<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMF BOWLING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7933,3949 13-3873268
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
8100 AMF DRIVE
RICHMOND, VIRGINIA 23111
(804) 730-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DOUGLAS J. STANARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMF BOWLING, INC.
8100 AMF DRIVE
RICHMOND, VIRGINIA 23111
(804) 730-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DANIEL A. NEFF, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SULLIVAN & CROMWELL
51 WEST 52ND STREET 125 BROAD STREET
NEW YORK, NY 10019 NEW YORK, NY 10004
(212) 403-1000 (212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PRICE(3) PER SHARE(3) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share......................... shares $250,000,000.00 $ $75,758.00
========================================================================================================
</TABLE>
(1) Includes shares issuable upon exercise of the Underwriters' over-allotment
option. See "Underwriting".
(2) The shares of Common Stock are not being registered for the purposes of
sales outside the United States.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 21, 1997
[LOGO]
SHARES
AMF BOWLING, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
Of the shares of Common Stock offered, shares are being
offered hereby in the United States and shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting". All of the shares of
Common Stock offered hereby are being sold by the Company.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between and . For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol " ".
------------------------
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.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting".
------------------------
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about , 1997, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
COWEN & COMPANY
SCHRODER & CO. INC.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
AMF Bowling intends to furnish to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited interim financial information for the first three fiscal quarters of
each fiscal year of AMF Bowling.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
AVAILABLE INFORMATION
AMF Bowling, Inc. ("AMF Bowling") has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-1
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the common stock, par value $.01 per share, of AMF Bowling (the "Common Stock")
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to AMF Bowling and the Common Stock, reference is
hereby made to the Registration Statement. The Registration Statement, including
all exhibits and schedules thereto, may be inspected without charge at the
public reference facilities maintained by the Commission at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at 7 World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Registration Statement may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, although the material terms
thereof are described in this Prospectus, and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement. Each such statement is qualified by such reference to
such exhibits.
AMF Bowling will be subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). AMF Bowling will fulfill its obligations with respect to
such requirements by filing reports, proxy statements and other information with
the Commission. Such materials may be inspected and copied at the offices of the
Commission and in the manner described above, as well as on the World Wide Web
site maintained by the Commission at http://www.sec.gov. Such materials will
also be available at the offices of The New York Stock Exchange, Inc. (the
"NYSE"), to which application to list the Common Stock will be made.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, which are
statements other than historical information or statements of current condition.
Some forward-looking statements may be identified by use of terms such as
"believes", "anticipates", "intends" or "expects". The forward-looking
statements contained in this Prospectus are generally located in the material
set forth under "Prospectus Summary", "Risk Factors", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business",
but may be found in other locations as well. These forward-looking statements
relate to the plans and objectives of the Company for future operations. In
light of the risks and uncertainties inherent in all future projections, the
inclusion of forward-looking statements in this Prospectus should not be
regarded as a representation by AMF Bowling or any other person that the
objectives or plans of the Company will be achieved. Many
2
<PAGE> 4
factors could cause the Company's actual results to differ materially from those
in the forward-looking statements, including, among other things: (i) the
Company's ability to execute successfully acquisition opportunities and to
integrate acquired operations into its business, (ii) the continued development
and growth of new bowling markets and the Company's ability to continue to
identify those markets and to generate sales of products in those markets before
market saturation, (iii) the risk of adverse political acts or developments in
the Company's existing or proposed markets for its products or in which it
operates its bowling centers, (iv) the Company's ability to retain experienced
senior management, (v) the ability of AMF Bowling and its subsidiaries to
generate sufficient cash flow in a timely manner to satisfy principal and
interest payments on their indebtedness and (vi) the popularity of bowling as an
activity in the United States and abroad. In addition, actual results may also
differ materially from forward-looking statements in this Prospectus as a result
of factors generally applicable to companies in similar businesses, including,
among other things: (i) a decline in general economic conditions, (ii) an
adverse judgment in pending or future litigation and (iii) increased competitive
pressure from current competitors and future market entrants. The foregoing
review of important factors should not be construed as exhaustive and should be
read in conjunction with other cautionary statements that are included in the
Registration Statement. AMF Bowling undertakes no obligation to release publicly
the results of any future revisions it may make to forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements appearing elsewhere in this
Prospectus. As used in this Prospectus, "AMF Bowling" refers to AMF Bowling,
Inc., and the "Company" or "AMF" refers to AMF Bowling and its subsidiaries.
Unless otherwise indicated, all information in this Prospectus assumes that the
over-allotment options granted to the Underwriters are not exercised. Except as
otherwise indicated herein, all pro forma information has been prepared to give
effect to the Acquisition (as hereinafter defined) of AMF as if it had occurred
on January 1, 1996. EBITDA (which represents earnings before net interest
expense, income taxes, depreciation and amortization, and other income and
expenses) 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 ("GAAP"). The
fragmented nature of the bowling centers business makes it difficult to compile
reliable industry-wide statistics. Accordingly, industry statistics provided in
this Prospectus should be regarded as approximations with a potentially
significant margin of error.
THE COMPANY
AMF is the largest bowling company in the world. The Company operates 422
bowling centers worldwide which generate over 60 million customer visits per
year. AMF is the U.S. market leader with 335 bowling centers, and is also the
largest operator internationally, with 87 bowling centers in nine countries. In
addition, AMF has been a leader in the bowling equipment industry for over 50
years, having revolutionized ten pin bowling with the introduction of the first
automatic pinspotter in 1946. AMF is one of only two bowling equipment
manufacturers that compete on a global basis. Management believes that AMF
bowling equipment accounts for approximately 41% of the world's installed base
of bowling equipment.
The worldwide bowling center and bowling equipment industry generates
approximately $9 billion in annual revenue and includes approximately 13,000
bowling centers in over 80 countries. The U.S. bowling center and bowling
equipment industry generates in excess of $4 billion of revenue annually and
includes approximately 5,900 centers. Over 100 million people participate
annually in bowling worldwide, according to the Federation Internationale des
Quilleurs (the "FIQ"), the official organization of the worldwide bowling
industry. The bowling center industry in both the U.S. and abroad is highly
fragmented. In the U.S., the next closest competitor to AMF's 335 centers has
approximately 111 centers. The next four largest operators collectively account
for approximately 73 of the total 5,900 centers.
An investor group led by GS Capital Partners II, L.P. ("GSCP"), an
affiliate of Goldman, Sachs & Co., acquired AMF in May 1996 for a total purchase
price of approximately $1.37 billion. The investor group appointed a new
management team that has aggressively pursued a three-part strategy:
- consolidate the U.S. bowling center industry,
- build a nationally recognized brand of superior bowling and
entertainment centers, and
- capitalize on the surging demand for bowling products and centers in
certain international markets.
Management is utilizing the well-recognized AMF name to build the only
national branded network of bowling and entertainment centers in the U.S.
through a series of initiatives. These include introducing innovative new
products, such as bumper bowling and Xtreme Bowling(TM), upgrading the physical
appearance of centers, and improving the food and beverage offerings. Since May
1996, AMF's management team has grown the number of AMF's U.S. centers from 207
to 335, an increase of 62%, principally through acquisitions.
AMF is also capitalizing on the strong international growth in the demand
for bowling products through direct sales of equipment and the building of new
bowling centers abroad. Strong demand
4
<PAGE> 6
for AMF's New Center Packages ("NCPs"), which include all of the equipment
necessary to outfit one new bowling lane, drove AMF's backlog from 1,426 NCP
units at December 31, 1996 to 2,431 NCP units at August 10, 1997, an increase of
70%. Over 90% of the Company's NCP backlog is to international markets such as
China, Japan and Germany. Further, AMF is acting to accelerate the development
of bowling in key potential markets. During 1997, AMF agreed to enter into joint
ventures to build and operate bowling centers equipped with AMF bowling products
in selected Southeast Asian countries, and in Brazil and Argentina.
BUSINESS STRATEGY
AMF believes that its future growth will depend on the continued success of
its three-part strategy to consolidate the U.S. bowling center industry, build a
nationally recognized AMF brand of superior bowling and entertainment centers,
and capitalize on the surging demand for bowling products and centers in certain
international markets. The key elements of the strategy are:
CONSOLIDATE THE FRAGMENTED U.S. BOWLING CENTER INDUSTRY. In addition to
the 135 centers that AMF has acquired since May 1996, the Company's dedicated
acquisition team has identified approximately 2,000 potential center acquisition
candidates in the United States. The Company employs a regional clustering
strategy for its U.S. centers and focuses on acquiring centers that either fit
into existing geographic clusters or could be the base for forming new clusters.
Management believes that none of the Company's competitors in the U.S. bowling
industry is pursuing such an active acquisition strategy.
IMPROVE ACQUIRED CENTERS' PROFITABILITY. The Company believes that its
EBITDA margins are among the highest of operators of U.S. bowling center chains,
based on the Company's experience in acquiring centers. Following an
acquisition, management acts to increase profitability by cutting costs and
introducing programs to increase revenue. Specifically, the Company improves
marketing programs, reduces overhead, optimizes staffing, implements improved
financial controls, centralizes management and maintenance of equipment, and
centralizes purchasing. The Company often makes immediate capital and other
improvements to upgrade the centers it acquires which are designed to generate
increased revenue and to further AMF's goal of creating a nationally recognized
brand of superior bowling and entertainment centers.
BUILD A NATIONALLY RECOGNIZED BRAND OF SUPERIOR BOWLING AND ENTERTAINMENT
CENTERS. AMF believes it offers a superior bowling and entertainment experience
utilizing innovative products such as Xtreme Bowling(TM), which uses
glow-in-the-dark pins and equipment, black lighting and music; bumper bowling
for children, in which bumpers prevent balls from rolling into the gutter;
computerized, automatic and color scoring; and time period discounts for certain
groups, such as seniors and children. The Company is also increasing concourse
space in certain of its centers for amusement games, billiards and other
activities. AMF is selectively introducing the "Family Fun Fest" bowling center,
which offers expanded state-of-the-art arcade and video games. The Company also
seeks to increase its profile through the sponsorship of Special Olympics
International and by hosting professional bowling tournaments.
BUILD NEW CENTERS. The Company has built new bowling centers in attractive
markets to enhance its Bowling Centers business and also to serve as a showcase
for the products manufactured by its Bowling Products business. These centers
utilize state-of-the-art equipment and present bowling as part of a family
entertainment experience and are an integral part of AMF's efforts to build a
nationally branded network of superior bowling and entertainment centers. For
instance, in August 1997, the Company will open a new 40-lane bowling center at
Chelsea Piers in New York, the first new bowling center in Manhattan in 30
years.
IMPROVE FOOD AND BEVERAGE REVENUES. The Company estimates that it has over
60 million customer visits per year in its bowling centers. The Company is
expanding and improving the food and beverage product offerings at many of its
centers to take better advantage of its significant customer traffic. AMF also
capitalizes on purchasing economies of scale. The Company is one of
5
<PAGE> 7
the nation's leading on-premise accounts for both Anheuser Busch Companies, Inc.
and The Coca-Cola Company.
CAPITALIZE ON GROWING GLOBAL DEMAND FOR BOWLING PRODUCTS. Management
believes that AMF's well-established global brand name, the quality of its
products, and its comprehensive service and strong direct sales force and
distribution network will enable it to take advantage of growing NCP demand
worldwide. The Company is focused on sales of NCPs (which comprised 48% of AMF's
Bowling Products sales in 1996) into selected countries with demonstrated strong
demand for bowling products. AMF's backlog of NCPs increased by 70% from 1,426
units at December 31, 1996 to 2,431 units at August 10, 1997. Customers outside
the U.S. comprise over 90% of the current NCP backlog total, with the largest
portion going to markets such as China, Japan and Germany. In addition, AMF will
continue to acquire and to build international bowling centers on a selective
basis, either to enhance the growth of bowling in countries which present
attractive opportunities for the sale of bowling products or to enhance AMF's
competitive position in a particular country's bowling center industry.
ACCELERATE THE DEVELOPMENT OF BOWLING IN SELECTED INTERNATIONAL
MARKETS. In addition to the international markets that currently have a high
demand for bowling products, management believes that selected international
markets which are in the early development stage have the potential for high
growth. Examples of such early stage markets are India which has over 25 million
people per lane of installed bowling equipment, Poland which has over 2 million
people per lane, Indonesia which has over 650,000 people per lane, and Brazil
which has 450,000 people per lane. By contrast, mature markets, such as the U.S.
and Korea, have populations per lane of 2,000 and 3,600, respectively. There can
be no assurance that these early stage markets will develop to the same extent
as the United States or Korea, as only a small number of markets have achieved
this level of development. AMF seeks to accelerate the industry's growth in
early stage markets by building showcase centers and conducting promotional
programs. As bowling becomes more popular, local developers and entrepreneurs
build new bowling centers, which are outfitted with equipment, and drive demand
for NCPs. To capitalize on this development cycle, AMF has agreed to enter into
joint ventures to build, own and operate up to 20 bowling centers in Southeast
Asia and 39 bowling centers in Brazil and Argentina. The Company is also
developing a center in India and pursuing opportunities in Russia and Poland.
PROVIDE INNOVATIVE AND QUALITY PRODUCTS. AMF expects to continue to
maintain its leadership position in manufacturing by setting industry standards
for quality and innovation. Management believes that AMF has the fastest and
most reliable pinspotters, the highest scoring lanes and the most durable pins.
Since the development of the first automatic pinspotter over 50 years ago, AMF
has been an innovator in the advancement of such products as automatic scoring,
bumpers, and Xtreme Bowling(TM). AMF positions its products as high quality and
technologically advanced, allowing it generally to command premium prices.
Management believes that AMF uses its position as an integrated bowling center
operator and bowling products manufacturer to AMF's advantage in testing and
developing product innovations.
INCREASE MODERNIZATION AND CONSUMER PRODUCT SALES. Management expects AMF
to benefit as the worldwide base of bowling centers grows due to the increased
popularity of bowling. AMF's brand name, the large installed base of AMF bowling
equipment, AMF's established direct sales force and distribution network and its
quality products will position AMF to increase sales of Modernization and
Consumer Products. These products, which include modernization equipment,
supplies, spare parts and consumable products, comprised 52% of AMF's Bowling
Products sales in 1996. Furthermore, when AMF acquires or constructs a center
and installs state-of-the-art equipment in that center, management believes that
competing centers may purchase Modernization and Consumer Products, often from
AMF, to remain viable competitors to the AMF center.
6
<PAGE> 8
RECENT FINANCIAL PERFORMANCE
AMF's management has significantly improved financial results since the May
1996 acquisition. Revenue and EBITDA increased by 33.9% to $318.1 million and by
30.4% to $85.8 million, respectively, for the first six months of 1997 as
compared to the pro forma results for the first six months of 1996. Management
believes that AMF's Bowling Centers and Bowling Products businesses have been
characterized by high EBITDA margins and attractive returns on investment.
Management believes that the Company is well-positioned, due to its long
established industry leadership position, the AMF brand, the Company's large
installed base and its strategy to develop and capitalize on the growth
potential of bowling worldwide.
BACKGROUND
AMF Bowling is a Delaware corporation which was incorporated in 1996 by
GSCP to effect the acquisition of AMF (the "Acquisition"). AMF Bowling was
initially incorporated under the name "AMF Holdings Inc." and subsequently
renamed "AMF Bowling, Inc."
After the incorporation of AMF Bowling, GSCP sold certain equity interests
in AMF Bowling to investment funds affiliated with The Blackstone Group, Kelso &
Company, Bain Capital Inc. and Citicorp North America, Inc. and to certain
officers and directors of AMF Bowling.
AMF Group Holdings Inc. ("AMF Group Holdings"), a direct, wholly owned
subsidiary of AMF Bowling, acquired substantially all of the assets of AMF's
predecessor (the "Predecessor Company") on May 1, 1996 pursuant to the Stock
Purchase Agreement, dated February 16, 1996, between AMF Group Holdings and the
then-current stockholders of the Predecessor Company, as amended (the "Stock
Purchase Agreement"). The purchase price for the Acquisition was approximately
$1.37 billion.
AMF Bowling's principal executive offices are located at 8100 AMF Drive,
Richmond, Virginia, and the telephone number of AMF Bowling is (804) 730-4000.
7
<PAGE> 9
THE OFFERINGS
The offering hereby of shares of Common Stock initially being
offered in the United States (the "U.S. Offering") and the offering of
shares of Common Stock initially being offered in a concurrent
international offering outside the United States (the "International Offering")
are collectively referred to as the "Offerings". The underwriters for the U.S.
Offering (the "U.S. Underwriters") and the underwriters for the International
Offering (the "International Underwriters") are collectively referred to as the
"Underwriters". The closing of each Offering is conditioned upon the closing of
the other Offering.
<TABLE>
<S> <C>
Common Stock offered by the Company: (1)
United States Offering................................. shares
International Offering................................. shares
Total.......................................... shares
Common Stock to be outstanding after the Offerings....... shares(1)(2)
Proposed NYSE symbol..................................... " "(3)
Use of proceeds by the Company........................... To repay indebtedness and
for general corporate
purposes. See "Use of
Proceeds".
</TABLE>
- ---------------
(1) Assumes that the Underwriters' over-allotment options are not exercised. See
"Underwriting".
(2) Does not include outstanding options ("Stock Options") to acquire 1,548,000
shares of Common Stock or outstanding warrants to acquire 870,000 shares of
Common Stock.
(3) Application will be made to list the Common Stock on the NYSE under the
symbol " ".
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
factors set forth under "Risk Factors" starting on page 11 as well as the other
information set forth in this Prospectus. The risks of investing in the Common
Stock include the following factors: the Company's ability to implement growth
strategies, characteristics of the bowling industry, seasonality and market
development cycles, the Company's indebtedness and recent net losses, the
holding company structure, dependence on key personnel, control by GSCP, the
Company's international operations, anti-takeover effects of certain certificate
of incorporation and by-law provisions, absence of prior public market and
possible volatility of stock price, shares eligible for future sale, absence of
dividends and dilution.
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<PAGE> 10
SUMMARY FINANCIAL DATA
The summary financial data set forth below for the fiscal years indicated
were derived from the consolidated pro forma results of AMF Bowling for the year
ended December 31, 1996, and the Predecessor Company's audited combined
financial statements for the years ended December 31, 1995, 1994, 1993, and
unaudited combined financial statements for the year ended December 31, 1992.
The summary financial data include results for the six months ended June 30,
1997, compared to pro forma results for the six months ended June 30, 1996. The
pro forma results set forth below are presented as if the Acquisition had
occurred on January 1, 1996, and are based on the Predecessor Company's
statement of income for the period ending April 30, 1996, AMF Bowling's
statement of income from its inception through the relevant reporting date and
adjustments giving effect to the Acquisition under the purchase method of
accounting. See "Note 3. Pro Forma Results of Operations" in the Notes to
Consolidated Financial Statements and the Notes to Condensed Consolidated
Financial Statements of AMF Bowling. The data should be read in conjunction with
AMF Bowling's Consolidated Financial Statements and Condensed Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations", which appear elsewhere herein.
The summary financial data include operating results expressed in terms of
EBITDA, which represents earnings before net interest expense, income taxes,
depreciation and amortization, and other income and expenses. EBITDA information
is included because the Company understands that such information is a standard
measure commonly reported and widely used by certain investors and analysts.
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 GAAP.
- --
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, --------------------------------
------------------------------------------------------------
PRO FORMA PRO FORMA
AMF AMF AMF
PREDECESSOR COMPANY BOWLING, INC. BOWLING, INC. BOWLING, INC.
------------------------------------------ ------------- ------------- -------------
1992 1993 1994(a) 1995 1996(b) 1996(c) 1997
------ ------ ------ ------ ------------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue........... $391.2 $427.6 $517.8 $564.9 $ 548.9 $ 237.5 $ 318.1
------ ------ ------ ------ ------ ------ ------
Cost of goods sold.......... 132.1 153.2 196.0 184.1 173.6 66.5 86.1
Bowling center operating
expenses................... 103.1 108.5 115.2 166.5 178.8 82.5 116.0
Selling, general and
administrative expenses.... 43.2 41.9 57.1 50.8 51.0 22.7 30.2
Depreciation and
amortization............... 25.5 21.4 24.8 39.1 73.5 34.9 43.4
------ ------ ------ ------ ------ ------ ------
Operating income............ 87.3 102.6 124.7 124.4 72.0 30.9 42.4
Interest expense, gross..... 7.9 5.0 7.4 15.7 106.2 52.2 57.5
Other income (expense),
net........................ 0.1 (0.1) (1.5) 0.2 3.8 3.4 (1.3)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes...................... 79.5 97.5 115.8 108.9 (30.4) (17.9) (16.4)
Provision (benefit) for
income taxes............... 15.4 15.1 16.5 12.1 (8.9) (4.4) (4.2)
------ ------ ------ ------ ------ ------ ------
Net income (loss)........... $ 64.1 $ 82.4 $ 99.3 $ 96.8 $ (21.5) $ (13.5) $ (12.2)
====== ====== ====== ====== ====== ====== ======
Net loss per share.......... $ (0.55) $ (0.35) $ (0.29)
SELECTED DATA:
EBITDA...................... $112.8 $124.0 $149.5 $163.5 $ 145.5 $ 65.8 $ 85.8
EBITDA margin............... 28.8% 29.0% 28.9% 28.9% 26.5% 27.7% 27.0%
Revenue:(d)
Bowling Centers............ $204.5 $192.6 $225.4 $292.3 $ 307.3 $ 147.2 $ 201.1
Bowling Products........... 195.4 243.6 301.7 286.5 252.1 96.8 124.7
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, -------------------------------
----------------------------------------------------
PRO FORMA PRO FORMA
AMF AMF AMF
PREDECESSOR COMPANY BOWLING, INC. BOWLING, INC. BOWLING, INC.
----------------------------------- ------------- ------------- -------------
1992 1993 1994(a) 1995 1996(b) 1996(c) 1997
----- ----- ----- ----- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA: (e)
Bowling Centers................ $65.2 $54.5 $65.8 $86.8 $ 95.6 $48.3 $ 63.0
Bowling Products............... 48.7 71.1 84.6 79.3 62.6 22.9 31.3
New Center Packages sold......... 2,210 3,577 4,941 4,437 3,029 1,152 1,933
New Center Packages backlog, end
of period(f)................... N/A N/A 2,078 940 1,426 1,144 2,182
Number of centers, end of
period......................... 197 190 293 286 341 284 408
Number of lanes, end of period... 5,988 5,896 9,586 9,430 11,782 9,386 14,206
Capital Expenditures:
Routine modernization and
maintenance(g)............... $ 8.3 $ 9.0 $11.4 $13.1 $ 14.5 $ 6.9 $ 12.2
Expansion and acquisition
capital(h)................... 3.8 5.7 6.4 16.9 124.3 3.3 135.6
------ ------ ------ ------ ------ ------ ------
Total.......................... $12.1 $14.7 $17.8 $30.0 $ 138.8 $10.2 $ 147.8
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE
DECEMBER 31, 1996 30, 1997
----------------------- -------------
AMF AMF
BOWLING, INC. BOWLING, INC.
----------------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 7.8 $ (23.3)
Goodwill, net.......................................................... 771.1 766.7
Total assets........................................................... 1,594.0 1,715.6
Total debt............................................................. 1,091.3 1,221.3
Stockholders' equity................................................... 408.8 391.1
Total capitalization................................................... $ 1,500.1 $ 1,612.4
</TABLE>
- ---------------
(a) Includes results of Fair Lanes, Inc., a bowling center operator ("Fair
Lanes"), which operated 106 centers and was acquired on September 29, 1994.
(b) Represents results of operations from January 1, 1996 through December 31,
1996 on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in
the Notes to Consolidated Financial Statements of AMF Bowling as of December
31, 1996.
(c) Represents results of operations from January 1, 1996 through June 30, 1996,
on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Condensed Consolidated Financial Statements of AMF Bowling as of
June 30, 1997.
(d) Before intersegment eliminations.
(e) Before intersegment eliminations and corporate general and administrative
expenses.
(f) Orders of New Center Packages included in the backlog are subject to
cancellation by customers in the normal course of business. Accordingly, the
Company has experienced, and expects to continue to experience, the
cancellation of a portion of such orders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Backlog; Recent
NCP Sales". Data is not provided for 1992 and 1993 because the Company does
not maintain this data for such periods.
(g) Defined as capital expenditures for existing product lines and manufacturing
operations and capital expenditures for modernizing and refurbishing bowling
centers.
(h) Includes (i) the construction of centers and (ii) the acquisition of centers
since May 1, 1996. Excludes the acquisition of Fair Lanes and all other
acquisitions prior to May 1, 1996.
10
<PAGE> 12
RISK FACTORS
ABILITY TO IMPLEMENT GROWTH STRATEGIES
The Company has grown, and anticipates that it will continue to grow,
through acquisitions of centers and improvements at existing centers. There can
be no assurance that the Company will continue to be successful in acquiring
centers and improving operations of acquired and existing centers.
Historically, the Company has financed acquisitions through issuances of
Common Stock, cash on hand and borrowings. The Company anticipates that it will
finance future acquisitions in the same manner. The Credit Agreement (as
hereinafter defined) and Note Indentures (as hereinafter defined) restrict the
Company's ability to incur indebtedness and make certain investments and as a
result may limit the number of centers acquired by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity", "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Capital Resources", "Business -- Business
Strategy" and "Description of Certain Indebtedness". There can be no assurance
that the Company will generate cash or obtain debt or equity financing on
acceptable terms in amounts sufficient to fund its growth strategies.
The Company also seeks to grow through increased sales of NCPs and
Modernization and Consumer Products. Integral to such increased sales is the
Company's strategy of exploiting increased demand for bowling products in
developed as well as in emerging bowling markets. There can be no assurance that
such increased demand will materialize or that the Company will be able to
successfully exploit such demand. See "-- Seasonality and Market Development
Cycles" and "Business -- Business Strategy".
BOWLING INDUSTRY CHARACTERISTICS
BOWLING CENTERS
In the United States, the operation of bowling centers generally has been
characterized by slightly declining lineage (number of games bowled per lane per
day), 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 decline
in league participation, partially offset by an increase in recreational (i.e.,
non-league) play, 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 income. Contrary to the
overall lineage trend in the industry, AMF's U.S. lineage has remained
relatively stable over recent years due to its ability to retain existing league
bowlers and attract new recreational bowlers due to, management believes, the
generally higher quality of AMF's centers. Internationally, although trends vary
by country, certain of the markets in which AMF operates have experienced
increasing competition as they have matured, resulting in declining lineage. AMF
has offset these lineage declines through higher prices and additional focus on
food and beverage and other amusement revenue. There can be no assurance that
AMF will be able to continue to maintain lineage or increase prices in the U.S.
or internationally in the future. See "Business -- AMF Bowling Centers".
In addition, bowling, as both 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 bowling, the availability and cost of other sport, 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 to exhibit its current level of popularity
or that AMF will continue to compete effectively in the industry. See
"Business -- Industry Overview".
11
<PAGE> 13
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 to newly
constructed bowling centers. While established bowling markets continue to
produce some NCP sales, the primary driver of NCP sales in recent years has been
the rapid growth experienced in new markets as bowling 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 NCPs depends, in part, on similar bowling growth
patterns developing in other emerging bowling markets, such as Eastern Europe,
India, Indonesia and South America, and on AMF's ability to successfully exploit
new demand. Sales of NCPs for 1996 declined substantially from 1995, reflecting
the maturing bowling markets in Taiwan and Korea. There can be no assurance that
future international expansion will occur or, if it does occur, that 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" and "Business -- AMF Bowling Products".
SEASONALITY AND MARKET DEVELOPMENT CYCLES
Financial performance of Bowling Centers is 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
helps to reduce this seasonality as bowling centers in certain countries in
which AMF operates exhibit different seasonal sales patterns. However, as a
result of the growing number of U.S. centers attributable to the Company's
acquisition program, the seasonality of financial performance of AMF's Bowling
Centers business may be accentuated. See "Business -- Business Strategy".
NCP sales experience significant fluctuations due to changes in demand for
NCPs as certain markets experience high growth followed by market maturity, at
which times sales to that market decline, sometimes rapidly. Management believes
market cycles for individual countries have, in the past, spanned several years,
with periods of high demand for several markets (e.g., Japan, Korea, Taiwan)
which, in AMF's experience, last five years or more. These growth patterns do
not seem to be closely tied to general economic cycles. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality and Market Development Cycles".
SUBSTANTIAL LEVERAGE; INDEBTEDNESS; NET LOSSES
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness that it incurred in connection with the Acquisition
and intends to incur to finance acquisitions and expand its operations. As of
June 30, 1997, the Company had total indebtedness of $1,221.3 million and
stockholders' equity of $391.1 million, resulting in a ratio of debt to total
capitalization of approximately 75.7%. 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. The Company intends to incur additional
indebtedness in the future, subject to limitations imposed by the Note
Indentures and the Credit Agreement. Although AMF Bowling intends to repay
certain indebtedness with the proceeds of the Offerings, it also intends to
incur additional indebtedness to finance acquisitions and expand its operations,
and will therefore remain highly leveraged after giving effect to the Offerings.
See "Capitalization". The Credit Agreement requires the maintenance of certain
financial ratios and imposes certain operating and financial restrictions on the
Company which restrict, among other things, the Company's ability to declare
dividends, redeem stock, incur indebtedness, incur obligations under leases,
create liens, consummate mergers, sell assets, and make capital expenditures,
investments and acquisitions. See "Description of Certain Indebtedness".
12
<PAGE> 14
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 (as hereinafter defined) under the Credit
Agreement. As of July 31, 1997, $86.0 million remained available under the
Acquisition Facility. Actual borrowings must meet certain financial tests under
the Credit Agreement. The Company's leverage may adversely affect its ability to
meet these tests, and, as a result, to obtain such financing. See "-- Ability to
Implement Growth Strategies" and "Description of Certain Indebtedness".
The Company recorded a net loss of $21.5 million, on a pro forma basis, in
1996 and a net loss of $12.2 million for the first six months of 1997. There can
be no assurance that the Company will not continue to generate net losses. See
"Selected Financial Data" and the Consolidated Financial Statements and
Condensed Consolidated Financial Statements of AMF Bowling.
HOLDING COMPANY STRUCTURE
AMF Bowling conducts all of its business through subsidiaries and has no
operations of its own. AMF Bowling is dependent on the cash flow of its
subsidiaries and distributions thereof from its subsidiaries to AMF Bowling. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to make funds available to AMF Bowling, whether in the
form of loans, dividends or otherwise. In addition, the Credit Agreement
effectively prohibits AMF Group Inc., the subsidiary through which all of the
Company's operations are held ("AMF Group"), from paying, and the Note
Indentures restrict the ability of AMF Group to pay, dividends. The Credit
Agreement is secured by all of the stock of AMF Group and certain of its present
and future domestic and international subsidiaries and by substantially all of
AMF Group's and certain of its present and future domestic subsidiaries' present
and future property and assets. In addition, AMF Bowling's subsidiaries may,
subject to limitations contained in the Credit Agreement and the Note
Indentures, become parties to financing arrangements which contain limitations
on the ability of such subsidiaries to pay dividends or to make loans or
advances to AMF Bowling. In the event of any insolvency, bankruptcy or similar
proceedings of a subsidiary, creditors of such subsidiary would generally be
entitled to priority over AMF Bowling with respect to assets of the affected
subsidiary. See "Description of Certain Indebtedness".
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by certain key executive officers. The
loss of the services of certain of these executives could have a material
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
Upon completion of the Offerings, GSCP and The Goldman Sachs Group, L.P.
("The Goldman Sachs Group"), which has a 99% interest in Goldman, Sachs & Co.
("Goldman Sachs"), together will beneficially own % of the outstanding Common
Stock. 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, are directors of AMF Bowling, and Mr. Friedman is
Chairman of AMF Bowling. See "Principal Stockholders".
As a result of its ownership of a majority of the outstanding Common Stock
and the terms of the Stockholders Agreement (as hereinafter defined), GSCP has
the ability to control the election of a majority of the Board of Directors of
AMF Bowling (the "Board of Directors"), appoint new management and approve or
block any action requiring the approval of AMF Bowling's stockholders, including
adoption of amendments to AMF Bowling's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and approval of mergers or
sales of substantially
13
<PAGE> 15
all of AMF Bowling's assets, in each case, subject to the restrictions contained
in the Stockholders Agreement. The Stockholders Agreement also provides for
three of the investment funds which are stockholders of AMF Bowling each to
nominate a director, subject to GSCP's consent, and for the formation of the
Executive Committee (as hereinafter defined), which currently consists of two
directors nominated by GSCP. See "Description of Capital Stock" and "Principal
Stockholders -- Stockholders Agreement".
INTERNATIONAL OPERATIONS
The Company's international 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, international 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
international sales or on its results of operations. For the six months ended
June 30, 1997, 26.1% of Bowling Centers operations revenue was generated by the
Company's international centers. For the year ended December 31, 1996, 33.8% of
AMF's Bowling Centers revenue was generated by the Company's international
centers. For the six months ended June 30, 1997, 59.2% of Bowling Products sales
were international sales. For the year ended December 31, 1996, approximately
62.7% of Bowling Products sales were international sales. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- International Operations" and "-- Backlog; Recent
NCP Sales".
On December 28, 1995, the State Council of China announced the reform and
adjustment of its policy towards foreign invested joint ventures. 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 apply. For bowling equipment, the current customs
duty rate is 50%, while the VAT rate is 17%. Prior to the change in policy,
joint ventures were exempt from customs duty and VAT on most imported capital
equipment, including bowling equipment. This exemption has been extended in the
past and is in effect until December 31, 1997. There can be no assurance that
the exemption will be extended beyond December 31, 1997 and, if not extended,
some of the Company's backlog and future sales in China will be affected by this
change in policy.
ANTI-TAKEOVER EFFECTS OF CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAWS
PROVISIONS
Certain provisions of the Certificate of Incorporation and the By-Laws of
AMF Bowling (the "By-Laws") may have the effect of delaying, deterring or
preventing a sale of the Company or a majority of the outstanding stock of AMF
Bowling. Such provisions may also render the removal of directors and management
more difficult. Specifically, the By-Laws provide for restrictions on who may
call a special meeting of stockholders. In addition, the Certificate of
Incorporation authorizes the issuance of preferred stock, par value $.01 per
share ("Preferred Stock"), and of rights entitling holders thereof to purchase
from AMF Bowling securities of AMF Bowling or any other corporation ("Purchase
Rights"), in any case without stockholder approval and upon such terms as the
Board of Directors may determine. The issuance of Preferred Stock or Purchase
Rights may have the effect of delaying, deterring or preventing a sale of the
Company or a majority of the outstanding stock of the Company. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of holders of Preferred Stock that may be issued in the future. See
"-- Control by GSCP" and "Description of Capital Stock".
ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF
STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. Although AMF Bowling will apply to list the Common Stock on the NYSE,
there can be no assurance that an active
14
<PAGE> 16
trading market for the Common Stock will develop or be sustained following the
Offerings or that the market price of the Common Stock will not decline below
the initial public offering price. The initial public offering price will be
determined by negotiation between AMF Bowling and the representatives of the
Underwriters based upon several factors and may not be indicative of future
market prices. The price at which the Common Stock will trade will depend upon a
number of factors, some of which are beyond the Company's control. Such factors
include, but are not limited to, the Company's historical and anticipated
operating results, general market and economic conditions, quarterly
fluctuations in the Company's financial and operating results, announcements by
the Company or others and developments affecting the Company, the markets in
which it competes or the bowling industry generally. In addition, the stock
market has from time to time experienced extreme price and volume fluctuations.
These broad market fluctuations may have an adverse effect on the market price
of the Common Stock. See "Underwriting".
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 ("Rule
144") of the Securities Act or otherwise could have an adverse effect on the
price of the Common Stock. The shares of Common Stock sold in the Offerings will
be eligible for immediate resale, except to the extent acquired by "affiliates"
of the Company, as such term is defined in Rule 144. Additionally, shares
of Common Stock will be eligible for sale in the public market pursuant to Rule
144, or otherwise, 180 days after the effective date of the Registration
Statement of which this Prospectus is a part, upon expiration of lock-up
agreements with the Underwriters. Sales of such shares in the public market, or
the perception that such sales may occur, could adversely affect the market
price of the Common Stock or impair the Company's ability to raise additional
capital in the future through the sale of equity securities. Any additional
shares outstanding upon completion of the Offerings will be eligible for sale
pursuant to Rule 144 upon the expiration of the applicable holding period. See
"Principal Stockholders -- Registration Rights Agreement" and "Shares Eligible
for Future Sale".
ABSENCE OF DIVIDENDS
AMF Bowling has never paid cash dividends on the Common Stock and does not
anticipate paying such dividends in the foreseeable future. See "Dividend
Policy".
DILUTION
Investors purchasing shares of Common Stock in the Offerings will incur
substantial and immediate dilution in the amount of approximately $ in
net tangible book value per share of the Common Stock from the initial public
offering price. See "Dilution".
