0 if such date is
after September 15, 1997 and on or prior to March 15, 1999 and 2.50 to 1.0
thereafter, in each case, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the Disqualified Stock had been issued, as the case may be,
and the application of the proceeds therefrom had occurred at the beginning of
such four-quarter period.
The foregoing provisions will not apply to:
(a) the incurrence by the Company (and the Guarantee thereof by the
Guarantors) of (i) Indebtedness under the Bank Credit Agreement and the
issuance of letters of credit thereunder (with letters of credit being
deemed to have a principal amount equal to the aggregate maximum amount
then available to be drawn thereunder, assuming compliance with all
conditions for drawing) up to an aggregate principal amount of $715.0
million outstanding at any one time, less principal repayments of term
loans and permanent commitment reductions with respect to revolving loans
and letters of credit under the Bank Credit Agreement made after the date
of the Indentures and (ii) additional Indebtedness under the Bank Credit
Agreement and the issuance of additional letters of credit thereunder (with
letters of credit being deemed to have a principal amount equal to the
aggregate maximum amount then available to be drawn thereunder, assuming
compliance with all conditions for drawing) up to an aggregate principal
amount of $75.0 million outstanding at any one time (reduced by the
aggregate principal amount (or accreted value, as applicable) of
Indebtedness outstanding pursuant to clause (l) below);
(b) the incurrence by the Company or any of its Restricted
Subsidiaries of any Existing Indebtedness;
(c) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by the Exchange Notes;
(d) Indebtedness (including Capital Lease Obligations) incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal), assets or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets), in an aggregate principal amount not to exceed
5% of Total Assets at any time outstanding;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(f) intercompany Indebtedness between or among the Company and any of
its Restricted Subsidiaries and Guarantees by a Restricted Subsidiary of
the Company of Indebtedness of any other Restricted Subsidiary of the
Company or the Company;
(g) Hedging Obligations that are incurred (1) for the purpose of
fixing or hedging interest rate risk with respect to any Indebtedness that
is permitted by the terms of the Indentures to be outstanding or (2) for
the purpose of fixing or hedging currency exchange rate risk with respect
to any currency exchanges;
(h) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(i) the incurrence by the Company or any of the Guarantors of
Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness
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was incurred by the prior owner of such assets or such new Restricted
Subsidiary prior to such acquisition by the Company or such Restricted
Subsidiary and was not incurred in connection with, or in contemplation of,
such acquisition; and provided further that the Fixed Charge Coverage Ratio
for the Company for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
date of such transaction would have been at least 2.00 to 1.0 if such date
is on or prior to September 15, 1997, 2.25 to 1.0 if such date is after
September 15, 1997 and on or prior to March 15, 1999 and 2.50 to 1.0
thereafter, in each case, determined on a pro forma basis, as if such
transaction had occurred at the beginning of such four-quarter period and
such Indebtedness or Disqualified Stock and the Consolidated Cash Flow of
such merged or acquired Person had been included for all purposes in such
pro forma calculation;
(j) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indentures to be
incurred;
(k) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company; and
(l) the incurrence by the Company of additional Indebtedness not
otherwise permitted hereunder in an amount under this clause (l) not to
exceed $75.0 million in aggregate principal amount (or accreted value, as
applicable) outstanding at any one time (reduced by the aggregate principal
amount of Indebtedness outstanding pursuant to clause (a)(ii) above).
NO SENIOR SUBORDINATED DEBT
The Indentures provide that (i) the Company will not directly or indirectly
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Exchange Notes and
(ii) no Guarantor will directly or indirectly incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to the Senior Guarantees and senior in any respect in
right of payment to the Senior Subordinated Guarantees.
Except for the limitations on the incurrence of debt described above under
the caption "Incurrence of Indebtedness and Issuance of Disqualified Stock," the
Indentures do not limit the amount of debt that is pari passu with the Exchange
Notes.
LIENS
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness on any asset or property now owned or
hereafter acquired by the Company or any of its Restricted Subsidiaries, or on
any income or profits therefrom, or assign or convey any right to receive income
therefrom to secure any Pari Passu Indebtedness or Subordinated Indebtedness,
unless the Exchange Notes are equally and ratably secured with the obligations
so secured or until such time as such obligations are no longer secured by a
Lien; provided, that in any case involving a Lien securing Subordinated
Indebtedness, such Lien is subordinated to the Lien securing the Exchange Notes
to the same extent that such Subordinated Indebtedness is subordinated to the
Exchange Notes.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) sell, lease or transfer any of
its properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of the Indentures, (b) the Bank
Credit Agreement and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that the Bank Credit Agreement and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings thereof are no more restrictive taken as a whole with respect to
such dividend and other payment restrictions than those terms described in an
exhibit to the Indentures, (c) the Indentures and the Exchange Notes, (d)
applicable law, (e) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indentures to be incurred, (f) by
reason of customary non-assignment or net worth provisions in leases and other
agreements entered into in the ordinary course of business and consistent with
past practices, (g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, (h) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced,
(i) other Indebtedness permitted to be incurred subsequent to the date of the
Indentures pursuant to the provisions of the covenant described under
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock"; provided
that any such restrictions are customary with respect to the type of
Indebtedness being incurred (under the relevant circumstances), (j) any Mortgage
Financing or Mortgage Refinancing that imposes restrictions on the real property
securing such Indebtedness, (k) any Permitted Investment, (l) contracts for the
sale of assets, including, without limitation customary restrictions with
respect to a Restricted Subsidiary of the Company pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially all of
the Capital Stock or assets of such Restricted Subsidiary or (m) customary
provisions in joint venture agreements and other similar agreements.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Indentures provide that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Exchange Notes, the Indentures and the
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Pledge and Escrow Agreements pursuant to supplemental indentures in form
reasonably satisfactory to the applicable Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-- Incurrence
of Indebtedness and Issuance of Disqualified Stock." Notwithstanding the
foregoing clauses (iii) and (iv), (a) any Restricted Subsidiary may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company and (b) the Company may merge with an Affiliate incorporated solely for
the purpose of reincorporating the Company in another jurisdiction.
TRANSACTIONS WITH AFFILIATES
The Indentures provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustees (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors (if there are any disinterested members of the Board of
Directors) and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, or with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million as to which there are no disinterested members of the Board of
Directors, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments or Permitted Investments permitted by the provisions of the
Indentures described above under "-- Restricted Payments"; (iii) the payment of
all fees, expenses and other amounts relating to the Acquisition; (iv) the
payment of reasonable and customary regular fees to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company; (v) the transfer or provision of
inventory, goods or services by the Company or any Restricted Subsidiary of the
Company in the ordinary course of business to any Restricted Subsidiary of the
Company on terms that are customary in the industry or consistent with past
practices; (vi) the execution of, or the performance by the Company or any of
its Restricted Subsidiaries of its obligations under the terms of, any financial
advisory, financing, underwriting or placement agreement or any other agreement
relating to investment banking or financing activities with Goldman Sachs or any
of its Affiliates including, without limitation, in connection with acquisitions
or divestitures, in each case to the extent that such agreement was approved by
a majority of the disinterested members of the Board of Directors in good faith;
(vii) payments, advances or loans to employees that are approved by a majority
of the disinterested members of the Board of Directors of the Company in good
faith; (viii) the performance of any agreement as in
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effect as of the date of the Indentures or any amendment thereto or any
transaction contemplated thereby (including pursuant to any amendment thereto so
long as any such amendment is not disadvantageous to the Holders of the Exchange
Notes in any material respect); (ix) the existence of, or the performance by the
Company or any of its Restricted Subsidiaries of its obligations under the terms
of, any stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the date of the
Indentures and any similar agreements which it may enter into thereafter,
provided, however, that the existence of, or the performance by the Company or
any of its Restricted Subsidiaries of obligations under, any future amendment to
any such existing agreement or under any similar agreement entered into after
the date of the Indentures shall only be permitted by this clause (ix) to the
extent that the terms of any such amendment or new agreement are not otherwise
disadvantageous to the Holders of the Exchange Notes in any material respect;
(x) transactions permitted by, and complying with, the provisions of the
covenant described under "-- Merger, Consolidation, or Sale of All or
Substantially All Assets;" and (xi) transactions with suppliers or other
purchases or sales of goods or services, in each case in the ordinary course of
business (including, without limitation, pursuant to joint venture agreements)
and otherwise in compliance with the terms of the Indentures which are fair to
the Company or its Restricted Subsidiaries, in the reasonable determination of a
majority of the disinterested members of the Board of Directors of the Company
or an executive officer thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party.
ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Indentures provide that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness unless such Restricted Subsidiary either
(i) is a Guarantor, or (ii) simultaneously executes and delivers supplemental
indentures to the Indentures providing for the Guarantee of the payment of all
Obligations with respect to the Exchange Notes by such Restricted Subsidiary,
which Guarantee shall be senior to such Restricted Subsidiary's Guarantee of or
pledge to secure any other Indebtedness that constitutes Subordinated
Indebtedness and subordinated to such Restricted Subsidiary's Guarantee of or
pledge to secure any other Indebtedness that constitutes Senior Debt to the same
extent as the Notes are subordinated to Senior Debt. In addition, the Indentures
provide that (x) if the Company shall, after the date of the Indentures, create
or acquire any new First-Tier Subsidiary, then such newly created or acquired
First-Tier Subsidiary shall execute a Senior Subordinated Guarantee and deliver
an opinion of counsel in accordance with the terms of the Indentures, (y) if any
First-Tier Subsidiary shall, after the date of the Indentures, create or acquire
any new Second-Tier Subsidiary, then such newly created or acquired Second-Tier
Subsidiary shall execute a Senior Subordinated Guarantee and deliver an opinion
of counsel in accordance with the terms of the Indentures and (z) if the Company
shall (whether before or after the date of the Indentures) create or acquire any
new Subsidiary (other than a First-Tier Subsidiary or Second-Tier Subsidiary)
that becomes a guarantor under the Bank Credit Agreement, then such newly
created or acquired Subsidiary shall execute a Senior Subordinated Guarantee and
deliver an opinion of counsel in accordance with the terms of the Indentures.
Notwithstanding the foregoing, any such Senior Subordinated Guarantee shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon certain mergers, consolidations, sales and other
dispositions (including, without limitation, by foreclosure) pursuant to the
terms of the Indentures. See "-- Senior Subordinated Guarantees." The form of
such Senior Subordinated Guarantee is attached as an exhibit to each of the
Indentures.
ACTIVITIES OF HOLDINGS
In addition to the restrictions set forth above, the Indentures provide
that Holdings may not (i) hold any assets or incur any Indebtedness or (ii)
engage in any business activities; except that Holdings may (x) hold all, but
not less than all, of the Capital Stock of the Company and (y) be a
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co-obligor and/or guarantor with respect to Indebtedness if the Company is a
primary obligor or guarantor of such Indebtedness and the net proceeds of such
Indebtedness are lent to the Company or one or more of its Restricted
Subsidiaries.
REPORTS
The Indentures provide that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will furnish to the Holders of Exchange Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with the Commission
on Form 8-K if the Company were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission, the
Company will file a copy of all such information and reports with the Commission
for public availability (unless the Commission will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. In addition, the Company and the Guarantors have agreed
that, for so long as any Exchange Notes remain outstanding, they will furnish to
the Holders of the Exchange Notes and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indentures provide that each of the following constitutes an Event of
Default with respect to the Exchange Senior Subordinated Notes or the Exchange
Senior Subordinated Discount Notes, as the case may be: (i) default for 30 days
in the payment when due of interest, including Liquidated Damages, if any, on
the Exchange Notes (whether or not prohibited by the subordination provisions of
the Indentures); (ii) default in payment when due of the principal of or
premium, if any, on the Exchange Notes (whether or not prohibited by the
subordination provisions of the Indentures); (iii) failure by the Company for 30
days after notice from either Trustee or the Holders of at least 25% in
principal amount of the then outstanding Exchange Senior Subordinated Notes or
Exchange Senior Subordinated Discount Notes, as the case may be, to comply with
the provisions described under "-- Escrow of Proceeds; Special Mandatory
Redemption," "-- Change of Control," "-- Restricted Payments," "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock" or "-- Merger, Consolidation,
or Sale of All or Substantially All Assets;" (iv) failure by the Company for 60
days after notice from either Trustee or the Holders of at least 25% in
principal amount of the then outstanding Exchange Senior Subordinated Notes or
Exchange Senior Subordinated Discount Notes, as the case may be, to comply with
any of its other agreements in the Indentures or the Exchange Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indentures, which default results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
the maturity of which has been so accelerated, aggregates $25.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $25.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Restricted Subsidiaries;
(viii) failure by the Company to comply with the provisions of the Pledge and
Escrow Agreements; and (ix) except as permitted by the Indentures, any Senior
Subordinated Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
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and effect (except by its terms) or any Guarantor, or any Person acting on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Senior Subordinated Guarantee.
If any Event of Default occurs and is continuing, any Trustee or the
Holders of at least 25% in principal amount of the then outstanding Exchange
Senior Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the
case may be, may declare all the Exchange Senior Subordinated Notes or Exchange
Senior Subordinated Discount Notes, as the case may be, to be due and payable
immediately. Upon such declaration the principal, interest, premium, if any, and
Liquidated Damages, if any, shall be due and payable immediately; provided,
however, that so long as Senior Debt or any commitment therefor is outstanding
under the Bank Credit Agreement, any such notice or declaration shall not be
effective until the earlier of (a) five Business Days after such notice is
delivered to the Representative for the Senior Bank Debt or (b) the acceleration
of any Indebtedness under the Bank Credit Agreement. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Restricted Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Restricted Subsidiary, all outstanding
Exchange Notes will become due and payable without further action or notice.
Holders of the Exchange Notes may not enforce the Indentures or the Exchange
Notes except as provided in the Indentures. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Exchange Notes
may direct the applicable Trustee in its exercise of any trust or power. Either
Trustee may withhold from Holders of the Exchange Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest, including Liquidated Damages, if any) if
it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Exchange Notes pursuant to
the optional redemption provisions of the applicable Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Exchange Notes. If an Event of
Default occurs prior to March 15, 2001 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding the prohibition on redemption of the Exchange Notes prior to March
15, 2001, then the premium specified in the applicable Indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the Exchange Notes.
The Holders of a majority in aggregate principal amount of the Exchange
Senior Subordinated Notes or the Exchange Senior Subordinated Discount Notes, as
the case may be, then outstanding by notice to the applicable Trustee may on
behalf of the Holders of all of the Exchange Senior Subordinated Notes or the
Exchange Senior Subordinated Discount Notes, as the case may be, waive any
existing Default or Event of Default and its consequences under the applicable
Indenture except a continuing Default or Event of Default in the payment of
interest, including Liquidated Damages, if any, on, or the principal and
premium, if any, of, the Exchange Senior Subordinated Notes or the Exchange
Senior Subordinated Discount Notes, as the case may be.
The Company is required to deliver to each Trustee annually a statement
regarding compliance with the respective Indentures, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to each
Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Exchange Notes, the Indentures or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of
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Exchange Notes by accepting an Exchange Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Exchange Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all
obligations of the Company and the Guarantors discharged with respect to the
outstanding Exchange Senior Subordinated Notes and/or the outstanding Exchange
Senior Subordinated Discount Notes, as the case may be, and the Senior
Subordinated Guarantees ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Exchange Notes to receive payments in respect of the
principal of, premium, if any, and interest, including Liquidated Damages, if
any, on such Exchange Notes when such payments are due from the trust referred
to below, (ii) the Company's obligations with respect to the Exchange Notes
concerning issuing temporary Exchange Notes, registration of Exchange Notes,
mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the applicable
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the applicable Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company and the Guarantors released with respect to certain covenants that are
described in the Senior Subordinated Note Indenture or the Senior Subordinated
Discount Note Indenture, and the Senior Subordinated Guarantees ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Exchange Senior
Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the case
may be, and the Senior Subordinated Guarantees. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "-- Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Exchange Senior Subordinated Notes or Exchange Senior Subordinated Discount
Notes, as the case may be, and the Senior Subordinated Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company or the Guarantors must irrevocably deposit with the appropriate
Trustee, in trust, for the benefit of the Holders of the Exchange Senior
Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the case
may be, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest, including Liquidated Damages, if
any, on the outstanding Exchange Senior Subordinated Notes or Exchange Senior
Subordinated Discount Notes, as the case may be, on the stated maturity or on
the applicable redemption date, as the case may be, and the Company or the
Guarantors must specify whether the Exchange Senior Subordinated Notes or
Exchange Senior Subordinated Discount Notes, as the case may be, are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, the Company or the Guarantors shall have delivered to the
appropriate Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that (A) the Company or the Guarantors
have received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of the applicable Indenture, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of the outstanding Exchange Senior Subordinated Notes or Exchange Senior
Subordinated Discount Notes, as the case may be, will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company or the
Guarantors shall have delivered to the appropriate Trustee an opinion of counsel
in the United States reasonably acceptable to such Trustee confirming that the
Holders of the outstanding, Exchange Senior Subordinated Notes or Exchange
Senior Subordinated Discount Notes, as the case may be, will not
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recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than the applicable Indenture) to which the
Company or any of its Restricted Subsidiaries is a party or by which the Company
or any of its Restricted Subsidiaries is bound; (vi) the Company or the
Guarantors must have delivered to the appropriate Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company or the Guarantors must deliver to the appropriate Trustee an Officers'
Certificate stating that the deposit was not made by the Company or the
Guarantors, as applicable, with the intent of preferring the Holders of Exchange
Senior Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the
case may be, over the other creditors of the Company or the Guarantors, as
applicable, with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or the Guarantors, as applicable, or others; and (viii)
the Company or the Guarantors must deliver to the appropriate Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Exchange Notes in accordance with the
Indentures. The Registrars and the Trustees may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indentures. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of
it for all purposes.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes initially issued in exchange for the Notes generally
were represented by one or more fully-registered global notes (collectively, the
"Global Exchange Note"). Notwithstanding the foregoing, Notes held in
certificated form were exchanged solely for Exchange Notes in certificated form,
as discussed below. The Global Exchange Note was deposited, upon issuance, with
The Depository Trust Company (the "Depository") and registered in the name of
the Depository or a nominee of the Depository (the "Global Exchange Note
Registered Owner"). Except as set forth below, the Global Exchange Note may be
transferred, in whole and not in part, only to another nominee of the Depository
or to a successor of the Depository or its nominee.
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a
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custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depository only through the Depository's Participants or the
Depository's Indirect Participants. The ownership interest and transfer of
ownership interest of each actual purchaser of each security held by or on
behalf of the Depository are recorded on the records of the Participants and
Indirect Participants.
The Depository has also advised the Issuers that pursuant to procedures
established by it, (i) upon deposit of the Global Exchange Note, the Depository
credited the accounts of Participants designated by the Exchange Agent with
portions of the principal amount of the Global Exchange Note and (ii) ownership
of such interests in the Global Exchange Note is shown on, and the transfer of
ownership thereof may be effected only through, records maintained by the
Depository (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Global Exchange Note). The laws of some states require that certain persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Exchange Notes is limited to that extent.
Except as described below, owners of interests in the Global Exchange Note
do not have Exchange Notes registered in their names, do not receive physical
delivery of Exchange Notes in definitive form and are not considered the
registered owners or holders thereof under the Indentures for any purpose.
Payments in respect of the principal of and premium, if any, and interest
on any Exchange Notes registered in the name of the Global Exchange Note
Registered Owner is payable by the Trustees to the Global Exchange Note
Registered Owner in their capacity as the registered Holder under the
Indentures. Under the terms of the Indentures, the Company and the Trustees
treat the persons in whose names the Exchange Notes, including the Global
Exchange Note, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the Company, the Trustees nor any agent of the Company or the Trustees
has or will have any responsibility or liability for (i) any aspect of the
Depository's records or any Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Exchange Note, or for
maintaining, supervising or reviewing any of the Depository's records or any
Participant's records relating to the beneficial ownership interests in the
Global Exchange Note or (ii) any other matter relating to the actions and
practices of the Depository or any of its Participants. The Depository has
advised the Issuers that its current practice, upon receipt of any payment in
respect of securities such as the Exchange Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security as
shown on the records of the Depository unless the Depository has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Exchange
Notes are governed by standing instructions and customary practices and are the
responsibility of the Participants or the Indirect Participants and not the
responsibility of the Depository, the Trustees or the Company. Neither the
Company nor the Trustees is liable for any delay by the Depository or any of its
Participants in identifying the beneficial owners of the Exchange Notes, and the
Company and the Trustees may conclusively rely on and will be protected in
relying on instructions from the Global Exchange Note Registered Owner for all
purposes.
The Global Exchange Note is exchangeable for definitive Exchange Notes if
(i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository of the Global Exchange Note and the Company thereupon
fails to appoint a successor Depository, (ii) the Company, at its option,
notifies the Trustees in writing that it elects to cause the issuance of the
Exchange Notes in definitive registered form, (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default with respect to the Exchange Notes
or (iv) as provided in the following paragraph. Such definitive Exchange Notes
shall be registered in the names of the owners of the beneficial interests in
the Global Exchange
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Note as provided by the Participants. Exchange Notes issued in definitive form
will be in fully registered form, without coupons, in minimum denominations of
$1,000 and integral multiples thereof. Upon issuance of Exchange Notes in
definitive form, the Trustees are required to register the Exchange Notes in the
name of, and cause the Exchange Notes to be delivered to, the person or persons
(or the nominee thereof) identified as the beneficial owners as the Depository
shall direct.
An Exchange Note in definitive form will be issued upon the resale, pledge
or other transfer of any Exchange Note or interest therein to any person or
entity that does not participate in the Depository. Transfers of certificated
Exchange Notes may be made only by presentation of Exchange Notes, duly
endorsed, to the Trustees for registration of transfer on the Note Register
maintained by the Trustees for such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Exchange Notes may, upon request to the appropriate Trustee, exchange
such beneficial interest for Exchange Notes evidenced by registered, definitive
certificates ("Certificated Securities"). Upon any such issuance, the
appropriate Trustee is required to register such Certificated Securities in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if (i) the Company notifies the
appropriate Trustee in writing that the Depository is no longer willing or able
to act as a depositary and the Company is unable to locate a qualified successor
within 90 days or (ii) the Company, at its option, notifies the appropriate
Trustee in writing that it elects to cause the issuance of Exchange Notes in the
form of Certificated Securities under the applicable Indenture, then, upon
surrender by the Global Exchange Note Holder of its Global Exchange Notes,
Exchange Notes in such form will be issued to each person that the Global
Exchange Note Holder and the Depository identify as being the beneficial owner
of the related Exchange Notes.
Neither the Company nor the Trustees will be liable for any delay by the
Global Exchange Note Holder or the Depository in identifying the beneficial
owners of Exchange Notes and the Company and the Trustees may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depository for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indentures
and the Exchange Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Exchange Senior
Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the case
may be, then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, such
Exchange Notes), and any existing default or compliance with any provision of
the Indentures or the Exchange Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Exchange
Senior Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the
case may be (including consents obtained in connection with a tender offer or
exchange offer for such Exchange Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a non-consenting Holder): (i) reduce
the principal amount of Exchange Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Exchange Notes (other than provisions relating to the
covenants described above under "-- Repurchase at the Option of Holders"), (iii)
reduce the rate of or
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change the time for payment of interest, including Liquidated Damages, if any,
on any Exchange Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest, including Liquidated Damages, if
any, on the Exchange Notes (except a rescission of acceleration of the Exchange
Senior Subordinated Notes or Exchange Senior Subordinated Discount Notes, as the
case may be, by the Holders of at least a majority in aggregate principal amount
thereof and a waiver of the payment default that resulted from such
acceleration), (v) make any Exchange Note payable in money other than that
stated in the Exchange Notes, (vi) make any change in the provisions of the
Indentures relating to waivers of past Defaults or the rights of Holders of
Exchange Notes to receive payments of principal of or premium, if any, or
interest, including Liquidated Damages, if any, on the Exchange Notes, (vii)
waive a redemption payment with respect to any Exchange Note (other than a
payment required by one of the covenants described above under "-- Repurchase at
the Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Exchange Notes, the Company and the appropriate Trustee may amend or supplement
the Indentures or the Exchange Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Exchange Notes in addition to or in
place of certificated Exchange Notes, to provide for the assumption of the
Company's obligations to Holders of Exchange Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Exchange Notes or that does not adversely affect the
legal rights under the Indentures of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indentures under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indentures contain certain limitations on the rights of the Trustees,
should either Trustee become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustees will be permitted to
engage in other transactions; however, if either Trustee acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Senior Subordinated Notes or Exchange Senior Subordinated Discount
Notes, as the case may be, will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
applicable Trustee, subject to certain exceptions. The Indentures provide that
in case an Event of Default shall occur (which shall not be cured), the Trustees
will be required, in the exercise of their power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions,
neither Trustee will be under any obligation to exercise any of its rights or
powers under the Indentures at the request of any Holder, unless such Holder
shall have offered to the appropriate Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the Indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, as of any date of determination prior to the Full
Accretion Date, the sum of (a) the initial offering price of each Exchange
Senior Subordinated Discount Note and (b) the portion of the excess of the
principal amount of each Exchange Senior Subordinated Discount Note over such
initial offering price which shall have been accreted thereon through such date,
such amount to be so accreted on a daily basis at 12 1/4% per annum of the
initial offering price
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of the Exchange Senior Subordinated Discount Notes, compounded semi-annually on
each March 15 and September 15 from the date of issuance of the Exchange Senior
Subordinated Discount Notes through the date of determination; provided that on
and after the Full Accretion Date the Accreted Value shall be equal to the
principal amount of the outstanding Exchange Senior Subordinated Discount Note.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"AMF" means the AMF worldwide bowling businesses, including AMF Bowling,
Inc., AMF Bowling Centers, Inc., the AMF worldwide bowling centers and their
subsidiaries.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or assets
(including by way of a sale and leaseback) of the Company or any Restricted
Subsidiary (each referred to in this definition as a "disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted Subsidiary
(whether in a single transaction or a series of related transactions),
in each case, other than:
(a) a disposition of Cash Equivalents or goods held for sale in the
ordinary course of business or obsolete equipment in the ordinary course of
business consistent with past practices of the Company;
(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above under
the covenant entitled "-- Merger, Consolidation, or Sale of All or Substantially
All Assets" or any disposition that constitutes a Change of Control pursuant to
the Indentures;
(c) any disposition that is a Restricted Payment or Permitted Investment
that is permitted under the covenant described above under "-- Restricted
Payments";
(d) any disposition, or related series of dispositions, of assets with an
aggregate fair market value of less than $2.5 million;
(e) any sale of Equity Interest in, or Indebtedness or other securities of,
an Unrestricted Subsidiary; and
(f) foreclosures on assets.
"Bank Credit Agreement" means the credit agreement to be entered into by
and among the Company and the financial institutions party thereto providing a
portion of the financing for the Acquisition, including any related notes,
guarantees, collateral documents, instruments and agree-
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ments executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced (in whole or in part) from time to
time.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any domestic bank having capital and
surplus in excess of $500.0 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above and (v) commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation
and in each case maturing within one year after the date of acquisition.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole, to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Permitted Holders and their Related
Parties;
(ii) the Company becomes aware (by way of a report or any other filing
pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or
otherwise) of the acquisition by any Person or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor
provision), including any group acting for the purpose of acquiring, holding or
disposing of securities (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than the Permitted Holders or any of their Related Parties,
in a single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) of 50% or more of the Voting Stock of the Company or
Holdings, and beneficially owns more of such Voting Stock than the Permitted
Holders and their Related Parties; or
(iii) a majority of the members of the Board of Directors of the Company
cease to be Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the
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interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) for such period of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indentures or (ii) was nominated for election or elected to such
Board of Directors with, or whose election to such Board of Directors was
approved by, the affirmative vote of a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election or (iii) is any designee of the Permitted Holders or their Affiliates
or was nominated by the Permitted Holders or their Affiliates or any designees
of the Permitted Holders or their Affiliates on the Board of Directors.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Exchange Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of AMF and its Restricted
Subsidiaries (other than Indebtedness under the Bank Credit Agreement) in
existence on the date of the Indentures, until such amounts are repaid.
"First-Tier Subsidiaries" means each of the Subsidiaries directly owned by
the Company.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues Preferred Stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of Preferred Stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated (A) without giving
effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income and (B) subject to clause (ii) of the definition of
"Consolidated Net Income," by treating a portion of the consolidated revenue for
such period of any acquired entity that derives at least 90% of its revenues
from the ownership and operation of bowling centers as Consolidated Cash Flow of
such entity, regardless of the actual operating results of such entity, such
portion being the percentage of the consolidated revenues of the Company's
domestic bowling center operations that constituted Consolidated Cash Flow for
the most recently ended four full fiscal quarters for which internal financial
statements are available and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) paid to any Person other than the Company or a
Restricted Subsidiary on any series of Preferred Stock of such Person, times (b)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person paying the dividend, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indentures.
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"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) Holdings, (ii) each of the First-Tier
Subsidiaries, (iii) each of the Second-Tier Subsidiaries and (iv) any other
Restricted Subsidiary of the Company that executes a Senior Subordinated
Guarantee in accordance with the provisions of the Indentures, and, in each
case, their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a holder of any of the Exchange Notes.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant of nationally recognized standing that is not an
Affiliate of the Company and that is, in the judgment of the Company's Board of
Directors, qualified to perform the task for which it has been engaged.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of Equity Interests or other securities by the Company for
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consideration consisting of common equity securities of the Company shall not be
deemed to be an Investment. If the Company or any Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, greater than
50% of the outstanding Equity Interests of such Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of.
"Joint Ventures" means all corporations, partnerships, associations or
other business entities (i) that are engaged in a Principal Business and (ii) of
which 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by the Company or one or more Restricted Subsidiaries
(or a combination thereof).
"Letter of Credit Obligations" means all Obligations in respect of
Indebtedness of the Company or any of its Restricted Subsidiaries with respect
to letters of credit issued pursuant to the Bank Credit Agreement which
Indebtedness shall be deemed to consist of (a) the aggregate maximum amount then
available to be drawn under all such letters of credit (the determination of
such maximum amount to assume compliance with all conditions for drawing), and
(b) the aggregate amount that has then been paid by, and not reimbursed to, the
issuers under such letters of credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Mortgage Financing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property acquired or improved by the Company or any Restricted
Subsidiary of the Company after the date of the Indentures.
