UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 001-13539
AMF BOWLING, INC.
(Exact Name of Registrant as specified in its charter)
--------------
<TABLE>
<S> <C>
DELAWARE 13-3873268
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
8100 AMF DRIVE
RICHMOND, VIRGINIA 23111
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(804) 730-4000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ---------------------------------------- ------------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ] .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 8, 1999, 59,597,550 shares of Registrant's common stock, par
value $.01, were outstanding. Of the total outstanding shares, 16,088,118
shares were held by non-affiliates at an aggregate market value of $69.4
million on March 8, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting
of Shareholders are incorporated by reference into Part III of this report.
Such Proxy Statement, except for the parts therein that have been specifically
incorporated herein by reference, shall not be deemed "filed" as part of this
report on Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
AMF Bowling, Inc. ("AMF Bowling") was incorporated in Delaware in 1996 by
an investor group led by GS Capital Partners II, L.P. (together with affiliated
investment funds, "GSCP"), an affiliate of Goldman, Sachs & Co. AMF Group
Holdings Inc. ("AMF Group Holdings"), a wholly-owned subsidiary of AMF Bowling,
acquired all of the outstanding stock of the separate U.S. and foreign
corporations that constituted substantially all of the Company's predecessor
(the "Predecessor Company") for a total purchase price of approximately $1.37
billion (the "Acquisition").
In November 1997, AMF Bowling issued 15,525,000 shares of its common stock
at $19.50 per share pursuant to an initial public offering (the "Initial Public
Offering"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Capital Resources" and "Note 12. Stockholders'
Equity" in the Notes to Consolidated Financial Statements.
AMF Bowling conducts all of its business through subsidiaries and has only
limited management service operations of its own. Unless the context indicates
otherwise, the terms the "Company" or "AMF" as used herein refer to AMF Bowling
(the "Registrant") and its subsidiaries.
AMF is the largest owner or operator of bowling centers in the United
States and worldwide. In addition, the Company is one of the world's leading
manufacturers of bowling center equipment, accounting for, management believes,
approximately 40% of the world's current installed base of such equipment. AMF
is principally engaged in two business segments: (i) the ownership or operation
of bowling centers ("Bowling Centers"), consisting, as of December 31, 1998, of
421 U.S. bowling centers and 124 international bowling centers including 15
centers operated by joint ventures with third parties described below and (ii)
the manufacture and sale of bowling equipment such as automatic pinspotters,
automatic scoring equipment, bowling pins, lanes, ball returns, and certain
spare and consumable products, and the resale of allied products such as bowling
balls, bags, shoes and certain other spare and consumable products ("Bowling
Products"). The Bowling Products business consists of two categories: (a) New
Center Packages ("NCPs") (all of the equipment necessary to outfit a new bowling
center or expand an existing bowling center); and (b) Modernization and Consumer
Products (which includes modernization equipment used to upgrade an existing
center, spare parts, supplies and consumable products essential to maintain
operations of an existing center). See "Note 17. Business Segments" in the Notes
to Consolidated Financial Statements.
Since May 1996, the Company has acquired 229 centers in the U.S. and, as
of February 28, 1999, owns or operates 421 U.S. centers. In addition, the
Company has acquired 33 centers in selected international markets and, as of
February 28, 1999, owns or operates 124 international centers, including 15
joint venture centers. In 1997, the Company entered into two joint ventures
which operate one bowling center in China and 14 bowling centers in Brazil and
Argentina, respectively. In addition, the Company's Michael Jordan Golf Company
currently operates two golf practice ranges. The Company has agreed to build or
acquire one additional golf practice range by the end of 1999. See "Item 6.
Selected Financial Data" and "Note 15. Acquisitions" in the Notes to
Consolidated Financial Statements.
BUSINESS SEGMENTS
BOWLING CENTERS
In the United States, AMF is the largest operator of bowling centers, with
421 bowling centers (as of February 28, 1999) in 40 states and Puerto Rico.
Outside the United States, AMF is also the largest operator of bowling centers,
with (as of February 28, 1999) 124 centers in ten countries: Australia (46),
the United Kingdom (37), Mexico (9), Japan (4), China (including Hong Kong)
(7), Argentina (2), Brazil (12), France (4), Spain (2), and Canada (1). Of the
U.S. centers, 207 were acquired as part of the Acquisition (17 of which were
subsequently closed), 229 were acquired thereafter and two were constructed. Of
the international centers, 78 were acquired as part of the Acquisition, 33 were
acquired thereafter, including 22 in the United Kingdom and ten in Australia,
one in Japan was closed, and one in Switzerland was sold. The international
centers include one in China, two in Argentina and 12 in Brazil, all of which
are operated as part of two joint ventures.
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 1998,
bowling, food and beverage and other revenue represented 58.8%, 27.2%, and
14.0% of total Bowling Centers revenue, respectively.
Bowling revenue, the largest portion of a bowling center's revenue and
profitability, is derived from league, tournament 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 bowling shoes.
<PAGE>
BOWLING PRODUCTS
The Company manufactures and sells bowling center equipment, including
automatic pinspotters, automatic scoring equipment, bowling pins, lanes, ball
returns, 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) NCPs and
(ii) Modernization and Consumer Products.
NCPs include the bowling equipment necessary to outfit new or expand
existing bowling centers, such as lanes, pinspotters, automatic scoring
equipment, bowler seating, ball returns, masking units and bumpers. NCP sales
generally follow the trends in the growth of bowling. Traditionally, as bowling
has been introduced and becomes popular in new markets, the economics of
constructing and operating bowling centers become attractive and drive demand
for NCPs. For at least the last 15 years, the majority of NCP sales have been
to international markets. Until recently, this international trend was fueled
by the growth of bowling in several countries, particularly China, South Korea
and Taiwan. Current economic difficulties in Asia Pacific and other regions
have adversely affected NCP shipments and backlog. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Sales of Modernization and Consumer Products to bowling center operators
who manage the installed base of bowling equipment have traditionally provided
a somewhat more stable base of recurring revenue. These products include
modernization equipment, both proprietary and standard spare parts for existing
equipment and other products including pins, shoes and supplies. 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 addition to bowling equipment and supplies, AMF manufactures and sells
billiards tables under the Renaissance and PlayMaster brand names.
BUSINESS STRATEGY
The Company is pursuing a three-part strategy to (i) consolidate the U.S.
bowling center industry, (ii) build a nationally-recognized AMF brand of
bowling centers and (iii) manufacture, market and distribute its bowling
products on a global basis.
With respect to Bowling Centers, the Company's primary focus is on
improving center operations and financial performance which is fundamental to
its consolidation strategy. In connection with this effort, the Company is
implementing programs to (i) increase customer satisfaction, (ii) improve
training of center managers and staff, (iii) more effectively market and
promote bowling to increase bowling center traffic, and (iv) improve league
bowler recruitment and retention. While the primary focus is on bowling
revenues, Bowling Centers has increased non-bowling revenue by expanding and
improving its food and beverage product offerings along with other programs
aimed at growing ancillary revenues. While the Company's intention is to
continue its efforts to consolidate the U.S. bowling center industry by
purchasing additional bowling centers, the Company's acquisition pace has
recently been curtailed so that management can focus on improving financial
performance of its current centers. In the near term, however, the Company
continues to evaluate acquisitions on a more limited scale.
The Company's Bowling Products business markets and distributes bowling
products in global markets. Under current market conditions, Bowling Products
is reducing the cost structure associated with the Bowling Products business.
The Company has enacted a comprehensive cost reduction program that addresses
both manufacturing costs and global selling, general and administrative costs.
Its product development efforts are focused on improving its current offerings
and introducing new products that will appeal to a worldwide base of center
operators. These initiatives are designed to expand the Company's presence in
the relatively more stable Modernization and Consumer Products markets.
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. While the geographic diversity of Bowling Centers operations has
historically helped to reduce this seasonality, the increase in U.S. centers
attributable to the Company's acquisition program has accentuated the
seasonality of financial performance of the Bowling Centers business.
Modernization and Consumer Products sales also display seasonality. The
U.S. market, which is the largest market for Modernization and Consumer
Products, is driven by the beginning of league play in the fall of each year.
While proprietors purchase Consumer Products throughout the year, they often
place larger orders during the summer in preparation for the fall start of
leagues. Summer is also often the peak period for modernization equipment.
Operators typically sign purchase orders for modernization equipment during the
first four months of the year after they receive winter league revenue
indications. Equipment is then shipped and installed during the summer when
leagues are generally less active. However, sales of some modernization
equipment such as automatic scoring and synthetic lanes are less predictable
and fluctuate from year to year because of the longer life cycle of these major
products.
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,
South Korea, Taiwan) which, in AMF's experience, last five years or more.
Current economic
<PAGE>
difficulties in Asia Pacific and other regions have resulted in the reduction
in the shipments and backlog for NCPs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality and
Market Development Cycles."
INDUSTRY AND COMPETITION
BOWLING CENTERS
Bowling is both a competitive sport and a recreational activity and faces
competition from numerous alternative activities. The success of AMF's bowling
operations is subject to consumers' continued interest in bowling, the
availability and cost of other sports, 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.
The Company's centers also compete with other bowling centers. The Company
competes primarily through the quality, appearance and location of its
facilities and through the range of amenities and service level offered. See
"Management's Discussion of Financial Condition and Results of Operations --
Bowling Centers."
As shown in the table below, the U.S. bowling center industry is highly
fragmented, and consists of two relatively large bowling center operators, AMF
(which had 421 U.S. centers as of December 31, 1998) and Brunswick Corporation
("Brunswick") (which had approximately 115 U.S. centers as of December 31,
1998), three medium-sized chains, which together account for 54 bowling
centers, and over 5,000 bowling centers owned by single-center and small-chain
operators, which typically own four or fewer centers. The top five operators
(including AMF) account for approximately 10.4% of the total number of U.S.
bowling centers.
U.S. BOWLING CENTER INDUSTRY (a)
<TABLE>
<CAPTION>
NUMBER OF
OPERATOR LOCATIONS % OF TOTAL
- ------------------------------------------------------------- ----------- -----------
<S> <C> <C>
AMF .............................................. 421 7.4%
Brunswick ........................................ 115 2.0
Bowl America ..................................... 23 0.4
Mark Voight ...................................... 16 0.3
Bowl New England ................................. 15 0.3
--- -----
Subtotal ........................................ 590 10.4
Single-center and small-chain operators .......... 5,087 89.6
----- -----
Total ........................................... 5,677 100.0%
===== =====
</TABLE>
- --------
(a) AMF estimate at December 31, 1998.
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
Australia, the United Kingdom and Mexico.
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 sought to offset the
decrease in overall lineage by increasing prices and creating additional
sources of income. Prior to 1998, AMF's U.S. lineage remained relatively stable
due to its ability to retain existing league bowlers and attract new league and
recreational bowlers. In 1998, however, the Company experienced a decline in
lineage which it was unable to offset with price increases. The Company is
focusing on improving the financial performance of its bowling centers. See
" -- Business Strategy." Internationally, although trends vary by country,
certain of the markets in which AMF operates experienced increasing competition
as they matured, resulting in declining lineage.
BOWLING PRODUCTS
AMF and Brunswick are the two largest manufacturers of bowling center
equipment, and are the only full-line manufacturers of bowling equipment and
supplies that compete on a global basis. The Company also competes with
smaller, often regionally focused companies in certain product lines.
Management estimates that AMF accounts for approximately 40% of the worldwide
installed base of bowling center equipment.
<PAGE>
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, import and export duties and
quotas, foreign customs and tariffs, value added taxes 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.
AMF has a history of operating in a number of international markets, in
some cases, for over 30 years. As in the case of other U.S.-based manufacturers
with export sales, local currency devaluation increases the cost of the
Company's bowling equipment in those markets. As a result, a strengthening U.S.
dollar exchange rate may adversely impact sales volume and profit margins
during such periods.
Economic difficulties in Asia Pacific and other regions contributed to a
reduction in the level of shipments for NCPs. The limited availability of
financing for customers to construct new bowling centers also contributed to
the reduction of orders. As of December 31, 1998, the NCP backlog was 1,078
which is a reduction of 37.5% compared to December 31, 1997. As of February 28,
1999, the NCP backlog was 865, which is a 19.8% reduction compared to December
31, 1998 and a 49.9% reduction compared to December 31, 1997.
NCP unit sales to China, Japan and other Asia Pacific markets represented
52.8% for the year ended December 31, 1998 compared to 72.7% for the year ended
December 31, 1997. NCP unit backlog related to China, Japan and other Asia
Pacific markets represented 70.6% of total NCP unit backlog at February 28,
1999 compared to 74.2% at December 31, 1998 and 70.4% at December 31, 1997.
Foreign currency exchange rates can also affect the translation of
operating results from international bowling centers. For the years ended
December 31, 1998 and 1997, revenue of international bowling centers
represented 15.6% and 14.6% of consolidated results, respectively. For the
years ended December 31, 1998 and 1997, EBITDA of international bowling centers
represented 24.3% and 16.0% of consolidated results, respectively.
In December 1996, China extended through June 1997 the concession allowing
foreign investment enterprises to import capital equipment without customs duty
or value added tax ("VAT"). From July 1997 to approximately June 1998, there
was sporadic enforcement of the new policy requiring full customs duty and VAT.
In addition, the nominal customs duty rate for bowling equipment was cut by
approximately 50% in 1997. Purchasers of bowling equipment used import
facilitators throughout this period to import at favorable duty and VAT rates.
In approximately July 1998, China significantly strengthened its import
restrictions and virtually eliminated the customs duty-free and VAT-free
importation of new and used capital goods. In the second half of 1998, the
customs authorities also began stringently enforcing a new policy passed
without advance notice in early 1998 forbidding the importation of used capital
equipment without permits. Permits for the importation of used bowling
equipment have proven quite difficult to obtain. During the second half of 1998
and the beginning of 1999, AMF customers used facilitators for importing AMF
equipment, but they have done so primarily as a vehicle for purchasing the
equipment in local currency and not as a means to reduce customs duties and
VAT.
Local Chinese companies are not subject to the same restrictions. In 1997,
a Chinese company, Shanghai Zhonglu Industrial Co., Ltd., began production of
locally-manufactured low-end bowling equipment and has experienced significant
acceptance by local customers. This equipment is not subject to the customs
duties that affect imported equipment.
<PAGE>
EMPLOYEES
BOWLING CENTERS
As of December 31, 1998, Bowling Centers had approximately 14,489 full-
and part-time employees worldwide. The Company believes that its relations with
its Bowling Centers employees are satisfactory.
<TABLE>
<CAPTION>
COUNTRY NUMBER OF EMPLOYEES (a)
- ------------------------------------------------ ------------------------
<S> <C>
United States ....................... 11,703
------
International:
Australia ........................... 1,255
United Kingdom ...................... 935
Mexico .............................. 240
China (including Hong Kong) ......... 143
France .............................. 97
Japan ............................... 61
Spain ............................... 33
Canada .............................. 22
------
Total International ................. 2,786
------
Total Worldwide ..................... 14,489
======
</TABLE>
- --------
(a) Numbers vary depending on the time of year.
BOWLING PRODUCTS
As of December 31, 1998, Bowling Products had approximately 986 full-time
employees worldwide. 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.
<TABLE>
<CAPTION>
SEGMENT NUMBER OF EMPLOYEES
- ---------------------------------- --------------------
<S> <C>
Manufacturing .................. 674
---
Sales:
Asia Pacific ................... 163
Europe ......................... 83
Americas ....................... 54
Australia ...................... 12
---
Total Sales .................... 312
---
Total Worldwide ................ 986
===
</TABLE>
CORPORATE
As of December 31, 1998, corporate had approximately 208 full-time
employees. The Company believes that its relations with its corporate employees
are satisfactory.
<PAGE>
ITEM 2. PROPERTIES
BOWLING CENTERS
As of December 31, 1998, AMF operated 421 bowling centers and related
facilities in the United States and 124 centers in ten other countries. A
regional list of these facilities is set forth below:
U.S. CENTERS*
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
REGION DISTRICTS LOCATIONS OWNED LEASED
- -------------------------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C>
Northeast ............ 5 67 41 26
Mid-Atlantic ......... 6 66 42 24
Southeast ............ 5 66 45 21
Southwest ............ 6 73 57 16
Midwest .............. 5 67 46 21
West ................. 6 80 33 47
- -- -- --
Total .............. 33 419 264 155
== === === ===
</TABLE>
- --------
* AMF operates two centers for an unrelated party. These centers are neither
owned nor leased by AMF and, therefore, are not included in the foregoing
table. In addition, the Company operates two golf practice ranges, one each
in Aurora, Illinois and Charlotte, North Carolina.
INTERNATIONAL CENTERS*
<TABLE>
<CAPTION>
NUMBER OF
COUNTRY LOCATIONS OWNED LEASED
- ---------------------------------------- ----------- ------- -------
<S> <C> <C> <C>
Australia .......................... 46 27 19
United Kingdom ..................... 37 14 23
Mexico ............................. 9 5 4
China, including Hong Kong ......... 6 0 6
Japan .............................. 4 0 4
France ............................. 4 1 3
Spain .............................. 2 0 2
Canada ............................. 1 1 0
-- -- --
Total ............................ 109 48 61
=== == ==
</TABLE>
- --------
* The table excludes one bowling center operated by the Company's Hong Leong
joint venture and 14 bowling centers operated by its Playcenter joint
venture. See "Business -- General Development of Business."
AMF's leases are subject to periodic renewal. Forty-two of the U.S.
centers have leases which expire during the next three years. Twenty-six of
such leases have renewal options. Sixteen of the international centers have
leases which expire during the next three years. Nine of such leases have
renewal options. The Company generally has not had difficulty renewing leases.
<PAGE>
BOWLING PRODUCTS
As of December 31, 1998, AMF owned or leased facilities at five locations
in the United States, 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 29 international locations which are used as offices or warehouses.
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, 360,000 Owned
other capital equipment, consumer products, used pinspotters
54,000 Leased
Lowville, NY ......... Pins and wood lanes 121,000 Owned
50,000 Owned
Golden, CO ........... Lane maintenance equipment (Century) (1) 50,000 Leased
Bland, MO ............ Billiards tables (AMF Billiards and Games) 37,210 Owned
33,373 Leased
32,000 Owned
24,000 Owned
16,000 Owned
11,000 Leased
Miami, FL ............ Office 200 Leased
</TABLE>
- --------
(1) Relocated to Richmond, Virginia facility February 28, 1999.
<PAGE>
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
Toronto, Canada ......................... Office 400 Leased
Warehouse 2,100 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 8,888 Leased
Service Center 1,634 Leased
Seoul, South 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>
ITEM 3. LEGAL PROCEEDINGS
In June 1998, Harbin Hai Heng Bowling Entertainment Co. Ltd. ("Hai Heng")
filed an action against AMF Bowling Products, Inc. ("AMF Bowling Products"), an
indirect subsidiary of AMF Bowling, in the Harbin Intermediate People's Court
in Heilongjing, China. Hai Heng sought to recover $3 to $4 million in damages
relating to 38 NCPs purchased from AMF. Hai Heng asserted that the poor quality
of the 38 NCPs entitled Hai Heng to recover the purchase price and damages for
lost profits and the cost of storing the NCPs.
On November 6, 1998, the court awarded Hai Heng approximately $3.5
million. AMF Bowling Products appealed the award to the High People's Court of
Heilongjing Province (the "People's Court"). Prior to completion of the appeal
review, the President of the People's Court on February 11, 1999 issued a
judgment in favor of Hai Heng for approximately $2.8 million and ordered Hai
Heng to return 24 NCPs to AMF.
The Company believes Hai Heng's claim is a warranty issue and that Hai
Heng is not entitled to recover the purchase price, lost profits or the cost of
storage. The Company continues to believe that Hai Heng's claim is
substantially without merit, and furthermore, based on the advice of local
legal counsel, the Company believes that the judicial process leading up to the
trial court award and the judgment issued by the People's Court involved
significant procedural and
<PAGE>
other legal defects. Hai Heng has begun to exercise its rights to enforce the
collection of the judgment. The Company intends to continue to pursue all
available defenses. Among other things, AMF Bowling Products intends to seek an
appeal to the Supreme People's Court in Beijing (the "Supreme Court") and a stay
of the execution of the judgment. The granting of an appeal is discretionary
with the Supreme Court.
Due to a number of uncertainties inherent in the litigation process in
these jurisdictions, the Company can give no assurance on the likelihood of
success of its appeal efforts or the ultimate outcome of the Hai Heng
litigation. However, management does not believe that the outcome of the action
will have a material adverse impact on the financial position of the Company.
In addition, the Company currently and from time to time is subject to
claims and actions arising in the ordinary course of its business, including
employment discrimination claims, workers' compensation claims and personal
injury claims. In some actions, plaintiffs request punitive or other damages
that may not be covered by insurance. In management's opinion, the claims and
actions in which the Company is involved will not have a material adverse
impact on its financial position or results of operations. However, it is not
possible to assure the outcome of such claims and actions.
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.
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 impact 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 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."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF AMF BOWLING
The following table sets forth information concerning the individuals who
are executive officers of AMF Bowling:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- ----- --------------------------------------------------------
<S> <C> <C>
Stephen E. Hare 45 Director; Acting President and Chief Executive Officer,
Executive Vice President; Chief Financial
Officer and Treasurer
John P. Watkins 43 Executive Vice President; President,
U.S. Bowling Centers
Michael P. Bardaro 48 Senior Vice President; Corporate
Controller and Assistant
Secretary
</TABLE>
STEPHEN E. HARE was named Acting President and Chief Executive Officer of
AMF Bowling on November 2, 1998 following the resignation of Douglas J.
Stanard. He is also the Executive Vice President, Chief Financial Officer and
Treasurer of AMF Bowling. Mr. Hare joined AMF Bowling in 1996. Mr. Hare served
as Senior Vice President and Chief Financial Officer of James River Corporation
of Virginia from 1992 to 1996.
<PAGE>
JOHN P. WATKINS has been the Executive Vice President of AMF Bowling and
President, U.S. Bowling Centers since September 1998. Prior to joining AMF, Mr.
Watkins was President of Source Company from 1996 to 1998. Mr. Watkins was
Senior Vice President and Chief Operating Officer of Food Lion, Inc. from 1991
to 1996.
MICHAEL P. BARDARO is Senior Vice President, Corporate Controller and
Assistant Secretary of AMF Bowling. Mr. Bardaro was Controller at General
Medical Manufacturing Co. in Richmond, Virginia between 1989 and 1994.
<PAGE>
PART II
ITEM 5. MARKET FOR AMF BOWLING COMMON STOCK AND SECURITIES AND RELATED
STOCKHOLDER MATTERS
COMMON STOCK
AMF Bowling's Common Stock (the "Common Stock"), $.01 par value, is traded
on the New York Stock Exchange under the symbol "PIN." Prior to the Initial
Public Offering on November 7, 1997, there was no market for the Common Stock.
See "Item 1. Business -- General Development of Business," "Note 12.
Stockholders' Equity" in the Notes to Consolidated Financial Statements, and the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders.
As of March 8, 1999, there were 5,200 holders of record of the Common
Stock. The reported high and low sales prices for the Common Stock for the
period from November 7, 1997 through December 31, 1997 and for each of the four
quarters of 1998 were as follows:
<TABLE>
<CAPTION>
1997 1998
----------------------- -----------------------
QUARTER ENDED HIGH LOW HIGH LOW
- ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
March 31 n/a n/a $27 3/8 $20 1/2
June 30 n/a n/a 31 22 5/8
September 30 n/a n/a 28 3/8 7 1/2
December 31(a) $25 1/8 $21 1/2 9 3 7/8
</TABLE>
- --------
(a) In 1997, for the period from November 7, 1997 through December 31, 1997.