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds of the Offerings are estimated to be $ . Of this
amount, $ will be applied to repay indebtedness, and the balance will
be available for general corporate purposes, including funding the Company's
ongoing acquisition program, construction of new bowling centers, modernization
and maintenance of existing bowling centers and other capital expenditures. The
indebtedness repaid will include indebtedness under the Credit Agreement, which
would otherwise mature in 2001 and which at June 30, 1997 bore interest at rates
ranging from 8.15% to 8.77%, and may, depending on market and other conditions
prevailing at the time and subject to consent of the lenders under the Credit
Agreement, include redemption of a portion of the Notes (as hereinafter
defined).
DIVIDEND POLICY
AMF Bowling has never paid cash dividends on the Common Stock and does not
anticipate paying such dividends in the foreseeable future. As a holding
company, the ability of AMF Bowling to pay dividends is dependent upon the
ability of its subsidiaries to pay cash dividends or to make other
distributions. See "Risk Factors -- Holding Company Structure". The Credit
Agreement effectively prohibits AMF Group from paying, and the Note Indentures
restrict the ability of AMF Group to pay, dividends, and, accordingly, will
limit the ability of AMF Bowling to pay cash dividends to its stockholders. See
"Description of Certain Indebtedness". Any determination to pay cash dividends
in the future will be at the discretion of the Board of Directors and will
depend upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant at that time by the
Board of Directors. See "Risk Factors -- Absence of Dividends" and "Risk
Factors -- Holding Company Structure".
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated capitalization of AMF
Bowling at June 30, 1997 and as adjusted as of such date to give effect to the
issuance and sale of Common Stock pursuant to the Offerings (after deducting the
underwriting discount and estimated expenses of the Offerings) and the
application of the net proceeds therefrom. See "Use of Proceeds". This table
should be read in conjunction with the Consolidated Financial Statements of AMF
Bowling as of December 31, 1996, and Notes thereto, the unaudited Condensed
Consolidated Financial Statements of AMF Bowling as of June 30, 1997, and Notes
thereto and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
PRO FORMA
AFTER
ACTUAL OFFERINGS
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term borrowings:
Current maturities, long-term debt.................................. $ 44.9 $
Working capital facility............................................ 30.0
-------- --------
Total short-term borrowings................................. 74.9
Long-term debt:
Senior bank debt.................................................... 603.0
Senior subordinated notes........................................... 250.0
Senior subordinated discount notes.................................. 291.4
Mortgage and equipment notes........................................ 2.0
-------- --------
Total debt.................................................. 1,221.3
Stockholders' equity:
Preferred stock, par value $.01, no shares authorized, no shares
issued or outstanding prior to the Offerings, and shares
authorized, shares issued and outstanding after the
Offerings........................................................ N/A
Common stock, par value $.01, 60,000,000 shares authorized,
42,225,000 shares issued and outstanding prior to the Offerings,
and shares authorized, shares issued and outstanding
after the Offerings.............................................. 0.4
Paid-in capital..................................................... 428.5
Retained earnings (deficit)......................................... (31.6)
Equity adjustment from foreign currency translation................. (6.2)
-------- --------
Total stockholders' equity.................................. 391.1
-------- --------
Total capitalization........................................ $ 1,612.4 $
======== ========
</TABLE>
17
<PAGE> 19
DILUTION
The net tangible book value of the Company at June 30, 1997 was
approximately $ million, or $ per share. Net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Common Stock then outstanding.
Without taking into account any changes in net tangible book value attributable
to operations after June 30, 1997, after giving effect to the sale of the Common
Stock offered in the Offerings at an initial public offering price of
$ per share and the application of the net proceeds therefrom as
described under "Use of Proceeds", the pro forma net tangible book value at
, 1997 would have been $ million, or $ per share
of Common Stock. This represents an immediate increase in pro forma net tangible
book value of $ per share of Common Stock to existing stockholders and
an immediate dilution of $ per share of Common Stock to purchasers of
Common Stock in the Offerings. The following table illustrates such per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.................................. $
Net tangible book value per share before the Offerings................. $
Increase per share attributable to the Offerings.......................
------
Pro forma net tangible book value per share after the Offerings..........
------
Net tangible book value dilution per share to new investors(1)........... $
======
</TABLE>
- ---------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share after the Offerings from the initial public offering price per share
of Common Stock.
The following table compares, on a pro forma basis, as of June 30, 1997,
the number of shares of Common Stock purchased and the total consideration paid
by the existing stockholders with the number of shares of Common Stock purchased
and the total consideration paid by the new investors in the Offerings:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED ------------------------- AVERAGE
---------------------- AMOUNT PRICE PER
NUMBER PERCENT (IN MILLIONS) PERCENT SHARE
---------- ------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... $ $
New investors.......................
--------- --- ------ ---
Total............................... $
========= === ====== ===
</TABLE>
The foregoing tables do not assume the exercise of any of the Warrants (as
hereinafter defined). After giving effect to the exercise of the Warrants, there
will be further dilution in the aggregate to new investors. See "Certain
Transactions" and "Note 1. Organization" and "Note 18. Related Parties" in the
Notes to Consolidated Financial Statements of AMF Bowling as of December 31,
1996.
18
<PAGE> 20
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma statement of income of AMF Bowling is presented for
the twelve months ended December 31, 1996, as if the Acquisition had occurred on
January 1, 1996. AMF Bowling's 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, which appears
elsewhere herein, AMF Bowling's 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 Statement of Income and the accompanying notes should be read
in conjunction with the Consolidated Financial Statements of AMF Bowling as of
December 31, 1996, and accompanying notes, which appear elsewhere in this
Prospectus.
The Pro Forma Statement of Income does not purport to be indicative of AMF
Bowling's results that actually would have been obtained had the Acquisition
been consummated as of January 1, 1996 and for the period presented, nor are
they indicative of AMF Bowling's results of operations or financial condition
for any future period or date.
PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREDECESSOR PRO FORMA
HISTORICAL COMPANY AMF BOWLING, INC.
AMF BOWLING, 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 revenue................. $ 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................. (5.8) (0.6) -- (6.4)
------ ------ ------ ------
Income (loss) before income
taxes........................... (28.0) (13.6) 11.2 (30.4)
Provision (benefit) for income
taxes........................... (8.5) (1.7) 1.3(f) (8.9)
------ ------ ------ ------
Net income (loss)............. $ (19.5) $ (11.9) $ 9.9 $ (21.5)
====== ====== ====== ======
</TABLE>
- ---------------
(a) Includes the results of operations of AMF from May 1, 1996 through December
31, 1996.
(b) To reflect the impact of AMF Bowling not acquiring in the Acquisition 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 owners of the Predecessor Company 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 AMF Bowling from S corporations to taxable corporations
under the U.S. federal tax laws, upon consummation of the Acquisition.
19
<PAGE> 21
SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years indicated
were derived from AMF Bowling's 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 its unaudited combined financial
statements for the year ended December 31, 1992. The selected financial data
include results for the six months ended June 30, 1997, compared to pro forma
results for the six months ended June 30, 1996. The consolidated pro forma
results set forth below are presented as if the Acquisition had occurred on
January 1, 1996, and are based on the Predecessor Company's statement of income
for the period ending April 30, 1996, AMF Bowling's statement of income from its
inception through the relevant reporting date and adjustments giving effect to
the Acquisition under the purchase method of accounting. See "Note 3. Pro Forma
Results of Operations" in the Notes to Consolidated Financial Statements and the
Notes to Condensed Consolidated Financial Statements of AMF Bowling. The data
should be read in conjunction with AMF Bowling's Consolidated Financial
Statements and Condensed Consolidated Financial Statements, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
appear elsewhere herein.
The selected financial data include operating results expressed in terms of
EBITDA, which represents earnings before net interest expense, income taxes,
depreciation and amortization, and other income and expenses. EBITDA information
is included because the Company understands that such information is a standard
measure commonly reported and widely used by certain investors and analysts.
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 GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FOUR MONTHS
YEAR ENDED DECEMBER 31, --------------------- ENDED
-------------------------------------------------------------- APRIL 30,
PRO FORMA PRO FORMA -----------
AMF AMF AMF AMF
BOWLING, BOWLING, BOWLING, BOWLING, PREDECESSOR
PREDECESSOR COMPANY INC. INC. INC. INC. COMPANY
---------------------------------------- --------- ------- ---------- ------- -----------
1992 1993 1994(a) 1995 1996(b) 1996(c) 1996(e) 1997 1996(d)
------- ------- ------- ------- --------- ------- ---------- ------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue.......... $ 391.2 $ 427.6 $517.8 $ 564.9 $ 548.9 $384.8 $ 237.5 $318.1 $ 164.9
----- ----- ----- ----- ------ ----- ----- ----- -----
Cost of goods sold......... 132.1 153.2 196.0 184.1 173.6 130.5 66.5 86.1 43.1
Bowling center operating
expenses.................. 103.1 108.5 115.2 166.5 178.8 123.7 82.5 116.0 80.2
Selling, general and
administrative expenses... 43.2 41.9 57.1 50.8 51.0 35.1 22.7 30.2 35.5
Depreciation and
amortization.............. 25.5 21.4 24.8 39.1 73.5 49.4 34.9 43.4 15.1
----- ----- ----- ----- ------ ----- ----- ----- -----
Operating income (loss).... 87.3 102.6 124.7 124.4 72.0 46.1 30.9 42.4 (9.0)
Interest expense, gross.... 7.9 5.0 7.4 15.7 106.2 78.0 52.2 57.5 4.5
Other income (expense),
net....................... 0.1 (0.1) (1.5) 0.2 3.8 3.9 3.4 (1.3) (0.1)
----- ----- ----- ----- ------ ----- ----- ----- -----
Income (loss) before income
taxes..................... 79.5 97.5 115.8 108.9 (30.4) (28.0) (17.9) (16.4) (13.6)
Provision (benefit) for
income taxes.............. 15.4 15.1 16.5 12.1 (8.9) (8.5) (4.4) (4.2) (1.7)
----- ----- ----- ----- ------ ----- ----- ----- -----
Net income (loss).......... $ 64.1 $ 82.4 $ 99.3 $ 96.8 $ (21.5) $(19.5) $ (13.5) $(12.2) $ (11.9)
===== ===== ===== ===== ====== ===== ===== ===== =====
Net loss per share......... $ (0.55) $(0.49) $ (0.35) $(0.29)
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FOUR MONTHS
YEAR ENDED DECEMBER 31, ------------------- ENDED APRIL
------------------------------------------------------------ 30,
PRO FORMA PRO FORMA -----------
AMF AMF AMF AMF
BOWLING, BOWLING, BOWLING, BOWLING, PREDECESSOR
PREDECESSOR COMPANY INC. INC. INC. INC. COMPANY
------------------------------------- --------- ------- --------- ------- -----------
1992 1993 1994(a) 1995 1996(b) 1996(c) 1996(e) 1997 1996(d)
------ ------ ------- ------ --------- ------- --------- ------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED DATA:
EBITDA......................... $112.8 $124.0 $149.5 $163.5 $ 145.5 $95.5 $ 65.8 $ 85.8 $ 6.1
EBITDA margin.................. 28.8% 29.0% 28.9 % 28.9% 26.5% 24.8% 27.7% 27.0 % 3.7%
Revenue: (f)
Bowling Centers............... $204.5 $192.6 $225.4 $292.3 $ 307.3 $ 147.2 $201.1
Bowling Products.............. 195.4 243.6 301.7 286.5 252.1 96.8 124.7
EBITDA: (g)
Bowling Centers............... $ 65.2 $ 54.5 $ 65.8 $ 86.8 $ 95.6 $ 48.3 $ 63.0
Bowling Products.............. 48.7 71.1 84.6 79.3 62.6 22.9 31.3
New Center Packages sold....... 2,210 3,577 4,941 4,437 3,029 1,152 1,933
New Center Packages backlog,
end of period(h).............. N/A N/A 2,078 940 1,426 1,144 2,182
Number of centers, end of
period........................ 197 190 293 286 341 284 408
Number of lanes, end of
period........................ 5,988 5,896 9,586 9,430 11,782 9,386 14,206
Capital Expenditures:
Routine modernization and
maintenance(i).............. $ 8.3 $ 9.0 $ 11.4 $ 13.1 $ 14.5 $ 6.9 $ 12.2
Expansion and acquisition
capital(j).................. 3.8 5.7 6.4 16.9 124.3 3.3 135.6
----- ----- ----- ----- ------ ----- -----
Total......................... $ 12.1 $ 14.7 $ 17.8 $ 30.0 $ 138.8 $ 10.2 $147.8
===== ===== ===== ===== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30,
DECEMBER 31, ------------
----------------------------------------------------
AMF AMF
BOWLING, BOWLING,
PREDECESSOR COMPANY INC. INC.
------------------------------------ ------------ ------------
1992 1993 1994(a) 1995 1996 1997
------ ------ ------ ------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(k)................................... $ 15.6 $ 18.9 $ 16.9 $ 29.2 $ 7.8 $ (23.3)
Goodwill, net........................................ -- -- -- -- 771.1 766.7
Total assets......................................... 231.1 228.2 410.2 400.4 1,594.0 1,715.6
Total debt........................................... 98.0 75.7 186.1 167.4 1,091.3 1,221.3
Stockholders' equity................................. 75.8 88.6 132.4 161.5 408.8 391.1
Total capitalization................................. 173.8 164.3 318.5 328.9 1,500.1 1,612.4
</TABLE>
- ---------------
(a) Includes results of Fair Lanes, which operated 106 centers and was acquired
on September 29, 1994.
(b) Represents results of operations from January 1, 1996 through December 31,
1996 on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in
the Notes to Consolidated Financial Statements of AMF Bowling as of December
31, 1996.
(c) Includes results of operations from May 1, 1996 through December 31, 1996.
(d) Represents results of operations from January 1, 1996 through April 30,
1996.
(e) Represents results of operations from January 1, 1996 through June 30, 1996,
on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Condensed Consolidated Financial Statements of AMF Bowling as of
June 30, 1997.
(f) Before intersegment eliminations.
(g) Before intersegment eliminations and corporate, general and administrative
expenses.
(h) Orders of New Center Packages included in the backlog are subject to
cancellation by customers in the normal course of business. Accordingly, the
Company has experienced, and expects to continue to experience, the
cancellation of a portion of such orders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Backlog; Recent
NCP Sales". Data is not provided for 1992 and 1993 because the Company does
not maintain this data for such periods.
(i) Defined as capital expenditures for existing product lines and manufacturing
operations and capital expenditures for modernizing and refurbishing bowling
centers.
(j) Includes (i) the construction of centers and (ii) the acquisition of centers
since May 1, 1996. Excludes the acquisition of Fair Lanes and all other
acquisitions prior to May 1, 1996.
(k) Predecessor Company amounts reflect elimination of affiliates receivables
and payables.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
This discussion should be read in conjunction with the information
contained under "Selected Financial Data" and in AMF Bowling's Consolidated
Financial Statements and Condensed Consolidated Financial Statements included
elsewhere herein.
Management believes that a comparison of the results of operations for the
six months ended June 30, 1997 and 1996, and the years ended December 31, 1996
and 1995, on a pro forma basis, is more meaningful than a comparison on an
historical basis. This is due primarily 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. Discussion of the results of
Predecessor Company operations for the years ended December 31, 1995 and 1994,
are on an historical basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Consolidated Financial Statements of AMF Bowling as of December 31,
1996 and the Notes to Condensed Consolidated Financial Statements as of June 30,
1997.
To facilitate a meaningful comparison, in addition to discussing the
consolidated results of the Company, certain portions of this Management's
Discussion and Analysis of Financial Condition and Results of Operations discuss
results of Bowling Centers and Bowling Products separately.
The results of Bowling Centers, Bowling Products and the consolidated group
of companies are set forth below. The two European centers that were not
acquired by the Company as part of the Acquisition, as discussed in "Note 1.
Organization" in the Notes to Consolidated Financial Statements of AMF Bowling
as of December 31, 1996, are included in the 1996 actual Predecessor Company
results and excluded from 1996 pro forma results. The two centers have no
material impact on the Company's financial statements or on the information
presented in this section.
For 1995, Bowling Centers adopted a calendar year 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.
The business segment results presented below are before intersegment
eliminations since the Company's 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.
PERFORMANCE BY BUSINESS SEGMENT
BOWLING CENTERS
Bowling Centers derives its revenue and profits from three principal
sources: (i) bowling, (ii) food and beverage and (iii) other sources, such as
shoe rental, amusement games, billiards and pro shops. In 1996, bowling, food
and beverage and other revenue represented 62%, 24% and 14% of total Bowling
Centers revenue, respectively.
22
<PAGE> 24
The results shown below reflect both U.S. and international Bowling Centers
operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, ---------------------------
---------------------------------
PRO FORMA PRO FORMA
PREDECESSOR AMF AMF AMF
COMPANY BOWLING, INC BOWLING, INC BOWLING, INC
------------------ ------------ ------------ ------------
1994 1995 1996(A) 1996(B) 1997
------ ------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BOWLING CENTERS (before
intersegment eliminations):
Operating revenue............... $225.4 $292.3 $ 307.3 $ 147.2 $ 201.1
Cost of goods sold.............. 22.3 26.3 27.5 12.6 18.3
Bowling center operating
expenses...................... 120.3 168.7 177.2 83.3 116.6
Selling, general and
administrative expenses....... 17.0 10.5 7.0 3.0 3.2
Depreciation and amortization... 21.8 36.6 56.2 26.1 34.3
------ ------ ------ ------ ------
Operating income................ $ 44.0 $ 50.2 $ 39.4 $ 22.2 $ 28.7
====== ====== ====== ====== ======
SELECTED DATA:
EBITDA.......................... $ 65.8 $ 86.8 $ 95.6 $ 48.3 $ 63.0
EBITDA margin................... 29.2% 29.7% 31.1% 32.8% 31.3%
Number of centers, end of
period........................ 293 286 341 284 408
Number of lanes, end of
period........................ 9,586 9,430 11,782 9,386 14,206
</TABLE>
- ---------------
(a) Represents pro forma results of operations from January 1, 1996 through
December 31, 1996. See "Note 3. Pro Forma Results of Operations" in the
Notes to Consolidated Financial Statements of AMF Bowling as of December 31,
1996. The pro forma 1996 amount of selling, general and administrative
expenses has been adjusted to reflect a reallocation to corporate of certain
general and administrative expenses previously allocated to the Bowling
Centers segment. The 1995 and 1994 amounts have not been restated to reflect
this change.
(b) Represents results of operations from January 1, 1996 through June 30, 1996,
on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Condensed Consolidated Financial Statements of AMF Bowling as of
June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996. Of the $53.9 million, or 36.6%, increase in operating revenue, $52.5
million was attributable to new centers, of which $48.8 million was from U.S.
centers, and $3.7 million was from international centers. An increase of $2.8
million, or 1.9%, in constant centers (centers in operation for at least one
full fiscal year) 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 six
months of 1997 compared to the same period in 1996 was net of $1.0 million
additional revenue in 1996 due to leap year, and a $1.6 million decrease in
revenue from the Japanese centers in 1997 which was primarily caused by recent
poor economic conditions in Japan. The overall increase was also offset in part
by a $1.4 million decrease attributable to seven U.S. centers which were closed
since May 1996.
Cost of goods sold increased $5.7 million, or 45.2%, primarily as a result
of new centers, partially offset by savings associated with closed centers.
Of the increase of $33.3 million, or 40.0%, in operating expenses,
approximately $31.4 million was attributable to new centers, of which $29.4
million was attributable to U.S. centers and $2.0 million was attributable to
international centers. As a percentage of its revenue, Bowling Centers operating
expenses were 56.6% for the six months ended June 30, 1996, on a pro forma
basis, versus 58.0% for the six months ended June 30, 1997.
23
<PAGE> 25
The increase of $0.2 million, or 6.7%, in selling, general and
administrative expenses was attributable to new centers, partially offset by
savings associated with closed centers.
The increase of $14.7 million, or 30.4%, in EBITDA was attributable to new
centers. EBITDA margin decreased from 32.8% for the six months ended June 30,
1996, on a pro forma basis, to 31.3% for the six months ended June 30, 1997.
EBITDA margin for the six-month period ended June 30, 1997 was affected, as
expected, by the increasing proportion of U.S. centers purchased. U.S. centers
typically have lower margins in the second quarter compared with international
centers and compared with U.S. margins in the first and fourth quarters of the
year, primarily because revenue declines in the second quarter as fall leagues
finish the season. See" -- Seasonality and Market Development Cycles".
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31,
1995. Operating revenue increased $15.0 million, or 5.1%. Increases of $19.0
million attributable to the addition of 57 new centers purchased during the last
two quarters of 1996 and $0.5 million attributable to increases at constant
centers were offset by decreases of $2.2 million attributable to the two bowling
centers which were not acquired as part of the Acquisition and $2.3 million
attributable to the closure of seven of the 106 bowling centers originally
purchased by the Predecessor Company from Fair Lanes. The constant center
revenue increase was attributable to an increase in international revenue of
$2.4 million, offset by a decrease in U.S. constant centers revenue of $1.9
million. The decrease in U.S. constant centers revenue was largely a result of a
decrease in revenue due to the severe weather conditions in the Northeast, a
region in which the Company has a large number of centers, during the first
quarter of 1996. An increase in bowling prices in the U.S. during 1996 was
partially offset by a decrease in U.S. lineage. The increase in international
revenue was primarily a result of an increase in average price per game and
increased food and beverage revenue.
Cost of goods sold increased $1.2 million, or 4.6%, primarily as a result
of new centers.
Bowling Centers operating expenses increased by $8.5 million, or 5.0%. An
increase of $10.0 million attributable to new centers and a net increase of $2.2
million attributable to constant centers were offset by a decrease of $3.7
million attributable to the two centers not acquired in the Acquisition and the
closure of seven Fair Lanes centers. The net increase in constant centers
operating expenses was a result of an increase of $4.0 million in international
centers due to increased rents and payroll expenses, and a decrease of $1.8
million in U.S. centers resulting 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. As a percentage of total revenue,
Bowling Centers operating expenses remained constant at 57.7% during 1996 and
1995.
Of the $3.5 million decrease in selling, general and administrative
expenses, $3.6 million is due to a reallocation to corporate of certain selling,
general and administrative expenses previously allocated to the Bowling Centers
segment.
An increase of $8.8 million, or 10.1%, in EBITDA was attributable to new
centers. EBITDA margin in 1996 was 31.1% compared to 29.7% in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31,
1994. Operating revenue increased by $66.9 million, or 29.7%. U.S. centers
revenue (excluding centers purchased from Fair Lanes) increased $3.6 million, or
3.7%, over 1994 revenue of $96.2 million, primarily as a result of an increase
in average price per game and lineage, and an increase of $67.2 million was
attributable to the Fair Lanes centers. These increases were offset by a
decrease of $3.9 million in international revenue which resulted primarily from
a weakening of the Mexican peso.
The increase of $4.0 million, or 17.9%, in cost of goods sold was primarily
attributable to the acquisition of the Fair Lanes centers in September, 1994.
Bowling Centers total operating expenses increased by $48.4 million, or
40.2%, of which an increase of $44.0 million was attributable to Fair Lanes
centers operations, an increase of $2.3
24
<PAGE> 26
million was attributable to non-recurring costs which resulted from integrating
Fair Lanes centers into the Company's risk management program and the closure of
seven centers, and an increase of $2.1 million was primarily attributable to
non-recurring costs related to changes in management personnel implemented in
1995. As a percent of Bowling Centers operating revenue, operating expenses
increased from 53.4% in 1994, to 57.7% in 1995, primarily as a result of the
non-recurring costs described above.
The decrease of $6.5 million, or 38.2%, in Bowling Centers selling, general
and administrative expenses was primarily attributable to the Fair Lanes centers
integration into Bowling Centers operations.
EBITDA increased $21.0 million, or 31.9%. An increase of $22.6 million
attributable to the Fair Lanes centers was offset by a decrease of $1.6 million
which was primarily attributable to centers in Mexico impacted by the weakening
of the peso. EBITDA margin increased from 29.2% in 1994 to 29.7% in 1995
primarily because the Fair Lanes centers EBITDA margin improved from 12.6% for
the fourth quarter in 1994 to 27.8% for the full year in 1995.
BOWLING PRODUCTS
The results shown below reflect Bowling Products operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------- -------------------------------
PRO FORMA PRO FORMA
PREDECESSOR AMF AMF AMF
COMPANY BOWLING, INC. BOWLING, INC. BOWLING, INC.
----------------- ------------- ------------- -------------
1994 1995 1996(A) 1996(B) 1997
------ ------ ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BOWLING PRODUCTS (before
intersegment eliminations):
Operating revenue............... $301.7 $286.5 $ 252.1 $96.8 $ 124.7
Cost of goods sold.............. 178.9 166.9 153.3 58.2 74.7
------ ------ ------ ------ ------
Gross profit.................... 122.8 119.6 98.8 38.6 50.0
Selling, general and
administrative expenses....... 38.2 40.3 36.2 15.7 18.7
Depreciation and amortization... 3.7 3.6 18.5 9.4 9.9
------ ------ ------ ------ ------
Operating income................ $ 80.9 $ 75.7 $ 44.1 $13.5 $ 21.4
====== ====== ====== ====== ======
SELECTED DATA:
Gross profit margin............. 40.7% 41.7% 39.2% 39.9% 40.1%
EBITDA.......................... $ 84.6 $ 79.3 $ 62.6 $22.9 $ 31.3
EBITDA margin................... 28.0% 27.7% 24.8% 23.7% 25.1%
New Center Packages sold........ 4,941 4,437 3,029 1,152 1,933
New Center Packages backlog
end of period(c).............. 2,078 940 1,426 1,144 2,182
</TABLE>
- ---------------
(a) Represents results of operations from January 1, 1996 through December 31,
1996 on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in
the Notes to Consolidated Financial Statements of AMF Bowling as of December
31, 1996. The pro forma 1996 amount of selling, general and administrative
expenses has been adjusted to reflect a reallocation to corporate of certain
overhead expenses previously allocated to the Bowling Products segment. The
1995 and 1994 amounts have not been restated to reflect this change.
(b) Represents results of operations from January 1, 1996 through June 30, 1996,
on a pro forma basis. See "Note 3. Pro Forma Results of Operations" in the
Notes to Condensed Consolidated Financial Statements of AMF Bowling as of
June 30, 1997.
(c) Orders of NCPs included in the backlog are subject to cancellation by
customers in the normal course of business. Accordingly, the Company has
experienced, and expects to continue to experience, the cancellation of a
portion of such orders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Backlog; Recent NCP Sales".
Data is not provided for 1992 and 1993 because the Company does not maintain
this data for such periods.
25
<PAGE> 27
Bowling Products' long-standing customer relationships, Bowling Centers'
and third-party centers' predictable demand for Modernization and Consumer
Products, a steadily increasing installed base of NCPs and Bowling Products'
ability to supply a full product line have historically made the Modernization
and Consumer Products category a stable and recurring base of revenue and
EBITDA. Revenue growth from 1991 to 1994 for the NCP category resulted primarily
from increased unit sales to Taiwan and Korea, and since 1995 to China and to
emerging bowling markets, where the popularity of bowling and consequent demand
for new bowling centers increased dramatically. During 1995 and 1996, NCP
revenue declined primarily because the markets in Taiwan and Korea had matured.
The decline was partially offset by continued demand in China and in certain
emerging bowling markets. During the first six months of 1997, NCP revenue
increased due to continued demand in China and other international markets, such
as Japan and Malaysia.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996. Bowling Products total operating revenue increased $27.9 million, or
28.8%, primarily due to an increase of $25.3 million, or 67.5%, in NCP revenue,
and an increase of $2.0 million, or 3.4%, in Modernization and Consumer Products
revenue. The increase in NCP revenue was due to an overall increase in NCP sales
of 781 units which occurred primarily in China, Malaysia, the Americas and
Japan. See "-- Seasonality and Market Development Cycles".
Total gross profit from Bowling Products increased by $11.4 million, or
29.5%, primarily as a result of increased NCP sales. Gross profit margin was
39.9% and 40.1% for the six months ended June 30, 1996 and 1997, respectively.
Bowling Products selling, general and administrative expenses increased by
$3.0 million, or 19.1%, primarily as a result of a $2.4 million increase
attributable to payroll and facilities expenses related to staffing the
Company's international sales and service offices, and an increase of $1.5
million attributable to advertising and promotion expenses in the U.S.
locations. These increases were offset by a decrease of $0.9 million in payroll,
facilities and related expenses at the U.S. locations.
EBITDA increased from $22.9 million to $31.3 million, resulting in an
increase in EBITDA margin from 23.7% to 25.1%, primarily due to the increased
NCP revenue, offset in part by the increased expenses discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995. Operating
revenue decreased by $34.4 million, or 12.0%, primarily due to a decrease of
$35.3 million, or 22.7%, in NCP revenue offset by an increase of $0.9 million,
or 0.7%, in Modernization and Consumer Products revenue. The drop in NCP revenue
was due to an overall decrease in NCP sales by 1,408 units in 1996 compared to
1995, particularly for maturing markets including Korea and Taiwan, offset by an
increase in NCP revenue from 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 in the Americas
and southern Europe during 1996. The increase in sales to China occurred during
the last six months of 1996. See "Risk Factors -- Seasonality and Market
Development Cycles" and "-- Seasonality and Market Development Cycles". The
increase in Modernization and Consumer Products revenue was due in part to
increased sales of synthetic lanes and automatic scoring in the United States.
Gross profit decreased by $20.8 million, or 17.4%. Gross profit margin was
41.7% in 1995 and 39.2% in 1996. Of this 2.5% decrease, 0.8% was attributable to
an increase in certain inventory and warranty reserves in the Modernization and
Consumer Products categories of $2.3 million, and 1.7% was attributable to the
lower margins on decreased revenues, particularly in Japan, due to price cuts
implemented by the Company's management in response to stiffer competition in
the Modernization and Consumer Products category.
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<PAGE> 28
Of the $4.1 million decrease in selling, general and administrative
expenses, $4.2 million was due to a reallocation to corporate of certain
overhead expenses previously allocated to the Bowling Products segment.
EBITDA decreased $16.7 million, or 21.1%, and EBITDA margin decreased from
27.7% in 1995, to 24.8% in 1996, primarily due to the decreased NCP revenue and
gross profit discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994. Operating
revenue decreased $15.2 million, or 5.0%, as a result of a decrease of $15.1
million, or 8.8%, in NCP revenue, and a less than 1.0% decrease of $0.1 million
in Modernization and Consumer Products revenue.
A significant portion of the decrease in NCP revenue was attributable to a
decrease 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 sales to Taiwan and Korea peaked during 1994. Additionally,
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.
Gross profit decreased by $3.2 million, or 2.6%, and the gross profit
margin of 40.7% in 1994 increased to 41.7% in 1995. Decreases of $3.8 million
caused by the decrease in NCPs sold and $1.7 million primarily attributable to
start up expenses incurred in pool cue, bumper, and automatic scoring systems
manufacturing were offset by a $2.3 million increase which resulted from
decreased warranty costs.
The increase of $2.1 million, or 5.5%, in selling, general and
administrative expenses was primarily attributable to non-recurring costs of
$2.9 million in 1995, offset by $0.8 million which was primarily due to net
reversals of reserves.
EBITDA decreased $5.3 million, or 6.3%, and EBITDA margin decreased from
28.0% in 1994 to 27.7% in 1995, primarily due to the decreased revenue and
increased selling, general and administrative expenses discussed above. The 1995
EBITDA was depressed by the non-recurring selling, general and administrative
costs of $2.9 million described above.
CONSOLIDATED ITEMS
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $8.5 million, or 24.4%, in the
six months ended June 30, 1997 compared with the same period in 1996, primarily
due to depreciation of property and equipment of centers acquired since May 1996
and 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%, over the same period in 1995, primarily as
a result of 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%, over the same period in 1994, primarily
due to the inclusion of Fair Lanes centers for the entire 12 months of 1995, as
compared with three months during 1994.
INTEREST EXPENSE
Gross interest expense increased by $5.3 million, or 10.2%, in the six
months ended June 30, 1997 compared with the same period in 1996, primarily due
to interest paid on increased levels of bank debt as a result of the center
acquisitions described under "Business -- AMF Bowling Centers -- Recent
Acquisitions and Joint Ventures". See "-- Liquidity" and "-- Capital Re-
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<PAGE> 29
sources". Cash interest paid by the Company for the six months ended June 30,
1997 totaled $40.0 million, while non-cash bond interest amortization totaled
$16.8 million.
For the year ended December 31, 1996, gross interest expense increased by
$90.5 million, or 576.4%, compared with the same period in 1995 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 $44.5 million, while non-cash bond interest amortization totaled $24.7
million.
Gross interest expense increased by $8.3 million, or 112.2%, for the year
ended December 31, 1995, compared with the same period in 1994 as a result of
additional debt incurred in connection with the acquisition of the Fair Lanes
centers on September 29, 1994. This debt was paid in full by the prior owners of
the Predecessor Company before the Acquisition.
NET INCOME (LOSS). Net loss decreased $1.3 million, or 9.6%, for the six
months ended June 30, 1997 compared with the same period in 1996, as a result of
the increases in EBITDA discussed above on a segment basis, offset by increases
in depreciation and amortization expense, interest expense and the current tax
provision for the Company.
The decline of $118.3 million, or 122.2%, in net income from $96.8 million
in 1995 to a net loss of $(21.5) million in 1996, on a pro forma basis, was
primarily attributable to a decrease in Bowling Products EBITDA resulting from
the decline in NCP revenue and higher depreciation and amortization and interest
expense resulting from the Acquisition after allowing for an $8.9 million tax
benefit.
Net income decreased $2.5 million, or 2.5%, for the year ended December 31,
1995, compared with the same period in 1994 as a result of higher depreciation
and amortization and interest expense incurred in 1995 as a result of the
full-year impact of the acquisition of the Fair Lanes centers which occurred in
the fourth quarter of 1994.
INCOME TAXES. Prior to the Acquisition, certain of the companies within
the Predecessor Company elected S corporation status under the Internal Revenue
Code of 1986, as amended (the "Code"). Upon consummation of the Acquisition,
those companies became taxable corporations under the Code.
Pursuant to the Stock Purchase Agreement, the two principal companies
within the affiliated group elected under Section 338(h)(10) of the Code, to
treat the stock purchase as a deemed asset acquisition for the purposes of U.S.
income taxes. These elections permitted both of the affiliated companies to
revalue their assets to fair market value and to treat any amortizable goodwill
as tax deductible over fifteen years.
As of June 30, 1997, the Company had net operating losses of approximately
$38.0 million and foreign tax credits of $9.5 million which will carry over to
future years to offset U.S. taxes. The foreign tax credits will begin to expire
in the year 2001 and the net operating losses will begin to expire in the year
2010. The Company has not booked a valuation reserve as of June 30, 1997 because
the Company expects to utilize these net operating losses prior to expiration.
LIQUIDITY
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
The following discussion compares AMF Bowling's results for the period
ended June 30, 1997 with the period ended June 30, 1996, on an historical basis.
The Company's primary source of liquidity is cash provided by operations
and credit facilities as described below. Working capital on December 31, 1996
was $7.8 million compared with a negative $23.3 million as of June 30, 1997, a
decrease of $31.1 million. Cash decreased $27.0 million primarily as a result of
payments on debt under the Credit Agreement and internal funding of certain
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<PAGE> 30
bowling center acquisitions, and the note payable under the Credit Agreement
increased $30.0 million as a result of borrowings under the Working Capital
Facility (as hereinafter defined) under the Credit Agreement which was used to
fund increases in working capital. Accounts receivable increased $14.5 million
primarily as a result of increased NCP revenue, and inventory increased $15.5
million in advance of future shipments. These increases in working capital were
partially offset by a decrease of $4.1 million caused by changes in other
current assets and liabilities.
Net cash flows used in operating activities were $28.0 million for the six
months ended June 30, 1996 compared with net cash provided of $8.2 million for
the six months ended June 30, 1997, a difference of $36.2 million. Net cash
provided resulted from a decrease of $0.1 million in net loss, an increase of
$31.7 million in depreciation and amortization primarily as a result of
application of the purchase method of accounting for the Acquisition, an
increase of $8.0 million in amortization of the discount related to the bonds
used to partially fund the Acquisition, a net loss of $0.1 million on the sale
of property and equipment, a net change of $3.3 million in deferred taxes and
income taxes payable, and a change of $19.8 million in other assets and
liabilities. Net cash used resulted from an increase of $14.3 million in
accounts receivable primarily resulting from the increased levels of NCP sales
compared with the same period in 1996, and an increase of $12.5 million in
inventory primarily reflecting the increased backlog of NCP orders to be shipped
after June 30, 1997.
Net cash flows used in investing activities were $1,336.3 million for the
six months ended June 30, 1996 compared with net cash flows used of $147.5
million for the six months ended June 30, 1997. During the six months ended June
30, 1996, cash flows used for the Acquisition totaled $1,333.1 million, capital
spending was $3.3 million and other investing cash flows provided were $0.1
million. During the six months ended June 30, 1997, acquisitions of bowling
centers totaled $122.2 million, capital spending was $25.6 million, and other
cash flows provided by investing activities were $0.3 million. See "Note 9.
Acquisitions" in the Notes to Condensed Consolidated Financial Statements of AMF
Bowling as of June 30, 1997 and "-- Capital Expenditures".