"Mortgage Refinancing" means the incurrence by the Company or a Restricted
Subsidiary of the Company of any Indebtedness secured by a mortgage or other
Lien on real property subject to a mortgage or other Lien existing on the date
of the Indentures or created or incurred subsequent to the date of the
Indentures as permitted by the terms of the Indentures and owned by the Company
or any Restricted Subsidiary of the Company.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and brokerage and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be
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applied to the repayment of Indebtedness (other than Senior Bank Debt) secured
by a Lien on the asset or assets that were the subject of such Asset Sale and
any reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness of an Unrestricted Subsidiary (i) as
to which neither the Company nor any of its Restricted Subsidiaries (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements set
forth in the Indentures.
"Pari Passu Indebtedness" means indebtedness which ranks pari passu in
right of payment to the Exchange Notes.
"Permitted Asset Swap" means any one or more transactions in which the
Company or any of its Restricted Subsidiaries exchanges assets for consideration
consisting of cash and/or assets that are used or useful in a Principal Business
and/or a controlling equity interest in a Person engaged in a Principal
Business.
"Permitted Holders" means Goldman, Sachs & Co. and any of its Affiliates.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (A) such Person
becomes a Restricted Subsidiary of the Company or (B) such Person, in one
transaction or a series of related transactions, is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Investment made as a result of the receipt of consideration not
constituting cash or Cash Equivalents from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under "-- Repurchase at
the Option of Holders -- Asset Sales;" (e) any Investment existing on the date
of the Indentures; (f) Permitted Asset Swaps; (g) any Investment by Restricted
Subsidiaries in other Restricted Subsidiaries and Investments by Subsidiaries
that are not Restricted Subsidiaries in other Subsidiaries that are not
Restricted Subsidiaries; (h) advances to employees not in excess of $5.0 million
outstanding at any one time; (i) any Investment acquired by the Company or any
of its Restricted Subsidiaries (A) in exchange for any other Investment or
accounts receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (B) as a result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of title
with respect to any secured Investment in default; (j) Hedging Obligations; (k)
loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case
incurred in the ordinary course of business; (l) Investments the payment for
which consists exclusively of Equity Interests
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(exclusive of Disqualified Stock) of the Company; and (m) additional Investments
having an aggregate fair market value, taken together with all other Investments
made pursuant to this clause (m) that are at that time outstanding, not to
exceed 5% of Total Assets at the time of such Investment (with the fair market
value of each Investment being measured at the time made and without giving
effect to subsequent changes in value).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
in whole or in part; provided that: (i) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Exchange Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Exchange Notes on terms
at least as favorable to the Holders of Exchange Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding-up.
"Principal Business" means (i) the design, manufacture and sale of bowling
and bowling center equipment and allied products, including without limitation,
pinspotters, scoring equipment, masking panels, seating, lane maintenance
machines, bumper bowling systems, electronic foul detectors, back office support
systems, bowling pins, wood and synthetic lanes, ball returns, ball lifts, ball
cleaners, other equipment used to equip or outfit a bowling center, spare and
replacement parts, maintenance equipment and supplies, bowling balls, bags,
shoes, shirts, pool and billiard tables and cues, shuffleboard and other gaming
tables, and any other equipment and products used or useful in the operation of
bowling centers, (ii) the ownership and operation of bowling centers, in the
United States and throughout the world, including without limitation bowling
operations, shoe rental, food and beverage sales and services, operation of
lounges and bars at or within a bowling center (including without limitation
sales and service of alcoholic beverages and provision of music and cabaret
activities), operation of pro shops (including without limitation sales and
service of merchandise), billiards and other table games, video and arcade
games, play centers, movie viewing, gaming activities, such as Pull-Tab,
lottery, video poker and keno, and any other activities which are or may become
associated with bowling centers, and (iii) any activity or business incidental,
directly related or similar to those set forth in clauses (i) or (ii) of this
definition, or any business or activity that is a reasonable extension,
development or expansion thereof or ancillary thereto.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Exchange Global Notes" means the Regulation S Temporary
Exchange Global Notes or the Regulation S Permanent Exchange Global Notes, as
applicable.
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"Regulation S Permanent Exchange Global Notes" means a permanent global
note that is deposited with and registered in the name of the Depository or its
nominee, representing a series of Exchange Senior Subordinated Notes and a
permanent global note that is deposited with and registered in the name of the
Depository or its nominee, representing a series of Exchange Senior Subordinated
Discount Notes, in each case, sold in reliance on Regulation S.
"Regulation S Temporary Global Exchange Notes" means a temporary global
note that is deposited with and registered in the name of the Depository or its
nominee, representing a series of Exchange Senior Subordinated Notes and a
temporary global note that is deposited with and registered in the name of the
Depository or its nominee, representing a series of Exchange Senior Subordinated
Discount Notes, in each case, sold in reliance on Regulation S.
"Related Parties" means any Person controlled by the Permitted Holders,
including any partnership of which any of the Permitted Holders or their
Affiliates is a general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of a Holder's Exchange Notes pursuant to the provisions described
under the covenants entitled "-- Repurchase at the Option of Holders -- Change
of Control" or "-- Repurchase at the Option of Holders -- Asset Sales."
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not (i) an Unrestricted Subsidiary or (ii) a direct or indirect
Subsidiary of an Unrestricted Subsidiary; provided, however, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of Restricted
Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Notes" means a permanent global note that is deposited
with and registered in the name of the Depository or its nominee, representing a
series of Senior Subordinated Notes and a permanent global note that is
deposited with and registered in the name of the Depository or its nominee,
representing a series of Senior Subordinated Discount Notes, in each case, sold
in reliance on Rule 144A.
"Second-Tier Subsidiaries" means each of the Subsidiaries directly owned by
the First-Tier Subsidiaries.
"Senior Guarantees" means the Guarantees by the Guarantors of Obligations
under the Bank Credit Agreement.
"Senior Subordinated Guarantees" means the Guarantees by the Guarantors of
the Obligations under the Indentures and the Exchange Notes.
"Significant Restricted Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date of the Indentures.
"Special Redemption Price" has the meaning set forth under "-- Escrow of
Proceeds; Special Mandatory Redemption."
"Subordinated Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries which is expressly by its terms subordinated in
right of payment to any other Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership
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(a) the sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of which
are such Person or one or more Subsidiaries of such Person (or any combination
thereof).
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than the
Guarantors or any successor to any of them) that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only
to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustees by filing with the Trustees a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under "Certain Covenants -- Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indentures and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock," the Company
shall be in default of such covenant). The Board of Directors of the Company may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under "Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock," and (ii) no Default or Event of Default would be in
existence following such designation.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
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"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following summary describes certain material United States ("U.S.")
federal income tax consequences relevant to the purchase, ownership and
disposition of Exchange Notes as of the date hereof. Unless otherwise indicated,
this summary deals only with United States Holders who hold such Exchange Notes
as capital assets. The following discussion does not purport to deal with all
aspects of U.S. federal income taxation that may be relevant to such holders,
nor does it address U.S. federal income tax consequences which may be relevant
to certain types of holders, such as dealers in securities or currencies,
financial institutions, life insurance companies, persons holding Exchange Notes
as a part of hedging or conversion transaction or a straddle or United States
Holders whose "functional currency" is not the U.S. dollar, that are subject to
special treatment under the Internal Revenue Code of 1986, as amended (the
"Code"). Furthermore, the discussion below is based upon the provisions of the
Code, and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in U.S. federal income tax consequences different from those discussed
below. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME
TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING
JURISDICTION.
As used herein, a "United States Holder" of an Exchange Note means a holder
that is a citizen or resident of the United States, a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, or an estate or trust the income of which
is subject to United States federal income taxation regardless of its source. A
"Non-United States Holder" is any holder that is not a United States Holder.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST AND ORIGINAL ISSUE DISCOUNT
Exchange Senior Subordinated Notes. Interest on an Exchange Senior
Subordinated Note generally will be taxable to a United States Holder as
ordinary income at the time it is paid or accrued in accordance with the United
States Holder's method of accounting for tax purposes.
Exchange Senior Subordinated Discount Notes. For federal income tax
purposes, the exchange of Senior Subordinated Discount Notes for Exchange Senior
Subordinated Discount Notes will not be considered to alter the tax consequences
of ownership of Senior Subordinated Discount Notes. Therefore, the Exchange
Senior Subordinated Discount Notes will be considered to have been issued with
original issue discount ("OID") within the meaning of Section 1273(a) of the
Code. The amount of such OID equaled the difference between (i) the sum of all
amounts payable on the Senior Subordinated Discount Notes (including the
interest payable on such debentures) and (ii) the "issue price" of the Senior
Subordinated Discount Notes. The "issue price" of the Senior Subordinated
Discount Notes was the first price at which a substantial amount of the Senior
Subordinated Discount Notes was sold (excluding sales to bond houses, brokers or
similar persons acting in the capacity of underwriter, placement agent or
wholesaler).
A United States Holder of the Exchange Senior Subordinated Discount Notes
must include such OID in income on an economic accrual basis (using the constant
yield method of accrual described in Section 1272(a) of the Code) and in advance
of the receipt of the cash to which such OID is
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attributable, regardless of such holder's method of tax accounting. Under that
method, a United States Holder generally will have to include in income
increasingly greater amounts of OID in successive accrual periods. The Company
is required to provide information returns stating the amount of OID accrued on
Exchange Senior Subordinated Discount Notes held of record by persons other than
corporations and other exempt holders.
Since the yield-to-maturity on the Exchange Senior Subordinated Discount
Notes exceeds the sum of (x) the "applicable federal rate" (as determined under
Section 1274(d) of the Code) in effect for the month in which the Senior
Subordinated Discount Notes were issued (the "AFR") and (y) 5%, the Exchange
Senior Subordinated Discount Notes are considered "applicable high yield
discount obligations" under Section 163(i) of the Code. As a result, the Company
will not be allowed to take a deduction for interest (including OID) accrued on
the Exchange Senior Subordinated Discount Notes for U.S. federal income tax
purposes until such time as the Company actually pays such interest (including
OID) in cash or in other property (other than stock or debt of the Company or a
person deemed to be related to the Company under Section 453(f)(1) of the Code).
Since the yield-to-maturity on the Exchange Senior Subordinated Discount
Notes exceeds the sum of (x) the AFR and (y) 6% (such excess shall be referred
to hereinafter as the "Disqualified Yield"), the deduction for interest
(including OID) accrued on the Exchange Senior Subordinated Discount Notes will
be permanently disallowed (regardless of whether the Company actually pays such
interest or OID in cash or in other property) for U.S. federal income tax
purposes to the extent (approximately 0.27%) such interest or OID is
attributable to the Disqualified Yield on the Exchange Senior Subordinated
Discount Notes ("Dividend-Equivalent Interest"). For purposes of the
dividends-received deduction, such Dividend-Equivalent Interest will be treated
as a dividend to the extent it is deemed to have been paid out of the Company's
current or accumulated earnings and profits. Accordingly, a United States Holder
of an Exchange Senior Subordinated Discount Note that is a corporation may be
entitled to take a dividends-received deduction with respect to any Dividend-
Equivalent Interest received by such corporate holder on such Exchange Senior
Subordinated Discount Note.
ACQUISITION PREMIUM
Exchange Senior Subordinated Notes. If a United States Holder acquires an
Exchange Senior Subordinated Note for an amount more than its redemption price,
the Holder may elect to amortize such bond premium on a yield to maturity basis.
Exchange Senior Subordinated Discount Notes. A United States Holder who
acquires an Exchange Senior Subordinated Discount Note for an amount less than
the sum of all amounts payable after the purchase date but greater than its
"adjusted issue price" immediately before such purchase will be considered to
have purchased such Exchange Senior Subordinated Discount Note at an
"acquisition premium." The "adjusted issue price" is equal to the instrument's
issue price increased by all previously accrued OID and reduced by the amount of
all previous payments. Under the acquisition premium rules of the Code, the
amount of OID which such United States Holder must include in its gross income
with respect to such Exchange Senior Subordinated Discount Note for any taxable
year will be reduced by the portion of such acquisition premium properly
allocable to such year.
MARKET DISCOUNT
A purchase of an Exchange Note in a subsequent resale may be affected by
the market discount provisions of the Code. These rules generally provide that
subject to a statutorily defined de minimis exception, if a United States Holder
purchases an Exchange Note (or purchased a Note) at a "market discount," as
defined below, and thereafter recognizes gain upon a disposition of the Exchange
Note (including dispositions by gift or redemption), the lesser of such gain (or
appreciation, in the case of gift) or the portion of the market discount that
has accrued ("accrued
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<PAGE> 118
market discount") while the Exchange Note (and its predecessor Note, if any) was
held by such United States Holder will be treated as ordinary interest income at
the time of disposition rather than as capital gain. For an Exchange Senior
Subordinated Note or a Senior Subordinated Note, "market discount" is the excess
of the stated redemption price at maturity over the tax basis immediately after
its acquisition by a United States Holder. For an Exchange Senior Subordinated
Discount Note or a Senior Subordinated Discount Note, "market discount" is the
excess of the adjusted issue price of the Exchange Senior Subordinated Discount
Note or the Senior Subordinated Discount Note over its tax basis immediately
after its acquisition by a United States Holder. Market discount generally will
accrue ratably during the period from the date of acquisition to the maturity
date of the Exchange Note, unless the United States Holder elects to accrue such
discount on the basis of the constant yield method.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a Note acquired at a market discount) may
elect to include the accrued market discount in income currently either ratably
or using the constant yield method. Once made, such an election applies to all
other obligations that the United States Holder purchases at a market discount
during the taxable year for which the election is made and in all subsequent
taxable years of the United States Holder, unless the Internal Revenue Service
consents to a revocation of the election. If an election is made to include
accrued market discount in income currently, the basis of an Exchange Note in
the hands of the United States Holder will be increased by the accrued market
discount thereon as it is includible in income.
TOTAL ACCRUAL ELECTION
Pursuant to Treasury Regulations, certain Holders of Exchange Notes may
elect (a "Total Accrual Election") to treat all interest associated with an
Exchange Note, including, but not limited to, stated interest, OID, and market
discount, as adjusted for acquisition premium, as OID and accrue it under a
modified constant yield method. This election may offer Holders a simplified tax
accounting treatment for Exchange Notes acquired in a subsequent resale. The
election may not be revoked without Internal Revenue Service consent and may
result in deemed elections regarding market discount and bond premium that are
binding on all debt instruments acquired by a Holder during the year of the
Total Accrual Election.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF EXCHANGE NOTES
A United States Holder will recognize gain or loss on the sale, retirement
or other taxable disposition of an Exchange Note equal to the difference between
the amount realized by the United States Holder upon such sale, retirement or
disposition (less any portion of such amount that is allocable to accrued
interest or OID, which amount generally will be taxable to a Holder as ordinary
income) and the United States Holder's adjusted tax basis in such Exchange Note.
Such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if at the time of such sale, retirement or disposition, the United
States Holder held the Exchange Note for more than one year. Under current law,
net capital gains of individuals are, under certain circumstances, taxed at
lower rates than items of ordinary income. The deductibility of capital losses
is subject to limitations.
NON-UNITED STATES HOLDERS
U.S. Withholding Taxes. Subject to the discussion of backup withholding set
forth below, payments of principal, premium, if any, and interest (including
OID) on the Exchange Notes to a Non-United States Holder who is the beneficial
owner of an Exchange Note will not be subject to the 30% U.S. withholding tax;
provided, in the case of a payment of premium, if any, and interest (including
OID) and Liquidated Damages, if any, that (i) the beneficial owner of the
Exchange Note does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
within the meaning of section 871(h)(3) of the
113
<PAGE> 119
Code and the regulations thereunder, (ii) such beneficial owner is not a
controlled foreign corporation that is related to the Company through stock
ownership, (iii) such beneficial owner is not a bank whose receipt of interest
on an Exchange Note is described in section 881(c)(3)(A) of the Code and (iv)
such beneficial owner satisfies the statement requirement (described generally
below) set forth in section 871(h) (in the case of individuals) or section
881(c) (in the case of foreign corporations) of the Code and the regulations
thereunder.
To satisfy the statement requirement referred to in (iv) above, the
beneficial owner of an Exchange Note, or a financial institution holding the
Exchange Note on behalf of such owner, must provide, in accordance with
specified procedures, the Company or its paying agent, as the case may be, with
a statement to the effect that the beneficial owner is not a U.S. person.
Pursuant to current Temporary Treasury regulations, those requirements will be
met if (1) the beneficial owner provides his name and address, signs under
penalties of perjury and certifies, that he is not a U.S. person (which
certification may be made on an Internal Revenue Service Form W-8 (or successor
form)) or (2) a financial institution holding the Exchange Note on behalf of the
beneficial owner certifies, under penalties of perjury, that such statement has
been received by it and furnishes the Company or its paying agent, as the case
may be, with a copy thereof. Under the proposed Treasury regulations that have
not yet been put into effect, a Non-United States Holder can satisfy the
statement requirement without providing an Internal Revenue Service Form W-8 (or
successor form) if the Non-United States Holder holds the Exchange Notes through
an offshore account of a U.S. intermediary, provided the intermediary has
documentary evidence regarding the Non-United States Holder's status.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described above, payments of premium, if any, and
interest (including OID) made to Non-U.S. Holders by the Company (or its paying
agent) with respect to the Exchange Notes will be subject to a 30% U.S.
withholding tax unless the beneficial owner of the Exchange Note provides the
Company or its paying agent, as the case may be, with, and keeps current, (i) a
properly executed Internal Revenue Service Form 1001 (or successor form)
claiming an exemption from U.S. withholding tax under a U.S. income tax treaty
or (ii) a properly executed Internal Revenue Service Form 4224 (or successor
form) claiming such premium and/or interest is exempt from U.S. withholding tax
because such premium and/or interest is effectively connected with the conduct
of a U.S. trade or business by the Non-U.S. Holder. Proposed Treasury
regulations that have not yet been put into effect combine Internal Revenue
Service Form 1001 and Internal Revenue Service Form 4224 into a single new
Internal Revenue Service Form W-8 which will serve as the withholding
certificate for establishing most claims of withholding tax relief.
No U.S. withholding taxes will be imposed on any gain realized by a
Non-U.S. Holder upon the sale, retirement or other taxable disposition of its
Exchange Notes.
U.S. Federal Income Taxes. If a Non-United States Holder of an Exchange
Note is engaged in a trade or business in the United States and premium, if any,
or interest (including OID) paid on such Exchange Note is effectively connected
with the conduct of such U.S. trade or business, the Non-United States Holder,
although exempt from the U.S. withholding tax discussed above, will be subject
to U.S. federal income tax on such effectively connected income on a net income
basis in the same manner as if such Holder were a United States Holder. See
"United States Holders" above. In addition, if such Non-United States Holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such premium, if any, and interest (including
OID) will be included in such foreign corporation's effectively connected
earnings and profits.
Any gain realized by a Non-United States Holder on the sale, retirement or
other taxable disposition of an Exchange Note generally will not be subject to
U.S. federal income tax unless (i) such gain is effectively connected with a
trade or business carried on in the U.S. by such Non-United States Holder, or
(ii) in the case of a Non-United States Holder who is an individual, such
114
<PAGE> 120
individual is present in the United States for 183 days or more in the taxable
year of such sale, retirement or disposition, and certain other conditions are
met.
U.S. Estate Taxes. An Exchange Note beneficially owned by an individual
who is a Non-United States Holder at the time of his or her death generally will
not be subject to U.S. federal estate tax as a result of such individual's
death, provided that (i) such individual does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of section 871(h)(3) of the Code,
and (ii) interest payments (including payments of OID) with respect to such
Exchange Note would not have been, if received at the time of such individual's
death, effectively connected with the conduct of a U.S. trade or business by
such individual.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on the Exchange Notes and
to the proceeds of the sale of an Exchange Note made to United States Holders
other than certain exempt recipients (such as corporations). A 31% backup
withholding tax will apply to such payments if the United States Holder fails to
provide a taxpayer identification number or certification of exempt status or
fails to report its full dividend and interest income.
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described in (iv) under "-- Non-United States
Holders -- U.S. Withholding Taxes" has been received and the payor does not have
actual knowledge that the beneficial owner is a United States Person.
In addition, Temporary Treasury regulations provide that backup withholding
and information reporting will not apply if payments of principal, interest, OID
or premium on an Exchange Note are paid or collected by a foreign office of a
custodian, nominee or other foreign agent on behalf of the beneficial owner of
such Exchange Note, or if a foreign office of a foreign broker (as defined in
applicable Treasury regulations) pays the proceeds of the sale of an Exchange
Note to the owner thereof. However, under the proposed Treasury regulations that
have not yet been put into effect, information reporting will apply to payments
of principal, interest, OID or premium on an Exchange Note with respect to an
offshore account unless the Holder provides a statement described in (iv) under
"-- Non-United States Holders -- U.S. Withholding Taxes" or the Company obtains,
reviews and maintains documentary evidence sufficient to establish that the
Holder is a Non-United States Holder. Temporary Treasury regulations also
provide that if, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a U.S. Person, a controlled foreign
corporation or a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States,
such payments will not be subject to backup withholding but will be subject to
information reporting, unless (1) such custodian, nominee, agent or broker has
documentary evidence in its records that the beneficial owner is not a U.S.
Person and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption. Temporary Treasury regulations provide that
the Treasury is considering whether backup withholding will apply with respect
to such payments of principal, interest, or the proceeds of a sale that are not
subject to backup withholding under the current regulations.
Payments of principal, interest, OID and premium on an Exchange Note to the
beneficial owner of an Exchange Note by a United States office of a custodian,
nominee or agent, or the payment by the United States office of a broker of the
proceeds of sale of an Exchange Note, will be subject to both backup withholding
and information reporting unless the beneficial owner provides the statement
referred to in (iv) above and the payor does not have actual knowledge that the
beneficial owner is a United States Person or otherwise establishes an
exemption.
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<PAGE> 121
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such Holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
This Prospectus is to be used by Goldman Sachs in connection with offers
and sales of the Exchange Notes in market-making transactions effected from time
to time. Goldman Sachs may act as a principal or agent in such transactions,
including as agent for the counterparty when acting as principal or as agent for
both counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
Affiliates of Goldman Sachs currently own 68.5% of the Parent Common Stock.
See "Ownership of Capital Stock." Goldman Sachs has informed the Company that it
does not intend to confirm sales of the Exchange Notes to any accounts over
which it exercises discretionary authority without the prior specific written
approval of such transactions by the customer.
The Company has been advised by Goldman Sachs that, subject to applicable
laws and regulations, Goldman Sachs currently makes and intends to continue to
make, a market in the Exchange Notes. However, Goldman Sachs is not obligated to
do so and any such market-making may be interrupted or discontinued at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act. There can be no
assurance that an active trading market will develop or be sustained. See "Risk
Factors -- Trading Market for the Exchange Notes."
Goldman Sachs has provided investment banking services to the Company in
the past and may provide such services and financial advisory services to the
Company in the future. See "Certain Transactions."
Goldman Sachs and the Company have entered into a registration rights
agreement with respect to the use by Goldman Sachs of this Prospectus. Pursuant
to such agreement, the Company agreed to bear all registration expenses incurred
under such agreement, and the Company agreed to indemnify Goldman Sachs against
certain liabilities, including liabilities under the Securities Act.
EXPERTS
The consolidated balance sheet of AMF Group Holdings, Inc. and subsidiaries
as of December 31, 1996 and the related consolidated statements of income,
stockholder's equity, and cash flows for the period from inception (January 12,
1996) through December 31, 1996 included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein, in reliance upon the
authority of said firm as experts in giving said report.
The combined financial statements of AMF Bowling Group as of April 30, 1996
and December 31, 1995 and for the period from January 1, 1996 through April 30,
1996 and for each of the two years in the period ended December 31, 1995,
included in this Prospectus, have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
VALIDITY OF EXCHANGE NOTES
The validity of the Exchange Notes has been passed upon for the Company by
Wachtell, Lipton, Rosen & Katz, New York, New York, counsel to the Company.
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<PAGE> 122
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES -- AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants.......................................... F-2
Consolidated Balance Sheet as of December 31, 1996................................ F-3
Consolidated Statement of Income for the Period Ended December 31, 1996........... F-4
Consolidated Statement of Cash Flows for the Period Ended December 31, 1996....... F-5
Consolidated Statement of Stockholder's Equity for the Period Ended December 31,
1996........................................................................... F-6
Notes to Consolidated Financial Statements........................................ F-7
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES -- INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996............ F-31
Consolidated Statements of Income for the Three Months Ended March 31, 1997, and
1996 and, as to AMF Bowling Group (Predecessor Company), a Combined Statement
of Income for the Three Months Ended March 31, 1996............................ F-32
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1996 and, as to the Predecessor Company, a Combined Statement of Cash Flows
for the Three Months Ended March 31, 1996...................................... F-33
Notes to Consolidated Financial Statements........................................ F-34
AMF BOWLING GROUP (PREDECESSOR COMPANY)
Report of Independent Accountants................................................. F-43
Combined Balance Sheets as of April 30, 1996, and December 31, 1995............... F-44
Combined Statements of Operations for the Four Months Ended April 30, 1996, and
the Years Ended December 31, 1995 and 1994..................................... F-45
Combined Statements of Cash Flows for the Four Months Ended April 30, 1996, and
the Years Ended December 31, 1995 and 1994..................................... F-46
Combined Statement of Changes in Stockholders' Equity for the Four Months Ended
April 30, 1996, and the Years Ended December 31, 1995 and 1994................. F-47
Notes to Combined Financial Statements............................................ F-48
SELECTED QUARTERLY DATA (UNAUDITED)................................................. F-82
</TABLE>
F-1
<PAGE> 123
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AMF Group Holdings Inc.:
We have audited the accompanying consolidated balance sheet of AMF Group
Holdings Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996,
and the related consolidated statements of income, stockholder's equity, and
cash flows for the period from inception (January 12, 1996) through December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AMF Group Holdings Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the period from inception (January 12, 1996) through
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia
February 28, 1997
F-2
<PAGE> 124
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 43,568
Accounts and notes receivable, net of allowance for doubtful accounts
of $4,492................................................................ 42,625
Inventories................................................................. 41,001
Deferred taxes and other.................................................... 11,178
----------
Total current assets................................................ 138,372
Property and equipment, net................................................... 630,796
Deferred financing costs, net................................................. 40,595
Goodwill, net................................................................. 771,146
Other assets.................................................................. 12,964
----------
Total assets........................................................ $1,593,873
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................ $ 31,563
Accrued expenses............................................................ 54,357
Income taxes payable........................................................ 2,220
Long-term debt, current portion............................................. 42,376
----------
Total current liabilities........................................... 130,516
Long-term debt................................................................ 1,048,877
Other long-term liabilities................................................... 1,851
Deferred income taxes......................................................... 3,895
----------
Total liabilities........................................................... 1,185,139
----------
Commitments and contingencies
Stockholder's equity:
Common stock (par value $.01, 100 shares issued and outstanding)............ --
Paid-in capital............................................................. 429,450
Retained deficit............................................................ (19,565)
Equity adjustment from foreign currency translation......................... (1,151)
----------
Total stockholder's equity.......................................... 408,734
----------
Total liabilities and stockholder's equity.......................... $1,593,873
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 125
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 2)
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating revenues............................................................... $384,809
--------
Operating expenses:
Cost of goods sold............................................................. 130,542
Bowling center operating expenses.............................................. 123,673
Selling, general, and administrative expenses.................................. 35,070
Depreciation and amortization.................................................. 49,386
--------
Total operating expenses............................................... 338,671
--------
Operating income....................................................... 46,138
Nonoperating expenses:
Interest expense............................................................... 77,990
Other expenses, net............................................................ 1,912
Interest income................................................................ (5,611)
--------
Total nonoperating expenses............................................ 74,291
--------
Loss before income taxes............................................... (28,153)
Benefit for income taxes............................................... (8,588)
--------
Net loss............................................................... $(19,565)
========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-4
<PAGE> 126
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 2)
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (19,565)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................ 49,386
Deferred taxes........................................................... (14,040)
Amortization of bond discount............................................ 24,731
Loss on the sale of property and equipment, net.......................... 408
Changes in assets and liabilities:
Accounts and notes receivable.......................................... (6,504)
Inventories............................................................ 1,862
Other assets........................................................... (3,873)
Accounts payable and accrued expenses.................................. 21,930
Income taxes payable................................................... 361
Other long-term liabilities............................................ 19,135
------------
Net cash provided by operating activities................................ 73,831
Cash flows from investing activities:
Acquisitions of operating units, net of cash acquired....................... (1,450,928)
Purchases of property and equipment......................................... (16,941)
Proceeds from sales of property and equipment............................... 754
------------
Net cash used in investing activities.................................... (1,467,115)
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred financing costs............... 1,059,277
Payments on long-term debt.................................................. (38,875)
Capital contributions....................................................... 420,750
Payment of noncompete obligations........................................... (2,892)
------------
Net cash provided by financing activities................................ 1,438,260
------------
Effect of exchange rates on cash......................................... (1,408)
------------
Net increase in cash..................................................... 43,568
Cash and cash equivalents at beginning of period......................... --
------------
Cash and cash equivalents at end of period............................... $ 43,568
============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE> 127
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 2)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED CURRENCY STOCKHOLDER'S
STOCK CAPITAL DEFICIT TRANSLATION EQUITY
-------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance January 12, 1996............ $ -- $ -- $ -- $ -- $ --
Initial capitalization............ -- 389,450 -- -- 389,450
Capital contribution by
stockholder.................... -- 40,000 -- -- 40,000
Net loss.......................... -- -- (19,565) -- (19,565)
Equity adjustment from foreign
currency translation........... -- -- -- (1,151) (1,151)
-------- -------- -------- -------- ---------
Balance December 31, 1996........... $ -- $429,450 $(19,565) $ (1,151) $ 408,734
======== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE> 128
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
AMF Group Inc. (the "Company") is principally engaged in two business
segments: (i) the ownership or operation of bowling centers, consisting of 263
U.S. bowling centers and 78 international bowling centers ("Bowling Centers") as
of December 31, 1996, and (ii) the manufacture and distribution of bowling
equipment such as automatic pinspotters, automatic scoring equipment, bowling
pins, lanes, ball returns, 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"). The principal markets for bowling
equipment are U.S. and international independent bowling center operators.