AMF Bowling has not paid any cash dividends on the Common Stock and
intends to retain earnings, if any, for use in the Company's business.
The Company conducts all of its business through subsidiaries. AMF
Bowling's operations are limited to the provision of certain management
services related to its holding company operations. AMF Bowling's subsidiaries
are separate and distinct legal entities and have no obligation, contingent or
otherwise, to make funds available to AMF Bowling for any purpose, whether in
the form of loans, dividends or otherwise. Moreover, AMF Bowling Worldwide,
Inc. ("Bowling Worldwide"), a wholly-owned subsidiary of AMF Group Holdings, is
prohibited under both the Credit Agreement, as defined below, and the
indentures governing its senior subordinated notes ("Subsidiary Senior
Subordinated Notes") and senior subordinated discount notes ("Subsidiary Senior
Subordinated Discount Notes" and, collectively with the Subsidiary Senior
Subordinated Notes, the "Subsidiary Notes") from upstreaming funds by
dividends, loans or otherwise, to pay cash dividends.
ZERO COUPON CONVERTIBLE DEBENTURES
On May 12, 1998, the Company issued in a private placement $1,125,000,000
aggregate principal amount at maturity of its Zero Coupon Convertible
Debentures due 2018 (the "Debentures") to Goldman, Sachs & Co., Cowen &
Company, Morgan Stanley & Co., Incorporated and Schroder & Co., Inc. (the
"Initial Purchasers"). The Debentures were offered at an offering price of
25.257% plus accrued original issue discount equal to the excess of the
principal amount at maturity of the Debentures over their issue price from May
12, 1998. The Debentures were subsequently resold in transactions exempt from
registration to "qualified institutional buyers" pursuant to Rule 144A under
the Securities Act of 1933 (the "Securities Act"). The Debentures are
convertible at any time prior to maturity, unless previously redeemed or
otherwise purchased by the Company, into shares of Common Stock at a conversion
rate of 8.6734 shares per $1,000 principal amount at maturity. The net proceeds
received by the Company from the Debenture offering totaled approximately
$273.6 million.
The Debentures are traded in the Private Offerings, Resales and Trading
Through Automated Linkages Market. See "Note 9. Long-Term Debt" in the Notes to
the Consolidated Financial Statements. As of March 8, 1999, there were 22
record holders of the Debentures. The reported high and low sales prices for the
Debentures from May 12, 1998 through June 30, 1998, and for the third and
fourth quarters of 1998 were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ---------------- ------------ ------------
<S> <C> <C>
June 30 (a) $ 266.25 $ 235.00
September 30 258.75 97.50
December 31 136.30 68.80
</TABLE>
- --------
(a) For the period from May 12, 1998 through June 30, 1998.
<PAGE>
ITEM 6. 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 years ended December 31, 1998 and December 31, 1997, 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 and 1994. 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 operations from its inception
through December 31, 1996, 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 of AMF Bowling.
The data should be read in conjunction with AMF Bowling's Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that appear elsewhere herein.
The comparability of the selected financial data is affected by the
Company's bowling center acquisition program. In 1996, the Company acquired 57
bowling centers from unrelated sellers. The combined purchase price was $108.0
million. In 1997, the Company acquired 122 bowling centers from a number of
unrelated sellers. The combined purchase price was $232.7 million (including
amounts paid in 1998 for certain bowling centers included in the 1997 total).
In 1998, the Company acquired 83 bowling centers from a number of unrelated
sellers. The combined purchase price was $156.8 million. While the Company's
intention is to continue its efforts to consolidate the U.S. bowling center
industry by purchasing additional bowling centers, the Company recently has
curtailed the pace of its acquisitions so that management can focus on
improving financial performance of its current centers. In the near term,
however, the Company continues to evaluate acquisitions on a more limited
scale. See "Item 1. Business -- General Development of Business" and "Note 14.
Supplemental Disclosures to the Consolidated Statements of Cash Flows" and
"Note 15. Acquisitions" in the Notes to Consolidated Financial Statements.
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 Generally Accepted Accounting Principles
("GAAP").
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOUR
---------------------------------------------------------------------------------- MONTHS
(DOLLARS IN MILLIONS) ENDED
AMF BOWLING, APRIL 30,
INC. -----------
---------------------------------------------------------- PREDECESSOR
PREDECESSOR COMPANY PRO FORMA COMPANY
----------------------- ------------
1994 1995 1996 (a) 1996 (b) 1997 1998 1996 (c)
------------ ---------- ------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue ................... $ 517.8 564.9 $ 548.9 $ 384.8 $ 713.7 $ 738.1 $ 164.9
-------- ------ -------- -------- -------- --------- -------
Cost of goods sold .................. 196.0 184.1 173.6 130.5 212.6 202.2 43.1
Bowling center operating expenses ... 115.2 166.5 178.8 123.7 251.2 335.7 80.2
Selling, general and
administrative expenses ............ 57.1 50.8 51.0 35.1 64.5 70.0 35.5
Depreciation and amortization ....... 24.8 39.1 73.5 49.4 102.5 120.6 15.1
-------- ------ -------- -------- -------- --------- -------
Operating income (loss) ............. 124.7 124.4 72.0 46.1 82.9 9.6 (9.0)
Interest expense, gross ............. 7.4 15.7 106.2 78.0 118.4 114.7 4.5
Other income (expense), net ......... (1.5) 0.2 3.8 3.9 (8.1) (5.3) (0.1)
--------- ------ -------- -------- --------- ---------- -------
Income (loss) before income taxes ... 115.8 108.9 (30.4) (28.0) (43.6) (110.4) (13.6)
Provision (benefit) for income taxes 16.5 12.1 (8.9) (8.5) (12.8) 7.3 (1.7)
--------- ------ --------- --------- --------- ---------- -------
Net income (loss) before equity
in loss of joint ventures and
extraordinary items ............... 99.3 96.8 (21.5) (19.5) (30.8) (117.7) (11.9)
Equity in loss of joint ventures,
net of tax ...................... -- -- -- -- (1.4) (8.2) --
--------- ------- --------- --------- --------- ---------- -------
Net income (loss) before
extraordinary items ................ 99.3 96.8 (21.5) (19.5) (32.2) (125.9) (11.9)
Extraordinary items, net of tax ..... -- -- -- -- (23.4) -- --
--------- ------- --------- --------- --------- ---------- -------
Net income (loss) ................... $ 99.3 $ 96.8 $ (21.5) $ (19.5) $ (55.6) $ (125.9) $ (11.9)
========= ======= ========= ========= ========= ========== ========
Basic and diluted net loss per
share before extraordinary items.... $ (0.55) $ (0.49) $ (0.71) $ (2.11)
Basic and diluted per share
effect of extraordinary items ...... -- -- (0.52) --
--------- --------- --------- ----------
Basic and diluted net loss per share $ (0.55) $ (0.49) $ (1.23) $ (2.11)
========= ========= ========= ==========
SELECTED DATA:
EBITDA .............................. $ 149.5 $ 163.5 $ 145.5 $ 95.5 $ 185.4 $ 130.2 $ 6.1
EBITDA margin ....................... 28.9% 28.9% 26.5% 24.8% 26.0% 17.6% 3.7%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------
(DOLLARS IN MILLIONS)
PREDECESSOR COMPANY AMF BOWLING, INC.
------------------------ --------------------------------------
1994 1995 1996 1997 1998
BALANCE SHEET DATA: ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Working capital (d) .......... $ 16.9 $ 29.2 $ 7.8 $ 43.9 $ 70.6
Goodwill ..................... -- -- 771.1 772.3 772.7
Total assets ................. 410.2 400.4 1,594.0 1,832.1 1,980.0
Total debt ................... 186.1 167.4 1,091.3 1,060.6 1,344.0
Stockholders' equity ......... 132.4 161.5 408.8 654.0 529.6
Total capital ................ 318.5 328.9 1,500.1 1,714.6 1,873.6
</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.
(b) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes the results of operations of the acquired
business from May 1, 1996 through December 31, 1996.
(c) Represents results of operations from January 1, 1996 through April 30,
1996.
(d) Predecessor Company amounts reflect elimination of affiliate receivables
and payables.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in this report 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." 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 report
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. Many factors
could cause the Company's actual results to differ materially from those in the
forward-looking statements, including: (i) the Company's ability to integrate
acquired operations into its business, (ii) the Company's ability to execute
its long-term strategies, including to identify, finance and execute further
acquisitions, (iii) the development and growth of new bowling markets and the
Company's ability to identify those markets and to generate sales of products
in those markets, (iv) 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, (v) the Company's ability to hire and retain
experienced senior management, (vi) 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, (vii) the popularity of
bowling as an activity in the United States and abroad, (viii) the continuation
or worsening of economic difficulties currently being experienced by certain
countries in Asia Pacific and other regions, (ix) fluctuations in currency
exchange rates which affect translation of operating results and (x) increased
competitive pressure from current competitors and future market entrants. In
addition, actual results may differ materially from forward-looking statements
in this report as a result of factors generally applicable to companies in
similar businesses, including, among other things: (a) a decline in general
economic conditions and (b) an adverse judgment in pending or future
litigation. 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 elsewhere in this report. The Company 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.
BACKGROUND
This discussion should be read in conjunction with the information
contained under "Selected Financial Data" and in AMF Bowling's Consolidated
Financial Statements included elsewhere herein.
Management believes that comparison of the results of operations for the
years ended December 31, 1997, on a historical basis, and 1996, on a pro forma
basis, is appropriate. 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 in 1996 and from the increased
interest expense due to the debt incurred in connection with the Acquisition.
See "Note 3. Pro Forma Results of Operations" in the Notes to Consolidated
Financial Statements.
To facilitate a meaningful comparison, in addition to discussing the
consolidated results of the Company's operations, 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 operations of Bowling Centers, Bowling Products and the
consolidated group of companies are set forth below. The business segment
results presented below are before intersegment eliminations since the
Company's management believes that this provides 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 1998, bowling, food
and beverage and other revenue represented 58.8%, 27.2% and 14.0% of total
Bowling Centers revenue, respectively.
<PAGE>
The results shown below reflect both U.S. and international Bowling Centers
operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
(DOLLARS IN MILLIONS)
PRO FORMA
1996 (a) 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
BOWLING CENTERS (before intersegment eliminations):
Operating revenue ..................................... $ 307.3 $ 429.1 $ 540.9
------- -------- --------
Cost of goods sold .................................... 27.5 39.9 54.5
Bowling center operating expenses ..................... 177.2 252.5 338.5
Selling, general and administrative expenses .......... 7.0 6.3 5.8
Depreciation and amortization ......................... 56.2 82.8 97.4
------- -------- --------
Operating income ...................................... $ 39.4 $ 47.6 $ 44.7
======= ======== ========
SELECTED DATA:
EBITDA ................................................ $ 95.6 $ 130.4 $ 142.1
EBITDA margin ......................................... 31.1% 30.4% 26.3%
Number of centers, end of period ...................... 341 470 545
Number of lanes, end of period ........................ 11,782 16,315 18,858
</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. 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.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.
Bowling Centers operating revenue increased $111.8 million, or 26.1%. An
increase of $133.6 million was attributable to new centers, of which $113.0
million was from U.S. centers, and $20.6 million was from international
centers. U.S. constant centers (centers in operation for at least one full
fiscal year) revenue decreased $9.2 million, or 3.7%, primarily as a result of
lower lineage, integrating newly acquired centers, nationally branded chain
development activities, record-setting hot weather which adversely affected
customer visits in the summer months and the later start of league play in
1998. International constant centers revenue decreased $7.8 million, or 8.4%,
primarily due to unfavorable currency translation of results. On a constant
exchange rate basis, international operating revenue would have increased $1.7
million, or 1.8%. A decrease in operating revenue of $4.8 million was primarily
attributable to the closing of nine U.S. centers in 1998.
Cost of goods sold increased $14.6 million, or 36.6%, primarily as a
result of the net increase in the number of centers.
Operating expenses increased $86.0 million, or 34.1%, of which
approximately $86.2 million was attributable to new centers, including $74.9
million attributable to U.S. centers and $11.3 million attributable to
international centers. As a percentage of its revenue, Bowling Centers
operating expenses were 58.8% for the year ended December 31, 1997 compared to
62.6% for the year ended December 31, 1998, primarily as a result of nationally
branded chain development activities.
A decrease of $0.5 million, or 7.9%, in selling, general and
administrative expenses was primarily attributable to expense management.
An increase of $11.7 million, or 9.0%, in EBITDA was attributable to new
centers. EBITDA margin in 1998 was 26.3% compared to 30.4% in 1997 primarily as
a result of nationally branded chain development activities.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
Bowling Centers operating revenue increased $121.8 million, or 39.6%. An
increase of $125.8 million was attributable to new centers, of which $116.5
million was from U.S. centers, and $9.3 million was from international centers.
An increase of $1.1 million, or 0.4%, in constant centers revenue was primarily
a result of an increase in revenue in the Northeastern United States, 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 for the year ended December 31, 1997 compared to the same
period in 1996 was net of $1.0 million additional revenue in 1996 due to leap
year, a $3.0 million decrease in revenue from the Japanese centers in 1997,
which was primarily caused by recent poor economic conditions in Japan, and a
decrease of $1.0 million in operating revenue in the third quarter of 1997
compared to the same period in 1996 which resulted from pricing specials used
in the U.S. and international centers to overcome lower lineage which resulted
from the hot, dry weather in these regions. Excluding these special items,
constant center revenue would have
<PAGE>
increased $6.1 million, or 2.2%, in the year ended December 31, 1997 compared
to the same period in 1996. A decrease in operating revenue of $5.1 million was
primarily attributable to the closing of a total of eight U.S. centers in May
1996, and February, May and December 1997.
Cost of goods sold increased $12.4 million, or 45.1%, primarily as a
result of the net increase in the number of centers.
Operating expenses increased $75.3 million, or 42.5%, of which
approximately $74.6 million was attributable to new centers, including $69.6
million attributable to U.S. centers and $5.0 million attributable to
international centers. As a percentage of its revenue, Bowling Centers
operating expenses were 57.7% for the year ended December 31, 1996, on a pro
forma basis, versus 58.8% for the year ended December 31, 1997.
A decrease of $0.7 million, or 10.0%, in selling, general and
administrative expenses was attributable to cost controls implemented in
international centers in response to lower lineage discussed above and savings
associated with closed centers, partially offset by additional expenses due to
new centers.
An increase of $34.8 million, or 36.4%, in EBITDA was attributable to new
centers. EBITDA margin in 1997 was 30.4% compared to 31.1% in 1996, on a pro
forma basis.
BOWLING PRODUCTS
The results shown below reflect Bowling Products operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
(DOLLARS IN MILLIONS)
PRO FORMA
1996 (a) 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
BOWLING PRODUCTS (before intersegment eliminations):
Operating revenue ..................................... $ 252.1 $ 299.3 $ 212.5
Cost of goods sold .................................... 153.3 185.7 159.6
------- -------- --------
Gross profit .......................................... 98.8 113.6 52.9
Selling, general and administrative expenses .......... 36.2 42.8 42.2
Depreciation and amortization ......................... 18.5 19.8 22.5
------- -------- --------
Operating income (loss) ............................... $ 44.1 $ 51.0 $ (11.8)
======= ======== =========
SELECTED DATA:
Gross profit margin ................................... 39.2% 38.0% 24.9%
EBITDA ................................................ $ 62.6 $ 70.8 $ 10.7
EBITDA margin ......................................... 24.8% 23.7% 5.0%
New Center Packages sold .............................. 3,029 4,576 2,466
New Center Packages backlog end of period (b) ......... 1,426 1,725 1,078
</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. 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.
(b) NCP orders included in the backlog are routinely cancelled by customers for
a number of reasons, including the unavailability of financing.
Accordingly, the Company has experienced, and, especially as a result of
economic difficulties experienced by certain markets, expects to continue
to experience, the cancellation of a portion of such orders. The backlog
as of February 28, 1999 was 865 units, which represents a reduction of
19.8% compared to a backlog of 1,078 units as of December 31, 1998. See "
-- Backlog; Recent NCP Sales."
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.
Bowling Products operating revenue decreased $86.8 million, or 29.0%, due to a
decrease of $74.6 million, or 45.2%, in NCP revenue, and a decrease of $12.2
million, or 9.1%, in Modernization and Consumer Products revenue. Operating
results have been adversely impacted by current economic difficulties in Asia
Pacific and other regions which have reduced the level of shipments for NCPs
and Modernization and Consumer Products sales. The strong U.S. dollar also
unfavorably affected pricing and financial statement translation. During the
year ended December 31, 1998, Bowling Products recorded NCP shipments of 2,466
units compared to shipments of 4,576 units for the year ended December 31,
1997. The decrease in Modernization and Consumer Products revenue is primarily
due to decreased sales to Asia Pacific customers because of adverse economic
conditions
<PAGE>
and decreased Modernization sales to U.S. customers due to delayed product
introductions in 1998. Additionally, a new low-cost competitor has gained new
market share in China. See " -- Seasonality and Market Development Cycles" and
"Business -- International Operations."
Gross profit decreased by $60.7 million, or 53.4%. Gross profit margin was
38.0% in 1997 and 24.9% in 1998. Gross profit and gross profit margin declines
were primarily a result of lower levels of NCP shipments, the strong U.S.
dollar and competitive pricing as discussed above, lower margins on the 1998
Modernization and Consumer Products product mix and unabsorbed fixed overhead
resulting from low production levels. See " -- International Operations."
Bowling Products selling, general and administrative expenses decreased by
$0.6 million, or 1.4%, primarily as a result of a profit improvement plan.
The Bowling Products organization was streamlined as part of a cost reduction
program in order to further reduce manufacturing, selling, general and
administrative expenses to offset the impact of lower sales volume on EBITDA.
Savings from the cost reduction programs were partially offset by the increased
investment in the first half of 1998 in certain international markets with
long-term potential.
Bowling Products EBITDA decreased $60.1 million, or 84.9%, and EBITDA
margin decreased from 23.7% in 1997, to 5.0% in 1998 as a result of the lower
revenue and gross profit partially offset by decreased selling, general and
administrative expenses discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
Bowling Products operating revenue increased $47.2 million, or 18.7%, primarily
due to an increase of $44.7 million, or 37.1%, in NCP revenue, and an increase
of $1.5 million, or 1.1%, in Modernization and Consumer Products revenue. The
increase in NCP revenue was due to an overall increase in NCP sales of 1,547
units which occurred primarily in Asia Pacific, Europe, South America and the
Middle East. See " -- Seasonality and Market Development Cycles."
Gross profit increased by $14.8 million, or 15.0%. Gross profit margin was
39.2% in 1996, on a pro forma basis, and 38.0% in 1997. Competitive pricing
pressure in certain markets and higher cost of sales, both experienced in the
third and fourth quarter, and unfavorable exchange rates, experienced in
certain markets in the fourth quarter, resulted in lower year-to-date margins
in 1997. See " -- International Operations."
Bowling Products selling, general and administrative expenses increased by
$6.6 million, or 18.2%, primarily as a result of a $4.3 million increase
attributable to payroll and facilities expenses related to opening and staffing
certain of the Company's international sales and service offices, and an
increase of $3.7 million attributable to advertising and promotion expenses.
These increases were offset by a $1.4 million decrease in payroll, facilities
and related expenses at U.S. locations.
EBITDA increased $8.2 million, or 13.1%, and EBITDA margin decreased from
24.8% in 1996, to 23.7% in 1997. The margin decline was impacted by the pricing
pressure and unfavorable exchange rates discussed above.
CONSOLIDATED ITEMS
DEPRECIATION AND AMORTIZATION
For the year ended December 31, 1998, depreciation and amortization
increased by $18.1 million, or 17.7%, over the same period in 1997, primarily
attributable to depreciation of property and equipment of centers acquired
during 1998 and incremental depreciation expense as a result of capital
expenditures.
For the year ended December 31, 1997, depreciation and amortization
increased by $29.0 million, or 39.5%, over the same period in 1996, primarily
due to depreciation of property and equipment of centers acquired since May
1996 and incremental depreciation expense as a result of capital expenditures.
INTEREST EXPENSE
Gross interest expense decreased by $3.7 million, or 3.1%, in the year
ended December 31, 1998 compared with the same period in 1997. Interest savings
associated with the reduction of bank debt and the redemption of a portion of
the Subsidiary Senior Subordinated Discount Notes with proceeds of AMF
Bowling's Initial Public Offering were partially offset by interest incurred on
increased levels of bank debt as a result of center acquisitions and the
issuance of the Debentures by AMF Bowling on May 12, 1998. See " -- Liquidity"
and " -- Capital Resources" for further discussion of the bank debt and the
Debentures. Cash interest paid by the Company for the year ended December 1998
totaled $76.5 million, while non-cash bond interest amortization totaled $36.7
million.
Gross interest expense increased by $12.2 million, or 11.5%, in the year
ended December 31, 1997 compared with the same period in 1996, primarily due to
interest paid on increased levels of bank debt as a result of center
acquisitions. See " -- Liquidity" and " -- Capital Resources." Cash interest
paid by the Company for the year ended December 1997 totaled $83.2 million,
while non-cash bond interest amortization totaled $33.6 million.
NET LOSS
Net loss in the year ended December 31, 1998 was $125.9 million compared
to a net loss of $55.6 million in the year ended December 31, 1997. The
increase in net loss of $70.3 million was primarily a result of decreases in
Bowling Products revenue and EBITDA discussed above and the increase in
depreciation expense. Additionally, the Company recorded $8.2 million in equity
in loss of joint ventures in the year ended December 31, 1998 compared to a
loss of $1.4 million in the
<PAGE>
year ended December 31, 1997. The Company accounts for its investments in its
Hong Leong joint venture and Playcenter joint venture by the equity method. See
"Note 16. Joint Ventures" in the Notes to Consolidated Financial Statements.
The Company recorded a tax provision of $7.3 million in the year ended December
31, 1998 compared to a tax benefit of $12.8 million in the year ended December
31, 1997.
Net loss increased $34.1 million, or 158.6%, for the year ended December
31, 1997 compared with the same period in 1996. Increases of $39.9 million in
EBITDA discussed above on a segment basis and income tax benefit of $3.9
million were offset by increases of $29.0 million in depreciation and
amortization expense, $12.2 million in interest expense, $23.4 million of
extraordinary charges recorded in the fourth quarter as described below, $11.9
million in other expenses and $1.4 million of equity in loss of joint ventures.
The Company incurred after-tax extraordinary charges totaling $23.4
million in the fourth quarter of 1997 as a result of entering into its Third
Amended and Restated Credit Agreement (the "Credit Agreement") with its
lenders, the premium paid to redeem a portion of the Subsidiary Senior
Subordinated Discount Notes with the proceeds of the Initial Public Offering
and the write-off of the portion of deferred financing costs attributable to
the Subsidiary Senior Subordinated Discount Notes redeemed. See "Note 9.
Long-Term Debt" in the Notes to Consolidated Financial Statements and "Selected
Quarterly Data" included elsewhere herein.