Net cash provided by financing activities was $1,409.8 million for the six
months ended June 30, 1996 compared with net cash provided of $112.4 million for
the six months ended June 30, 1997. During the six months ended June 30, 1996,
cash flows were primarily provided by $1,029.9 million of proceeds of long-term
debt and $380.3 million from a capital contribution, both of which were used to
fund the Acquisition. During the six months ended June 30, 1997, cash flows were
primarily provided by drawing down $103.5 million and $30.0 million from
available borrowings under the Acquisition Facility and the Working Capital
Facility, respectively, to fund the acquisitions of centers and increases in
working capital. During 1997, funds were used primarily for the payment of long-
term debt totaling $20.3 million, and $0.5 million was used for the repurchase
of an officer's shares in connection with the termination of his employment with
the Company. See "Note 13. Employee Benefit Plans" in the Notes to Consolidated
Financial Statements of AMF Bowling as of December 31, 1996.
As a result of the aforementioned, cash increased by $45.1 million for the
six months ended June 30, 1996 compared to a decrease of $26.9 million for the
six months ended June 30, 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
The following discussion compares AMF Bowling's results for the period
ended December 31, 1996, with the Predecessor Company's results for the year
ended December 31, 1995, on an historical basis.
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 $(19.5) million for the period ended December 31, 1996 and higher
depreciation, amortization and interest expenses as a result of the Acquisition.
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<PAGE> 31
Net cash flows used in investing activities were $28.3 million for the year
ended December 31, 1995 compared with net cash flows used 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 with net cash provided of $1,438.3 million for the
period ended December 31, 1996. This change primarily resulted from the issuance
of debt and capital contributions related to the Acquisition. During 1995, the
Predecessor Company made distributions to its owners of $71.9 million, net
payments on notes payable to its owners 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, the Company 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 Bowling and
certain of its officers and directors. Of the total capital contributed, $380.8
was for the initial capitalization of the Company and the Acquisition, and $40.0
million was received as additional capital contributions in connection with the
acquisition of centers from Charan Industries, Inc. ("Charan"). See
"Business -- Recent Acquisitions and Joint Ventures".
As a result of the aforementioned, cash increased by $1.6 million for the
year ended December 31, 1995 compared with an increase of $43.6 million for the
period ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
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 and assets and liabilities
changes occurred 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
centers, primarily Fair Lanes centers. 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, the Predecessor Company made distributions to its owners of
$78.2 million, net payments on notes payable to its owners 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 its
owners. During 1995, the Predecessor Company made distributions to its owners of
$71.9 million, net payments on notes payable to its owners 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 its owners.
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.
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CAPITAL RESOURCES
As a result of the Acquisition, the Company's total indebtedness has
increased substantially. At June 30, 1997, the Company's debt structure
consisted of senior debt of $679.9 million, senior subordinated notes of $250.0
million and senior subordinated discount notes of $291.4 million. At June 30,
1997, the Company was also capitalized with equity of $391.1 million. The
Company also has the ability to borrow $50.0 million for general corporate
purposes pursuant to the Working Capital Facility and up to $230.0 million for
acquisitions pursuant to the Acquisition Facility, subject to certain
conditions. At June 30, 1997, $112.0 million and $30.0 million was outstanding
under the Acquisition Facility and the Working Capital Facility, respectively.
Between June 30, 1997 and July 31, 1997, additional borrowings under the
Acquisition Facility totaled $32.0 million and were used to fund the
acquisitions of centers. See "Business -- Recent Acquisitions and Joint
Ventures". In addition, the Company borrowed an additional $10.0 million under
the Working Capital Facility to fund increases in working capital. At July 31,
1997, $144.0 million and $40.0 million was outstanding under the Acquisition
Facility and the Working Capital Facility, respectively.
AMF Bowling expects to receive from certain of its current stockholders an
aggregate capital contribution of approximately $35 million in September 1997
pursuant to the "overcall" provisions of the Stockholders Agreement to be used
to fund acquisitions, including 15 centers from Conbow Corporation ("Conbow"),
and for other permitted purposes. See "Business -- AMF Bowling Centers -- Recent
Acquisitions and Joint Ventures" and "Principal Stockholders -- Stockholders
Agreement.
The Company funds its cash needs through cash flow from operations,
existing cash balances and the Working Capital Facility and Acquisition
Facility. A substantial portion of the Company's available cash will be applied
to service the indebtedness incurred to finance the Acquisition. For the period
ended December 31, 1996, the Company incurred cash interest expense of $53.0
million, representing 55.5% of EBITDA of $95.5 million for the period. For the
six months ended June 30, 1997, the Company incurred cash interest expense of
$39.8 million, representing 46.4% of EBITDA of $85.8 million for the six month
period.
The Note Indentures and the Credit Agreement contain financial and
operating covenants and significant restrictions on the ability of the Company
to pay dividends, incur indebtedness, make investments and take certain other
corporate actions. See "Risk Factors -- Substantial Leverage; Indebtedness; Net
Losses", "Description of Certain Indebtedness" and "Note 9. Long-Term Debt" in
the Notes to Consolidated Financial Statements of AMF Bowling as of December 31,
1996.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness 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 believes
that available cash flow, together with available borrowings under the Credit
Agreement and other sources of liquidity, will be adequate to meet the Company's
anticipated future requirements for working capital, capital expenditures,
scheduled payments of principal of, and interest on, its senior debt, and
interest on the Notes. There can be no assurance, however, 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 Notes, or that any refinancing would be
available on commercially reasonable terms or at all. See "Risk Factors --
Substantial Leverage; Indebtedness; Net Losses".
CAPITAL EXPENDITURES
For the six months ended June 30, 1997, the Company's actual capital
expenditures were $25.6 million compared with $10.2 million for the six months
ended June 30, 1996, on a pro forma basis (capital expenditures of the acquired
business from January 1, 1996 through June 30, 1996). The increase was primarily
due to an ongoing modernization program in Bowling Centers, a new point-of-sale
information system in U.S. Bowling Centers, new Company-wide information
systems, and
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<PAGE> 33
construction of a new 40 lane, state-of-the-art bowling and family entertainment
center at Chelsea Piers in New York City.
For the period ended December 31, 1996, the Company's capital expenditures
were $16.9 million. For the year ended December 31, 1997, the Company's capital
expenditures are expected to be approximately $50.0 million. For the year ended
December 31, 1995, the Company's capital expenditures were $30.0 million,
including $9.7 million for the construction of three new centers. In 1994, the
Company's capital expenditures were $17.8 million. The 1996 expenditures level
was lower than the 1995 level in part because in 1995 three new bowling centers
were constructed at a cost of approximately $9.7 million.
The Company conducts an ongoing modernization and maintenance program that
results in its centers having upgraded physical plants and generally 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.
Bowling Products has relatively modest capital investment requirements, and
the Company 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.
The Company has the opportunity to acquire and build additional bowling
centers, both in the U.S. and internationally. The Company is prepared to
acquire or build additional bowling centers as appropriate opportunities arise
and is engaged in ongoing evaluations of and discussions with third parties
regarding possible acquisitions. See "Business -- Business Strategy". Management
plans to acquire centers with funding provided under the Credit Agreement to the
extent available. Under the Acquisition Facility, as of August 15, 1997, the
Company has the ability to borrow up to an additional $86.0 million for
acquisitions or to refinance new center construction, subject to certain
conditions. 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 the Company's control.
The Company funds its capital expenditures from cash generated by
operations and, with respect to the construction and acquisition of new centers,
internally generated cash, the Acquisition Facility, and issuances of common
equity. See "Note 9. Acquisitions" in the Notes to Condensed Consolidated
Financial Statements of AMF Bowling as of June 30, 1997, "-- Liquidity" and "--
Capital Resources".
SEASONALITY AND MARKET DEVELOPMENT CYCLES
The following table sets forth AMF's U.S. constant centers revenue for the
last four quarters:
<TABLE>
<CAPTION>
QUARTER ENDING
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------ --------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Total Revenue............ $38.7 $ 50.5 $58.1 $ 41.1
% of Total............... 20.6% 26.8% 30.8% 21.8%
</TABLE>
On a consolidated basis, revenue and EBITDA of the Company's businesses are
neither highly seasonal nor highly cyclical. The geographic diversity of the
Company's bowling centers, which
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<PAGE> 34
operate across different regions of the U.S. and across nine other countries,
along with the bowling industry's historic relative insulation from recessions,
has provided stability to the Company's annual cash flows. Although financial
performance of Bowling Centers operations is seasonal in nature in many
countries, with cash flows typically peaking in the winter months and reaching
their lows in the summer months, the geographic diversity of the Company's
bowling centers has helped reduce this seasonality as bowling centers in certain
countries in which AMF operates exhibit different seasonal sales patterns. As a
result of the growing number of U.S. centers attributable to the Company's
acquisition program, the seasonality described above may be accentuated. 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 regions where the climates have high average temperatures and
high humidity. In the U.S., during the summer months when league bowling is
generally less active, bowling centers in the southern U.S. continue to show
strong performance. Similarly, in regions with warm summer climates such as Hong
Kong and Mexico, where bowling in air-conditioned centers may be more attractive
than outdoor activities, bowling centers show strong performance. See
"Business -- Business Strategy" and "Note 10. Business Segments" in the Notes to
Condensed Consolidated Financial Statements of AMF Bowling as of June 30, 1997.
Modernization and Consumer Products 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 of each year.
Operators typically sign purchase orders, 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, are less
predictable and fluctuate more than the replacement equipment because of the
four to ten year life cycles of these major products.
The NCP category of bowling products experiences significant fluctuations
due to changes in demand for NCPs as certain markets experience high growth
followed by market maturity, at which time sales to that market decline,
sometimes rapidly. Market cycles for individual countries have, in the past,
spanned several years, with periods of high demand for several markets (e.g.,
Korea and Taiwan) which, in the Company's experience, last five years or more.
These growth patterns do not seem to be closely tied to general economic cycles.
INTERNATIONAL OPERATIONS
For the six months ended June 30, 1997, 26.1% of Bowling Centers revenue
was generated by its international centers. For the year ended December 31,
1996, 33.8% of the Bowling Centers revenue was generated by international
centers. Historically, the Company has not engaged in any significant currency
hedging activities.
For the six months ended June 30, 1997, 59.2% of Bowling Products sales
were international sales. For the year ended December 31, 1996, approximately
62.7% of Bowling Products sales were made in international markets. To minimize
credit and international exchange risk, equipment is sold primarily using
letters of credit denominated in U.S. dollars. Letters of credit are usually
received before shipments leave U.S. ports. International sales offices sell
some products in local currency, but adjust pricing, to the extent that market
conditions permit, with changes in exchange rates. This policy enables the
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. See "Risk Factors -- International Operators".
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<PAGE> 35
BACKLOG; RECENT NCP SALES
The total backlog of NCPs (which include all of the equipment necessary to
outfit one new bowling lane) as of August 10, 1997 was 2,431 units, which is a
70.0% increase over the December 31, 1996 backlog of 1,426 units. The increased
backlog was directly attributable to strong NCP orders generated throughout the
world as a result of an aggressive program to increase sales in early stage and
developed markets. The backlog as of August 10, 1997 reflects a significant
number of orders from customers in China, Malaysia, North and South America,
Japan and Europe. Orders of NCPs included in the backlog are subject to
cancellation by customers from time to time in the normal course of business.
Accordingly, the Company has experienced, and expects to continue to experience,
the cancellation of a portion of such orders.
NCP sales for the first six months of 1997 totaled $62.8 million, a 67.5%
increase over the same period in 1996. The significant increase was attributable
to the market development and sales programs implemented in mid-1996 which were
designed to maximize NCP sales activity in a variety of marketplaces of the
world. While China currently represents the largest market for the Company's NCP
sales and backlog, other markets such as South America, India, Poland, Russia
and the Middle East are being developed.
The total NCP backlog of approximately 1,426 units as of December 31, 1996
represented an increase of 486 units from the backlog of 940 units at December
31, 1995. This increase was 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.
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 was 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 with the full year 1995. The decrease in sales to Korea and Taiwan
during 1996 was 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 the Company's decreased
presence 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. Joint ventures
importing capital equipment, including bowling equipment, are required to pay
customs duty and VAT on such equipment, though certain grandfather rule
exemptions apply. For bowling equipment, the current customs duty rate is 50%,
while the VAT rate is 17%. Prior to the change in policy, joint ventures were
exempt from customs duty and VAT on most imported capital equipment, including
bowling equipment. This exemption has been extended in the past and is in effect
until December 31, 1997. Management believes that this change in policy will not
have a material effect on its results of operations and, if not extended, some
of the Company's backlog and future sales in China will be affected by this
change in policy. See "Risk Factors -- International Operations".
IMPACT OF INFLATION
The Company has historically offset the impact of inflation through price
increases and expense reductions. Periods of high inflation could have an
adverse effect on the Company to the extent that increased borrowing costs for
floating rate debt may not be offset by increases in revenue.
34
<PAGE> 36
ENVIRONMENTAL MATTERS
The Company'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.
The Company currently and from time to time is subject to environmental
claims. It is the opinion of management that the various asserted claims in
which the Company currently is involved are not likely to 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.
The Company cannot predict with any certainty whether existing conditions
or 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 the Company's
products, or providing its services, or otherwise adversely affect the demand
for its products or services. See "Business -- Environmental Matters".
35
<PAGE> 37
BUSINESS
GENERAL
AMF is the largest bowling company in the world. The Company operates 422
bowling centers worldwide which generate over 60 million customer visits per
year. AMF is the U.S. market leader with 335 bowling centers, and is also the
largest operator internationally, with 87 bowling centers in nine countries. In
addition, AMF has been a leader in the bowling equipment industry for over 50
years, having revolutionized ten pin bowling with the introduction of the first
automatic pinspotter in 1946. AMF is one of only two bowling equipment
manufacturers that compete on a global basis. Management believes that AMF
bowling equipment accounts for approximately 41% of the world's installed base
of bowling equipment.
The worldwide bowling center and bowling equipment industry generates
approximately $9 billion in annual revenue and includes approximately 13,000
bowling centers in over 80 countries. The U.S. bowling center and bowling
equipment industry generates in excess of $4 billion of revenue annually and
includes approximately 5,900 centers. Over 100 million people participate
annually in bowling worldwide, according to the FIQ, the official organization
of the worldwide bowling industry. The bowling center industry in both the U.S.
and abroad is highly fragmented. In the U.S., the next closest competitor to
AMF's 335 centers has approximately 111 centers. The next four largest operators
after AMF collectively account for only approximately 73 of the total 5,900
centers.
An investor group led by GSCP, an affiliate of Goldman Sachs, acquired AMF
in May 1996 for a total purchase price of approximately $1.37 billion. The
investor group appointed a new management team that has aggressively pursued a
three-part strategy:
- consolidate the U.S. bowling center industry,
- build a nationally recognized brand of superior bowling and
entertainment centers, and
- capitalize on the surging demand for bowling products and centers in
certain international markets.
Management is utilizing the well-recognized AMF name to build the only
national branded network of bowling and entertainment centers in the U.S.
through a series of initiatives. These include introducing innovative new
products, such as bumper bowling and Xtreme Bowling(TM), upgrading the physical
appearance of centers, and improving the food and beverage offerings. Since May
1996, AMF's management team has grown the number of AMF's U.S. centers from 207
to 335, an increase of 62%, principally through acquisitions.
AMF is also capitalizing on the strong international growth in the demand
for Bowling Products through direct sales of equipment and the building of new
bowling centers abroad. Strong demand for AMF's New Center Packages of bowling
equipment drove AMF's backlog from 1,426 NCP units at December 31, 1996 to 2,431
NCP units at August 10, 1997, an increase of 70%. Over 90% of the Company's NCP
backlog is to international markets such as China, Japan and Germany. Further,
AMF is acting to accelerate the development of bowling in key potential markets.
During 1997, AMF agreed to enter into joint ventures to build and operate
bowling centers equipped with AMF bowling products in selected Southeast Asian
countries, and in Brazil and Argentina.
36
<PAGE> 38
INDUSTRY OVERVIEW
BOWLING CENTERS
Bowlers represent a broad cross-section of the population. Several key
reasons for bowling's popularity in the U.S. and abroad are that it is (i) an
indoor, all-weather sport with year-round appeal, (ii) a lifetime sport suitable
for all age groups, and (iii) low in cost relative to other forms of
entertainment, requiring minimal expenditure on equipment to participate.
Approximately 50% of U.S. bowling revenue is derived from league bowlers, who
register in leagues and commit to participate on a scheduled basis generally
once a week for a period of up to 40 weeks. Management believes that outside the
U.S., league revenue generally comprises a smaller percentage of bowling
revenue.
The bowling center industry is highly fragmented, and consists of two
relatively large bowling center operators, AMF (which has 335 U.S. centers as of
August 15, 1997) and Brunswick Corporation ("Brunswick") (which has
approximately 111 U.S. centers), four medium-sized chains, which together
account for 73 bowling centers, and over 5,300 bowling centers owned by
single-center and small-chain operators, which typically own four or fewer
centers. The top six operators (including AMF) account for less than 9% of the
total number of U.S. bowling centers.
The international bowling center industry is also highly fragmented. There
are typically few chain operators in any one 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.
In the United States, the operation of bowling centers is a mature industry
characterized by slightly decreasing lineage (games per lane per day) offset by
increasing average price per game and creating additional sources of 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 recreational bowlers.
U.S. BOWLING CENTER INDUSTRY(a)
<TABLE>
<CAPTION>
NUMBER OF
OPERATOR LOCATIONS % OF TOTAL
- ---------------------------------------------------------------------- --------- ----------
<S> <C> <C>
AMF................................................................... 335 5.7%
Brunswick............................................................. 111 1.9
Bowl America.......................................................... 23 0.4
Conbow(b)............................................................. 18 0.3
Active West........................................................... 17 0.3
Bowl New England...................................................... 15 0.2
----- -----
Subtotal............................................................ 519 8.8
----- -----
Single-center and small-chain operators............................... 5,381 91.2
----- -----
Total....................................................... 5,900 100.0%
===== =====
</TABLE>
- ---------------
(a) AMF estimate at August 15, 1997.
(b) AMF has agreed to acquire 15 bowling centers from Conbow subject to the
terms and conditions of the Conbow Agreement (as hereinafter defined).
BOWLING PRODUCTS
The Bowling Products business consists of two categories: (i) New Center
Packages (all of the equipment necessary to outfit a new bowling center or
expand an existing bowling center); and (ii) Modernization and Consumer Products
(which includes modernization equipment which upgrades an existing center, spare
parts, supplies and consumable products). AMF and Brunswick are the only bowling
center equipment manufacturers that compete on a global basis. Management
37
<PAGE> 39
believes that AMF's bowling equipment accounts for approximately 41% of the
world's installed base of bowling equipment. Other competitors are typically
smaller companies that tend to offer a narrower range of products and are often
regionally focused. See "AMF Bowling Products -- Competition".
New Center Package sales follow the trends in the growth of bowling. As
bowling is introduced and becomes popular in new markets, the economics of
constructing and operating bowling centers become attractive to local market
developers and entrepreneurs. Consequently, they build new bowling centers,
which need to be outfitted with equipment, driving demand for NCPs. For at least
the last 15 years, the vast majority of NCP sales have been to international
markets. This international trend has been fueled by the growth of bowling in
several countries, particularly China, Taiwan and Korea.
Sales of Modernization and Consumer Products to bowling center operators
who manage the growing installed base of bowling equipment provide a stable base
of recurring revenue. These products include both proprietary and standard spare
parts for existing equipment and other products including pins, shoes, supplies
and modernization equipment. Some of these products, such as bowling pins,
should be replaced on approximately an annual basis to maintain a center, while
certain less frequent investments in other equipment are necessary to modernize
a center and are often required to maintain a customer base.
In the U.S. and Korea, which are mature bowling markets, the population per
lane in 1996 was approximately 2,000 and 3,600, respectively. (These figures are
calculated by dividing total population by number of lanes: total population is
obtained from the Population Reference Bureau; lane numbers are estimates
received from AMF regional sales representatives.) In developing markets, the
population per lane is significantly higher, suggesting the opportunity for
additional growth, although there can be no assurance that these markets will
develop to the same extent as the U.S. or Korea, as only a small number of
markets have achieved this level of development. For example, India has over 25
million people per lane of installed bowling equipment, Poland has over 2
million people per lane, Indonesia has over 650,000 people per lane and Brazil
has over 450,000 people per lane.
BUSINESS STRATEGY
AMF believes that its future growth will depend on the continued success of
its three-part strategy to consolidate the U.S. bowling center industry, build a
nationally recognized AMF brand of superior bowling and entertainment centers,
and capitalize on the surging demand for bowling products and centers in certain
international markets. The key elements of the strategy are:
CONSOLIDATE THE FRAGMENTED U.S. BOWLING CENTER INDUSTRY
In addition to the 135 centers that AMF has acquired since May 1996, the
Company's dedicated acquisition team has identified approximately 2,000
potential center acquisition candidates in the United States. The Company
employs a regional clustering strategy for its U.S. centers and focuses on
acquiring centers that either fit into existing geographic clusters or could be
the base for forming new clusters. Management believes that none of the
Company's competitors in the U.S. bowling industry is pursuing such an active
acquisition strategy.
IMPROVE ACQUIRED CENTERS' PROFITABILITY
The Company believes that its EBITDA margins are among the highest of
operators of U.S. bowling center chains, based on the Company's experience in
acquiring centers. Following an acquisition, management acts to increase
profitability by cutting costs and introducing programs to increase revenue.
Specifically, the Company improves marketing programs, reduces overhead,
optimizes staffing, implements improved financial controls, centralizes
management and mainte-
38
<PAGE> 40
nance of equipment, and centralizes purchasing. The Company often makes
immediate capital and other improvements to upgrade the centers it acquires
which are designed to generate increased revenue and to further AMF's goal of
creating a nationally recognized brand of superior bowling and entertainment
centers.
BUILD A NATIONALLY RECOGNIZED BRAND OF SUPERIOR BOWLING AND ENTERTAINMENT
CENTERS
AMF believes it offers a superior bowling and entertainment experience
utilizing innovative products such as Xtreme Bowling(TM), which uses
glow-in-the-dark pins and equipment, black lighting and music; bumper bowling
for children, in which bumpers prevent balls from rolling into the gutter;
computerized, automatic and color scoring; and time period discounts for certain
groups, such as seniors and children. The Company is also increasing concourse
space in certain of its centers for amusement games, billiards and other
activities. AMF is selectively introducing the "Family Fun Fest" bowling center,
which offers expanded state-of-the-art arcade and video games. The Company also
seeks to increase its profile through the sponsorship of Special Olympics
International and by hosting professional bowling tournaments.
BUILD NEW CENTERS
The Company has built new bowling centers in attractive markets to enhance
its Bowling Centers business and also to serve as a showcase for the products
manufactured by its Bowling Products business. These centers utilize
state-of-the-art equipment and present bowling as part of a family entertainment
experience and are an integral part of AMF's efforts to build a nationally
branded network of superior bowling and entertainment centers. For instance, in
August 1997, the Company will open a new 40-lane bowling center at Chelsea Piers
in New York, the first new bowling center in Manhattan in 30 years.
IMPROVE FOOD AND BEVERAGE REVENUES
The Company estimates that it has over 60 million customer visits per year
in its bowling centers. The Company is expanding and improving the food and
beverage product offerings at many of its centers to take better advantage of
its significant customer traffic. AMF also capitalizes on purchasing economies
of scale. The Company is one of the nation's leading on-premise accounts for
both Anheuser Busch Companies, Inc. and The Coca-Cola Company.
CAPITALIZE ON GROWING GLOBAL DEMAND FOR BOWLING PRODUCTS
Management believes that AMF's well-established global brand name, the
quality of its products, and its comprehensive service and strong direct sales
force and distribution network will enable it to take advantage of growing NCP
demand worldwide. The Company is focused on sales of NCPs (which comprised 48%
of AMF's Bowling Products sales in 1996) into selected countries with
demonstrated strong demand for bowling products. AMF's backlog of NCPs increased
by 70% from 1,426 units at December 31, 1996 to 2,431 units at August 10, 1997.
Customers outside the U.S. comprise over 90% of the current NCP backlog total,
with the largest portion going to markets, such as China, Japan and Germany. In
addition, AMF will continue to acquire and to build international bowling
centers on a selective basis, either to enhance the growth of bowling in
countries which present attractive opportunities for the sale of bowling
products or to enhance AMF's competitive position in a particular country's
bowling center industry.
ACCELERATE THE DEVELOPMENT OF BOWLING IN SELECTED INTERNATIONAL MARKETS
In addition to the international markets that currently have a high demand
for bowling products, management believes that selected international markets
which are in the early development stage have the potential for high growth.
Examples of such early stage markets are India which has over 25 million people
per lane of installed bowling equipment, Poland which has over 2 million people
per lane, Indonesia which has over 650,000 people per lane, and Brazil which has
450,000 people
39
<PAGE> 41
per lane. By contrast, mature markets, such as the U.S. and Korea, have
populations per lane of 2,000 and 3,600, respectively. There can be no assurance
that early stage markets will develop to the same extent as the United States or
Korea, as only a small number of markets have achieved this level of
development. AMF seeks to accelerate the industry's growth in early stage
markets by building showcase centers and conducting promotional programs. As
bowling becomes more popular, local developers and entrepreneurs build new
bowling centers, which are outfitted with equipment, and drive demand for NCPs.
To capitalize on this development cycle, AMF has agreed to enter into joint
ventures to build, own and operate up to 20 bowling centers in Southeast Asia
and 39 bowling centers in Brazil and Argentina. The Company is also developing a
center in India and pursuing opportunities in Russia and Poland.
PROVIDE INNOVATIVE AND QUALITY PRODUCTS
AMF expects to continue to maintain its leadership position in
manufacturing by setting industry standards for quality and innovation.
Management believes that AMF has the fastest and most reliable pinspotters, the
highest scoring lanes and the most durable pins. Since the development of the
first automatic pinspotter over fifty years ago, AMF has been an innovator in
the advancement of such products as automatic scoring, bumpers, and Xtreme
Bowling(TM). AMF positions its products as high quality and technologically
advanced, allowing it generally to command premium prices. Management believes
that AMF uses its position as an integrated bowling centers operator and bowling
products manufacturer to AMF's advantage in testing and developing product
innovations.
INCREASE MODERNIZATION AND CONSUMER PRODUCT SALES
Management expects AMF to benefit as the worldwide base of bowling centers
grows due to the increased popularity of bowling. AMF's brand name, the large
installed base of AMF bowling equipment, AMF's established direct sales force
and distribution network and its quality products will position AMF to increase
sales of Modernization and Consumer Products. These products, which include
modernization equipment, supplies, spare parts and consumable products,
comprised 52% of AMF's Bowling Products sales in 1996. Furthermore, when AMF
acquires or constructs a center and installs state-of-the-art equipment in that
center, management believes that competing centers may purchase Modernization
and Consumer Products, often from AMF, to remain viable competitors to the AMF
center.
RECENT FINANCIAL PERFORMANCE
AMF's management has significantly improved financial results since the May
1996 acquisition. Revenue and EBITDA increased by 33.9% to $318.1 million and by
30.4% to $85.8 million, respectively, for the first six months of 1997 as
compared to the pro forma results for the first six months of 1996. Management
believes that AMF's Bowling Centers and Bowling Products businesses have been
characterized by high EBITDA margins and attractive returns on investment.
Management believes that the Company is well-positioned, due to its long
established industry leadership position, the AMF brand, the Company's large
installed base and its strategy, to develop and capitalize on the growth
potential of bowling worldwide.
AMF BOWLING CENTERS
In the United States, AMF is the largest operator of bowling centers, with
(as of August 15, 1997) 335 bowling centers in 36 states and Puerto Rico.
Outside the United States, AMF is also the largest operator of bowling centers,
with (as of August 15, 1997) 87 bowling centers in nine countries: Australia
(38), the United Kingdom (22), Mexico (9), Japan (5), China (including Hong
Kong) (6), France (3), Spain (2), Switzerland (1), and Canada (1). Of the U.S.
centers, 207 were acquired as part of the Acquisition (seven of which were
subsequently closed) and 135 were acquired thereafter. Of the international
centers, 78 were acquired as part of the Acquisition and nine were acquired
thereafter, including seven in the United Kingdom and two in Australia.
The Company's number of U.S. centers, regional clustering for U.S. centers
(53 clusters) and average size (an average of 37 lanes per U.S. center versus an
industry average of 21 lanes per
40
<PAGE> 42
U.S. center) 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) more concourse space for food and beverage
offerings, amusement games, billiards and pro shops. Cost savings resulting from
the economies of scale include (a) the ability to distribute operating and
corporate overhead costs (including marketing and advertising costs) over a
larger revenue base and (b) attractive terms from certain of the Company's
suppliers.
Internationally, AMF's centers also 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 is particularly well-positioned in the United Kingdom and
Australia.
The geographic diversity of AMF's Bowling Centers operations across
different regions of the U.S. and across nine other countries, along with the
bowling centers industry's historic relative insulation from recessions, has
provided stability to AMF's annual cash flows. See "Risk Factors -- Seasonality
and Market Development Cycles" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality and Market
Development Cycles".
The Company has an ongoing modernization program that results in its
bowling centers having more upgraded physical plants and attractive appearances
than those of other operators. Management believes that its historical spending
level of approximately 3.7% of Bowling Centers revenue is adequate to cover
routine capital expenditures. Management estimates that only 2% of Bowling
Centers revenue is required for nondiscretionary capital expenditures alone. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Expenditures".
The Bowling Centers business derives its revenue and profits from three
principal sources: (i) bowling, (ii) food and beverage and (iii) other sources,
such as shoe rental, amusement games, billiards and pro shops. In 1996, bowling,
food and beverage and other revenue represented 62%, 24% and 14% 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 recreational
play. Food and beverage sales occur primarily through snack bars that offer
snack foods, soft drinks and, at many centers, alcoholic beverages. AMF has
acquired several centers with large sports bars that provide a large portion of
such centers' revenue. Other revenue is derived from shoe rental and the
operation of amusement games, billiards and pro shops. The shoe rental business
is driven primarily by recreational bowlers who usually do not own a pair of
bowling shoes. Recreational bowlers and non-bowling customers are also the
primary users of amusement games and billiards tables.
RECENT ACQUISITIONS AND JOINT VENTURES
On October 10, 1996, AMF completed the acquisition of 50 bowling centers
and certain related assets and liabilities from 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 Bowling to its existing institutional
stockholders and one of its directors, and with approximately $66.5 million
borrowed under the Acquisition Facility.
On April 24, 1997, AMF completed the acquisition of American Recreation
Centers, Inc. ("ARC"), which operated 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, and was funded with borrowings under the Acquisition Facility.
In addition, between May 1, 1996 and August 15, 1997, the Company acquired
42 centers in the United States, seven centers in the U.K. and two centers in
Australia from various single-center and
41
<PAGE> 43
small chain operators. The aggregate purchase price for such acquisitions was
approximately $94.1 million, and was funded with borrowings under the
Acquisition Facility.
As a result of the foregoing acquisitions and after giving effect to the
closing of seven centers since the Acquisition, the Company operated 335 U.S.
bowling centers and 87 international bowling centers as of August 15, 1997.
As of August 15, 1997, after giving effect to such acquisitions, $86.0
million remained available under the Acquisition Facility, of which a portion is
expected to partially fund acquisitions that are scheduled to close by the end
of September 1997.
Pursuant to the Asset Purchase Agreement (the "Conbow Agreement"), dated as
of July 29, 1997, by and among AMF Bowling Centers, Inc., a wholly owned
subsidiary of AMF Bowling, Conbow and certain subsidiaries of Conbow, AMF has
agreed to acquire 15 bowling centers from Conbow and certain related assets, on
and subject to the terms and conditions of the Conbow Agreement. The Company has
also signed purchase agreements to acquire two additional U.S. centers from
unrelated sellers. The aggregate purchase price for such centers and the Conbow
centers is expected to be approximately $28.2 million and is expected to be
funded with borrowings under the Acquisition Facility and an equity contribution
from the Company's current stockholders. See "Management's Discussion and
Analysis of Financial Statements and Results of Operation -- Capital Resources".
In April 1997, the Company entered into a joint venture arrangement with
Hong Leong Corporation Limited, a Singapore based conglomerate ("Hong Leong").
Pursuant to the arrangement, the joint venture, to be owned 50% by the Company
and 50% by Hong Leong, is expected to build and operate 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 China,
Indonesia, Malaysia, the Philippines, Thailand and Vietnam.
In June 1997, the Company signed an agreement to enter into a joint venture
arrangement with Playcenter S.A., a Sao Paulo based amusement and entertainment
company ("Playcenter"). Pursuant to the arrangement, the joint venture, to be
owned 50% by the Company and 50% by Playcenter, is expected to build or assume
ownership of, and operate, up to 39 bowling centers in Brazil and Argentina
during the next four years.
The Company expects its total investments in the joint ventures with Hong
Leong and Playcenter to be approximately $12 million and $14 million,
respectively, and expects each joint venture to finance the construction and
acquisition of bowling centers with financing that is non-recourse to the
Company.
COMPETITION (BOWLING CENTERS)
Bowling, both as a competitive sport and a recreational activity, faces
competition from numerous alternative activities. The ongoing success of the
Bowling Centers operations is subject to the level of interest in bowling, the
availability and relative cost of other sport, recreational and entertainment
alternatives, the amount of leisure time enjoyed by potential players, 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 "Risk
Factors -- Bowling Industry Characteristics", "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Performance by
Business Segment -- Bowling Centers" and "-- Business Strategy".
The Company's centers also compete with other bowling centers. See
"-- Industry Overview". The Company competes primarily through the quality,
appearance and location of its facilities and through the range of amenities and
service level offered.
42
<PAGE> 44
FACILITIES (BOWLING CENTERS)
As of August 15, 1997, AMF operated 335 centers in the United States and 87
centers in nine other countries. A regional list of these facilities is set
forth below:
U.S. CENTERS*
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF OWNED/
CLUSTERS CENTERS LEASED
--------- --------- -------
<S> <C> <C> <C>
REGION
Pacific........................................... 8 53 24/29
Great Lakes....................................... 7 45 34/11
Baltimore/Washington.............................. 6 42 31/11
Northeast......................................... 6 44 20/24
Southern.......................................... 7 38 25/13
Mid-Atlantic...................................... 7 40 25/15
Midwest........................................... 6 36 26/10
Texas............................................. 6 35 27/8
--
--- -------
Total........................................... 53 333 212/121
== === =======
</TABLE>
- ---------------
* AMF operates two centers for an unrelated party. The two managed centers are
neither owned nor leased by AMF and, therefore, are not included in the
foregoing table.
INTERNATIONAL CENTERS
<TABLE>
<CAPTION>
NUMBER OF OWNED/
LOCATIONS LEASED
--------- ------
<S> <C> <C>
COUNTRY
Australia....................................................... 38 23/15
United Kingdom.................................................. 22 3/19
Mexico.......................................................... 9 5/4
China (including Hong Kong)..................................... 6 0/6
Japan........................................................... 5 0/5
France.......................................................... 3 0/3
Spain........................................................... 2 0/2
Switzerland..................................................... 1 0/1
Canada.......................................................... 1 1/0
--
-----
Total......................................................... 87 32/55
== =====
</TABLE>
AMF's leases are subject to periodic renewal. Thirty-five of the U.S.
Bowling Centers have leases which expire during the next three years. Twenty-two
of such leases have renewal options. Eighteen of the international Bowling
Centers have leases which expire during the next three years. Ten of such leases
have renewal options. AMF generally does not have difficulty renewing leases.
EMPLOYEES (BOWLING CENTERS)
As of July 31, 1997, Bowling Centers operations had approximately 12,882
full- and part-time employees. The Company believes that its relations with its
Bowling Centers employees are satisfactory.
43
<PAGE> 45
NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
----------
<S> <C>
COUNTRY
United States................................................ 10,624
------
International:
Australia................................................. 1,144
United Kingdom............................................ 550
Mexico.................................................... 220
China (including Hong Kong)............................... 122
Japan..................................................... 48
France.................................................... 77
Spain..................................................... 33
Switzerland............................................... 13
Canada.................................................... 51
------
Total International.................................. 2,258
------
Total Worldwide...................................... 12,882
======
</TABLE>
AMF BOWLING PRODUCTS
AMF is one of only two bowling center equipment manufacturers that compete
on a global basis. Management believes that AMF bowling equipment 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 manufactures and sells bowling center equipment,
including automatic pinspotters, automatic scoring equipment, bowling pins,
lanes, ball returns, and certain spare and modernization parts, and resale
products, such as bowling balls, bags, shoes and other bowlers' aids, sold
primarily through pro shops.
The bowling products business consists of two categories: (i) New Center
Packages (all of the equipment necessary to outfit a new bowling center or
expand an existing bowling center); and (ii) Modernization and Consumer Products
(which includes modernization equipment, spare parts, supplies and consumable
products).