The Company is a wholly owned subsidiary of AMF Group Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of AMF Holdings Inc. (the
"Parent"). Holdings and the Company are newly formed Delaware corporations
organized by GS Capital Partners II, L.P., and certain other investment funds
(collectively, "GSCP") affiliated with Goldman, Sachs & Co. ("Goldman Sachs") to
effect the acquisition (described below). Holdings and the Parent are holding
companies only. The primary assets in each are comprised of investments in
subsidiaries.
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 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 of the assets of the Predecessor Company's bowling center
operations in Spain, and Switzerland (the "Acquisition"). 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).
The purchase price for the Acquisition was approximately $1.373 billion,
less approximately $2.0 million representing debt of the Predecessor Company
which remained in place following the closing of the Acquisition. 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 purchase included the payment of $1.323 billion to the Sellers. The
Acquisition was funded with $380.8 million of contributed capital, and $1.015
billion of debt, including bank debt and exchange senior subordinated notes and
discount notes. The purchase included $8.7 million which represents 870,000
warrants to purchase shares of Parent Common Stock, which were issued on the
Closing Date to Goldman Sachs. See "Note 9. Long-Term Debt". See also "Note 13.
Supplemental Disclosures to the Consolidated Statement of Cash Flows" which
presents the components of the purchase price allocation.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The results of operations for the period ended December 31, 1996, reflect
the results of Holdings since the inception date of January 12, 1996, and the
subsidiaries acquired as of May 1, 1996, from the Predecessor Company. All
significant intercompany balances and transactions have been eliminated in the
accompanying consolidated financial statements. All dollar amounts are in
thousands, except where otherwise indicated.
F-7
<PAGE> 129
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The more significant estimates made by management include
allowances for obsolete inventory, uncollectible accounts receivable,
realization of goodwill and other deferred assets, litigation and claims,
product warranty costs, and self-insurance costs. Actual results could differ
from those estimates.
Revenue Recognition
For sales to customers in the United States, revenue is generally
recognized at the time the products are shipped. For larger contract orders,
Bowling Products generally requires that customers submit a deposit as a
condition of accepting the order. Internationally, revenue is generally
recognized when products arrive at the customer's port of entry. For
nonaffiliate international sales, Bowling Products generally requires the
customer to obtain a letter of credit prior to shipment.
Warranty Costs
Bowling Products warrants all new products for certain periods up to one
year. Major products are warranted for one year. Bowling Products charges to
income an estimated amount for future warranty obligations, and offers customers
the option to purchase extended warranties on certain products. Warranty expense
aggregated $4,471 for the period ended December 31, 1996, and is included in
cost of sales in the accompanying consolidated statement of income.
Cash and Cash Equivalents
The Company classifies all highly liquid fixed-income investments purchased
with an original maturity of three months or less as cash equivalents.
Inventories
Bowling Products' inventory is valued at the lower of cost or market, cost
being determined using the first-in, first-out ("FIFO") method for U.S. and
international inventories. Bowling Centers' inventory is valued at the lower of
cost or market, with the cost being determined using the actual or average cost
method.
Long-Lived Assets
The carrying value of long-lived assets and certain identifiable
intangibles, including goodwill, is reviewed by the Company for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, and an estimate of future undiscounted cash
flows is less than the carrying amount of the asset.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs which do not improve or extend the life of an asset are charged to
expense as incurred; major renewals or betterments are capitalized. Upon
retirement or sale of an asset, its cost and related accumulated depreciation
are removed from property, and any gain or loss is recognized.
F-8
<PAGE> 130
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the Acquisition, the carrying value of property and
equipment was adjusted to fair market value in accordance with the purchase
method of accounting. Property and equipment are depreciated over their
estimated useful lives using the straight-line method. Estimated useful lives of
property and equipment for financial reporting purposes are as follows:
<TABLE>
<S> <C>
Buildings and improvements.... 5 - 40 years
Leasehold improvements........ lesser of the estimated useful life or term of the lease
Bowling and related 5 - 10 years
equipment...................
Manufacturing equipment....... 2 - 7 years
Furniture and fixtures........ 3 - 8 years
</TABLE>
Goodwill
As a result of the Acquisition and in accordance with the purchase method
of accounting for the Acquisition, the Company recorded goodwill representing
the excess of the purchase price over the allocation among the acquired assets
and liabilities in accordance with estimates of fair market value on the Closing
Date. Goodwill is being amortized over 40 years. Amortization expense was
$13,070 for the period ended December 31, 1996.
Income Taxes
Upon consummation of the Acquisition, the U.S. and international
subsidiaries of Holdings became taxable corporations under the Internal Revenue
Code ("IRC"). Income taxes are accounted for using the asset and liability
method under which deferred income taxes are recognized for the tax consequences
on future years of temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities.
Research and Development Costs
Expenditures relating to the development of new products, including
significant improvements and refinements to existing products, are expensed as
incurred. The amount charged against income was approximately $1,312 for the
period ended December 31, 1996, and is included in cost of sales in the
accompanying consolidated statement of income.
Advertising Costs
Costs incurred for producing and communicating advertising are expensed
when incurred. The amount charged against income was approximately $9,299 for
the period ended December 31, 1996, with $5,932 included in bowling center
operating expenses for Bowling Centers, and $3,367 included in selling, general,
and administrative expenses for Bowling Products and Corporate in the
accompanying consolidated statement of income.
Foreign Currency Translation
All assets and liabilities of Holdings' international operations are
translated from foreign currencies into U.S. dollars at year-end exchange rates.
Adjustments resulting from the translation of financial statements of
international operations into U.S. dollars are included in the equity adjustment
from foreign currency translation on the accompanying consolidated balance
sheet. Revenues and expenses of international operations are translated using
average exchange rates that existed during the year and reflect currency
exchange gains and losses resulting from transactions conducted in other than
local currencies. The net loss from transactions in foreign
F-9
<PAGE> 131
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
currencies of $488 is included in other expenses in the accompanying
consolidated statement of income.
Fair Value of Financial Instruments
The carrying value of financial instruments including cash and cash
equivalents and short-term debt approximated fair value at December 31, 1996,
because of the short maturity of these instruments. At December 31, 1996, the
fair value of interest rate cap agreements (to reduce the interest rate risk of
its floating rate debt) was approximately $577. The interest rate cap agreement
is valued using the estimated amount that the Company would receive to terminate
the cap agreement as of December 31, 1996, based on a quote from the
counterparty, taking into account current interest rates and the credit
worthiness of the counterparty. The Company has no intention of terminating the
cap agreement. The fair value of the Senior Debt, as defined in "Note 9. Long-
Term Debt," at December 31, 1996, was approximately $623,520 based on the market
value of debt with similar maturities and covenants. The fair value of the
Exchange Notes, as defined in "Note 9. Long-Term Debt", at December 31, 1996,
was approximately $560,315 based on the trading value at December 31, 1996.
Noncompete Agreements
Holdings, through its subsidiaries, has noncompete agreements with various
individuals. The assets are recorded at cost or at the present value of payments
to be made under these agreements, discounted at annual rates ranging from 8
percent to 10 percent. The assets are included in other assets on the
accompanying consolidated balance sheet and are amortized on a straight-line
basis over the terms of the agreements. Noncompete obligations at December 31,
1996, net of accumulated amortization, totaled approximately $2,498.
Annual maturities on noncompete obligations as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------------------------------------------
<S> <C>
1997................................................ $ 724
1998................................................ 666
1999................................................ 362
2000................................................ 164
2001................................................ 146
Thereafter.......................................... 436
-------
$ 2,498
=======
</TABLE>
Self-Insurance Programs
The Company is self-insured up to certain levels for general and product
liability, workers' compensation, certain health care coverage, and property
damage. The cost of these self-insurance programs is accrued based upon
estimated settlements for known and anticipated claims. The Company has recorded
an estimated amount to cover known claims and claims incurred but not reported
as of December 31, 1996, which is included in accrued expenses in the
accompanying consolidated balance sheet.
F-10
<PAGE> 132
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. PRO FORMA RESULTS OF OPERATIONS
Pro forma statements of income are presented on the following pages for the
years ended December 31, 1996 and 1995, as if the Acquisition of the Predecessor
Company had occurred on January 1, 1996 and 1995, respectively. Holdings' pro
forma statement of income for the twelve months ended December 31, 1996, is
based on the Predecessor Company's statement of income for the four-month period
ending April 30, 1996, reported elsewhere in this Prospectus, Holdings'
statement of income for the period ended December 31, 1996, and adjustments
giving effect to the Acquisition under the purchase method of accounting as
described in the notes below. Holdings' pro forma statement of income for the
twelve months ended December 31, 1995, is based on the Predecessor Company's
results of operations reported elsewhere in this Prospectus and adjustments
giving effect to the Acquisition under the purchase method of accounting as
described in the notes below. The pro forma results are for illustrative
purposes only and do not purport to be indicative of the actual results which
occurred, nor are they indicative of future results of operations.
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
AMF GROUP PREDECESSOR AMF GROUP
HOLDINGS COMPANY HOLDINGS INC.
INC. FOUR MONTHS TWELVE MONTHS
PERIOD ENDED ENDED PRO FORMA ENDED
12/31/96(a) 4/30/96 adjustments 12/31/96
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operating revenues:.................... $384.8 $ 164.9 $ (0.8)(b) $ 548.9
------ ------- ------- -------
Operating expenses:
Cost of goods sold................... 130.5 43.1 -- 173.6
Bowling center operating expenses.... 123.7 80.2 (25.1)(b)(c) 178.8
Selling, general, and administrative
expenses.......................... 35.1 35.5 (19.6)(b)(c) 51.0
Depreciation and amortization........ 49.4 15.1 9.0 (d) 73.5
------ ------- ------- -------
Total operating expenses..... 338.7 173.9 (35.7) 476.9
------ ------- ------- -------
Operating income (loss)...... 46.1 (9.0) 34.9 72.0
Nonoperating expenses:
Interest expense..................... 78.0 4.5 23.7 (e) 106.2
Other expenses, net.................. 1.9 0.7 -- 2.6
Interest income...................... (5.6) (0.6) -- (6.2)
------ ------- ------- -------
Income (loss) before income taxes...... (28.2) (13.6) 11.2 (30.6)
Provision (benefit) for income taxes... (8.6) (1.7) 1.3 (f) (9.0)
------ ------- ------- -------
Net income (loss)............ $(19.6) $ (11.9) $ 9.9 $ (21.6)
====== ======= ======= =======
</TABLE>
- ---------------
(a) Includes the results of operations of the acquired business from May 1,
1996, through December 31, 1996.
(b) To reflect the impact of Holdings not acquiring the operations of one
bowling center in Switzerland and one bowling center in Spain.
(c) To eliminate a one-time charge of $44.0 million for special bonuses and
payments made by the Sellers in April 1996.
F-11
<PAGE> 133
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) To reflect the increase in depreciation and amortization expense resulting
from the allocation of the purchase price to fixed assets and goodwill and a
change in the method of depreciation of fixed assets. The Predecessor
Company principally used the double declining balance method. The amount of
the pro forma adjustment for depreciation was determined using the
straight-line method over the estimated lives of the assets acquired.
Goodwill is being amortized over 40 years.
(e) To reflect the incremental interest expense associated with the issuance of
debt which partially funded the Acquisition.
(f) To give effect to the change in status of the U.S. and international
subsidiaries of Holdings from S corporations to taxable corporations under
the IRC upon consummation of the Acquisition.
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
PREDECESSOR AMF GROUP
COMPANY HOLDINGS INC.
TWELVE MONTHS TWELVE MONTHS
ENDED PRO FORMA ENDED
12/31/95 ADJUSTMENTS 12/31/95
------------- ----------- -------------
<S> <C> <C> <C>
Operating revenues:................................ $ 564.9 $ (2.3)(h) $ 562.6
------- ------- -------
Operating expenses:
Cost of goods sold............................... 184.1 (0.3)(h) 183.8
Bowling center operating expenses................ 166.5 (1.5)(h) 165.0
Selling, general, and administrative expenses.... 50.8 (0.3)(i) 50.5
Depreciation and amortization.................... 39.1 27.9 (j) 67.0
------- ------- -------
Total operating expenses................. 440.5 25.8 466.3
------- ------- -------
Operating income (loss).................. 124.4 (28.1) 96.3
Nonoperating expenses:
Interest expense................................. 15.7 88.6 (k) 104.3
Other expenses, net.............................. 1.0 -- 1.0
Interest income.................................. (2.2) -- (2.2)
Foreign currency transaction loss................ 1.0 -- 1.0
------- ------- -------
Income (loss) before income taxes.................. 108.9 (116.7) (7.8)
Provision (benefit) for income taxes............... 40.6 (g) (30.6)(l) 10.0
------- ------- -------
Net income (loss)........................ $ 68.3 $ (86.1) $ (17.8)
------- ------- -------
</TABLE>
- ---------------
(g) Reflects the pro forma income tax provision that would have been provided
had the Predecessor Company consisted of taxable C corporations, rather than
S corporations.
(h) To reflect the net reduction in revenues and expenses related to the
following:
i. Certain assets of the Predecessor Company not purchased by Holdings.
ii. Impact of Holdings not acquiring one bowling center in Switzerland
and one bowling center in Spain.
iii. Concurrent with the Acquisition, amounts due from and payable to
shareholders and other related parties were canceled.
(i) To reflect the termination of management fees charged to Holdings by an
affiliate of the prior owners of the Predecessor Company.
F-12
<PAGE> 134
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) To reflect the increase in depreciation and amortization expense resulting
from the allocation of the purchase price to fixed assets and goodwill and a
change in the method of depreciation of fixed assets. The Predecessor
Company principally used the double declining balance method. The amount of
the pro forma adjustment for depreciation was determined using the
straight-line method over the estimated lives of the assets acquired.
Goodwill is being amortized over 40 years.
(k) To reflect the incremental interest expense associated with the issuance of
debt which partially funded the Acquisition.
(l) To reflect the pro forma income tax benefit associated with the pro forma
adjustments.
NOTE 4. INVENTORIES
Inventories at December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Bowling Products, at FIFO:
Raw materials................................... $ 11,683
Work in progress................................ 2,335
Finished goods and spare parts.................. 23,195
Bowling Centers, at average cost:
Merchandise inventory........................... 3,788
--------
$ 41,001
========
</TABLE>
NOTE 5. DEFERRED TAXES AND OTHER CURRENT ASSETS
The components of deferred taxes and other current assets at December 31,
1996, are summarized below:
<TABLE>
<S> <C>
Deferred income taxes............................. $ 4,847
Advances or deposits.............................. 2,018
Other............................................. 4,313
--------
$ 11,178
========
</TABLE>
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996, consists of the following:
<TABLE>
<S> <C>
Land............................................. $ 90,512
Buildings and improvements....................... 265,461
Equipment, furniture, and fixtures............... 304,067
Other............................................ 2,631
---------
662,671
Less: accumulated depreciation and
amortization................................... (31,875)
---------
$ 630,796
=========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$31,875 for the period ended December 31, 1996.
F-13
<PAGE> 135
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. OTHER LONG-TERM ASSETS
Other long-term assets at December 31, 1996, total $12,964 and are
primarily composed of long-term rent deposits, long-term portion of non-compete
obligations, and notes receivable.
NOTE 8. ACCRUED EXPENSES
Accrued expenses at December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Accrued compensation.............................. $ 9,141
Accrued interest.................................. 8,640
League bowling accounts........................... 7,676
Accrued installation costs........................ 4,451
Other............................................. 24,449
--------
$ 54,357
========
</TABLE>
NOTE 9. LONG-TERM DEBT
Long-term debt at December 31, 1996, consists of the following:
<TABLE>
<S> <C>
Bank debt....................................... $ 564,625
Exchange senior subordinated notes.............. 250,000
Exchange senior subordinated discount notes..... 274,663
Mortgage and equipment notes.................... 1,965
----------
Total debt............................ 1,091,253
Current maturities.............................. (42,376)
----------
Total long-term debt.................. $1,048,877
==========
</TABLE>
BANK DEBT
The bank debt (the "Senior Debt") is a result of a credit agreement (the
"Bank Credit Agreement") dated as of May 1, 1996, and amended and restated as of
December 20, 1996, between the Company and its lenders. The Bank Credit
Agreement provides for (i) syndicated senior secured term loan facilities
aggregating $580.0 million (the "Term Facilities"), (ii) a senior secured
multiple-draw term facility of $150.0 million (the "Acquisition Facility), and
(iii) a senior secured revolving credit facility of up to $50.0 million (the
"Working Capital Facility").
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $250.0 million, (ii) an Amortization Extended Loans ("AXELs")
Series A facility of $190.0 million, and (iii) an AXELs Series B Facility of
$140.0 million. Maturity dates of the three tranches and scheduled amortization
payments are included in tables below. The Term Loan Facility will bear
interest, at the Company's option, at Citibank's customary base rate plus 1.5
percent or at Citibank's Eurodollar rate plus 2.5 percent. At December 31, 1996,
the interest rate was 8.125 percent. The AXELs Series A Facility will bear
interest, at the Company's option, at Citibank's customary base rate plus 1.875
percent or at Citibank's Eurodollar rate plus 2.875 percent. At December 31,
1996, the interest rate was 8.5 percent. The AXELs Series B Facility will bear
interest, at the Company's option, at Citibank's customary base rate plus 2.125
percent or at Citibank's Eurodollar rate plus 3.125 percent. At December 31,
1996, the interest rate was 10.375 percent. On January 10, 1997, the interest
rate was adjusted to 8.69 percent when the amounts under the Bank Credit
Agreement were refinanced.
F-14
<PAGE> 136
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Acquisition Facility has a term of five years. The Acquisition Facility
will begin to amortize in December 1999, with final maturity at March 31, 2001.
The Acquisition Facility will bear interest, at the Company's option, at
Citibank's customary base rate plus 1.5 percent or at Citibank's Eurodollar rate
plus 2.5 percent. At December 31, 1996, $65.0 million of the Acquisition
Facility bore interest at 9.75 percent, while $8.5 million bore interest at
8.125 percent. On January 10, 1997, $65.0 million was refinanced as part of the
AXELs Series B Facility and the interest rate was adjusted to 8.69 percent as
stated above.
The Working Capital Facility has a term of five years and will be fully
revolving until final maturity. The Working Capital Facility will bear interest,
at the Company's option, at Citibank's customary base rate plus 1.5 percent or
at Citibank's Eurodollar rate plus 2.5 percent.
Beginning May 1, 1997, the margins above Citibank's customary base rate and
Citibank's Eurodollar rate, at which the Term Loan Facility, the Working Capital
Facility, and the Acquisition Facility will bear interest, may be reduced
pursuant to a floating performance pricing grid which is based on the Total
Debt/EBITDA ratio for the four fiscal quarter rolling period then most recently
ended.
The Bank Credit Agreement 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 Bank Credit Agreement also contains certain provisions
which limit the amount of funds available for transfer from the Company to
Holdings, and from Holdings to the Parent. Limits exist on, among other things,
the declaration or payment of dividends, distributions of assets, and issuance
or sale of capital stock.
So long as the Company is not in default of the covenants contained in the
Bank Credit Agreement, it may i) declare and pay dividends in common stock; ii)
declare and pay cash dividends to Holdings to the extent necessary to make
payments of approximately $0.15 million due in May 1997 under certain noncompete
agreements with the Sellers; iii) declare and pay cash dividends to the Parent
for general administrative expenses of the Parent not to exceed $0.25 million;
and iv) declare and pay cash dividends not to exceed $2.0 million to the Parent
for the repurchase of Parent Common Stock. As of December 31, 1996, the Company
is in compliance with all of its covenants.
MORTGAGE AND EQUIPMENT NOTES
At December 31, 1996, mortgage and equipment notes related to one U.S.
bowling center bore interest at 9.175 percent.
EXCHANGE NOTES
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 percent
and is payable in cash semiannually 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 at a fully-accreted value of $452,000. The exchange senior subordinated
discount notes will result in an effective yield of 12 1/4 percent per annum,
computed on a semiannual bond equivalent basis. No interest will be payable
prior to March 15, 2001. Commencing March 15, 2001, interest will accrue and be
payable in cash semiannually in arrears on March 15 and September 15 of each
year beginning with September 15, 2001.
F-15
<PAGE> 137
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 by Holdings and each of the Company's subsidiaries identified below in
"Note 18. Consolidating Financial Statements" (collectively, the "Guarantors").
The guarantees of the Exchange Notes are subordinated to the guarantees of
the Senior Debt and the mortgage and equipment notes outstanding at December 31,
1996, referred to in the table above which have been issued by the Guarantors.
The Exchange Notes are general, unsecured obligations of the Company, are
subordinated in right of payment to all Senior Debt 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 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 18. Consolidating Financial Statements".
Prior to March 15, 1999, up to $100 million in aggregate principal amount
of senior subordinated notes will be redeemable at the option of the Company, on
one or more occasions, from the net proceeds of public or private sales of
common stock of, or contributions to the common equity capital of, the Company,
at a price of 110.875 percent of the principal amount of the senior subordinated
notes, together with accrued and unpaid interest, if any, to the date of
redemption; provided that at least $150 million in aggregate principal amount of
senior subordinated notes remains outstanding after such redemption. In
addition, prior to March 15, 1999, the senior subordinated discount notes will
be redeemable at the option of the Company, on one or more occasions, from the
net proceeds of public or private sales of common stock of, or contributions to
the common equity capital of, the Company, at a price of 112.25 percent of the
accreted value of the senior subordinated discount notes; provided that at least
$150 million in accreted value of senior subordinated discount notes remains
outstanding after such redemption.
The indenture governing the exchange senior subordinated notes and the
indenture governing the exchange senior subordinated discount notes (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. As of December 31, 1996, the Company is in compliance with
all of its covenants.
Annual maturities of long-term debt, including accretion of the exchange
senior subordinated discount notes, as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------
<S> <C>
1997............................................ $ 42,376
1998............................................ 47,375
1999............................................ 55,500
2000............................................ 71,750
2001............................................ 81,125
Thereafter...................................... 970,464
-----------
$ 1,268,590
===========
</TABLE>
F-16
<PAGE> 138
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST RATE CAP AGREEMENTS
During 1996, the Company entered into an interest rate cap agreement to
reduce the interest rate risk of its Senior Debt. The notional amount of this
cap was $500 million at December 31, 1996. Under the terms of this agreement,
the Company receives payment if the three-month LIBOR rises above 5.75 percent
through April, 1997, above 6.50 percent from May, 1997 through April, 1998 and
above 7.5 percent from May, 1998 through October, 1998. No amounts were received
under this agreement during 1996.
The Company is exposed to credit-related loss in the event of
non-performance by the counterparty. The Company believes its exposure to
potential loss due to counterparty non-performance is minimized primarily due to
the relatively strong credit rating of the counterparty.
Average amounts outstanding and average borrowing rates for the period
ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
OUTSTANDING
AT AVERAGE AVERAGE
DECEMBER 31, AMOUNTS BORROWING
DESCRIPTION MATURITY DATES 1996 OUTSTANDING RATES
- ----------------------------------------- ---------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Term Loan................................ March 31, 2001 $228,125 $ 243,074 8.20%
AXEL A................................... March 31, 2003 188,750 $ 188,164 8.58
AXEL B................................... March 31, 2004 74,250 $ 74,218 8.84
Acquisition Facility..................... March 31, 2001 73,500 $ 25,426 8.41
Working Capital Facility................. March 31, 2001 0 $ 11,434 9.09
Mortgage and Equipment Notes............. October 1, 2013 1,965 $ 1,967 9.18
</TABLE>
Deferred Financing Costs
Costs incurred to obtain bank financing and issue bond financing for the
Acquisition, as discussed above, are amortized over the lives of the various
types of debt. Bank financing costs are amortized over eight years and bond
financing costs are amortized over ten years using the effective interest rate
method. An interest rate cap agreement included in deferred financing costs is
amortized over the term of the agreement beginning November 1, 1996, and ending
October 31, 1998. Amortization expense for financing costs was $3,252 for the
period ended December 31, 1996. Interest expense for the interest rate cap
agreement was $304 for the period ended December 31, 1996.
NOTE 10. INCOME TAXES
Income (loss) before income taxes at December 31, 1996, consists of the
following:
<TABLE>
<S> <C>
U.S.............................................................. $ (28,564)
International.................................................... 411
---------
$ (28,153)
=========
</TABLE>
F-17
<PAGE> 139
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provision (benefit) at December 31, 1996, consists of the
following:
<TABLE>
<S> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal..................................................... $ --
State and local.................................................. --
International.................................................... 5,452
---------
Total current provision................................ 5,452
---------
DEFERRED TAX BENEFIT
U.S. Federal..................................................... (12,274)
State and local.................................................. (1,766)
International.................................................... --
---------
Total deferred benefit................................. (14,040)
---------
Total benefit.......................................... $ (8,588)
=========
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31, 1996, are as follows:
<TABLE>
<S> <C>
DEFERRED INCOME TAX ASSETS
Current assets
Reserve provisions not deductible for tax purposes.............. $ 4,847
--------
Noncurrent assets
Net operating losses............................................ 8,225
Foreign tax credits............................................. 5,452
Interest expense on high yield debt............................. 8,533
--------
Total noncurrent deferred tax assets.................... 22,210
--------
Total deferred tax assets......................................... 27,057
DEFERRED INCOME TAX LIABILITIES
Noncurrent liabilities
Goodwill amortization............................................. 5,840
Depreciation on property and equipment............................ 20,265
--------
Total deferred tax liabilities.................................... 26,105
--------
Net deferred tax assets........................................... $ 952
========
</TABLE>
In connection with the Acquisition, the Company has made a joint tax
election with the Seller for certain entities under Section 338(h)(10) of the
IRC. The effect of this election is the revaluation of the assets of the
electing entities with any residual purchase price allocated to goodwill. The
nonelecting entities were acquired by both stock and asset purchases.
The gross amount of net operating losses ("NOLs") the Company may utilize
on future tax returns is $22,986. The NOLs may be carried forward for fifteen
years until expiration. Foreign tax credits eligible for carry forward total
$5,452, and expire in five years. The Company had no valuation allowance related
to income tax assets as of December 31, 1996, and there was no change in the
valuation allowance during the year.
F-18
<PAGE> 140
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the statutory rate of 35 percent for the period ended December 31, 1996, to
income before taxes. The principal reasons for this difference are as follows:
<TABLE>
<S> <C>
Tax at Federal statutory rate..................................... $ (9,854)
Increase resulting from:
Meals and entertainment......................................... 159
Goodwill related to acquisition of international bowling
centers...................................................... 1,093
Disallowance of certain high yield debt......................... 192
Other, net...................................................... (178)
--------
Total............................................................. $ (8,588)
========
</TABLE>
NOTE 11. COMMITMENTS AND CONTINGENCIES
Bowling Centers and Bowling Products lease certain facilities and equipment
under operating leases which expire at various dates through 2026. Bowling
Centers has certain ground leases, associated with several centers, which expire
at various dates through 2058. These leases generally contain renewal options
and require payments of taxes, insurance, maintenance, and other expenses in
addition to the minimum annual rentals. Certain leases require contingent
payments based on usage of equipment above certain specified levels. Such
contingent rentals amounted to $912 for the period ended December 31, 1996.
Total rent expense under operating leases aggregated approximately $13,737 for
the period ended December 31, 1996.
Future minimum rental payments under the operating lease agreements as of
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
-------------------------------------------------
DECEMBER 31,
-------------------------------------------------
<S> <C>
1997............................................. $ 19,712
1998............................................. 16,192
1999............................................. 14,055
2000............................................. 12,274
2001............................................. 17,039
Thereafter....................................... 58,624
---------
$ 137,896
=========
</TABLE>
Litigation and Claims
The Company is involved in certain lawsuits arising out of normal business
operations. The majority of these relate to accidents at the bowling centers.
Management believes that the ultimate resolution of such matters will not have a
material adverse effect on Holdings' results of operations or financial
position. 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.
NOTE 12. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) plan to which U.S. employees
may make voluntary contributions based on their compensation. Under the
provisions of the plan, the Company can, at its option, match a discretionary
percentage of employee contributions and make an
F-19
<PAGE> 141
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional profit-sharing contribution as determined by the Board of Directors.
Employer contributions vest 100 percent after a five-year period. The amount
charged to expense under this plan was $1,060 for the period ended December 31,
1996.
Certain of the Company's international operations have employee benefit
plans covering selected employees. These plans vary as to the funding, including
local government, employee, and employer funding. Each international operation
has provided for pension expense and made contributions to these plans in
accordance with the requirements of the plans and local country practices. The
amounts charged to expense under these plans aggregated $506 for the period
ended December 31, 1996.
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 percent
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.
One executive, Robert L. Morin, resigned from all positions with the
Company and its related entities as of February 28, 1997. As part of Mr. Morin's
severance arrangement, Parent repurchased all of the shares of Parent Common
Stock owned by Mr. Morin and all options held by Mr. Morin were canceled.
In connection with the Acquisition, the 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 nonemployee
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 the 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.
Twenty percent of the options vest on each of the first five anniversaries of
the grant date. Stock Options are nontransferable (except under certain limited
circumstances) and, unless otherwise determined by the Committee, have a term of
ten years.
The Committee granted an additional 91,000 in Stock Options to several
individuals who began employment with the Company between August 1996 and
December 31, 1996. The number of Stock Options outstanding to senior management,
other employees, and directors at December 31, 1996, after including forfeited
Stock Options, total 1,226,500. No Stock Options awarded were exercisable during
the period ended December 31, 1996.
The Stock Incentive Plan will terminate ten 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
F-20
<PAGE> 142
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", and elected to account for its stock options under APB Opinion
No. 25, under which no compensation cost has been recognized. Had compensation
cost for these stock options been determined consistent with SFAS No. 123, the
Company's net loss for 1996 would have been increased to $23,308.
The weighted-average fair value of options granted during 1996 is $3.05 per
option. The 1,226,500 options outstanding at December 31, 1996, have a
weighted-average exercise price of $10 and a weighted-average remaining
contractual life of 9.6 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996: risk-free rate of 6.5 percent; expected
dividend yield of zero; expected lives of ten years; expected volatility of zero
based on the minimum value method.