Of the $11.9 million increase in other expenses, $3.6 million is
attributable to the write down of seven U.S. centers closed in 1997 and three
U.S. centers which the Company closed in 1998, $1.6 million is attributable to
an increase in losses recorded on sales of property and equipment and $3.0
million represents an increase in losses on foreign exchange transactions. In
addition to the increases in these expenses, interest income decreased $3.7
million. Proceeds from the issuance of Subsidiary Notes which were used to
partially fund the Acquisition were received by the Company in March 1996, and
earned interest income until May 1, 1996, the date of Acquisition.
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.
In connection with the Acquisition, the two principal subsidiaries of the
Company 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. federal income
taxes. These elections permitted both of the affiliated companies to revalue
their assets to fair market value and treat any amortizable goodwill as tax
deductible over 15 years.
As of December 31, 1998, the Company had net operating losses of
approximately $194.5 million which will carry over to future years to offset
U.S. taxes. Net operating losses will begin to expire in the year 2011. The
Company has recorded a valuation reserve as of December 31, 1998 for $45.6
million related to net operating losses and foreign tax credits. Management
believes that there is a risk that certain of these net operating losses and
foreign tax credit carryforwards may expire unused and, accordingly, has
established a valuation allowance against them.
LIQUIDITY
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The Company's primary source of liquidity is cash provided by operations
and credit facilities as described below. Working capital on December 31, 1998
was $70.6 million compared to $43.9 million as of December 31, 1997, an
increase of $26.7 million. This increase in working capital was primarily
attributable to an increase of $8.2 million in inventory balances primarily due
to new product introductions and the increase in the number of bowling centers
as a result of acquisitions, an increase in $8.4 million in accounts receivable
primarily as a result of an increased amount of sales closer to the end of the
year in 1998 compared to the same period in 1997 and the timing of payments by
customers on new product sales, a decrease of $10.7 million in accounts payable
and accrued expenses and a net increase of $7.2 million in other current assets
and liabilities. The increase in working capital was offset by a decrease in
working capital caused by a decrease of $2.8 million in cash and an increase of
$5.0 million in the current portion of long-term debt.
Net cash flows provided by operating activities were $1.5 million for the
year ended December 31, 1998 compared to net cash flows provided of $47.7
million for the year ended December 31, 1997, a decrease of $46.2 million. A
decrease of $70.3 million was attributable to the net loss of $125.9 million
recorded in the year ended December 31, 1998 compared to a net loss of $55.6
million in the same period of 1997; a decrease of $27.3 million was caused by
decreased levels of accounts payable and accrued expenses; a decrease of $6.9
million was attributable to the increase in other assets primarily due to
increases in deposits and other assets. These decreases were offset by an
increase of $20.0 million attributable to a decrease in the level of deferred
taxes; an increase of $16.0 million attributable to lower levels of accounts
receivable, an increase of $18.2 million in depreciation and amortization, loss
on the sale of property and equipment, net of $4.5 million attributable to the
closure of nine bowling centers and the sale of the Company's Swiss bowling
center in 1998, an increase of $9.9 million attributable to lower inventory
balances resulting from lower Bowling Products sales volumes in 1998; and
increased bond amortization of $3.1 million as lower levels of bond
amortization resulting from the redemption of a portion of the Subsidiary
Senior Subordinated Discount Notes in connection with the Initial Public
Offering were
<PAGE>
offset by bond amortization attributable to the Debentures; a net increase of
$3.2 million attributable to changes in other operating activities and an
increase in the equity in loss of joint ventures of $6.8 million. Extraordinary
items associated with the redemption of debt in 1997 with proceeds from the
Initial Public Offering totaled $23.4 million.
Net cash flows used in investing activities were $242.0 million for the
year ended December 31, 1998 compared to net cash flows used of $288.6 million
for the year ended December 31, 1997, a decrease of $46.6 million. Bowling
Center acquisition spending decreased by $41.2 million and purchases of
property and equipment increased by $9.9 million in the year ended December 31,
1998, compared to the same period in 1997. In the year ended December 31, 1998,
the Company purchased 83 centers compared to 122 centers in the same period in
1997. Investments in and advances to joint ventures totaled $5.6 million
in the year ended December 31, 1998 compared to investments in or advances to
joint ventures of $21.3 million in the same period of 1997. Other cash flows
provided from investing activities decreased $0.4 million. See "Note 15.
Acquisitions" in the Notes to Consolidated Financial Statements and " --
Capital Expenditures" for additional discussion of these investing activities.
Net cash provided by financing activities was $234.9 million for the year
ended December 31, 1998 compared to the net cash provided of $235.7 million for
the year ended December 31, 1997, a decrease of $0.8 million. Proceeds from
long-term debt increased $297.1 million primarily as a result of the issuance
of the Debentures on May 12, 1998 for gross proceeds of approximately $284.1
million less deferred financing costs of $11.1 million. In addition, borrowings
under the Credit Agreement increased $24.1 million primarily as a result of
funding center acquisitions and working capital. Payments on long-term debt
were lower by $2.7 million in 1998 compared to 1997. In the year ended December
31, 1997, $279.1 million was provided from net proceeds of the Initial Public
Offering, $36.6 million was provided from additional capital contributions used
in part to fund acquisitions and for other corporate purposes. In the year
ended December 31, 1997, $14.6 million was used to pay the premium associated
with the redemption of a portion of the Subsidiary Senior Subordinated Discount
Notes with proceeds from the Initial Public Offering 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 9. Long-Term Debt," "Note 13.
Employee Benefit Plans," and "Note 15. Acquisitions" in the Notes to Condensed
Consolidated Financial Statements and " -- Capital Resources."
As a result of the aforementioned, cash decreased by $2.8 million for the
year ended December 31, 1998 compared to a decrease of $7.8 million for the
year ended December 31, 1997.
The net proceeds of the sale of the Debentures discussed above were
approximately $273.0 million, of which $249.6 million was used to repay senior
bank indebtedness under the Credit Agreement and $23.4 million was used for
general corporate purposes. As of December 31, 1998, $163.0 million was
outstanding under the Bank Facility (as defined below) and $192.0 million was
available for borrowing thereunder primarily for working capital purposes.
Effective September 30, 1998, the Company renegotiated certain financial
covenants under the Credit Agreement, pursuant to Amendment No. 1 and Waiver to
the Credit Agreement (the "Amendment and Waiver"), with respect to the third
and fourth quarters of 1998 and the year ended December 31, 1999. The Amendment
and Waiver also substantially restricts the Company's ability to borrow to
finance acquisitions and places limits on the Company's ability to make capital
expenditures, investments and acquisitions. The financial covenants existing
prior to the Amendment and Waiver will be reinstated commencing the beginning
of 2000. Based on current performance, the Company will not meet the
requirements of the financial covenants that will be reinstated.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following discussion compares AMF Bowling's results for the year ended
December 31, 1997 with the period ended December 31, 1996, on an historical
basis.
Net cash flows provided by operating activities were $73.8 million for the
period ended December 31, 1996 compared with net cash provided of $47.7 million
for the year ended December 31, 1997, a decrease of $26.1 million. Net cash was
provided from an increase of $53.1 million in depreciation and amortization as
a result of incremental depreciation recorded on bowling center acquisitions
and capital expenditures of the Company, an increase of $8.8 million which
resulted from amortization of the discount related to the bonds used to
partially fund the Acquisition and an increase of $4.0 million attributable to
loss recorded on the sale of property and equipment. In 1997, net cash of $1.4
million was provided by the equity in loss of joint ventures and $23.4 million
was provided by the after-tax extraordinary charges discussed above. Net cash
used resulted from an increase of $36.1 million in net loss, an increase of
$19.6 million in the change in accounts receivable primarily resulting from the
increased levels of NCP sales compared with the same period in 1996, an
increase of $18.8 million in the change in inventory, primarily reflecting the
increased backlog of NCP orders to be shipped after December 31, 1997, an
increase in the change in other assets of $8.9 million, an increase in the
change in net deferred income tax assets of $6.2 million and a decrease of
$27.2 million in the change in accounts payable and other liabilities.
Net cash flows used in investing activities were $1,467.1 million for the
period ended December 31, 1996 compared with net cash flows used of $288.6
million for the year ended December 31, 1997. During the period ended December
31, 1996, cash flows used for acquisitions of operating units, net of cash
acquired, including the Acquisition, totaled $1,450.9 million, capital spending
was $16.9 million and other investing cash flows provided were $0.7 million.
During
<PAGE>
the year ended December 31, 1997, acquisitions of bowling centers totaled
$214.8 million, capital spending was $56.7 million, investments in and advances
to the Company's Hong Leong joint venture and Playcenter joint venture totaled
$21.3 million, and other cash flows provided by investing activities were $4.2
million attributable to proceeds from the sale of property. See "Note 15.
Acquisitions" in the "Notes to Consolidated Financial Statements" and " --
Capital Expenditures."
Net cash provided by financing activities was $1,438.3 million for the
period ended December 31, 1996 compared with net cash provided of $235.7
million for the year ended December 31, 1997. 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 (as defined below), 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 million
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. During 1997, funds were used primarily for the
payment of long-term debt totaling $304.6 million, $14.6 million was
attributable to the premium paid in connection with the redemption of a portion
of the Subsidiary Senior Subordinated Discount Notes discussed above, $0.7
million was attributable to payments on non-compete obligations 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. Funds were provided in 1997
by borrowings of long-term debt totaling $240.4 million, $36.6 million of
additional capital contributions used in part to fund acquisitions and for
other corporate purposes and $279.1 million of net proceeds from the Initial
Public Offering. See "Note 12. Stockholders' Equity" in the Notes to
Consolidated Financial Statements.
As a result of the aforementioned, cash increased by $43.6 million for the
period ended December 31, 1996 compared to a decrease of $7.8 million for the
year ended December 31, 1997.
CAPITAL RESOURCES
The Company's total indebtedness is primarily a result of the financing of
the Acquisition and the Company's bowling center acquisition program. At
December 31, 1998, the Company's debt structure consisted of $583.9 million of
senior debt, $250.0 million of Subsidiary Senior Subordinated Notes, $213.2
million of Subsidiary Senior Subordinated Discount Notes, and $296.9 million of
Debentures. The Company's senior debt consisted of $418.9 million of term
loans, $163.0 million of revolving credit advances under the Bank Facility (as
defined below) and $2.0 million represented by one mortgage note. At December
31, 1998, the Company was capitalized with equity of $529.6 million.
In September 1997, certain stockholders of AMF Bowling purchased an
aggregate of 1,780,000 shares of Common Stock for $20.00 per share. The
aggregate $35.6 million capital contribution was used to fund acquisitions.
On November 3, 1997, the Company entered into the Third Amended and
Restated Credit Agreement, under which the previously existing acquisition
facility (the "Acquisition Facility") and a portion of the previously existing
term facilities were converted into a non-amortizing revolving bank facility
(the "Bank Facility"), the aggregate size of which was increased to $355.0
million, and a portion of such revolving credit indebtedness was repaid with
proceeds of the Initial Public Offering. In 1998, the Company entered into the
Amendment and Waiver that amended or waived certain financial covenants of the
Credit Agreement and imposed certain restrictions on the Company's operations
through December 31, 1999. In addition, for 1999, borrowings to finance
acquisitions are substantially restricted and limits have been placed on the
Company's ability to make capital expenditures, investments and acquisitions.
The Company believes that it will be in compliance with the amended covenants
during 1999, but any downturn in the current performance of the Company could
result in non-compliance with these financial covenants. The financial covenants
existing prior to the amendment will be reinstated in the year beginning 2000.
However, based on current performance the Company will not meet the requirements
of the financial covenants that will be reinstated. Failure by the Company to
comply with its credit agreement covenants could result in an event of default
which, if not cured or waived, will have a material adverse effect on the
Company. Actual borrowing under the Credit Agreement must meet certain financial
tests under the Credit Agreement and the indentures governing the Subsidiary
Notes (the "Subsidiary Indentures"). The Company's leverage may adversely affect
its ability to meet these tests, and, as a result, to obtain such financing. For
the year ended December 31, 1998, additional borrowings under the Bank Facility
totaled $264.5 million, of which $249.6 million was repaid from proceeds from
the sale of the Debentures, and were used to fund the acquisitions of centers
and increases in working capital and for general corporate purposes. As of
December 31, 1998, $163.0 million was outstanding and $192.0 million was
available for borrowing under the Bank Facility.
In November 1997, AMF Bowling issued 15,525,000 shares of Common Stock at
$19.50 per share pursuant to the Initial Public Offering. The net proceeds of
the Initial Public Offering were approximately $279.1 million, after deducting
the underwriting discount and expenses payable by AMF Bowling, and were used to
repay $150.8 million of indebtedness under the Credit Agreement and to redeem
$118.9 million in principal of the Subsidiary Senior Subordinated Discount
Notes. See "Note 9. Long-Term Debt" and "Note 12. Stockholders' Equity" in the
Notes to Consolidated Financial Statements.
On May 12, 1998, AMF Bowling completed the private placement of the
Debentures for net proceeds of $273.0 million.
<PAGE>
The Company funded its cash needs through the Bank Facility as well as
cash flow from operations and existing cash balances. A substantial portion of
the Company's available cash will be applied to service outstanding
indebtedness. For the year ended December 31, 1998, the Company incurred cash
interest expense of $76.5 million, representing 58.8% of EBITDA of $130.2
million for the year. For the year ended December 31, 1997, the Company
incurred cash interest expense of $83.0 million, representing 44.8% of EBITDA
of $185.4 million for the year. From the inception date of January 12, 1996
through 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.
The Subsidiary 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 "Note 9. Long-Term Debt" in the Notes to Consolidated
Financial Statements.
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, including the conditions of the debt and equity markets.
CAPITAL EXPENDITURES
For the year ended December 31, 1998, the Company's capital expenditures
were $66.6 million compared to $56.7 million for the year ended December 31,
1997, an increase of $9.9 million. Bowling Centers capital expenditures
increased $12.1 million, which was attributable to the higher number of the
Company's centers as a result of the Company's acquisition program; Bowling
Products capital expenditures decreased $0.2 million as a result of decreased
expenditures on certain new products; expenditures on Company-wide information
systems decreased $3.5 million and other expenditures increased $1.5 million.
For the year ended December 31, 1997, the Company's capital expenditures
were $56.7 million (excluding acquisitions) compared with $23.8 million for the
year ended December 31, 1996, on a pro forma basis (capital expenditures of the
acquired business from January 1, 1996 through December 31, 1996). The increase
was primarily due to an ongoing modernization program, information system
expenditures and construction of the Chelsea Piers center in New York City.
The Company conducts an ongoing modernization and maintenance program that
results in its centers having upgraded physical plants and generally attractive
appearances.
Bowling Products has relatively modest capital investment requirements,
and the Company follows 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 new product development has received investment priority and has
focused on projects with projected payback periods of one to three years.
While the Company's intention is to continue its efforts to consolidate
the U.S. bowling center industry by purchasing additional bowling centers, the
Company recently curtailed its pace of acquisitions so that management can
focus on improving financial performance of its current centers. In the near
term, however, the Company continues to evaluate acquisitions on a more limited
scale. As of February 28, 1999, the Company has no formal commitments to build
or acquire centers. The Company has committed to build one Michael Jordan Golf
Center in 1999. See "Business -- Business Strategy."
The Company funded its capital expenditures from cash generated by
operations and, with respect to the construction and acquisition of new
centers, internally-generated cash, the Bank Facility, and issuances of common
equity. See "Note 15. Acquisitions" in the Notes to Consolidated Financial
Statements, " -- Liquidity" and " -- Capital Resources."
SEASONALITY AND MARKET DEVELOPMENT CYCLES
The U.S. bowling center operations are seasonal. The following table sets
forth AMF's U.S. constant centers revenue for the last four quarters:
<TABLE>
<CAPTION>
QUARTER ENDING (DOLLARS IN MILLIONS)
------------------------------------------------------------------------------
MARCH 31, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998 DECEMBER 31, 1998
---------------- --------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Total Revenue ......... $ 78.0 $ 48.6 $ 46.7 $ 68.6
% of Total ............ 32.2% 20.1% 19.3% 28.4%
</TABLE>
On a consolidated basis, revenue and EBITDA of the Company's businesses
are less seasonal and cyclical. The geographic diversity of the Company's
bowling centers, which operate across different regions of the U.S. and across
ten other countries, has historically decreased the seasonality of 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. In Australia, where AMF has its
largest number of international
<PAGE>
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. The increase in U.S. centers attributable to the Company's
acquisition program, however, has accentuated the seasonality of financial
performance of the Bowling Centers business. See "Note 17. Business Segments"
in the Notes to Consolidated Financial Statements.
Modernization and Consumer Products sales display seasonality. The U.S.
market, which is the largest market for Modernization and Consumer Products, is
driven by the beginning of league play in the fall of each year. While
proprietors purchase Consumer Products throughout the year, they often place
larger orders during the summer in preparation for the fall start of leagues.
Summer is also often the peak period for modernization equipment. Operators
typically sign purchase orders for modernization equipment during the first
four months of the year after they receive winter league revenue indications.
Equipment is then shipped and installed during the summer when leagues are
generally less active. However, sales of some modernization equipment such as
automatic scoring and synthetic lanes are less predictable and fluctuate from
year to year because of the longer life cycle 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.,
South Korea and Taiwan) which, in the Company's experience, last five years or
more. Current economic difficulties in Asia Pacific and other regions have
resulted in the reduction in shipments and backlog for NCPs. See " -- Backlog;
Recent NCP Sales."
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, import and export duties and
quotas, foreign customs and tariffs, value added taxes 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.
AMF has a history of operating in a number of international markets, in
some cases, for over 30 years. As in the case of other U.S.-based manufacturers
with export sales, local currency devaluation increases the cost of the
Company's bowling equipment in those markets. As a result, a strengthening U.S.
dollar exchange rate may adversely impact sales volume and profit margins
during such periods.
Economic difficulties in Asia Pacific and other regions contributed to a
reduction in the level of shipments for NCPs. The limited availability of
financing for customers to construct new bowling centers also contributed to
the reduction of orders. As of December 31, 1998, the NCP backlog was 1,078
which is a reduction of 37.5% compared to December 31, 1997. As of February 28,
1999, the NCP backlog was 865, which is a 19.8% reduction compared to December
31, 1998 and a 49.9% reduction compared to December 31, 1997.
NCP unit sales to China, Japan and other Asia Pacific markets represented
52.8% for the year ended December 31, 1998 compared to 72.7% for the year ended
December 31, 1997. NCP unit backlog related to China, Japan and other Asia
Pacific markets represented 70.6% of total NCP unit backlog at February 28,
1999 compared to 74.2% at December 31, 1998 and 70.4% at December 31, 1997.
Foreign currency exchange rates can also affect the translation of
operating results from international bowling centers. For the years ended
December 31, 1998 and 1997, revenue of international bowling centers
represented 15.6% and 14.6% of consolidated results, respectively. For the
years ended December 31, 1998 and 1997, EBITDA of international bowling centers
represented 24.3% and 16.0% of consolidated results, respectively.
In December 1996, China extended through June 1997 the concession allowing
foreign investment enterprises to import capital equipment without customs duty
or VAT. From July 1997 to approximately June 1998, there was sporadic
enforcement of the new policy requiring full customs duty and VAT. In addition,
the nominal customs duty rate for bowling equipment was cut by approximately
50% in 1997. Purchasers of bowling equipment used import facilitators
throughout this period to import at favorable duty and VAT rates.
In approximately July 1998, China significantly strengthened its import
restrictions and virtually eliminated the customs duty-free and VAT-free
importation of new and used capital goods. In the second half of 1998, the
customs authorities also began stringently enforcing a new policy passed
without advance notice in early 1998 forbidding the importation of used capital
equipment without permits. Permits for the importation of used bowling
equipment have proven quite difficult to obtain. During the second half of 1998
and the beginning of 1999, AMF customers used facilitators for importing AMF
equipment, but they have done so primarily as a vehicle for purchasing the
equipment in local currency and not as a means to reduce customs duties and
VAT.
<PAGE>
Local Chinese companies are not subject to the same restrictions. In 1997,
a Chinese company, Shanghai Zhonglu Industrial Co., Ltd., began production of
locally-manufactured low-end bowling equipment and has experienced significant
acceptance by local customers. This equipment is not subject to the customs
duties that affect imported equipment.
BACKLOG; RECENT NCP SALES
The total backlog of NCPs was 1,078 units as of December 31, 1998,
representing a reduction of 37.5% compared to 1,725 units as of December 31,
1997. As of February 28,1999, the NCP backlog was 865, which is a 19.8%
reduction compared to December 31, 1998 and a 49.9% reduction compared to
December 31, 1997. It is expected that NCP backlog will continue for the
foreseeable future at levels which are substantially lower than those
experienced in 1997. NCP orders included in the backlog are routinely cancelled
by customers for a number of reasons including unavailability of financing.
Accordingly, the Company has experienced, and, in large part as a result of
economic difficulties experienced by certain markets, particularly in the Asia
Pacific region, expects to continue to experience, the cancellation of a portion
of its NCP orders. NCP sales for the year ended December 31, 1998 totaled $90.5
million, a 45.2% decrease from the same period in 1997. NCP shipments were 2,466
units for the year ended December 31, 1998, representing a reduction of 46.1%
compared to shipments of 4,576 units for the year ended December 31, 1997, which
was largely attributable to the recent economic difficulties in the Asia Pacific
region. See " -- Seasonality and Market Development Cycles" and " --
International Operations."
NCP sales for the year ended December 31, 1997 totaled $165.1 million, a
37.1% increase over the same period in 1996. Management believes that the
significant increase was attributable to the market development and sales
programs implemented in mid-1996 which were designed to increase NCP sales
activity in certain markets around the world.
IMPACT OF INFLATION
There was no significant impact on the Company's operations as a result of
inflation during the years ended December 31, 1998 and 1997 and for the period
ended December 31, 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the fiscal year ended December 31, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." Adoption of these standards did not have a
material impact on the Company's financial position or results of operations.
See "Note 2. Significant Accounting Policies -- Comprehensive Income" in the
Notes to Consolidated Financial Statements regarding adoption of SFAS No. 130.
Effective for the fiscal year ended December 31, 1999, the Company is
required to adopt Statement of Position 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Effective for the
quarter ended March 31, 2000, the Company is required to adopt SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The Company
does not expect that adoption of these standards will have a material impact on
the Company's financial position or results of operations.
YEAR 2000 ISSUE
YEAR 2000
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the Year 2000 as "00" and may assume that the year is 1900 rather
than 2000. This could cause many computer applications to fail completely or to
create erroneous results unless corrective measures are taken. The Company
recognizes the need to ensure its operations will not be adversely impacted by
Year 2000 software failures, and is in the process of preparing for the Year
2000.
The Company has evaluated its Year 2000 risk in three separate categories:
information technology systems ("IT"), non-IT systems ("Non-IT") and material
third party relationships ("Third Party Risk"). The Company has developed a
plan in which the risks in each of these categories are being reviewed and
addressed by the appropriate level of management as follows:
IT. The Company has a number of financial, retail and operational systems
worldwide. The retail systems in many of its bowling centers are already Year
2000 compliant. The Company is in the process of installing corrective measures
for those bowling centers that are not compliant and expects this effort to be
complete by the third quarter of 1999. The Company is installing new financial
and operational systems at several locations. In connection with this effort,
system programs have been designed so that the Year 2000 will be recognized as
a valid date and will not affect the processing of date-sensitive information.
The financial and operational systems have already been installed for U.S.