AMF positions its products as high quality, technologically advanced
products, allowing AMF generally to command premium prices. AMF's long history
of bowling equipment innovation began over 50 years ago when AMF revolutionized
ten pin bowling with the introduction of the automatic pinspotter. Today, AMF
manufactures 8800 Gold (the fastest pinspotter for play conducted under
conditions specified by the American Bowling Congress) and 8290 pinspotters,
and, management believes, 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 HPL
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. Internal tests demonstrate that AMF pins are more durable under
stress conditions and are 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
44
<PAGE> 46
of centers increases. In order for a bowling center to remain competitive and to
satisfy its customers, the center operator must make certain periodic
investments in the center's equipment. Some of these investments, such as
replacing pins, must be made on approximately an annual basis. 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.
NEW CENTER PACKAGES
New Center Packages include the equipment necessary to outfit new or expand
existing bowling centers, such as lanes, pinspotters, automatic scoring, bowler
seating, ball returns, masking units and bumpers. AMF is focused on sales of
NCPs into selected countries with demonstrated strong demand for bowling
products, such as China, Japan and Germany. In addition, AMF believes that
markets, such as Argentina, Brazil, Indonesia, India, Poland, and other selected
markets in Asia, Eastern Europe and South America, hold the potential for high
growth over the next several years, but are currently in the early stages of the
industry's development. As bowling is introduced in a market and becomes more
popular, local developers and entrepreneurs build new bowling centers, which are
outfitted with equipment, and drive demand for NCPs. To capitalize on this
development cycle, AMF has entered into a joint venture with Hong Leong and has
agreed to enter into a joint venture with Playcenter described under "-- Recent
Acquisitions and Joint Ventures". See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Backlog; Recent NCP Sales".
BILLIARDS
In addition to bowling equipment and supplies, AMF manufactures and sells
PlayMaster billiards tables. PlayMaster sells an extensive line of home
billiards tables and a limited line of commercial billiards tables. For the six
months ended June 30, 1997, PlayMaster had revenue of $3.8 million.
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 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.
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.
PROPERTIES (BOWLING PRODUCTS)
As of July 31, 1997, AMF owned or leased facilities at five locations in
the U.S., four of which are used for its Bowling Products business and one of
which is used for its billiards business. AMF also leased facilities at 28
international locations, which are used as offices or warehouses. These
facilities are listed below.
45
<PAGE> 47
U.S. FACILITIES
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION PRODUCTS SQUARE FOOTAGE LEASED
- ----------------------- -------------------------------------------- -------------- -------
<S> <C> <C> <C>
Richmond, VA........... World headquarters,
pinspotters, automatic scoring, synthetic
lanes, other capital equipment, 360,000 Owned
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
Miami, FL.............. Office 200 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
Brussels, Belgium................................... Office 1,000 Leased
Ontario, Canada..................................... Office 400 Leased
Beijing, China...................................... Office 390 Leased
Guangzhou, China.................................... Office 380 Leased
Warehouse 1,650 Leased
Hong Kong........................................... Office 2,500 Leased
Office 1,125 Leased
Shanghai, China..................................... Office 400 Leased
Levallois-Perret, France............................ Office 984 Leased
Warehouse 1,470 Leased
Mainz-Kastel, Germany............................... Office 656 Leased
Warehouse 1,650 Leased
Bangalore, India.................................... Office 1,050 Leased
New Delhi, India.................................... Office 2,000 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
Warsaw, Poland...................................... Office 209 Leased
Granna, Sweden...................................... Office 4,515 Leased
Warehouse 12,705 Leased
Hemel Hempstead, United Kingdom..................... Office 11,500 Leased
Warehouse 11,770 Leased
</TABLE>
46
<PAGE> 48
EMPLOYEES (BOWLING PRODUCTS)
As of July 31, 1997, the Bowling Products business had approximately 908
full-time employees. The Company believes that its relations with its Bowling
Products employees are satisfactory. Employees are divided along functional
lines as shown in the table below.
EMPLOYEES
<TABLE>
<CAPTION>
SEGMENT NUMBER OF EMPLOYEES
--------------------------------------------------------- -------------------
<S> <C>
Manufacturing............................................ 653
---
Sales
Australia.............................................. 8
Americas............................................... 48
Europe................................................. 53
Asia-Pacific........................................... 105
Japan.................................................. 41
---
Total Sales......................................... 255
---
Total Worldwide................................ 908
===
</TABLE>
EMPLOYEES (CORPORATE)
As of July 31, 1997, the Company had approximately 139 full-time corporate
employees. The Company believes that its relations with its corporate employees
are satisfactory.
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 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. In the opinion
of management, 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 Products, Inc. (formerly named AMF Bowling, Inc.), a wholly
owned, indirect subsidiary of AMF Bowling ("AMF Bowling Products"), 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 Products. The plaintiffs,
competitors of AMF Bowling Products, obtained summary judgment on the issue of
liability in December 1994. AMF Bowling Products 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 Products.
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 Products
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.
On March 5, 1996, the defendant in an action entitled Northland Bowl and
Sports Center, Inc. and Recreation Association, II v. Golden Giant, Inc., d/b/a
Golden Giant Building Systems, Court of Common pleas, Centre County,
Pennsylvania, asserted a third-party claim against AMF Bowling Products and
other parties. Defendant, Golden Giant, Inc. ("Golden Giant"), a construction
company, was originally named as the sole defendant by a bowling center (not
owned or operated by the Company) in connection with the collapse of such
center's roof in early 1994. Golden Giant named AMF Bowling Products as an
additional defendant, charging it with negligence and breach of
47
<PAGE> 49
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 $3.5 million, and Golden Giant asserts
that, if the plaintiff is entitled to any recovery, it should be in whole or
part against AMF Bowling Products. The matter was scheduled to go to trial
during September 1997. On March 25, 1997, an order was entered dismissing AMF
Bowling Products from the lawsuit, which continues against the other defendants.
The plaintiff has appealed the order dismissing AMF Bowling Products. No
decision has been rendered by the appeal court.
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. See "Risk
Factors -- International Operations".
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.
The Company currently and from time to time is subject to environmental
claims. It is the opinion of management that the various asserted claims in
which the Company currently is involved are not likely to 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.
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
certain of the prior owners of AMF, will be required to indemnify AMF for the
liability at three of these sites under an indemnity agreement which certain of
the prior owners of AMF were required by such agreement 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 taken as a
whole.
AMF cannot predict with any certainty whether existing conditions or 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Environmental Matters".
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<PAGE> 50
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth information concerning the individuals who
are the executive officers and directors of AMF Bowling and certain other
officers of AMF:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------
<S> <C> <C>
Richard A. Friedman................ 39 Director and Chairman
Douglas J. Stanard................. 50 Director; President and Chief Executive Officer
Stephen E. Hare.................... 44 Director; Executive Vice President; Chief
Financial Officer and Treasurer
Michael P. Bardaro................. 46 Vice President; Secretary and Corporate
Controller
Paul D. Barkley.................... 41 Vice President, U.S. Operations of AMF Bowling
Centers
Stephen C. Mackie.................. 48 Vice President, International Operations of AMF
Bowling Centers
Steven H. Buckley.................. 48 Vice President, Food and Beverage of AMF Bowling
Centers
Lawrence C. Kind................... 45 Vice President of AMF Bowling Products
J. Randolph V. Daniel, IV.......... 37 Vice President, New Center/Modernization Products
of AMF Bowling Products
J. Simon Shearer................... 41 Vice President, Worldwide Quality Management of
AMF Bowling Products
Merrell C. Wreden.................. 48 Vice President, Marketing
Charles G. Moss.................... 36 Director of Corporate Development
Daniel M. McCormack................ 52 Vice President and General Counsel
Terence M. O'Toole................. 39 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
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF AMF BOWLING
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, Marcus Cable Company, L.P., and Polo Ralph Lauren
Corporation. He received an A.B. from Brown University and an M.B.A. from The
University of Chicago.
DOUGLAS J. STANARD is the President and Chief Executive Officer of AMF
Bowling. 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. from Northern Illinois University and a J.D. from The
College of William and Mary.
STEPHEN E. HARE is the Executive Vice President and Chief Financial Officer
of AMF Bowling and has been Executive Vice President and Chief Financial Officer
of AMF Group 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
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<PAGE> 51
holds a Certified Public Accountant license. He received a B.B.A. from the
University of 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 Bowling. 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. in Accounting from the University of Cincinnati.
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 and
Western Wireless Corporation. He holds a B.S. degree from Villanova University
and an M.B.A. from the Stanford University Graduate School of Business.
PETER M. SACERDOTE is a limited partner in The Goldman Sachs Group. He
joined Goldman Sachs in 1964 and served as a general partner from 1973 to 1990.
Mr. Sacerdote is Chairman of Goldman, Sachs & Co. Principal Investment
Committee. Mr. Sacerdote serves on the Boards of Directors of Franklin
Resources, Inc. and QUALCOMM Incorporated. 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 Steel Dynamics Inc. 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.
THOMAS R. WALL IV has been a Managing Director of Kelso & Co. since 1990.
He serves or has served as a director of CCA Holdings Corp., General Medical,
Inc., IXL Holdings, Inc., Mitchell Supreme Fuel Company, Mister Inc. and Peebles
Inc.
OTHER OFFICERS OF AMF
PAUL D. BARKLEY has served as Vice President, U.S. Operations of AMF
Bowling Centers since February 1997. Mr. Barkley served as Vice President of
U.S. Operations, Western U.S. of AMF Bowling Centers in 1996 and as a region
manager in 1995. In 1993 and 1994, Mr. Barkley served as a Region Manager for
Fair Lanes. Mr. Barkley has a degree in accounting from Arizona State
University.
STEPHEN C. MACKIE has served as Vice President, International Operations of
AMF Bowling Centers since May 1996. Mr. Mackie has served AMF Bowling Centers in
various other capacities since 1980.
STEVEN H. BUCKLEY has served as Vice President, Food and Beverage of AMF
Bowling Centers since February 1997. Prior to joining AMF, Mr. Buckley was a
Vice President at Chock Full O' Nuts Corp. Mr. Buckley received a B.B.A. in
finance from Hofstra University.
50
<PAGE> 52
LAWRENCE C. KIND has served as Vice President, Bowling Products since
February 1997. Mr. Kind had served as Region Manager of AMF Bowling Centers from
1993 to February 1997. Mr. Kind received a B.A. in Business from Long Island
University.
J. RANDOLPH V. DANIEL, IV was named Vice President, New
Center/Modernization Products for AMF Bowling Products in February 1997. Mr.
Daniel served as General Manager, Capital Equipment Division from 1995 to
February 1997 and as Director of Operations, Capital Equipment Division from
1993 to 1994 for AMF Bowling Products. Mr. Daniel received a B.S. and an M.B.A.
from the University of Virginia.
J. SIMON SHEARER has served as Vice President Worldwide Quality at AMF
Bowling Products since February 1997. Mr. Shearer has served AMF in various
other capacities since 1981. Mr. Shearer attended the University of South
Australia.
MERRELL C. WREDEN has served as Vice President, Marketing since October
1996. Prior to joining AMF, Mr. Wreden was Group Manager Advertising, Promotion
at The Remington Arms Company, Inc. since 1993. Mr. Wreden has a B.A. from the
University of Virginia.
CHARLES G. MOSS has served as Director of Center Development since May
1996. Mr. Moss has served AMF in various other capacities since 1991. Mr. Moss
received a B.A. and an M.B.A. from the University of Virginia.
DANIEL M. MCCORMACK has been a Vice President and General Counsel of AMF
since May 1996. Prior to that time, Mr. McCormack was an attorney with CCA
Industries, Inc., where he had been employed since 1990. Mr. McCormack has a
B.A. and J.D. from University of Richmond.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has three standing committees: an Audit Committee, a
Compensation Committee and an Executive Committee.
The Audit Committee has general responsibility for supervising financial
controls, as well as responsibility for accounting and auditing activities of
the Company. The Audit Committee annually reviews the qualifications of the
Company's independent certified public accountants, makes recommendations to the
Board of Directors as to their selection and reviews the planning, fees and
results of their audit. The Audit Committee will consist solely of independent
directors as and when elected.
The Compensation Committee is responsible for reviewing and approving the
amount and type of consideration to be paid to senior management and is
authorized to make grants and various other decisions under the AMF Bowling,
Inc. 1996 Stock Incentive Plan (the "Stock Incentive Plan") and to make
determinations as to a number of the terms of awards granted under the Stock
Incentive Plan. See "-- AMF Bowling, Inc. 1996 Stock Incentive Plan".
The Executive Committee may exercise all the powers and authority of the
Board of Directors (subject to any restrictions under Delaware law) except with
respect to those actions requiring a Special Vote (as hereinafter defined) and,
in the case of matters requiring a prior meeting of the Board of Directors, only
after such meeting has occurred. See "Principal Stockholders -- Stockholders
Agreement".
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 Bowling's Chief
Executive Officer and its three executive officers (collectively, the "Named
Executive Officers").
51
<PAGE> 53
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM 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 Executive 1995 225,000 204,750 -- -- --
Officer 1996 308,333 229,167 130,000 -- 7,500
Richard A. Friedman(c)................ 1996 -- -- -- -- --
Chairman
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(d) 166,667(e) 105,000 N/A --
Treasurer
Robert L. Morin(f).................... 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(g) 7,500
Market Development
Michael P. Bardaro.................... 1994 44,371(h) 4,500 -- -- --
Vice President/Secretary 1995 95,833 29,958 -- -- 2,327
and Corporate Controller 1996 117,622 40,046 25,000 -- 168,338(i)
</TABLE>
- ---------------
(a) Options to purchase shares of Common Stock under the Stock Incentive Plan.
(b) Unless otherwise indicated, all other compensation represents 401(k) plan
and profit-sharing contributions made by AMF Group.
(c) Mr. Friedman ceased to hold the positions of Chief Executive Officer and
President of AMF Bowling on July 31, 1997, at which time Mr. Stanard, who
had been and continues to be Chief Executive Officer of AMF's principal
subsidiaries, assumed the additional titles of President and Chief Executive
Officer of AMF Bowling.
(d) Mr. Hare's employment with AMF Group began on May 28, 1996.
(e) Mr. Hare used the proceeds of such bonus to pay a portion of the purchase
price for 150,000 shares of Common Stock. Further, the Company loaned Mr.
Hare $62,614 to be used to pay taxes associated with such bonus. In
exchange, Mr. Hare gave the Company a full recourse promissory note secured
by the 150,000 shares of Common Stock. See "-- Employment Agreements".
(f) Mr. Morin's employment terminated, and he resigned all positions with AMF
and its affiliates as of February 28, 1997.
(g) 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.
(h) Mr. Bardaro's employment with AMF began on July 5, 1994. On July 31, 1997
Mr. Bardaro was elected Vice President, Secretary and Corporate Controller
of AMF Bowling.
(i) Includes a "special one-time bonus" in the amount of $161,388 paid by the
Predecessor Company in connection with the Acquisition.
52
<PAGE> 54
OPTION GRANTS
The following table provides information on grants of stock options in 1996
to the Named Executive Officers.
<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)(1)(2)(3) 1996 SHARE EXPIRATION DATE VALUE(4)
- ------------------------- ----------------- ---------- -------- ---------------- ----------
<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(5)....... 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) Subsequent to January 1, 1997, Mr. Stanard, Mr. Hare and Mr. Bardaro were
granted Stock Options to purchase 25,000, 15,000, 10,000 shares of Common
Stock, respectively. These options are exercisable at $10 per share and for
a 10-year period expiring on June 11, 2007. All such Stock Options were
granted under the Stock Incentive Plan.
(2) All Stock Options listed in this table other than Mr. Stanard's Stock
Options to purchase 130,000 shares of Common Stock were granted under the
Stock Incentive Plan.
(3) Of the Stock Options granted to each Named Executive Officer listed in this
table and that will remain outstanding, 20% vest on each anniversary of
their grant until all have vested. The first anniversary of Mr. Stanard's
grant was May 1, 1997; the first anniversary of Mr. Hare's grant was May 28,
1997; and the first anniversary of Mr. Bardaro's grant will be August 28,
1997.
(4) The present value of the grant at the date of grant is estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for these grants: risk-free rate of return of 6.5%;
expected dividend yield of zero; expected time of exercise of ten years;
expected volatility of zero, due to the lack of a public trading market for
the securities underlying the options, based on the minimum value method. No
adjustments were made to reflect forfeiture risk or non-transferability.
(5) In connection with the termination of his employment with AMF, Mr. Morin's
Stock Options were cancelled.
OPTION EXERCISES AND YEAR-END VALUES
The following table provides information for the Named Executive Officers
regarding the number and value of all their unexercised Stock Options at
December 31, 1996. No such officers exercised any Stock Options in fiscal year
1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 (SHARES) DECEMBER 31, 1996($)(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 Stock Options 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> 55
EMPLOYMENT AGREEMENTS
Mr. Stanard and Mr. Hare each have an employment agreement (collectively,
the "Executive Employment Agreements") with AMF Bowling and AMF Group. Mr.
Stanard's Executive 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.
Each executive receives compensation consisting of salary and an incentive bonus
if certain operational and financial targets are met. Mr. Stanard's annual base
salary is $400,000 and Mr. Hare's annual base salary is $300,000. Both Executive
Employment Agreements provide for the payment of an annual bonus if certain
operational and financial targets determined by the Board of Directors of AMF
Group (the "Targets") are attained, and that the executive will earn a smaller
annual bonus if less than 100% but more than 90% of the Targets are attained.
Notwithstanding this provision, Mr. Hare's Executive Employment Agreement
additionally states that his annual bonus would 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 Executive Employment Agreements, Mr. Stanard holds
the position of Chief Operating Officer of AMF Group and Mr. Hare holds the
position of Chief Financial Officer of AMF Group. In addition, Mr. Stanard was
elected President and Chief Executive Officer of AMF Bowling on July 31, 1997
and is currently serving as President of AMF Bowling Centers Inc., AMF Bowling
Products and certain other related entities. Mr. Hare also serves as Executive
Vice President, Chief Financial Officer and Treasurer of AMF Bowling.
The Executive 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 Group under certain circumstances. The
Executive Employment Agreements further provide for a severance payment equal to
the executive's annual base salary if termination by AMF Group is not due to
death or disability. The executive's employment will be deemed to have been
terminated by AMF Group if all or substantially all of the stock or assets of
AMF Group are sold or disposed of to an unaffiliated third party and the
executive is not thereafter employed by AMF Bowling or one of its continuing
affiliates; however, neither AMF Bowling nor AMF Group 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
Group's stock or assets, or if his employment is continued by AMF Group.
Mr. Stanard purchased, pursuant to his Executive Employment Agreement,
150,000 shares of Common Stock (the "Purchased Stock") for $500,000 in cash plus
a non-recourse promissory note for $1,000,000, payable to AMF Bowling and
secured by the Purchased Stock which has been pledged pursuant to a stock pledge
agreement between Mr. Stanard and AMF Bowling. Mr. Hare purchased 150,000 shares
of Common Stock for $500,000 in cash plus a non-recourse promissory note for
$1,000,000, payable to AMF Bowling and secured by the Purchased Stock which has
been pledged pursuant to a stock pledge agreement between Mr. Hare and AMF
Bowling. Mr. Hare received a bonus of $166,667 in connection with his employment
with AMF. Mr. Hare used the proceeds of such bonus to pay a portion of the
purchase price for his Purchased Stock. Further, the Company loaned Mr. Hare
$62,614 to be used to pay taxes associated with such bonus. In exchange, Mr.
Hare gave the Company a full recourse promissory note secured by his Purchased
Stock. In addition, Mr. Stanard and Mr. Hare were granted Stock Options to
purchase 130,000 and 105,000 shares of Common Stock, respectively. Unless sooner
exercised or forfeited as provided, such Stock Options expire on May 1, 2006,
and May 28, 2006, respectively. To the extent not inconsistent with the
Executive Employment Agreements, such Stock Options are governed by the Stock
Incentive Plan. Twenty percent of Mr. Stanard's Stock Options vested on May 1,
1997 and another twenty percent will vest on each May 1 thereafter through the
year 2001; and twenty percent of Mr. Hare's Stock Options vested on May 28, 1997
and another twenty percent will vest on each May 28 thereafter through the year
2001.
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<PAGE> 56
The Executive Employment Agreements further provide that, prior to the
consummation of a public offering or offerings by AMF Bowling with gross
proceeds in the aggregate of at least $100 million (an "IPO"), AMF Bowling 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 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 IPO, require AMF Bowling 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 Group
terminates his employment for any reason. The consummation of the Offerings will
constitute an IPO for purposes of the Executive Employment Agreement; and,
accordingly, the foregoing rights will terminate upon consummation of the
Offerings. Immediately prior to certain change in control transactions any
unvested Options will vest.
If any successor to AMF Bowling or AMF Group acquires all or substantially
all of the business and/or assets of AMF Bowling or AMF Group, AMF Bowling 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 Common Stock less the exercise price of the Options.
Prior to February 28, 1997, Mr. Morin was employed by AMF Bowling and a
subsidiary thereof pursuant to an employment agreement (the "Morin 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 the
Morin Employment Agreement, Mr. Morin purchased 150,000 shares of Common Stock
("Morin Purchased Stock") for $500,000 in cash plus a non-recourse promissory
note for $1,000,000 (the "Morin Note"), payable to AMF Bowling and secured by
the Morin Purchased Stock. In addition, Mr. Morin was awarded Stock Options to
purchase 110,000 shares of Common Stock.
As of February 28, 1997, Mr. Morin's employment terminated, and he resigned
all positions with AMF and its related entities. Pursuant to the terms of the
Morin 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, AMF Bowling repurchased the Morin Purchased
Stock for $500,000 in cash plus the cancellation of the Morin Note, including
interest thereon. The Stock Options granted to Mr. Morin were cancelled.
AMF BOWLING, INC. 1996 STOCK INCENTIVE PLAN
In connection with the Acquisition, AMF Bowling adopted the Stock Incentive
Plan under which AMF Bowling may grant incentive awards in the form of shares of
Common Stock ("Restricted Stock Awards"), options to purchase shares of Common
Stock ("Stock Options") and stock appreciation rights ("Stock Appreciation
Rights") to certain officers, employees, consultants and non-employee directors
("Participants") of AMF Bowling and its affiliates. The total number of shares
of Common Stock initially reserved and available for grant under the Stock
Incentive Plan is 1,767,151. As of July 31, 1997, Stock Options to purchase
1,418,000 shares of Common Stock were outstanding, at an exercise price of
$10.00 per share. The Compensation 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 Compensation 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.
Stock Option awards under the Stock Incentive Plan may include incentive
Stock Options, non-qualified 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 circum-
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<PAGE> 57
stances) and, unless otherwise determined by the Compensation Committee, have a
term of ten years. Upon a Participant's death or when the Participant's
employment with AMF Bowling or the applicable affiliate of AMF Bowling 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.
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
of May 1, 1996; however, awards outstanding as of such date will not be affected
or impaired by such termination. The Board of Directors and the Compensation
Committee have authority to amend the Stock Incentive Plan and awards granted
thereunder, subject to the terms of the Stock Incentive Plan.
Through July 31, 1997, Stock Options to purchase 1,418,000 shares of 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 (the "Diker Option Agreement") dated May 1,
1996, Mr. Diker, a director of AMF Bowling, AMF Group Holdings and AMF Group was
granted, pursuant to the Stock Incentive Plan, non-qualified Stock Options to
purchase 100,000 shares of Common Stock at an exercise price of $10.00 per
share. One third of such Stock Options vested on May 1, 1996, one third vested
on May 1, 1997 and the remaining options vest on May 1, 1998. The Diker Option
Agreement provides that, prior to an IPO, AMF Bowling may, upon termination of
Mr. Diker's service as a director of AMF Bowling for any reason (including death
but excluding disability), repurchase 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 AMF Bowling 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 Bowling terminates
his service as a director of AMF Bowling for any reason. If any successor to AMF
Bowling acquires all or substantially all of the business and/or assets of AMF
Bowling, AMF Bowling may purchase all of the Stock Options then held by Mr.
Diker for the fair market value of the underlying Common Stock less the exercise
price of the Stock Options. Mr. Diker is a party to the Stockholders Agreement
and any shares of 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.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock, as of July 31, 1997 and as adjusted to reflect
the sale of the shares of Common Stock offered by AMF Bowling in the Offerings,
by (i) each stockholder who is known by AMF Bowling to own beneficially more
than 5% of the outstanding Common Stock prior to the Offerings, (ii) each
director of AMF Bowling, (iii) each named Executive Officer of AMF Bowling and
(iv) all directors and executive officers of AMF Bowling as a group. Except as
set forth in the footnotes to the table, each stockholder listed below has
informed AMF that such stockholder has (a) sole voting and investment power with
respect to such stockholder's shares of Common Stock and (b) record and
beneficial ownership with respect to such stockholder's shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO THE SHARES BENEFICIALLY OWNED
OFFERINGS(1)(2) AFTER THE OFFERINGS(1)(2)(3)
NAME AND ADDRESS OF BENEFICIAL ------------------------- ------------------------------
OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
- ----------------------------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
The Goldman Sachs Group, L.P.(4)... 29,612,254 68.7%
The Blackstone Group(5)............ 5,527,357 12.8%
Kelso & Company(6)................. 5,527,357 12.8%
Richard A. Friedman(7)............. -- --
Terence M. O'Toole(8).............. -- --
Peter M. Sacerdote(9).............. -- --
Charles M. Diker................... 204,850(10) *
Paul B. Edgerley(11)............... -- --
Howard A. Lipson(12)............... -- --
Thomas R. Wall, IV(13)............. -- --
Douglas J. Stanard................. 176,000(14) *
Stephen E. Hare.................... 171,000(15) *
Michael P. Bardaro................. 5,000(16) *
All directors and executive
officers as a group (10
persons)......................... 556,850 1.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of the date of this Prospectus
are deemed outstanding. Such shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of any other person.
(2) Based on 42,225,000 shares of Common Stock and warrants to purchase 870,000
shares of Common Stock outstanding prior to the Offerings, and shares of
Common Stock outstanding after the Offerings.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Of the total number of shares beneficially owned by The Goldman Sachs
Group, 870,000 shares are owned by The Goldman Sachs Group, 18,528,226 are
owned by GS Capital Partners II, L.P., 7,365,729 shares are owned by GS
Capital Partners II Offshore, L.P., 683,418 shares are owned by Goldman,
Sachs & Co. Verwaltungs GmbH, as nominee for GS Capital Partners II
Germany, C.L.P., 462,808 shares are owned by Stone Street Fund 1995, L.P.,
711,728 shares are owned by Stone Street Fund 1996, L.P., 489,181 shares
are owned by Bridge Street Fund 1995, L.P. and 501,164 shares are owned by
Bridge Street Fund 1996, L.P. The 870,000 shares beneficially owned by The
Goldman Sachs Group represent warrants to purchase 870,000 shares of 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
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<PAGE> 59
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. Affiliates of The Goldman Sachs Group
are the general, managing general or managing partners of all of such
partnerships and have full voting and investment power with respect to the
holdings of such partnerships. The address of The Goldman Sachs Group is 85
Broad Street, New York, New York 10004.
(5) Of the total number of shares beneficially owned by The Blackstone Group,
3,972,542 shares are owned by Blackstone Capital Partners II Merchant
Banking Fund L.P., 1,160,892 shares are owned by Blackstone Offshore
Capital Partners II L.P. and 393,923 shares are owned by Blackstone Family
Investment Partnership L.P. The address of The Blackstone Group is 375 Park
Avenue, New York, New York 10154.
(6) Of the total number of shares beneficially owned by Kelso & Company,
5,195,715 shares are owned by Kelso Investment Associates V, L.P. and
331,642 are owned by Kelso Equity Partners V, L.P. The address of Kelso &
Company is 350 Park Avenue, New York, New York 10022.
(7) Mr. Friedman, who is a managing director of Goldman Sachs, disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates, except to the extent of his pecuniary interest therein.
(8) Mr. O'Toole, who is a managing director of Goldman Sachs, disclaims
beneficial ownership of the shares owned by The Goldman Sachs Group and its
affiliates, except to the extent of his pecuniary interest therein.
(9) Mr. Sacerdote, who is a limited partner of The Goldman Sachs Group,
disclaims beneficial ownership of the shares owned by The Goldman Sachs
Group and its affiliates, except to the extent of his pecuniary interest
therein.
(10) Includes 66,666 shares which may be acquired upon exercise of options
within 60 days.
(11) 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 (collectively, "Bain"). Bain Capital Fund V, L.P. owns
385,480 shares, Bain Capital Fund V-B, L.P. owns 1,012,444 shares, BCIP
Associates owns 181,943 shares and BCIP Trust Associates, L.P. owns 78,340
shares.
(12) 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. (collectively, "Blackstone Group"), disclaims
beneficial ownership of the shares owned by the Blackstone Group.
(13) 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. (collectively, "Kelso").
(14) Includes 26,000 shares which may be acquired upon exercise of options
within 60 days.
(15) Includes 21,000 shares which may be acquired upon exercise of options
within 60 days.
(16) Includes 5,000 shares which may be acquired upon exercise of options within
60 days.
STOCKHOLDERS AGREEMENT
On April 30, 1996, AMF Bowling, GSCP, Blackstone, Kelso, Bain (together
with Blackstone and Kelso, the "Governance Investors"), Citicorp North America,
Inc. ("Citicorp"), Mr. Diker (together with the Blackstone Group, Kelso, Bain
and Citicorp, the "Investors"), Mr. Morin and Mr. Stanard (together with Mr.
Morin, the "Management Investors", and, with the Investors, the "Stockholders")
entered into a stockholders agreement (the "Stockholders Agreement"), which
regulates the
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<PAGE> 60
relationship among AMF Bowling and the Stockholders. Subsequently, Mr. 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 Bowling believes are
material to holders of Common Stock. 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 is a part.
The Stockholders Agreement confers on GSCP the right to increase or
decrease the Board of Directors 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 of Directors, so long as GSCP and
its affiliates hold a majority of the outstanding shares of Common Stock. Each
Governance Investor has the right to nominate, subject to GSCP consent, one
member of the Board of Directors, so long as the number of shares of Common
Stock held by it and certain of its permitted transferees under the Stockholders
Agreement is equal to at least one-half of the sum of (i) the number of shares
initially purchased by it plus (ii) the number of additional shares that the
Governance Investor may be required to purchase pursuant to the "overcall"
provisions of the Stockholders Agreement described 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 each Governance Investor 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 of
Directors, 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, for a period of two
years from April 30, 1996, to purchase additional shares of Common Stock having
an aggregate purchase price of up to 20% of the amount initially invested by
such Investor (i.e., collectively up to a total of $75.6 million) upon the
request of the Board of Directors. In October 1996, in connection with the
acquisition of the Charan centers, GSCP and the Investors purchased an
additional $40.0 million in additional shares of 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 AMF
Bowling and its subsidiaries, or any similar transactions or expenditures. AMF
Bowling expects to receive an aggregate capital contribution of approximately
$35 million in September 1997 from its current stockholders pursuant to the
overcall provisions of the Stockholders Agreement, to be used in part to fund
acquisitions, including that of 15 centers from Conbow, and for other corporate
purposes. After such capital contribution is made, the stockholders party to the
Stockholders Agreement will have no further obligations to make capital
contributions under the overcall provisions of the Stockholders Agreement. See
"Business -- Recent Acquisitions and Joint Ventures" and "Principal
Stockholders -- Stockholders Agreement". See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity".
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 of
Directors (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 of Directors, only after such meeting has occurred.
A "Special Vote" is
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<PAGE> 61
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 certain transactions with affiliates
of GSCP and (iv) amendments to the Stockholders Agreement, the Certificate of
Incorporation or By-Laws which amendments would adversely affect the rights and
obligations of the Blackstone Group 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 AMF Bowling and its subsidiaries, and at least one
investor director nominated by Blackstone or Kelso (if there is one serving at
such time).
Pursuant to the Stockholders Agreement, each of the Stockholders has agreed
(i) to appear in person or by proxy at any stockholder meeting for the purpose
of obtaining a quorum, (ii) to vote its shares of Common Stock at any
stockholder meeting called for the purpose of voting on the election or removal
of directors in favor of the election or removal of directors, as applicable, in
accordance with the provisions described in the third preceding paragraph, (iii)
otherwise to vote its shares of Common Stock at stockholder meetings in a manner
consistent with the Stockholders Agreement, (iv) not to grant any proxy or enter
into any voting trust with respect to the Common Stock it holds or enter into
any stockholder agreement or arrangement inconsistent with the provisions of the
Stockholders Agreement and (v) not to act as a member of a group or in concert
with others in connection with the acquisition, disposition or voting of shares
of Common Stock in any manner inconsistent with the Stockholders Agreement.
Under the Stockholders Agreement, Goldman Sachs have the exclusive right to
perform all consulting, financing, investment banking and similar services for
AMF Bowling and its subsidiaries, for customary compensation and on terms
customary for similar engagements with unaffiliated third parties. Neither AMF
Bowling 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 consent thereto or decline, at its sole election, to perform such
services. Pursuant to the terms of the Stockholders Agreement, the provisions
relating to services performed by Goldman Sachs will terminate and be of no
further effect upon consummation of the Offerings.
The Stockholders Agreement provides that in the event a Stockholder
determines to sell its shares of Common Stock (subject to certain exceptions),
such Stockholder must give the other Stockholders notice thereof and such other
Stockholders have the opportunity to sell a pro rata share of their Common Stock
in such a sale. Moreover, in the event Stockholders owning 51% or more of the
outstanding Common Stock propose to sell all of the Common Stock held by such
Stockholders pursuant to a stock sale, merger, business combination,
recapitalization, consolidation, reorganization, restructuring or similar
transaction, such Stockholders will have the right, under certain circumstances,
to require the other Stockholders to sell the equity securities of the Company
held by such other Stockholders in such sale on the same terms and conditions
and at the same price as the Stockholders proposing to sell.
The foregoing rights and obligations (other than those described in the
second preceding paragraph which will terminate upon consummation of the
Offerings) will terminate after consummation of the Offerings upon the first to
occur of: (i) GSCP, the Investors and their permitted transferees under the
Stockholders Agreement (the "Permitted Transferees") holding in the aggregate
less than 50% of the sum of (a) the number of shares of Common Stock
outstanding, on a fully diluted basis, immediately after giving effect to the
transactions contemplated by the subscription agreement (the "Subscription
Agreement") entered into on the same date and by the same parties as the
Stockholders Agreement, except for the Management Investors, and (b) the number
of additional shares of Common Stock, 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 the fully
diluted shares of Common Stock then outstanding. Notwithstanding these
provisions, in the event of any merger, recapitalization, consoli-
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<PAGE> 62
dation, reorganization or other restructuring of AMF Bowling 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 will terminate.
REGISTRATION RIGHTS AGREEMENT
AMF Bowling and the Stockholders entered into a Registration Rights
Agreement on April 30, 1996 (the "Registration Rights Agreement"). Pursuant to
the Registration Rights Agreement, following consummation of the Offerings, (i)
each of Blackstone (as a group), Kelso (as a group) and Bain (as a group) may
make one demand (subject to certain exceptions) of AMF Bowling to register
shares of Common Stock held by such group and (ii) GSCP may make up to five
demands (subject to certain exceptions) of AMF Bowling to register shares of
Common Stock held by it, in each case, so long as (a) the aggregate offering
price for the shares to be sold is at least $50 million and (b) shares
representing at least 5% of the sum of (1) the number of shares of Common Stock
purchased by GSCP prior to execution of the Subscription Agreement, (2) the
number of shares of Common Stock issued pursuant to the Subscription Agreement
and (3) the number of shares (subject to adjustment) of Common Stock purchased
by the Stockholders pursuant to the "overcall" provisions of the Stockholders
Agreement described under "-- Stockholders Agreement" are being registered. Upon
a demand for registration by any of GSCP, Blackstone, Kelso or Bain, each of the
other Stockholders is to be given the opportunity to participate on a pro rata
basis in the registration demanded. The Registration Rights Agreement also
provides the Stockholders with piggyback registration rights which allow each of
them to include all or a portion of their shares of Common Stock under a
registration statement filed by AMF Bowling, subject to certain exceptions and
limitations. The foregoing summary is qualified in its entirety by reference to
the full text of the Registration Rights Agreement, which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
CERTAIN TRANSACTIONS
Messrs. Friedman and O'Toole, each of whom is a Managing Director of
Goldman Sachs, and Mr. Sacerdote, who is a limited partner of The Goldman Sachs
Group, are directors of AMF Bowling, AMF Group Holdings and AMF Group. Mr.
Friedman is also Chairman of AMF Bowling. Goldman Sachs and its affiliates
together currently beneficially own and will, following consummation of the
Offerings, continue to own a majority of the outstanding Common Stock. See
"Principal Stockholders". Goldman Sachs and its affiliates were the initial
purchasers of the debt issued by AMF Group in connection with the Acquisition
and received an underwriting discount of approximately $19.0 million in
connection with the purchase and resale of certain senior subordinated notes and
senior subordinated discount notes, each issued in March 1996, which were
subsequently exchanged by the holders thereof for the Senior Subordinated Notes
(as hereinafter defined) and the Senior Subordinated Discount Notes (as
hereinafter defined). Goldman Sachs also served as financial advisor to the
owners of the Predecessor Company in connection with the Acquisition and
received a fee in the form of 10-year warrants (the "Warrants") to purchase
870,000 shares of the Common Stock, on a fully diluted basis. The Warrants were
valued for accounting purposes at approximately $8.7 million.