NOTE 13. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
Cash paid for the period ended December 31, 1996:
Interest................................ $ 44,465
Income taxes............................ $ 7,990
</TABLE>
<TABLE>
<CAPTION>
CHARAN OTHER
ACQUISITION ACQUISITION ACQUISITIONS TOTAL
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Business acquisitions, net of cash
acquired
Working capital, other than cash
acquired............................. $ (17,385) $ (5,028) $ -- $ (22,413)
Plant and equipment..................... (537,827) (97,857) (5,182) (640,866)
Purchase price in excess of the net
assets acquired...................... (784,217) -- -- (784,217)
Other assets............................ (18,330) -- -- (18,330)
Noncurrent liabilities.................. 6,198 -- -- 6,198
Warrants to purchase shares of Parent
Common Stock......................... 8,700 -- -- 8,700
------------ ---------- ---------- ------------
Net cash used for business
acquisitions......................... $ (1,342,861) $ (102,885) $ (5,182) $ (1,450,928)
============ ========== ========== ============
Non-cash financing activities:
Warrants to purchase shares of Parent
Common Stock......................... $ 8,700
</TABLE>
NOTE 14. ACQUISITIONS
On October 10, 1996, AMF Bowling Centers, Inc. ("AMF Bowling Centers"), a
Virginia corporation and an indirect, wholly owned subsidiary of the Company,
completed the acquisition (the "Charan Acquisition") of 50 bowling centers and
certain related assets and liabilities from Charan Industries, Inc. ("Charan"),
a Delaware corporation, pursuant to an Asset Purchase Agreement (the "Asset
Purchase Agreement"), dated as of September 10, 1996, by and between AMF Bowling
Centers and Charan.
The purchase price of the Charan Acquisition was approximately $106.5
million, subject to certain adjustments. The Charan Acquisition was funded with
approximately $40 million from the
F-21
<PAGE> 143
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sale of equity by the Parent to its institutional stockholders and one of its
directors, and with approximately $66.5 million from available borrowings under
the Company's existing Acquisition Facility.
The following unaudited pro forma information has been prepared assuming
the Charan Acquisition had occurred as of January 1, 1996 and 1995, respectively
and are based on pro forma AMF Group Holdings Inc. results of operations
presented in "Note 3. Pro Forma Results of Operations". The pro forma
information is presented for information purposes only and is not necessarily
indicative of what would have occurred if the acquisition had occurred as of
those dates. In addition, the pro forma information is not intended to be a
projection of future results of operations.
PRO FORMA CONSOLIDATED DATA (UNAUDITED):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Operating revenue........................................ $595.5 $622.7
Operating income......................................... 80.0 105.2
Loss before income taxes................................. (27.1) (4.9)
Net loss................................................. (19.6) (16.1)
</TABLE>
Since the Acquisition and prior to December 31, 1996, AMF Bowling Centers
purchased an aggregate of 57 bowling centers and certain related assets and
liabilities from five unrelated sellers including Charan. The combined purchase
price was approximately $113.5 million, including certain adjustments and
transaction costs, and was funded with approximately $40.0 million from the sale
of equity by the Parent to its institutional stockholders and one of its
directors, and with $73.5 million from available borrowing under the Company's
Acquisition Facility. The results of operations for purchases of bowling centers
and certain related assets and liabilities additional to the Charan Acquisition
were not material in relation to the Company's consolidated results of
operations.
Other Acquisitions
On January 17, 1997, the Company, through AMF Bowling Centers, entered into
an Agreement and Plan of Merger with American Recreation Centers, Inc. ("ARC")
pursuant to which a wholly owned subsidiary of AMF Bowling Centers will merge
with and into ARC (the "ARC Merger"). As a result of the ARC Merger, the
outstanding shares of ARC's common stock, no par value per share (the "ARC
Common Stock"), will be converted into the right to receive $8.50 per share, in
cash. The purchase price, after reflecting the assumption of ARC's outstanding
debt and the purchase of certain joint venture interests, represents a
transaction with a total value of approximately $70 million, which will be
funded from available borrowing under the Company's Acquisition Facility. The
ARC Merger is conditioned upon, among other things, approval by holders of a
majority of the outstanding shares of ARC Common Stock and upon receipt of
certain regulatory and governmental approvals. ARC operates 43 bowling centers
in six states.
Subsequent to December 31, 1996, the Company had acquired an additional
eight bowling centers in the United States and six bowling centers in the United
Kingdom, all of which were previously owned by several unrelated single-center
and small-chain operators. The total purchase price was approximately $28.3
million, including certain adjustments and transaction costs, and was funded
with $16.5 million from available borrowing under the Company's Acquisition
Facility.
F-22
<PAGE> 144
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the acquisitions and the ARC Merger described above, and the
closing of one center, the Company will own and operate 313 U.S. bowling centers
and 84 international bowling centers.
NOTE 15. 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 period ended December
31, 1996, is presented below:
<TABLE>
<S> <C>
Revenue from unaffiliated customers
Bowling Centers
U.S........................................................ $ 132,300
International.............................................. 67,400
----------
199,700
Bowling Products
U.S........................................................ 69,100
International.............................................. 116,000
----------
185,100
----------
$ 384,800
==========
Intersegment sales
Bowling Products.............................................. $ 6,000
==========
Operating income (loss)
Bowling Centers
U.S........................................................ $ 8,300
International.............................................. 6,800
----------
15,100
Bowling Products
U.S........................................................ 23,200
International.............................................. 10,900
----------
34,100
Corporate..................................................... (3,200)
Eliminations.................................................. 100
----------
$ 46,100
==========
Identifiable assets
Bowling Centers
U.S........................................................ $ 612,800
International.............................................. 302,700
----------
915,500
Bowling Products
U.S........................................................ 606,700
International.............................................. 44,500
----------
651,200
Corporate..................................................... 27,100
Eliminations.................................................. 100
----------
$1,593,900
==========
</TABLE>
F-23
<PAGE> 145
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Depreciation and amortization
Bowling Centers
U.S........................................................ $ 25,600
International.............................................. 12,100
----------
37,700
Bowling Products
U.S........................................................ 12,100
International.............................................. 500
----------
12,600
Eliminations.................................................. (900)
----------
$ 49,400
==========
Capital expenditures
Bowling Centers
U.S........................................................ $ 8,100
International.............................................. 5,000
----------
13,100
Bowling Products
U.S........................................................ 1,500
International.............................................. 1,700
----------
3,200
Corporate..................................................... 1,300
Eliminations.................................................. (700)
----------
$ 16,900
==========
Research and development expense
Bowling Products.............................................. $ 1,300
==========
</TABLE>
NOTE 16. GEOGRAPHIC SEGMENTS
Information about the Company's operations in different geographic areas
for the period ended December 31, 1996, and identifiable assets at December 31,
1996, are presented below:
<TABLE>
<S> <C>
Net operating revenue
United States.................................................. $205,800
Hong Kong...................................................... 59,700
Japan.......................................................... 36,800
Australia...................................................... 33,500
United Kingdom................................................. 15,900
Sweden......................................................... 7,400
Mexico......................................................... 5,400
Korea.......................................................... 14,300
Spain.......................................................... 900
China.......................................................... 1,000
Canada......................................................... 200
Other European countries....................................... 9,900
Eliminations................................................... (6,000)
--------
$384,800
========
</TABLE>
F-24
<PAGE> 146
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net operating revenue for the U.S. Bowling Products operation has been
reduced by $63,400 for the period ended December 31, 1996, to reflect the
elimination of intracompany sales between the U.S. Bowling Products operation
and the Bowling Products international sales and service branches.
<TABLE>
<S> <C>
Operating income (loss)
United States.................................................. $ 28,200
Hong Kong...................................................... 7,700
Japan.......................................................... 4,000
Australia...................................................... 4,900
United Kingdom................................................. 600
Sweden......................................................... 1,000
Mexico......................................................... 500
Korea.......................................................... 100
Spain.......................................................... (100)
Canada......................................................... (100)
China.......................................................... (100)
Other European countries....................................... (700)
Eliminations................................................... 100
--------
$ 46,100
========
</TABLE>
Operating income for the U.S. Bowling Products operation has been reduced
by $1,000 for the period ended December 31, 1996, to reflect the elimination of
intracompany gross profit between the U.S. Bowling Products operation and the
Bowling Products international sales and service branches.
<TABLE>
<S> <C>
Identifiable assets
United States................................................. $1,246,600
Hong Kong..................................................... 26,700
Japan......................................................... 40,200
Australia..................................................... 138,000
United Kingdom................................................ 72,300
Sweden........................................................ 3,000
Mexico........................................................ 15,200
Korea......................................................... 4,600
Spain......................................................... 7,300
Canada........................................................ 3,700
China......................................................... 6,000
Other European countries...................................... 30,200
Eliminations.................................................. 100
----------
$1,593,900
==========
</TABLE>
Identifiable assets for the international sales and service branches have
been reduced by $5,500 to reflect the elimination of intracompany gross profit
in inventory between the U.S. Bowling Products operations and the Bowling
Products international sales and service branches.
F-25
<PAGE> 147
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17. RELATED PARTIES
Goldman Sachs and its affiliates have certain interests in the Company in
addition to being the initial purchasers of the registered debt securities of
the Company in connection with the Acquisition. Richard A. Friedman and Terence
M. O'Toole, each of whom is a managing Director of Goldman, Sachs & Co., and
Peter M. Sacerdote, who is a limited partner of the Goldman Sachs Group, are
directors of the Company. Goldman Sachs and its affiliates together currently
beneficially own a majority of the outstanding voting equity of the Parent; thus
Goldman Sachs will be deemed to be an "affiliate" of the Company. Goldman Sachs
received an underwriting discount of approximately $19.0 million in connection
with the purchase and resale of the notes. Goldman Sachs also served as
financial advisor to the Sellers in connection with the Acquisition and received
a fee in the form of 10-year warrants to purchase 2.2% of the Parent Common
Stock, on a fully diluted basis. The warrants are valued for accounting purposes
at approximately $8.7 million. In addition, Goldman Sachs is entitled to the
reimbursement of its expenses.
In connection with the Senior Debt, Goldman Sachs acted as Syndication
Agent, Goldman Sachs and Citicorp Securities, Inc. acted as Arrangers, and
Citibank, N.A. is acting as administrative agent. Goldman Sachs received a fee
of approximately $9.5 million and was reimbursed for expenses in connection with
such services. Goldman Sachs also received a cash fee of $5.0 million from the
Company in connection with the Acquisition and was reimbursed for related
expenses.
NOTE 18. CONSOLIDATING FINANCIAL STATEMENTS
The following consolidating information presents:
- Consolidating balance sheet as of December 31, 1996, and consolidating
statements of income and cash flows for the period ended December 31,
1996.
- Elimination entries necessary to combine the entities comprising
Holdings.
The Exchange Notes are jointly and severally guaranteed on a full and
unconditional basis by Holdings and by the first and second-tier subsidiaries of
the Company, 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 Beverage Company of W. VA., 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 International Inc.
AMF Bowling Mexico Holding, Inc.
Boliches AMF, Inc.
AMF BCO - UK One, Inc.
F-26
<PAGE> 148
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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
F-27
<PAGE> 149
AMF GROUP HOLDINGS INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents.............. $ 39,660 $ 3,908 $ -- $ 43,568
Accounts and notes receivable, net of 41,266 1,359 -- 42,625
allowance for doubtful accounts.....
Accounts receivable -- intercompany.... 3,365 1,259 (4,624) --
Inventories............................ 39,609 1,392 -- 41,001
Deferred taxes and other............... 9,491 1,687 -- 11,178
----------- -------- -------- -----------
Total current assets........... 133,391 9,605 (4,624) 138,372
Notes receivable -- intercompany......... 1,998 1,663 (3,661) --
Property and equipment, net.............. 599,706 30,139 951 630,796
Investment in subsidiaries............... 59,559 -- (59,559) --
Goodwill and other assets................ 823,762 943 -- 824,705
----------- -------- -------- -----------
Total assets................... $ 1,618,416 $42,350 $(66,893) $ 1,593,873
=========== ======== ======== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
Current liabilities:
Accounts payable....................... $ 30,198 $ 1,365 $ -- $ 31,563
Accounts payable -- intercompany....... 773 3,851 (4,624) --
Accrued expenses....................... 50,460 3,897 -- 54,357
Income taxes payable................... 1,676 544 -- 2,220
Long-term debt, current portion........ 42,376 -- -- 42,376
----------- -------- -------- -----------
Total current liabilities...... 125,483 9,657 (4,624) 130,516
Long-term debt........................... 1,048,877 -- -- 1,048,877
Notes payable -- intercompany............ 1,663 1,998 (3,661) --
Other long-term liabilities.............. 1,851 -- -- 1,851
Deferred income taxes.................... 2,828 1,067 -- 3,895
----------- -------- -------- -----------
Total liabilities.............. 1,180,702 12,722 (8,285) 1,185,139
----------- -------- -------- -----------
Commitments and contingencies
Stockholder's equity:
Common stock........................... 289 3,940 (4,229) --
Paid-in capital........................ 454,506 24,522 (49,578) 429,450
Retained earnings (deficit)............ (11,184) 4,745 (13,126) (19,565)
Equity adjustment from foreign
currency translation................ (5,897) (3,579) 8,325 (1,151)
----------- -------- -------- -----------
Total stockholder's equity..... 437,714 29,628 (58,608) 408,734
----------- -------- -------- -----------
Total liabilities and
stockholder's equity......... $ 1,618,416 $42,350 $(66,893) $ 1,593,873
=========== ======== ======== ===========
</TABLE>
F-28
<PAGE> 150
AMF GROUP HOLDINGS INC.
CONSOLIDATING STATEMENT OF INCOME
FOR THE PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues....................... $364,095 $21,768 $ (1,054) $384,809
-------- ------- ------- --------
Operating expenses:
Cost of goods sold..................... 127,623 3,566 (647) 130,542
Bowling center operating expenses...... 112,318 11,780 (425) 123,673
Selling, general, and administrative
expenses............................ 33,444 1,626 -- 35,070
Depreciation and amortization.......... 46,198 3,260 (72) 49,386
-------- ------- ------- --------
Total operating expenses............ 319,583 20,232 (1,144) 338,671
-------- ------- ------- --------
Operating income.................... 44,512 1,536 90 46,138
Nonoperating expenses:
Interest expense....................... 77,968 22 -- 77,990
Other (income) expense, net............ (39) 1,029 922 1,912
Interest income........................ (5,480) (131) -- (5,611)
Equity in loss of subsidiaries......... 499 -- (499) --
-------- ------- ------- --------
Total nonoperating expenses......... 72,948 920 423 74,291
-------- ------- ------- --------
Income (loss) before income taxes... (28,436) 616 (333) (28,153)
Provision (benefit) for income
taxes............................. (9,703) 1,115 -- (8,588)
-------- ------- ------- --------
Net income (loss)................... $(18,733) $ (499) $ (333) $(19,565)
======== ======= ======= ========
</TABLE>
F-29
<PAGE> 151
AMF GROUP HOLDINGS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $ (18,733) $ (499) $ (333) $ (19,565)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization........... 46,198 3,260 (72) 49,386
Deferred taxes.......................... (14,040) -- -- (14,040)
Amortization of bond discount........... 24,731 -- -- 24,731
Equity in loss of subsidiaries.......... (499) -- 499 --
Dividends from non-guarantor
companies............................. 922 (922) -- --
Loss on the sale of property and
equipment, net........................ 390 18 -- 408
Changes in assets and liabilities:
Accounts and notes receivable......... (6,663) 159 -- (6,504)
Receivables and
payables -- affiliates............. 399 (399) -- --
Inventories........................... 1,830 32 -- 1,862
Other assets.......................... (3,334) (445) (94) (3,873)
Accounts payable and accrued
expenses........................... 21,631 299 -- 21,930
Income taxes payable.................. 662 (301) -- 361
Other long-term liabilities........... 18,918 217 -- 19,135
----------- -------- ------ -----------
Net cash provided by operating
activities............................ 72,412 1,419 -- 73,831
Cash flows from investing activities:
Acquisitions of operating units, net of
cash acquired........................... (1,454,213) 3,285 -- (1,450,928)
Purchases of property and equipment........ (15,930) (1,011) -- (16,941)
Proceeds from sales of property and
equipment............................... 584 170 -- 754
----------- -------- ------ -----------
Net cash provided by (used in) investing
activities............................ (1,469,559) 2,444 -- (1,467,115)
Cash flows from financing activities:
Proceeds from long-term debt, net of
deferred financing costs................ 1,059,277 -- -- 1,059,277
Payments on long-term debt................. (38,875) -- -- (38,875)
Capital contribution....................... 420,750 -- -- 420,750
Payment of noncompete obligations.......... (2,892) -- -- (2,892)
----------- -------- ------ -----------
Net cash provided by financing
activities............................ 1,438,260 -- -- 1,438,260
----------- -------- ------ -----------
Effect of exchange rates on cash........ (1,453) 45 -- (1,408)
----------- -------- ------ -----------
Net increase in cash.................... 39,660 3,908 -- 43,568
Cash and cash equivalents at beginning
of period............................. -- -- -- --
----------- -------- ------ -----------
Cash and cash equivalents at end of
period................................ $ 39,660 $ 3,908 $ -- $ 43,568
=========== ======== ====== ===========
</TABLE>
F-30
<PAGE> 152
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 53,066 $ 43,568
Accounts and notes receivable, net of allowance for doubtful
accounts of $4,354 and $4,492, respectively.................... 46,693 42,625
Inventories....................................................... 51,367 41,001
Deferred taxes and other.......................................... 15,000 11,178
----------- -----------
Total current assets........................................... 166,126 138,372
Property and equipment, net......................................... 647,342 630,796
Deferred financing costs, net....................................... 39,011 40,595
Goodwill, net....................................................... 766,246 771,146
Other assets........................................................ 22,563 12,964
----------- -----------
Total assets...................................................... $ 1,641,288 $1,593,873
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................................. $ 34,311 $ 31,563
Accrued expenses.................................................. 63,248 54,357
Income taxes payable.............................................. 1,186 2,220
Long-term debt, current portion................................... 44,250 42,376
----------- -----------
Total current liabilities...................................... 142,995 130,516
Long-term debt...................................................... 1,084,306 1,048,877
Other long-term liabilities......................................... 2,753 1,851
Deferred income taxes............................................... 6,877 3,895
----------- -----------
Total liabilities................................................. 1,236,931 1,185,139
----------- -----------
Commitments and contingencies
Stockholder's equity:
Common stock (par value $.01, 100 shares issued and outstanding).. -- --
Paid-in capital................................................... 429,450 429,450
Retained deficit.................................................. (19,972) (19,565)
Equity adjustment from foreign currency translation............... (5,121) (1,151)
----------- -----------
Total stockholder's equity........................................ 404,357 408,734
----------- -----------
Total liabilities and stockholder's equity........................ $ 1,641,288 $1,593,873
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-31
<PAGE> 153
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMF GROUP HOLDINGS
INC.
THREE MONTHS ENDED PREDECESSOR
MARCH 31, COMPANY
--------------------- THREE MONTHS ENDED
1997 1996* MARCH 31, 1996
--------- ------- ------------------
<S> <C> <C> <C>
Operating revenues.................................... $ 157,589 $ -- $123,343
--------- ------- --------
Operating expenses:
Cost of goods sold.................................. 38,050 -- 30,700
Bowling center operating expenses................... 55,342 -- 42,216
Selling, general, and administrative expenses....... 14,000 -- 11,568
Depreciation and amortization....................... 20,500 -- 10,969
--------- ------- --------
Total operating expenses.................... 127,892 -- 95,453
--------- ------- --------
Operating income............................ 29,697 -- 27,890
Nonoperating expenses:
Interest expense.................................... 27,672 1,600 3,802
Other expenses, net................................. 1,461 -- 186
Interest income..................................... (649) (1,000) (394)
--------- ------- --------
Total nonoperating expenses................. 28,484 600 3,594
--------- ------- --------
Income (loss) before income taxes................ 1,213 (600) 24,296
Provision for income taxes....................... 1,120 -- 2,720
--------- ------- --------
Net income (loss)................................ $ 93 $ (600) $ 21,576
========= ======= ========
</TABLE>
- ---------------
* For the period from the inception date of January 12, 1996 through March 31,
1996.
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 154
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMF GROUP HOLDINGS PREDECESSOR
INC. COMPANY
THREE MONTHS ENDED THREE
MARCH 31, MONTHS
---------------------- ENDED
1997 1996* MARCH 31, 1996
--------- --------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 93 $ (600) $ 21,576
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................... 20,500 -- 10,969
Deferred income taxes............................... (410) -- --
Amortization of bond discount....................... 8,301 800 --
Loss on the sale of property and equipment, net..... 106 -- --
Changes in assets and liabilities:
Accounts and notes receivable, net................ (4,128) -- 7,606
Receivables and payables -- affiliates............ -- -- (7,861)
Inventories....................................... (10,265) -- (4,404)
Other assets...................................... (4,190) (9,600) (1,232)
Accounts payable and accrued expenses............. 12,094 800 (915)
Income taxes payable.............................. (1,029) -- (1,470)
Other long-term liabilities....................... 2,495 -- --
--------- --------- --------
Net cash provided by (used in) operating
activities........................................ 23,567 (8,600) 24,269
--------- --------- --------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired............................................ (33,641) -- --
Purchases of property and equipment.................... (6,907) -- (4,408)
Proceeds from the sale of property and equipment....... 215 -- 811
--------- --------- --------
Net cash used in investing activities............... (40,333) -- (3,597)
--------- --------- --------
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred financing
costs............................................... 29,002 499,900 7,638
Proceeds from deposit from seller...................... -- 15,000 --
Payments on notes payable -- stockholders, net......... -- -- (15,921)
Capital contribution................................... -- 100,000 --
Dividend to Parent..................................... (500) -- --
Distributions to stockholders.......................... -- -- (9,137)
Noncompete obligations................................. (166) -- --
--------- --------- --------
Net cash provided by (used in) financing
activities........................................ 28,336 614,900 (17,420)
--------- --------- --------
Effect of exchange rates on cash.................... (2,072) -- (215)
--------- --------- --------
Net increase in cash................................ 9,498 606,300 3,037
Cash and cash equivalents at beginning of period.... 43,568 -- 9,732
--------- --------- --------
Cash and cash equivalents at end of period.......... $ 53,066 $ 606,300 $ 12,769
========= ========= ========
</TABLE>
- ---------------
* For the period from the inception date of January 12, 1996 through March 31,
1996.
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 155
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
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 April 30, 1996, and December 31, 1995
audited combined financial statements of AMF Bowling Group (the "Predecessor
Company") and the December 31, 1996 audited consolidated financial statements of
the Company presented in the Form 10-K Annual Report filed with the U.S.
Securities and Exchange Commission on March 28, 1997. The results of operations
for the three months ended March 31, 1997, are not necessarily indicative of
results to be expected for the entire year.
AMF Group Inc. (the "Company") is principally engaged in two business
segments: (i) the ownership and operation of bowling centers, consisting of 271
U.S. bowling centers and 84 international bowling centers ("Bowling Centers") as
of March 31, 1997, and (ii) the manufacture and distribution of bowling
equipment such as automatic pinspotters, automatic scoring equipment, bowling
pins, lanes, ball returns, 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"). The principal markets for bowling
equipment are U.S. and international bowling center operators.
The Company is a wholly owned subsidiary of AMF Group Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of AMF Holdings Inc. (the
"Parent"). Holdings and the Company are Delaware corporations organized by GS
Capital Partners II, L.P., and certain other investment funds (collectively,
"GSCP") affiliated with Goldman, Sachs & Co. ("Goldman Sachs") to effect the
acquisition (described below). Holdings and the Parent are holding companies
only. The primary assets in each are comprised of investments in direct and/or
indirect subsidiaries.
Pursuant to a Stock Purchase Agreement dated February 16, 1996, between
Holdings and the stockholders (the "Sellers") of the Predecessor Company, on May
1, 1996 (the "Closing Date"), Holdings acquired the Predecessor Company 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 of the assets of the
Predecessor Company's bowling center operations in Spain and Switzerland (the
"Acquisition"). 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).
The purchase price for the Acquisition was approximately $1.373 billion,
less approximately $2.0 million representing debt of the Predecessor Company
which remained in place following the closing of the Acquisition. 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.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated results of operations of Holdings have been presented for
the three months ended March 31, 1997, and for the period from the inception
date of January 12, 1996 through March 31, 1996. Additionally, the combined
results of operations of the Predecessor Company for the three months ended
March 31, 1996, have been presented. All significant intercompany
F-34
<PAGE> 156
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balances and transactions have been eliminated in the accompanying consolidated
financial statements. All dollar amounts are in thousands, except where
otherwise indicated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The estimates made by management include allowances for
obsolete inventory, uncollectible accounts receivable, realization of goodwill
and other deferred assets, litigation and claims, product warranty costs, and
self-insurance costs. Actual results could differ from those estimates.
Goodwill
As a result of the Acquisition and in accordance with the purchase method
of accounting for the Acquisition, the Company recorded goodwill representing
the excess of the purchase price over the allocation among the acquired assets
and liabilities in accordance with estimates of fair market value on the date of
acquisition. Goodwill is being amortized over 40 years. Amortization expense was
$4,900 for the three months ended March 31, 1997. Accumulated amortization at
March 31, 1997 was $17,970.
NOTE 3. PRO FORMA RESULTS OF OPERATIONS
A pro forma statement of income for Holdings is presented below for the
three months ended March 31, 1996, as if the Acquisition of the Predecessor
Company had occurred on January 1, 1996, and is based on the Predecessor
Company's statement of income for the three months ended March 31, 1996,
Holdings' statement of income for the period from the inception date of January
12, 1996 through March 31, 1996, and adjustments giving effect to the
Acquisition under the purchase method of accounting as described in the notes
below. The pro forma results are for illustrative purposes only and do not
purport to be indicative of the actual results which occurred, nor are they
indicative of future results of operations.
F-35
<PAGE> 157
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA RESULTS OF OPERATIONS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PREDECESSOR AMF GROUP
AMF GROUP COMPANY HOLDINGS INC.
HOLDINGS INC. THREE MONTHS THREE MONTHS
PERIOD ENDED ENDED PRO FORMA ENDED
MARCH 31, 1996(a) MARCH 31, 1996 ADJUSTMENTS MARCH 31, 1996
----------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Operating revenues............. $ -- $123.3 $ (0.6)(b) $122.7
----- ------ ------- ------
Operating expenses:
Cost of goods sold........... -- 30.7 (0.1)(b) 30.6
Bowling center operating
expenses.................. -- 42.2 (0.5)(b) 41.7
Selling, general, and
administrative expenses... -- 11.5 -- 11.5
Depreciation and
amortization.............. -- 11.0 2.3 (c) 13.3
----- ------ ------- ------
Total operating
expenses............. -- 95.4 1.7 97.1
----- ------ ------- ------
Operating income
(loss)............... -- 27.9 (2.3) 25.6
Nonoperating expenses:
Interest expense............. 1.6 3.8 21.2 (d) 26.6
Other expenses, net.......... -- 0.2 -- 0.2
Interest income.............. (1.0) (0.4) -- (1.4)
----- ------ ------- ------
Income (loss) before income
taxes........................ (0.6) 24.3 (23.5) 0.2
Provision (benefit) for income
taxes........................ -- 2.7 (2.6)(e) 0.1
----- ------ ------- ------
Net income (loss).... $(0.6) $ 21.6 $ (20.9) $ 0.1
===== ====== ======= ======
</TABLE>
- ---------------
(a) Represents the results of Holdings for the period from the inception date of
January 12, 1996 through March 31, 1996.
(b) To reflect the impact of Holdings not acquiring the operations of one
bowling center in Switzerland and one bowling center in Spain.
(c) To reflect the increase in depreciation and amortization expense from the
allocation of the purchase price to fixed assets and goodwill and a change
in the method of depreciation of fixed assets. The Predecessor Company
principally used the double declining balance method. The amount of the pro
forma adjustment for depreciation was determined using the straight-line
method over the estimated lives of the assets acquired. Goodwill is being
amortized over 40 years.
(d) To reflect the incremental interest expense associated with the issuance of
debt which partially funded the Acquisition.
(e) To give effect to the change in status of the U.S. and international
subsidiaries of Holdings from S corporations to taxable corporation under
the Internal Revenue Code upon consummation of the Acquisition.
F-36
<PAGE> 158
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INVENTORIES
Inventories at March 31, 1997, and December 31, 1996, consist of the
following:
<TABLE>
<CAPTION>
MARCH
31, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Bowling Products, at FIFO:
Raw materials............................................. $ 13,019 $ 11,683
Work in progress.......................................... 1,607 2,335
Finished goods and spare parts............................ 32,346 23,195
Bowling Centers, at average cost:
Merchandise inventory..................................... 4,395 3,788
-------- --------
$ 51,367 $ 41,001
======== ========
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1997, and December 31, 1996, consists
of the following:
<TABLE>
<CAPTION>
MARCH
31, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Land....................................................... $ 92,416 $ 90,512
Buildings and improvements................................. 276,903 265,461
Equipment, furniture, and fixtures......................... 318,639 304,067
Other...................................................... 4,994 2,631
-------- --------
692,952 662,671
Less: accumulated depreciation and amortization............ (45,610) (31,875)
-------- --------
$647,342 $630,796
======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$13,735 and $10,969 for the three months ended March 31, 1997 and 1996,
respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt at March 31, 1997 and December 31, 1996 consists of the
following:
<TABLE>
<CAPTION>
DECEMBER
MARCH 31, 31,
1997 1996
---------- ----------
<S> <C> <C>
Bank debt................................................. $ 593,625 $ 564,625
Exchange senior subordinated notes........................ 250,000 250,000
Exchange senior subordinated discount notes............... 282,964 274,663
Mortgage and equipment notes.............................. 1,967 1,965
---------- ----------
Total debt...................................... 1,128,556 1,091,253
Current maturities........................................ (44,250) (42,376)
---------- ----------
Total long-term debt............................ $1,084,306 $1,048,877
========== ==========
</TABLE>
Deferred Financing Costs
Costs incurred to obtain bank financing and issue bond financing for the
Acquisition are amortized over the lives of the various types of debt. Bank
financing costs are amortized over eight years and bond financing costs are
amortized over ten years using the effective interest rate method. An interest
rate cap agreement included in deferred financing costs is amortized over the
F-37
<PAGE> 159
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
term of the agreement beginning November 1, 1996, and ending October 31, 1998.