Bowling Centers and at the corporate level. The effort will be complete for
Bowling Products locations before year-end. Several locations have existing
systems that are being upgraded for Year 2000 compliance, which will be
completed by the end of the second quarter of 1999. For the years ended
December 31, 1997 and 1998, the Company spent approximately $12.6 million and
$4.1 million, respectively,
<PAGE>
on systems that are designed to be Year 2000 compliant. The Company expects to
spend an additional $7.6 million to complete the installation. These costs
include normal system software and equipment upgrades or replacements which the
Company anticipated incurring and budgeted in the normal course of business,
separate from the Year 2000 issue.
NON-IT. Non-IT systems involve embedded technologies, such as
microcontrollers or microprocessors. Examples of Non-IT systems include
telephones, security systems and computer-controlled manufacturing equipment.
The Company sells automatic scoring that is computerized and has developed a
software program at a cost to the Company of approximately $50,000 that will
address the Year 2000 issue in its automatic scoring. This software will be
made available to customers with service contracts at no cost and will be sold
to customers without service contracts. To date, management believes the
Company's Non-IT risks are minimal. For the most part, costs of addressing
Non-IT risks are included in normal upgrade and replacement expenditures which
were planned outside of the Company's Year 2000 review.
THIRD PARTY RISK. The Company's review of its Third Party Risk includes
detailed reviews of critical relationships with vendors and certain business
partners. The Company is monitoring and assessing the progress of its vendors
and certain business partners to determine whether they will be able to
successfully interact with the Company in the Year 2000. The Company has
contacted and received oral or written responses from at least half of its
critical vendors, all of which are in various stages of addressing the Year
2000 issue, and is currently awaiting response from the remainder of its
critical vendors.
If the steps taken by the Company and its vendors and certain business
partners to be Year 2000 compliant are not successful, the Company could
experience various operational difficulties. These could include, among other
things, processing transactions to an incorrect accounting period, difficulties
in posting general ledger interfaces and lapse of certain services by vendors
to the Bowling Centers operations. If the Company's plan to install new systems
which effectively address the Year 2000 issue is not successfully or timely
implemented, the Company may need to devote more resources to the process and
additional costs may be incurred. The Company believes that the Year 2000 issue
is being appropriately addressed through the implementation of these new
systems and software development and by its critical vendors and certain
business partners and does not expect the Year 2000 issue to have a material
adverse impact on the financial position, results of operations or cash flows
of the Company in future periods. However, should the remaining review of the
Company's Year 2000 risks reveal potentially non-compliant computer systems or
material third parties, contingency plans will be developed at that time.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMF BOWLING, INC. AND SUBSIDIARIES
o Report of Independent Public Accountants .................................................. 26
o Consolidated Balance Sheets as of December 31, 1998 and 1997 .............................. 27
o Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997,
and the Period Ended December 31, 1996 .................................................. 28
o Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997,
and the Period Ended December 31, 1996 .................................................. 29
o Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998
and 1997, and the Period Ended December 31, 1996 ........................................ 30
o Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 1998
and 1997, and the Period Ended December 31, 1996 ........................................ 31
o Notes to Consolidated Financial Statements ................................................ 32
AMF BOWLING, INC. AND SUBSIDIARIES
o Selected Quarterly Data (unaudited) ....................................................... 64
AMF BOWLING GROUP (PREDECESSOR COMPANY)
o Report of Independent Accountants ......................................................... 65
o Combined Balance Sheet as of April 30, 1996 ............................................... 66
o Combined Statement of Operations for the Four Months Ended April 30, 1996 ................. 67
o Combined Statement of Cash Flows for the Four Months Ended April 30, 1996 ................. 68
o Combined Statement of Changes in Stockholders' Equity for the Four Months
Ended April 30, 1996.................................................................... 69
o Notes to Combined Financial Statements .................................................... 70
FINANCIAL STATEMENT SCHEDULES
AMF BOWLING, INC.
o Report of Independent Public Accountants on Schedule I .................................... 99
o Schedule I -- Condensed Financial Information of AMF Bowling, Inc ......................... 100
AMF BOWLING GROUP (PREDECESSOR COMPANY)
o Schedule II -- Valuation and Qualifying Accounts and Reserves ............................. 104
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
AMF BOWLING, INC.:
We have audited the accompanying consolidated balance sheets of AMF
Bowling, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations, cash
flows, stockholders' equity and comprehensive loss for the years ended December
31, 1998 and 1997, and 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 audits.
We conducted our audits 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 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 AMF Bowling, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997,
and the period from inception (January 12, 1996) through December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia
February 19, 1999
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................................... $ 33,002 $ 35,790
Accounts and notes receivable, net of allowance for doubtful accounts of $6,492 and 82,435 73,991
$5,012, respectively
Inventories ............................................................................. 64,735 56,568
Deferred taxes and other ................................................................ 23,960 17,049
----------- -----------
TOTAL CURRENT ASSETS ................................................................... 204,132 183,398
Property and equipment, net .............................................................. 873,985 750,885
Leasehold interests, net ................................................................. 42,863 47,180
Deferred financing costs, net ............................................................ 27,787 18,911
Goodwill, net ............................................................................ 772,744 772,348
Investments in and advances to joint ventures ............................................ 17,436 19,999
Other assets ............................................................................. 41,027 39,331
----------- -----------
TOTAL ASSETS ........................................................................... $ 1,979,974 $ 1,832,052
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................................ $ 33,912 $ 41,583
Accrued expenses ........................................................................ 61,809 64,865
Income taxes payable .................................................................... 5,389 5,644
Current portion of long-term debt ....................................................... 32,375 27,376
----------- -----------
TOTAL CURRENT LIABILITIES .............................................................. 133,485 139,468
Long-term debt, less current portion ..................................................... 1,311,589 1,033,223
Other long-term liabilities .............................................................. 5,265 5,333
----------- -----------
TOTAL LIABILITIES ...................................................................... 1,450,339 1,178,024
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock (par value $.01 per share, 200,000,000 shares authorized, 59,747,550 and
59,630,000, issued and outstanding, respectively) ...................................... 597 596
Paid-in capital ......................................................................... 749,305 748,053
Retained deficit ........................................................................ (200,942) (75,048)
Foreign currency translation adjustment ................................................. (19,325) (19,573)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ............................................................ 529,635 654,028
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................ $ 1,979,974 $ 1,832,052
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------------- DECEMBER 31,
1998 1997 1996 (a)
--------------- -------------- -------------
<S> <C> <C> <C>
OPERATING REVENUE ........................................................ $ 738,113 $ 713,668 $ 384,809
----------- ---------- ----------
OPERATING EXPENSES:
Cost of goods sold ...................................................... 202,224 212,544 130,542
Bowling center operating expenses ....................................... 335,705 251,206 123,673
Selling, general, and administrative expenses ........................... 70,015 64,546 35,070
Depreciation and amortization ........................................... 120,637 102,447 49,386
----------- ---------- ----------
Total operating expenses ............................................... 728,581 630,743 338,671
----------- ---------- ----------
Operating income ....................................................... 9,532 82,925 46,138
NONOPERATING EXPENSES (INCOME):
Interest expense ........................................................ 114,662 118,385 77,990
Other expenses, net ..................................................... 7,655 10,106 1,912
Interest income ......................................................... (2,392) (1,954) (5,748)
----------- ---------- ----------
Total nonoperating expenses ............................................ 119,925 126,537 74,154
----------- ---------- ----------
Loss before income taxes ................................................ (110,393) (43,612) (28,016)
Provision (benefit) for income taxes .................................... 7,294 (12,776) (8,532)
----------- ---------- ----------
Net loss before equity in loss of joint ventures and extraordinary items (117,687) (30,836) (19,484)
Equity in loss of joint ventures ........................................ (8,207) (1,362) --
----------- ---------- ----------
Net loss before extraordinary items ..................................... (125,894) (32,198) (19,484)
Extraordinary items, net of tax of $12,778 .............................. -- (23,366) --
----------- ---------- ----------
Net loss ................................................................ $ (125,894) $ (55,564) $ (19,484)
=========== ========== ==========
NET LOSS PER SHARE, BASIC AND DILUTED:
Net loss per share before extraordinary items ........................... $ (2.11) $ (0.71) $ (0.49)
Per share effect of extraordinary items ................................. -- ( 0.52) --
----------- ---------- ----------
Net loss per share ...................................................... $ (2.11) $ (1.23) $ (0.49)
=========== ========== ==========
Weighted average shares outstanding ..................................... 59,717 45,249 39,713
=========== ========== ==========
</TABLE>
- --------
(a) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes results of operations of the acquired business
from May 1, 1996 through December 31, 1996.
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------ DECEMBER 31,
1998 1997 1996 (a)
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................................ $ (125,894) $ (55,564) $ (19,484)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization .................................................. 120,637 102,447 49,386
Equity in loss of joint ventures ............................................... 8,207 1,362 --
Extraordinary items, net of tax ................................................ -- 23,366 --
Deferred income taxes .......................................................... (243) (20,221) (14,040)
Amortization of bond discount .................................................. 36,697 33,562 24,731
Loss on the sale of property and equipment, net ................................ 8,948 4,446 408
CHANGES IN ASSETS AND LIABILITIES:
Accounts and notes receivable, net ............................................ (10,153) (26,093) (6,504)
Inventories ................................................................... (7,069) (16,971) 1,862
Other assets .................................................................. (19,852) (12,897) (4,010)
Accounts payable and accrued expenses ......................................... (9,531) 17,782 21,930
Income taxes payable .......................................................... (214) 602 417
Other long-term liabilities ................................................... (73) (4,089) 19,135
----------- ---------- ------------
Net cash provided by operating activities ........................................ 1,460 47,732 73,831
----------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of operating units, net of cash acquired ........................... (173,492) (214,761) (1,450,928)
Investments in and advances to joint ventures ................................... (5,643) (21,361) --
Purchases of property and equipment ............................................. (66,639) (56,703) (16,941)
Proceeds from the sale of property and equipment ................................ 3,811 4,180 754
----------- ---------- ------------
Net cash used in investing activities .......................................... (241,963) (288,645) (1,467,115)
----------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of deferred financing costs ................... 537,510 240,406 1,059,277
Payment on long-term debt ....................................................... (301,985) (304,621) (38,875)
Prepayment penalty .............................................................. -- (14,571) --
Capital contributions ........................................................... -- 36,600 420,750
Net proceeds from issuance of shares ............................................ 44 279,071 --
Repurchase of shares ............................................................ -- (500) --
Noncompete obligations .......................................................... (677) (647) (2,892)
----------- ---------- ------------
Net cash provided by financing activities ...................................... 234,892 235,738 1,438,260
----------- ---------- ------------
Effect of exchange rates on cash ............................................... 2,823 (2,603) (1,408)
----------- ---------- ------------
Net (decrease) increase in cash ................................................ (2,788) (7,778) 43,568
Cash and cash equivalents at beginning of period ............................... 35,790 43,568 --
----------- ---------- ------------
Cash and cash equivalents at end of period ..................................... $ 33,002 $ 35,790 $ 43,568
=========== ========== ============
</TABLE>
- --------
(a) For the period from the inception date of January 12, 1996, through
December 31, 1996, which includes the cash flows of the acquired business
from May 1, 1996 through December 31, 1996.
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
FOREIGN
COMMON CURRENCY TOTAL
SHARES COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
------------- ----------- --------------------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 12, 1996 ..................... -- $ -- $ -- $ -- $ -- $ --
Initial Capitalization ...................... 38,375,000 384 389,066 -- -- 389,450
Capital contribution by stockholders ........ 4,000,000 40 39,960 -- -- 40,000
Net loss .................................... -- -- -- (19,484) -- (19,484)
Foreign currency translation adjustment ..... -- -- -- -- (1,151) (1,151)
---------- ---- --------- ----------- ---------- ----------
Balance December 31, 1996 .................... 42,375,000 424 429,026 (19,484) (1,151) 408,815
---------- ---- --------- ----------- ---------- ----------
Capital contribution by stockholders ........ 1,780,000 18 35,582 -- -- 35,600
Issuance of stock and stock options ......... 100,000 1 5,027 -- -- 5,028
Initial public offering of common stock ..... 15,525,000 155 278,916 -- -- 279,071
Repurchase of common stock .................. (150,000) (2) (498) -- -- (500)
Net loss .................................... -- -- -- (55,564) -- (55,564)
Foreign currency translation adjustment ..... -- -- -- -- (18,422) (18,422)
---------- ------ --------- ----------- ---------- ----------
Balance December 31, 1997 .................... 59,630,000 596 748,053 (75,048) (19,573) 654,028
---------- ------ --------- ----------- ---------- ----------
Issuance of stock and stock options ......... 117,550 1 1,252 -- -- 1,253
Net loss .................................... -- -- -- (125,894) -- (125,894)
Foreign currency translation adjustment ..... -- -- -- -- 248 248
---------- ------ --------- ----------- ---------- ----------
Balance December 31, 1998 .................... 59,747,550 $ 597 $ 749,305 $ (200,942) $ (19,325) $ 529,635
========== ====== ========= =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------------- DECEMBER 31,
1998 1997 1996 (a)
--------------- -------------- -------------
<S> <C> <C> <C>
Net Loss ......................................... $ (125,894) $ (55,564) $ (19,484)
Foreign currency translation adjustment .......... 248 (18,422) (1,151)
----------- ---------- ----------
Total comprehensive loss ......................... $ (125,646) $ (73,986) $ (20,635)
=========== ========== ==========
</TABLE>
- --------
(a) For the period from the inception date of January 12, 1996, through
December 31, 1996, which includes the cash flows of the acquired business
from May 1, 1996 through December 31, 1996.
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
AMF Bowling, Inc. ("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 421 U.S. bowling
centers and 124 international bowling centers ("Bowling Centers"), including 15
joint venture centers described in "Note 16. Joint Ventures," as of December
31, 1998, and (ii) the manufacture and sale 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 Bowling Worldwide, Inc., ("Bowling Worldwide"), 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
Bowling Worldwide 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.
The principal 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").
The purchase price for the Acquisition was approximately $1.37 billion.
The Acquisition was accounted for by the purchase method of accounting,
pursuant to which the purchase price was allocated among the acquired assets
and liabilities in accordance with estimates of fair market value on the date
of Acquisition. The Acquisition 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 price included $8.7 million
which represented 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 The Goldman Sachs Group, L.P., an affiliate of Goldman Sachs.
See "Note 9. Long-Term Debt." See also "Note 14. Supplemental Disclosures to
the Consolidated Statements 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 years ended December 31, 1998 and 1997,
reflect the results of the Company from January 1, 1998 ("1998") and 1997
("1997"), respectively. 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 ("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.
JOINT VENTURES
Investments in joint ventures are accounted for under the equity method.
These investments are managed as part of the Company's Bowling Centers segment
operations, and the Company's share of joint venture earnings is included in
earnings for the Bowling Centers segment. See "Note 16. Joint Ventures."
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 dates of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. The more significant estimates made by management include
allowances for obsolete inventory, uncollectible accounts receivable,
realization of goodwill, deferred taxes and other deferred assets, litigation
and claims, product warranty costs, and self-insurance costs. Actual results
could differ from those estimates.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued
REVENUE RECOGNITION
For Bowling Products, 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.
For a significant portion of 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. Bowling Products charges to income an estimated amount for future
warranty obligations, and also offers customers the option to purchase extended
warranties on certain products. Warranty expense aggregated $5,391 for 1998,
$3,007 for 1997 and $4,471 for 1996, and is included in cost of goods sold in
the accompanying consolidated statements of operations.
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. Bowling
Centers' inventory is valued at the lower of cost or market, with the cost
being determined using the average cost method (see "Note 4").
LONG-LIVED ASSETS
The carrying value of long-lived assets and certain identifiable
intangibles, including goodwill, is reviewed by the Company for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable, and an estimate of future undiscounted cash
flows is less than the carrying amount of the asset.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance
and repairs which do not improve or extend the life of an asset are charged to
expense as incurred; major renewals or betterments are capitalized. Upon
retirement or sale of an asset, its cost and related accumulated depreciation
are removed from property and equipment, and any gain or loss is recognized.
Property and equipment are depreciated over their estimated useful lives
using the straight-line method. Estimated useful lives of property and
equipment 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 equipment 5 -10 years
Manufacturing equipment 2 -7 years
Furniture and fixtures 3 -8 years
</TABLE>
GOODWILL
As a result of the Acquisition and subsequent purchases of bowling centers
discussed in "Note 15. Acquisitions," and in accordance with the purchase
method of accounting used for all acquisitions, 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 $20,403 in 1998, $19,827 in 1997 and $13,070 in 1996.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued
LEASEHOLD INTERESTS
Leasehold interests are presented net of accumulated amortization and
represent favorable lease terms which are comprised of the difference between
amounts due under the contractual lease rate compared to the market rate for
that lease. Leasehold interests are being amortized over the life of each
lease. Amortization expense was $4,500 in 1998, $11,735 in 1997 and $1,135 in
1996.
INCOME TAXES
The U.S. and international subsidiaries of AMF Bowling are 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. Amounts charged against income were approximately $121 in 1998, $922
in 1997 and $1,312 in 1996, and are included in cost of goods sold in the
accompanying consolidated statements of operations.
ADVERTISING COSTS
Costs incurred for producing and communicating advertising are expensed
when incurred. The amounts charged against income were approximately $33,432 in
1998, $21,642 in 1997 and $9,299 in 1996, with $20,571, $12,768 and $5,932,
respectively, included in bowling center operating expenses for Bowling
Centers, and $12,861, $8,856 and $3,367, respectively, included in selling,
general and administrative expenses for Bowling Products and Corporate in the
accompanying consolidated statements of operations.
EARNINGS PER SHARE
Basic and diluted 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. See "Note 12. Stockholders'
Equity" and "Note 13. Employee Benefit Plans."
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 foreign currency
translation adjustment on the accompanying consolidated balance sheets. Revenue
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.
Transactions in foreign currencies resulted in net gains of $2,450 for 1998,
net losses of $3,537 for 1997 and net losses of $488 for 1996 and are included
in other expenses in the accompanying consolidated statements of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments, including cash and cash
equivalents and short-term debt, approximate fair value at December 31, 1998
and 1997, because of the short maturity of these instruments. At December 31,
1998 and 1997, fair value of the interest rate cap agreements (to reduce the
interest rate risk of its floating rate debt) was approximately $8 and zero,
respectively. The interest rate cap agreements are valued using the estimated
amount that the Company would receive to terminate the cap agreements as of
December 31, 1998 and 1997, 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 agreements. The fair value
of the term facilities under the Bank Debt, as defined in "Note 9. Long-Term
Debt," at December 31, 1998 and 1997, was approximately $376,988 and $467,361,
respectively, based on the trading value at December 31, 1998 and 1997. The
fair value of the Subsidiary Senior Subordinated Notes and Subsidiary Senior
Subordinated Discount Notes, as defined in "Note 9. Long-Term Debt," at
December 31, 1998 and 1997, was approximately $354,005 and $493,551,
respectively, based on the trading value at December 31, 1998 and 1997. The
fair value of the Debentures, as defined in "Note 9. Long-Term Debt," at
December 31, 1998, was approximately $136,463 based on the trading value at
December 31, 1998.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued
NONCOMPETE AGREEMENTS
The Company 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 sheets and are amortized on a straight-line basis over the terms of the
agreements. Noncompete obligations at December 31, 1998 and 1997, net of
accumulated amortization, totaled approximately $3,629 and $3,171,
respectively. Annual maturities on noncompete obligations as of December 31,
1998, are as follows: 1999 -- $1,236; 2000 -- $945; 2001 -- $238; 2002 -- $195;
2003 -- $195; thereafter -- $820
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, 1998 and 1997, which is included in accrued
expenses in the accompanying consolidated balance sheets.
COMPREHENSIVE INCOME
For 1998, 1997 and 1996, comprehensive income represents net loss and the
change in foreign currency translation adjustment. Accumulated other
comprehensive income consists of the accumulated foreign currency translation
adjustment on the accompanying consolidated balance sheets and statements 35 of
stockholders' equity.
NOTE 3. PRO FORMA RESULTS OF OPERATIONS
Pro forma statements of operations are presented on the following pages
for the year ended December 31, 1996 as if the Acquisition had occurred on
January 1, 1996. AMF Bowling's unaudited pro forma statement of income for the
twelve months ended December 31, 1996 is based on the Predecessor Company's
statement of operations for the four-month period ending April 30, 1996,
reported elsewhere in this report, AMF Bowling's statement of operations 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. 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.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 3. PRO FORMA RESULTS OF OPERATIONS continued
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PREDECESSOR AMF
AMF COMPANY BOWLING, INC.
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)
========= ========= ========== =========
Net loss per share, basic and diluted .................. $ (0.55)
==========
</TABLE>
- --------
(a) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes results of operations of the acquired business
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 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.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 4. INVENTORIES
Inventories at December 31, 1998 and 1997, consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Bowling Products, at FIFO:
Raw materials .......................... $ 11,471 $ 15,283
Work in progress ....................... 1,548 2,279
Finished goods and spare parts ......... 42,980 33,082
Bowling Centers, at average cost:
Merchandise inventory .................. 8,736 5,924
-------- --------
$ 64,735 $ 56,568
======== ========
</TABLE>
NOTE 5. DEFERRED TAXES AND OTHER CURRENT ASSETS
The components of deferred taxes and other current assets at December 31,
1998 and 1997, consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred income taxes .................. $ 7,147 $ 5,547
Advances or deposits ................... 14,024 3,288
Other .................................. 2,789 8,214
-------- --------
$ 23,960 $ 17,049
======== ========
</TABLE>
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment, net at December 31, 1998 and 1997, consists of the
following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land .................................................... $ 131,906 $ 113,629
Buildings and improvements .............................. 362,297 280,046
Equipment, furniture, and fixtures ...................... 553,203 444,437
Other ................................................... 7,476 7,282
---------- ---------
1,054,882 845,394
Less: accumulated depreciation and amortization ......... (180,897) (94,509)
---------- ---------
$ 873,985 $ 750,885
========== =========
</TABLE>
Depreciation and amortization expense related to property and equipment
was $89,080 for 1998, $64,480 for 1997 and $28,200 for 1996.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 7. OTHER LONG-TERM ASSETS
Other long-term assets are primarily composed of deferred income taxes,
long-term rent deposits, long-term portion of noncompete assets, and notes
receivable.
NOTE 8. ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1997, consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Accrued compensation ..................... $ 10,424 $ 9,523
Accrued interest ......................... 8,075 8,253
League bowling accounts .................. 16,160 14,237
Other .................................... 27,150 32,852
-------- --------
$ 61,809 $ 64,865
======== ========
</TABLE>
NOTE 9. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997, consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Bank debt ............................................. $ 581,877 $ 619,362
Subsidiary senior subordinated notes .................. 250,000 250,000
Subsidiary senior subordinated discount notes ......... 213,226 189,261
Zero coupon convertible debentures .................... 296,873 --
Mortgage and equipment note ........................... 1,988 1,976
----------- -----------
Total debt ........................................... 1,343,964 1,060,599
Current maturities .................................... (32,375) (27,376)
----------- -----------
Total long-term debt ................................. $ 1,311,589 $ 1,033,223
=========== ===========
</TABLE>
BANK DEBT
The bank debt (the "Bank Debt") is governed by a credit agreement (the
"Credit Agreement") to which Bowling Worldwide is a party 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") and provides for (i) senior secured term loan facilities
aggregating $455.3 million (the "Term Facilities") and (ii) a senior secured
revolving credit facility of up to $355.0 million (the "Bank Facility," and
together with the Term Facilities, the "Senior Facilities"). In connection with
such financing, 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 is acting as Administrative Agent. The initial
borrowings under a predecessor of the Credit Agreement were used to partially
fund the Acquisition. As of December 31, 1998, the Company has $192.0 million
available for borrowing under the Credit Agreement.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 9. LONG-TERM DEBT continued
THE SENIOR FACILITIES
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $130.0 million, (ii) an Amortization Extended Loan ("AXELs SM)
Series A Facility of $187.5 million and (iii) an AXELs SM Series B Facility of
$137.8 million. The Term Loan Facility bears interest, at Bowling Worldwide'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/EBITDA Ratio (as defined below) for the
Rolling Period (as defined below) then most recently ended.