In connection with the Credit Agreement, Goldman Sachs Credit Partners,
L.P. acted as Syndication Agent, Goldman Sachs Credit Partners, L.P. and
Citicorp Securities, Inc. acted as Arrangers, and Citibank, N.A. is acting as
Administrative Agent. Goldman Sachs Credit Partners, L.P. is also a lender under
the Credit Agreement. 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. See "Description of Certain
Indebtedness -- Credit Agreement".
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AMF Group and Goldman Sachs are parties to an engagement letter pursuant to
which Goldman Sachs is engaged as AMF Group'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
Group 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.
AMF Bowling has also entered into two interest rate cap agreements with
Goldman Sachs Capital Markets, L.P. ("GSCM"), an affiliate of Goldman Sachs,
both of which were executed to hedge the Company's exposure to fluctuations in
the interest rates applicable to borrowings under the Credit Agreement. The
Company paid a fee of $3.6 million to GSCM in 1996 in connection with the
execution of the first of these transactions, which "caps" the interest rate on
$500 million principal amount of debt at 6.5% until April 1998 and at 7.5% from
May 1998 through October 1998. The Company paid a fee of $15,000 to GSCM in
respect of the second transaction executed on July 2, 1997, which caps the rate
applicable to $100 million in debt at 7.0% until March 31, 1998. See "Note 9.
Long-Term Debt" in the Consolidated Financial Statements of AMF Bowling as of
December 31, 1996 and "Note 6. Long-Term Debt" in the Condensed Consolidated
Financial Statements of AMF Bowling as of June 30, 1997.
The Company retained Michael Stanard Design, Inc. ("MSD"), a market
consultant, to provide marketing and related services in 1996 for an aggregate
of $114,000 and in 1997 for an aggregate of $387,000 to date. A majority owner
of MSD is H. Michael Stanard, who is Mr. Stanard's brother. A substantial
portion of such amounts were reimbursement of costs for materials, travel,
printing and other out-of-pocket expenses.
AMF and the Stockholders have entered into the Stockholders Agreement and
the Registration Rights Agreement. See "Principal Stockholders -- Stockholders
Agreement" and "Principal Stockholders -- Registration Rights Agreement".
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Certificate of Incorporation and By-Laws is a summary and is
qualified in its entirety by the provisions of the Certificate of Incorporation
and By-Laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
Upon completion of the Offerings, the authorized capital stock of the
Company will consist of (i) shares of Common Stock, par value $.01
per share, of which shares will be outstanding, and (ii)
shares of Preferred Stock, of which no shares will be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by the stockholders of AMF Bowling and do not have cumulative
voting rights. Accordingly, holders of a majority of the outstanding shares of
Common Stock entitled to vote in any election of directors of AMF Bowling may
elect all of the directors of AMF Bowling standing for election. Following
completion of the Offerings, GSCP will own % of the outstanding Common Stock.
As a result of such ownership and the terms of the Stockholders Agreement, GSCP
has the ability to control the election of a majority of the Board of Directors,
appoint new management and approve or block any action requiring the approval of
AMF Bowling's stockholders, including adopting amendments to the Certificate of
Incorporation and approving mergers or sales of substantially all of AMF
Bowling's assets, in each case, subject to the restrictions contained in the
Stockholders Agreement. The Stockholders Agreement also provides for three of
the investment funds which are stockholders of
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AMF Bowling each to nominate a director with each such nominee being subject to
GSCP's consent, and for the formation of the Executive Committee.
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of AMF Bowling, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of AMF
Bowling's liabilities and the liquidation preference, if any, of any outstanding
Preferred Stock. Holders of shares of Common Stock have no preemptive,
subscription, redemption or conversion rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares offered by AMF Bowling in the
Offerings will be, when issued and paid for, fully paid and non-assessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which AMF Bowling may designate and issue in the
future.
At present, there is no established trading market for the Common Stock.
Application will be made to list the Common Stock on the NYSE under the symbol
" ".
PREFERRED STOCK
The Board of Directors is authorized to issue from time to time
shares of Preferred Stock in one or more series, and to fix the
rights, designations, powers, preferences, qualifications, limitations and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series, all without
stockholder approval. The ability of the Board of Directors to issue Preferred
Stock could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring or making a proposal to
acquire, AMF Bowling or a majority of the outstanding stock of AMF Bowling. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of Preferred Stock that may be issued in the
future. See "Risk Factors -- Anti-Takeover Effect of Certain Certificate of
Incorporation and By-Laws Provisions".
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Certificate of Incorporation authorizes the Board of Directors to
create and issue rights entitling the holders thereof to purchase from AMF
Bowling shares of stock or other securities of AMF Bowling or any other
corporation. The times at which and terms upon which such rights are issued
would be determined by the Board of Directors and set forth in the contracts or
other instruments that evidence such rights. The authority of the Board of
Directors with respect to such rights includes, but is not limited to,
determination of (i) the initial purchase price per share or other unit of the
stock or other securities or property to be purchased upon exercise of such
rights, (ii) provisions relating to the times at which and the circumstances
under which such rights may be exercised or sold or otherwise transferred,
either together with or separately from any other stock or other securities of
AMF Bowling, (iii) provisions that adjust the number or exercise price of such
rights or amount or nature of the stock or other securities or property
receivable upon exercise of such rights in the event of a combination, split or
recapitalization of any stock of AMF Bowling, a change in ownership of AMF
Bowling's stock or other securities or a reorganization, merger, consolidation,
sale of assets or other occurrence relating to AMF Bowling or any stock of AMF
Bowling, and provisions restricting the ability of AMF Bowling to enter into any
such transaction absent an assumption by the other party or parties thereto of
the obligations of AMF Bowling under such rights, (iv) provisions that deny the
holder of a specified percentage of the outstanding stock or other securities of
AMF Bowling the right to exercise such rights and/or cause such rights held by
such holder to become void, (v) provisions that permit AMF Bowling to redeem or
exchange such rights and (vi) the appointment of the rights agent with respect
to such rights. This provision is
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intended to confirm the authority of the Board of Directors to issue share
purchase rights or other rights to purchase stock or securities of AMF Bowling
or any other corporation.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate of Incorporation and By-Laws limit the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
currently permits corporations to provide in their certificates of incorporation
that directors of the corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors or officers, except
liability for (i) breach of the directors' and officers' duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the unlawful payment of a dividend or unlawful stock purchase or redemption and
(iv) any transaction from which directors or officers derive an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's duty of care, and this provision of the certificate of incorporation
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
These provisions will not limit liability under federal or state securities
laws. AMF Bowling believes that these provisions will assist AMF Bowling in
attracting and retaining qualified individuals to serve as directors.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
AMF Bowling has elected in the Certificate of Incorporation to not be
subject to the provisions of Section 203 of the Delaware General Corporation
Law, which prohibits certain business combinations between a Delaware
corporation and an "interested stockholder" (generally, a holder of 15% or more
of a corporation's voting stock).
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is .
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
AMF Group is party to a Credit Agreement amended and restated as of June
30, 1997 (and as further amended, modified, renewed, refunded, replaced or
refinanced, in whole or in part, from time to time, the "Credit Agreement") with
Goldman Sachs, their affiliate Goldman Sachs Credit Partners, L.P., Citibank,
N.A. ("Citibank") and its affiliates Citicorp and Citicorp USA, Inc. and certain
other banks, financial institutions and institutional lenders (collectively, the
"Lenders") providing for (i) senior secured term loan facilities aggregating
$580.0 million (the "Term Facilities"), (ii) a senior secured multiple-draw term
facility of $230.0 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 acted as Arrangers, and
Citibank is acting as Administrative Agent. The initial borrowings under the
Credit Agreement were used to partially fund the Acquisition.
The following summary of the material provisions of the Credit Agreement is
qualified in its entirety by reference to the full text of the Credit Agreement,
a copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
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THE FACILITIES
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $250.0 million, (ii) an Amortization Extended Loan
("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 bears interest, at AMF
Group's option, at Citibank's customary base rate or at Citibank's Eurodollar
rate, in each case plus a margin which varies in accordance with a performance
pricing grid which is based on the Total Debt to EBITDA Ratio (as defined in the
Credit Agreement) for the Rolling Period (as hereinafter defined) then most
recently ended. As of July 31, 1997 the applicable margin for base rate loans
was 1.50% and for Eurodollar rate loans was 2.50%. The AXELs(SM) Series A
Facility bears interest, at AMF Group's option, at Citibank's customary base
rate plus 1.875% or at Citibank's Eurodollar rate plus 2.875%. The AXELs(SM)
Series B Facility bears interest, at AMF Group's option, at Citibank's customary
base rate plus 2.125% or at Citibank's Eurodollar rate plus 3.125%. 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 June 30, 1997, were as follows:
<TABLE>
<CAPTION>
OUTSTANDING
AT AVERAGE AVERAGE
JUNE 30, AMOUNTS BORROWING
DESCRIPTION MATURITY DATES 1997 OUTSTANDING RATES
- ----------------------------------- --------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Term Loan Facility................. March 31, 2001 $210,000 $ 232,620 8.15%
AXELs(SM) Series A Facility........ March 31, 2003 $187,750 $ 189,007 8.54%
AXELs(SM) Series B Facility........ March 31, 2004 $138,125 $ 104,759 8.77%
</TABLE>
AMF Group will be required to make scheduled amortization payments on the
Term Facilities as follows (dollars in millions):
<TABLE>
<CAPTION>
TWELVE MONTHS TERM AXELS(SM) AXELS(SM)
ENDING LOAN SERIES A SERIES B
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, AMF Group 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 of AMF Bowling. AMF
Group 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 AMF Group's
Total Debt to EBITDA Ratio for the prior 12 months is less than 4.0 to 1.0) of
AMF Group'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 AMF Group'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).
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AMF Group has the ability to borrow an additional $50.0 million for general
corporate purposes pursuant to the Working Capital Facility and up to $230.0
million to finance acquisitions and to refinance new center construction
pursuant to the Acquisition Facility, subject to AMF Group meeting certain pro
forma financial covenants and limitations imposed on the amount borrowed,
including that the amount borrowed under the Acquisition Facility may not exceed
4.5 times the Deemed EBITDA (as defined in the Credit Agreement) of the business
to be acquired or the newly constructed center.
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 bears interest, at AMF Group's option, at Citibank's
customary base rate or at Citibank's Eurodollar rate, in each case, plus a
margin which varies in accordance with a performance pricing grid which is based
on the Total Debt to EBITDA Ratio for the four fiscal quarter rolling period
then most recently ended. As of July 31, 1997, the applicable margin for base
rate loans was 1.50% and for Eurodollar rate loans was 2.50%. As of June 30,
1997, $127.0 million was outstanding under the Acquisition Facility.
The Working Capital Facility has a term of five years and will be fully
revolving until its final maturity. The Working Capital Facility will bear
interest, at the Company's option, at Citibank's customary base rate or at
Citibank's Eurodollar rate, in each case, plus a margin which varies in
accordance with a performance pricing grid which is based on the Total Debt to
EBITDA Ratio for the four fiscal quarter rolling period then most recently
ended. As of July 31, 1997, the applicable margin for base rate loans was 1.50%
and for Eurodollar rate loans was 2.50%. As of June 30, 1997, $30.0 million was
outstanding under the Working Capital Facility.
The Senior Facilities are guaranteed by AMF Group Holdings and by each of
AMF Group's present and future domestic Subsidiaries (as defined in the Credit
Agreement) and are secured by all of the stock of AMF Group and AMF Group's
present and future domestic Subsidiaries and Second-Tier Subsidiaries (as
defined in the Credit Agreement), by 66% of the stock of AMF Group's present and
future international subsidiaries and by substantially all of AMF Group's and
its present and future domestic Subsidiaries' present and future property and
assets.
COVENANTS
The Credit Agreement contains certain financial covenants, as well as
additional affirmative and negative covenants, constraining AMF Group. AMF Group
must maintain a minimum EBITDA (as defined in the Credit Agreement) of not less
than the sum of (i) an amount ranging from $150 million for the "Rolling Period"
(defined as a calendar quarter together with the three consecutive immediately
preceding calendar quarters) ending June 30, 1997, to $200 million for the
Rolling Period ending March 31, 2004 and thereafter, and (ii) the EBITDA
Adjustment Amount (as defined in the Credit Agreement) for such Rolling Period,
which is equal to 80% of the aggregate amount of the EBITDA of each bowling
center acquired or constructed by AMF Group or any of its Subsidiaries after May
1, 1996 and acquired or constructed at least 15 months prior to such time of
determination.
AMF Group must also maintain a Cash Interest Coverage Ratio (defined in the
Credit Agreement as the ratio of (i) 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 (ii) cash interest payable on all Debt (as defined in
the Credit Agreement) of AMF Group and its Subsidiaries) at an amount ranging
from not less than 2.00 for the Rolling Period ending June 30, 1997, to not less
than 2.50 for the Rolling Period ending September 30, 2004 and thereafter. AMF
Group is required to maintain a Fixed Charge Coverage Ratio (defined in the
Credit Agreement as the ratio of (i) Modified Consolidated EBITDA less the sum
of (a) cash taxes paid plus (b) Capital Expenditures made by AMF Group and its
Subsidiaries during such Rolling Period to (ii) the sum of (a) cash interest
payable on all Debt plus (b) principal amounts of all Debt payable by AMF Group
and its Subsidiaries during such
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Rolling Period) at an amount ranging from not less than 1.05 for the Rolling
Period ending June 30, 1997, 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, as defined in the Credit
Agreement (other than Subordinated Debt and Hedge Agreements, as defined in the
Credit Agreement), of AMF Group and its Subsidiaries to Modified Consolidated
EBITDA for that Rolling Period) must be maintained at levels ranging from not
more than 3.75 for the Rolling Period ending June 30, 1997 to not more than 1.50
for the Rolling Period ending March 31, 2004 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 AMF Group and its Subsidiaries to Modified
Consolidated EBITDA) must be maintained at levels ranging from not more than
6.50 for the Rolling Period ended June 30, 1997 to not more than 4.00 for the
Rolling Period ended March 31, 2004 and thereafter. In each case, the
above-mentioned ratios are calculated on a quarterly basis.
Negative covenants under the Senior Facilities prohibit AMF Group 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 AMF Group's obligations as borrower on other indebtedness not to exceed
$5 million at any time outstanding). AMF Group and its Subsidiaries are also
prohibited from incurring any debt, other than (in the case of AMF Group) 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 AMF Group
or any of its wholly owned Subsidiaries, to the extent permitted under the
Credit Agreement or (in the case of either AMF Group 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. AMF Group 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 the sum of (i) $25 million,
(ii) the product of (x) $200,000 and (y) the number of leased bowling centers
acquired by AMF Group 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. AMF Group is also
prohibited from entering into a merger of which it is not the survivor or to
sell, lease, or otherwise transfer its assets other than in the ordinary course
of business, except as otherwise permitted by the Credit Agreement. Investments
by AMF Group or its Subsidiaries in any other Person are 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 Notes), amendment of Related Documents (as defined in
the Credit Agreement), ownership changes, negative pledges, partnerships,
speculative transactions, capital expenditures and payment restrictions
affecting subsidiaries. AMF Group is also subject to certain financial and other
reporting requirements.
So long as AMF Group 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 the extent necessary to make payments under
certain noncompete agreements with the Prior Owners, (iii) declare and pay cash
dividends for general administrative expenses not to exceed $0.25 million and
(iv) declare and pay cash dividends not to exceed $2.0 million for the
repurchase of Common Stock. As of June 30, 1997, AMF Group is in compliance with
all of its covenants.
SENIOR SUBORDINATED NOTES
AMF Group has outstanding $250.0 million in principal amount of 10 7/8%
Series B Senior Subordinated Notes due 2006 (the "Senior Subordinated Notes")
and $291.4 million principal amount of 12 1/4% Series B Senior Subordinated
Discount Notes due 2006 (the "Senior Subordinated Discount Notes", and together
with the Senior Subordinated Notes, the "Notes"). The following description of
the Notes and the Note Indentures is a summary and is qualified in its entirety
by the provisions of the Notes and the Note Indentures, copies of which have
been filed as exhibits to the Registration Statement of which the Prospectus is
a part.
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The Senior Subordinated Notes will mature on March 15, 2006. Interest
thereon accrues from the date of issuance at an annual rate of 10 7/8% and is
payable in cash semiannually in arrears on March 15 and September 15 of each
year which commenced on September 15, 1996.
The Senior Subordinated Discount Notes will mature on March 15, 2006 at a
fully-accreted value of $452 million. The Senior Subordinated Discount Notes
will result in an effective yield of 12 1/4% 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.
The Company's payment obligations under the Notes are jointly and severally
guaranteed on a senior subordinated basis by AMF Group and each of AMF Group's
direct and indirect domestic subsidiaries and by any other subsidiaries of AMF
Group that act as guarantors under the Credit Agreement (collectively, the
"Guarantors").
The guarantees of the Notes are subordinated to the guarantees of the
indebtedness under the Credit Agreement and certain other indebtedness
(collectively, the "Senior Debt"). The Notes are general, unsecured obligations
of AMF Group, are subordinated in right of payment to all Senior Debt of AMF
Group, and rank pari passu with all existing and future subordinated debt of AMF
Group. The claims of the holders of the Notes will be effectively subordinated
to all other indebtedness and other liabilities (including trade payables and
capital lease obligations) of AMF Group's subsidiaries that are not Guarantors
and through which AMF Group will conduct a portion of its operations.
Prior to March 15, 1999, up to $100 million in aggregate principal amount
of Senior Subordinated Notes will be redeemable at the option of AMF Group, 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, AMF Group, at
a price of 110.875% of the principal amount of the Senior Subordinated Notes,
together with accrued and unpaid interest, if any, to the date of redemption; so
long as at least $150 million in aggregate principal amount of Senior
Subordinated Notes remains outstanding after such redemption. Similarly, prior
to March 15, 1999, the Senior Subordinated Discount Notes will be redeemable at
the option of AMF Group, 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, AMF Group, at a price of 112.25% of the accreted value of the
Senior Subordinated Discount Notes; so long as at least $150 million in accreted
value of Senior Subordinated Discount Notes remains outstanding after such
redemption.
The indenture governing the Senior Subordinated Notes and the indenture
governing the Senior Subordinated Discount Notes (collectively, the "Note
Indentures") contain certain covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries (as defined in the
applicable Note Indenture) to incur additional indebtedness and issue
Disqualified Stock (as defined in the applicable Note Indenture), pay dividends
or distributions or make investments or make certain other Restricted Payments
(as defined in the applicable Note Indenture) enter into certain transactions
with affiliates, dispose of certain assets, incur liens securing pari passu and
subordinated indebtedness of AMF Group and engage in mergers and consolidations.
As of June 30, 1997, AMF Group is in compliance with all of its covenants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, assuming no exercise of the Underwriters'
over-allotment options, shares of Common Stock will be outstanding
( shares if the Underwriters' over-allotment options are exercised in
full). Of these shares, the shares of Common Stock sold in the
Offerings ( shares if the Underwriters' over-allotment options are
exercised in full) will be available for resale in the public market without
restriction or further
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registration under the Securities Act, unless purchased by an affiliate of AMF
Bowling. The remaining outstanding shares of Common Stock are deemed
to be "restricted securities" as that term is defined in Rule 144, all of which
are eligible for sale in the public market in compliance with Rule 144 and
of which have been held for at least one year by persons AMF Bowling
believes are not affiliates. Certain existing stockholders of AMF Bowling (who
in the aggregate hold shares of Common Stock) have agreed, subject to
certain exceptions, that they will not offer, sell or otherwise dispose of any
of the shares of Common Stock owned by them for a period of 180 days after the
date of this Prospectus without the prior written consent of the representatives
of the Underwriters. Additionally, AMF Bowling has agreed that, during the
period of 180 days from the date of this Prospectus, subject to certain
exceptions, it will not issue, sell, offer or agree to sell, grant any options
for the sale of (other than employee stock options) or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable for Common Stock, other than pursuant to the Offerings or
upon the exercise of outstanding stock options.
In general, under Rule 144, any persons (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell, within any three-month period, a number of restricted securities which
does not exceed the greater of 1% of the then-outstanding shares of Common Stock
( shares immediately after the Offerings) or the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 also
may be subject to certain manner of sale provisions, notice requirements and the
availability of current public information about AMF Bowling. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of AMF Bowling at any time during the three months preceding a sale, and who has
beneficially owned shares within the definition of "restricted securities" under
Rule 144 for at least two years, is entitled to sell such shares under Rule
144(k) promulgated under the Securities Act without regard to the volume
limitation, manner of sale provisions, public information requirements or notice
requirements.
Prior to the Offerings, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities or the availability of
such shares will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair AMF Bowling's future ability to
raise capital through an offering of equity securities.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wachtell, Lipton, Rosen & Katz, New York, New York, and
for the Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated balance sheet of AMF Bowling and subsidiaries as of
December 31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the period from inception (January 12,
1996) through December 31, 1996, included in this Prospectus, and the related
financial statement schedule included elsewhere in the Registration Statement of
which this Prospectus is a part, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein, in reliance upon the authority of said firm as
experts in giving said reports.
69
<PAGE> 71
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.
The consolidated financial statements of Fair Lanes, Inc. as of September
29, 1994 and June 30, 1994 and for the three months ended September 29, 1994,
and year ended June 30, 1994 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.
AMF Bowling has agreed to indemnify Price Waterhouse LLP for the payment of
all legal costs and expenses incurred in Price Waterhouse LLP's successful
defense of any legal action or proceeding that arises as a result of inclusion
of Price Waterhouse LLP's audit reports on the combined financial statements of
AMF Bowling Group and the consolidated financial statements of Fair Lanes, Inc.
(Debtor-in-Possession) and Subsidiaries in this Registration Statement.
The consolidated financial statements of Charan as of December 31, 1996 and
for the year then ended, included elsewhere in the Registration Statement of
which this Prospectus is a part, have been audited by Todres & Scheiffer,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
70
<PAGE> 72
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMF BOWLING, 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 Stockholders' Equity for the Period Ended December 31,
1996........................................................................... F-6
Notes to Consolidated Financial Statements........................................ F-7
AMF BOWLING, INC. AND SUBSIDIARIES -- INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheet as of June 30, 1997.......................... F-33
Condensed Consolidated Statements of Income for the Six Months
Ended June 30, 1997 and 1996................................................... F-34
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1997 and 1996.................................................................. F-35
Notes to Condensed Consolidated Financial Statements.............................. F-36
AMF BOWLING GROUP (PREDECESSOR COMPANY)
Report of Independent Accountants................................................. F-47
Combined Balance Sheets as of April 30, 1996, and December 31, 1995............... F-48
Combined Statements of Operations for the Four Months Ended April 30, 1996, and
the Years Ended December 31, 1995 and 1994..................................... F-49
Combined Statements of Cash Flows for the Four Months Ended April 30, 1996, and
the Years Ended December 31, 1995 and 1994..................................... F-50
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-51
Notes to Combined Financial Statements............................................ F-52
SELECTED QUARTERLY DATA (UNAUDITED)................................................. F-86
CONSOLIDATED FINANCIAL STATEMENTS OF FAIR LANES, INC. (DEBTOR-IN-POSSESSION) AND
SUBSIDIARIES
Report of Independent Accountants................................................. F-87
Consolidated Balance Sheets as of September 29, 1994 and June 30, 1994............ F-88
Consolidated Statements of Loss for the Three Months Ended September 29, 1994 and
the Year Ended June 30, 1994................................................... F-89
Consolidated Statements of Cash Flows for the Three Months Ended September 29,
1994 and the Year Ended June 30, 1994.......................................... F-90
Consolidated Statements of Stockholder's Equity for the Three Months Ended
September 29, 1994 and the Year Ended June 30, 1994............................ F-91
Notes to Consolidated Financial Statements........................................ F-92
BCA & AFFILIATES
Report of Independent Auditors.................................................... F-103
Balance Sheet as of August 31, 1996............................................... F-104
Statement of Income for the Year Ended August 31, 1996............................ F-105
Statement of Cash Flows for the Year Ended August 31, 1996........................ F-106
Notes to Financial Statements..................................................... F-107
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AMF Bowling, Inc.:
We have audited the accompanying consolidated balance sheet of AMF Bowling,
Inc. (a Delaware corporation, formerly named AMF Holdings Inc.) and subsidiaries
as of December 31, 1996, and the related consolidated statements of income,
stockholders' 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 Bowling, 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> 74
AMF BOWLING, 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.................................................................. 13,101
----------
Total assets........................................................ $1,594,010
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 31,563
Accrued expenses............................................................ 54,357
Income taxes payable........................................................ 2,276
Long-term debt, current portion............................................. 42,376
----------
Total current liabilities........................................... 130,572
Long-term debt................................................................ 1,048,877
Other long-term liabilities................................................... 1,851
Deferred income taxes......................................................... 3,895
----------
Total liabilities........................................................... 1,185,195
----------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $.01, 60,000,000 shares authorized, 42,375,000
shares issued and outstanding)........................................... 424
Paid-in capital............................................................. 429,026
Retained deficit............................................................ (19,484)
Equity adjustment from foreign currency translation......................... (1,151)
----------
Total stockholders' equity.......................................... 408,815
----------
Total liabilities and stockholders' equity.......................... $1,594,010
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 75
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Operating revenue................................................................ $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................................................................ (5,748)
--------
Total nonoperating expenses............................................ 74,154
--------
Loss before income taxes............................................... (28,016)
Benefit for income taxes............................................... (8,532)
--------
Net loss............................................................... $(19,484)
========
Net loss per share............................................................... $ (.49)
========
Weighted average shares outstanding.............................................. 39,713
========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-4
<PAGE> 76
AMF BOWLING, 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.................................................................... $ (19,484)
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........................................................... (4,010)
Accounts payable and accrued expenses.................................. 21,930
Income taxes payable................................................... 417
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> 77
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 2)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED CURRENCY STOCKHOLDERS'
STOCK CAPITAL DEFICIT TRANSLATION EQUITY
------ -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance January 12, 1996.............. $ -- $ -- $ -- $ -- $ --
Initial capitalization.............. 384 389,066 -- -- 389,450
Capital contribution by
stockholders..................... 40 39,960 -- -- 40,000
Net loss............................ -- -- (19,484) -- (19,484)
Equity adjustment from foreign
currency translation............. -- -- -- (1,151) (1,151)
-----
---
-------- -------- -------- --------
Balance December 31, 1996............. $424 $429,026 $(19,484) $ (1,151) $ 408,815
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE> 78
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1. ORGANIZATION
AMF Bowling, Inc. ("AMF Bowling") changed its name from AMF Holdings Inc.
in 1997. AMF Bowling and its subsidiaries (collectively, the "Company" or "AMF")
are 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
parts, and the resale of allied products such as bowling balls, bags, shoes, and
certain other spare parts ("Bowling Products"). The principal markets for
bowling equipment are U.S. and international independent bowling center
operators.
AMF Group Inc. ("AMF Group") is a wholly owned subsidiary of AMF Group
Holdings Inc. ("AMF Group Holdings"). AMF Group Holdings is a wholly owned
subsidiary of AMF Bowling. AMF Group Holdings and AMF Group 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). AMF Bowling and
AMF Group Holdings 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 AMF
Group Holdings and the stockholders (the "Prior Owners") of AMF Bowling Group
(the "Predecessor Company"), on May 1, 1996 (the "Closing Date"), AMF Group
Holdings acquired the Predecessor Company through a stock purchase by AMF Group
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"). AMF Group Holdings did not acquire the assets of two bowling
centers located in Madrid, Spain, and Geneva, Switzerland (both of which were
retained by the Prior Owners).
The purchase price for the Acquisition was approximately $1.37 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 Prior Owners. The
Acquisition was funded with $380.8 million of contributed capital, and $1.015
billion of debt, including bank debt and senior subordinated notes and discount
notes. The purchase included $8.7 million which represents warrants to purchase
870,000 shares of AMF Bowling common stock, par value $.01 per share ("Common
Stock"), which were issued on the Closing Date to Goldman Sachs. See "Note 9.
Long-Term Debt". See also "Note 14. 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 the Company 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
F-7
<PAGE> 79
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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 revenue 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.
F-8
<PAGE> 80
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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.
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 AMF Bowling 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.
F-9
<PAGE> 81
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Earnings Per Share
Net loss per share is calculated based on the actual weighted average
shares outstanding. Outstanding stock options and warrants are not considered as
their effect is antidilutive.
Foreign Currency Translation
All assets and liabilities of AMF Bowling's 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 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
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
AMF Bowling, 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.
F-10
<PAGE> 82
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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.
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 had occurred on
January 1, 1996 and 1995, respectively. AMF Bowling's 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, AMF Bowling's 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. AMF Bowling's 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.
F-11
<PAGE> 83
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
AMF PREDECESSOR AMF
BOWLING, COMPANY BOWLING, 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 revenue:..................... $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...................... (5.8) (0.6) -- (6.4)
------ ------ ------ ------
Income (loss) before income taxes...... (28.0) (13.6) 11.2 (30.4)
Provision (benefit) for income taxes... (8.5) (1.7) 1.3(f) (8.9)
------ ------ ------ ------
Net income (loss)............ $(19.5) $ (11.9) $ 9.9 $ (21.5)
====== ====== ====== ======
Net loss per share..................... $ (0.55)
======
</TABLE>
- ---------------
(a) Includes the results of operations of AMF from May 1, 1996 through December
31, 1996.
(b) To reflect the impact of AMF Group Holdings not acquiring in the Acquisition
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 then-current stockholders of the Predecessor Company
(the "Prior Owners") 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 AMF Bowling from S corporations to taxable corporations
under the U.S. federal tax laws upon consummation of the Acquisition.
F-12
<PAGE> 84
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
PREDECESSOR AMF
COMPANY BOWLING, INC.
TWELVE MONTHS TWELVE MONTHS
ENDED PRO FORMA ENDED
12/31/95 ADJUSTMENTS 12/31/95
------------- ----------- -------------
<S> <C> <C> <C>
Operating revenue:................................. $ 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)
====== ======= ======
Net loss per share................................. $ (0.47)
======
</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 revenue and expenses related to the
following:
i. Certain assets of the Predecessor Company not purchased by AMF Group
Holdings.
ii. Impact of AMF Group 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 the
Prior Owners and other related parties were canceled.
(i) To reflect the termination of management fees charged by an affiliate of the
Prior Owners.
(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.
F-13
<PAGE> 85
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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.
NOTE 7. OTHER LONG-TERM ASSETS
Other long-term assets at December 31, 1996, total $13,101 and are
primarily composed of long-term rent deposits, long-term portion of noncompete
obligations, and notes receivable.
F-14
<PAGE> 86
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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
Senior subordinated notes....................... 250,000
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") was incurred pursuant to a credit
agreement (the "Bank Credit Agreement") dated as of May 1, 1996, and amended and
restated as of December 20, 1996, between AMF Group and its lenders. The Bank
Credit Agreement provides for (i) 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(SM)") Series A facility of $190.0 million, and (iii) an AXELs(SM) 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 bears
interest, at AMF Group's option, at Citibank's customary base rate plus 1.5% or
at Citibank's Eurodollar rate plus 2.5%. At December 31, 1996, the interest rate
was 8.125%. The AXELs(SM) Series A Facility bears interest, at AMF Group's
option, at Citibank's customary base rate plus 1.875% or at Citibank's
Eurodollar rate plus 2.875%. At December 31, 1996, the interest rate was 8.5%.
The AXELs(SM) Series B Facility bears interest, at AMF Group's option, at
Citibank's customary base rate plus 2.125% or at Citibank's Eurodollar rate plus
3.125%. At December 31, 1996, the interest rate was 10.375%. On January 10,
1997, the interest rate was adjusted to 8.69% when the amounts under the Bank
Credit Agreement were refinanced.
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 bears interest, at AMF Group's option, at Citibank's
customary base rate plus 1.5% or at Citibank's Eurodollar rate plus 2.5%.
F-15
<PAGE> 87
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
At December 31, 1996, $65.0 million of the Acquisition Facility bore interest at
9.75%, while $8.5 million bore interest at 8.125%. On January 10, 1997, $65.0
million was refinanced as part of the AXELs(SM) Series B Facility and the
interest rate was adjusted to 8.69% as stated above.
The Working Capital Facility has a term of five years and will be fully
revolving until its final maturity. The Working Capital Facility will bear
interest, at AMF Group's option, at Citibank's customary base rate plus 1.5% or
at Citibank's Eurodollar rate plus 2.5%.
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 AMF Group to AMF
Group Holdings, and from AMF Group Holdings to AMF Bowling. 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 AMF Group 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 the extent necessary to make payments of
approximately $0.15 million due in May 1997 under certain noncompete agreements
with the Prior Owners; iii) declare and pay cash dividends for general
administrative expenses not to exceed $0.25 million; and iv) declare and pay
cash dividends not to exceed $2.0 million for the repurchase of Common Stock. As
of December 31, 1996, AMF Group 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%.
NOTES
The senior subordinated notes will mature on March 15, 2006. Interest
accrues from the date of issuance at an annual rate of 10 7/8% and is payable in
cash semiannually in arrears on March 15 and September 15 of each year which
commenced on September 15, 1996.
The senior subordinated discount notes will mature on March 15, 2006 at a
fully-accreted value of $452,000. The senior subordinated discount notes will
result in an effective yield of 12 1/4% 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.
The Company's payment obligations under the senior subordinated notes and
the senior subordinated discount notes (together, the "Notes") are jointly and
severally guaranteed on a
F-16
<PAGE> 88
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
senior subordinated basis by AMF Group Holdings and each of AMF Group's
subsidiaries identified below in "Note 19. Consolidating Financial Statements"
(collectively, the "Guarantors").
The guarantees of the 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 Notes are general, unsecured obligations of AMF Group, are subordinated in
right of payment to all Senior Debt of AMF Group, and rank pari passu with all
existing and future subordinated debt of AMF Group. The claims of the holders of
the Notes will be effectively subordinated to all other indebtedness and other
liabilities (including trade payables and capital lease obligations) of AMF
Group's subsidiaries that are not Guarantors and through which AMF Group will
conduct a portion of its operations. See "Note 19. 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 AMF Group, 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, AMF Group, at
a price of 110.875% of the principal amount of the senior subordinated notes,
together with accrued and unpaid interest, if any, to the date of redemption; so
long as at least $150 million in aggregate principal amount of senior
subordinated notes remains outstanding after such redemption. Similarly, prior
to March 15, 1999, the senior subordinated discount notes will be redeemable at
the option of AMF Group, 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, AMF Group, at a price of 112.25% of the accreted value of the
senior subordinated discount notes; so long as at least $150 million in accreted
value of senior subordinated discount notes remains outstanding after such
redemption.
The indenture governing the senior subordinated notes and the indenture
governing the senior subordinated discount notes (the "Note Indentures") contain
certain covenants that, among other things, limit the ability of AMF Group 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
AMF Group and engage in mergers and consolidations. As of December 31, 1996, AMF
Group is in compliance with all of its covenants.
Annual maturities of long-term debt, including accretion of the 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-17
<PAGE> 89
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Interest Rate Cap Agreements
During 1996, AMF Group entered into an interest rate cap agreement with
Goldman Sachs Capital Markets, L.P. 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, AMF Group 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.
AMF Group is exposed to credit-related loss in the event of non-performance
by the counterparty. AMF Group 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.
Other
The Company is highly leveraged as a result of this indebtedness incurred
in connection with the Acquisition and subsequent acquisitions. Although the
Company believes it will be able to meet its debt obligations, there is no
assurance that the Company will generate sufficient cash flow in a timely manner
to satisfy scheduled principal and interest payments.
NOTE 10. INCOME TAXES
Income (loss) before income taxes at December 31, 1996, consists of the
following:
<TABLE>
<S> <C>
U.S.............................................................. $ (28,427)
International.................................................... 411
--------
$ (28,016)
========
</TABLE>
F-18
<PAGE> 90
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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.................................................... 5,508
--------
Total current provision................................ 5,508
--------
DEFERRED TAX BENEFIT
U.S. Federal..................................................... (12,274)
State and local.................................................. (1,766)
International.................................................... --
--------
Total deferred benefit................................. (14,040)
--------
Total benefit.......................................... $ (8,532)
========
</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 Prior Owners for certain entities under Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended ("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-19
<PAGE> 91
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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..................................... $ (9,806)
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...................................................... (170)
-------
Total............................................................. $ (8,532)
=======
</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 the Company's 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.
F-20
<PAGE> 92
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE 12. STOCKHOLDERS' EQUITY
Stockholders Agreement
On April 30, 1996, AMF Bowling and the stockholders of AMF Bowling (the
"Stockholders") entered into a stockholders agreement (the "Stockholders
Agreement") which regulates the relationship among AMF Bowling and the
Stockholders. The Stockholders Agreement primarily provides for, subject to
certain limitations and exceptions, (a) the establishment and nomination of the
Board of Directors and an Executive Committee; (b) certain of the Stockholders
to purchase additional shares of Common Stock, to finance acquisitions, capital
expenditures, investments in partnerships or joint ventures, or any similar
transactions or expenditures; (c) Goldman Sachs to have the exclusive right to
perform all consulting, financing, investment banking and similar services for
AMF Bowling and its subsidiaries, for customary compensation and on terms
customary for similar engagements with unaffiliated third parties; and (d)
guidance in the event a Stockholder determines to sell its shares of Common
Stock. The foregoing rights and obligations will terminate under certain
circumstances and notwithstanding those circumstances, in the event of any
merger, recapitalization, consolidation, reorganization or other restructuring
of AMF Bowling as a result of which the Stockholders own less than a majority of
the outstanding voting power of the entity surviving such transaction, the
Stockholders Agreement will terminate.