Amortization expense for financing costs was $1,129 for the three months ended
March 31, 1997. Interest expense for the interest rate cap agreement was $455
for the three months ended March 31, 1997.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Litigation and Claims
The Company is involved in certain lawsuits arising out of normal business
operations. The majority of these relate to accidents at bowling centers.
Management believes that the ultimate resolution of such matters will not have a
material adverse effect on Holdings' results of operations or financial
position. 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.
NOTE 8. EMPLOYEE BENEFIT PLANS
The total number of shares of Parent Common Stock currently reserved and
available for grant under the AMF Holdings Inc. 1996 Stock Incentive Plan is
1,767,151. The number of Stock Options outstanding to senior management, other
employees, and directors at March 31, 1997, after giving effect to forfeited
Stock Options, total 1,169,000 at an exercise price of $10.00 per share.
On February 28, 1997, one executive, Robert L. Morin, resigned from all
positions with the Company and its related entities. As part of Mr. Morin's
severance arrangements, Parent repurchased all of the shares of Parent Common
Stock owned by Mr. Morin and all options held by Mr. Morin were canceled. The
Company paid a dividend of $500 to the Parent for the repurchase of Mr. Morin's
shares.
NOTE 9. ACQUISITIONS
Between January 1, 1997 and March 31, 1997, the Company acquired nine
bowling centers in the United States and six bowling centers in the United
Kingdom, all of which were previously owned by several unrelated single-center
and small-chain operators. The total purchase price was approximately $31.1
million, including certain adjustments and transaction costs, and was funded
with $19.0 million from available borrowing under the Company's Acquisition
Facility and the remainder from internally generated cash.
On April 24, 1997, the Company completed the acquisition of American
Recreation Centers, Inc. ("ARC"), which operates 43 bowling centers in six
states. The aggregate price of the ARC acquisition was approximately $70
million, including repayment of certain debt and the purchase of related joint
venture interests, and is being funded from available borrowing under the
Acquisition Facility. In addition, between April 1, 1997, and April 30, 1997,
the Company acquired three bowling centers in the United States from two
unrelated sellers. The aggregate purchase price was approximately $4.8 million,
and was funded with $4.0 million from available borrowing under the Acquisition
Facility and the remainder from internally generated cash.
As a result of the acquisitions, and after giving effect to the closing of
one center, the Company owned and operated 317 U.S. bowling centers and 84
international bowling centers as of April 30, 1997.
In April 1997, the Company entered into a $40 million joint venture
arrangement with Hong Leong Corporation Limited, a Singapore based conglomerate.
Pursuant to the arrangement, the joint venture, owned 50% by the Company and 50%
by Hong Leong, is expected to build and operate
F-38
<PAGE> 160
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
up to 20 bowling centers, during the next three years. These bowling centers,
the first of which is expected to open during 1997 in Tianjin, China, will be
located in the Philippines, Malaysia, Vietnam, Indonesia, Thailand and China.
NOTE 10. 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 businesses for the three months ended March 31,
1997 and 1996, is presented below (in millions):
<TABLE>
<CAPTION>
AMF GROUP HOLDINGS INC.
-----------------------
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------------------------------------
BOWLING CENTERS BOWLING PRODUCTS
-------------------------- --------------------------
INTER- SUB- INTER- SUB- ELIM-
U.S. NATIONAL TOTAL U.S. NATIONAL TOTAL CORPORATE INATIONS TOTAL
------ -------- ------ ------ -------- ------ --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated $ 82.6 $ 25.9 $108.5 $ 23.5 $ 25.6 $ 49.1 $ -- $ -- $ 157.6
customers......................
Intersegment sales............... -- -- -- 2.0 0.9 2.9 -- -- 2.9
Operating income................. 23.0 2.8 25.8 6.7 0.5 7.2 (3.6) 0.3 29.7
Identifiable assets.............. 630.8 308.4 939.2 620.3 50.0 670.3 32.2 (0.4) 1,641.3
Depreciation and amortization.... 11.6 4.5 16.1 4.5 0.3 4.8 -- (0.4) 20.5
Capital expenditures............. 4.0 1.5 5.5 0.9 0.2 1.1 0.4 (0.1) 6.9
Research and development -- -- -- 0.2 -- 0.2 -- -- 0.2
expense........................
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------------------------------------
BOWLING CENTERS BOWLING PRODUCTS
-------------------------- --------------------------
INTER- SUB- INTER- SUB- ELIM-
U.S. NATIONAL TOTAL U.S. NATIONAL TOTAL CORPORATE INATIONS TOTAL
------ -------- ------ ------ -------- ------ --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated $ 58.1 $ 25.0 $ 83.1 $ 18.3 $ 21.9 $ 40.2 $ -- $ -- $ 123.3
customers......................
Intersegment sales............... -- -- -- 2.1 0.7 2.8 -- -- 2.8
Operating income................. 15.3 5.7 21.0 6.8 0.4 7.2 -- (0.3) 27.9
Depreciation and amortization.... 8.5 1.9 10.4 0.8 0.1 0.9 -- (0.3) 11.0
Capital expenditures............. 3.5 1.2 4.7 0.3 -- 0.3 -- (0.6) 4.4
Research and development -- -- -- 0.4 -- 0.4 -- -- 0.4
expense........................
</TABLE>
NOTE 11. CONSOLIDATING FINANCIAL STATEMENTS
The following consolidating financial information presents:
- Consolidating balance sheet as of March 31, 1997, and consolidating
statements of income and cash flows for the three months ended March 31,
1997.
- Elimination entries necessary to combine the entities comprising
Holdings.
The Exchange Notes are jointly and severally guaranteed on a full and
unconditional basis by Holdings and by the first and second-tier subsidiaries of
the Company. Third-tier subsidiaries of the Company have not provided
guarantees.
F-39
<PAGE> 161
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
GUARANTOR NON-GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 50,906 $ 2,160 $ -- $ 53,066
Accounts and notes receivable, net of
allowance for doubtful accounts....... 44,962 1,731 -- 46,693
Accounts receivable -- intercompany...... 3,077 3,045 (6,122) --
Inventories.............................. 49,629 1,738 -- 51,367
Deferred taxes and other................. 13,563 1,437 -- 15,000
---------- ------- -------- ----------
Total current assets.................. 162,137 10,111 (6,122) 166,126
Notes receivable -- intercompany........... 15,157 9,163 (24,320) --
Property and equipment, net................ 602,511 43,786 1,045 647,342
Investment in subsidiaries................. 57,328 -- (57,328) --
Goodwill and other assets.................. 826,916 904 -- 827,820
---------- ------- -------- ----------
Total assets.......................... $1,664,049 $63,964 $(86,725) $1,641,288
========== ======= ======== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable......................... $ 31,949 $ 2,362 $ -- $ 34,311
Accounts payable -- intercompany......... 409 5,713 (6,122) --
Accrued expenses......................... 58,375 4,873 -- 63,248
Income taxes payable..................... 729 457 -- 1,186
Long-term debt, current portion.......... 44,250 -- -- 44,250
---------- ------- -------- ----------
Total current liabilities............. 135,712 13,405 (6,122) 142,995
Long-term debt............................. 1,076,806 7,500 -- 1,084,306
Notes payable -- intercompany.............. 9,689 14,631 (24,320) --
Other long-term liabilities................ 2,753 -- -- 2,753
Deferred income taxes...................... 5,846 1,031 -- 6,877
---------- ------- -------- ----------
Total liabilities..................... 1,230,806 36,567 (30,442) 1,236,931
---------- ------- -------- ----------
Commitments and contingencies
Stockholder's equity:
Common stock............................. 289 3,940 (4,229) --
Paid-in capital.......................... 454,506 24,522 (49,578) 429,450
Retained earnings (deficit).............. (11,685) 4,793 (13,080) (19,972)
Equity adjustment from foreign currency
translation........................... (9,867) (5,858) 10,604 (5,121)
---------- ------- -------- ----------
Total stockholder's equity............ 433,243 27,397 (56,283) 404,357
---------- ------- -------- ----------
Total liabilities and stockholder's
equity.............................. $1,664,049 $63,964 $(86,725) $1,641,288
========== ======= ======== ==========
</TABLE>
F-40
<PAGE> 162
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues........................... $ 147,740 $10,287 $ (438) $157,589
--------- ------- ------ --------
Operating expenses:
Cost of goods sold......................... 36,960 1,383 (293) 38,050
Bowling center operating expenses.......... 54,713 715 (86) 55,342
Selling, general, and administrative
expenses................................ 8,540 5,460 -- 14,000
Depreciation and amortization.............. 19,258 1,395 (153) 20,500
--------- ------- ------ --------
Total operating expenses........... 119,471 8,953 (532) 127,892
--------- ------- ------ --------
Operating income........................ 28,269 1,334 94 29,697
Nonoperating expenses:
Interest expense........................... 27,661 11 -- 27,672
Other expense, net......................... 808 653 -- 1,461
Interest income............................ (603) (46) -- (649)
Equity in earnings of subsidiaries......... (48) -- 48 --
--------- ------- ------ --------
Total nonoperating expenses........ 27,818 618 48 28,484
--------- ------- ------ --------
Income before income taxes.............. 451 716 46 1,213
Provision for income taxes.............. 452 668 -- 1,120
--------- ------- ------ --------
Net income (loss).................. $ (1) $ 48 $ 46 $ 93
========= ======= ====== ========
</TABLE>
F-41
<PAGE> 163
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF GROUP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ (1) $ 48 $ 46 $ 93
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization.......... 19,258 1,395 (153) 20,500
Deferred income taxes.................. (412) 2 -- (410)
Amortization of bond discount.......... 8,301 -- -- 8,301
Equity in earnings of subsidiaries..... (48) -- 48 --
Loss on the sale of property and
equipment, net....................... 106 -- -- 106
Changes in assets and liabilities:
Accounts and notes receivable........ (3,525) (603) -- (4,128)
Receivables and payables -
affiliates........................ (5,689) 5,689 -- --
Inventories.......................... (9,826) (439) -- (10,265)
Other assets......................... (4,410) 161 59 (4,190)
Accounts payable and accrued
expenses.......................... 9,969 2,125 -- 12,094
Income taxes payable................. (960) (69) -- (1,029)
Other long-term liabilities.......... 2,495 -- -- 2,495
-------- -------- ------ --------
Net cash provided by operating
activities...................... 15,258 8,309 -- 23,567
-------- -------- ------ --------
Cash flows from investing activities:
Acquisitions of operating units, net of
cash acquired.......................... (18,217) (15,424) -- (33,641)
Purchases of property and equipment....... (5,824) (1,083) -- (6,907)
Proceeds from sale of property and
equipment.............................. 215 -- -- 215
-------- -------- ------ --------
Net cash used in investing
activities...................... (23,826) (16,507) -- (40,333)
-------- -------- ------ --------
Cash flows from financing activities:
Proceeds from long-term debt, net of
deferred financing costs............... 21,502 7,500 -- 29,002
Dividend to Parent........................ (500) -- -- (500)
Noncompete obligations.................... (166) -- -- (166)
-------- -------- ------ --------
Net cash provided by financing
activities...................... 20,836 7,500 -- 28,336
-------- -------- ------ --------
Effect of exchange rates on cash....... (1,039) (1,033) -- (2,072)
-------- -------- ------ --------
Net increase (decrease) in cash........ 11,229 (1,731) -- 9,498
Cash and cash equivalents at beginning
of period............................ 39,677 3,891 -- 43,568
-------- -------- ------ --------
Cash and cash equivalents at end of
period............................... $ 50,906 $ 2,160 $ -- $ 53,066
======== ======== ====== ========
</TABLE>
F-42
<PAGE> 164
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors
and the Stockholders
AMF Bowling Group
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of AMF
Bowling Group at April 30, 1996 and December 31, 1995, and the results of its
operations and its cash flows for the period ended April 30, 1996 and for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Norfolk, Virginia
June 28, 1996
F-43
<PAGE> 165
AMF BOWLING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 21,913 $ 9,732
Accounts and notes receivable, net of allowance for doubtful
accounts of $3,110 and $3,373, respectively.................. 33,887 39,026
Accounts and notes receivable -- affiliates..................... 166 3,979
Inventories..................................................... 43,296 39,821
Prepaid expenses and other...................................... 6,113 5,182
--------- --------
Total current assets.................................... 105,375 97,740
Notes receivable -- affiliates.................................... -- 22,941
Property and equipment, net....................................... 251,544 259,724
Other assets...................................................... 18,330 19,973
--------- --------
Total assets............................................ $ 375,249 $400,378
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 23,670 $ 23,641
Book overdrafts................................................. 5,724 2,362
Accrued expenses and deposits................................... 34,916 30,328
Accounts and notes payable -- affiliates........................ -- 1,989
Long-term debt, current portion................................. 10 1,084
Income taxes payable............................................ 1,757 7,129
--------- --------
Total current liabilities............................... 66,077 66,533
Long-term debt.................................................... 1,958 19,550
Notes payable -- affiliates....................................... -- 146,727
Other liabilities................................................. 2,811 5,856
Deferred income taxes............................................. 1,429 174
--------- --------
Total liabilities....................................... 72,275 238,840
--------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock.................................................... 454 1,538
Paid-in capital................................................. 251,770 63,781
Retained earnings............................................... 52,302 101,080
Equity adjustment from foreign currency translation............. (1,552) (3,400)
Notes receivable stock subscription............................. -- (1,461)
--------- --------
Total stockholders' equity.............................. 302,974 161,538
--------- --------
Total liabilities and stockholders' equity.............. $ 375,249 $400,378
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 166
AMF BOWLING GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Operating revenues:
Sales of products and services....................... $ 164,371 $563,998 $515,426
Revenue from operating lease activities.............. 573 926 2,360
--------- -------- --------
Total operating revenues..................... 164,944 564,924 517,786
--------- -------- --------
Operating expenses:
Cost of sales, excluding depreciation of $791,
$2,531, and $1,691, respectively.................. 43,118 184,129 196,043
Bowling center operations............................ 80,156 166,465 115,147
Selling, general and administrative.................. 35,557 50,778 57,142
Depreciation and amortization........................ 15,097 39,139 24,776
--------- -------- --------
Total operating expenses..................... 173,928 440,511 393,108
--------- -------- --------
Operating (loss) income...................... (8,984) 124,413 124,678
Nonoperating income (expenses):
Interest expense..................................... (4,504) (15,711) (7,394)
Other expenses, net.................................. (692) (1,043) (1,188)
Interest income...................................... 611 2,184 526
Foreign currency transaction loss.................... (29) (979) (867)
--------- -------- --------
(Loss) income before income taxes...................... (13,598) 108,864 115,755
Income tax benefit (expense)........................... 1,731 (12,098) (16,452)
--------- -------- --------
Net (loss) income............................ $ (11,867) $ 96,766 $ 99,303
========= ======== ========
</TABLE>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Net (loss) income before income taxes and pro forma
adjustments.......................................... $ (13,598) $108,864 $115,755
Pro forma C Corporation -- tax benefit (provision)..... 5,065 (40,616) (42,972)
--------- -------- --------
Pro forma net (loss) income............................ $ (8,533) $ 68,248 $ 72,783
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 167
AMF BOWLING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................... $ (11,867) $ 96,766 $ 99,303
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization..................... 15,097 39,139 24,776
Deferred income taxes............................. 414 (830) (19)
Loss on sale of property and equipment, net....... -- 567 911
Changes in assets and liabilities, net of effects
from companies acquired:
Accounts and notes receivable, net.............. 4,784 10,630 (9,014)
Receivables and payables -- affiliates.......... 1,535 6,147 4,725
Inventories..................................... (3,631) (5,996) (1,411)
Other assets and liabilities.................... (2,673) (101) (1,000)
Accounts payable and accrued expenses........... 8,713 (18,741) 3,838
Income taxes payable............................ (5,745) (2,830) (2,390)
--------- -------- --------
Net cash provided by operating activities....... 6,627 124,751 119,719
--------- -------- --------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired.......................................... -- -- (17,307)
Purchase of property and equipment................... (6,874) (29,965) (17,788)
Proceeds from sales of property and equipment........ -- 1,410 1,535
Other................................................ 2,989 229 941
--------- -------- --------
Net cash used for investing activities.......... (3,885) (28,326) (32,619)
--------- -------- --------
Cash flows from financing activities:
Payments on credit note agreements, net.............. -- (11,057) (3,689)
Distributions to stockholders........................ (36,721) (71,851) (78,170)
Payment of long-term debt............................ (3,812) (10,285) (1,104)
Payment for redemption of stock...................... -- (3,960) --
Proceeds (payments) on notes payable -- stockholders,
net............................................... 1,236 (3,793) (8,560)
Capital contributions by stockholders................ 24,805 8,329 2,109
Collection of notes receivable -- affiliates......... 19,408 -- --
Other................................................ 3,988 (2,056) (212)
--------- -------- --------
Net cash provided by (used for) financing
activities................................... 8,904 (94,673) (89,626)
Effect of exchange rates on cash................ 535 (194) 2,759
--------- -------- --------
Net increase in cash................................... 12,181 1,558 233
Cash at beginning of period............................ 9,732 8,174 7,941
--------- -------- --------
Cash at end of period.................................. $ 21,913 $ 9,732 $ 8,174
========= ======== ========
</TABLE>
See Note 11 for supplemental disclosures to the Combined Statements of Cash
Flows.
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 168
AMF BOWLING GROUP
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED CURRENCY STOCKHOLDERS'
STOCK CAPITAL EARNINGS TRANSLATION OTHER EQUITY
------- -------- -------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993......... $ 1,536 $ 46,714 $ 45,573 $ (5,389) $ -- $ 88,434
Net income................ -- -- 99,303 -- -- 99,303
Distribution to
stockholders........... -- -- (78,170) -- -- (78,170)
Increase in equity
adjustment from foreign
currency translation... -- -- -- 2,087 -- 2,087
Capital contributions..... -- 2,109 -- -- -- 2,109
The Reece Corporation
merger................. -- 9,184 9,459 -- -- 18,643
Other..................... -- (32) -- -- -- (32)
------- -------- -------- -------- ------- ---------
Balance,
December 31, 1994......... 1,536 57,975 76,165 (3,302) -- 132,374
Net income................ -- -- 96,766 -- -- 96,766
Distribution to
stockholders........... -- -- (71,851) -- -- (71,851)
Redemption of stock....... -- (3,960) -- -- -- (3,960)
Decrease in equity
adjustment from foreign
currency translation... -- -- -- (98) -- (98)
Sale of stock............. 2 1,479 -- -- (1,479) 2
Capital contributions..... -- 8,329 -- -- -- 8,329
Other..................... -- (42) -- -- 18 (24)
------- -------- -------- -------- ------- ---------
Balance,
December 31, 1995......... 1,538 63,781 101,080 (3,400) (1,461) 161,538
Net loss.................. -- -- (11,867) -- -- (11,867)
Distribution to
stockholders........... -- -- (36,721) -- -- (36,721)
Increase in equity
adjustment from foreign
currency translation... -- -- -- 1,665 -- 1,665
Payment of notes
receivable
officer/stockholder.... -- -- -- -- 1,461 1,461
Capital contributions..... 102 187,989 -- -- -- 188,091
Other..................... (1,186) -- (190) 183 -- (1,193)
------- -------- -------- -------- ------- ---------
Balance, April 30, 1996..... $ 454 $251,770 $ 52,302 $ (1,552) $ -- $ 302,974
======= ======== ======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 169
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 1 -- ORGANIZATION
AMF Bowling Group ("the Combined Companies") consisted of the following
entities:
S CORPORATIONS
- - AMF Bowling, Inc. ("AMF Bowling")
- - AMF Bowling Centers, Inc. ("AMF Bowling Centers")
- - AMF Beverage Company of Oregon, Inc.
- - King Louis Lenexa, 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 (Hong Kong) International Inc.
- - AMF Bowling Centers International Inc. - Japan
- - AMF Bowling Mexico Holding, Inc.
- - Boliches AMF, Inc.
- - AMF Bowling Centers II Inc. - Switzerland
- - AMF BCO - U.K. One, Inc.
- - AMF BCO - U.K. Two, Inc.
- - AMF BCO - China, Inc.
- - AMF Bowling Centers China, Inc.
OTHER
- - AMF Catering Services Pty, Ltd.
- - Bush River Corporation
Pursuant to a Stock Purchase Agreement dated February 16, 1996 between AMF
Group Holdings, Inc. and the stockholders of AMF Bowling Group (the "Combined
Companies"), on May 1, 1996, AMF Group Holdings, Inc. (the "Company"), through
its subsidiaries, acquired the Combined Companies in a stock purchase of all the
outstanding stock of the separate domestic and foreign corporations that
constitute substantially all of the Combined Companies and through the purchase
of certain assets of the Combined Companies' bowling center operations in Spain
and Switzerland. Prior to the acquisition, the Combined Companies were
controlled by the Virginia Investment Trust.
The Combined Companies operated bowling centers in the United States and in
9 foreign countries and manufactured and distributed a full line of bowling and
leisure related products. The principal markets for bowling and leisure related
equipment are domestic and foreign independent bowling center operators. The
accompanying combined financial statements have been prepared for the purpose of
presenting the financial position and results of operations of the bowling
related operations of the various entities.
The Company did not acquire the assets of two bowling centers located in
Madrid, Spain and Geneva, Switzerland (both of which were retained by the
sellers) and, accordingly, the April 30, 1996 combined financial statements
exclude the assets of these centers. As a result of the acquisition, the
Company, at May 1, 1996, owns or operates 205 of the Combined Companies'
domestic bowling centers and 78 international bowling centers (205 domestic
bowling centers and 80 international bowling centers at December 31, 1995). The
purchase price for the acquisition was approximately $1,300,000, subject to
certain postclosing adjustments, less approximately $2,000
F-48
<PAGE> 170
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
representing debt of the Combined Companies which remained in place following
the closing of the acquisition (the "Closing").
The revaluation, in accordance with Accounting Principles Board Opinion No.
16, of the Combined Companies' assets and liabilities as a result of the Stock
Purchase Agreement has not been reflected in the accompanying combined financial
statements. In addition, no adjustments have been recorded to reflect any tax
liability resulting from the stock purchase and the related Section 338(h)(1)
election.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying combined financial statements have been prepared on the
accrual basis of accounting and conform in all material respects to accounting
principles generally accepted in the United States. The accompanying combined
financial statements are stated in U.S. dollars. All significant intercompany
and intracompany balances and transactions have been eliminated in the
accompanying combined financial statements.
Use of estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. The more significant estimates made by management include
allowances for obsolete inventory, uncollectible accounts receivable, product
warranty costs and litigation and claims. Actual results could differ from those
estimates.
Fiscal year
The entities included in the accompanying combined financial statements
operate on fiscal years ending on December 31, except for AMF Bowling Centers,
which operated on a 52-week period ended on the last Sunday in December during
1994, and the Fair Lanes operation which operated on a fiscal period ended on
December 29, 1994. For 1995, AMF Bowling Centers, including the acquired Fair
Lanes operation, adopted a calendar month-end; accordingly, the results of
operations for the period ended December 31, 1995 include AMF Bowling Centers'
operations for the period December 26, 1994 (December 30, 1994 with respect to
Fair Lanes operations) through December 31, 1995.
Revenue recognition
Revenue is generally recognized from the sale of products at the time the
products are shipped. For larger contract orders, the Combined Companies
generally require that customers submit a deposit as a condition of accepting
the order. For nonaffiliate international sales, the Combined Companies
generally require the customer to obtain a letter of credit prior to shipment.
Warranty costs
AMF Bowling offers warranties for its various products and provides, by a
current charge to income, an amount it estimates will be needed to cover future
warranty obligations for products
F-49
<PAGE> 171
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
sold. Warranty expense aggregated approximately $1,313 for the four months ended
April 30, 1996 and $2,748 and $4,963 for the years ended December 31, 1995 and
1994, respectively.
Cash and cash equivalents
For the purpose of the statement of cash flows, the Combined Companies
consider all highly liquid debt instruments purchased with an original maturity
of three months or less at the date of purchase to be cash equivalents.
Inventories
Manufacturing inventory is valued at the lower of cost or market, cost
being determined using the last-in, first-out ("LIFO") method for domestic
inventories and the first-in, first-out ("FIFO") method for foreign inventories.
Bowling center inventory is valued at the lower of cost or market with the
cost being determined using the actual or average cost method.
Property and equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs which do not improve or extend the life of an asset are charged to
expense as incurred; major renewals or betterments are capitalized to the
property accounts. Upon retirement or sale of an asset, its cost and related
accumulated depreciation are removed from the property accounts, and any gain or
loss is recognized.
Property and equipment are depreciated over their estimated useful lives
using straight-line and accelerated methods. Estimated useful lives of property
and equipment for financial reporting purposes are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................... 5 - 40 years
Bowling and related equipment................. 5 - 10 years
Manufacturing equipment....................... 2 - 7 years
Furniture and fixtures........................ 3 - 8 years
</TABLE>
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," ("SFAS No.
121"). SFAS No. 121 is effective for fiscal year 1996 for the Company. This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets.
The adoption of SFAS No. 121 did not have a material effect on the financial
position or results of operations of the Company.
Income taxes
Certain of the Combined Companies included in the accompanying combined
financial statements have elected S Corporation status under the Internal
Revenue Code (see Note 1). As an S Corporation, the companies may be liable for
U.S. federal income taxes under certain circumstances and liable for state
income taxes in certain jurisdictions; all other domestic income taxes are the
responsibility of the Combined Companies' stockholders.
F-50
<PAGE> 172
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The foreign branches of the S Corporations and other foreign entities file
income tax returns and pay taxes in their respective countries. The stockholders
receive a tax credit, subject to certain limitations, in their U.S. federal
income tax returns for foreign taxes paid by the foreign branches of the U.S.
Corporation and certain other foreign entities.
The Combined Companies account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," ("SFAS No. 109"). SFAS No. 109 mandates the liability method for
computing deferred income taxes. Because the Combined Companies have elected S
Corporation status, deferred income taxes are only provided with respect to
state and foreign income taxes.
Research and development costs
Expenditures relating to the development of new products, including
significant improvements and refinements to existing products, are expensed as
incurred. The amounts charged against income were approximately $875 for the
four months ended April 30, 1996 and $3,600 and $3,075 for the years ended
December 31, 1995 and 1994, respectively.
Advertising costs
Costs incurred for producing and communicating advertising are expensed
when incurred. The amounts charged against income were approximately $3,575 for
the four months ended April 30, 1996 and $12,250 and $10,400 for the years ended
December 31, 1995 and 1994, respectively.
Foreign currency
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," all assets and liabilities of the Combined
Companies' foreign operations are translated from foreign currencies into U.S.
dollars at year-end exchange rates. Revenues and expenses of foreign operations
are translated using average exchange rates that existed during the year and
reflect currency exchange gains and losses resulting from transactions conducted
in nonlocal currencies. Adjustments resulting from the translation of financial
statements of foreign operations into U.S. dollars are included in the equity
adjustment from foreign currency translation on the accompanying combined
balance sheets. Gains and losses arising from transactions in foreign currencies
are included as a separate item in the accompanying combined statement of
operations.
Fair value of financial instruments
The carrying value of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and short-term debt
approximated fair value at April 30, 1996 and December 31, 1995 because of the
short maturity of these instruments. The carrying value of long-term receivables
and payables approximated fair value as of April 30, 1996 and December 31, 1995
based upon market rates for similar instruments.
Noncompete agreements
The Combined Companies have certain noncompete agreements with individuals.
The assets are recorded at cost or at the present value of payments to be made
under these agreements, discounted at annual rates ranging from 8%-10%. The
assets are included in other current and noncurrent assets and are amortized on
a straight-line basis over the terms of the agreements. Noncompete obligations
were $3,095 at April 30, 1996 and $3,300 at December 31, 1995.
F-51
<PAGE> 173
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Common stock
The common stock account represents the aggregate number of shares
outstanding for all the Combined Companies multiplied by the respective par
value at each of the Combined Companies.
NOTE 3 -- RELATED PARTY TRANSACTIONS
The Combined Companies had related party transactions with several
companies which are affiliated through common ownership and with certain of its
officers, directors and stockholders. The majority of balances with affiliated
companies were liquidated on or prior to April 30, 1996. Interest income and
expense during the four months ended April 30, 1996 were not significant to the
operating results of the Combined Companies. A summary of the significant
balances and transactions with related parties follows.
Accounts and notes receivable -- affiliates, including accrued interest, at
April 30, 1996 and December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- -------------
<S> <C> <C>
Accounts receivable -- affiliates................... $ 166 $ 2,084
===== =========
Notes receivable -- AMF Reece....................... $ -- $ 12,910
Notes receivable -- stockholders.................... -- 11,130
Note receivable -- AMF Machinery Systems
("AMS")........................................... -- 796
----- ---------
-- 24,836
Current maturities.................................. -- (1,895)
----- ---------
$ -- $ 22,941
===== =========
</TABLE>
Notes receivable -- AMF Reece represented various notes, plus accrued and
unpaid interest income, between AMF Bowling and AMF Reece, an affiliated
company. The notes earned interest monthly based on the LIBOR rate plus .75%,
which was 6.48% at December 31, 1995. Interest income was $762 for the year
ended December 31, 1995.
Notes receivable -- stockholders represented notes of $9,394 plus accrued
and unpaid interest income, between the Combined Companies and its stockholders.
Interest on the notes was at the LIBOR plus .75% rate, which was 6.48% at
December 31, 1995. Interest income for the years ended December 31, 1995 and
1994 was $602 and $70, respectively.
F-52
<PAGE> 174
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Accounts and notes payable -- affiliates at April 30, 1996 and December 31,
1995 consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- -------------
<S> <C> <C>
Accounts payable -- stockholders.................... $-- $ 322
Accounts payable -- AMS............................. -- 1,619
Accounts payable -- CCA Industries.................. -- 48
--- ---------
$-- $ 1,989
=== =========
Notes payable -- stockholders....................... $-- $ 117,022
Note payable -- Fair Lanes, Inc..................... -- 24,096
Notes payable -- AMS................................ -- 5,609
Capital lease obligations -- Commonwealth
Leasing Corporation ("CLC")....................... -- --
--- ---------
-- 146,727
Current maturities.................................. -- --
--- ---------
Long-term portion................................... $-- $ 146,727
=== =========
</TABLE>
Notes payable -- stockholders included $88,323, plus accrued and unpaid
interest, at December 31, 1995 of 9.5% of Fair Lanes, Inc. ("Fair Lanes") notes
which were acquired by certain stockholders in conjunction with the acquisition
of Fair Lanes. A portion of the notes were acquired by the stockholders as a
result of the plan of reorganization (Note 14). The note balance included
interest from the period July 15, 1994 through January 15, 1995 which was paid
through the issuance of additional notes. The notes were assumed by AMF Bowling
Centers in connection with the acquisition of the assets of Fair Lanes on July
2, 1995. The notes, originally payable in 2001, were paid prior to April 30,
1996, pursuant to the purchase of the Combined Companies. Interest expense for
the years ended December 31, 1995 and 1994 was approximately $8,053 and $1,900,
respectively.