The margin applicable to loans bearing interest based on the base rate
will range from 0.000% to 2.000%, for advances under the Term Loan Facility,
0.875% to 2.500%, for advances under the AXELs SM Series A Facility, and 1.125%
to 2.750%, for advances under the AXELs SM Series B Facility, and the margin
applicable to loans bearing interest based on the Eurodollar rate will range
from 0.750% to 3.000%, for advances under the Term Loan Facility, 1.875% to
3.500%, for advances under AXELs SM Series A Facility, and 2.125% to 3.750%,
for advances under the AXELs SM Series B Facility.
The Bank Facility has an aggregate amount of $355.0 million, is fully
revolving until its final maturity and bears interest, at Bowling Worldwide'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 a total debt to EBITDA ratio ("Total Debt/EBITDA Ratio")
for the trailing twelve-month period (the "Rolling Period") then most recently
ended. The margin applicable to advances under the Bank Facility bearing
interest based on the base rate will range from 0.000% to 2.000% and the margin
applicable to advances under the Bank Facility bearing interest based on the
Eurodollar rate will range from 0.750% to 3.000%.
At December 31, 1998, the applicable margin based on Citibank's customary
base rate, the applicable margin based on Citibank's Eurodollar rate, and the
actual interest rate for advances under each of the Senior Facilities were as
follows:
<TABLE>
<CAPTION>
BASE RATE EURODOLLAR RATE INTEREST
MARGIN MARGIN RATE
----------- ----------------- ---------
<S> <C> <C> <C>
Term Loan Facility ................. 1.50% 2.50% 7.81%
AXELs SM Series A Facility ......... 2.00 3.00 8.31
AXELs SM Series B Facility ......... 2.25 3.25 8.56
Bank Facility ...................... 1.50 2.50 7.69
</TABLE>
Maturity dates, average amounts outstanding, and average borrowing rates
for the year ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AVERAGE AVERAGE
DECEMBER 31, AMOUNTS BORROWING
DESCRIPTION MATURITY DATES 1998 OUTSTANDING RATES
- ---------------------------------------- ---------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Term Loan Facility ................. March 31, 2002 $ 99,375 $114,486 7.53%
AXELs SM Series A Facility ......... March 31, 2003 184,750 185,996 7.84
AXELs SM Series B Facility ......... March 31, 2004 134,750 136,151 8.09
Bank Facility ...................... March 31, 2002 163,002 176,318 7.65
</TABLE>
In addition, Bowling Worldwide will be required to make prepayments which
permanently reduce the availability under the Senior Facilities under certain
circumstances, including upon certain asset sales and issuances of debt by
Bowling Worldwide and its subsidiaries and public issuance of equity securities
of AMF Bowling. Bowling Worldwide will also be required to make prepayments
that permanently reduce the availability under the Term Facilities in an amount
equal to up to 50% of Excess Cash Flow for any fiscal year of Bowling Worldwide
if the Total Debt/EBITDA Ratio for that fiscal year is greater than or equal to
5.50 to 1.0. If the Total Debt/EBITDA Ratio for that fiscal year is less than
5.50 to 1.0, then Bowling Worldwide is required to prepay the Bank Facility in
an amount equal to up to 50% of the Excess Cash Flow (as defined in the Credit
Agreement) for such fiscal year (such payment would be the lesser of (x) 50% of
the Excess Cash Flow for that fiscal year or (y) the amount by which such
Excess Cash Flow exceeds $20 million), but Bowling Worldwide would be permitted
to reborrow such amounts, subject to the conditions of the Credit Agreement.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 9. LONG-TERM DEBT continued
The Senior Facilities are guaranteed by AMF Group Holdings and by each of
Bowling Worldwide's present and future domestic subsidiaries and are secured by
all of the stock of Bowling Worldwide and Bowling Worldwide's present and
future domestic subsidiaries and second-tier subsidiaries, by 66% of the stock
of Bowling Worldwide's present and future international subsidiaries and by
substantially all of Bowling Worldwide's and its present and future domestic
subsidiaries' present and future property and assets.
COVENANTS
In 1998, the Company entered into Amendment Number 1 and Waiver (the
"Amendment and Waiver") to the Credit Agreement that amended or waived certain
financial covenants of the Credit Agreement and imposed certain restrictions on
the Company's operations through December 31, 1999. In addition, for 1999,
borrowings to finance acquisitions are substantially restricted and limits have
been placed on the Company's ability to make capital expenditures, investments
and acquisitions. The Company believes that it will be in compliance with the
amended covenants during 1999, but any downturn in the current performance of
the Company could result in non-compliance with these financial covenants. The
financial covenants existing prior to the amendment will be reinstated in the
year beginning 2000. However, based on current performance the Company will not
meet the requirements of the financial covenants that will be reinstated.
Failure by the Company to comply with its credit agreement covenants could
result in an event of default which, if not cured or waived, will have a
material adverse effect on the Company.
The Credit Agreement contains certain financial covenants, as well as
additional affirmative and negative covenants, constraining Bowling Worldwide.
Under the terms currently in effect, Bowling Worldwide must maintain a minimum
Modified Consolidated 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
ending June 30, 1997, to $200 million for the Rolling Period ending September
30, 2003 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 Bowling Worldwide or any of its Subsidiaries after May 1, 1996 and acquired
or constructed at least 15 months prior to such time of determination, except
for the quarters ending September 30, 1998 through and including December 31,
1999 during which time there will be no EBITDA Adjustment Amount.
Bowling Worldwide must also maintain a Cash Interest Coverage Ratio (as
defined in the Credit Agreement as the ratio of (i) consolidated EBITDA of
Bowling Worldwide 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 Bowling Worldwide and its Subsidiaries)
at an amount ranging from not less than 1.80 to not less than 2.75. Bowling
Worldwide is required to maintain a Fixed Charge Coverage Ratio (as 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 (as defined in the
Credit Agreement) made by Bowling Worldwide 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 under the Term Facilities payable by Bowling
Worldwide and its Subsidiaries during such Rolling Period) at an amount ranging
from not less than 1.05 for the Rolling Period ending June 30, 1997, to not
less than 1.20 for the Rolling Period ending June 30, 2001 and declining to
1.00 for the Rolling Period ending March 31, 2002 and thereafter, except for
the quarters ending September 30, 1998 through December 31, 1999 during which
time the test for the Fixed Charge Coverage Ratio covenant is waived. A Senior
Debt to EBITDA Ratio (as 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 Bowling
Worldwide and its Subsidiaries to Modified Consolidated EBITDA for that Rolling
Period) must be maintained at levels ranging from not more than 4.25 to not
more than 2.50. A Total Debt to EBITDA Ratio (as defined in the Credit
Agreement as the ratio of consolidated total Debt (other than Hedge Agreements)
of Bowling Worldwide and its Subsidiaries to Modified Consolidated EBITDA) must
be maintained at levels ranging from not more than 7.50 to not more than 4.50.
In each case, the above-mentioned ratios are calculated on a quarterly basis.
Negative covenants under the Senior Facilities prohibit Bowling Worldwide
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 Bowling Worldwide's obligations as borrower on other
indebtedness not to exceed $5 million at any time outstanding). Bowling
Worldwide and its Subsidiaries are also prohibited from incurring any debt,
other than (in the case of Bowling Worldwide) 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 Bowling Worldwide or any of its
wholly-owned Subsidiaries, to the extent permitted under the Credit Agreement
or (in the case of either Bowling Worldwide 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. Bowling Worldwide and its Subsidiaries may not incur any obligations
under leases having a term of one year or more
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 9. LONG-TERM DEBT continued
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 Bowling Worldwide 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. Bowling Worldwide 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 Bowling Worldwide or
its Subsidiaries in any other person are also limited by formulas set forth in
the Credit Agreement. The Amendment and Waiver (as defined below) restricts to a
much greater extent than before the Company's ability to borrow to finance
acquisitions. The negative covenants also relate to the payment of dividends,
prepayments of, and amendments of the terms of, other debt (including the
Subsidiary 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. Bowling Worldwide is also subject to certain financial and other
reporting requirements.
Bowling Worldwide is also prohibited under the Credit Agreement from
making a material change in the nature of its existing business, except that it
may have up to $50 million invested at any one time in golf driving ranges and
other golf-related activities.
Pursuant to the Credit Agreement, so long as Bowling Worldwide 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
owners of the Predecessor Company, (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.
SUBSIDIARY NOTES
Bowling Worldwide's senior subordinated notes (the "Subsidiary 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.
Bowling Worldwide's senior subordinated discount notes (the "Subsidiary
Senior Subordinated Discount Notes") will mature on March 15, 2006, at a
fully-accreted value of $277.0 million and will result in an effective yield of
12 1/4% per annum, computed on a semiannual bond equivalent basis. No interest
is 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 Subsidiary Senior Subordinated
Notes and the Subsidiary Senior Subordinated Discount Notes (together, the
"Subsidiary Notes") are jointly and severally guaranteed on a senior
subordinated basis by AMF Group Holdings and each of Bowling Worldwide's
subsidiaries identified below in "Note 21. Condensed Consolidating Financial
Statements" (collectively, the "Guarantors").
The guarantees of the Subsidiary Notes are subordinated to the guarantees
of the Bank Debt and the mortgage and equipment note outstanding at December
31, 1998. The Subsidiary Notes are general, unsecured obligations of Bowling
Worldwide, are subordinated in right of payment to all Bank Debt of Bowling
Worldwide, and rank pari passu with all existing and future subordinated debt
of Bowling Worldwide. The claims of the holders of the Subsidiary Notes will be
effectively subordinated to all other indebtedness and other liabilities
(including trade payables and capital lease obligations) of Bowling Worldwide's
subsidiaries that are not Guarantors and through which Bowling Worldwide will
conduct a portion of its operations. See "Note 21. Condensed Consolidating
Financial Statements."
The indenture governing the Subsidiary Senior Subordinated Notes and the
indenture governing the Subsidiary Senior Subordinated Discount Notes
(together, the "Subsidiary Note Indentures") contain certain covenants that,
among other things, limit the ability of Bowling Worldwide 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 Bowling
Worldwide and engage in mergers and consolidations.
ZERO COUPON CONVERTIBLE DEBENTURES
On May 12, 1998, AMF Bowling completed the private placement of
$1,125,000,000 aggregate principal amount at maturity of Zero Coupon
Convertible Debentures due 2018 (the "Debentures") to Goldman, Sachs & Co.,
Cowen & Company, Morgan Stanley & Co. Incorporated and Schroder & Co. Inc.
(collectively, the "Initial Purchasers"). The Debentures were originally issued
by the Company to the Initial Purchasers at an offering price of 25.257% plus
accrued original issue
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 9. LONG-TERM DEBT continued
discount from May 12, 1998, and were subsequently sold by the Initial
Purchasers to "qualified institutional buyers" in transactions exempt from
registration pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"). The Company filed a Registration Statement on Form S-1
(the "Registration Statement"), to satisfy its obligations under the debenture
registration rights agreement, dated as of May 12, 1998, between the Company,
the designated subsidiaries listed therein and the Initial Purchasers (the
"Debenture Registration Rights Agreement") to permit secondary trading of the
Debentures and the underlying Common Stock without restrictions under the
Securities Act.
The Debentures will mature on May 12, 2018 and have an effective yield of
7% per annum. The Debentures are convertible, at the option of the Holder, at
any time prior to maturity unless previously redeemed or otherwise purchased by
AMF Bowling, into Common Stock at the rate of 8.6734 shares per $1,000
principal amount at maturity of Debentures.
The Debentures are not redeemable by AMF Bowling prior to May 12, 2003.
Beginning on May 12, 2003, the Debentures are redeemable for cash at any time
at the option of AMF Bowling, in whole or in part, at redemption prices equal
to the issue price plus accrued original issue discount to the date of
redemption.
AMF Bowling is required to purchase Debentures at the option of the Holder
as of May 12, 2003, May 12, 2008 and May 12, 2013 at purchase prices equal to
the issue price plus accrued original issue discount to the date of purchase.
AMF Bowling may, at its option, elect to pay any such purchase price in cash or
Common Stock, or any combination thereof.
Events of default under the indenture governing the Debentures (the
"Debenture Indenture") include: (i) default in payment of the principal amount
at maturity, accrued liquidated damages, if any, interest, if any, redemption
price, purchase price or Debenture change of control redemption price with
respect to any Debenture when such becomes due and payable, provided that in
he case of any failure to pay liquidated damages, such failure continues for a
period of 30 days; (ii) failure by AMF Bowling to comply with any of its other
agreements in the Debentures or the Debenture Indenture upon the receipt by AMF
Bowling of notice of such default by the trustee or by holders of not less than
25% in aggregate principal amount at maturity of the Debentures then
outstanding and AMF Bowling's failure to cure such default within 60 days after
receipt by it of such notice (plus an additional 60 days in the case of
defaults subject to cure, provided AMF Bowling commences such cure within the
initial 60 days, and is diligently pursuing such cure); (iii) default which
results in acceleration of any indebtedness for money borrowed by AMF Bowling
or any of its subsidiaries in an aggregate principal amount of $25 million or
more; or (iv) certain events of bankruptcy or insolvency.
Annual maturities of long-term debt, including accretion of the Subsidiary
Senior Subordinated Discount Notes and the Debentures, as of December 31, 1998,
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1999 32,375
2000 34,250
2001 83,000
2002 269,002
2003 116,408
Thereafter (a) 1,700,642
---------
$ 2,235,677
===========
</TABLE>
- --------
(a) Annual maturities after the year 2003 include $1,125,000 face amount of
Debentures and assume that the Debentures are held until maturity in 2018.
INTEREST RATE CAP AGREEMENTS
During 1996 and 1997, Bowling Worldwide entered into two interest rate cap
agreements that expired in 1998 with Goldman Sachs Capital Markets, L.P., to
reduce the interest rate risk of its Bank Debt. During March 1998, Bowling
Worldwide entered into a third interest rate cap agreement with Goldman Sachs
Capital Markets, L.P. to reduce the interest rate risk of its Bank Debt. The
notional amount of this cap was $150.0 million at December 31, 1998. During
October
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 9. LONG-TERM DEBT continued
1998, Bowling Worldwide entered into a fourth interest rate cap agreement with
Goldman Sachs Capital Markets, L.P. to reduce the interest rate risk of its
Bank Debt. The notional amount of this cap was $200.0 million at December 31,
1998. Interest expense for interest rate cap agreements was $1,608 in 1998,
$1,823 in 1997 and $304 in 1996.
Bowling Worldwide is exposed to credit-related loss in the event of
non-performance by the counterparty. Bowling Worldwide believes its exposure to
potential loss due to counterparty non-performance is minimized primarily due
to the relatively strong credit rating of the counterparty.
DEFERRED FINANCING COSTS
Costs incurred to obtain bank financing and issue bond financing are
amortized over the lives of the various types of debt using the effective
interest rate method. Bank financing costs, which were incurred to obtain bank
financing for the Acquisition, were entirely written off in the fourth quarter
of 1997 in connection with the Credit Agreement. During 1998, the Company
deferred $13,833 of financing costs associated with the issuance of the
Debentures and with the Amendment and Waiver. Amortization expense for
financing costs was $3,438 in 1998, $4,856 in 1997 and $3,252 in 1996.
EXTRAORDINARY CHARGES
The Company recorded after-tax extraordinary charges totaling $23,366 in
the fourth quarter of 1997 as a result of entering into the Credit Agreement,
the premium paid to redeem a portion of the Subsidiary Senior Subordinated
Discount Notes and the write-off of the portion of bond financing costs
attributable to the Subsidiary Senior Subordinated Discount Notes redeemed.
OTHER
The Company is highly leveraged as a result of 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, 1998, 1997 and 1996,
consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
U.S. .................. $ (112,133) $ (55,695) $ (28,427)
International ......... 1,740 12,083 411
----------- ---------- ----------
$ (110,393) $ (43,612) $ (28,016)
=========== ========== ==========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 10. INCOME TAXES continued
The income tax provision (benefit) at December 31, 1998, 1997 and 1996,
consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------------- ------------
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal ...................... $ -- $ -- $ --
State and local ................... -- -- --
International ..................... 7,294 6,965 5,508
------- ---------- ---------
Total current provision ........... 7,294 6,965 5,508
------- ---------- ---------
DEFERRED TAX BENEFIT
U.S. Federal ...................... -- (18,039) (12,274)
State and local ................... -- (1,702) (1,766)
International ..................... -- -- --
------- ---------- ---------
Total deferred benefit ............ -- (19,741) (14,040)
------- ---------- ---------
Total provision (benefit) ......... $ 7,294 $ (12,776) $ (8,532)
======= ========== =========
</TABLE>
The tax effects of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities at December 31, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
DEFERRED INCOME TAX ASSETS
Current assets
Reserves not deductible for tax purposes .............. $ 7,147 $ 5,547
--------- --------
Noncurrent assets
Net operating losses .................................. 68,815 38,460
Foreign tax credits ................................... 19,720 12,417
Interest expense on high yield debt ................... 20,625 12,266
Financing costs ....................................... 6,972 7,549
Translation effects ................................... (264) 1,069
Other ................................................. 670 104
--------- --------
Total noncurrent deferred tax assets ................... 116,538 71,865
--------- --------
Deferred tax assets before valuation allowance ......... 123,685 77,412
Valuation allowance ................................... (45,583) --
--------- --------
Total deferred tax assets .............................. 78,102 77,412
--------- --------
DEFERRED INCOME TAX LIABILITIES
Goodwill amortization .................................. 23,826 14,670
Depreciation on property and equipment ................. 32,860 41,569
--------- --------
Total noncurrent deferred tax liabilities .............. 56,686 56,239
--------- --------
Net deferred tax assets ................................ $ 21,416 $ 21,173
========= ========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 10. INCOME TAXES continued
Realization of deferred tax assets associated with the NOLs and foreign
tax credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Management believes that there is a risk that certain
of these NOLs and foreign tax credit carryforwards may expire unused and,
accordingly, has established a valuation allowance against them. Although
realization is not assured for the remaining deferred tax assets, management
believes it is more likely than not that they will be realized through future
taxable earnings or alternative tax strategies.
The gross amount of net operating losses ("NOLs") the Company may utilize
on future tax returns is $194,542. The NOLs expire as follows:
<TABLE>
<CAPTION>
YEAR NOLS
- -------- -----------
<S> <C>
2011 $ 20,726
2012 80,233
2018 93,583
---------
$ 194,542
=========
</TABLE>
The provision (benefit) for income taxes differs from the amount computed
by applying the statutory rate of 35 percent for 1998, 1997 and 1996 to loss
before taxes. The principal reasons for these differences are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
U.S. Federal, at statutory rate ............................... $ (38,638) $ (15,264) $ (9,806)
Increase resulting from:
Meals and entertainment ...................................... 266 275 159
Goodwill relating to acquisition of international
bowling centers.......................................... 1,755 1,658 1,093
Disallowance of certain high yield debt ...................... 187 260 192
Valuation allowance for foreign tax credits and
net operating loss carryforwards ........................ 45,583 -- --
Other, net ................................................... (1,859) 295 (170)
---------- ---------- ---------
Total ......................................................... $ 7,294 $ (12,776) $ (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 2016.
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 $1,733 in 1998, $1,200 in 1997 and
$912 in 1996. Total rent expense under operating leases aggregated
approximately $31,061 in 1998, $24,117 in 1997 and $13,737 in 1996.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 11. COMMITMENTS AND CONTINGENCIES continued
Future minimum rental payments under the operating lease agreements as of
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------
<S> <C>
1999 ............... $ 30,436
2000 ............... 27,197
2001 ............... 24,317
2002 ............... 21,494
2003 ............... 19,710
Thereafter ......... 141,205
---------
$ 264,359
=========
</TABLE>
LITIGATION AND CLAIMS
In June 1998, Harbin Hai Heng Bowling Entertainment Co. Ltd. ("Hai Heng")
filed an action against AMF Bowling Products, Inc. ("AMF Bowling Products"), an
indirect subsidiary of AMF Bowling, in the Harbin Intermediate People's Court
in Heilongjing, China. Hai Heng sought to recover $3 to $4 million in damages
relating to 38 New Center Packages ("NCP" or "NCPs") purchased from AMF. Hai
Heng asserted that the poor quality of the 38 NCPs entitled Hai Heng to recover
the purchase price and damages for lost profits and the cost of storing the
NCPs.
On November 6, 1998, the court awarded Hai Heng approximately $3.5
million. AMF Bowling Products appealed the award to the High People's Court of
Heilongjing Province (the "People's Court"). Prior to completion of the appeal
review, the President of the People's Court on February 11, 1999 issued a
judgment in favor of Hai Heng for approximately $2.8 million and ordered Hai
Heng to return 24 NCPs to AMF.
The Company believes Hai Heng's claim is a warranty issue and that Hai Heng
is not entitled to recover the purchase price, lost profits or the cost of
storage. The Company continues to believe that Hai Heng's claim is substantially
without merit, and furthermore, based on the advice of local legal counsel, the
Company believes that the judicial process leading up to the trial court award
and the judgment issued by the People's Court involved significant procedural
and other legal defects. Hai Heng has begun to exercise its rights to enforce
the collection of the judgment. The Company intends to continue to pursue all
available defenses. Among other things, AMF Bowling Products intends to seek an
appeal to the Supreme People's Court in Beijing (the "Supreme Court") and a stay
of the execution of the judgment. The granting of an appeal is discretionary
with the Supreme Court.
Due to a number of uncertainties inherent in the litigation process in
these jurisdictions, the Company can give no assurance on the likelihood of
success of its appeal efforts or the ultimate outcome of the Hai Heng
litigation. However, management does not believe that the outcome of the action
will have a material adverse impact on the financial position of the Company.
In addition, the Company currently and from time to time is subject to
claims and actions arising in the ordinary course of its business, including
employment discrimination claims, workers' compensation claims and personal
injury claims. In some actions, plaintiffs request punitive or other damages
that may not be covered by insurance. In management's opinion, the claims and
actions in which the Company is involved will not have a material adverse
impact on its financial position or results of operations. However, it is not
possible to assure the outcome of such claims and actions.
NOTE 12. STOCKHOLDERS' EQUITY
STOCKHOLDERS AGREEMENT
On April 30, 1996, AMF Bowling and the institutional 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 in order to
finance acquisitions, capital expenditures, investments in partnerships or
joint ventures, or any similar
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 12. STOCKHOLDERS' EQUITY continued
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.
In September 1997, AMF Bowling's institutional stockholders purchased
shares of Common Stock for aggregate proceeds of $35.6 million to fund
acquisitions and for other corporate purposes. On November 7, 1997, AMF Bowling
issued 15,525,000 shares of its common stock at $19.50 per share pursuant to an
initial public offering (the "Initial Public Offering").