Registration Rights Agreement
On April 30, 1996, AMF Bowling and the Stockholders entered into a
Registration Rights Agreement (the "Registration Rights Agreement"). Pursuant to
the Registration Rights Agreement, subject to certain limitations and
exceptions, certain Stockholders may make demands of AMF Bowling to register
shares of Common Stock held by such Stockholders; provided, that AMF Bowling is
not required to so register unless, in the case of an initial public offering,
the aggregate offering price is at least $100 million, and, in the case of any
other offering, the aggregate offering price is at least $50 million. Upon a
demand for registration by certain Stockholders, each of the other Stockholders
is to be given the opportunity to participate on a pro rata basis in the
registration demanded. The Registration Rights Agreement also provides the
Stockholders with piggyback registration rights, which allow each of them to
include all or a portion of their shares of Common Stock under a registration
statement filed by AMF Bowling, subject to certain exceptions and limitations.
NOTE 13. 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 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.
F-21
<PAGE> 93
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
AMF Group has entered into employment agreements with three executives,
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. Unless sooner exercised or forfeited, as
provided, the options expire in May 2006. Twenty percent of the options vest on
each of the first five anniversaries of the Closing Date. The exercise price of
the options is $10.00 per share, which approximates the fair value of the Common
Stock at the date of the grants.
One executive, Robert L. Morin, resigned from all positions with the
Company as of February 28, 1997. As part of Mr. Morin's severance arrangement,
AMF Bowling repurchased all of the shares of Common Stock owned by Mr. Morin and
all options held by Mr. Morin were canceled.
In connection with the Acquisition, AMF Bowling adopted a stock incentive
plan (the "Stock Incentive Plan") under which AMF Bowling may grant incentive
awards in the form of shares of Common Stock, options to purchase shares of
Common Stock ("Stock Options") and stock appreciation rights to certain
officers, employees, consultants, and nonemployee directors ("Participants") of
AMF Bowling and its affiliates. The total number of shares of Common Stock
initially reserved and available for grant under the Stock Incentive Plan is
1,767,151. A committee of AMF Bowling'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 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. AMF Bowling'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.
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 $23,227.
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 $10.00 and a weighted-average remaining
contractual life of 9.6 years.
F-22
<PAGE> 94
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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 return of 6.5%; expected
dividend yield of zero; expected time of exercise of ten years; expected
volatility of zero due to the lack of a public trading market for the securities
underlying the options based on the minimum value method.
NOTE 14. 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 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 Common
Stock................................ $ 8,700
Notes receivable from three executive
officers for the purchase of Common
Stock................................ $ 3,000
</TABLE>
NOTE 15. ACQUISITIONS
On October 10, 1996, AMF Bowling Centers, Inc. ("AMF Bowling Centers"), a
Virginia corporation and an indirect, wholly owned subsidiary of AMF Group,
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 $40.0 million from the sale of equity by AMF Bowling to its
institutional stockholders and one of its directors, and with approximately
$66.5 million from available borrowings under AMF Group'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 Bowling results of operations presented in "Note
3. Pro Forma Results of Operations". The
F-23
<PAGE> 95
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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................................. (26.9) (4.9)
Net loss................................................. (19.5) (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 AMF Bowling to its institutional stockholders and one of its
directors, and with $73.5 million from available borrowing under AMF Group'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 $70.0 million, which will be
funded from available borrowing under AMF Group'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 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 AMF Group's Acquisition
Facility.
F-24
<PAGE> 96
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
NOTE 16. 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..................................................... 27,200
Eliminations.................................................. 100
---------
$1,594,000
=========
Depreciation and amortization
Bowling Centers
U.S........................................................ $ 25,600
International.............................................. 12,100
---------
37,700
</TABLE>
F-25
<PAGE> 97
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<S> <C>
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 17. 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>
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>
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.
F-26
<PAGE> 98
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
<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................................................. $1,246,700
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
----------
$1,594,000
==========
</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.
NOTE 18. 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, and Peter M.
Sacerdote, who is a limited partner of The Goldman Sachs
F-27
<PAGE> 99
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
Group, L.P., are directors of AMF Bowling, AMF Group Holdings and AMF Group.
Goldman Sachs and its affiliates together currently beneficially own a majority
of the outstanding voting equity of AMF Bowling; 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 owners of the Predecessor Company in connection with the Acquisition and
received a fee in the form of 10-year warrants to purchase 870,000 shares of
Common Stock. The warrants were valued for accounting purposes at approximately
$8.7 million. In addition, Goldman Sachs is entitled to the reimbursement of its
expenses and is indemnified in connection with its services.
In connection with the Credit Agreement, Goldman Sachs Credit Partners L.P.
acted as Syndication Agent, Goldman Sachs Credit Partners L.P. and Citicorp
Securities, Inc. acted as Arrangers, and Citibank, N.A. is acting as
Administrative Agent. Goldman Sachs Credit Partners L.P. is also a lender under
the Credit Agreement. 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.
Pursuant to the three employment agreements with executives of the Company
discussed in "Note 13. Employee Benefit Plans," AMF Bowling issued to each
executive 150,000 shares of Common Stock, at a purchase price of $10.00 per
share. One executive was granted an initial employment bonus of $166,667 which
he used to partially fund his purchase of shares of Common Stock. Each executive
has borrowed $1.0 million from AMF Bowling in order to fund the portion of his
purchase of Common Stock. These notes are due in May 2003 and accrue interest,
compounded annually, on the unpaid principal amount at 7 percent per annum.
Pursuant to the Stock Subscription Agreement dated April 30, 1996, Charles
M. Diker, a director of AMF Bowling, AMF Group Holdings, and AMF Group,
purchased 125,000 shares of Common Stock, at a purchase price of $10.00 per
share. Pursuant to an Option Agreement (the "Diker Option Agreement") dated May
1, 1996, Mr. Diker was granted, pursuant to the Stock Incentive Plan, non-
qualified Stock Options to purchase 100,000 shares of 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. The Diker Option Agreement also provides, among other things, for
repurchase of all of the shares held by him for fair market value as of a
specified date upon certain conditions. Mr. Diker is a party to the Stockholders
Agreement and any shares of Common Stock held by Mr. Diker will be subject to
the terms of that agreement.
NOTE 19. 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 AMF
Bowling.
F-28
<PAGE> 100
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The Notes are jointly and severally guaranteed on a full and unconditional
basis by AMF Group Holdings and by the first and second-tier subsidiaries of AMF
Group, as follows (together with AMF Group 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.
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 AMF Group, 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-29
<PAGE> 101
AMF BOWLING, INC. AND SUBSIDIARIES
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 1,080 -- 824,842
----------- -------- -------- -----------
Total assets...................... $ 1,618,416 $42,487 $(66,893) $ 1,594,010
=========== ======== ======== ===========
LIABILITIES AND STOCKHOLDERS' 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...................... 1,676 600 -- 2,276
Long-term debt, current portion........... 42,376 -- -- 42,376
----------- -------- -------- -----------
Total current liabilities......... 125,483 9,713 (4,624) 130,572
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 12,778 (8,285) 1,185,195
----------- -------- -------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock.............................. 289 4,364 (4,229) 424
Paid-in capital........................... 454,506 24,098 (49,578) 429,026
Retained earnings (deficit)............... (11,184) 4,826 (13,126) (19,484)
Equity adjustment from foreign
currency translation................... (5,897) (3,579) 8,325 (1,151)
----------- -------- -------- -----------
Total stockholders' equity........ 437,714 29,709 (58,608) 408,815
----------- -------- -------- -----------
Total liabilities and $ 1,618,416 $42,487 $(66,893) $ 1,594,010
stockholders' equity............
=========== ======== ======== ===========
</TABLE>
F-30
<PAGE> 102
AMF BOWLING, INC. AND SUBSIDIARIES
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 revenue............................. $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) (268) -- (5,748)
Equity in loss of subsidiaries.............. 499 -- (499) --
-------- ------- ------- --------
Total nonoperating expenses.............. 72,948 783 423 74,154
-------- ------- ------- --------
Income (loss) before income taxes........ (28,436) 753 (333) (28,016)
Provision (benefit) for income taxes..... (9,703) 1,171 -- (8,532)
-------- ------- ------- --------
Net loss................................. $(18,733) $ (418) $ (333) $(19,484)
======== ======= ======= ========
</TABLE>
F-31
<PAGE> 103
AMF BOWLING, INC. AND SUBSIDIARIES
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) $ (418) $ (333) $ (19,484)
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) (582) (94) (4,010)
Accounts payable and accrued
expenses.............................. 21,631 299 -- 21,930
Income taxes payable..................... 662 (245) -- 417
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-32
<PAGE> 104
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
(UNAUDITED)
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 16,640
Accounts and notes receivable, net of allowance for doubtful accounts of
$4,086.................................................................... 57,120
Inventories.................................................................. 56,488
Deferred taxes and other..................................................... 13,210
----------
Total current assets................................................. 143,458
Property and equipment, net.................................................... 743,675
Deferred financing costs, net.................................................. 40,151
Goodwill, net.................................................................. 766,661
Other assets................................................................... 21,647
----------
Total assets......................................................... $ 1,715,592
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 32,757
Accrued expenses............................................................. 54,550
Income taxes payable......................................................... 4,553
Note payable................................................................. 30,000
Long-term debt, current portion.............................................. 44,876
----------
Total current liabilities............................................ 166,736
Long-term debt................................................................. 1,146,415
Other long-term liabilities.................................................... 6,383
Deferred income taxes.......................................................... 4,922
----------
Total liabilities.................................................... 1,324,456
----------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $.01, 60,000,000 shares authorized, 42,225,000 shares
issued and outstanding)................................................... 422
Paid-in capital.............................................................. 428,528
Retained deficit............................................................. (31,648)
Equity adjustment from foreign currency translation.......................... (6,166)
----------
Total stockholders' equity........................................... 391,136
----------
Total liabilities and stockholders' equity........................... $ 1,715,592
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-33
<PAGE> 105
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMF BOWLING, INC.
---------------------
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996(A)
-------- --------
<S> <C> <C>
Operating revenue.................................................. $318,068 $ 73,423
--------- ---------
Operating expenses:
Cost of goods sold............................................... 86,084 23,513
Bowling center operating expenses................................ 116,038 26,747
Selling, general, and administrative expenses.................... 30,172 7,518
Depreciation and amortization.................................... 43,424 11,650
--------- ---------
Total operating expenses...................................... 275,718 69,428
--------- ---------
Operating income (loss)....................................... 42,350 3,995
Nonoperating expenses (income):
Interest expense................................................. 57,454 23,873
Other expenses, net.............................................. 2,368 323
Interest income.................................................. (1,126) (3,782)
--------- ---------
Total nonoperating expenses................................... 58,696 20,414
--------- ---------
Loss before income taxes...................................... (16,346) (16,419)
Benefit for income taxes...................................... (4,182) (4,193)
--------- ---------
Net loss...................................................... $(12,164) $(12,226)
========= =========
Net loss per share................................................. $ (.29) $ (.32)
========= =========
Weighted average shares outstanding................................ 42,274 38,306
========= =========
</TABLE>
- ---------------
(a) For the period from the inception date of January 12, 1996 through June 30,
1996, which includes results of operations of the acquired business from May
1, 1996 through June 30, 1996.
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 106
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMF BOWLING, INC.
SIX MONTHS ENDED JUNE
30,
------------------------
1997 1996(A)
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (12,164) $ (12,226)
Adjustments to reconcile net income loss to net cash provided by
operating activities:
Depreciation and amortization................................ 43,424 11,650
Deferred income taxes........................................ (1,775) 5,871
Amortization of bond discount................................ 16,788 8,826
Loss (gain) on the sale of property and equipment, net....... 94 (31)
Changes in assets and liabilities:
Accounts and notes receivable, net......................... (17,942) (3,678)
Inventories................................................ (15,877) (3,396)
Other assets............................................... (21,417) (47,372)
Accounts payable and accrued expenses...................... 1,432 21,418
Income taxes payable....................................... 2,257 (8,590)
Other long-term liabilities................................ 13,345 (517)
--------- -----------
Net cash provided by (used in) operating activities.......... 8,165 (28,045)
--------- -----------
Cash flows from investing activities:
Acquisitions of operating units, net of cash acquired........... (122,165) (1,333,048)
Purchases of property and equipment............................. (25,639) (3,318)
Proceeds from the sale of property and equipment................ 268 86
--------- -----------
Net cash used in investing activities........................ (147,536) (1,336,280)
--------- -----------
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred financing costs... 133,500 1,029,930
Payment on long-term debt....................................... (20,250) (233)
Payments on notes payable -- stockholders, net.................. -- --
Capital contribution............................................ -- 380,250
Repurchase of common stock...................................... (500) --
Distributions to stockholders................................... -- --
Noncompete obligations.......................................... (322) (190)
--------- -----------
Net cash provided by financing activities.................... 112,428 1,409,757
--------- -----------
Effect of exchange rates on cash............................. 15 (338)
--------- -----------
Net (decrease) increase in cash.............................. (26,928) 45,094
Cash and cash equivalents at beginning of period............. 43,568 --
--------- -----------
Cash and cash equivalents at end of period................... $ 16,640 $ 45,094
========= ===========
</TABLE>
- ---------------
(a) For the period from the inception date of January 12, 1996, through June 30,
1996, which includes the cash flows of the acquired business from May 1,
1996 through June 30, 1996.
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 107
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1. ORGANIZATION
The accompanying unaudited condensed 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 AMF Bowling, Inc. and subsidiaries included elsewhere in this
Registration Statement. The results of operations for the six months ended June
30, 1997, are not necessarily indicative of results to be expected for the
entire year.
AMF Bowling, Inc. ("AMF Bowling") changed its name from AMF Holdings Inc.
in 1997. AMF Bowling and its subsidiaries (collectively, the "Company" or "AMF")
are principally engaged in two business segments: (i) the ownership or operation
of bowling centers, consisting of 321 U.S. centers and 87 international centers
("Bowling Centers") as of June 30, 1997, and (ii) the manufacture and
distribution of bowling equipment such as automatic pinspotters, automatic
scoring equipment, bowling pins, lanes, ball returns, certain spare parts, and
the resale of allied products such as bowling balls, bags, shoes, and certain
other spare parts ("Bowling Products"). The principal markets for bowling
equipment are U.S. and international bowling center operators.
AMF Group Inc. ("AMF Group") is a wholly owned subsidiary of AMF Group
Holdings Inc. ("AMF Group Holdings"). AMF Group Holdings is a wholly owned
subsidiary of AMF Bowling. AMF Group Holdings and AMF Group 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). AMF Group
Holdings and AMF Bowling 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 AMF
Group Holdings and the stockholders (the "Prior Owners") of the Predecessor
Company, on May 1, 1996 (the "Closing Date"), AMF Group Holdings acquired the
Predecessor Company through a stock purchase by AMF Group 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"). AMF Group Holdings did
not acquire the assets of two bowling centers located in Madrid, Spain and
Geneva, Switzerland (both of which were retained by the Prior Owners).
The purchase price for the Acquisition was approximately $1.37 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 AMF Bowling have been presented
for the six months ended June 30, 1997, and the period from the inception date
of January 12, 1996 through June 30,
F-36
<PAGE> 108
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
1996. 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.
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 revenue 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 subsequent purchases of bowling centers
discussed in "Note 9. Acquisitions", 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 dates
of acquisition. Goodwill is being amortized over 40 years. Amortization expense
was $9,860 for the six months ended June 30, 1997. Accumulated amortization at
June 30, 1997 was $22,930.
Earnings Per Share
Net loss per share is calculated based on the actual weighted average
shares outstanding. Outstanding stock options and warrants are not considered as
their effect is antidilutive.
NOTE 3. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED) (IN MILLIONS)
Pro forma statements of income are presented on the following pages for the
six months ended June 30, 1996, as if the Acquisition had occurred on January 1,
1996. AMF Bowling's pro forma statement of income for the six months ended June
30, 1996, is based on the Predecessor Company's statement of income for the four
months ended April 30, 1996, AMF Bowling's statement of income for the period
from the inception date of January 12, 1996 through June 30, 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, do not purport to be indicative of the actual
results which occurred, and are not indicative of future results of operations.
F-37
<PAGE> 109
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
-------------
PREDECESSOR AMF
COMPANY BOWLING, INC.
-------------- -------------
AMF
BOWLING, INC. FOUR MONTHS SIX MONTHS
---------------- ENDED ENDED
PERIOD ENDED -------------- PRO FORMA -------------
JUNE 30, 1996(a) APRIL 30, 1996 ADJUSTMENTS JUNE 30, 1996
---------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Operating revenue.................. $ 73.4 $164.9 $ (0.8)(b) $ 237.5
------ ------ ------ ------
Operating expenses:
Cost of goods sold............... 23.5 43.1 (0.1)(b) 66.5
Bowling center operating
expenses...................... 26.7 80.2 (24.4)(b)(c) 82.5
Selling, general, and
administrative expenses....... 7.5 35.5 (20.3)(b)(c) 22.7
Depreciation and amortization.... 11.7 15.1 8.1(d) 34.9
------ ------ ------ ------
Total operating
expenses............... 69.4 173.9 (36.7) 206.6
------ ------ ------ ------
Operating income
(loss)................. 4.0 (9.0) 35.9 30.9
Nonoperating expenses:
Interest expense................. 23.9 4.5 23.8(e) 52.2
Other expenses, net.............. 0.3 0.7 -- 1.0
Interest income.................. (3.8) (0.6) -- (4.4)
------ ------ ------ ------
Income (loss) before income taxes.. (16.4) (13.6) 12.1 (17.9)
Provision (benefit) for income
taxes......................... (4.2) (1.7) 1.5(f) (4.4)
------ ------ ------ ------
Net income (loss)........ $(12.2) $(11.9) $ 10.6 $ (13.5)
====== ====== ====== ======
Net loss per share................. $ (0.35)
======
</TABLE>
- ---------------
(a) Represents the results of AMF Bowling for the period from the inception date
of January 12, 1996 through June 30, 1996.
(b) To reflect the impact of AMF Group 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 Prior Owners in April 1996.
(d) 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.
(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 certain U.S. and international
subsidiaries of AMF Bowling from S corporations to taxable corporations
under the U.S. federal tax law upon consummation of the Acquisition.
F-38
<PAGE> 110
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 4. INVENTORIES
Inventories at June 30, 1997, consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
(UNAUDITED)
<CAPTION>
<S> <C>
Bowling Products, at FIFO:
Raw materials................................. $13,603
Work in progress.............................. 2,493
Finished goods and spare parts................ 35,365
Bowling Centers, at average cost:
Merchandise inventory......................... 5,027
-------
$56,488
=======
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997, consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
(UNAUDITED)
<CAPTION>
<S> <C>
Land............................................ $ 103,004
Buildings and improvements...................... 306,848
Equipment, furniture, and fixtures.............. 386,580
Other........................................... 9,993
--------
806,425
Less: accumulated depreciation and
amortization.................................. (62,750)
--------
$ 743,675
========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$30,875 and $7,445 for the six months ended June 30, 1997 and 1996,
respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt at June 30, 1997, consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
(UNAUDITED)
<CAPTION>
<S> <C>
Bank debt...................................... $ 677,875
Exchange senior subordinated notes............. 250,000
Exchange senior subordinated discount notes.... 291,446
Mortgage and equipment notes................... 1,970
----------
Total debt........................... 1,221,291
Current maturities............................. (74,876)
----------
Total long-term debt................. $ 1,146,415
==========
</TABLE>
F-39
<PAGE> 111
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
In May 1997, AMF Group amended the Bank Credit Agreement to increase the
flexibility and borrowing capacity of its ongoing acquisition program. As a
result, AMF Group increased the availability under the Acquisition Facility to
$230.0 million. As of July 31, 1997, $144.0 million was outstanding under the
Acquisition Facility.
In July 1997, AMF Group entered into an interest rate cap agreement to
reduce the interest rate risk of its Senior Debt. The notional amount of this
cap is $100.0 million. Under the terms of this agreement, AMF Group receives
payment if the three month LIBOR rises above 7.00 percent through March 31,
1998.
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
term of the agreement beginning November 1, 1996, and ending October 31, 1998.
Amortization expense for financing costs was $2,530 for the six months ended
June 30, 1997. Interest expense for the interest rate cap agreement was $911 for
the six months ended June 30, 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 the Company's 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 options to purchase shares of Common Stock ("Stock
Options") currently reserved and available for grant under the Stock Incentive
Plan is 1,767,151. On June 11, 1997, the Executive Committee of AMF Bowling's
Board of Directors approved the grant of Stock Options to participants of the
Stock Incentive Plan to purchase a total of 366,000 shares of Common Stock at an
exercise price of $10.00 per share. The number of Stock Options outstanding to
senior management, other employees, and directors at June 30, 1997, after giving
effect to the grant and to forfeited Stock Options, total 1,418,000 at an
exercise price of $10.00 per share.
NOTE 9. ACQUISITIONS
On April 24, 1997, the Company completed the acquisition of American
Recreation Centers, Inc. ("ARC"), which operated 43 bowling centers in six
states. The aggregate purchase price of the ARC acquisition was approximately
$70 million, including repayment of certain debt and the purchase of related
joint venture interests, and was funded from available borrowing under the
Acquisition Facility. Between January 1, 1997 and June 30, 1997, the Company
acquired 64 centers in the United States, seven centers in the United Kingdom,
two centers in Australia, and certain related assets and liabilities from
several unrelated sellers including ARC. The aggregate purchase price was
approximately $122.2 million, including certain adjustments and transaction
costs, and
F-40
<PAGE> 112
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
was funded with $103.5 million from available borrowing under AMF Group's
Acquisition Facility and the remainder from internally generated cash.
In addition, between July 1, 1997, and August 15, 1997, the Company
acquired six centers in the United States from two unrelated sellers. The
aggregate purchase price was approximately $13.9 million, and was entirely
funded from available borrowing under the Acquisition Facility. As a result of
the acquisitions, and after giving effect to the closing of six centers in 1997,
the Company operated 335 U.S. centers and 87 international centers as of August
15, 1997.
The Company has signed letters of intent and/or entered into purchase
agreements in July 1997 regarding the acquisition of 25 additional U.S. centers
from several unrelated sellers. The aggregate purchase price is expected to be
approximately $49.2 million, and will be funded primarily with available
borrowings under the Acquisition Facility.
In April 1997, the Company entered into a joint venture arrangement with
Hong Leong Corporation Limited, a Singapore-based conglomerate. Pursuant to the
arrangement, the joint venture, to be owned 50% by the Company and 50% by Hong
Leong, is expected to build and operate 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 China, Indonesia, Malaysia,
the Philippines, Thailand and Vietnam.
In June 1997, the Company signed an agreement to enter into a joint venture
arrangement with Playcenter S.A., a Sao Paulo-based amusement and entertainment
company ("Playcenter"). Pursuant to the arrangement, the joint venture, to be
owned 50% by the Company and 50% by Playcenter, is expected to build or assume
ownership of, and operate, up to 39 bowling centers, in Brazil and Argentina
during the next four years.
The Company expects its total investments in the joint ventures with Hong
Leong and Playcenter to be approximately $12 million and $14 million,
respectively, and expects each joint venture to finance the construction and
acquisition of bowling centers with financing that is non-recourse to the
Company.
F-41
<PAGE> 113
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 10. BUSINESS SEGMENTS
The Company operates in two major lines of business: operating bowling
centers and manufacturing bowling and related products. Information concerning
operations in these businesses for the six months ended June 30, 1997 and 1996,
respectively, is presented below (in millions):
<TABLE>
<CAPTION>
AMF BOWLING, INC.
-----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------------------------------------------------------
BOWLING CENTERS BOWLING PRODUCTS
------------------------------- -------------------------------
U.S. INTERNATIONAL SUBTOTAL U.S. INTERNATIONAL SUBTOTAL CORPORATE ELIMINATIONS TOTAL
------ ------------- -------- ------ ------------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
unaffiliated
customers............ $148.7 $ 52.4 $ 201.1 $ 47.7 $69.3 $117.0 $ -- $ -- $ 318.1
Intersegment sales..... -- -- -- 5.3 2.4 7.7 -- -- 7.7
Operating income
(loss)............... 22.8 5.9 28.7 16.1 5.3 21.4 (8.4) 0.7 42.4
Identifiable assets.... 729.0 306.1 1,035.1 615.7 58.2 673.9 6 0.6 1,715.6
Depreciation and
amortization......... 25.1 9.2 34.3 9.3 0.6 9.9 -- (0.8) 43.4
Capital expenditures... 19.0 3.0 22.0 1.9 0.4 2.3 1.5 (0.2) 25.6
Research and
development expense.. -- -- -- 0.7 -- 0.7 -- -- 0.7
</TABLE>
<TABLE>
<CAPTION>
AMF BOWLING, INC.
------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1996
------------------------------------------------------------------------------------------------
BOWLING CENTERS BOWLING PRODUCTS
------------------------------ ------------------------------
U.S. INTERNATIONAL SUBTOTAL U.S. INTERNATIONAL SUBTOTAL CORPORATE ELIMINATIONS TOTAL
----- ------------- -------- ----- ------------- -------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers................. $23.3 $16.2 $ 39.5 $15.7 $18.2 $ 33.9 $ -- $ -- $73.4
Intersegment sales.......... -- -- -- 0.6 1.3 1.9 -- -- 1.9
Operating income (loss)..... (3.6) 2.3 (1.3) 4.5 1.2 5.7 (0.2) (0.2) 4.0
Depreciation and
amortization.............. 6.2 2.6 8.8 3.0 0.1 3.1 -- (0.2) 11.7
Capital expenditures........ 1.5 1.7 3.2 0.2 0.2 0.4 -- (0.3) 3.3
Research and development
expense................... -- -- -- 1.1 -- 1.1 -- -- 1.1
</TABLE>
F-42
<PAGE> 114
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the fiscal year ended December 31, 1997, the Company is
required to adopt Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" and No. 129 "Disclosure of Information About Capital
Structure." Effective for the fiscal year ended December 31, 1998, the Company
is required to adopt SFAS No. 130 "Reporting Comprehensive Income" and SFAS No.
131 "Disclosures About Segments of an Enterprise and Related Information." The
Company will comply with the disclosure requirements of the pronouncements as
they become effective.
NOTE 12. CONSOLIDATING FINANCIAL STATEMENTS
The following consolidating financial information presents:
- Consolidating balance sheet as of June 30, 1997, and consolidating
statements of income and cash flows for the six months ended June 30,
1997.
- Elimination entries necessary to combine the entities comprising AMF
Bowling.
The Notes are jointly and severally guaranteed on a full and unconditional
basis by AMF Group Holdings and by the first and second-tier subsidiaries of AMF
Group. Third-tier subsidiaries of AMF Group have not provided guarantees.
F-43
<PAGE> 115
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
- ---------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents.................... $ 15,651 $ 989 $ -- $ 16,640
Accounts and notes receivable, net of
allowance for doubtful accounts............ 55,738 1,382 -- 57,120
Accounts receivable -- intercompany.......... 2,889 4,609 (7,498) --
Inventories.................................. 54,535 1,953 -- 56,488
Deferred taxes and other..................... 11,343 1,867 -- 13,210
---------- ------- -------- ----------
Total current assets.................. 140,156 10,800 (7,498) 143,458
Notes receivable -- intercompany............... 6,771 10,663 (17,434) --
Property and equipment, net.................... 702,932 39,712 1,031 743,675
Investment in subsidiaries..................... 26,099 -- (26,099) --
Goodwill and other assets...................... 821,781 6,678 -- 828,459
---------- ------- -------- ----------
Total assets.......................... $1,697,739 $67,853 $(50,000) $1,715,592
========== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable............................. $ 30,786 $ 1,971 $ -- $ 32,757
Accounts payable -- intercompany............. 74 7,424 (7,498) --
Accrued expenses............................. 49,769 4,781 -- 54,550
Income taxes payable......................... 3,218 1,335 -- 4,553
Note payable................................. 30,000 -- -- 30,000
Long-term debt, current portion.............. 44,876 -- -- 44,876
---------- ------- -------- ----------
Total current liabilities............. 158,723 15,511 (7,498) 166,736
Long-term debt................................. 1,137,415 9,000 -- 1,146,415
Notes payable -- intercompany.................. 1,327 16,107 (17,434) --
Other long-term liabilities.................... 6,383 -- -- 6,383
Deferred income taxes.......................... 3,881 1,041 -- 4,922
---------- ------- -------- ----------
Total liabilities..................... 1,307,729 41,659 (24,932) 1,324,456
---------- ------- -------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock................................. -- 4,362 (3,940) 422
Paid-in capital.............................. 427,446 23,600 (22,518) 428,528
Retained earnings (deficit).................. (31,270) 3,769 (4,147) (31,648)
Equity adjustment from foreign currency
translation................................ (6,166) (5,537) 5,537 (6,166)
---------- ------- -------- ----------
Total stockholders' equity............ 390,010 26,194 (25,068) 391,136
---------- ------- -------- ----------
Total liabilities and stockholders'
equity.............................. $1,697,739 $67,853 $(50,000) $1,715,592
========== ======= ======== ==========
</TABLE>
F-44
<PAGE> 116
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue............................. $298,354 $20,625 $ (911) $318,068
-------- ------- ------- --------
Operating expenses:
Cost of goods sold.......................... 83,875 2,818 (609) 86,084
Bowling center operating expenses........... 105,290 10,938 (190) 116,038
Selling, general, and administrative
expenses................................. 28,714 1,458 -- 30,172
Depreciation and amortization............... 40,632 2,985 (193) 43,424
-------- ------- ------- --------
Total operating expenses............ 258,511 18,199 (992) 275,718
-------- ------- ------- --------
Operating income.................... 39,843 2,426 81 42,350
Nonoperating expenses (income):
Interest expense............................ 57,180 274 -- 57,454
Other (income) expense, net................. (86) 1,127 1,327 2,368
Interest income............................. (948) (178) -- (1,126)
Equity in earnings of subsidiaries.......... 246 -- (246) --
-------- ------- ------- --------
Total nonoperating expenses......... 56,392 1,223 1,081 58,696
-------- ------- ------- --------
Income (loss) before income taxes... (16,549) 1,203 (1,000) (16,346)
Provision (benefit) for income
taxes............................. (5,617) 1,435 -- (4,182)
-------- ------- ------- --------
Net loss............................ $(10,932) $ (232) $ (1,000) $(12,164)
======== ======= ======= ========
</TABLE>
F-45
<PAGE> 117
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(10,932) $ (232) $ (1,000) $ (12,164)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............ 40,632 2,985 (193) 43,424
Deferred income taxes.................... (1,775) -- -- (1,775)
Amortization of bond discount............ 16,788 -- -- 16,788
Equity in earnings of subsidiaries....... (246) -- 246 --
Loss on the sale of property and
equipment, net......................... 94 -- -- 94
Changes in assets and liabilities:
Accounts and notes receivable.......... (17,750) (192) -- (17,942)
Receivables and
payables -- affiliates.............. (4,502) 4,502 -- --
Inventories............................ (15,383) (494) -- (15,877)
Other assets........................... (20,128) (797) (492) (21,417)
Accounts payable and accrued expenses.. (50) 1,482 -- 1,432
Income taxes payable................... 1,745 512 -- 2,257
Other long-term liabilities............ 13,345 -- -- 13,345
-------- ------- ------- ---------
Net cash provided by (used in) operating
activities............................. 1,838 7,766 (1,439) 8,165
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired................................. (105,444) (16,721) -- (122,165)
Purchases of property and equipment......... (24,228) (1,523) 112 (25,639)
Proceeds from sale of property and
equipment................................ 268 -- -- 268
-------- ------- ------- ---------
Net cash provided by (used in) investing
activities............................. (129,404) (18,244) 112 (147,536)
Cash flows from financing activities:
Proceeds from long-term debt, net of
deferred financing costs................. 124,500 9,000 133,500
Payment on long-term debt................... (20,250) -- -- (20,250)
Repurchase of common stock.................. (500) -- -- (500)
Dividend to Parent.......................... 0 (1,327) 1,327 0
Noncompete obligations...................... (322) -- -- (322)
-------- ------- ------- ---------
Net cash provided by financing
activities............................. 103,428 7,673 1,327 112,428
-------- ------- ------- ---------
Effect of exchange rates on cash......... 112 (97) -- 15
-------- ------- ------- ---------
Net decrease in cash..................... (24,026) (2,902) -- (26,928)
Cash and cash equivalents at beginning of
period................................. 39,677 3,891 -- 43,568
-------- ------- ------- ---------
Cash and cash equivalents at end of
period................................. $ 15,651 $ 989 $ -- $ 16,640
======== ======= ======= =========
</TABLE>
F-46
<PAGE> 118
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-47
<PAGE> 119
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-48
<PAGE> 120
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-49
<PAGE> 121
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-50
<PAGE> 122
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-51
<PAGE> 123
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-52
<PAGE> 124
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)(10)
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-53
<PAGE> 125
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-54
<PAGE> 126
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-55
<PAGE> 127
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-56
<PAGE> 128
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-57
<PAGE> 129
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-58
<PAGE> 130
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-59
<PAGE> 131
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-60
<PAGE> 132
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-61
<PAGE> 133
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-62
<PAGE> 134
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-63
<PAGE> 135
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-64
<PAGE> 136
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-65
<PAGE> 137
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-66
<PAGE> 138
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-67
<PAGE> 139
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-68
<PAGE> 140
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-69
<PAGE> 141
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-70
<PAGE> 142
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-71
<PAGE> 143
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-72
<PAGE> 144
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-73
<PAGE> 145
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-74
<PAGE> 146
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-75
<PAGE> 147
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-76
<PAGE> 148
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-77
<PAGE> 149
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-78
<PAGE> 150
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-79
<PAGE> 151
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-80
<PAGE> 152
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-81
<PAGE> 153
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOUR 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-82
<PAGE> 154
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-83
<PAGE> 155
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-84
<PAGE> 156
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-85
<PAGE> 157
AMF BOWLING, INC.
SELECTED QUARTERLY DATA (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMF BOWLING, INC.
--------------------
1997 QUARTERS ENDED MARCH 31 JUNE 30
- ---------------------------- --------- --------
<S> <C> <C>
Operating revenue........... $ 157.6 $160.5
Gross profit................ 119.5 112.4
Operating income............ 29.7 12.7
Income (loss) before income
taxes..................... 1.2 (17.6)
Net income.................. 0.1 (12.3)
Net income (loss) per
share..................... -- (0.29)
</TABLE>
<TABLE>
<CAPTION>
AMF BOWLING, INC.
PREDECESSOR COMPANY ---------------------------------------------------------
---------------------- 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>
Operating revenue........... $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) (12.2) 0.7
Net income (loss)........... 21.6 (33.4) (11.9) (11.6) (5.3) (2.1)
Net income (loss) per
share..................... (0.31) (0.30) (0.14) (0.06)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------------------
1995 QUARTERS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenue........... $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>
F-86
<PAGE> 158
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
AMF Bowling Centers, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of loss, of cash flows and of stockholder's
equity present fairly, in all material respects, the financial position of Fair
Lanes, Inc. (Debtor-in-Possession) and its subsidiaries at September 29, 1994
and June 30, 1994, and the results of their operations and their cash flows for
the three months ended September 29, 1994 and the year ended June 30, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Fair Lanes' management. Our responsibility
is to express an opinion on these 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.
For the period June 22, 1994 through September 29, 1994, Fair Lanes, Inc.
operated as a debtor-in-possession pursuant to Chapter 11 of the United States
Bankruptcy Code. On September 20, 1994, the creditors approved and the
Bankruptcy Court confirmed a plan of reorganization, with an effective date of
September 29, 1994, whereby Fair Lanes' Senior Secured Noteholders gained
ownership and voting control of the majority of Fair Lanes' common stock. As a
result of the change of control, Fair Lanes, Inc. will adjust the carrying
values of its assets and liabilities to their estimated fair values as of
September 30, 1994, taking into consideration the effects of the plan of
reorganization. The accompanying consolidated financial statements do not
reflect these adjustments and, accordingly, the carrying value of Fair Lanes,
Inc.'s assets and liabilities will change from those reported in the
accompanying consolidated balance sheet as of September 29, 1994, as disclosed
in Note 3.
As discussed in Note 12, Fair Lanes, Inc. adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," effective June 25, 1993.