Notes payable -- stockholders included $16,773, plus accrued and unpaid
interest, on a $60,000 revolving line of credit between AMF Bowling Centers and
its stockholders which originally matured on December 31, 1998. The notes were
repaid on or prior to April 30, 1996, pursuant to the purchase of the Combined
Companies. Interest on the notes was at the lesser of the prime rate or the
LIBOR rate plus 0.50% (6.23% at December 31, 1995). The note was repaid on or
prior to April 30, 1996, pursuant to the purchase of the Combined Companies.
Interest expense on these notes was $562 and $1,922 for the years ended December
31, 1995 and 1994, respectively.
Also, included in notes payable -- stockholders was a $1,943 note, plus
accrued and unpaid interest, which represented the balance outstanding on a
$16,000 revolving line of credit between AMF Bowling and its stockholders.
Interest on the note was at the prime rate (8.50% at December 31, 1995). The
note was repaid on or prior to April 30, 1996, pursuant to the purchase of the
Combined Companies. Interest expense on this note was $179 for the year ended
December 31, 1995.
The average amount outstanding under the various lines of credit was $7,865
during fiscal 1995 and $34,733 during fiscal 1994. The maximum amount
outstanding under these agreements was $21,246 during fiscal 1995 and $43,403
during fiscal 1994. The average interest rate on the outstanding debt was 7.5%
during fiscal 1995 and 5.56% during fiscal 1994.
F-53
<PAGE> 175
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Note payable -- Fair Lanes related to the acquisition of Fair Lanes net
assets by AMF Bowling Centers from the AMF stockholders. Interest on the note
was at prime (8.50% at December 31, 1995). The note, originally payable on
December 31, 1998, was repaid on or prior to April 30, 1996, pursuant to the
purchase of the Combined Companies. Interest expense for the year ended December
31, 1995 was $1,187.
The notes payable of $5,609 to AMS consisted of various notes plus accrued
and unpaid interest (at 8.5%-11%) and were payable on demand. The notes were
repaid on or prior to April 30, 1996, pursuant to the purchase of the Combined
Companies. Interest expense on these notes was $417 and $380 for the years ended
December 31, 1995 and 1994, respectively.
Other related party transactions
The Combined Companies were charged $512 for the four months ended April
30, 1996 and $1,622 and $1,198 for the years ended December 31, 1995 and 1994,
respectively, in management fees for certain consulting and administrative
services performed by affiliated companies.
In May 1995, the Combined Companies began purchasing health insurance from
CCA Industries, an affiliated company, on a fully insured basis. Total premiums
for the four months ended April 30, 1996 were $411 and for the period from May
1995 to December 31, 1995 aggregated $889.
During the year ended December 31, 1995, Fair Lanes acquired equipment
which was leased from Commonwealth Leasing Corporation ("CLC"), an affiliated
company, for $1,367. The difference between the capitalized lease obligation and
the purchase price was treated as an adjustment of the notes payable -- Fair
Lanes.
The Combined Companies purchased used bowling equipment from CLC for $1,429
and $984 during the years ended 1995 and 1994, respectively.
The Combined Companies charged service fees and sales commissions of $53
and $126 for the years ended December 31, 1995 and 1994, respectively, to
Commonwealth Leasing Corporation, an affiliated company. These charges have been
treated as reductions in selling, general and administrative expenses.
The Combined Companies lease equipment from CCA Financial, an affiliated
company. Rent expense was $203 for the four months ended April 30, 1996 and $444
and $550 for the years ended December 31, 1995 and 1994, respectively.
NOTE 4 -- INVENTORIES
Inventories at April 30, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials....................................... $ 10,325 $ 10,590
Work-in-progress.................................... 2,084 1,522
Finished goods and spare parts...................... 28,661 24,920
Merchandise inventory............................... 3,033 4,045
-------- --------
44,103 41,077
Inventory valuation reserves........................ (807) (1,256)
-------- --------
$ 43,296 $ 39,821
======== ========
</TABLE>
F-54
<PAGE> 176
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Inventories were determined using the following methods at April 30, 1996
and December 31, 1995:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
LIFO (Domestic manufacturing)....................... $ 27,128 $ 24,389
FIFO (Foreign manufacturing)........................ 13,135 11,387
Other (Merchandise inventory)....................... 3,033 4,045
-------- --------
$ 43,296 $ 39,821
======== ========
</TABLE>
If LIFO inventories had been valued at current costs, they would have been
greater by $2,527 at April 30, 1996 and $2,496 at December 31, 1995.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment at April 30, 1996 and December 31, 1995 consist of
the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Land............................................ $ 25,891 $ 25,692
Buildings and improvements...................... 143,147 138,448
Equipment, furniture and fixtures............... 256,308 251,936
Construction in progress........................ 110 1,925
--------- ----------
425,456 418,001
Less: accumulated depreciation and
amortization.................................. (173,912) (158,277)
--------- ----------
$ 251,544 $ 259,724
========= ==========
</TABLE>
Depreciation expense was $14,523 for the four months ended April 30, 1996
and $37,889 and $23,184 for the years ended December 31, 1995 and 1994,
respectively.
NOTE 6 -- ACCRUED EXPENSES AND DEPOSITS
Accrued expenses and deposits at April 30, 1996 and December 31, 1995
consist of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Accrued compensation................................ $ 9,714 $ 7,152
League bowling accounts............................. 3,776 6,368
Other............................................... 21,426 16,808
-------- --------
$ 34,916 $ 30,328
======== ========
</TABLE>
F-55
<PAGE> 177
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 7 -- LONG-TERM DEBT
Long-term debt at April 30, 1996 and December 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Notes payable to bank -- guaranteed.................. $ -- $ 3,764
Mortgage and equipment notes......................... 1,968 14,469
Industrial development bond.......................... -- 1,354
Other................................................ -- 1,047
------- --------
1,968 20,634
Current maturities................................... (10) (1,084)
------- --------
Long-term portion.................................... $ 1,958 $ 19,550
======= ========
</TABLE>
Notes payable to bank -- guaranteed represented a credit agreement entered
into between AMF Bowling Centers and a bank under which up to $32,750 could be
borrowed. An additional $25,000 could be borrowed from one or more additional
financial institutions. Interest was payable at a rate equal to the lesser of
the prime rate or the LIBOR rate plus .50% (6.23% at December 31, 1995). The
notes were secured by certain tangible personal property of AMF Bowling Centers
and were guaranteed by certain stockholders. The agreement also required AMF
Bowling Centers to meet certain financial covenants, including maximum debt to
equity ratios, minimum tangible net worth requirements and minimum earnings to
charge ratios. At December 31, 1995, AMF Bowling Centers was in violation of
certain requirements which were subsequently waived by the bank through March
31, 1997. The notes payable were repaid on or prior to April 30, 1996, pursuant
to the purchase of the Combined Companies.
The mortgage and equipment notes were secured by first deeds of trust on
various bowling centers. The notes generally required monthly payments and
matured at various times through October 2008. Interest rates on these notes
were generally fixed and ranged from 3% to 12%. The notes were repaid on or
prior to April 30, 1996, except for one.
The Industrial Development Bond was secured by a first deed of trust on one
of the bowling centers. Interest on the bond was at a fluctuating rate based on
the prime rate of the lending bank (6.947% at December 31, 1995). Monthly
principal and interest payments were originally due through August 2001. The
bond was repaid on or prior to April 30, 1996, pursuant to the purchase of the
Combined Companies.
AMF Bowling had an agreement with a bank under which up to $15,000 could be
borrowed. This arrangement expired on April 30, 1996. There were no borrowings
at December 31, 1995 under the agreement. Interest was payable monthly at the
lower of the bank's prime rate or the adjusted LIBOR plus 0.50% (6.23% at
December 31, 1995). This agreement required certain financial covenants to be
met, including maximum debt to equity ratios, minimum tangible net worth
requirements and minimum earnings to charge ratios.
AMF Bowling had a $3,500 revolving credit line with a bank which was due to
expire on June 30, 1996. No balance was outstanding at December 31, 1995.
Interest on outstanding borrowings was payable quarterly at the lower of the
bank's prime interest rate or the adjusted LIBOR rate plus 0.50% (6.23% at
December 31, 1995). Under this line were two standby letters of credit with
amounts outstanding at December 31, 1995 of $1,138, expiring on December 1,
1996, and of $12 expiring on August 19, 1996.
F-56
<PAGE> 178
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The average amount outstanding under the various lines of credit was
$21,807 during fiscal 1995 and $4,801 during fiscal 1994. The maximum amount
outstanding under these credit arrangements was $39,454 during fiscal 1995 and
$27,334 during fiscal 1994. The average interest rate on these credit
arrangements was 6.43% during fiscal 1995 and 6.06% during fiscal 1994.
AMF Bowling had available a foreign exchange line of $5,000 and a letter of
credit line of $1,000. No balances were outstanding at December 31, 1995. One
standby letter of credit with an amount at December 31, 1995 of $535, which
expired on January 18, 1996, and four import letters of credit totaling $142
were outstanding under these lines.
NOTE 8 -- INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
United States.......................... $ (7,757) $ 77,931 $ 75,807
Foreign................................ (5,841) 30,933 39,948
---------- -------- --------
$ (13,598) $108,864 $115,755
========= ======== ========
</TABLE>
The income tax benefit (provision) consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
CURRENT TAX BENEFIT (PROVISION)
U.S. federal........................... $ -- $ -- $ --
State and local........................ 205 (1,065) (481)
Foreign................................ 1,940 (11,961) (15,450)
------- -------- --------
Total current.......................... 2,145 (13,026) (15,931)
------- -------- --------
DEFERRED TAX BENEFIT (PROVISION)
U.S. federal........................... -- -- --
State and local........................ -- 32 --
Foreign................................ (414) 896 (521)
------- -------- --------
Total deferred......................... (414) 928 (521)
------- -------- --------
Total benefit (provision).............. $ 1,731 $(12,098) $(16,452)
======= ======== ========
</TABLE>
F-57
<PAGE> 179
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Current assets...................................... $ 815 $ 1,198
Noncurrent assets................................... 799 799
-------- --------
Total deferred tax assets........................... 1,614 1,997
-------- --------
DEFERRED TAX LIABILITIES
Noncurrent liabilities.............................. (1,429) (1,998)
-------- --------
Total deferred tax liabilities...................... (1,429) (1,998)
-------- --------
Net deferred tax assets (liabilities)............... $ 185 $ (1)
======== ========
</TABLE>
The primary determination of the deferred tax assets are book accruals not
deductible for tax purposes, such as the allowance for bad debts, inventory
reserves and various other accruals. Deferred tax liabilities are a result of
accelerated depreciation methods used for tax purposes.
The benefit (provision) for income taxes differs from the amount computed
by applying the statutory rate of 35% for the four months ended April 30, 1996
and the years ended December 31, 1995 and 1994 to income (loss) before income
taxes. The principal reasons for this difference are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Tax benefit (provision) at
federal statutory rate................ $ 4,759 $(38,102) $(40,514)
(Increase) decrease in rates resulting
from:
S Corporation election for U.S.
federal tax purposes............... (4,759) 38,102 40,514
State and local taxes................. 205 (1,033) (481)
Foreign income taxes.................. 1,526 (11,065) (15,971)
-------- -------- --------
Total................................. $ 1,731 $(12,098) $(16,452)
======== ======== ========
</TABLE>
Pro forma provision for income taxes (unaudited)
As a result of the Stock Purchase Agreement, the Combined Companies will no
longer be treated as an S Corporation for income tax purposes in the United
States and in certain state jurisdictions.
Accordingly, the combined statements of operations include a pro forma
adjustment for income taxes which would have been recorded if the Combined
Companies had not been an S Corporation, based on tax laws in effect during
these periods. The pro forma adjustment was computed separately for each entity
and then combined, except for purposes of computing the utilization of foreign
tax credits related to the worldwide bowling center operations, the domestic and
worldwide bowling center operations were considered in the aggregate.
F-58
<PAGE> 180
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Pro forma income tax benefit (provision) is as follows:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT
U.S. federal......................... $ 3,222 $(26,404) $(24,368)
State and local...................... 329 (3,491) (3,730)
Foreign.............................. 1,940 (11,961) (15,450)
------- -------- --------
Total current........................ 5,491 (41,856) (43,548)
------- -------- --------
DEFERRED
U.S. federal......................... (85) 317 979
State and local...................... 73 27 118
Foreign.............................. (414) 896 (521)
------- -------- --------
Total deferred....................... (426) 1,240 576
------- -------- --------
Total provision (benefit)............ $ 5,065 $(40,616) $(42,972)
======= ======== ========
</TABLE>
Temporary differences and carryforwards which give rise to pro forma
deferred tax assets and liabilities at April 30, 1996 and December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
DEFERRED TAX ASSETS
Current assets.................................. $ 3,851 $ 6,178
Noncurrent assets............................... 192 7,124
------- -------
Total deferred tax assets....................... 4,043 13,302
------- -------
DEFERRED TAX LIABILITIES
Noncurrent liabilities.......................... (6,170) (2,707)
------- -------
Total deferred tax liabilities.................. (6,170) (2,707)
------- -------
Net deferred tax liabilities.................... $(2,127) $ 10,595
======= =======
</TABLE>
Pro forma deferred income taxes relate primarily to timing differences
between financial and income tax reporting for depreciation and certain accruals
which are not currently deductible for income tax purposes.
F-59
<PAGE> 181
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
A reconciliation of the Combined Companies' pro forma United States income
tax benefit (provision) computed by applying the statutory United States federal
income tax rate of 35% to the Combined Companies' income (loss) before income
taxes is presented in the following table:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Tax benefit (provision) at federal
statutory rate..................... $ 4,759 $(38,102) $(40,514)
(Increase) decrease in rates
resulting from:
State and local taxes, net......... 402 (2,272) (2,304)
Foreign income taxes............... 1,526 (11,065) (15,971)
Foreign tax credits................ (1,526) 11,065 15,971
Other business credits............. -- -- 79
Nondeductible items................ (91) (171) (134)
Environmental tax.................. -- (102) (103)
Other.............................. (5) 31 4
------- -------- --------
$ 5,065 $(40,616) $(42,972)
======= ======== ========
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Leases
The Combined Companies lease certain facilities and equipment under
operating leases which expire at various dates through 2011. These leases
generally contain renewal options and require the Combined Companies to pay
taxes, insurance, maintenance and other expenses in addition to the minimum
annual rentals. Certain leases require contingent payments based on usage of
equipment above certain specified levels. Such contingent rentals amounted to
$293 for the four months ended April 30, 1996 and $1,517 and $1,275 for the
years ended December 31, 1995 and 1994, respectively.
Future minimum rental payments under the operating lease agreements are as
follows:
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31,
-----------------------------------------------
<S> <C>
1996 (eight months)............................ $ 15,200
1997........................................... 14,900
1998........................................... 12,800
1999........................................... 10,900
2000........................................... 8,900
Thereafter..................................... 49,600
--------
$112,300
========
</TABLE>
Total rent expense under operating leases aggregated approximately $7,487
for the four months ended April 30, 1996 and $19,250 and $15,650 for the years
ended December 31, 1995 and 1994, respectively.
F-60
<PAGE> 182
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Litigation and claims
AMF Bowling's Pins and Lanes division was the defendant in an
administrative proceeding related to a labor dispute. This claim was resolved in
favor of the division during 1995 and the related reserve of approximately
$1,100 was reversed.
AMF Bowling terminated its Korean distributorship agreement. The Korean
distributor filed suit against the company in Korea seeking an injunction
against AMF Bowling's Seoul Korea branch to prevent AMF Bowling from selling
bowling and bowling related products in Korea. The Korean Court dismissed the
suit on jurisdiction grounds subsequent to year-end. Such a decision is subject
to an appeal.
On January 10, 1996, the Korean distributor filed a second suit in the
Supreme Court of the State of New York against AMF Bowling and AMF Bowling
Centers. 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 and punitive damages of at
least $100,000 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 AMF Bowling and AMF Bowling Centers are
without merit. Management intends to vigorously defend against this claim. Under
terms of the sale agreement (Note 1), the current AMF shareholders have agreed
to indemnify the buyers 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 System, Court of Common Pleas, Centre County, Pa. (Index
No. 96-75), asserted a third-party claim against 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, 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 two patent infringement suits. The plaintiff in
the first case, a competitor of AMF Bowling's Century division, obtained a
summary judgment on the issue of liability 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 to $9,000. 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.
The second patent infringement suit relates to AMF Bowling's Pins and Lanes
division. Management has settled this claim for $250 during the four months
ended April 30, 1996.
AMF Bowling Centers 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 plus $3,000 in punitive damages. However, the plaintiff's counsel has
verbally offered to settle the case for $350. Management believes the claim is
without merit and expects to vigorously contest the claim.
F-61
<PAGE> 183
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
In addition, the Combined Companies are involved in certain other lawsuits
and claims arising out of normal business operations. The majority of these
relate to accidents at the Combined Companies' bowling centers. Management
believes that the ultimate resolution of such matters will not materially affect
the Combined Companies' results of operations or financial position.
While the ultimate outcome of the litigation and claims against the
Combined Companies cannot presently be determined, management believes the
Combined Companies have made adequate provision for possible losses. At April
30, 1996 and December 31, 1995, the Combined Companies had recorded reserves
aggregating approximately $2,900 and $2,800, respectively, for litigation and
claims.
NOTE 10 -- EMPLOYEE BENEFIT PLANS AND BONUS
The Combined Companies have a defined contribution 401(k) plan to which
domestic employees may make voluntary contributions based on their compensation.
Under the provisions of the plan, the Combined Companies can, at their option,
match a discretionary percentage of employee contributions and make an
additional contribution as determined by their Board of Directors. Contributions
vest 100% after a five-year period. The amounts charged to expense under this
plan were approximately $410 for the four months ended April 30, 1996 and $1,122
and $901 for the years ended December 31, 1995 and 1994, respectively.
One of the Combined Companies has a Stock Performance Plan (the "Plan") for
certain key employees. Under the terms of the Plan, eligible employees earn
Stock Performance Units as a result of the Company meeting certain operating
performance conditions, as defined by the Plan, relating to (1) sales, (2) cash
flow and (3) operating results. Benefits under the Plan vest over a five-year
period and will be paid in installments over a ten-year period without interest
(or less if specified by the Company's Board of Directors) upon the termination
of an eligible employee. The Plan can be terminated or amended at any time by
the Company's Board of Directors. The amount charged to expense under this plan
was approximately $1,479 for the four months ended April 30, 1996 and $622 and
$311 for the years ended December 31, 1995 and 1994, respectively. The agreement
contains a provision which would accelerate the payout of the benefits from ten
years to five years upon a change-of-control event and would require that
interest be paid on the unpaid balance. On April 30, 1996, the Combined
Companies made payments of $3,085 related to these plans and the plans were
terminated.
Certain of the Combined Companies' foreign operations have employee benefit
plans covering selected employees. These plans vary as to the funding, including
local government, employee and employer funding. Each company has provided
pension expense and made contributions to these plans in accordance with the
requirements of the plans and local country practices. The amounts charged to
expense under these plans aggregated $291 for the four months ended April 30,
1996 and $806 and $701 for the years ended December 31, 1995 and 1994.
On April 30, 1996, the Combined Companies paid bonuses and special payments
to employees, former employees and former directors of $43,760 in recognition of
their services.
F-62
<PAGE> 184
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 11 -- SUPPLEMENTAL DISCLOSURES TO THE COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, -------------------
1996 1995 1994
----------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest....................................... $ 12,862 $ 5,909 $ 4,306
Income taxes................................... $ 5,359 $16,922 $17,593
Noncash capital contribution by the stockholders:
Debt forgiveness............................... $ 163,184 $ -- $ --
</TABLE>
NOTE 12 -- 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 four months ended April
30, 1996 and the years ended December 31, 1995 and 1994 and identifiable assets
at April 30, 1996 and December 31, 1995 are presented below:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers
Bowling centers
Domestic.................................. $ 75,000 $192,400 $121,600
International............................. 33,500 99,900 103,800
Manufacturing................................ 56,400 272,600 292,400
--------- -------- --------
$ 164,900 $564,900 $517,800
========= ======== ========
Intersegment sales
Bowling centers
Domestic.................................. $ -- $ -- $ --
International............................. -- -- --
Manufacturing................................ 4,600 13,900 9,300
--------- -------- --------
$ 4,600 $ 13,900 $ 9,300
========= ======== ========
Operating (loss) income
Bowling centers
Domestic.................................. $ 3,600 $ 26,500 $ 17,600
International............................. (2,500) 23,700 26,400
Manufacturing................................ (9,600) 75,700 80,900
Eliminations................................. (500) (1,500) (200)
--------- -------- --------
$ (9,000) $124,400 $124,700
========= ======== ========
</TABLE>
F-63
<PAGE> 185
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Identifiable assets
Bowling centers
Domestic.................................. $ 218,300 $224,500
International............................. 65,400 64,600
Manufacturing................................ 101,500 119,800
Eliminations................................. (10,000) (8,500)
--------- --------
$ 375,200 $400,400
========= ========
Depreciation and amortization expense
Bowling centers
Domestic.................................. $ 11,800 $ 29,100 $ 14,700
International............................. 2,500 7,500 7,100
Manufacturing................................ 1,200 3,600 3,700
Eliminations................................. (400) (1,000) (700)
--------- -------- --------
$ 15,100 $ 39,200 $ 24,800
========= ======== ========
Capital expenditures
Bowling centers
Domestic.................................. $ 5,100 $ 17,800 $ 10,400
International............................. 2,300 10,200 4,300
Manufacturing................................ 400 4,500 4,100
Eliminations................................. (900) (2,500) (1,000)
--------- -------- --------
$ 6,900 $ 30,000 $ 17,800
========= ======== ========
</TABLE>
F-64
<PAGE> 186
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 13 -- GEOGRAPHIC SEGMENTS
Information about the Combined Companies' operations in different
geographic areas for the four months ended April 30, 1996 and the years ended
December 31, 1995 and 1994 and identifiable assets at April 30, 1996 and
December 31, 1995 are presented below:
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Net operating revenue:
United States................................ $ 103,800 $371,400 $296,300
Japan........................................ 13,700 50,300 58,200
Hong Kong.................................... 14,000 40,800 55,100
Korea........................................ 5,800 6,000 --
Australia.................................... 14,700 47,100 43,900
United Kingdom............................... 7,300 26,100 27,600
Mexico....................................... 2,100 7,800 15,300
Sweden....................................... 1,200 10,000 9,700
Canada....................................... 300 600 700
Spain........................................ 1,000 2,700 2,600
Other European countries..................... 5,200 16,000 17,700
China........................................ 400 -- --
Eliminations................................. (4,600) (13,900) (9,300)
--------- --------- ---------
$ 164,900 $564,900 $517,800
========= ========= =========
</TABLE>
Net operating revenues for the United States manufacturing operation has
been reduced by approximately $21,500 for the four months ended April 30, 1996
and $61,000 and $69,200 for the years ended December 31, 1995 and 1994,
respectively, to reflect the elimination of intercompany sales between the
domestic manufacturing operation and the manufacturing foreign sales and service
branches.
F-65
<PAGE> 187
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED
ENDED DECEMBER 31,
APRIL 30, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Operating (loss) income
United States................................ $ (2,900) $ 92,200 $ 83,300
Japan........................................ (1,400) 8,800 13,300
Hong Kong.................................... 800 6,200 5,200
Korea........................................ (300) (1,200) --
Australia.................................... (1,300) 13,300 12,000
United Kingdom............................... (1,100) 2,400 3,700
Mexico....................................... (200) 1,500 4,300
Sweden....................................... (500) 1,500 1,700
Canada....................................... -- -- --
Spain........................................ (100) (100) 300
Other European countries..................... (1,300) 1,300 1,100
China........................................ (200) -- --
Eliminations................................. (500) (1,500) (200)
--------- --------- ---------
$ (9,000) $124,400 $124,700
========= ========= =========
</TABLE>
Operating (loss) income for the United States manufacturing operation has
been reduced by approximately $1,300 for the four months ended April 30, 1996
and $900 and $1,600 for the years ended December 31, 1995 and 1994,
respectively, to reflect the elimination of intercompany gross profit between
the domestic manufacturing operation and the manufacturing foreign sales and
service branches.
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Identifiable assets
United States........................................... $ 290,400 $311,300
Japan................................................... 17,200 22,100
Hong Kong............................................... 7,700 8,500
Korea................................................... 4,500 2,900
Australia............................................... 34,800 31,600
United Kingdom.......................................... 12,200 11,800
Mexico.................................................. 5,100 4,500
Sweden.................................................. 2,200 2,600
Canada.................................................. 900 1,200
Spain................................................... 200 2,000
Other European countries................................ 7,700 8,400
China................................................... 2,300 2,000
Eliminations............................................ (10,000) (8,500)
--------- ---------
$ 375,200 $400,400
========= =========
</TABLE>
Identifiable assets for the foreign sales and service branches have been
reduced by approximately $5,700 at April 30, 1996 and $4,400 at December 31,
1995 to reflect the elimination of
F-66
<PAGE> 188
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
intercompany gross profit in inventory between the domestic manufacturing
operations and the manufacturing foreign sales and service branches.
NOTE 14 -- BUSINESS COMBINATIONS
Effective December 31, 1994, The Reece Corporation, a related company, was
merged into AMF Bowling. The merger was accounted for at historical cost as a
capital contribution. The Reece Corporation activities for 1995 and 1994 were
not material to the combined financial statements.
Effective August 31, 1994, AMF Bowling acquired certain assets and
liabilities of Legendary Billiards, Inc. ("Legendary") for $215. Legendary is a
manufacturer of billiard cues. The acquisition was accounted for under the
purchase method, and the results of operations are included in the financial
statements from the date of acquisition.
Pro forma results of operations for the Legendary acquisition have not been
presented because the effects of this acquisition were not material.
Fair Lanes, Inc. ("Fair Lanes") operated 106 bowling centers in the United
States and Puerto Rico. On June 22, 1994, Fair Lanes and its parent Fair Lanes
Entertainment, Inc. ("FLE"), each filed voluntary petitions for relief under
Chapter 11 of Title 11 of the United States Code ("Chapter 11"). Fair Lanes'
operating subsidiaries did not file for Chapter 11 protection. At the time of
filing, liabilities subject to compromise consisted of Fair Lanes' $138,000
senior secured notes, which were publicly traded, and FLE's debt in the form of
$48,000 variable rate and zero coupon notes (these notes were also publicly
traded). The Bankruptcy Court approved the plan of reorganization effective
September 29, 1994 whereby the holders of FLE's $48,000 of notes received
approximately 6% of Fair Lanes' equity and the holders of Fair Lanes' $138,000
of notes received approximately 94% of Fair Lanes' equity and $90,350 of new
9.5% notes. The former Fair Lanes' equityholders' interests were eliminated as a
result of the reorganization. Through September 29, 1994, AMF's shareholders had
purchased old Fair Lanes' and FLE's notes which resulted in the AMF shareholders
obtaining approximately 56% of the voting shares of Fair Lanes. One other
shareholder held approximately 35% of the new stock and the remaining 9% was
held by other shareholders. The AMF shareholders were able to acquire the shares
held by the 35% shareholder on January 7, 1996 and an additional 2% of the
shares from other shareholders in open market purchases. On February 7, 1996,
the AMF shareholders affected a cash merger and bought out the remaining
shareholders.
The Fair Lanes' acquisition was accounted for as a purchase. As a result of
the relatively short acquisition period and the fact that the minority
shareholders' interest was not affected for losses during the acquisition
period, the combined financial statements include the results of operations for
periods subsequent to September 29, 1994.
The assets acquired and liabilities assumed were recorded at their
estimated fair value as follows:
<TABLE>
<S> <C>
Current assets.................................. $ 3,059
Property and equipment.......................... 141,785
Other assets.................................... 12,643
Current liabilities............................. (22,672)
Long-term liabilities........................... (116,174)
----------
Purchase price.................................. $ 18,641
==========
</TABLE>
F-67
<PAGE> 189
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The following summary presents unaudited pro forma combined results of
operations as if the acquisition of Fair Lanes occurred at the beginning of
1994, and includes adjustments related to depreciation of fixed assets and
interest expense on debt assuming the initial purchase price allocation occurred
as of January 1, 1994. In addition, expenses related to the Chapter 11
reorganization have been eliminated. The pro forma results are for illustrative
purposes only, and do not purport to be indicative of the actual results which
would have occurred had the transaction been consummated as of January 1, 1994,
nor are they indicative of future results of operations. The pro forma results
do not reflect changes in the business which have occurred subsequent to the
date of acquisition.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Operating revenue............................ $590,459
Operating income............................. 113,411
Income before income taxes................... 94,949
</TABLE>
F-68
<PAGE> 190
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 15 -- STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 30, 1996
------------------------------------------------------------------------------------------------
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
ISSUED AND COMMON PAID IN RETAINED CURRENCY STOCKHOLDERS'
AUTHORIZED OUTSTANDING STOCK CAPITAL EARNINGS TRANSLATION OTHER EQUITY
---------- ------------ ------ -------- -------- ------------ ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMF Bowling, Inc. ...... 10,000 950.6689 $ 1 $ 51,778 $15,639 $ 593 $-- $ 68,011
AMF Bowling Centers,
Inc. ................. 15,000 9,485.1000 9 183,780 8,825 -- -- 192,614
AMF Beverage Company of
Oregon, Inc........... 10,000 94.8510 -- -- -- -- -- --
King Louie Lenexa,
Inc. ................. 30,000 94.8510 -- -- -- -- -- --
AMF Catering Services
Pty Ltd. ............. 100,000 100,000.0000 82 -- -- -- -- 82
AMF Bowling Centers
(Aust) International,
Inc. ................. 10,000 948.5100 1 492 24,327 1,645 -- 26,465
AMF Bowling Centers
(Canada)
International,
Inc. ................. 10,000 948.5100 1 2,109 (1,238) 85 -- 957
AMF BCO - France One,
Inc. ................. 10,000 1,000.0000 1 220 533 (93) -- 661
AMF BCO - France Two,
Inc. ................. 10,000 1,000,0000 1 595 1,440 (250) -- 1,786
AMF Bowling Centers
(Hong Kong)
International,
Inc. ................. 10,000 948.5100 1 532 2,175 -- -- 2,708
AMF Bowling Centers
International, Inc. -
Japan................. 10,000 9,485.1000 10 1,210 4,446 505 -- 6,171
AMF Bowling Mexico
Holding, Inc. ........ 1,000 75.6972 322 1,856 2,563 (3,056) -- 1,685
Boliches AMF, Inc. ..... 10,000 100.0000 1 493 682 (814) -- 362
AMF Bowling Centers II
Inc. - Switzerland.... -- -- 205 171 -- 376
AMF BCO - U.K.