The Company has 870,000 warrants outstanding, with an exercise price of
$0.01 per share, that expire in May 2006. As of December 31, 1998, no warrants
had been exercised.
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 amounts charged to expense under
this plan were $0 in 1998, $1,779 in 1997 and $1,060 in 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 $974 in
1998, $814 in 1997 and $506 in 1996.
The Company has employment agreements with certain executives that provide
for salaries and bonuses if certain operational and financial targets are met
(the "Executive Employment Agreements"). The Executive Employment Agreements
provide for payment of accrued compensation, continuation of certain benefits,
severance payments and payment of a portion of the executive's bonus following
termination of employment by Bowling Worldwide under certain circumstances. The
aggregate amount committed for future salaries at December 31, 1998, excluding
bonuses, was $400.
1996 STOCK INCENTIVE PLAN
In connection with the Acquisition, AMF Bowling adopted a stock incentive
plan (the "1996 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 reserved
and available for grant under the 1996 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 1996 Plan and to make determinations as to a
number of the terms of awards granted under the 1996 Plan. In 1998, 1997 and
1996, the Committee granted Stock Options to Participants to purchase a total
of 32,000, 702,000 and 1,119,000 shares of Common Stock, respectively. The 1998
Stock Options were granted at an exercise price of $1.00 per share. The 1997
and 1996 Stock Options were granted at an exercise price of $10.00 per share.
The Stock Options granted in 1998 vest on the one year anniversary of the grant
date. With respect to the 1997 and 1996 Stock Options, twenty percent of the
options vest on each of the first five anniversaries of the grant dates. Stock
Options are nontransferable (except under certain limited circumstances) and,
unless otherwise determined by the Committee, have a term of ten years.
The number of Stock Options outstanding to senior management, other
employees, and directors under the 1996 Plan at December 31, 1998, 1997 and
1996, total 1,307,250, 1,572,000 and 1,096,500, respectively. Of the total
Stock Options awarded under the 1996 Plan, 522,400 were exercisable during 1998
and 265,966 were exercisable during 1997. Of the exercisable Stock Options,
67,550 were exercised in 1998 and none were exercised in 1997. None of the
Stock Options awarded under the 1996 Plan were exercisable during 1996.
Forfeited Stock Options totaled 229,200, 226,500 and 22,500 in 1998, 1997 and
1996, respectively.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 13. EMPLOYEE BENEFIT PLANS continued
The 1996 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 (the "Board") and the Committee
have authority to amend the 1996 Plan and awards granted thereunder, subject to
the terms of the 1996 Plan.
The weighted-average fair value of 1996 Plan options granted during 1998,
1997 and 1996 is $7.07, $6.78 and $3.05 per option, respectively. The 1,307,250
options outstanding at December 31, 1998 have a weighted-average exercise price
of $9.78 and a weighted-average remaining contractual life of 8.1 years.
1998 STOCK INCENTIVE PLAN
At the 1998 annual meeting, shareholders approved the 1998 Stock Incentive
Plan (the "1998 Plan") under which AMF Bowling may grant to employees of the
Company and its affiliates incentive awards ("Awards") in the form of Stock
Options, stock appreciation rights and shares of Common Stock that are subject
to certain terms and conditions. Two million shares of Common Stock are
reserved and available for issuance under the 1998 Plan. In addition, shares of
Common Stock that have been reserved but not issued under the 1996 Plan, and
shares which are subject to awards under the 1996 Plan that expire or otherwise
terminate, may be granted as Awards pursuant to the 1998 Plan. There are
392,351 shares of Common Stock under the 1996 Plan that are available for grant
of awards under that plan.
Shares allocated to Awards granted under the 1998 Plan which are later
forfeited, expire or otherwise terminate (including shares subject to Stock
Appreciation Rights that are exercised for cash) may again be used for Awards
under the 1998 Plan. No more than 200,000 shares of Common Stock may be
allocated to the Awards granted under the 1998 Plan to a Participant in any one
year.
In 1998, 950,400 Stock Options were granted as Awards under the 1998 Plan.
Twenty percent of the Stock Options vest on each of the first five
anniversaries of the grants. The number of Stock Options outstanding to senior
management, other employees, and directors under the 1998 Plan at December 31,
1998 total 894,650. Of the total Stock Options awarded under the 1998 Plan,
none were exercisable during 1998. Forfeited Stock Options totaled 55,750 in
1998.
The weighted-average fair value of 1998 Plan options granted during 1998
is $4.87 per option. The 1,275,250 options outstanding at December 31, 1998
have a weighted-average exercise price of $13.93 and a weighted-average
remaining contractual life of 9.7 years.
The 1998 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. The Board and the Committee have authority to amend the 1996 Plan
and awards granted thereunder, subject to the terms of the 1998 Plan.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model. The following weighted-average
assumptions were used for grants in 1996, 1997 and 1998:
<TABLE>
<CAPTION>
RISK-FREE DIVIDEND TIME OF
RATE YIELD EXERCISE VOLATILITY
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1996 ......... 6.50% 0.00% 10 years 0.00%
1997 ......... 6.50% 0.00% 5 years 27.50%
1998 ......... 5.12% 0.00% 5 years 27.50%
</TABLE>
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 Stock Options granted under the 1996 Plan and 1998 Plan been
determined consistent with SFAS No. 123, the Company's net losses for 1998,
1997 and 1996 would have been increased to $126,108, $56,503 and $19,858,
respectively, and the Company's basic and diluted net loss per share for 1998
would remain at $2.11, and basic and diluted net loss per share for 1997 and
1996 would have been increased to $1.25 and $0.50, respectively.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 14. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest and income taxes in 1998, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest ............. $ 76,464 $ 83,200 $ 44,465
Income taxes ......... 5,213 5,518 7,990
</TABLE>
Net cash used for business acquisitions in 1998, 1997 and 1996 consisted
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
--------------- ---------------
BOWLING CENTER ACQUISITIONS
-------------------------------
<S> <C> <C>
Working Capital, other than cash acquired .. $ 2,822 $ 6,876
Plant and equipment ........................ (151,765) (200,178)
Purchase price in excess of the net assets
acquired ............................... (18,286) (20,916)
Other assets ............................... (6,263) (9,106)
Non-current liabilities .................... -- 8,563
----------- -----------
Net cash used for business acquisitions .... $ (173,492) $ (214,761)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
------------------------------------------------------------------
OTHER
BOWLING
CHARAN CENTER
ACQUISITIONS ACQUISITION ACQUISITIONS TOTAL
----------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
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)
Non-current liabilities ................................ 6,198 -- -- 6,198
Warrants to purchase Parent Common Stock ............... 8,700 -- -- 8,700
------------- ----------- --------- -------------
Net cash used for business acquisitions ................ $ (1,342,861) $ (102,885) $ (5,182) $ (1,450,928)
============= =========== ========= =============
</TABLE>
Noncash financing activities in 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Issuance of Common Stock in connection with an acquisition ..... $ 1,209 $ -- $ --
Issuance of Common Stock and Stock Options in connection
with a service contract .................................... -- 4,028 --
Warrants to purchase shares of Common Stock .................... -- -- 8,700
Notes receivable from three executive officers for the
purchase of Common Stock ................................... -- -- 3,000
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 15. ACQUISITIONS
On October 10, 1996, AMF Bowling Centers, Inc. ("AMF Bowling Centers"), a
Virginia corporation and an indirect, wholly-owned subsidiary of Bowling
Worldwide, completed the acquisition (the "Charan Acquisition") of 50 bowling
centers and certain related assets and liabilities from Charan Industries, Inc.
("Charan"). The net purchase price of the Charan Acquisition was approximately
$102.9 million. 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 $62.9 million
from available borrowings under Bowling Worldwide's then existing Acquisition
Facility.
The following unaudited pro forma information has been prepared assuming
the Charan Acquisition had occurred as of January 1, 1996 and is based on pro
forma AMF Bowling results of operations presented in "Note 3. Pro Forma Results
of Operations." The pro forma information is presented for information purposes
only and is not necessarily indicative of what would have occurred if the
acquisition had occurred as of those dates. In addition, the pro forma
information is not intended to be a projection of future results of operations.
PRO FORMA CONSOLIDATED DATA (UNAUDITED):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-------------
<S> <C>
Operating revenue ................ $ 595.5
Operating income ................. 80.0
Loss before income taxes ......... (26.9)
Net loss ......................... (19.5)
</TABLE>
OTHER ACQUISITIONS
Since the Acquisition and prior to December 31, 1998, AMF Bowling Centers
purchased an aggregate of 262 bowling centers from various unrelated sellers
including Charan. The combined net purchase price was approximately $497.5
million, and was funded with approximately $76.6 million from the sale of
equity by AMF Bowling, $419.7 million from available borrowing under Bowling
Worldwide's then existing Acquisition Facility and current Bank Facility, and
with $1.2 million from the issuance of Common Stock with respect to the
acquisition of Active West, Inc. in 1998. The results of operations for
acquired bowling centers and certain related assets and liabilities other than
the Charan Acquisition were not material in relation to the Company's
consolidated results of operations or financial position. Subsequent to
December 31, 1998, the Company has not acquired any bowling centers.
NOTE 16. JOINT VENTURES
In April 1997, the Company entered into a joint venture with Hong Leong
Corporation Limited, a Singapore-based conglomerate ("Hong Leong"), to build
and operate bowling centers in the Asia Pacific region. The joint venture
("Hong Leong Joint Venture") is owned 50% by the Company and 50% by Hong Leong.
The Hong Leong Joint Venture opened its only bowling center during November
1997 in Tianjin, China. Due to the recent economic difficulties in the Asia
Pacific region, future development of bowling centers in that region through
the Hong Leong Joint Venture will not be pursued.
In August 1997, the Company entered into a joint venture with Playcenter
S.A., a Sao Paulo-based amusement and entertainment company ("Playcenter") to
build and operate bowling centers in Brazil and Argentina. The joint venture
("Playcenter Joint Venture") is owned 50% by the Company and 50% by Playcenter.
As of December 31, 1998, the Playcenter Joint Venture operated 12 centers in
Brazil and two centers in Argentina. No additional sites for the Playcenter
Joint Venture are being evaluated. The Company has pledged its shares of the
Playcenter Joint Venture in connection with a guarantee of a third party loan
of the Playcenter Joint Venture.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 16. JOINT VENTURES continued
The Company accounts for its investments in Hong Leong Joint Venture and
Playcenter Joint Venture by the equity method. The joint ventures' operations
and the Company's equity in earnings of the joint ventures are presented below
(in thousands, unaudited):
<TABLE>
<CAPTION>
JOINT VENTURE
-------------------------
JOINT VENTURE OPERATIONS HONG LEONG PLAYCENTER TOTAL
- ------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Operating revenue ........................ $ 297 $ 4,894 $ 5,191
Operating income (loss) .................. 15 (1,215) (1,200)
Income (loss) before income taxes......... 15 (1,546) (1,531)
Net income (loss) after income taxes...... 1 (1,608) (1,607)
YEAR ENDED DECEMBER 31, 1998:
Operating revenue ........................ $ 1,658 $ 16,082 $ 17,740
Operating loss ........................... (969) (4,851) (5,820)
Loss before income taxes ................. (1,159) (8,637) (9,796)
Net loss after income taxes .............. (1,159) (8,661) (9,820)
</TABLE>
<TABLE>
<CAPTION>
JOINT VENTURE
-------------------------
AMF EQUITY IN EARNINGS HONG LEONG PLAYCENTER TOTAL
- ----------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
AMF equity in income (loss) ............................ $ -- $ (804) $ (804)
Elimination of 50% gross profit on sales to
joint ventures.................................... (354) (204) (558)
------- --------- ---------
Balance December 31, 1997 .............................. (354) (1,008) (1,362)
------- --------- ---------
AMF equity in loss ..................................... (579) (4,330) (4,909)
Amortization of excess investment ...................... -- (3,298) (3,298)
------- --------- ---------
Balance December 31, 1998 .............................. $ (933) $ (8,636) $ (9,569)
======= ========= =========
</TABLE>
The joint ventures' financial position as of December 31, 1998 and 1997,
and the Company's investments in the joint ventures and amounts due from
Playcenter Joint Venture as of December 31, 1998 and 1997, are presented below
(in thousands, unaudited):
<TABLE>
<CAPTION>
JOINT VENTURE FINANCIAL POSITION 1998 1997
- -------------------------------------------- ---------- ----------
<S> <C> <C>
Current assets ........................... $ 1,815 $ 5,244
Non-current assets ....................... 25,655 31,099
Current liabilities ...................... 2,265 3,227
Non-current liabilities .................. 24,401 25,480
Stockholders' equity ..................... 804 7,636
</TABLE>
<TABLE>
<CAPTION>
INVESTMENTS/AMOUNTS DUE FROM JOINT VENTURES 1998 1997
- ------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Investments in joint ventures .................... $ 4,401 $ 9,818
Notes receivable due from joint ventures ......... 3,948 3,781
Loan to joint venture ............................ 9,087 6,400
-------- --------
Total investment/due from joint ventures ......... $ 17,436 $ 19,999
======== ========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 16. JOINT VENTURES continued
The Company's investment in Playcenter Joint Venture includes the
unamortized excess of the Company's investment over its equity in the joint
venture's net assets. This excess was $19,986 at December 31, 1998, and is
being amortized on a straight-line basis over the estimated life of the joint
venture of ten years. The note receivable due from Playcenter Joint Venture
represents the balance due for sales of equipment to the joint venture through
a Brazilian distributor. The balance due on the equipment sales and the loan to
Playcenter Joint Venture bear interest at 12% through November 21, 1997, and 8%
thereafter. Principal and interest will be repaid to the Company by the joint
venture from its operating cash flow.
NOTE 17. BUSINESS SEGMENTS
The Company operates in two major lines of business: operation of bowling
centers and manufacturing and sale of bowling and related products. Information
concerning operations in these business segments for 1998, 1997 and 1996 is
presented below (in millions):
<TABLE>
<CAPTION>
BOWLING CENTERS BOWLING PRODUCTS
-------------------------------------- ------------------------------------
INTER- SUB- INTER-
U.S. NATIONAL TOTAL U.S. NATIONAL SUB-TOTAL
------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Revenue from unaffiliated customers ....... $ 425.5 $ 115.4 $ 540.9 $ 83.2 $ 114.0 $ 197.2
Intersegment sales ........................ -- -- -- 10.9 4.4 15.3
Operating income (loss) ................... 32.6 12.1 44.7 (7.8) (4.0) (11.8)
Identifiable assets ....................... 883.3 350.1 1,233.4 625.4 80.7 706.1
Depreciation and amortization ............. 77.8 19.6 97.4 21.1 1.4 22.5
Capital expenditures ...................... 46.9 10.0 56.9 8.5 1.0 9.5
Research and development expense .......... -- -- -- 0.1 -- 0.1
YEAR ENDED DECEMBER 31, 1997:
Revenue from unaffiliated customers ....... $ 324.7 $ 104.4 $ 429.1 $ 105.7 $ 178.9 $ 284.6
Intersegment sales ........................ -- -- -- 9.4 5.3 14.7
Operating income (loss) ................... 36.5 11.1 47.6 36.6 14.4 51.0
Identifiable assets ....................... 810.5 309.1 1,119.6 631.1 69.9 701.0
Depreciation and amortization ............. 64.3 18.5 82.8 18.6 1.2 19.8
Capital expenditures ...................... 33.4 6.0 39.4 8.1 1.1 9.2
Research and development expense .......... -- -- -- 0.9 -- 0.9
PERIOD ENDED DECEMBER 31, 1996:
Revenue from unaffiliated customers ....... $ 132.3 $ 67.4 $ 199.7 $ 69.1 $ 116.0 $ 185.1
Intersegment sales ........................ -- -- -- 3.7 2.3 6.0
Operating income (loss) ................... 10.8 6.8 17.6 26.1 10.9 37.0
Identifiable assets ....................... 612.8 302.7 915.5 606.7 44.5 651.2
Depreciation and amortization ............. 25.6 12.1 37.7 12.1 0.5 12.6
Capital expenditures ...................... 8.1 5.0 13.1 1.5 1.7 3.2
Research and development expense .......... -- -- -- 1.3 -- 1.3
<CAPTION>
ELIM-
CORPORATE INATIONS TOTAL
----------- ---------- ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Revenue from unaffiliated customers ....... $ -- $ -- $ 738.1
Intersegment sales ........................ -- -- 15.3
Operating income (loss) ................... (24.3) 1.0 9.6
Identifiable assets ....................... 38.3 2.2 1,980.0
Depreciation and amortization ............. 2.3 (1.6) 120.6
Capital expenditures ...................... 0.2 -- 66.6
Research and development expense .......... -- -- 0.1
YEAR ENDED DECEMBER 31, 1997:
Revenue from unaffiliated customers ....... $ -- $ -- $ 713.7
Intersegment sales ........................ -- -- 14.7
Operating income (loss) ................... (16.8) 1.1 82.9
Identifiable assets ....................... 10.3 1.2 1,832.1
Depreciation and amortization ............. 1.4 (1.5) 102.5
Capital expenditures ...................... 8.6 (0.5) 56.7
Research and development expense .......... -- -- 0.9
PERIOD ENDED DECEMBER 31, 1996:
Revenue from unaffiliated customers ....... $ -- $ -- $ 384.8
Intersegment sales ........................ -- -- 6.0
Operating income (loss) ................... (8.6) 0.1 46.1
Identifiable assets ....................... 27.1 0.1 1,593.9
Depreciation and amortization ............. -- (0.9) 49.4
Capital expenditures ...................... 1.3 (0.7) 16.9
Research and development expense .......... -- -- 1.3
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 18. GEOGRAPHIC SEGMENTS
Information about the Company's operations in different geographic areas
for 1998, 1997 and 1996, and identifiable assets at December 31, 1998 and 1997,
are presented below:
OPERATING REVENUE:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
United States $ 519,600 $ 439,800 $ 205,800
United Kingdom 59,700 44,100 15,900
Australia 48,900 49,500 33,500
Japan 34,200 54,700 36,800
China, including Hong Kong 33,500 82,400 60,700
Other European countries 28,300 21,300 9,900
Mexico 10,700 8,800 5,400
Sweden 6,500 9,100 7,400
Korea 6,400 14,100 14,300
Spain 4,100 3,300 900
Canada 800 600 200
Middle East 700 700 --
Eliminations (15,300) (14,700) (6,000)
--------- --------- ---------
$ 738,100 $ 713,700 $ 384,800
========= ========= =========
</TABLE>
Operating revenue for the U.S. Bowling Products operation has been reduced
by $75,991, in 1998, $104,900 in 1997 and $63,400 in 1996 to reflect the
elimination of intracompany sales between the U.S. Bowling products operation
and the Bowling Products international sales and service branches.
OPERATING INCOME (LOSS):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Australia $ 6,400 $ 6,700 $ 4,900
United Kingdom 5,700 4,400 600
Mexico 1,600 1,300 500
United States 500 56,300 28,200
Sweden 500 1,300 1,000
Canada (200) (100) (100)
Japan (200) 4,500 4,000
Middle East (200) -- --
Spain (200) (200) (100)
Korea (900) 200 100
Other European countries (1,200) (900) (700)
China, including Hong Kong (3,200) 8,300 7,600
Eliminations 1,000 1,100 100
-------- -------- --------
$ 9,600 $ 82,900 $ 46,100
======== ======== ========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 18. GEOGRAPHIC SEGMENTS continued
Operating income for the U.S. Bowling Products operation has been
increased by $148 in 1998, $2,300 in 1997 and reduced by $1,000 in 1996 to
reflect the elimination of intracompany gross profit between the U.S. Bowling
Products operations and the Bowling Products international sales and service
branches.
IDENTIFIABLE ASSETS:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
United States $ 1,547,000 $ 1,451,900
United Kingdom 188,600 115,900
Australia 110,500 112,300
Other European countries 37,700 38,300
Japan 31,600 36,900
China, including Hong Kong 28,000 200
Mexico 13,000 17,200
Korea 9,900 3,900
Spain 5,100 5,400
Canada 3,300 6,300
Sweden 2,100 3,400
Middle East 1,000 39,200
Eliminations 2,200 1,200
----------- -----------
$ 1,980,000 $ 1,832,100
=========== ===========
</TABLE>
Identifiable assets for the international sales and service branches have
been reduced by $3,037 at December 31, 1998 and $3,200 at December 31, 1997 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 19. RELATED PARTIES
Goldman Sachs and its affiliates have certain interests in the Company in
addition to being the initial purchasers of the Notes 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 Group, L.P., are directors of AMF
Bowling, AMF Group Holdings and Bowling Worldwide. 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
Subsidiary Notes. 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., was also a lender
under the bank credit agreement. Goldman Sachs has received fees of
approximately $9.8 million and has been 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.
Under 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; Citibank, N.A. is acting as
Administrative Agent and Citicorp USA, Inc. is acting as Collateral Agent.
Total fees payable to Goldman Sachs Credit Partners, L.P. in connection with
its services under the Credit Agreement aggregated approximately $0.9 million,
and such entity was reimbursed for expenses in connection with such services.
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 19. RELATED PARTIES continued
Goldman Sachs acted as the Company's lead underwriter in connection with
the Initial Public Offering. Underwriting discounts paid to the entire
underwriting syndicate in the Initial Public Offering totaled $18.9 million.
In 1997, the Company paid a fee of $0.3 million to Goldman Sachs for its
representation of the Company in connection with the Company's lease of its new
bowling center at Chelsea Piers in New York.
In 1998, Goldman Sachs was an initial purchaser in connection with the
Debenture offering, for which the Company paid Goldman Sachs approximately $5.4
million.
NOTE 20. RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the fiscal year ended December 31, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." Adoption of these standards did not have a
material impact on the Company's financial position or results of operations.
Effective for the fiscal year ended December 31, 1999, the Company is
required to adopt Statement of Position 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Effective for the
quarter ended March 31, 2000, the Company is required to adopt SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The Company does
not expect that adoption of these standards will have a material impact on the
Company's financial position or results of operations.
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating information presents:
o Condensed consolidating balance sheets as of December 31, 1998 and 1997,
and condensed consolidating statements of operations and cash flows for
1998, 1997 and 1996.
o Elimination entries necessary to combine the entities comprising AMF
Bowling.
The Subsidiary 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 Bowling Worldwide (the "Guarantors"). Third-tier subsidiaries
of Bowling Worldwide, all of which are wholly owned subsidiaries of AMF
Worldwide Bowling Centers Holdings Inc., a second-tier subsidiary of Bowling
Worldwide, have not provided guarantees (the "Non-Guarantors").