PRICE WATERHOUSE LLP
Norfolk, Virginia
January 23, 1996
F-87
<PAGE> 159
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30,
1994
SEPTEMBER 29, --------
1994
-------------
(SEE NOTE 3)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 3,419 $ 4,005
Receivables, net of allowance................................... 153 166
Inventories..................................................... 2,192 2,001
Prepaid expenses and other assets............................... 1,880 2,324
-------- --------
Total current assets......................................... 7,644 8,496
Property and equipment, net....................................... 178,002 179,860
Value of acquired leases, net..................................... 13,521 13,821
Other assets...................................................... 3,548 3,758
-------- --------
$ 202,715 $205,935
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Borrowings on line-of-credit.................................... $ 3,500 $ --
Current maturities of long-term debt and obligations under
capital leases............................................... 2,109 2,332
Accounts payable................................................ 8,223 6,242
Accrued expenses and other liabilities.......................... 9,334 7,026
-------- --------
Total current liabilities.................................... 23,166 15,600
-------- --------
Long-term liabilities:
Long-term debt, less current maturities......................... 12,924 13,135
Obligations under capital leases, less current maturities....... 7,189 7,414
Deferred income taxes........................................... -- 4,276
Other........................................................... 5,175 3,542
-------- --------
Total long-term liabilities.................................. 25,288 28,367
-------- --------
Liabilities subject to compromise under reorganization
proceedings..................................................... 151,975 151,975
-------- --------
Total liabilities............................................ 200,429 195,942
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock -- $.01 par value per share, 1,000 shares, issued
and outstanding.............................................. -- --
Additional paid-in capital...................................... 45,023 45,023
Accumulated deficit............................................. (45,739) (37,999)
Advances from Entertainment..................................... 3,002 2,969
-------- --------
Total stockholder's equity................................... 2,286 9,993
-------- --------
$ 202,715 $205,935
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE> 160
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Operating revenue................................................. $ 19,376 $101,759
Operating expenses:
Cost of merchandise sold........................................ 2,032 10,321
Selling, general and administrative expenses.................... 25,425 94,049
----- ------
27,457 104,370
----- ------
Operating loss.......................................... (8,081) (2,611)
Interest expense.................................................. (2,654) (20,157)
Other income (expense), net....................................... 7 (2,918)
----- ------
Loss before reorganization costs, income tax benefit (provision)
and cumulative effect of accounting change................... (10,728) (25,686)
Reorganization costs.............................................. (1,288) (5,377)
----- ------
Loss before income tax benefit and cumulative effect of
accounting change............................................ (12,016) (31,063)
Income tax benefit................................................ 4,276 11,804
----- ------
Loss before cumulative effect of accounting change.............. (7,740) (19,259)
Cumulative effect of accounting change............................ -- 3,902
----- ------
Net loss................................................ $ (7,740) $(15,357)
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 161
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $(7,740) $(15,357)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization................................ 3,583 15,026
Amortization of deferred charges............................. 32 754
Loss on disposal of assets................................... -- 2,632
Loss on equity investments................................... -- 1,132
Noncash reorganization costs................................. -- 3,618
Deferred income taxes........................................ (4,276) (11,914)
Cumulative effect of change in method of accounting for
income taxes................................................ -- (3,902)
Changes in assets and liabilities:
Decrease (increase) in receivables......................... 13 (68)
Increase in inventories.................................... (191) (387)
(Increase) decrease in prepaid expenses and other assets... 444 (902)
Increase (decrease) in accounts payable and accrued
expenses.................................................. 4,289 (5,695)
Accrued interest with respect to liabilities subject to
compromise................................................ 1,757 13,975
Other...................................................... (123) (86)
------- --------
Net cash used for operating activities.................. (2,212) (1,174)
------- --------
Cash flows from investing activities:
Purchases of property and equipment............................. (2,404) (5,453)
Proceeds from sales of property and equipment................... -- 6,534
Other........................................................... 1,156 435
------- --------
Net cash provided by (used for) investing activities.... (1,248) 1,516
------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings............................. 3,500 6,000
Principal payments of indebtedness and obligations under capital
leases....................................................... (659) (8,757)
Dividends paid to Bowling....................................... -- (1,565)
Advances from Entertainment..................................... 33 5,380
Other........................................................... -- (101)
------- --------
Net cash provided by financing activities............... 2,874 957
------- --------
Net increase (decrease) in cash and cash equivalents.............. (586) 1,299
Cash and cash equivalents at beginning of year.................... 4,005 2,706
------- --------
Cash and cash equivalents at end of year.......................... $ 3,419 $ 4,005
======= ========
Cash paid during the period for:
Interest........................................................ $ 889 $ 11,602
======= ========
Income taxes.................................................... $ -- $ 110
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE> 162
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL ADVANCES TOTAL
PAID-IN ACCUMULATED (TO) FROM STOCKHOLDER'S
CAPITAL DEFICIT ENTERTAINMENT EQUITY
---------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at June 24, 1993..................... $ 45,023 $ (21,077) $(2,411) $ 21,535
Net loss for the year ended June 30,
1994.................................... -- (15,357) -- (15,357)
Dividends.................................. -- (1,565) -- (1,565)
Advances from Entertainment, net........... -- -- 5,380 5,380
------- -------- ------- --------
Balance at June 30, 1994..................... 45,023 (37,999) 2,969 9,993
Net loss for the three months ended
September 29, 1994...................... -- (7,740) -- (7,740)
Advances from Entertainment................ -- -- 33 33
------- -------- ------- --------
Balance at September 29, 1994................ $ 45,023 $ (45,739) $ 3,002 $ 2,286
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE> 163
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- BUSINESS
At September 29, 1994 and June 30, 1994, Fair Lanes, Inc.
(Debtor-in-Possession) and subsidiaries (Fair Lanes) operated 106 bowling
centers, containing 3,876 lanes, located in sixteen states and Puerto Rico.
Prior to Fair Lanes' emergence from bankruptcy, Fair Lanes was a
wholly-owned subsidiary of Fair Lanes Bowling, Inc. (Bowling), which was a
wholly-owned subsidiary of Fair Lanes Entertainment, Inc. (Debtor-in-Possession)
(Entertainment). Fair Lanes' assets represented substantially all of the
operating assets of Bowling and Entertainment. Effective with the emergence from
bankruptcy proceedings, Entertainment, Bowling and Fair Lanes, Inc. were merged
into one entity and a change in control occurred (see Notes 2 and 3).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared on the accrual
basis of accounting utilizing guidance provided by American Institute of
Certified Public Accountants' Statement of Position 90-7, "Financial Statements
by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7). On
September 29, 1994, in accordance with Fair Lanes' Plan of Reorganization (the
"Plan") dated July 15, 1994, control of the majority of Fair Lanes' common stock
transferred to the holders of Fair Lanes' Senior Secured Notes. The revaluation
of Fair Lanes' assets and liabilities as a result of this reorganization and
change in control has not been reflected in the accompanying consolidated
balance sheet as of September 29, 1994 (see Note 3).
The consolidated financial statements include the accounts of Fair Lanes
and all of its wholly-owned subsidiaries. All intercompany transactions have
been eliminated in consolidation.
Fair Lanes reports on a 52-53 week year ending on the last Thursday of
June. Fiscal year 1994 consisted of 53 weeks. The three-month period ended
September 29, 1994 consisted of 13 weeks.
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates affect the reported amounts of expenses during
current and subsequent reporting periods, and actual results could differ from
such estimates.
CASH AND CASH EQUIVALENTS
Cash in excess of daily requirements is invested in marketable securities
consisting of commercial paper and bank repurchase agreements with maturities of
three months or less. Such investments are deemed to be cash equivalents for
purposes of the consolidated balance sheets and consolidated statements of cash
flows.
INVENTORIES
Inventories (principally food, beverage and pro shop merchandise) are
valued at the lower of cost or market with cost being determined by the first-in
first-out method.
F-92
<PAGE> 164
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation, including amortization of property under capital
leases, is provided by the straight-line method over the estimated useful lives
of the assets as follows:
<TABLE>
<CAPTION>
ASSETS CLASS USEFUL LIVES
------------------------------------------------- ------------------------
<S> <C>
Buildings........................................ 30-40 years
Machinery and equipment.......................... 4-20 years
Leasehold improvements and property under capital
leases......................................... Shorter of the estimated
useful lives or terms of
leases
</TABLE>
Additions and major improvements are capitalized and included in the
property accounts; the cost of routine maintenance and repairs is charged to
expense as incurred. Upon sale or other disposal of depreciable assets, the
related cost and accumulated depreciation and amortization are removed from the
accounts and any gain or loss is reflected in income.
VALUE OF ACQUIRED LEASES
Value of acquired leases result from purchase accounting adjustments
assigning values to favorable bowling center capital and operating lease
obligations and are being amortized over the remaining lives of the leases.
These leases have an average remaining life of approximately 10 years as of
September 29, 1994.
DEFERRED FINANCING COSTS
Costs incurred to obtain financing are deferred and amortized over the
lives of the related debt using the interest method. During the year ended June
30, 1994, Fair Lanes wrote off the unamortized deferred financing costs
associated with the Senior Secured Notes (see Note 9).
DEFERRED INCOME TAXES
At June 25, 1993, Fair Lanes adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), which required, among other things, a change from the deferred method to
the asset and liability method of accounting for deferred income taxes. Under
the asset and liability method, deferred income taxes are generally recognized
for temporary differences between the financial reporting basis and income tax
basis of assets and liabilities based on enacted tax rates expected to be in
effect when such amounts are realized or settled. The effects of changes in tax
laws or rates on deferred tax assets and liabilities are recognized in the
period that includes the enactment date.
Under the deferred method applied in prior periods, deferred income taxes
were recognized for income and expense items that were reported in different
periods for financial reporting and income tax purposes based on the tax rates
applicable in the period of the calculations and were not adjusted for
subsequent changes in tax laws or rates.
F-93
<PAGE> 165
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 3 -- REORGANIZATION PLAN AND LIQUIDITY
During the year ended June 30, 1994, Fair Lanes' cash resources were
insufficient to meet its debt service obligations with respect to the $138,000
of 11 7/8% Senior Secured Notes due August 15, 1997 (Senior Secured Notes).
Accordingly, management and the Board of Directors of Fair Lanes determined that
it was in the best interest of Fair Lanes to suspend interest payments on its
Senior Secured Notes commencing with the February 15, 1994 interest payment and
to pursue a negotiated restructuring of Fair Lanes' capital structure.
Management of Fair Lanes and committees representing certain Senior Secured
Noteholders of Fair Lanes and certain security holders of Entertainment agreed
in principle to support the Plan. On June 22, 1994 (Petition Date), Fair Lanes
and Entertainment filed a combined voluntary petition for relief under Chapter
11 of the federal bankruptcy laws in the United States Bankruptcy Court for the
District of Maryland, Baltimore Division (the Bankruptcy Court). Accordingly,
for the period June 22, 1994 through September 29, 1994, Fair Lanes was
operating as a Debtor-in-Possession under the jurisdiction of the Bankruptcy
Court. As a Debtor-in-Possession, Fair Lanes could not engage in transactions
outside the ordinary course of business without approval of the Bankruptcy
Court, after notice and hearing.
Liabilities subject to compromise in the accompanying consolidated balance
sheets represent Fair Lanes' liabilities as of the Petition Date subject to
adjustment in the reorganization process and consist of the Senior Secured Notes
of $138,000 and accrued interest thereon from August 16, 1993 to June 22, 1994
of $13,975. Fair Lanes defaulted on the February 15, 1994 interest payment and
stopped accruing interest on the Senior Secured Notes as of the Petition Date.
Under the contractual terms of the agreement, accrued interest on the Senior
Secured Notes at June 30, 1994 was $14,339. The Senior Secured Notes were issued
at a discount which was being amortized on the interest method over the term of
the loan. The unamortized discount at June 22, 1994 was approximately $444 and
was written off (see Note 9).
The Plan was approved by the creditors and confirmed by the Bankruptcy
Court on September 20, 1994 and was effective September 29, 1994. The confirmed
plan provided for the following:
CLAIMS OF THE FAIR LANES' SENIOR SECURED AND ENTERTAINMENT'S VARIABLE RATE AND
ZERO COUPON NOTEHOLDERS
The $138,000 of Senior Secured Notes were exchanged for a new issue of
$90,350 Senior Secured Notes (New Senior Secured Notes) and 94% of new Fair
Lanes' common stock. The New Senior Secured Notes bear interest at 9.5%.
Entertainment had $36,844 of variable rate notes and $7,375 of zero coupon
notes (accreted value) outstanding as of the Petition Date. Under the Plan, such
amounts were settled with the issuance of the remaining 6% of the new Fair
Lanes' common stock and warrants to purchase additional shares of the new Fair
Lanes' common stock. These warrants were not exercised and were subsequently
canceled.
OTHER GENERAL CLAIMS
Other obligations of Fair Lanes were to be settled in full. Substantially
all remaining liabilities were obligations of Fair Lanes' subsidiaries and
include trade debt, mortgage debt and capital lease obligations. Such
obligations were unaffected by the bankruptcy and the Plan.
F-94
<PAGE> 166
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
COMMON STOCK
The common stockholders of Fair Lanes and Entertainment received no shares
in the new Fair Lanes stock. As part of the transaction, Entertainment and
Bowling were merged into Fair Lanes.
NEW SENIOR SECURED NOTES
The New Senior Secured Notes may be redeemed at any time on or after July
15, 1997 and prior to maturity (July 15, 2001) at the option of Fair Lanes,
either in whole or in part, at redemption prices defined in the Indenture,
together with interest accrued to the date of redemption. However, at any time
prior to July 15, 1997, Fair Lanes may redeem up to $30,000 of the initial
principal amount of the New Senior Secured Notes from the net proceeds of one or
more underwritten public offerings of equity securities of Fair Lanes, at a
redemption price equal to 108.5% of the principal amount thereof plus accrued
and unpaid interest to the redemption date, provided that at least $60,000 of
the principal amount of New Senior Secured Notes remain outstanding immediately
after the occurrence of any such redemption and that any such redemption occurs
within 60 days following the closing of any such public offering. In addition,
Fair Lanes may be required to offer to repurchase the New Senior Secured Notes
upon the occurrence of a "change of control" event as described in the
Indenture.
The New Senior Secured Notes are secured by a pledge of all of the
outstanding shares of capital stock of each of Fair Lanes' operating
subsidiaries and require semiannual interest payments in January and July of
each year. Interest began accruing on the New Senior Secured Notes from July 15,
1994 (date of Plan's filing) and is included from this date to September 29,
1994 in the accompanying consolidated statement of loss.
OTHER PLAN COMPONENTS
Upon the emergence of Fair Lanes from bankruptcy proceedings, an unrelated
third party acquired majority ownership of Fair Lanes' common stock through its
prior ownership of the 11 7/8% bonds. Shortly thereafter, this third party
obtained 100% ownership of Fair Lanes' stock in a transaction accounted for by
the purchase method as of September 30, 1994. The following table summarizes the
adjustments required to record the reorganization and change in control:
<TABLE>
<CAPTION>
DEBT FAIR VALUE
ACTUAL DISCHARGE ADJUSTMENTS PRO FORMA
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets..................... $ 7,644 $ -- $ (2,715) $ 4,929
Property, plant and equipment,
net.............................. 178,002 -- (36,217) 141,785
Value of acquired leases, net...... 13,521 -- (2,180) 11,341
Other assets....................... 3,548 -- (2,246) 1,302
-------- -------- -------- --------
$202,715 $ -- $ (43,358) $ 159,357
======== ======== ======== ========
Current liabilities................ $ 23,166 $ -- $ 1,376 $ 24,542
Long-term debt..................... 172,088 (61,625) -- 110,463
Other long-term liabilities........ 5,175 -- 536 5,711
Stockholder's equity............... 2,286 61,625 (45,270) 18,641
-------- -------- -------- --------
$202,715 $ -- $ (43,358) $ 159,357
======== ======== ======== ========
</TABLE>
F-95
<PAGE> 167
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 29, 1994 and
June 30, 1994.
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ---------
<S> <C> <C>
Land and improvements..................................... $ 53,630 $ 53,626
Buildings................................................. 98,130 97,645
Machinery and equipment................................... 62,461 61,210
Leasehold improvements.................................... 9,036 8,772
Leased property under capital leases 13,610 13,610
------------- --------
236,867 234,863
Less -- accumulated depreciation and amortization......... 58,865 55,003
------------- --------
$ 178,002 $ 179,860
============= ========
</TABLE>
Depreciation expense, including property under capital leases, was $3,209
and $13,865 for the three months ended September 29, 1994 and the year ended
June 30, 1994, respectively.
NOTE 5 -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at
September 29, 1994 and June 30, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
Insurance................................................... $ 1,547 $ 1,547
Payroll..................................................... 1,949 2,330
Property taxes.............................................. 2,040 1,489
Reorganization costs........................................ 2,280 1,293
Other....................................................... 1,518 367
------------- --------
$ 9,334 $ 7,026
============= ========
</TABLE>
NOTE 6 -- SHORT-TERM BORROWINGS
In July 1993, Fair Lanes obtained a $6,000 seasonal loan from a principal
vendor which was repaid in December 1993.
In August 1994, Fair Lanes entered into a $4,000 line of credit agreement
with a bank. Borrowings under the line bear interest at the bank's prime rate
plus 1% and are secured by certain equipment of Fair Lanes' subsidiaries.
Interest is payable monthly. Subsequent to September 29, 1994, this line of
credit was repaid in full.
F-96
<PAGE> 168
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 7 -- OTHER INDEBTEDNESS
Other long-term debt secured by mortgages on real property and equipment,
exclusive of capital lease obligations, consists of the following at September
29, 1994 and June 30, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
9% to 9 3/4% to 1997-2002.................................. $ 3,839 $ 3,939
10% to 10 1/2% to 1998-2007................................ 1,482 1,501
11% to 11 3/4% to 1998-2000................................ 7,741 7,774
Other...................................................... 735 794
------- -------
13,797 14,008
Less current maturities.................................... 873 873
------- -------
$12,924 $ 13,135
======= =======
</TABLE>
Annual maturities of other long-term debt for each of the five fiscal years
subsequent to September 29, 1994 are as follows:
<TABLE>
<S> <C>
Nine months ending June 1995...................................... $ 667
Year ending June 1996............................................. 958
Year ending June 1997............................................. 1,043
Year ending June 1998............................................. 2,236
Year ending June 1999............................................. 4,990
Thereafter........................................................ 3,903
-------
$ 13,797
=======
</TABLE>
At September 29, 1994, the carrying value of property and equipment
securing mortgages on real property and equipment was approximately $31,800.
The estimated fair values of other long-term debt approximate the carrying
values.
NOTE 8 -- ADVANCES FROM ENTERTAINMENT
During fiscal 1994, Fair Lanes obtained approximately $5,380 in cash
advances from Entertainment which was used primarily for operating needs. The
payables reported in the consolidated balance sheets of $3,002 and $2,969 at
September 29, 1994 and June 30, 1994, respectively, are net of prior year
amounts advanced to Entertainment for costs paid by Fair Lanes on behalf of
Entertainment. The Plan, described in Note 3, did not provide for repayment of
the net advances from Entertainment, and Fair Lanes has reflected the net
advances as an addition to equity.
F-97
<PAGE> 169
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
NOTE 9 -- REORGANIZATION COSTS
Reorganization costs for the three months ended September 29, 1994 and the
year ended June 30, 1994 consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Professional fees................................. $ 1,288 $1,759
Write-off unamortized discount and deferred
financing costs associated with pre-petition
debt............................................ -- 3,618
------ ------
$ 1,288 $5,377
====== ======
</TABLE>
NOTE 10 -- COMMITMENTS
Fair Lanes occupies various premises subject to long-term leases. In
addition to minimum annual rentals, certain leases provide for additional rents
based on a percentage of sales in excess of specified amounts. The majority of
the leases require Fair Lanes to pay all real estate taxes and to maintain
adequate insurance coverage in addition to other terms that vary with the
individual leases.
In addition, Fair Lanes leases automatic scoring and computerized control
center equipment installed in certain bowling centers under capital lease
agreements, which expire on various dates during 1996 to 1999.
Future minimum lease payments under capital leases, noncancellable
operating leases and operating subleases are as follows at September 29, 1994:
<TABLE>
<CAPTION>
OPERATING
CAPITAL ---------------------
LEASES LEASES SUBLEASES
------- ------- ---------
<S> <C> <C> <C>
FISCAL YEAR
Nine months ending June 1995......................... $ 2,059 $ 2,227 $ 65
Year ending June 1996................................ 2,655 2,584 83
Year ending June 1997................................ 2,316 2,292 83
Year ending June 1998................................ 2,175 1,648 83
Year ending June 1999................................ 1,275 1,292 52
Thereafter........................................... 104 5,650 551
------- ------- ----
Total minimum lease payments......................... 10,584 $15,693 $ 917
======= ====
Less amount representing interest.................... (2,159)
-------
Obligations under capital leases................... $ 8,425
=======
</TABLE>
F-98
<PAGE> 170
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Accumulated depreciation and amortization includes accumulated amortization
of $7,241 and $6,809 on property leased under capital leases at September 29,
1994 and June 30, 1994, respectively.
Rent expense consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Minimum rentals............................................. $ 732 $2,834
Contingent rentals.......................................... 254 2,002
Less sublease rentals....................................... (19) (74)
---- ------
$ 967 $4,762
==== ======
</TABLE>
NOTE 11 -- PENSION AND PROFIT SHARING PLANS
Fair Lanes had a defined benefit pension plan covering substantially all
employees. The benefits were based on years of service and the employees'
highest compensation during five consecutive years in the last 10 years of
employment. Fair Lanes' funding policy was to contribute annually the amount
that could be deducted for federal income tax purposes, assuming a 30-year
amortization of the unfunded accrued liability. Subsequent to the reorganization
of Fair Lanes, the defined benefit plan was frozen.
The following table sets forth the plan's funded status and the prepaid
pension cost included in the consolidated balance sheets at September 29, 1994
and June 30, 1994 based upon calculations made by consulting actuaries. Fair
Lanes obtains actuarial studies on an annual basis and an updated study for the
three months ended September 29, 1994 was not warranted.
<TABLE>
<S> <C>
Actuarial present value of obligations:
Accumulated benefit obligation including vested benefits of $7,339...... $ 7,537
----
Projected benefit obligation for services rendered to date................ $(8,597)
Plan assets at fair value, primarily listed stocks, corporate bonds and
U.S. government obligations............................................. 7,752
----
Plan assets (less than) in excess of projected benefit obligation......... (845)
Unrecognized prior service costs.......................................... (764)
Unrecognized net gain from past experience different from that assumed and
effect of changes in assumptions........................................ 1,757
----
Prepaid pension costs included in other assets $ 148
====
</TABLE>
F-99
<PAGE> 171
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
Net periodic pension cost, as determined by consulting actuaries, included
the following for the year ended June 30, 1994. Pension expense for the three
months ended September 29, 1994 was estimated to be $94.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1994
----------
<S> <C>
Service costs -- benefits earned during the period....................... $ 357
Interest cost on projected benefit obligation............................ 545
Actual return on plan assets............................................. 145
Net amortization and deferral............................................ (731)
----
$ 316
====
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 6.46% and 4.5% in 1994. The expected long-term
rate of return on assets was 8%.
Fair Lanes has a profit sharing plan which covers substantially all
employees with at least one year of service. Generally, contributions are made
at the discretion of the Board of Directors. No contributions were made by Fair
Lanes for the three months ended September 29, 1994 or the year ended June 30,
1994.
NOTE 12 -- INCOME TAXES
Fair Lanes files consolidated federal income tax returns with Entertainment
and prior to fiscal 1994 recorded its provision for federal income taxes for
financial reporting purposes in accordance with a tax allocation agreement with
Entertainment and Bowling. Such agreement provides that Fair Lanes will record
as expense its share of the federal income taxes payable by the consolidated
group in an amount that is based upon the ratio of the taxable income of Fair
Lanes and its subsidiaries to the taxable income of the consolidated group.
At June 25, 1993, Fair Lanes adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes," which required Fair Lanes to record its income
tax provisions on a stand alone basis using the asset and liability method to
account for deferred income taxes. The cumulative effect of this change in
accounting method as of the date of adoption was to increase stockholder's
equity by $3,902. The change in accounting method required Fair Lanes to restate
the carrying values of assets acquired in prior business combinations by
increasing such values by approximately $18,000. The increase in carrying values
increased the loss before income tax benefit for the year ended June 30, 1994 by
$1,522 due to additional depreciation expense and a reduction of the gain on
sales of bowling centers. In addition, the change in accounting allowed Fair
Lanes to recognize a deferred income tax benefit of $11,914 related to the net
operating loss for the year ended June 30, 1994. Prior years' financial
statements were not restated to apply the provisions of SFAS No. 109.
F-100
<PAGE> 172
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
The tax effect of temporary differences between the financial reporting basis
and income tax basis of assets and liabilities that are included in the net
deferred tax liability relate to the following:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1994 1994
------------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward......................... $ 16,300 $ 13,400
Accrued interest and deferred financing costs........... 7,458 6,883
Obligations under long-term consulting and noncompete
agreements........................................... 1,100 1,053
Other................................................... 3,741 3,460
------ ------
Gross deferred tax assets....................... 28,599 24,796
Gross deferred tax asset valuation allowance............ (290) --
------ ------
Gross deferred tax assets, net.................. 28,309 24,796
------ ------
Deferred tax liabilities:
Property and equipment and leasehold interest, primarily
due to differences in basis from business
combinations and depreciation and amortization....... (27,898) (28,358)
Other................................................... (411) (714)
------ ------
Gross deferred tax liabilities....................... (28,309) (29,072)
------ ------
Net deferred tax liability........................... $ -- $ (4,276)
====== ======
</TABLE>
The income tax benefit for the three months ended September 29, 1994 and
the year ended June 30, 1994 differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to loss before income taxes as a result of
the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Expected tax benefit...................................... $ 4,085 $ 10,561
(Increase) reduction income tax benefit resulting from:
State and local tax benefit, net of federal taxes....... 481 1,243
Change in deferred tax asset valuation allowance........ (290) --
------ -------
$ 4,276 $ 11,804
====== =======
</TABLE>
F-101
<PAGE> 173
FAIR LANES, INC. (DEBTOR-IN-POSSESSION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS)
The income tax benefit (provision) consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 29, JUNE 30,
1994 1994
------------- ----------
<S> <C> <C>
Federal
Current................................................. $ -- $ --
Deferred................................................ 3,826 9,940
------ -------
3,826 9,940
------ -------
State
Current................................................. -- (110)
Deferred................................................ 450 1,974
------ -------
450 1,864
------ -------
$ 4,276 $ 11,804
====== =======
</TABLE>
The provisions for current state income taxes result from certain of Fair
Lanes' subsidiaries having taxable income in certain states. At June 30, 1994,
the consolidated group had a net operating loss carryforward available to reduce
future federal taxable income for income tax reporting purposes of approximately
$65,400, of which approximately $35,200 relates to Fair Lanes. Such amounts
expire in various amounts during the years 2002 to 2009. The Plan discussed in
Note 3 could have a significant effect on the amount and availability of net
operating loss carryforwards available to offset taxable income after the date
of the reorganization.
NOTE 13 -- OBLIGATIONS OF ENTERTAINMENT
In fiscal 1994, Fair Lanes distributed dividends to Bowling of $1,565.
Bowling distributed such amounts to Entertainment to enable it to pay interest
due on the variable rate notes.
NOTE 14 -- LITIGATION
Fair Lanes is subject to various lawsuits in the ordinary course of its
business, including employment-related matters. In the opinion of management,
none of the pending actions will have a material impact on Fair Lanes' financial
position or results of operations.
NOTE 15 -- BOWLING CENTER DISPOSITIONS
In the fourth quarter of fiscal 1993, Fair Lanes elected not to exercise
lease renewal options on two bowling centers. In the first quarter of fiscal
1994, Fair Lanes entered into a swap transaction in which it exchanged four
bowling centers in North Carolina for two bowling centers in each of Florida and
Texas. The swap transaction was accounted for at book value and, accordingly, no
gain or loss was recognized. Fair Lanes also sold four additional bowling
centers during the first quarter of fiscal 1994. The sale resulted in a loss of
$640 which is included in other income (expense), net in fiscal 1994.
F-102
<PAGE> 174
REPORT OF INDEPENDENT AUDITORS
Board of Directors
BCA & Affiliates
We have audited the accompanying balance sheet of BCA & Affiliates as of
August 31, 1996, and the related statement of income and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BCA & Affiliates as of
August 31, 1996, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
Todres & Sheiffer
Westbury, New York
December 4, 1996
F-103
<PAGE> 175
BCA & AFFILIATES
BALANCE SHEET
AUGUST 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 598,000
Accounts receivable......................................................... 203,000
Inventories................................................................. 642,000
Prepaid expenses............................................................ 509,000
-----------
Total current assets................................................ 1,952,000
Property, plant and equipment -- net (Notes 1 and 2).......................... 42,892,000
Other assets (Note 8)......................................................... 613,000
-----------
$45,457,000
===========
LIABILITIES AND EXCESS OF ASSETS OVER LIABILITIES
Liabilities:
Current liabilities:
Accounts payable and accrued expenses.................................... $ 2,156,000
Current portion of long-term debt (Note 3)............................... 17,901,000
Bank line of credit (Note 4)............................................. 4,677,000
Capital lease obligation (Note 5)........................................ 811,000
-----------
Total current liabilities........................................... 25,545,000
Long-term liabilities:
Long-term debt (Note 3)..................................................... --
-----------
Total liabilities................................................... 25,545,000
Contingencies (Note 6)...................................................... --
Excess of assets over liabilities........................................... 19,912,000
-----------
$45,457,000
===========
</TABLE>
See notes to financial statements
F-104
<PAGE> 176
BCA & AFFILIATES
STATEMENT OF INCOME
YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
Revenues:
Bowling..................................................................... $63,818,000
Other....................................................................... 178,000
-----------
Total revenues...................................................... 63,996,000
Cost of sales............................................................... 7,219,000
-----------
Gross profit........................................................ 56,777,000
-----------
Operating expenses:
Payroll and related costs................................................... 17,522,000
Parts and supplies.......................................................... 4,270,000
Repairs and maintenance..................................................... 1,301,000
Occupancy costs............................................................. 7,239,000
Promotional and marketing................................................... 4,531,000
Insurance and other costs................................................... 3,215,000
General and administrative -- home office................................... 6,146,000
Interest.................................................................... 2,003,000
-----------
Total operating expenses............................................ 46,227,000
-----------
Income before depreciation expense............................................ 10,550,000
Depreciation expense.......................................................... 7,093,000
-----------
Net income.......................................................... $ 3,457,000
===========
</TABLE>
See notes to financial statements
F-105
<PAGE> 177
BCA & AFFILIATES
STATEMENT OF CASH FLOWS
YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income.................................................................. $ 3,457,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................ 7,093,000
(Increase) decrease in:
Accounts receivable.................................................... 75,000
Inventories............................................................ (19,000)
Prepaid expenses....................................................... (51,000)
Other.................................................................. 55,000
Increase (decrease) in:
Accounts payable and accrued expenses.................................. (554,000)
-----------
Net cash from operating activities.......................................... 10,056,000
-----------
Cash Flows for Investing Activities:
Additions to property, plant and equipment, net............................. (4,997,000)
-----------
Net cash used for investing activities........................................ (4,997,000)
-----------
Cash flows for financing activities:
Principal payments on long-term debt........................................ (1,661,000)
Transfers to home office.................................................... (3,075,000)
-----------
Net cash used for financing activities...................................... (4,736,000)
-----------
Net increase in cash and cash equivalents..................................... 323,000
Cash and cash equivalents at beginning of year................................ 275,000
-----------
Cash and cash equivalents at end of year...................................... $ 598,000
===========
Supplemental Schedule of Cash Flow Information:
Cash paid during the year for:
Interest................................................................. $ 2,003,000
===========
Income taxes............................................................. $ 183,000
===========
</TABLE>
See notes to financial statements
F-106
<PAGE> 178
BCA & AFFILIATES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
DESCRIPTION OF THE BUSINESS
ORGANIZATION
The financial statements of BCA and Affiliates (the "Company") consists of
the operations of 50 bowling centers, one golf course, and certain related
recreational activities. BCA is a division of Charan Industries, Inc. The
affiliates of BCA include two partnerships which are owned primarily by the
principal shareholders of Charan Industries, Inc.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers cash in the operating bank accounts, overnight
investments, and money market accounts to be cash and cash equivalents.
INVENTORIES
Inventories consists of food, liquor, and various bowling equipment at the
lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Depreciation for financial reporting is computed using the straight-line
method over the estimated useful life of the asset beginning in the year of
acquisition. Accelerated methods are used for income tax reporting. When assets
are disposed of, the related costs and accumulated depreciation are removed from
the accounts and any gain or loss is reflected in income for the period. The
installment sales method for reporting gains is used where applicable.
LEASES
Leases which meet certain criteria are classified as capital leases, and
assets and liabilities are recorded at amounts equal to the lesser of the
present value of the minimum lease payments or the fair value of the leased
properties at the beginning of the lease term. Such assets are amortized evenly
over the related lease terms or their economic lives. Interest expense relating
to the lease liabilities is recorded to effect constant rates of interest over
the terms of the leases. Leases which do not meet such criteria are classified
as operating leases and the related rentals are charged to expense as incurred.
INCOME TAXES
On September 1, 1988 the Charan Industries, Inc. elected to be taxed under
the provisions of Subchapter "S" of the Internal Revenue Code. Under those
provisions, Charan Industries, Inc. is not subject to federal corporate income
taxes, other than on certain types of transactions. The stockholders are liable
for individual federal and state income taxes on their proportionate shares of
Charan's income. Accordingly, there is no provision for income taxes for BCA &
Affiliates.
ALLOCATION OF GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses of Charan Industries, Inc. (consisting
primarily of home office payroll costs, rent, professional fees, and general
insurance) are allocated to the company on the basis of revenues, which
approximate 90% of the total amount, unless the expenses are specifically
related to either bowling or non-bowling activities. Interest expense for the
term loan is
F-107
<PAGE> 179
BCA & AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
allocated to the Company on the basis of the proportional values of the
collateralized assets between non-bowling and bowling assets. All other interest
expense is specific to the bowling operation.
EXCESS OF ASSETS OVER LIABILITIES
The excess of assets over liabilities represents the net asset value of BCA
and Affiliates. Charan Industries, Inc. and two partnerships primarily owned by
the shareholders of Charan Industries, Inc., own the equity interests in BCA and
affiliates.
NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT
The estimated useful lives of the various classes of fixed assets are as
follows:
<TABLE>
<S> <C>
Buildings and building improvements............................. 31.5 years
Bowling lanes and equipment..................................... 7 years
Pinspotter equipment............................................ 7 years
Restaurant and bar equipment.................................... 7 years
Furniture, fixtures and other equipment......................... 3-7 years
Leasehold improvements.......................................... 31.5 years
</TABLE>
Property, plant and equipment consists of the following:
<TABLE>
<S> <C>
Land........................................................ $ 5,072,000
Buildings................................................... 33,533,000
Bowling lanes/pinspotters................................... 23,574,000
Other equipment............................................. 43,187,000
------------
105,366,000
Less: Accumulated depreciation.............................. (62,474,000)
------------
$ 42,892,000
============
</TABLE>
Leased property under capital leases included in property, plant and
equipment is as follows:
<TABLE>
<S> <C>
Land and buildings -- bowling properties......................... $815,000
Less: accumulated amortization................................... 268,000
--------
$547,000
========
</TABLE>
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Bowling properties:
various 7% - 10% debt instruments requiring monthly payments
of interest and principal maturing at various dates
through 2007............................................. $ 4,324,000
(A) Term loans:
Two term loans with independent banks. Bank prime rate
requiring quarterly payments through May, 2000........... 13,577,000
-----------
17,901,000
Less: Current portion of long-term debt....................... 17,901,000
-----------
Total............................................... $ 0
===========
</TABLE>
F-108
<PAGE> 180
BCA & AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The total long-term principal balance of $17,901,000 is classified as a
current liability since all debt attributable to bowling was repaid in October
1996. See Note 9 in connection with the sale of the Company.
(A) On May 27, 1993 Charan Industries, Inc. borrowed $35,500,000, the
proceeds of which were used for the refinancing of existing debt in the amount
of $28,675,000, with the balance used for working capital. The borrowing
consisted of two separate term loan agreements executed simultaneously with two
independent banking institutions. The principal amount of each term loan was
$23,000,000 and $12,500,000. The term notes require twenty-eight quarterly
principal payments the first of which was paid on August 31, 1993 with
succeeding quarterly installments due on the last day of each succeeding
November, February, and May thereafter until May 31, 2000 when the principal
amount of $14,200,000 shall be due and payable together with any remaining
interest. Interest is payable monthly at each bank's prime rate. The term notes
are secured by first mortgages upon certain assets. The loan agreements contain
covenants, that the Company maintain certain minimum requirements of net worth,
debt to equity ratio and certain other earnings and cash flow ratios. At August
31, 1996 the balance of $29,349,000 was allocated to BCA & Affiliates on the
basis of the collateralized assets pledged resulting in a balance outstanding to
the Company totaling $13,577,000.