One, Inc. ............ 10,000 100.0000 1 1,597 (350) (86) -- 1,162
AMF BCO - U.K.
Two, Inc. ............ 10,000 100.0000 1 4,357 (956) (235) -- 3,167
AMF BCO - China,
Inc. ................. 10,000 1,000.0000 1 577 (159) (4) -- 415
AMF Bowling Centers
China, Inc. .......... 10,000 1,000.0000 1 2,174 (600) (13) -- 1,562
Bush River Corporation.. 100,000 18,895.1919 20 -- -- -- -- 20
Eliminations............ -- -- -- -- (5,230) -- -- (5,230)
---- -------- ------- -------- --- --------
Totals............................................. $454 $251,770 $52,302 $ (1,552) $-- $302,974
==== ======== ======= ======== === ========
</TABLE>
F-69
<PAGE> 191
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------------------------------
NOTES
RECEIVABLE TOTAL
ISSUED AND COMMON PAID IN RETAINED DEFERRED STOCK STOCKHOLDERS'
AUTHORIZED OUTSTANDING STOCK CAPITAL EARNINGS TRANSLATION SUBSCRIPTION EQUITY
---------- ----------- ------ ------- -------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMF Bowling, Inc. ... 10,000 950.6689 $ 1 $28,213 $ 54,463 $ 593 $ -- $ 83,270
AMF Bowling Centers,
Inc. .............. 15,000 9,485.1000 9 29,122 13,436 -- (726) 41,841
AMF Beverage Company
of Oregon, Inc. ... 10,000 94.8510 -- -- 382 -- -- 382
King Louie Lenexa,
Inc. .............. 30,000 94.8510 -- -- 859 -- -- 859
AMF Bowling Centers
(Aust)
International,
Inc. .............. 10,000 948.5100 1 492 25,251 (74) (503) 25,167
AMF Bowling Centers
(Canada)
International,
Inc. .............. 10,000 948.5100 1 2,109 (1,286) 85 -- 909
AMF BCO - France One,
Inc. .............. 10,000 1,000.0000 1 31 681 (44) -- 669
AMF BCO - France Two,
Inc. .............. 10,000 1,000,0000 1 83 1,842 (119) -- 1,807
AMF Bowling Centers
(Hong Kong)
International,
Inc. .............. 10,000 948.5100 1 57 2,420 -- (62) 2,416
AMF Bowling Centers
International,
Inc. - Japan....... 10,000 9,485.1000 10 156 4,285 611 (170) 4,892
AMF Bowling Mexico
Holding, Inc. ..... 1,000 75.6972 1,507 226 2,753 (3,258) -- 1,228
Boliches AMF,
Inc. .............. 10,000 100.0000 1 60 814 (815) -- 60
AMF Bowling Centers
II Inc. -
Switzerland........ 1,000 100.0000 1 -- 617 61 -- 679
AMF BCO - U.K. One,
Inc. .............. 10,000 100.0000 1 129 (186) (113) -- (169)
AMF BCO - U.K. Two,
Inc. .............. 10,000 100.0000 1 352 (509) (310) -- (466)
AMF BCO - China,
Inc. .............. 10,000 1,000.0000 1 577 (97) (4) -- 477
AMF Bowling Centers
China, Inc. ....... 10,000 1,000.0000 1 2,174 (367) (13) -- 1,795
Bush River
Corporation........ 100,000 18,895.1919 -- -- 230 -- -- 230
Eliminations......... -- -- -- -- (4,508) -- -- (4,508)
--
------ ------- -------- ------- -------- --------
Totals......................................... $1,538 $63,781 $101,080 $(3,400) $ (1,461) $161,538
====== ======= ======== ======= ======== ========
</TABLE>
F-70
<PAGE> 192
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 16 -- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On February 16, 1996, the stockholders of the Combined Companies executed a
Stock Purchase Agreement, subject to certain closing conditions, to sell the
stock and certain assets of the individual companies to AMF Group Holdings,
Inc., through its subsidiaries. On May 1, 1996, the sale transaction was
completed.
In conjunction with the acquisition of the Combined Companies, AMF Group
Inc., a subsidiary of AMF Group Holdings, Inc., issued Senior Subordinated Notes
and Senior Subordinated Discount Notes on March 21, 1996. On May 1, 1996, AMF
Group Inc. executed a bank credit agreement and certain additional subsidiaries
of AMF Group Inc. became guarantors of the Senior Subordinated Notes and the
Senior Subordinated Discount Notes. These financing arrangements provide for
guarantees by the following companies which became indirect subsidiaries of AMF
Group Inc., which is the borrower and issuer of the notes evidencing such
indebtedness. Guarantor companies include the following:
- AMF Bowling Centers, Inc.
- Bush River Corporation
- King Louie Lenexa, Inc.
- AMF Beverage Company of Oregon, Inc.
- AMF Bowling, 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 (Hong Kong) International Inc.
- AMF Bowling Centers International Inc. (Japan)
- AMF Bowling Mexico Holding, Inc.
- Boliches AMF, Inc.
- AMF BCO - U.K. One, Inc.
- AMF BCO - U.K. Two, Inc.
- AMF BCO - China, Inc.
- AMF Bowling Centers China, Inc.
Included with the guarantor companies at April 30, 1996 are AMF Bowling
Centers Switzerland Inc. and AMF Bowling Centers Spain Inc., newly formed
subsidiaries of AMF Group Inc., which, respectively, purchased assets of one
bowling center and two bowling centers from AMF Bowling Centers II, Inc.
(Switzerland) and AMF Bowling S.A., former subsidiary of AMF Bowling Mexico
Holding, Inc.
Included with the guarantor companies at December 31, 1995 and 1994 is AMF
Bowling Centers II, Inc. (Switzerland) which sold assets of one bowling center,
as discussed above, to a newly formed subsidiary of AMF Group Inc., which became
a guarantor.
F-71
<PAGE> 193
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Non-guarantor companies at April 30, 1996 include the following foreign
subsidiaries of certain guarantor companies:
- AMF Bowling (Unlimited)
- Worthington 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
Included in the non-guarantor companies at December 31, 1995 and 1994 is
AMF Bowling S.A. which sold assets of two bowling centers in Spain to a newly
formed subsidiary of AMF Group Inc., which became a guarantor company.
The following condensed combining information presents:
- Condensed combining balance sheets as of April 30, 1996 and December 31,
1995 and the related condensed combining statements of operations and of
cash flows for the four months ended April 30, 1996 and the years ended
December 31, 1995 and 1994.
- Elimination entries necessary to combine the entities comprising the
Combined Companies.
F-72
<PAGE> 194
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING BALANCE SHEETS
FOURS MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 18,628 $ 3,285 $ -- $ 21,913
Accounts and notes receivable, net of allowance
for doubtful accounts....................... 32,316 1,571 -- 33,887
Accounts and notes receivable -- affiliates.... 2,463 380 (2,677) 166
Inventories.................................... 41,831 1,465 -- 43,296
Prepaid expenses and other..................... 4,856 1,257 -- 6,113
-------- ------- -------- --------
Total current assets................... 100,094 7,958 (2,677) 105,375
Property and equipment, net...................... 241,968 10,518 (942) 251,544
Investment in subsidiaries....................... 10,643 -- (10,643) --
Other assets..................................... 17,399 931 -- 18,330
-------- ------- -------- --------
Total assets........................... $370,104 $19,407 $(14,262) $375,249
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 21,760 $ 1,910 $ -- $ 23,670
Book overdrafts................................ 5,724 -- -- 5,724
Accrued expenses and deposits.................. 32,185 2,731 -- 34,916
Accounts and notes payable -- affiliates....... 14 2,663 (2,677) --
Long-term debt, current portion................ 10 -- -- 10
Income taxes payable........................... 1,078 679 -- 1,757
-------- ------- -------- --------
Total current liabilities.............. 60,771 7,983 (2,677) 66,077
Long-term debt................................... 1,958 -- -- 1,958
Other liabilities................................ 2,811 -- -- 2,811
Deferred income taxes............................ 648 781 -- 1,429
-------- ------- -------- --------
Total liabilities...................... 66,188 8,764 (2,677) 72,275
-------- ------- -------- --------
Commitments and contingencies
Stockholders' equity:
Common stock................................... 454 3,940 (3,940) 454
Paid-in capital................................ 251,770 5,003 (5,003) 251,770
Retained earnings.............................. 53,244 6,247 (7,189) 52,302
Equity adjustment from foreign currency
translation................................. (1,552) (4,547) 4,547 (1,552)
-------- ------- -------- --------
Total stockholders' equity............. 303,916 10,643 (11,585) 302,974
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................... $370,104 $19,407 $(14,262) $375,249
======== ======= ======== ========
</TABLE>
F-73
<PAGE> 195
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING BALANCE SHEETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 8,843 $ 889 $ -- $ 9,732
Accounts and notes receivable, net of
allowance for doubtful accounts........... 37,499 1,527 -- 39,026
Accounts and notes
receivable -- affiliates.................. 4,477 7,465 (7,963) 3,979
Inventories.................................. 38,042 1,779 -- 39,821
Prepaid expenses and other................... 3,944 1,238 -- 5,182
-------- ------- -------- --------
Total current assets................. 92,805 12,898 (7,963) 97,740
Notes receivable -- affiliates................. 22,941 -- -- 22,941
Property and equipment, net.................... 250,637 10,582 (1,495) 259,724
Other assets................................... 29,869 822 (10,718) 19,973
-------- ------- -------- --------
Total assets......................... $396,252 $24,302 $(20,176) $400,378
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 22,313 $ 1,403 $ (75) $ 23,641
Book overdrafts.............................. 2,362 -- -- 2,362
Accrued expenses and deposits................ 28,203 2,125 -- 30,328
Accounts and notes payable -- affiliates..... 1,821 7,033 (6,865) 1,989
Long-term debt, current portion.............. 1,084 -- -- 1,084
Income taxes payable......................... 5,930 1,199 -- 7,129
-------- ------- -------- --------
Total current liabilities............ 61,713 11,760 (6,940) 66,533
Long-term debt................................. 19,550 -- -- 19,550
Notes payable -- affiliates.................... 146,639 1,076 (988) 146,727
Other liabilities.............................. 5,282 748 -- 6,030
-------- ------- -------- --------
Total liabilities.................... 233,184 13,584 (7,928) 238,840
-------- ------- -------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock................................. 1,538 3,941 (3,941) 1,538
Paid-in capital.............................. 63,781 4,153 (4,153) 63,781
Retained earnings............................ 102,610 7,300 (8,830) 101,080
Equity adjustment from foreign currency
translation............................... (3,400) (4,676) 4,676 (3,400)
Notes receivable stock subscription.......... (1,461) -- -- (1,461)
-------- ------- -------- --------
Total stockholders' equity........... 163,068 10,718 (12,248) 161,538
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $396,252 $24,302 $(20,176) $400,378
======== ======= ======== ========
</TABLE>
F-74
<PAGE> 196
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOURS MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenue:
Sales of products and services............... $154,500 $10,731 $ (860) $164,371
Revenue from operating lease activities...... 323 250 -- 573
-------- ------- ------ --------
Total operating revenues............. 154,823 10,981 (860) 164,944
-------- ------- ------ --------
Operating expenses:
Cost of goods sold, excluding depreciation of
$791...................................... 42,242 1,445 (569) 43,118
Bowling center operations.................... 71,289 8,985 (118) 80,156
Selling, general and administrative.......... 34,875 682 -- 35,557
Depreciation and amortization................ 14,380 802 (85) 15,097
-------- ------- ------ --------
Total operating expenses............. 162,786 11,914 (772) 173,928
-------- ------- ------ --------
Operating loss....................... (7,963) (933) (88) (8,984)
Nonoperating income (expenses):
Interest expense............................. (4,501) (3) -- (4,504)
Other expenses, net.......................... (634) (58) -- (692)
Interest income.............................. 574 37 -- 611
Equity in earnings of subsidiaries........... (707) -- 707 --
Foreign currency transaction gain (loss)..... (179) 150 -- (29)
-------- ------- ------ --------
Loss before income taxes....................... (13,410) (807) 619 (13,598)
Income tax benefit............................. 1,631 100 -- 1,731
-------- ------- ------ --------
Net loss............................. $(11,779) $ (707) $ 619 $(11,867)
======== ======= ====== ========
</TABLE>
F-75
<PAGE> 197
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenues:
Sales of products and services............ $ 532,349 $ 34,197 $ (2,548) $563,998
Revenue from operating lease activities... 926 -- -- 926
--------- -------- -------- --------
Total operating revenues.......... 533,275 34,197 (2,548) 564,924
--------- -------- -------- --------
Operating expenses:
Cost of sales, excluding depreciation of
$2,531................................. 180,980 4,730 (1,581) 184,129
Bowling center operations................. 149,535 16,930 -- 166,465
Selling, general and administrative....... 47,218 4,046 (486) 50,778
Depreciation and amortization............. 36,723 2,650 (234) 39,139
--------- -------- -------- --------
Total operating expenses.......... 414,456 28,356 (2,301) 440,511
--------- -------- -------- --------
Operating income.................. 118,819 5,841 (247) 124,413
Nonoperating income (expenses):
Interest expense.......................... (15,569) (142) -- (15,711)
Other expenses, net....................... (600) (443) -- (1,043)
Interest income........................... 1,837 347 -- 2,184
Equity in earnings of subsidiaries........ 3,444 -- (3,444) --
Foreign currency transaction loss......... (465) (514) -- (979)
--------- -------- -------- --------
Income before income taxes.................. 107,466 5,089 (3,691) 108,864
Income tax expense.......................... 10,453 1,645 -- 12,098
--------- -------- -------- --------
Net income........................ $ 97,013 $ 3,444 $ (3,691) $ 96,766
========= ======== ======== ========
</TABLE>
F-76
<PAGE> 198
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Operating revenues:
Sales of products and services............ $ 478,056 $ 40,930 $ (3,560) $515,426
Revenue from operating lease activities... 969 1,391 -- 2,360
--------- -------- -------- --------
Total operating revenues.......... 479,025 42,321 (3,560) 517,786
--------- -------- -------- --------
Operating expenses:
Cost of sales, excluding depreciation of
$1,691................................. 191,250 6,694 (1,901) 196,043
Bowling center operations................. 97,898 18,718 (1,469) 115,147
Selling, general and administrative....... 52,392 4,750 -- 57,142
Depreciation and amortization............. 21,606 3,343 (173) 24,776
--------- -------- -------- --------
Total operating expenses.......... 363,146 33,505 (3,543) 393,108
--------- -------- -------- --------
Operating income.................. 115,879 8,816 (17) 124,678
Nonoperating income (expenses):
Interest expense.......................... (7,164) (230) -- (7,394)
Other expenses, net....................... (1,188) -- -- (1,188)
Interest income........................... 231 295 -- 526
Equity in earnings of subsidiaries........ 5,179 -- (5,179) --
Foreign currency transaction loss......... (654) (213) -- (867)
--------- -------- -------- --------
Income before income taxes.................. 112,283 8,668 (5,196) 115,755
Income tax expense.......................... 12,963 3,489 -- 16,452
--------- -------- -------- --------
Net income........................ $ 99,320 $ 5,179 $ (5,196) $ 99,303
========= ======== ======== ========
</TABLE>
F-77
<PAGE> 199
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOURS MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(11,072) $ (707) $ (88) $(11,867)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............ 14,380 802 (85) 15,097
Deferred income taxes.................... 435 (21) -- 414
Equity in earnings of subsidiaries....... (707) -- 707 --
Changes in assets and liabilities:
Accounts and notes receivable, net..... 4,821 (37) -- 4,784
Receivables and
payables -- affiliates.............. 593 942 -- 1,535
Inventories............................ (3,655) 24 -- (3,631)
Other assets and liabilities........... (3,476) (34) 837 (2,673)
Accounts payable and accrued
expenses............................ 7,634 1,079 -- 8,713
Income taxes payable................... (5,442) (303) -- (5,745)
-------- ------- -------- --------
Net cash provided by operating
activities.......................... 3,511 1,745 1,371 6,627
-------- ------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment.......... (6,046) (1,001) 173 (6,874)
Other....................................... 2,989 -- -- 2,989
-------- ------- -------- --------
Net cash used for investing
activities.......................... (3,057) (1,001) 173 (3,885)
-------- ------- -------- --------
Cash flows from financing activities:
Distributions to stockholders............... (36,721) (622) 622 (36,721)
Payment of long-term debt................... (3,812) -- -- (3,812)
Proceeds from notes payable -- stockholders,
net...................................... 1,236 -- -- 1,236
Capital contributions by stockholders....... 24,805 2,252 (2,252) 24,805
Collection of notes
receivable -- affiliates................. 19,408 -- -- 19,408
Other....................................... 3,902 -- 86 3,988
-------- ------- -------- --------
Net cash provided by financing
activities.......................... 8,818 1,630 (1,544) 8,904
Effect of exchange rates on cash and
cash equivalents.................... 330 205 -- 535
-------- ------- -------- --------
Net increase in cash and cash equivalents..... 9,602 2,579 -- 12,181
Cash and cash equivalents at beginning of
period...................................... 9,026 706 -- 9,732
-------- ------- -------- --------
Cash and cash equivalents at end of period.... $ 18,628 $ 3,285 $ -- $ 21,913
======== ======= ======== ========
</TABLE>
F-78
<PAGE> 200
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 97,013 $ 3,444 $ (3,691) $ 96,766
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of subsidiaries....... (3,444) -- 3,444 --
Dividends from non-guarantor companies... 3,133 -- (3,133) --
Depreciation and amortization............ 36,661 2,682 (204) 39,139
Deferred income taxes.................. 215 (1,045) -- (830)
Loss on sale of property and equipment,
net................................. 567 -- -- 567
Changes in assets and liabilities, net
of effects from companies acquired:
Accounts and notes receivable,
net............................... 11,864 (1,234) -- 10,630
Receivables and
payables -- affiliates............ 7,262 (1,115) -- 6,147
Inventories......................... (5,596) (400) -- (5,996)
Other assets and liabilities........ (2,484) (369) 2,752 (101)
Accounts payable and accrued
expenses.......................... (19,187) 446 -- (18,741)
Income taxes payable................ (2,039) (791) -- (2,830)
-------- ------- -------- --------
Net cash provided by operating
activities........................ 123,965 1,618 (832) 124,751
-------- ------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment.......... (26,411) (4,005) 451 (29,965)
Proceeds from sales of property and
equipment................................ 494 916 -- 1,410
Other....................................... 229 -- -- 229
-------- ------- -------- --------
Net cash used for investing
activities........................ (25,688) (3,089) 451 (28,326)
-------- ------- -------- --------
Cash flows from financing activities:
Dividends to guarantor companies............ -- (3,133) 3,133 --
Payments on credit note agreements, net..... (11,057) -- -- (11,057)
Distributions to stockholders............... (71,851) -- -- (71,851)
Payment of long-term debt................... (10,605) 320 -- (10,285)
Payment for redemption of stock --.......... (3,960) -- -- (3,960)
stockholders, net........................ (4,882) 1,089 -- (3,793)
Capital contributions by stockholders....... 8,329 -- -- 8,329
Capital contributions from guarantor........ -- 2,752 (2,752) --
Other....................................... (2,056) -- -- (2,056)
-------- ------- -------- --------
Net cash (used for) provided by
financing activities.............. (96,082) 1,028 381 (94,673)
Effect of exchange rates on cash.... (5) (189) -- (194)
-------- ------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................. 2,190 (632) -- 1,558
Cash at beginning of year..................... 6,653 1,521 -- 8,174
-------- ------- -------- --------
Cash at end of year........................... $ 8,843 $ 889 $ -- $ 9,732
======== ======= ======== ========
</TABLE>
F-79
<PAGE> 201
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR COMBINED
COMPANIES COMPANIES ELIMINATIONS COMPANIES
-------- --------- ------------ --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 99,320 $ 5,179 $ (5,196) $ 99,303
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of subsidiaries............ (5,179) -- 5,179 --
Dividends from non-guarantor companies........ 5,084 -- (5,084) --
Depreciation and amortization................. 21,606 3,343 (173) 24,776
Deferred income taxes...................... (104) 85 -- (19)
Loss on sale of property and equipment,
net...................................... 911 -- -- 911
Changes in assets and liabilities, net of
effects from companies acquired:
Accounts and notes receivable, net....... (9,325) 311 -- (9,014)
Receivables and payables -- affiliates... 3,692 1,033 -- 4,725
Inventories.............................. (1,369) (42) -- (1,411)
Other assets............................. (864) (136) -- (1,000)
Accounts payable and accrued expenses.... 3,929 (91) -- 3,838
Income taxes payable..................... (3,207) 817 -- (2,390)
-------- ------- ------- --------
Net cash provided by operating
activities............................ 114,494 10,499 (5,274) 119,719
-------- ------- ------- --------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired................................... (17,307) -- -- (17,307)
Purchase of property and equipment............ (16,692) (1,286) 190 (17,788)
Proceeds from sales of property and
equipment.................................. 1,494 41 -- 1,535
Other......................................... 941 -- -- 941
-------- ------- ------- --------
Net cash used for investing
activities.......................... (31,564) (1,245) 190 (32,619)
-------- ------- ------- --------
Cash flows from financing activities:
Dividends to guarantor companies.............. -- (5,084) 5,084 --
Payments on credit note agreements, net....... (3,689) -- -- (3,689)
Distributions to stockholders................. (78,170) -- -- (78,170)
Payment of long-term debt..................... (740) (364) -- (1,104)
Proceeds (payments) on notes payable --
stockholders, net.......................... (4,989) (3,571) -- (8,560)
Capital contributions by stockholders......... 2,109 -- -- 2,109
Other......................................... (212) -- -- (212)
-------- ------- ------- --------
Net cash used for financing
activities.......................... (85,691) (9,019) 5,084 (89,626)
Effect of exchange rates on cash...... 2,488 271 -- 2,759
-------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents................................... (273) 506 -- 233
Cash at beginning of year....................... 6,926 1,015 -- 7,941
-------- ------- ------- --------
Cash at end of year............................. $ 6,653 $ 1,521 -- $ 8,174
======== ======= ======= ========
</TABLE>
F-80
<PAGE> 202
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 17 -- SUBSEQUENT EVENT (UNAUDITED)
On October 10, 1996, 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 was approximately $106,500, including certain adjustments and
transaction costs. It was funded with approximately $40,000 from the sale of
equity by AMF Group Holdings Inc., a wholly-owned subsidiary of AMF Holdings
Inc., to its institutional stockholders and one of its directors and with
$66,500 from available borrowing under the Company's Acquisition Facility.
The April 30, 1996 combined financial statements do not reflect any
adjustments or cost associated with the acquisition.
F-81
<PAGE> 203
AMF GROUP HOLDINGS INC.
SELECTED QUARTERLY DATA (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
AMF GROUP
HOLDINGS INC.
-------------
1997 QUARTERS ENDED MARCH 31
- ---------------------------- -------------
<S> <C>
Net sales................... $ 157.6
Gross profit................ 119.5
Operating income............ 29.7
Income before income
taxes..................... 1.2
Net income.................. 0.1
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY AMF GROUP HOLDINGS INC.
---------------------- ---------------------------------------------------------
PRO FORMA
ONE MONTH TWO MONTHS QUARTER
1996 QUARTERS ENDED MARCH 31 APRIL 30 JUNE 30 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------- -------- --------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $123.3 $ 41.6 $ 73.4 $ 114.8 $131.8 $ 179.6
Gross profit................ 92.6 29.2 49.8 78.2 86.8 117.6
Operating income (loss)..... 27.9 (36.9) 4.0 5.4 14.3 27.8
Income (loss) before income
taxes..................... 24.3 (37.9) (15.9) (18.1) (12.3) 0.6
Net income (loss)........... 21.6 (33.4) (11.9) (11.6) (5.3) (2.1)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------------------
1995 QUARTERS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales................... $156.9 $ 138.3 $130.4 $ 139.3
Gross profit................ 109.4 90.6 84.6 96.2
Operating income............ 41.7 26.8 22.1 33.8
Income before income
taxes..................... 37.5 23.5 17.8 30.2
Net income.................. 34.2 19.7 14.9 27.9
</TABLE>
Depreciation expense previously reported in cost of goods sold is currently
presented as a separate component of operating income in the consolidated
statement of income. The amounts reclassified from cost of goods sold to
depreciation expense are as follows:
<TABLE>
<CAPTION>
ONE MONTH TWO MONTHS
MARCH 31 APRIL 30 JUNE 30
-------- --------- ----------
<S> <C> <C> <C>
1996..................................... $0.6 $ 0.2 $0.4
</TABLE>
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
-------- ---------
<S> <C> <C> <C>
1995..................................... $0.4 $ 0.6
</TABLE>
F-82
<PAGE> 204
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 16
Use of Proceeds....................... 21
The Acquisition....................... 22
Pro Forma Consolidated Financial
Statements.......................... 27
Selected Financial Data............... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Business.............................. 47
Management............................ 60
Ownership of Capital Stock............ 65
Certain Transactions.................. 70
Description of Senior Debt............ 71
Description of Exchange Notes......... 78
Description of Certain Federal Income
Tax Consequences of an Investment in
the Exchange Notes.................. 111
Plan of Distribution.................. 116
Experts............................... 116
Validity of Exchange Notes............ 116
Index to Financial Statements......... F-1
</TABLE>
================================================================================
================================================================================
AMF GROUP INC.
----------
[AMF GROUP INC. LOGO]
----------
GOLDMAN, SACHS & CO.
================================================================================
<PAGE> 205
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement, by and among AMF Group Holdings Inc. and the Sellers,
dated as of February 16, 1996 (incorporated herein by reference to Exhibit 2.1 to
the Company's Registration Statement on Form S-4 (File No. 333-4877)).
2.2 Agreement among AMF Group Holdings Inc. and the Sellers, dated as of April 11, 1996,
amending certain items of the Stock Purchase Agreement (incorporated herein by
reference to Exhibit 2.2 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.1 Certificate of Incorporation of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.2 By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.3 Certificate of Incorporation of AMF Group Holdings Inc. (incorporated herein by
reference to Exhibit 3.3 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.4 By-Laws of AMF Group Holdings Inc. (incorporated herein by reference to Exhibit 3.4
to the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.5 Certificate of Incorporation of AMF Bowling Holdings Inc. (incorporated herein by
reference to Exhibit 3.5 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.6 By-Laws of AMF Bowling Holdings Inc. (incorporated herein by reference to Exhibit
3.6 to the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.7 Certificate of Incorporation of AMF Bowling Centers Holdings Inc. (incorporated
herein by reference to Exhibit 3.7 to the Company's Registration Statement on Form
S-4 (File No. 333-4877)).
3.8 By-Laws of AMF Bowling Centers Holdings Inc. (incorporated herein by reference to
Exhibit 3.8 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.9 Charter Documents of AMF Bowling, Inc. (incorporated herein by reference to Exhibit
3.9 to the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.10 Restated By-Laws of AMF Bowling, Inc. (incorporated herein by reference to Exhibit
3.10 to the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.11 Certificate of Incorporation of AMF Worldwide Bowling Centers Holdings Inc.
(incorporated herein by reference to Exhibit 3.11 to the Company's Registration
Statement on Form S-4 (File No. 333-4877)).
3.12 By-Laws of AMF Worldwide Bowling Centers Holdings Inc. (incorporated herein by
reference to Exhibit 3.12 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.13 Charter Documents of AMF Bowling Centers, Inc. (incorporated herein by reference to
Exhibit 3.13 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.14 Restated and Amended By-Laws of AMF Bowling Centers, Inc. (incorporated herein by
reference to Exhibit 3.14 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.15 Articles of Incorporation of Bush River Corporation (incorporated herein by
reference to Exhibit 3.15 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.16 Amended and Restated By-Laws of Bush River Corporation (incorporated herein by
reference to Exhibit 3.16 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.17 Articles of Incorporation of AMF Beverage Company of Oregon, Inc. (incorporated
herein by reference to Exhibit 3.17 to the Company's Registration Statement on Form
S-4 (File No. 333-4877)).
</TABLE>
II-1
<PAGE> 206
<TABLE>
<S> <C>
3.18 By-Laws of AMF Beverage Company of Oregon, Inc. (incorporated herein by reference to
Exhibit 3.18 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.19 Charter Documents of King Louie Lenexa, Inc. (incorporated herein by reference to
Exhibit 3.19 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.20 Amended and Restated By-Laws of King Louie Lenexa, Inc. (incorporated herein by
reference to Exhibit 3.20 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.21 Articles of Incorporation of AMF Beverage Company of W. Va., Inc. (incorporated
herein by reference to Exhibit 3.21 to the Company's Registration Statement on Form
S-4 (File No. 333-4877)).
3.22 By-Laws of AMF Beverage Company of W. Va., Inc. (incorporated herein by reference to
Exhibit 3.22 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.23 Certificate of Incorporation of AMF Bowling Centers Switzerland Inc. (incorporated
herein by reference to Exhibit 3.23 to the Company's Registration Statement on Form
S-4 (File No. 333-4877)).
3.24 By-Laws of AMF Bowling Centers Switzerland Inc. (incorporated herein by reference to
Exhibit 3.24 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.25 Charter Documents of AMF Bowling Centers (Aust) International Inc. (incorporated
herein by reference to Exhibit 3.25 to the Company's Registration Statement on Form
S-4 (File No. 333-4877)).