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS continued
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................. $ 19,843 $ 13,159 $ -- $ 33,002
Accounts and notes receivable, net of
allowance for doubtful accounts........... 81,999 436 -- 82,435
Accounts receivable-- intercompany ........ 9,690 7,374 (17,064) --
Inventories ............................... 63,710 1,025 -- 64,735
Deferred taxes and other .................. 18,145 5,815 -- 23,960
----------- ---------- ------------ -----------
TOTAL CURRENT ASSETS ..................... 193,387 27,809 (17,064) 204,132
Notes receivable-- intercompany ............ 43,817 5,663 (49,480) --
Property and equipment, net ................ 794,550 78,255 1,180 873,985
Investment in subsidiaries ................. 21,805 781,094 (802,899) --
Goodwill and other assets .................. 879,316 22,541 -- 901,857
----------- ---------- ------------ -----------
TOTAL ASSETS ............................. $ 1,932,875 $ 915,362 $ (868,263) $ 1,979,974
=========== ========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................... $ 31,157 $ 2,755 $ -- $ 33,912
Accounts payable-- intercompany ........... 7,374 9,690 (17,064) --
Accrued expenses .......................... 49,984 11,825 -- 61,809
Income taxes payable ...................... 1,486 3,903 -- 5,389
Current portion long-term debt ............. 32,375 -- -- 32,375
----------- ---------- ------------ -----------
TOTAL CURRENT LIABILITIES ............... 122,376 28,173 (17,064) 133,485
Long-term debt, less current portion ....... 997,713 313,876 -- 1,311,589
Notes payable-- intercompany ............... 5,663 43,817 (49,480) --
Other long-term liabilities ................ 4,224 1,041 -- 5,265
Deferred income taxes ...................... -- -- -- --
----------- ---------- ------------ -----------
TOTAL LIABILITIES ....................... 1,129,976 386,907 (66,544) 1,450,339
----------- ---------- ------------ -----------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock .............................. 597 -- -- 597
Paid-in capital ........................... 1,002,844 747,898 (1,001,437) 749,305
Retained deficit .......................... (181,217) (200,118) 180,393 (200,942)
Accumulated other comprehensive income .... (19,325) (19,325) 19,325 (19,325)
----------- ---------- ------------ -----------
TOTAL STOCKHOLDERS' EQUITY .............. 802,899 528,455 (801,719) 529,635
----------- ---------- ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,932,875 $ 915,362 $ (868,263) $ 1,979,974
=========== ========== ============ ===========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS continued
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 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 ............................................ $ 33,451 $ 2,339 $ -- $ 35,790
Accounts and notes receivable, net of
allowance for doubtful accounts .................................... 71,652 2,339 -- 73,991
Accounts receivable -- intercompany .................................. 6,682 1,963 (8,645) --
Inventories .......................................................... 54,765 1,803 -- 56,568
Deferred taxes and other ............................................. 14,345 2,704 -- 17,049
----------- --------- ----------- -----------
TOTAL CURRENT ASSETS .............................................. 180,895 11,148 (8,645) 183,398
Notes receivable-intercompany ........................................ 15,482 1,663 (17,145) --
Property and equipment, net .......................................... 712,032 37,845 1,008 750,885
Investment in subsidiaries ........................................... 24,499 628,355 (652,854) --
Goodwill and other assets ............................................ 891,011 6,758 -- 897,769
----------- --------- ----------- -----------
TOTAL ASSETS ...................................................... $ 1,823,919 $ 685,769 $ (677,636) $ 1,832,052
=========== ========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 38,513 $ 3,070 $ -- $ 41,583
Accounts payable -- intercompany ..................................... 1,934 6,711 (8,645) --
Accrued expenses ..................................................... 59,495 5,370 -- 64,865
Income taxes payable ................................................. 3,237 2,407 -- 5,644
Longterm debt, current portion ....................................... 27,376 -- -- 27,376
----------- --------- ----------- -----------
TOTAL CURRENT LIABILITIES ......................................... 130,555 17,558 (8,645) 139,468
Long-term debt ........................................................ 1,033,223 -- -- 1,033,223
Notes payable -- intercompany ......................................... 2,990 14,155 (17,145) --
Other long-term liabilities ........................................... 5,333 -- -- 5,333
Deferred income taxes ................................................. (1,036) 1,036 -- --
----------- --------- ----------- -----------
TOTAL LIABILITIES .................................................. 1,171,065 32,749 (25,790) 1,178,024
----------- --------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock ......................................................... -- 596 -- 596
Paid-in capital ...................................................... 747,145 746,049 (745,141) 748,053
Retained earnings (deficit) .......................................... (74,718) (74,052) 73,722 (75,048)
Equity adjustment from foreign currency translation ................. (19,573) (19,573) 19,573 (19,573)
----------- --------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY ......................................... 652,854 653,020 (651,846) 654,028
----------- --------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................... $ 1,823,919 $ 685,769 $ (677,636) $ 1,832,052
=========== ========= =========== ===========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS continued
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
OPERATING REVENUE ........................................ $ 682,772 $ 56,087 $ (746) $ 738,113
----------- ----------- ---------- -----------
OPERATING EXPENSES:
Cost of goods sold ...................................... 196,376 6,347 (499) 202,224
Bowling center operating expenses ....................... 304,311 31,641 (247) 335,705
Selling, general, and administrative expenses ........... 60,738 9,277 -- 70,015
Depreciation and amortization ........................... 113,558 7,251 (172) 120,637
----------- ----------- ---------- -----------
Total operating expenses ............................... 674,983 54,516 (918) 728,581
----------- ----------- ---------- -----------
Operating income ....................................... 7,789 1,571 172 9,532
NONOPERATING EXPENSES (INCOME):
Interest expense ........................................ 100,804 13,858 -- 114,662
Other expenses, net ..................................... 4,851 2,804 -- 7,655
Interest income ......................................... (1,689) (703) -- (2,392)
Equity in (income) loss of subsidiaries ................. (249) 107,248 (106,999) --
----------- ----------- ---------- -----------
Total nonoperating expenses ............................ 103,717 123,207 (106,999) 119,925
----------- ----------- ---------- -----------
Loss before income taxes ................................. (95,928) (121,636) 107,171 (110,393)
Provision for income taxes ............................... 2,864 4,430 -- 7,294
----------- ----------- ---------- -----------
Net loss before equity in loss of joint ventures ......... (98,792) (126,066) 107,171 (117,687)
Equity in loss of joint ventures ......................... (8,207) -- -- (8,207)
----------- ----------- ---------- -----------
Net loss .............................................. $ (106,999) $ (126,066) $ 107,171 $ (125,894)
=========== =========== ========== ===========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS continued
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUE ......................................... $ 673,714 $ 42,205 $ (2,251) $ 713,668
---------- ---------- --------- ----------
OPERATING EXPENSES:
Cost of goods sold ....................................... 207,820 6,230 (1,506) 212,544
Bowling center operating expenses ........................ 229,629 22,188 (611) 251,206
Selling, general, and administrative expenses ........... 61,421 3,125 -- 64,546
Depreciation and amortization ............................ 96,812 5,826 (191) 102,447
---------- ---------- --------- ----------
Total operating expenses ................................ 595,682 37,369 (2,308) 630,743
---------- ---------- --------- ----------
Operating income ........................................ 78,032 4,836 57 82,925
NONOPERATING EXPENSES (INCOME):
Interest expense ......................................... 117,804 581 -- 118,385
Other expenses, net ...................................... 6,054 2,225 1,827 10,106
Interest income .......................................... (1,631) (323) -- (1,954)
Equity in loss of subsidiaries ........................... 1,043 53,336 (54,379) --
---------- ---------- --------- ----------
Total nonoperating expenses ............................. 123,270 55,819 (52,552) 126,537
---------- ---------- --------- ----------
Income (loss) before income taxes ......................... (45,238) (50,983) 52,609 (43,612)
Provision (benefit) for income taxes ...................... (15,587) 2,811 -- (12,776)
---------- ---------- --------- ----------
Net loss before equity in loss of joint ventures
and extraordinary items .................................. (29,651) (53,794) 52,609 (30,836)
Equity in loss of joint ventures, net of tax .............. (1,362) -- -- (1,362)
---------- ---------- --------- ----------
Net loss before extraordinary items ....................... (31,013) (53,794) 52,609 (32,198)
Extraordinary items, net of tax ........................... (23,366) -- -- (23,366)
---------- ---------- --------- ----------
Net loss ............................................... $ (54,379) $ (53,794) $ 52,609 $ (55,564)
========== ========== ========= ==========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS continued
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996
(UNAUDITED)
(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 ........................... 98 892 922 1,912
Interest income ....................................... (5,617) (131) -- (5,748)
Equity in loss of subsidiaries ........................ 499 18,234 (18,733) --
---------- ---------- --------- ----------
Total nonoperating expenses .......................... 72,948 19,017 (17,811) 74,154
---------- ---------- --------- ----------
Income (loss) before income taxes ...................... (28,436) (17,481) 17,901 (28,016)
Provision (benefit) for income taxes ................... (9,703) 1,171 -- (8,532)
---------- ---------- --------- ----------
Net loss ............................................ $ (18,733) $ (18,652) $ 17,901 $ (19,484)
========== ========== ========= ==========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS continued
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $ (106,999) $ (126,066) $ 107,171 $ (125,894)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization ........................... 113,558 7,251 (172) 120,637
Equity in loss of joint ventures ........................ 8,207 -- -- 8,207
Deferred income taxes ................................... (243) -- -- (243)
Amortization of bond discount ........................... 23,965 12,732 -- 36,697
Equity in loss of subsidiaries .......................... (249) 107,248 (106,999) --
Loss on the sale of property and equipment, net ......... 8,953 (5) -- 8,948
Changes in assets and liabilities:
Accounts and notes receivable, net ..................... (11,129) 976 -- (10,153)
Receivables and payables -- affiliates ................. (22,873) 22,873 -- --
Inventories ............................................ (6,982) (87) -- (7,069)
Other assets ........................................... (12,912) (18,071) -- (30,983)
Accounts payable and accrued expenses .................. (14,474) 4,943 -- (9,531)
Income taxes payable .................................... (1,875) 1,661 -- (214)
Other long-term liabilities ............................. (73) -- -- (73)
----------- ------------ ---------- -----------
Net cash (used in) provided by operating activities ..... (23,126) 13,455 -- (9,671)
----------- ------------ ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of operating units, net of cash acquired .... (124,054) (49,438) -- (173,492)
Investment in subsidiary ................................. -- (255,587) 255,587 --
Investments in and advances to joint ventures ............ (5,643) -- -- (5,643)
Purchases of property and equipment ...................... (62,872) (3,767) -- (66,639)
Proceeds from sale of property and equipment ............. 3,811 -- -- 3,811
----------- ------------ ---------- -----------
Net cash used in investing activities ................... (188,758) (308,792) 255,587 (241,963)
----------- ------------ ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of deferred financing
costs ................................................... 224,500 324,141 548,641
Payment on long-term debt ................................ (278,988) (22,997) -- (301,985)
Capital Contribution from Parent ......................... 255,587 -- (255,587) --
Net proceeds from issuance of shares ..................... -- 44 -- 44
Noncompete obligations ................................... (677) -- -- (677)
----------- ------------ ---------- -----------
Net cash provided by financing activities ............... 200,422 301,188 (255,587) 246,023
----------- ------------ ---------- -----------
Effect of exchange rates on cash ........................ (2,152) 4,975 -- 2,823
----------- ------------ ---------- -----------
Net (decrease) increase in cash ......................... (13,614) 10,826 -- (2,788)
Cash and cash equivalents at beginning of period ........ 33,457 2,333 -- 35,790
----------- ------------ ---------- -----------
Cash and cash equivalents at end of period .............. $ 19,843 $ 13,159 $ -- $ 33,002
=========== ============ ========== ===========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS continued
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 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 ............................................................. $ (54,379) $ (53,794) $ 52,609 $ (55,564)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization ....................................... 96,812 5,826 (191) 102,447
Equity in loss of joint ventures .................................... 1,362 -- -- 1,362
Extraordinary items, net of tax ..................................... 23,366 -- -- 23,366
Deferred income taxes ............................................... (20,227) 6 -- (20,221)
Amortization of bond discount ....................................... 33,562 -- -- 33,562
Equity in loss of subsidiaries ...................................... 1,043 53,336 (54,379) --
Dividends from guarantor companies .................................. (500) 500 -- --
Dividends from non-guarantor companies .............................. 1,327 (1,327) -- --
Loss on the sale of property and equipment, net ..................... 4,417 29 -- 4,446
Changes in assets and liabilities:
Accounts and notes receivable ...................................... (25,218) (875) -- (26,093)
Receivables and payables -- affiliates ............................. (12,745) 12,745 -- --
Inventories ........................................................ (16,570) (401) -- (16,971)
Other assets ....................................................... (13,375) (1,797) 2,275 (12,897)
Accounts payable and accrued expenses .............................. 14,522 3,260 -- 17,782
Income taxes payable ............................................... (1,152) 1,754 -- 602
Other long-term liabilities ........................................ (4,089) -- -- (4,089)
---------- ---------- ----------- ----------
Net cash provided by (used in) operating activities ......... ........ 28,156 19,262 314 47,732
---------- ---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of operating units, net of cash acquired ................ (197,271) (17,490) -- (214,761)
Investment in subsidiary ............................................. -- (315,671) 315,671 --
Investments in and advances to joint ventures ........................ (21,361) -- -- (21,361)
Purchases of property and equipment ................................. (53,911) (2,926) 134 (56,703)
Proceeds from sale of property and equipment ......................... 4,123 57 -- 4,180
---------- ---------- ----------- ----------
Net cash provided by (used in) investing activities ................. (268,420) (336,030) 315,805 (288,645)
---------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of deferred financing
costs .............................................................. 231,406 9,000 -- 240,406
Payment on long-term debt ............................................ (295,621) (9,000) -- (304,621)
Prepayment penalty ................................................... (14,571) -- -- (14,571)
Capital Contribution ................................................. 315,671 37,048 (316,119) 36,600
Initial public offering of shares .................................... -- 279,071 -- 279,071
Repurchase shares .................................................... -- (500) -- (500)
Noncompete obligations ............................................... (647) -- -- (647)
---------- ---------- ----------- ----------
Net cash provided by (used in) financing activities ................. 236,238 315,619 (316,119) 235,738
---------- ---------- ----------- ----------
Effect of exchange rates on cash .................................... (2,183) (420) -- (2,603)
---------- ---------- ----------- ----------
Net decrease in cash ................................................ (6,209) (1,569) -- (7,778)
Cash and cash equivalents at beginning of period .................... 39,660 3,908 -- 43,568
---------- ---------- ----------- ----------
Cash and cash equivalents at end of period .......................... $ 33,451 $ 2,339 $ -- $ 35,790
========== ========== =========== ==========
</TABLE>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS continued
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996
(UNAUDITED)
(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) $ (18,652) $ 17,901 $ (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 18,234 (18,733) --
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 ............................................ (4,332) (582) 904 (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>
<PAGE>
AMF BOWLING, INC. AND SUBSIDIARIES
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1997 1998
--------------------------------------------- -------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
QUARTERS ENDED --------- --------- -------------- ---------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .....................$ 157.6 $ 160.5 $ 187.5 $ 208.1 $ 187.6 $ 162.2 $ 172.5 $ 215.8
Operating income (loss) ....... 29.7 12.7 17.5 23.0 26.3 (12.6) (13.1) 9.0
Net income (loss)
before extraordinary items ... 0.1 (12.3) (10.2) (9.8) (0.6) (35.8) (35.6) (53.9)
Extraordinary items, net of
tax (b) ...................... -- -- -- (23.4) -- -- -- --
Net income (loss) ............. 0.1 (12.3) (10.2) (33.2) (0.6) (35.8) (35.6) (53.9)
Net income (loss) per
share before extraordinary
items (a) .................... 0.00 (0.29) $ (0.24) $ (0.18) $ (0.01) $ (0.60) $ (0.60) $ (0.90)
Per share effect of
extraordinary items (a) (b) .. -- -- -- (0.44) -- -- -- --
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) per
share (a)..................... $ 0.00 $ (0.29) $ (0.24) $ (0.62) $ (0.01) $ (0.60) $ (0.60) $ (0.90)
======== ========= ========== ========== ========== ========== ========== ==========
</TABLE>
- --------
(a) Basic and diluted. Outstanding stock options and warrants are not
considered as their effect is antidilutive.
(b) Costs incurred in connection with the use of proceeds of the Initial Public
Offering. See "Note 9. Long-Term Debt" and "Note 12. Stockholders' Equity"
in the Notes to Consolidated Financial Statements.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND THE STOCKHOLDERS
AMF BOWLING GROUP
In our opinion, the combined financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of AMF Bowling Group at April 30, 1996 and the results of its
operations and its cash flows for the four months ended April 30, 1996 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 audit. We conducted our audit 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 audit provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Norfolk, Virginia
June 28, 1996
<PAGE>
AMF BOWLING GROUP
COMBINED BALANCE SHEET
(in thousands of dollars)
<TABLE>
<CAPTION>
APRIL 30,
1996
------------
<S> <C>
ASSETS
CURRENTS ASSETS:
Cash and cash equivalents ...................................................... $ 21,913
Accounts and notes receivable, net of allowance for doubtful accounts of $3,110 33,887
Accounts and notes receivable -- affiliates .................................... 166
Inventories .................................................................... 43,296
Prepaid expenses and other ..................................................... 6,113
--------
TOTAL CURRENT ASSETS .......................................................... 105,375
Property and equipment, net ..................................................... 251,544
Other assets .................................................................... 18,330
--------
TOTAL ASSETS .................................................................. $375,249
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................... $ 23,670
Book overdrafts ................................................................ 5,724
Accrued expenses and deposits .................................................. 34,916
Long-term debt, current portion ................................................ 10
Income taxes payable ........................................................... 1,757
--------
TOTAL CURRENT LIABILITIES ..................................................... 66,077
Long-term debt .................................................................. 1,958
Other liabilities ............................................................... 2,811
Deferred income taxes ........................................................... 1,429
--------
TOTAL LIABILITIES ............................................................. 72,275
========
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY:
Common stock ................................................................... 454
Paid-in capital ................................................................ 251,770
Retained earnings .............................................................. 52,302
Equity adjustment from foreign currency translation ............................ (1,552)
--------
TOTAL STOCKHOLDERS' EQUITY ................................................... 302,974
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................... $375,249
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
AMF BOWLING GROUP
COMBINED STATEMENT OF OPERATIONS
(in thousands of dollars)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
<S> <C>
OPERATING REVENUES:
Sales of products and services ........................................ $ 164,371
Revenue from operating lease activities ............................... 573
---------
Total operating revenues ............................................. 164,944
---------
OPERATING EXPENSES:
Cost of sales, excluding depreciation of $791 ......................... 43,118
Bowling center operations ............................................. 80,156
Selling, general and administrative ................................... 35,557
Depreciation and amortization ......................................... 15,097
---------
Total operating expenses ............................................. 173,928
---------
Operating loss ....................................................... (8,984)
NONOPERATING INCOME (EXPENSES):
Interest expense ...................................................... (4,504)
Other expenses, net ................................................... (692)
Interest income ....................................................... 611
Foreign currency transaction loss ..................................... (29)
---------
Loss before income taxes ............................................... (13,598)
Income tax benefit ..................................................... 1,731
---------
Net loss ............................................................. $ (11,867)
=========
PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
</TABLE>
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
<S> <C>
Net loss before income taxes and pro forma adjustments ......... $ (13,598)
Pro forma C Corporation--tax benefit ........................... 5,065
---------
Pro forma net loss ............................................. $ (8,533)
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
AMF BOWLING GROUP
COMBINED STATEMENT OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................... $ (11,867)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization ................................................ 15,097
Deferred income taxes ........................................................ 414
Changes in assets and liabilities, net of effects from companies acquired:
Accounts and notes receivable, net .......................................... 4,784
Receivables and payables--affiliates ........................................ 1,535
Inventories ................................................................. (3,631)
Other assets and liabilities ................................................ (2,673)
Accounts payable and accrued expenses ....................................... 8,713
Income taxes payable ........................................................ (5,745)
---------
Net cash provided by operating activities ................................... 6,627
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................................ (6,874)
Other ......................................................................... 2,989
---------
Net cash used for investing activities ....................................... (3,885)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders ................................................. (36,721)
Payment of long-term debt ..................................................... (3,812)
Proceeds on notes payable--stockholders, net .................................. 1,236
Capital contributions by stockholders ......................................... 24,805
Collection of notes receivable--affiliates .................................... 19,408
Other ......................................................................... 3,988
---------
Net cash provided by financing activities .................................... 8,904
Effect of exchange rates on cash ............................................. 535
---------
Net increase in cash ........................................................... 12,181
Cash at beginning of period .................................................... 9,732
---------
Cash at end of period .......................................................... $ 21,913
=========
</TABLE>
See Note 11 for supplemental disclosures to the Combined Statement of Cash
Flows.
The accompanying notes are an integral part of this financial statement.
<PAGE>
AMF BOWLING GROUP
COMBINED STATEMENT 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, 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 this financial statement.
<PAGE>
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
o AMF Bowling, Inc. ("AMF Bowling")
o AMF Bowling Centers, Inc. ("AMF Bowling Centers")
o AMF Beverage Company of Oregon, Inc.
o King Louie Lenexa, Inc.
o AMF Bowling Centers (Aust) International Inc.
o AMF Bowling Centers (Canada) International Inc.
o AMF BCO-France One, Inc.
o AMF BCO-France Two, Inc.
o AMF Bowling Centers (Hong Kong) International Inc.
o AMF Bowling Centers International Inc.-Japan
o AMF Bowling Mexico Holding, Inc.
o Boliches AMF, Inc.
o AMF Bowling Centers II Inc.-Switzerland
o AMF BCO-U.K. One, Inc.
o AMF BCO-U.K. Two, Inc.
o AMF BCO-China, Inc.
o AMF Bowling Centers China, Inc.
Other
o AMF Catering Services Pty, Ltd.
o 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.
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 1. ORGANIZATION continued
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. The purchase
price for the acquisition was approximately $1,300,000, subject to certain
postclosing adjustments, less approximately $2,000 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, uncollectable accounts receivable, product
warranty costs and litigation and claims. Actual results could differ from
those estimates.
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 sold. Warranty expense aggregated
approximately $1,313 for the four months ended April 30, 1996.
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.
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
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:
Buildings and improvements 5 - 40 years
Bowling and related equipment 5 - 10 years
Manufacturing equipment 2 - 7 years
Furniture and fixtures 3 - 8 years
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.
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 amount charged against income was approximately $875 for the four
months ended April 30, 1996.
ADVERTISING COSTS
Costs incurred for producing and communicating advertising are expensed
when incurred. The amount charged against income was approximately $3,575 for
the four months ended April 30, 1996.
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
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
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 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 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.
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.
The Combined Companies were charged $512 for the four months ended April
30, 1996 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.
The Combined Companies lease equipment from CCA Financial, an affiliated
company. Rent expense was $203 for the four months ended April 30, 1996.
NOTE 4. INVENTORIES
Inventories at April 30, 1996 consist of the following:
APRIL 30, 1996
---------------
Raw materials .......................... $10,325
Work-in-progress ....................... 2,084
Finished goods and spare parts ......... 28,661
Merchandise inventory .................. 3,033
-------
44,103
Inventory valuation reserves ........... (807)
-------
$43,296
=======
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 4. INVENTORIES continued
Inventories were determined using the following methods at April 30, 1996:
APRIL 30, 1996
---------------
LIFO (Domestic manufacturing) ......... $27,128
FIFO (Foreign manufacturing) .......... 13,135
Other (Merchandise inventory) ......... 3,033
-------
$43,296
=======
If LIFO inventories had been valued at current costs, they would have been
greater by $2,527 at April 30, 1996.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment at April 30, 1996 consist of the following:
<TABLE>
<CAPTION>
APRIL 30, 1996
---------------
<S> <C>
Land .................................................... $ 25,891
Buildings and improvements .............................. 143,147
Equipment, furniture and fixtures ....................... 256,308
Construction in progress ................................ 110
----------
425,456
Less: accumulated depreciation and amortization ......... (173,912)
----------
$ 251,544
==========
</TABLE>
Depreciation expense was $14,523 for the four months ended April 30, 1996.