NOTE 4 -- BANK LINE OF CREDIT
On May 27, 1993, Charan Industries, Inc. entered into a three-year
revolving credit agreement which enables the Company to borrow up to $5,000,000
through October 1996. Interest is payable monthly at the bank prime rate. The
note is secured by first mortgages on certain assets. The loan agreement
contains covenants requiring the Company to satisfy certain minimum requirements
of net worth, debt to equity, earnings and cash flow rates.
This facility was utilized to the extent of $4,677,000 for the year ended
August 31, 1996.
NOTE 5 -- LEASES
The Company is committed under a number of long-term leases expiring at
various dates through the year 2058. Certain operating leases contain provisions
for a percentage of gross sales to be paid as rent, should sales exceed an
agreed amount, otherwise base rents are to be paid. The agreements generally
require the payment of utilities, real estate taxes, insurance and repairs. The
following is a schedule of future minimum lease payments for all noncancellable
leases together with the present value of the net minimum lease payments for
capital leases.
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
------------------------------------------------- ---------- ----------
<S> <C> <C>
1997............................................. $ 98,000 $$1,220,000
1998............................................. 98,000 1,193,000
1999............................................. 98,000 1,138,000
2000............................................. 98,000 984,000
2001............................................. 98,000 444,000
2002 and thereafter.............................. 3,990,000 4,949,000
---------- ----------
Total minimum lease payments..................... 4,480,000 $9,928,000
==========
Less imputed interest............................ 3,669,000
----------
Present value of minimum lease payments.......... $ 811,000
==========
</TABLE>
F-109
<PAGE> 181
BCA & AFFILIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense for the years ended August 31, 1996 amounted to
$1,785,000.
NOTE 6 -- CONTINGENCIES
The Company is involved in litigation on a number of matters and is subject
to certain claims which arise in the normal course of business, none of which,
in the opinion of management, is expected to have a materially adverse effect on
the Company's financial position.
NOTE 7 -- 401(K) RETIREMENT/PROFIT SHARING PLAN
In January 1991, Charan Industries, Inc. established a 401(K) Retirement
Profit Sharing Plan. The Board of Directors established a matching contribution
equal to a maximum of 50% of the first 2% of the employee contribution. The
profit sharing plan contribution is subject to annual determination and is not
mandatory.
NOTE 8 -- OTHER ASSETS
Other assets are as follows:
<TABLE>
<S> <C>
Non-compete agreements (net)..................................... $485,000
Mortgage acquisition costs (net)................................. 53,000
Other............................................................ 75,000
--------
$613,000
========
</TABLE>
Non-compete agreements and mortgage acquisition costs are shown net of
amortization.
NOTE 9 -- SUBSEQUENT EVENTS
All of the assets of the Company were sold to AMF Bowling Centers Inc. on
October 9, 1996, under the provisions of an asset purchase agreement dated
September 10, 1996. A portion of the proceeds of the sale were used by the
Company to satisfy its outstanding debt.
F-110
<PAGE> 182
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, AMF
Bowling has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman Sachs, Morgan Stanley & Co.
Incorporated, Cowen & Company and Schroder & Co. Inc. are acting as
representatives, has severally agreed to purchase from AMF Bowling the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------------------------------------------------------------- ----------
<S> <C>
Goldman, Sachs & Co. ............................................
Morgan Stanley & Co. Incorporated................................
Cowen & Company..................................................
Schroder & Co. Inc...............................................
-------
Total..................................................
=======
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the representatives.
AMF Bowling has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of shares of Common Stock in an international offering outside the United
States. The offering price and aggregate underwriting discounts and commissions
per share for the two Offerings are identical. The closing of the offering made
hereby is a condition to the closing of the International Offering, and vice
versa. The representatives of the International Underwriters are Goldman Sachs
International, Morgan Stanley & Co. International Limited, Cowen International
L.P. and J. Henry Schroder & Co. Limited.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the International
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell
U-1
<PAGE> 183
or deliver shares of Common Stock (a) in the United States or to any U.S.
persons or (b) to any person who it believes intends to reoffer, resell or
deliver the shares in the United States or to any U.S. persons, and (ii) cause
any dealer to whom it may sell such shares at any concession to agree to observe
a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
AMF Bowling has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
shares of Common Stock offered hereby. AMF Bowling has granted the International
Underwriters a similar option to purchase up to an aggregate of additional
shares of Common Stock.
AMF Bowling and certain of its existing stockholders (who in the aggregate
hold shares of the Common Stock) have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of the Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities of AMF Bowling (other than pursuant to employee stock option plans
existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of this Prospectus) which are substantially
similar to the shares of the Common Stock or which are convertible into or
exchangeable for shares of Common Stock or any securities which are
substantially similar to the shares of the Common Stock without the prior
written consent of the representatives, except for the shares of Common Stock
offered in connection with the concurrent U.S. and International Offerings.
Prior to this offering, there has been no public market for the shares. The
initial public offering price was negotiated among AMF Bowling and the
representatives of the U.S. Underwriters and the International Underwriters.
Among the factors considered in determining the initial public offering price of
the Common Stock, in addition to prevailing market conditions, were AMF
Bowling's historical performance, estimates of the business potential and
earnings prospects of AMF Bowling, an assessment of AMF Bowling's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
Application will be made to list the Common Stock on the NYSE under the
symbol " ".
AMF Bowling has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
In connection with the Offerings, the U.S. Underwriters may purchase and
sell the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offerings. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock; and syndicate
short positions involve the sale by the U.S. Underwriters of a greater number of
shares of Common Stock than they are required to purchase from AMF Bowling in
the Offerings. The U.S. Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker-dealers in
respect of the securities sold in the Offerings for their account may be
reclaimed by the syndicate if such shares of Common Stock are repurchased by the
syndicate in stabilizing or covering
U-2
<PAGE> 184
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the New York
Stock Exchange, in the over-the-counter market or otherwise.
Under Rule 2720 of the National Association of Securities Dealers, Inc.
(the "NASD"), AMF Bowling may be deemed an affiliate of Goldman Sachs. The
Offerings are being conducted in accordance with Rule 2720, which provides that,
among other things, when an NASD member participates in the underwriting of an
affiliate's equity securities, the initial public offering price can be no
higher than that recommended by a "qualified independent underwriter" meeting
certain standards. In accordance with this requirement, Morgan Stanley & Co.
Incorporated has served in such role and has recommended a price in compliance
with the requirements of Rule 2720. In connection with the Offerings, Morgan
Stanley & Co. Incorporated, in its role as qualified independent underwriter,
has performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. In addition, the U.S. Underwriters may not confirm
sales to any discretionary account without the prior written approval of the
customer.
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., are directors of AMF Bowling, and Mr. Friedman is
Chairman of AMF Bowling. See "Management" and "Certain Transactions".
U-3
<PAGE> 185
=======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE 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 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 THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Forward-Looking Statements............. 2
Prospectus Summary..................... 4
Risk Factors........................... 11
Use of Proceeds........................ 16
Dividend Policy........................ 16
Capitalization......................... 17
Dilution............................... 18
Selected Financial Data................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22
Business............................... 36
Management............................. 49
Principal Stockholders................. 57
Certain Transactions................... 61
Description of Capital Stock........... 62
Description of Certain Indebtedness.... 64
Shares Eligible for Future Sale........ 68
Validity of Shares..................... 69
Experts................................ 69
Index to Financial Statements.......... F-1
Underwriting........................... U-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=======================================================
=======================================================
SHARES
AMF BOWLING, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------
[LOGO]
------------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
COWEN & COMPANY
SCHRODER & CO. INC.
REPRESENTATIVES OF THE UNDERWRITERS
=======================================================
<PAGE> 186
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses incurred in connection
with the shares of Common Stock being registered hereby, other than underwriting
discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $75,758
NASD Filing Fee................................................. 25,500
New York Stock Exchange Listing Fee............................. *
Printing and Engraving Expenses................................. *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Transfer Agent and Registrar Fees and Expenses.................. *
Blue Sky Fees and Expenses (including legal fees)............... 10,000**
Miscellaneous................................................... *
Total................................................. $ *
</TABLE>
- ---------------
* To be completed by amendment
** Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL"), provides that a corporation may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise or perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provisions may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(which provides for liability of directors for unlawful payments of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. Article VIII, Section 1 of
the Company's Certificate of Incorporation limits the liability of directors
thereof to the full extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents of the corporation, if such
persons acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interest of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. In addition, a corporation may indemnify any such person for
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of any such action or suit
by or in the right of the corporation if the person acted in good faith and in a
manner that the person reasonably believed to be in or not opposed to the best
interests of the corporation; however, the corporation may not indemnify the
person for such expenses in a suit or action by or on behalf of the corporation
unless the Delaware Court of Chancery or the court hearing the action or
proceeding determines that the person is fairly and reasonably entitled to
indemnity for such expenses. A corporation is required to provide the foregoing
indemnity to a director if the director is successful (on the merits or
otherwise) in his or
II-1
<PAGE> 187
her defense of the claim or proceeding. Article VIII, Section 2(a) of the
Certificate of Incorporation of the Company provides that the Company shall
indemnify its officers, directors, employees and agents to the full extent
permitted by Delaware law.
Article VIII, Section 2(a) of the Company's Certificate of Incorporation
also provides that the Company shall indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the Board. Any rights to indemnification
conferred in Section 2 are contract rights, and include the right to be paid by
the Company the expenses incurred in defending any such proceeding in advance of
its final disposition, except that, if the DGCL requires, the payment of such
expenses incurred by a director or officer in such capacity in advance of final
disposition shall be made only upon delivery to the Company of an undertaking by
or on behalf of such director or officer, to repay all amounts so advanced if it
is ultimately determined that such director or officer is not entitled to be
indemnified under Section 2 or otherwise. By action of the board of directors,
the Company may extend such indemnification to employees and agents of the
Company.
Section 8(b) of the Underwriting Agreement relating to the U.S. Offering
and Section 8(b) of the Underwriting Agreement relating to the International
Offering provide for indemnification by the Underwriters of directors, officers
and controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act, under certain limited circumstances.
An insurance policy obtained by the Registrant provides for indemnification
of officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold
by the Registrant within the past three years which were not registered under
the Securities Act:
(1) Pursuant to certain subscription agreements with the Registrant,
on February 15, 1996, The Goldman Sachs Group, L.P. ("GS Group"), GS
Capital Partners II, L.P. ("GSCP II"), GS Capital Partners II Offshore,
L.P. ("GSCP Offshore"), and Goldman, Sachs & Co. Verwaltungs GmbH ("GSV")
were issued 30 shares, 292.80 shares, 116.40 shares, and 10.80 shares of
Common Stock, par value $.01 per share ("Common Stock"), respectively, in
each case for $2.67 per share in cash.
(2) In connection with a recapitalization of the Registrant, on March
19, 1996, (i) each share issued as described in the immediately preceding
paragraph was exchanged for an equivalent number of shares of Common Stock
divided by 3.75, (ii) GSCP II was issued 6,532,797.80 additional shares,
(iii) GSCP Offshore was issued 2,597,054.90 additional shares, (iv) GSV was
issued 240,963.90 additional shares, (v) Stone Street Fund 1995, L.P.
("1995 Stone") was issued 125,976.70 shares, (vi) Bridge Street Fund 1995,
L.P. ("1995 Bridge") was issued 141,760.90 shares, (vii) Stone Street Fund
1996, L.P. ("1996 Stone") was issued 215,380.80 shares and (viii) Bridge
Street Fund 1996, L.P. was issued 146,065.00 shares. The aggregate purchase
price of the shares issued as described in this paragraph was $100 million
in cash.
(3) In connection with the Acquisition and the Subscription Agreement,
(i) GSCP II was issued 16,648,611 additional shares of Common Stock on May
1, 1996 and 111,865.20 additional shares on May 2, 1996 and surrendered
6,532,875.88 shares, (ii) GSCP Offshore was issued 6,618,505.20 additional
shares on May 1, 1996 and 44,471 additional shares on May 2, 1996 and
surrendered 2,597,085.94 shares, (iii) GSV was issued 614,088.10 additional
shares on May 1, 1996 and 4,126.20 additional shares on May 2, 1996 and
surrendered 240,966.78 shares, (iv) 1995 Stone was issued 389,191.70
additional shares on May 1, 1996 and 2,910.80 additional shares on May 2,
1996 and surrendered 125,976.70 shares, (v) 1996
II-2
<PAGE> 188
Stone was issued 665,396.2 additional shares on May 1, 1996 and 4,976.50
additional shares on May 2, 1996 and surrendered 215,380.80 shares, (vi)
1995 Bridge was issued 437,955.40 additional shares on May 1, 1996 and
3,275.40 additional shares on May 2, 1996 and surrendered 141,760.90
shares, (vii) 1996 Bridge was issued 451,252.40 additional shares on May 1,
1996 and 3,374.90 additional shares on May 2, 1996 and surrendered
146,065.00 shares, (ix) Bain Capital Fund V-B, L.P. ("Bain 1") was issued
916,077.70 shares on May 1, 1996, (x) Bain Capital Fund V, L.P. ("Bain 2")
was issued 348,472.30 shares on May 1, 1996, (xi) BCIP Associates ("Bain
3") was issued 157,110 shares on May 1, 1996, (xii) BCIP Trust Associates,
L.P. was issued 78,340 shares on May 1, 1996, (xiii) Blackstone Capital
Partners II Merchant Banking Fund, L.P. ("Blackstone 1") was issued
3,593,528 shares on May 1, 1996, (xiv) Blackstone Offshore Capital Partners
II, L.P. ("Blackstone 2") was issued 1,050,133 shares on May 1, 1996, (xv)
Blackstone Family Investment Partnership L.P. was issued 356,339 shares on
May 1, 1996, (xvi) Kelso Investment Associates V, L.P. ("KIA") was issued
4,700,000 shares on May 1, 1996, (xvii) Kelso Equity Partners V, L.P.
("KEP") was issued 300,000 shares on May 1, 1996, (xviii) Citicorp North
America, Inc. ("Citicorp") was issued 300,000 shares on May 1, 1996 and
(xix) a director of the Registrant was issued 125,000 shares on May 1,
1996. The Registrant issued the shares described in this paragraph pursuant
to the Subscription Agreement for an aggregate of $37,925,000 in cash.
(4) Also in connection with the Acquisition and their respective
employment agreements, an executive officer of the Registrant and a former
officer of AMF (i) each were issued an aggregate of 150,000 shares on May
1, 1996 and May 2, 1996, in each case, for $1.5 million, comprised of
$500,000 in cash and a non-recourse promissory note for $1,000,000 and (ii)
were granted options to purchase 130,000 and 110,000 shares of Common
Stock, respectively, for $10 per share.
(5) In connection with the Acquisition, the Registrant entered into a
Warrant Agreement with an affiliate of GS Group. The Warrant Agreement
provides for the issuance of warrants (the "Warrants") to such affiliate to
purchase 870,000 shares of Common Stock at $.01 per share, subject to
adjustment, as payment of Goldman Sachs' fee for serving as financial
adviser to the prior owner of AMF in connection with the Acquisition.
(6) In connection with the Acquisition and his purchase of shares
pursuant to the Subscription Agreement, a director of the Registrant was
granted an option to purchase 100,000 shares of Common Stock at $10 per
share.
(7) In connection with his employment agreement, an executive officer
of the Registrant was issued 150,000 shares on May 28, 1996 for $500,000 in
cash and a non-recourse promissory note for $1,000,000.
(8) Pursuant to the "overcall" provisions of the Stockholders
Agreement and a stock subscription agreement, on October 9, 1996, (i) GSCP
II was issued 1,767,749.63 additional shares, (ii) GSCP Offshore was issued
702,752.93 additional shares, (iii) GSV was issued 65,203.88 additional
shares, (iv) 1995 Stone was issued 70,705.10 additional shares, (v) 1996
Stone was issued 41,355.57 additional shares, (vi) 1995 Bridge was issued
additional 47,950.14 shares, (vii) 1996 Bridge was issued 46,537.20
additional shares, (viii) Bain 1 was issued 96,366.45 additional shares,
(ix) Bain 2 was issued 37,007.32 additional shares, (x) Bain 3 was issued
24,833.22 additional shares, (xi) Blackstone 1 was issued 379,014.12
additional shares, (xii) Blackstone 2 was issued 110,758.90 additional
shares, (xiii) Blackstone Family Investment Partnership II, L.P. was issued
37,583.60 shares, (xiv) KIA was issued 495,715.22 additional shares, (xv)
KEP was issued 31,641.40 additional shares, (xvi) Citicorp was issued
31,641.40 additional shares and (xvii) a director of the Registrant was
issued 13,183.92 additional shares. The Registrant issued the shares
described in this paragraph for an aggregate of $40 million in cash.
II-3
<PAGE> 189
(9) Pursuant to the Stock Incentive Plan, options to purchase
1,418,000 shares have been granted to officers and other employees of AMF,
in each case exercisable for $10 per share. These options have not been
exercised.
The sales described in this Item 15 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. The foregoing
transactions did not involve a distribution or public offering. No underwriters
were engaged in connection with the foregoing issuance of securities and no
commissions or discounts were paid.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
1.1 Form of U.S. Underwriting Agreement.*
1.2 Form of International Underwriting Agreement.*
2.1 Stock Purchase Agreement, dated as of February 16, 1996, by and among AMF Group
Holdings Inc. and the owners of the Predecessor Company.(1)
2.2 Agreement, dated as of April 11, 1996, by and among AMF Group Holdings Inc. and the
owners of the Predecessor Company amending certain terms of the Stock Purchase
Agreement.(2)
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 By-Laws of the Company.*
4.1 Specimen of Common Stock Certificate*
4.2 Indenture, dated as of March 21, 1996, as supplemented, by and among AMF Group Inc.,
the parties listed on Exhibit C thereto, as guarantors, and IBJ Schroder Bank & Trust
Company with respect to the Senior Subordinated Notes.(3)
4.3 Indenture, dated as of March 21, 1996, as supplemented, by and among AMF Group Inc.,
the parties listed on Exhibit C thereto, as guarantors, and American Bank National
Association with respect to the Senior Subordinated Discount Notes.(4)
4.4 Form of Senior Subordinated Note.(5)
4.5 Form of Senior Subordinated Discount Note.(6)
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the legality of the Common
Stock.*
10.1 Registration Rights Agreement, dated as of March 21, 1996, by and among the Company,
the Guarantors and Goldman, Sachs & Co.(7)
10.2 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.(8)
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan.(9)
10.4 Stockholders Agreement, dated as of April 30, 1996, by and among the Company and the
Stockholders.(10)
10.5 Registration Rights Agreement, dated as of April 30, 1996, by and among the Company
and the Stockholders.(11)
10.6 Warrant Agreement, dated as of May 1, 1996, between the Company and The Goldman Sachs
Group, L.P.(12)
10.7 Employment Agreement, dated as of May 1, 1996, by and among the Company, AMF Bowling,
Inc. and Robert L. Morin.(13)
10.8 Employment Agreement, dated as of May 1, 1996, by and among the Company, the Company
and Douglas Stanard.(14)
</TABLE>
II-4
<PAGE> 190
<TABLE>
<C> <S>
10.9 Stock Option Agreement, dated as of May 1, 1996, between the Company and Charles M.
Diker.(15)
10.10 Employment Agreement, dated as of May 28, 1996, by and among the Company, AMF Group
Inc. and Stephen E. Hare.(16)
10.11 Asset Purchase Agreement, dated as of September 10, 1996, by and between AMF Bowling
Centers, Inc. and Charan Industries, Inc.(17)
10.12 Termination Agreement, dated as of February 28, 1997, by and among the Company, AMF
Bowling, Inc. and Robert L. Morin.(18)
10.13 Stock Subscription Agreement, dated as of October 9, 1996, by and among the Company
and the Purchasers (as defined therein).(19)
10.14 Agreement and Plan of Merger, dated as of January 17, 1997, by and among AMF Bowling
Centers, Inc., Noah Acquisition and American Recreation Centers, Inc.(20)
10.15 Waiver and Amendment No. 1, dated as of March 24, 1997, to Amended and Restated
Credit Agreement dated as of December 20, 1996.(21)
10.16 Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of June 30,
1997.(22)
10.17 Interest Rate Cap Agreement, dated July 2, 1997.(23)
11.1 Computation of earnings per share.*
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Todres & Sheiffer.
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).*
24.1 Powers of Attorney (included on Signature Page).
27.1 Financial Data Schedule.*
</TABLE>
- ---------------
* To be filed by Amendment
(1) Incorporated by reference to Exhibit 2.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(2) Incorporated by reference to Exhibit 2.2 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(3) Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(4) Incorporated by reference to Exhibit 4.2 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(5) Incorporated by reference to Exhibit 4.3 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(6) Incorporated by reference to Exhibit 4.4 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(7) Incorporated by reference to Exhibit 10.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(8) Incorporated by reference to Exhibit 10.13 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996.
(9) Incorporated by reference to Exhibit 10.3 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
II-5
<PAGE> 191
(10) Incorporated by reference to Exhibit 10.4 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(11) Incorporated by reference to Exhibit 10.5 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(12) Incorporated by reference to Exhibit 10.6 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(13) Incorporated by reference to Exhibit 10.7 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(14) Incorporated by reference to Exhibit 10.8 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(15) Incorporated by reference to Exhibit 10.9 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(16) Incorporated by reference to Exhibit 10.10 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(17) Incorporated by reference to Exhibit 1 to the Current report on Form 8-K of
AMF Group Inc., dated October 24, 1996 (File No. 001-12131).
(18) Incorporated by reference to Exhibit 10.12 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996 (File
No. 001-12131).
(19) Incorporated by reference to Exhibit 10.14 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996 (File
No. 001-12131).
(20) Incorporated by reference to Exhibit 1 to the Current report on Form 8-K of
AMF Group Inc., dated January 17, 1997 (File No. 001-12131).
(21) Incorporated by reference to Exhibit 10.16 to Post-Effective Amendment No.
2 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(22) Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q of AMF Group Inc. for the quarterly period ended June 30, 1997 (File
No. 001-12131).
(23) Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q of AMF Group Inc. for the quarterly period ended June 30, 1997 (File
No. 001-12131).
(b) Financial Statement Schedules
Schedule I -- Condensed Financial Information of AMF Bowling, Inc.
Schedule II -- AMF Bowling Group Valuation and Qualifying Accounts and Reserves
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
The Registrant will provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations
and registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(b) The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant as described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
II-6
<PAGE> 192
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 193
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 the 21st day of August, 1997.
AMF BOWLING, INC.
By: /s/ DOUGLAS J. STANARD
--------------------------------------
Name: Douglas J. Stanard
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of AMF Bowling, Inc., a
Delaware corporation, hereby constitutes and appoints Douglas J. Stanard and
Stephen E. Hare and each of them, severally, as his attorney-in-fact and agent,
with full power of substitution and resubstitution, in his name and on his
behalf, to sign in any and all capacities this Registration Statement and any
and all amendments (including post-effective amendments) and exhibits to this
Registration Statement, any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) under the Securities Act of 1933,
as amended, and any and all amendments (including posteffective amendments) and
exhibits thereto, and any and all applications and other documents relating
thereto, with the Securities and Exchange Commission, with full power and
authority to perform and do any and all acts and things whatsoever which any
such attorney or substitute may deem necessary or advisable to be performed or
done in connection with any or all of the above-described matters, as fully as
each of the undersigned could do if personally present and acting, hereby
ratifying and approving all acts of any such attorney or substitute.
II-8
<PAGE> 194
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 below.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ----------------------------- ------------------
<C> <S> <C>
* Chairman and Director August 21, 1997
- ------------------------------------------
Richard A. Friedman
* Director August 21, 1997
- ------------------------------------------
Terence M. O'Toole
* Director August 21, 1997
- ------------------------------------------
Peter M. Sacerdote
* President, Chief Executive August 21, 1997
- ------------------------------------------ Officer and Director
Douglas J. Stanard
* Executive Vice President, August 21, 1997
- ------------------------------------------ Chief Financial Officer,
Stephen E. Hare and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer) and Director
* Director August 21, 1997
- ------------------------------------------
Charles M. Diker
* Director August 21, 1997
- ------------------------------------------
Paul B. Edgerley
Director
- ------------------------------------------
Howard A. Lipson
* Director August 21, 1997
- ------------------------------------------
Thomas R. Wall IV
*By: /s/ DOUGLAS J. STANARD
- ------------------------------------------
Attorney-In-Fact
</TABLE>
II-9
<PAGE> 195
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE I
To the Board of Directors of
AMF Bowling, Inc.:
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements of AMF Bowling, Inc. (formerly named AMF
Holdings Inc.) and subsidiaries included in the Registration Statement on Form
S-1 (the "Registration Statement") 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. Schedule I filed as part of the
Registration Statement 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
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<PAGE> 196
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investment in subsidiary......................................................... $ 408,734
Other noncurrent assets.......................................................... 137
---------
Total assets................................................................ $ 408,871
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities........................................................ $ 56
---------
Stockholders' equity............................................................. 408,815
---------
Total liabilities and stockholders' equity.................................. $ 408,871
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
S-2
<PAGE> 197
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996 (NOTE 3)
(IN THOUSANDS)
<TABLE>
<S> <C>
Other income................................................................... $ 137
Provision for income taxes..................................................... 56
---------
Income before equity in loss of subsidiary..................................... 81
Equity in loss of subsidiary................................................... (19,565)
---------
Net loss....................................................................... $ (19,484)
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
S-3
<PAGE> 198
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, 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.................................................................... $ (19,484)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Interest income on notes receivable.................................... (137)
Equity in loss of subsidiary........................................... 19,565
Changes in current liabilities......................................... 56
---------
Net cash provided by operating activities.............................. --
Net cash used in investing activities:
Investment in subsidiary.................................................... (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> 199
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
NOTES TO AMF BOWLING, INC. FINANCIAL STATEMENTS
1. The Notes to AMF Bowling, Inc. ("AMF Bowling") financial statements should be
read in conjunction with the Notes to Consolidated Financial Statements of
AMF Bowling and its subsidiaries as of December 31, 1996 included in this
Registration Statement on Form S-1 (the "Registration Statement"). AMF Group
Holdings Inc. ("AMF Group Holdings") is a wholly owned subsidiary of AMF
Bowling. AMF Group Inc. ("AMF Group") is a wholly owned subsidiary of AMF
Group Holdings.
2. The Notes are jointly and severally guaranteed on a full and unconditional
basis by AMF Group Holdings and by the first and second-tier subsidiaries of
AMF Group, as discussed in "Note 19. Consolidating Financial Statements".
3. The results of operations for the period ended December 31, 1996, reflect the
results of AMF Bowling 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 and AMF Group:
The Bank Credit Agreement and AMF Group 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 AMF Group to AMF Group Holdings, and from
AMF Group Holdings to AMF Bowling. 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 AMF Group 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 the extent necessary to make
payments of approximately $0.15 million due in May 1997 under certain
noncompete agreements with the Prior Owners; iii) declare and pay cash
dividends for general administrative expenses not to exceed $0.25 million;
and iv) declare and pay cash dividends not to exceed $2.0 million for the
repurchase of Common Stock.
S-5
<PAGE> 200
SCHEDULE II
AMF BOWLING GROUP
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN C
---------------------------
COLUMN B ADDITIONS COLUMN E
---------- --------------------------- COLUMN D ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO ----------- BALANCE AT
- ----------------------------------- BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES -- DESCRIBE WRITE-OFFS PERIOD
- ----------------------------------- ---------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31,
1995.......................... $1,898 $2,118 $ (643) $3,373
1994.......................... $1,793 $ 886 $ (781) $1,898
Four months ended April 30,
1996.......................... $3,373 $ (17) $ (246) $3,110
INVENTORY - RESERVES
Year ended December 31,
1995.......................... $ 800 $ 954 $ (498) $1,256
1994.......................... $ 769 $1,080 $(1,049) $ 800
Four months ended April 30,
1996.......................... $1,256 $ 104 $ (553) $ 807
</TABLE>
S-6
<PAGE> 201
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of U.S. Underwriting Agreement.*
1.2 Form of International Underwriting Agreement.*
2.1 Stock Purchase Agreement, dated as of February 16, 1996, by and among
AMF Group Holdings Inc. and the owners of the Predecessor Company.(1)
2.2 Agreement, dated as of April 11, 1996, by and among AMF Group Holdings
Inc. and the owners of the Predecessor Company amending certain terms of
the Stock Purchase Agreement.(2)
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 By-Laws of the Company.*
4.1 Specimen of Common Stock Certificate*
4.2 Indenture, dated as of March 21, 1996, as supplemented, by and among AMF
Group Inc., the parties listed on Exhibit C thereto, as guarantors, and
IBJ Schroder Bank & Trust Company with respect to the Senior
Subordinated Notes.(3)
4.3 Indenture, dated as of March 21, 1996, as supplemented, by and among AMF
Group Inc., the parties listed on Exhibit C thereto, as guarantors, and
American Bank National Association with respect to the Senior
Subordinated Discount Notes.(4)
4.4 Form of Senior Subordinated Note.(5)
4.5 Form of Senior Subordinated Discount Note.(6)
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the legality of the
Common Stock.*
10.1 Registration Rights Agreement, dated as of March 21, 1996, by and among
the Company, the Guarantors and Goldman, Sachs & Co.(7)
10.2 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.(8)
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan.(9)
10.4 Stockholders Agreement, dated as of April 30, 1996, by and among the
Company and the Stockholders.(10)
10.5 Registration Rights Agreement, dated as of April 30, 1996, by and among
the Company and the Stockholders.(11)
10.6 Warrant Agreement, dated as of May 1, 1996, between the Company and The
Goldman Sachs Group, L.P.(12)
10.7 Employment Agreement, dated as of May 1, 1996, by and among the Company,
AMF Bowling, Inc. and Robert L. Morin.(13)
10.8 Employment Agreement, dated as of May 1, 1996, by and among the Company,
the Company and Douglas Stanard.(14)
10.9 Stock Option Agreement, dated as of May 1, 1996, between the Company and
Charles M. Diker.(15)
10.10 Employment Agreement, dated as of May 28, 1996, by and among the
Company, AMF Group Inc. and Stephen E. Hare.(16)
</TABLE>
<PAGE> 202
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.11 Asset Purchase Agreement, dated as of September 10, 1996, by and between
AMF Bowling Centers, Inc. and Charan Industries, Inc.(17)
10.12 Termination Agreement, dated as of February 28, 1997, by and among the
Company, AMF Bowling, Inc. and Robert L. Morin.(18)
10.13 Stock Subscription Agreement, dated as of October 9, 1996, by and among
the Company and the Purchasers (as defined therein).(19)
10.14 Agreement and Plan of Merger, dated as of January 17, 1997, by and among
AMF Bowling Centers, Inc., Noah Acquisition and American Recreation
Centers, Inc.(20)
10.15 Waiver and Amendment No. 1, dated as of March 24, 1997, to Amended and
Restated Credit Agreement dated as of December 20, 1996.(21)
10.16 Amendment No. 2 to the Amended and Restated Credit Agreement, dated as
of June 30, 1997.(22)
10.17 Interest Rate Cap Agreement, dated July 2, 1997.(23)
11.1 Computation of earnings per share.*
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Todres & Sheiffer.
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1).*
24.1 Powers of Attorney (included on Signature Page).
27.1 Financial Data Schedule.*
</TABLE>
- ---------------
* To be filed by Amendment
(1) Incorporated by reference to Exhibit 2.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(2) Incorporated by reference to Exhibit 2.2 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(3) Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(4) Incorporated by reference to Exhibit 4.2 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(5) Incorporated by reference to Exhibit 4.3 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(6) Incorporated by reference to Exhibit 4.4 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(7) Incorporated by reference to Exhibit 10.1 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(8) Incorporated by reference to Exhibit 10.13 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996.
(9) Incorporated by reference to Exhibit 10.3 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(10) Incorporated by reference to Exhibit 10.4 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
<PAGE> 203
(11) Incorporated by reference to Exhibit 10.5 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(12) Incorporated by reference to Exhibit 10.6 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(13) Incorporated by reference to Exhibit 10.7 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(14) Incorporated by reference to Exhibit 10.8 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(15) Incorporated by reference to Exhibit 10.9 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(16) Incorporated by reference to Exhibit 10.10 to the Registration Statement on
Form S-4 of AMF Group Inc. (File No. 333-4877).
(17) Incorporated by reference to Exhibit 1 to the Current report on Form 8-K of
AMF Group Inc., dated October 24, 1996 (File No. 001-12131).
(18) Incorporated by reference to Exhibit 10.12 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996 (File
No. 001-12131).
(19) Incorporated by reference to Exhibit 10.14 to the Annual Report on Form
10-K of AMF Group Inc. for the fiscal year ended December 31, 1996 (File
No. 001-12131).
(20) Incorporated by reference to Exhibit 1 to the Current report on Form 8-K of
AMF Group Inc., dated January 17, 1997 (File No. 001-12131).
(21) Incorporated by reference to Exhibit 10.16 to Post-Effective Amendment No.
2 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(22) Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q of AMF Group Inc. for the quarterly period ended June 30, 1997 (File
No. 001-12131).
(23) Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q of AMF Group Inc. for the quarterly period ended June 30, 1997 (File
No. 001-12131).
(b) Financial Statement Schedules
Schedule I -- Condensed Financial Information of AMF Bowling, Inc.
Schedule II -- AMF Bowling Group Valuation and Qualifying Accounts and Reserves
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF AMF BOWLING, INC.
<TABLE>
<CAPTION>
STATE OR
JURISDICTION
NAME OF SUBSIDIARY AND NAME UNDER WHICH SUBSIDIARY DOES BUSINESS OF INCORPORATION
- ----------------------------------------------------------------------- ------------------
<S> <C>
AMF Group Holdings Inc................................................. Delaware
AMF Group Inc.......................................................... Delaware
AMF Bowling Holdings, Inc.............................................. Delaware
AMF Bowling Centers Holdings Inc....................................... Delaware
AMF Bowling Products, Inc.............................................. Virginia
AMF Worldwide Bowling Centers Holdings Inc............................. Delaware
AMF Bowling Centers, Inc............................................... Virginia
Bush River Corporation................................................. South Carolina
AMF Beverage Company of Oregon, Inc.................................... Oregon
King Louie Lenexa, Inc................................................. Kansas
AMF Beverage Company of W. Va., Inc.................................... West Virginia
AMF Bowling Centers Switzerland Inc.................................... Delaware
AMF Bowling Centers (Aust.) International Inc. (Australia)............. Virginia
AMF Catering Services Pty. Ltd......................................... Australia
AMF Bowling Centers (Canada) International, Inc. (Canada).............. Virginia
AMF Bowling Centers (Hong Kong) International, Inc. (Hong Kong)........ Virginia
AMF Bowling Centers International, Inc. (Japan)........................ Virginia
AMF BCO-UK One, Inc.................................................... Virginia
AMF BCO-Two, Inc....................................................... Virginia
AMF BCO-France One, Inc................................................ Virginia
AMF BCO-France Two, Inc................................................ Virginia
AMF Bowling Centers Spain, Inc......................................... Delaware
AMF Bowling Mexico Holding, Inc........................................ Delaware
Boliches AMF, Inc...................................................... Virginia
AMF BCO-China, Inc..................................................... Virginia
AMF Bowling Centers China, Inc......................................... Virginia
AMF Bowling Centers (China) Company.................................... Hong Kong
AMF Garden Hotel Bowling Center Company................................ People's Republic
of China
AMF Bowling France SNC................................................. France
AMF Bowling de Paris SNC............................................... France
AMF Bowling de Lyon la Part Dieu SNC................................... France
American Recreation Centers, Inc....................................... California
Boliches AMF y Compania................................................ Mexico
Inmuebles Obispado, S.A................................................ Mexico
Inmuebles Minerva, S.A................................................. Mexico
Operadora Mexicana de Boliches, S.A.................................... Mexico
Promotora de Boliches, S.A. de C.V..................................... Mexico
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE OR
JURISDICTION
NAME OF SUBSIDIARY AND NAME UNDER WHICH SUBSIDIARY DOES BUSINESS OF INCORPORATION
- ----------------------------------------------------------------------- ------------------
<S> <C>
Boliches Mexicanos, S.A................................................ Mexico
AMF Bowling............................................................ United Kingdom
Worthing North Properties Limited...................................... United Kingdom
AMF Bowling Poland spolka z o.o........................................ Poland
AMF International BCO Holdings B.V..................................... Netherlands
AMF Bowling India Private Ltd.......................................... India
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in this Form S-1 Registration
Statement.
ARTHUR ANDERSEN LLP
Richmond, Virginia
August 20, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of AMF Bowling, Inc. of our report dated June
28, 1996, relating to the combined financial statements of AMF Bowling Group and
our report dated January 23, 1996, relating to the consolidated financial
statements of Fair Lanes, Inc. which appear in such Prospectus. We also consent
to the application of such report dated June 28, 1996 to the Financial Statement
Schedules for the four months ended April 30, 1996 and the two years ended
December 31, 1995, listed under Item 16(b) of this Registration Statement when
such schedules are read in conjunction with the financial statements referred to
in our report. We also consent to the references to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Norfolk, Virginia
August 20, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated December 5, 1996 with respect to
the financial statements of BCA & Affiliates included in this Form S-1
Registration Statement of AMF Holdings Inc.
/s/ TODRES & SHEIFFER
--------------------------------------
Todres & Sheiffer
August 21, 1997