3.26 By-Laws of AMF Bowling Centers (Aust) International Inc. (incorporated herein by
reference to Exhibit 3.26 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.27 Charter Documents of AMF Bowling Centers (Canada) International Inc. (incorporated
herein by reference to Exhibit 3.27 to the Company's Registration Statement on Form
S-4 (File No. 333-4877)).
3.28 By-Laws of AMF Bowling Centers (Canada) International Inc. (incorporated herein by
reference to Exhibit 3.28 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.29 Charter Documents of AMF Bowling Centers (Honk Kong) International Inc.
(incorporated herein by reference to Exhibit 3.29 to the Company's Registration
Statement on Form S-4 (File No. 333-4877)).
3.30 By-Laws of AMF Bowling Centers (Hong Kong) International Inc. (incorporated herein
by reference to Exhibit 3.30 to the Company's Registration Statement on Form S-4
(File No. 333-4877)).
3.31 Charter Documents of AMF Bowling Centers International Inc. (incorporated herein by
reference to Exhibit 3.31 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.32 By-Laws of AMF Bowling Centers International Inc. (incorporated herein by reference
to Exhibit 3.32 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.33 Charter Documents of AMF BCO-UK One, Inc. (incorporated herein by reference to
Exhibit 3.33 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.34 By-Laws of AMF BCO-UK One, Inc. (incorporated herein by reference to Exhibit 3.34 to
the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.35 Charter Documents of AMF BCO-UK Two, Inc. (incorporated herein by reference to
Exhibit 3.35 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.36 By-Laws of AMF BCO-UK Two, Inc. (incorporated herein by reference to Exhibit 3.36 to
the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.37 Charter Documents of AMF BCO-France One, Inc. (incorporated herein by reference to
Exhibit 3.37 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.38 By-Laws of AMF BCO-France One, Inc. (incorporated herein by reference to Exhibit
3.38 to the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.39 Charter Documents of AMF BCO-France Two, Inc. (incorporated herein by reference to
Exhibit 3.39 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.40 By-Laws of AMF BCO-France Two, Inc. (incorporated herein by reference to Exhibit
3.40 to the Company's Registration Statement on Form S-4 (File No. 333-4877)).
</TABLE>
II-2
<PAGE> 207
<TABLE>
<S> <C>
3.41 Certificate of Incorporation of AMF Bowling Centers Spain Inc. (incorporated herein
by reference to Exhibit 3.41 to the Company's Registration Statement on Form S-4
(File No. 333-4877)).
3.42 By-Laws of AMF Bowling Centers Spain Inc. (incorporated herein by reference to
Exhibit 3.42 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.43 Charter Documents of AMF Bowling Mexico Holding, Inc. (incorporated herein by
reference to Exhibit 3.43 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.44 By-Laws of AMF Bowling Mexico Holding, Inc. (incorporated herein by reference to
Exhibit 3.44 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.45 Charter Documents of Boliches AMF, Inc. (incorporated herein by reference to Exhibit
3.45 to the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.46 By-Laws of Boliches AMF (formerly AMF Bowling Eight, Inc.) (incorporated herein by
reference to Exhibit 3.46 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.47 Charter Documents of AMF BCO-China, Inc. (incorporated herein by reference to
Exhibit 3.47 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
3.48 By-Laws of AMF BCO-China, Inc. (incorporated herein by reference to Exhibit 3.48 to
the Company's Registration Statement on Form S-4 (File No. 333-4877)).
3.49 Articles of Incorporation of AMF Bowling Centers China, Inc. (incorporated herein by
reference to Exhibit 3.49 to the Company's Registration Statement on Form S-4 (File
No. 333-4877)).
3.50 By-laws of AMF Bowling Centers China, Inc. (incorporated herein by reference to
Exhibit 3.50 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
4.1 Indenture, dated as of March 21, 1996, as supplemented, by and among the Company,
the Guarantors and IBJ Schroder Bank & Trust Company with respect to the Senior
Subordinated Notes (incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (File No. 333-4877)).
4.2 Indenture, dated as of March 21, 1996, as supplemented, by and among the Company,
the Guarantors and American Bank National Association with respect to the Senior
Subordinated Discount Notes (incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-4 (File No. 333-4877)).
4.3 Form of Exchange Senior Subordinated Note(incorporated herein by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
4.4 Form of Exchange Senior Subordinated Discount Note (incorporated herein by reference
to Exhibit 4.4 to the Company's Registration Statement on Form S-4 (File No.
333-4877)).
10.1 Registration Rights Agreement, dated as of March 21, 1996, by and among the Company,
the Guarantors and Goldman, Sachs & Co. (incorporated herein by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-4 (File No. 333-4877)).
10.2 Credit Agreement dated as of May 1, 1996 among AMF Group Inc. and the Initial
Lenders and Initial Issuing Banks and Goldman, Sachs & Co. and Citicorp Securities,
Inc. as Arrangers and Goldman, Sachs & Co. as Syndication Agent and CitiBank, N.A.
as Administrative Agent (incorporated herein by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-4 (File No. 333-4877)).
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan (contained in Exhibit 10.4)
(incorporated herein by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-4 (File No. 333-4877)).
10.4 Stockholders Agreement, dated as of April 30, 1996, by and among Parent and the
Stockholders (incorporated herein by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-4 (File No. 333-4877)).
10.6 Warrant Agreement, dated as of May 1, 1996, between Parent and The Goldman Sachs
Group, L.P. (incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-4 (File No. 333-4877)).
10.7 Employment Agreement, dated as of May 1, 1996, by and among Parent, AMF Bowling,
Inc. and Robert L. Morin (incorporated herein by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-4 (File No. 333-4877)).
</TABLE>
II-3
<PAGE> 208
<TABLE>
<S> <C>
10.8 Employment Agreement, dated as of May 1, 1996, by and among Parent, the Company and
Douglas Stanard (incorporated herein by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-4 (File No. 333-4877)).
10.9 Stock Option Agreement, dated as of May 1, 1996, between Parent and Charles M. Diker
(incorporated herein by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-4 (File No. 333-4877)).
10.10 Employment Agreement, dated as of May 28, 1996, by and among Parent, the Company and
Stephen E. Hare (incorporated herein by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-4 (File No. 333-4877)).
10.11 Asset Purchase Agreement, dated as of October 10, 1996, by and between AMF Bowling
Centers, Inc. and Charan Industries, Inc. (incorporated herein by reference to
Exhibit 1 to the Company's Current Report on Form 8-K dated October 24, 1996).
10.12 Termination Agreement, dated as of February 28, 1997, by and among Parent, AMF
Bowling, Inc. and Robert L. Morin (incorporated herein by reference to Exhibit 10.12
to the Company's Report on Form 10-K for the year ended December 31, 1996).
10.13 Amended and Restated Credit Agreement dated as of December 20, 1996 among AMF Group
Inc. and the Initial Lenders and Initial Issuing Banks and Goldman, Sachs & Co. as
Syndication Agent and Citibank, N.A. as Administrative Agent (incorporated herein by
reference to Exhibit 10.13 to the Company's Report on Form 10-K for the year ended
December 31, 1996).
10.14 Stock Subscription Agreement, dated as of October 9, 1996, by and among Parent and
the Stockholders (incorporated herein by reference to Exhibit 10.14 to the Company's
Report on Form 10-K for the year ended December 31, 1996).
10.15 Agreement and Plan of Merger, dated as of January 17, 1997, by and between American
Recreation Centers, Inc., AMF Bowling Centers, Inc. and Noah Acquisition Corp.
(incorporated herein by reference to Exhibit 1 to the Company's Current Report on
Form 8-K dated January 17, 1997).
10.16 Waiver and Amendment No. 1 dated as of March 24, 1997, to the Amended and Restated
Credit Agreement dated as of December 20, 1996 (incorporated by reference to Exhibit
10.16 to Post-Effective Amendment No. 2 to the Company's Registration Statement on
Form S-4 (File No. 333-4847)).
12.1 Statements re computations of ratios -- Computation of Ratio of Earnings to Fixed
Charges (incorporated by reference to Exhibit 12.1 to Post-Effective Amendment No. 2
to the Company's Registration Statement on Form S-4 (File No. 333-4847)).
21.1 Subsidiaries of the Company (incorporated herein by reference to Exhibit 21.1 to the
Company's Report on Form 10-K for the year ended December 31, 1996).
23.1 Consent of Arthur Andersen LLP (filed herewith).
23.2 Consent of Price Waterhouse LLP (filed herewith).
24.1 Powers of Attorney (incorporated herein by reference to Exhibit 24.1 to the
Company's registration statement on Form S-4 (File No. 333-4877)).
24.2 Additional Powers of Attorney (filed herewith).
</TABLE>
(b) Financial Statement Schedule
II-4
<PAGE> 209
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF GROUP INC.
By *
------------------------------------
Richard A. Friedman
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Director June 26, 1997
- -----------------------------------
Richard A. Friedman
/s/ Terence M. O'Toole Director June 26, 1997
- -----------------------------------
Terence M. O'Toole
* Director June 26, 1997
- -----------------------------------
Peter M. Sacerdote
* President, Chief Operating Officer June 26, 1997
- ----------------------------------- and Director
Douglas J. Stanard
* Executive Vice President, June 26, 1997
- ----------------------------------- Treasurer, Chief Financial Officer,
Stephen E. Hare and Director
(Principal Financial Officer)
* Director June 26, 1997
- -----------------------------------
Charles M. Diker
* Director June 26, 1997
- -----------------------------------
Paul Edgerley
* Director June 26, 1997
- -----------------------------------
Howard A. Lipson
* Director June 26, 1997
- -----------------------------------
Thomas R. Wall, IV
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Corporate Controller
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-5
<PAGE> 210
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF GROUP HOLDINGS INC.
By *
------------------------------------
Richard A. Friedman
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Richard A. Friedman
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial and Accounting
Stephen E. Hare Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-6
<PAGE> 211
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING HOLDINGS INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* President, Assistant Secretary and June 26, 1997
- ----------------------------------- Director
Douglas J. Stanard (Principal Executive Officer)
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President and Secretary June 26, 1997
- ----------------------------------- (Principal Accounting Officer)
Michael P. Bardaro
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-7
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS HOLDINGS INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Assistant Treasurer, Secretary June 26, 1997
- ----------------------------------- and Corporate Controller
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-8
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary June 26, 1997
- ----------------------------------- and Corporate Controller
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-9
<PAGE> 214
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF WORLDWIDE BOWLING CENTERS
HOLDINGS INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-10
<PAGE> 215
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Treasurer, Chief Financial Officer June 26, 1997
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro (Principal Financial and Accounting
Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-11
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
BUSH RIVER CORPORATION
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer, and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Treasurer, Chief Financial Officer June 26, 1997
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro (Principal Financial and Accounting
Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-12
<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BEVERAGE COMPANY OF OREGON, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Treasurer, Chief Financial Officer June 26, 1997
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro (Principal Financial and Accounting
Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-13
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
KING LOUIE LENEXA, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Treasurer, Chief Financial Officer June 26, 1997
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro (Principal Financial and Accounting
Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-14
<PAGE> 219
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BEVERAGE COMPANY OF W.VA., INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Treasurer, Chief Financial Officer June 26, 1997
- ----------------------------------- and Chief Accounting Officer
Michael P. Bardaro (Principal Financial and Accounting
Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-15
<PAGE> 220
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS SWITZERLAND INC.
By *
------------------------------------
Guiseppe Avolio
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Guiseppe Avolio
* Vice President, Assistant June 26, 1997
- ----------------------------------- Secretary and Director
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-16
<PAGE> 221
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS (AUST)
INTERNATIONAL INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-17
<PAGE> 222
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS (CANADA)
INTERNATIONAL INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<S> <C> <C>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Director June 26, 1997
- -----------------------------------
Linda R. Ross
* Director June 26, 1997
- -----------------------------------
Sandra I. Harris
Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-18
<PAGE> 223
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS (HONG KONG)
INTERNATIONAL INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-19
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS
INTERNATIONAL INC.
By *
------------------------------------
Takashi Takeshige
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and June 26, 1997
- ----------------------------------- Managing Director
Takashi Takeshige (Principal Executive Officer)
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Director
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President and Assistant June 26, 1997
- ----------------------------------- Secretary
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-20
<PAGE> 225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BCO-UK ONE, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<S> <C> <C>
* Chief Executive Officer, Assistant June 26, 1997
- ----------------------------------- Secretary and Director
Douglas J. Stanard (Principal Executive Officer)
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-21
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BCO-UK TWO, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<S> <C> <C>
* Chief Executive Officer, Assistant June 26, 1997
- ----------------------------------- Secretary and Director
Douglas J. Stanard (Principal Executive Officer)
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-22
<PAGE> 227
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BCO-FRANCE ONE, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-23
<PAGE> 228
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BCO-FRANCE TWO, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary June 26, 1997
- ----------------------------------- and Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-24
<PAGE> 229
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS SPAIN, INC.
By *
------------------------------------
Asuncion Merinero
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer, and June 26, 1997
- ----------------------------------- Managing Director
Asuncion Merinero (Principal Executive Officer)
* Vice President, Assistant June 26, 1997
- ----------------------------------- Secretary and Director
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President and Secretary June 26, 1997
- ----------------------------------- (Principal Accounting Officer)
Michael P. Bardaro
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-25
<PAGE> 230
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING MEXICO HOLDING, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer, Assistant June 26, 1997
- ----------------------------------- Secretary and Director
Douglas J. Stanard (Principal Executive Officer)
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-26
<PAGE> 231
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
BOLICHES AMF, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer, Assistant June 26, 1997
- ----------------------------------- Secretary and Director
Douglas J. Stanard (Principal Executive Officer)
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-27
<PAGE> 232
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BCO-CHINA, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-28
<PAGE> 233
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 26, 1997.
AMF BOWLING CENTERS CHINA, INC.
By *
------------------------------------
Douglas J. Stanard
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- --------------
<C> <C> <S>
* Chief Executive Officer and Director June 26, 1997
- ----------------------------------- (Principal Executive Officer)
Douglas J. Stanard
* Chief Financial Officer and Treasurer June 26, 1997
- ----------------------------------- (Principal Financial Officer)
Stephen E. Hare
* Vice President, Secretary and June 26, 1997
- ----------------------------------- Assistant Treasurer
Michael P. Bardaro (Principal Accounting Officer)
* By: /s/ Terence M. O'Toole
---------------------------------
Terence M. O'Toole
Attorney-In-Fact
</TABLE>
II-29
<PAGE> 234
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE I
To the Board of Directors of
AMF Group Holdings Inc.:
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements of AMF Group Holdings Inc. and subsidiaries
included in the Post-Effective Amendment No. 3 to the Registration Statement on
Form S-4 (the "Post-Effective Amendment") for the period from inception (January
12, 1996) through December 31, 1996, and have issued our report thereon dated
February 28, 1997. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed on the
Index to Financial Statements and Schedules filed as part of the Post-Effective
Amendment is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. The schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Richmond, Virginia
February 28, 1997
S-1
<PAGE> 235
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF GROUP HOLDINGS INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Total current assets............................................................. $ 50
Investment in subsidiaries....................................................... 408,834
Other noncurrent assets.......................................................... 167
---------
Total assets................................................................ $ 409,051
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
Total current liabilities........................................................ $ 117
Other noncurrent liabilities..................................................... 200
---------
Total liabilities........................................................... 317
Stockholder's equity............................................................. 408,734
---------
Total liabilities and stockholder's equity.................................. $ 409,051
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
S-2
<PAGE> 236
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF GROUP HOLDINGS INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 3)
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating revenues............................................................... $ --
---------
Operating expenses:
Amortization................................................................ (33)
---------
Operating loss......................................................... (33)
Nonoperating expenses:
Other expenses.............................................................. (67)
---------
Loss before equity in loss of subsidiaries............................. (100)
Equity in loss of subsidiaries......................................... (19,465)
---------
Net loss............................................................... $ (19,565)
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
S-3
<PAGE> 237
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF GROUP HOLDINGS INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 3)
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (19,565)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Equity in loss of subsidiary........................................... 19,465
Depreciation and amortization.......................................... 33
Changes in assets and liabilities:
Current assets.................................................... (50)
Other noncurrent assets........................................... (200)
Current liabilities............................................... 117
Other noncurrent liabilities...................................... 200
---------
Net cash provided by operating activities.............................. --
Net cash used in investing activities:
Investment in subsidiaries............................................. (420,750)
Net cash provided by financing activities:
Capital contributions....................................................... 420,750
---------
Net change in cash..................................................... --
Cash and cash equivalents at beginning of period....................... --
---------
Cash and cash equivalents at end of period............................. $ --
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
S-4
<PAGE> 238
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF GROUP HOLDINGS INC.
NOTES TO AMF GROUP HOLDINGS INC. FINANCIAL STATEMENTS
1. The Notes to AMF Group Holdings Inc. ("Holdings") financial statements should
be read in conjunction with the Notes to Consolidated Financial Statements of
Holdings and its wholly owned subsidiaries included in Part II, Item 8 of the
Form 10-K Annual Report (the "Notes"). AMF Group Inc. (the "Company") is a
wholly owned subsidiary of Holdings.
2. The Exchange Notes are jointly and severally guaranteed on a full and
unconditional basis by Holdings and by the first and second-tier subsidiaries
of the Company, as discussed in "Note 18. Consolidating Financial Statements"
in the Notes.
3. The results of operations for the period ended December 31, 1996, reflect the
results of Holdings since its inception date of January 12, 1996. All dollar
amounts are in thousands, except where otherwise indicated.
4. Restricted assets of AMF Group Holdings Inc.:
The Bank Credit Agreement and Holdings' guarantee contain 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 Bank
Credit Agreement also contains certain provisions which limit the amount of
funds available for transfer from the Company to Holdings, and from
Holdings to the Parent. Limits exist on, among other things, the
declaration or payment of dividends, distribution of assets, and issuance
or sale of capital stock.
So long as the Company is not in default of the covenants contained in the
Bank Credit Agreement, it may, i) declare and pay dividends in common
stock; ii) declare and pay cash dividends to Holdings to the extent
necessary to make payments of approximately $0.15 million due in May 1997
under certain noncompete agreements with the Sellers; iii) declare and pay
cash dividends to the Parent for general administrative expenses of the
Parent not to exceed $0.25 million; and iv) declare and pay cash dividends
not to exceed $2.0 million to the Parent for the repurchase of Parent
Common Stock.
5. Total assets and liabilities:
At December 31, 1996, assets include Holdings' investment in subsidiaries
and other assets related to the noncompete agreements. Other assets are
amortized on a straight-line basis over the terms of the agreements. At
December 31, 1996, liabilities represent amounts owed under the noncompete
and consulting agreements.
S-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in this Post-Effective Amendment
No. 3 to Form S-4 Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Richmond, Virginia,
June 24, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the use in the Proposectus constituting part of this Post
Effective Amendment No. 3 to the Registration Statement on Form S-4 (No.
333-4877) of the AMF Group Inc. of our report dated June 28, 1996, relating to
the combined financial statements of AMF Bowling Group. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Norfolk, Virginia
June 24, 1997
<PAGE> 1
EXHIBIT 24.2
AMF GROUP INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Group Inc. whose signature appears below constitutes and appoints Richard A.
Friedman, Terence M. O'Toole and Douglas J. Stanard and each of them, with full
power to act without the other, his true and lawful attorneys-in-fact and
agents, with full and several power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments,
including post-effective amendments, and supplements to the registration
statement on Form S-4 initially with the Securities and Exchange Commission on
May 31, 1996, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they or he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Thomas R. Wall, IV
- --------------------------------------------- Director
THOMAS R. WALL, IV
/s/ Stephen E. Hare Executive Vice President, Treasurer
- --------------------------------------------- Chief Financial Officer and Director
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro Vice President, Secretary and Corporate
- --------------------------------------------- Controller
MICHAEL P. BARDARO (Chief Accounting Officer)
</TABLE>
<PAGE> 2
AMF GROUP HOLDINGS INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Group Holdings Inc. whose signature appears below constitutes and appoints
Richard A. Friedman, Terence M. O'Toole and Douglas J. Stanard and each of them,
with full power to act without the other, his true and lawful attorneys-in-fact
and agents, with full and several power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments,
including post-effective amendments, and supplements to the registration
statement on Form S-4 initially with the Securities and Exchange Commission on
May 31, 1996, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they or he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial and Accounting Officer)
</TABLE>
<PAGE> 3
AMF BOWLING HOLDINGS INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Holdings Inc. whose signature appears below constitutes and appoints
Richard A. Friedman, Terence M. O'Toole and Douglas J. Stanard and each of them,
with full power to act without the other, his true and lawful attorneys-in-fact
and agents, with full and several power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments,
including post-effective amendments, and supplements to the registration
statement on Form S-4 initially with the Securities and Exchange Commission on
May 31, 1996, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they or he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard President, Assistant Secretary and
- --------------------------------------------- Director
DOUGLAS J. STANARD (Principal Executive Officer)
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro
- --------------------------------------------- Vice President and Secretary
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 4
AMF BOWLING CENTERS HOLDINGS INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Centers Holdings Inc. whose signature appears below constitutes and
appoints Richard A. Friedman, Terence M. O'Toole and Douglas J. Stanard and each
of them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full and several power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments, including post-effective amendments, and supplements to the
registration statement on Form S-4 initially with the Securities and Exchange
Commission on May 31, 1996, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro Assistant Treasurer, Secretary and
- --------------------------------------------- Corporate Controller
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 5
AMF BOWLING, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Inc. whose signature appears below constitutes and appoints Richard A.
Friedman, Terence M. O'Toole and Douglas J. Stanard and each of them, with full
power to act without the other, his true and lawful attorneys-in-fact and
agents, with full and several power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments,
including post-effective amendments, and supplements to the registration
statement on Form S-4 initially with the Securities and Exchange Commission on
May 31, 1996, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they or he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard
- --------------------------------------------- Chief Executive Officer and Director
DOUGLAS J. STANARD (Principal Executive Officer)
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro Vice President, Secretary and
- --------------------------------------------- Corporate Controller
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 6
AMF WORLDWIDE BOWLING CENTERS HOLDINGS INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Worldwide Bowling Centers Holdings Inc. whose signature appears below
constitutes and appoints Richard A. Friedman, Terence M. O'Toole and Douglas J.
Stanard and each of them, with full power to act without the other, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments, including post-effective amendments,
and supplements to the registration statement on Form S-4 initially with the
Securities and Exchange Commission on May 31, 1996, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro Vice President, Secretary and
- --------------------------------------------- Assistant Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 7
AMF BOWLING CENTERS SWITZERLAND INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Centers Switzerland, Inc. whose signature appears below constitutes and
appoints Richard A. Friedman, Terence M. O'Toole and Douglas J. Stanard and each
of them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full and several power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments, including post-effective amendments, and supplements to the
registration statement on Form S-4 initially with the Securities and Exchange
Commission on May 31, 1996, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard
- --------------------------------------------- Vice President, Assistant Secretary and
DOUGLAS J. STANARD Director
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro Vice President, Secretary and
- --------------------------------------------- Assistant Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 8
AMF BOWLING CENTERS (AUST) INTERNATIONAL INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Centers (Aust) International Inc. whose signature appears below
constitutes and appoints Richard A. Friedman and Terence M. O'Toole and each of
them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full and several power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments, including post-effective amendments, and supplements to the
registration statement on Form S-4 initially with the Securities and Exchange
Commission on May 31, 1996, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro Vice President, Secretary and
- --------------------------------------------- Assistant Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 9
AMF BOWLING CENTERS (CANADA) INTERNATIONAL INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Centers (Canada) International Inc. whose signature appears below
constitutes and appoints Richard A. Friedman, Terence M. O'Toole and Douglas J.
Stanard and each of them, with full power to act without the other, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments, including post-effective amendments,
and supplements to the registration statement on Form S-4 initially with the
Securities and Exchange Commission on May 31, 1996, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro Vice President, Secretary and
- --------------------------------------------- Assistant Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 10
AMF BOWLING CENTERS (HONG KONG) INTERNATIONAL INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Centers (Hong Kong) International Inc. whose signature appears below
constitutes and appoints Richard A. Friedman and Terence M. O'Toole and each of
them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full and several power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments, including post-effective amendments, and supplements to the
registration statement on Form S-4 initially with the Securities and Exchange
Commission on May 31, 1996, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare
- --------------------------------------------- Chief Financial Officer and Treasurer
STEPHEN E. HARE (Principal Financial Officer)
/s/ Michael P. Bardaro Vice President, Secretary and
- --------------------------------------------- Assistant Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 11
AMF BOWLING CENTERS INTERNATIONAL INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Centers International Inc. whose signature appears below constitutes and
appoints Richard A. Friedman, Terence M. O'Toole and Douglas J. Stanard and each
of them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full and several power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments, including post-effective amendments, and supplements to the
registration statement on Form S-4 initially with the Securities and Exchange
Commission on May 31, 1996, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard
- -------------------------------------------- Vice President, Secretary and Director
DOUGLAS J. STANARD
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President and Assistant Secretary
- -------------------------------------------- (Principal Accounting Officer)
MICHAEL P. BARDARO
</TABLE>
<PAGE> 12
AMF BCO-UK ONE, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
BCO-UK One, Inc. whose signature appears below constitutes and appoints Richard
A. Friedman and Terence M. O'Toole and each of them, with full power to act
without the other, his true and lawful attorneys-in-fact and agents, with full
and several power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including post-effective
amendments, and supplements to the registration statement on Form S-4 initially
with the Securities and Exchange Commission on May 31, 1996, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard Chief Executive Officer, Assistant
- -------------------------------------------- Secretary and Director
DOUGLAS J. STANARD (Principal Executive Officer)
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President, Secretary and Assistant
- -------------------------------------------- Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 13
AMF BCO-UK TWO, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
BCO-UK TWO, Inc. whose signature appears below constitutes and appoints Richard
A. Friedman and Terence M. O'Toole and each of them, with full power to act
without the other, his true and lawful attorneys-in-fact and agents, with full
and several power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including post-effective
amendments, and supplements to the registration statement on Form S-4 initially
with the Securities and Exchange Commission on May 31, 1996, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard Chief Executive Officer, Assistant
- -------------------------------------------- Secretary and Director
DOUGLAS J. STANARD (Principal Executive Officer)
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President, Secretary and Assistant
- -------------------------------------------- Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 14
AMF BCO-FRANCE ONE, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
BCO-France One, Inc. whose signature appears below constitutes and appoints
Richard A. Friedman and Terence M. O'Toole and each of them, with full power to
act without the other, his true and lawful attorneys-in-fact and agents, with
full and several power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including
post-effective amendments, and supplements to the registration statement on Form
S-4 initially with the Securities and Exchange Commission on May 31, 1996, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as they or he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President, Secretary and Assistant
- -------------------------------------------- Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 15
AMF BCO-FRANCE TWO, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
BCO-France Two, Inc. whose signature appears below and the Authorized
Representative in the United States whose signature appears below constitutes
and appoints Richard A. Friedman and Terence M. O'Toole and each of them, with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, with full and several power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments,
including post-effective amendments, and supplements to the registration
statement on Form S-4 initially with the Securities and Exchange Commission on
May 31, 1996, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they or he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President, Secretary and Assistant
- -------------------------------------------- Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 16
AMF BOWLING CENTERS SPAIN, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Centers Spain, Inc. whose signature appears below constitutes and
appoints Richard A. Friedman, Terence M. O'Toole and Douglas J. Stanard and each
of them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full and several power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments, including post-effective amendments, and supplements to the
registration statement on Form S-4 initially with the Securities and Exchange
Commission on May 31, 1996, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard Vice President, Assistant Secretary
- -------------------------------------------- and Director
DOUGLAS J. STANARD (Principal Executive Officer)
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President and Secretary
- -------------------------------------------- (Principal Accounting Officer)
MICHAEL P. BARDARO
</TABLE>
<PAGE> 17
AMF BOWLING MEXICO HOLDING, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowing Mexico Holding, Inc. whose signature appears below constitutes and
appoints Richard A. Friedman And Terence M. O'Toole and each of them, with full
power to act without the other, his true and lawful attorneys-in-fact and
agents, with full and several power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments,
including post-effective amendments, and supplements to the registration
statement on Form S-4 initially with the Securities and Exchange Commission on
May 31, 1996, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they or he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard Chief Executive Officer, Assistant
- -------------------------------------------- Secretary and Director
DOUGLAS J. STANARD (Principal Executive Officer)
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President, Secretary and Assistant
- -------------------------------------------- Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 18
BOLICHES AMF, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of
Boliches AMF, Inc. whose signature appears below constitutes and appoints
Richard A. Friedman and Terence M. O'Toole and each of them, with full power to
act without the other, his true and lawful attorneys-in-fact and agents, with
full and several power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including
post-effective amendments, and supplements to the registration statement on Form
S-4 initially with the Securities and Exchange Commission on May 31, 1996, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as they or he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Douglas J. Stanard Chief Executive Officer, Assistant
- -------------------------------------------- Secretary and Director
DOUGLAS J. STANARD (Principal Executive Officer)
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President, Secretary and Assistant
- -------------------------------------------- Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 19
AMF BCO-CHINA, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
BCO-China, Inc. whose signature appears below constitutes and appoints Richard
A. Friedman and Terence M. O'Toole, and each of them, with full power to act
without the other, his true and lawful attorneys-in-fact and agents, with full
and several power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including post-effective
amendments, and supplements to the registration statement on Form S-4 initially
with the Securities and Exchange Commission on May 31, 1996, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President, Secretary and Assistant
- -------------------------------------------- Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
<PAGE> 20
AMF BOWLING CENTERS CHINA, INC.
POWER OF ATTORNEY
Know all men by these presents, that each director and/or officer of AMF
Bowling Centers China, Inc. whose signature appears below constitutes and
appoints Richard A. Friedman, Terence M. O'Toole and Douglas J. Stanard and each
of them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full and several power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any or
all amendments, including post-effective amendments, and supplements to the
registration statement on Form S-4 initially with the Securities and Exchange
Commission on May 31, 1996, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Date: April 28, 1997
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ Stephen E. Hare Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
STEPHEN E. HARE
/s/ Michael P. Bardaro Vice President, Secretary and Assistant
- -------------------------------------------- Treasurer
MICHAEL P. BARDARO (Principal Accounting Officer)
</TABLE>