NOTE 6. ACCRUED EXPENSES AND DEPOSITS
Accrued expenses and deposits at April 30, 1996 consist of the following:
APRIL 30, 1996
---------------
Accrued compensation ..................... $ 9,714
League bowling accounts .................. 3,776
Other .................................... 21,426
-------
$34,916
=======
<PAGE>
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 consists of the following:
APRIL 30,
1996
----------
Mortgage and equipment notes ......... $1,968
Current maturities ................... (10)
------
Long-term portion .................... $1,958
======
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.
NOTE 8. INCOME TAXES
Loss before income taxes consists of the following:
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
United States ......... $ (7,757)
Foreign ............... (5,841)
---------
$ (13,598)
=========
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 8. INCOME TAXES continued
The income tax benefit (provision) consists of the following:
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
CURRENT TAX BENEFIT (PROVISION)
U.S. federal ................... $ --
State and local ................ 205
Foreign ........................ 1,940
------
Total current .................. 2,145
------
DEFERRED TAX BENEFIT (PROVISION)
U.S. federal ................... --
State and local ................ --
Foreign ........................ (414)
------
Total deferred ................. (414)
------
Total benefit .................. $1,731
======
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
APRIL 30,
1996
----------
DEFERRED TAX ASSETS
Current assets ....................... $ 815
Noncurrent assets .................... 799
--------
Total deferred tax assets ............ 1,614
--------
DEFERRED TAX LIABILITIES
Noncurrent liabilities ............... (1,429)
--------
Total deferred tax liabilities ....... (1,429)
--------
Net deferred tax assets .............. $ 185
========
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.
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 8. INCOME TAXES continued
The benefit for income taxes differs from the amount computed by applying
the statutory rate of 35% for the four months ended April 30, 1996 to loss
before income taxes. The principal reasons for this difference are follows:
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
Tax benefit at federal statutory rate ............... $ 4,759
(Increase) decrease in rates resulting from:
S Corporation election for U.S. federal tax purposes (4,759)
State and local taxes ............................... 205
Foreign income taxes ................................ 1,526
--------
Total ............................................... $ 1,731
========
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.
PRO FORMA TAX BENEFIT IS AS FOLLOWS:
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
(UNAUDITED)
CURRENT
U.S. federal ............ $3,222
State and local ......... 329
Foreign ................. 1,940
------
Total current ........... 5,491
------
DEFERRED
U.S. federal ............ (85)
State and local ......... 73
Foreign ................. (414)
------
Total deferred .......... (426)
------
Total benefit ........... $5,065
======
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 8. INCOME TAXES continued
Temporary differences and carryforwards which give rise to pro forma
deferred tax assets and liabilities at April 30, 1996 are as follows:
APRIL 30,
1996
------------
(UNAUDITED)
DEFERRED TAX ASSETS
Current assets ....................... $ 3,851
Noncurrent assets .................... 192
--------
Total deferred tax assets ............ 4,043
--------
DEFERRED TAX LIABILITIES
Noncurrent liabilities ............... (6,170)
--------
Total deferred tax liabilities ....... (6,170)
--------
Net deferred tax liabilities ......... $ (2,127)
========
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.
A reconciliation of the Combined Companies' pro forma United States Income
tax benefit computed by applying the statutory United States federal income tax
rate of 35% to the Combined Companies' loss before income taxes is presented in
the following table:
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
(UNAUDITED)
Tax benefit at federal statutory rate ........ $ 4,759
(Increase) decrease in rates resulting from:
State and local taxes, net ................... 402
Foreign income taxes ......................... 1,526
Foreign tax credits .......................... (1,526)
Nondeductible items .......................... (91)
Other ........................................ (5)
----------
$ 5,065
=========
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
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.
Future minimum rental payments under the operating lease agreements are as
follows:
PERIOD ENDING
DECEMBER 31,
- ------------
1996 (eight months) .......... $ 15,200
1997 ......................... 14,900
1998 ......................... 12,800
1999 ......................... 10,900
2000 ......................... 8,900
Thereafter ................... 49,600
--------
$112,300
========
Total rent expense under operating leases aggregated approximately $7,487
for the four months ended April 30, 1996.
LITIGATION AND CLAIMS
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. Management intends to vigorously defend against this claim and
believes the resolution of such claim will not have a significant effect on the
Combined Companies' combined financial position or results of operations. 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
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 9. COMMITMENTS AND CONTINGENCIES continued
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 intends
to vigorously contest the claim and believes the resolution of such claim will
not have a significant effect on the Combined Companies' combined financial
position or results of operations.
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 expects to
vigorously contest the claim and believes the resolution of such claim will not
have a significant effect on the Combined Companies' combined financial
position or results of operations.
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 the Combined Companies had recorded reserves aggregating approximately
$2,900 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 amount charged to expense
under this plan was approximately $410 for the four months ended April 30,
1996.
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. 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 amount
charged to expense under these plans aggregated $291 for the four months ended
April 30, 1996.
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.
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 11. SUPPLEMENTAL DISCLOSURES TO THE COMBINED STATEMENT OF CASH FLOWS
FOUR MONTHS
ENDED
APRIL 30,
1996
------------
Cash paid during the year for:
Interest ........................................ $ 12,862
Income taxes .................................... $ 5,359
Noncash capital contribution by the stockholders:
Debt forgiveness ................................ $163,184
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
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 identifiable assets at April 30, 1996 are
presented below:
FOUR MONTHS
ENDED
APRIL 30, 1996
---------------
Revenues from unaffiliated customers
Bowling centers
Domestic ....................... $ 75,000
International .................. 33,500
Manufacturing ...................... 56,400
---------
$ 164,900
=========
Intersegment sales
Bowling centers
Domestic ....................... $ --
International ..................
Manufacturing ...................... 4,600
---------
$ 4,600
=========
Operating (loss) income
Intersegment sales
Bowling centers
Domestic ....................... $ 3,600
International .................. (2,500)
Manufacturing ...................... (9,600)
Eliminations ....................... (500)
---------
$ (9,000)
=========
Identifiable assets
Bowling centers
Domestic ....................... $ 218,300
International .................. 65,400
Manufacturing ...................... 101,500
Eliminations ....................... $ (10,000)
---------
$ 375,200
=========
Depreciation and amortization expense
Bowling centers
Domestic ....................... $ 11,800
International .................. 2,500
Manufacturing ...................... 1,200
Eliminations ....................... (400)
---------
$ 15,100
=========
Capital expenditures
Bowling centers
Domestic ....................... $ 5,100
International .................. 2,300
Manufacturing ...................... 400
Eliminations ....................... (900)
---------
$ 6,900
=========
<PAGE>
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 identifiable
assets at April 30, 1996 are presented below:
FOUR MONTHS
ENDED
APRIL 30, 1996
---------------
Net operating revenue:
United States ..................... $103,800
Japan ............................. 13,700
Hong Kong ......................... 14,000
Korea ............................. 5,800
Australia ......................... 14,700
United Kingdom .................... 7,300
Mexico ............................ 2,100
Sweden ............................ 1,200
Canada ............................ 300
Spain ............................. 1,000
Other European countries .......... 5,200
China ............................. 400
Eliminations ...................... (4,600)
--------
$164,900
========
Net operating revenues for the United States manufacturing operation has
been reduced by approximately $21,500 for the four months ended April 30, 1996
to reflect the elimination of intercompany sales between the domestic
manufacturing operation and the manufacturing foreign sales and service
branches.
FOUR MONTHS
ENDED
APRIL 30, 1996
---------------
Operating (loss) income:
United States .................... $ (2,900)
Japan ............................ (1,400)
Hong Kong ........................ 800
Korea ............................ (300)
Australia ........................ (1,300)
United Kingdom ................... (1,100)
Mexico ........................... (200)
Sweden ........................... (500)
Canada ........................... --
Spain ............................ (100)
Other European countries ......... (1,300)
China ............................ (200)
Eliminations ..................... (500)
--------
$ (9,000)
========
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 13. GEOGRAPHIC SEGMENTS continued
Operating (loss) income for the United States manufacturing operation has
been reduced by approximately $1,300 for the four months ended April 30, 1996
to reflect the elimination of intercompany gross profit between the domestic
manufacturing operation and the manufacturing foreign sales and service
branches.
APRIL 30, 1996
---------------
Identifiable assets:
United States .................... $ 290,400
Japan ............................ 17,200
Hong Kong ........................ 7,700
Korea ............................ 4,500
Australia ........................ 34,800
United Kingdom ................... 12,200
Mexico ........................... 5,100
Sweden ........................... 2,200
Canada ........................... 900
Spain ............................ 200
Other European countries ......... 7,700
China ............................ 2,300
Eliminations ..................... (10,000)
---------
$ 375,200
=========
Identifiable assets for the foreign sales and service branches have been
reduced by approximately $5,700 at April 30, 1996 to reflect the elimination of
intercompany gross profit in inventory between the domestic manufacturing
operations and the manufacturing foreign sales and service branches.
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 14. 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>
NOTE 15. 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 Bowling
Worldwide, Inc. (formerly 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 Bowling Worldwide, Inc. executed a bank
credit agreement and certain additional subsidiaries of AMF Bowling Worldwide,
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
Bowling Worldwide, Inc., which is the borrower and issuer of the notes
evidencing such indebtedness. Guarantor companies include the following:
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 15. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
o AMF Bowling Centers, Inc.
o Bush River Corporation
o King Louie Lenexa, Inc.
o AMF Beverage Company of Oregon, Inc.
o AMF Bowling, Inc.
o AMF Bowling Centers (Aust) International Inc.
o AMF Bowling Centers (Canada) International Inc.
o AMF BCO -- France One, Inc.
o AMF BCO -- France Two, Inc.
o AMF Bowling Centers (Hong Kong) International Inc.
o AMF Bowling Centers International Inc. -- Japan
o AMF Bowling Mexico Holding, Inc.
o Boliches AMF, Inc.
o AMF BCO -- U.K. One, Inc.
o AMF BCO -- U.K. Two, Inc.
o AMF BCO -- China, Inc.
o 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 Bowling Worldwide, 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 Holdings, Inc.
Non-guarantor companies at April 30, 1996 include the following foreign
subsidiaries of certain guarantor companies:
o AMF Bowling (Unlimited)
o Worthington North Properties Limited
o AMF Bowling France SNC
o AMF Bowling de Paris SNC
o AMF Bowling de Lyon La Part Dieu SNC
o Boliches y Compania
o Operadora Mexicana de Boliches, S.A.
o Promotora de Boliches, S.A. de C.V.
o Immeubles Obispado, S.A.
o Immeubles Minerva, S.A.
o Boliches Mexicano, S.A.
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 15. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
o AMF Bowling Centers (China) Company
o AMF Garden Hotel Bowling Center Company
The following condensed combining information presents:
o Condensed combining balance sheets as of April 30, 1996 and the related
condensed combining statements of operations and of cash flows for the
four months ended April 30, 1996.
o Elimination entries necessary to combine the entities comprising the
Combined Companies.
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 15. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
CONDENSED COMBINING BALANCE SHEETS
FOUR MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
GUARANTOR NON-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>
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 15. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOUR MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
GUARANTOR NON-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>
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 15. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOUR MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
GUARANTOR NON-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 --
Change 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>
<PAGE>
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS continued
(in thousands of dollars, except share data)
NOTE 16. 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.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Arthur Andersen LLP has served as the Company's independent public
accountants since 1996. Results for 1998, 1997 and 1996 have been audited by
Arthur Andersen LLP.
The Predecessor Company engaged PricewaterhouseCoopers LLP as its
independent accountants. Results for the four months ended April 30, 1996 have
been audited by PricewaterhouseCoopers LLP.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is incorporated by reference to the
sections entitled "Item 1 -- Election of Board of Directors -- General,"
" -- Nominees for Election as Directors" and "Meetings and Committees of the
Board -- Section 16(a) Beneficial Ownership Reporting Compliance" on pages 2, 3
and 4 of the proxy statement filed since the close of the fiscal year ended
December 31, 1998 (the "Proxy Statement") pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended. Pursuant to Item 401(b) of
Regulation S-K, certain information regarding the executive officers of the
Registrant is reported in Item 4 of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
sections entitled "Executive Compensation -- Summary Compensation Table," " --
Stock Option Grants in Last Fiscal Year," " -- Aggregated Stock Option
Exercises and Fiscal Year-End Option Value," " -- Employment Agreements," " --
Settlement Agreement," "Meetings and Committees of the Board -- Compensation of
Directors" and " -- Compensation Committee Interlocks and Insider
Participation" on pages 3, 4, 5, 6, 7 and 8 of the Proxy Statement. The
information contained in "Executive Compensation -- Report of the Compensation
Committee" and "Performance Graph" shall not be deemed "filed" as part of this
report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
section entitled "Securities Owned by Management and Certain Beneficial Owners"
on pages 10 and 11 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
The information required by this item is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" on pages
12-14 of the Proxy Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
See "Item 8. Financial Statements and Supplemental Data."
(B) REPORTS ON FORM 8-K
1. A current report dated September 30, 1998, was filed October 2, 1998,
announcing that AMF Bowling Worldwide, Inc., a wholly-owned subsidiary of the
Company, amended the terms of its $810 million credit facility with its
lenders.
2. A current report dated December 7, 1998 was filed with respect to
litigation initiated by a Chinese customer against the Company and the
Company's intent to appeal a judgment awarded to the customer in a Chinese
court.
(C) EXHIBITS
<TABLE>
<S> <C>
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 Restated Certificate of Incorporation of the Company. (3)
3.2 By-Laws of the Company. (4)
3.3 Certificate of Incorporation, as amended, of American Recreation Centers, Inc. (5)
3.4 By-Laws of American Recreation Centers, Inc. (6)
3.5 Certificate of Incorporation of Burleigh Recreation, Inc. (7)
3.6 Amended and Restated By-Laws of Burleigh Recreation, Inc. (8)
3.7 Certificate of Incorporation of 300, Inc. (9)
3.8 By-Laws of 300, Inc. (10)
3.9 Certificate of Incorporation, as amended, of Michael Jordan Golf Company, Inc. (11)
3.10 By-Laws of Michael Jordan Golf Company, Inc. (12)
3.11 Certificate of Incorporation of Michael Jordan Golf-Water Tower, Inc. (13)
3.12 By-Laws of Michael Jordan Golf-Water Tower, Inc. (14)
3.13 Certificate of Incorporation of MJG -- O'Hare, Inc. (15)
3.14 By-Laws of MJG -- O'Hare, Inc. (16)
3.15 Certificate of Incorporation of Lake Grove Centers, Inc. (17)
3.16 By-Laws of Lake Grove Centers, Inc. (18)
3.17 Certificate of Limited Liability Company of MBI No. 1, LLC. (19)
3.18 Limited Liability Company Agreement of MBI No. 1, LLC. (20)
3.19 Certificate of Limited Liability Company of AWI No. 1, LLC. (21)
3.20 Limited Liability Company Agreement of AWI No. 1, LLC. (22)
3.21 Certificate of Incorporation of AMF Bowling India Private LTD. (23)
3.22 Articles of Association of AMF Bowling India Private LTD. (24)
3.23 Articles of Association of AMF Bowling Poland Sp.zo.o (25)
3.24 R.Q.P. Partnership Agreement (26)
3.25 Joint Venture Agreement of Broadway Grand Properties (27)
4.1 Specimen of Common Stock Certificate. (28)
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. (29)
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 Subsidiary Senior Subordinated
Discount Notes. (30)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.4 Form of Senior Subordinated Note. (31)
4.5 Form of Senior Subordinated Discount Note. (32)
4.6 Purchase Agreement dated May 6, 1998, among the Company, the Designated Subsidiaries named therein and the Initial
Purchasers named therein. (33)
4.7 Indenture dated as of May 12, 1998, between the Company and the Bank of New York. (34)
4.8 Registration Rights Agreement dated as of May 12, 1998, among the Company, the Designated Subsidiaries named therein
and the Initial Purchasers named therein. (35)
4.9 Form of the Company's Zero Coupon Convertible Debenture due 2018. (36)
10.1 Registration Rights Agreement, dated as of March 21, 1996, by and among the Company, the Guarantors and Goldman, Sachs
& Co. (37)
10.2 Third Amended and Restated Credit Agreement 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. (38)
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan. (39)
10.4 Stockholders Agreement, dated as of April 30, 1996, by and among the Company and the Stockholders. (40)
10.5 Amendment No. 1, dated as of May 28, 1996, to the Stockholders Agreement. (41)
10.6 Amendment No. 2, dated as of May 31, 1996, to the Stockholders Agreement. (42)
10.7 Amendment No. 3, dated as of January 17, 1997, to the Stockholders Agreement. (43)
10.8 Amendment No. 4, dated as of January 17, 1997, to the Stockholders Agreement. (44)
10.9 Amendment No. 5, dated as of July 31, 1997, to the Stockholders Agreement. (45)
10.10 Amendment No. 6, dated as of December 31, 1997, to the Stockholders Agreement. (46)
10.11 Amendment No. 7, dated as of January 1, 1998, to the Stockholders Agreement. (47)
10.12 Registration Rights Agreement, dated as of April 30, 1996, by and among the Company and the Stockholders. (48)
10.13 Amendment No. 1, dated as of May 28, 1996, to the Registration Rights Agreement. (49)
10.14 Amendment No. 2, dated as of January 17, 1997, to the Registration Rights Agreement. (50)
10.15 Amendment No. 3, dated as of January 17, 1997, to the Registration Rights Agreement. (51)
10.16 Amendment No. 4, dated as of July 31, 1997, to the Registration Rights Agreement. (52)
10.17 Amendment No. 5, dated as of September 30, 1997, to the Registration Rights Agreement. (53)
10.18 Warrant Agreement, dated as of May 1, 1996, between the Company and The Goldman Sachs Group, L.P. (54)
10.19 Employment Agreement, dated as of May 1, 1996, by and among the Company, AMF Bowling, Inc. and Robert L. Morin. (55)
10.20 Employment Agreement, dated as of May 1, 1996, between the Company and Douglas J. Stanard. (56)
10.21 Stock Option Agreement, dated as of May 1, 1996, between the Company and Charles M. Diker. (57)
10.22 Employment Agreement, dated as of May 28, 1996, by and among the Company, AMF Group Inc. and Stephen E. Hare. (58)
10.23 Asset Purchase Agreement, dated as of September 10, 1996, by and between AMF Bowling Centers, Inc. and Charan
Industries, Inc. (59)
10.24 Termination Agreement, dated as of February 28, 1997, by and among the Company, AMF Bowling, Inc. and Robert L. Morin.
(60)
10.25 Stock Subscription Agreement, dated as of October 9, 1996, by and among the Company and the Purchasers (as defined
therein). (61)
10.26 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. (62)
10.27 Waiver and Amendment No. 1, dated as of March 24, 1997, to Amended and Restated Credit Agreement dated as of December
20, 1996. (63)
10.28 Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of June 30, 1997. (64)
10.29 Interest Rate Cap Agreement, dated July 2, 1997. (65)
10.30 AMF Bowling, Inc. 1998 Stock Incentive Plan. (66)
10.31 Amendment No. 1 and Waiver to the Third Amended and Restated Credit Agreement dated as of September 30, 1998. (67)
10.32 Termination and Release Agreement, dated as of November 2, 1998, by and among AMF Bowling, AMF Bowling Worldwide and
Douglas J. Standard. (68)
10.33 Employment Agreement, dated as of September 8, 1998, by and among AMF Bowling, Inc. and John P. Watkins. (69)
10.34 Amendment to the AMF Bowling, Inc. 1998 Stock Incentive Plan.
11.1 Computation of earnings per share.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
NOTES TO EXHIBITS:
<TABLE>
<S> <C>
(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 3.1 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(4) Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(5) Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(6) Incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(7) Incorporated by reference to Exhibit 3.5 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(8) Incorporated by reference to Exhibit 3.6 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(9) Incorporated by reference to Exhibit 3.7 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(10) Incorporated by reference to Exhibit 3.8 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(11) Incorporated by reference to Exhibit 3.9 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(12) Incorporated by reference to Exhibit 3.10 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(13) Incorporated by reference to Exhibit 3.11 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(14) Incorporated by reference to Exhibit 3.12 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(15) Incorporated by reference to Exhibit 3.13 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(16) Incorporated by reference to Exhibit 3.14 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(17) Incorporated by reference to Exhibit 3.15 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(18) Incorporated by reference to Exhibit 3.16 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(19) Incorporated by reference to Exhibit 3.17 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(20) Incorporated by reference to Exhibit 3.18 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(21) Incorporated by reference to Exhibit 3.19 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(22) Incorporated by reference to Exhibit 3.20 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(23) Incorporated by reference to Exhibit 3.21 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
(24) Incorporated by reference to Exhibit 3.22 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal
year ended December 31, 1997 (File No. 001-13539).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(25) Incorporated by reference to Exhibit 3.23 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(26) Incorporated by reference to Exhibit 3.24 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(27) Incorporated by reference to Exhibit 3.25 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(28) Incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(29) Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(30) Incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(31) Incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(32) Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(33) Incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-60959).
(34) Incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-60959).
(35) Incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-60959).
(36) Incorporated by reference to Exhibit 4.9 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-60959).
(37) Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(38) Incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(39) Incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(40) Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(41) Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(42) Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(43) Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(44) Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(45) Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(46) Incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(47) Incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(48) Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(49) Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(50) Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(51) Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(52) Incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(53) Incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(54) Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(55) Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(56) Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(57) Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(58) Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-4 of AMF Group Inc. (File No.
333-4877).
(59) 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).
(60) 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).
(61) 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).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(62) 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).
(63) 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).
(64) 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).
(65) 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).
(66) Incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(67) Incorporated by reference to Exhibit 10.1 of AMF Bowling, Inc.'s Current Report on Form 8-K dated September 30, 1998
(File No. 001-13539).
(68) Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of AMF Bowling, Inc. for the quarterly
period ended September 30, 1998 (File No. 001-13539).
(69) Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of AMF Bowling, Inc. for the quarterly
period ended September 30, 1998 (File No. 001-13539).
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of the 19th day of March, 1999.
AMF BOWLING, INC.
/s/ STEPHEN E. HARE
------------------------------
STEPHEN E. HARE
DIRECTOR/ACTING PRESIDENT AND CHIEF EXECUTIVE OFFICER/
EXECUTIVE VICE PRESIDENT/CHIEF FINANCIAL OFFICER/TREASURER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of the 19th day of March, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
----------------- -----------
<S> <C>
/s/ RICHARD A. FRIEDMAN Chairman of the Board
- --------------------------------
RICHARD A. FRIEDMAN
/s/ TERENCE M. O'TOOLE Director
- --------------------------------
TERENCE M. O'TOOLE
/s/ PETER M. SACERDOTE Director
- --------------------------------
PETER M. SACERDOTE
/s/ CHARLES M. DIKER Director
- --------------------------------
CHARLES M. DIKER
/s/ PAUL B. EDGERLEY Director
- --------------------------------
PAUL B. EDGERLEY
/s/ HOWARD A. LIPSON Director
- --------------------------------
HOWARD A. LIPSON
/s/ THOMAS R. WALL, IV Director
- --------------------------------
THOMAS R. WALL, IV
/s/ STEPHEN E. HARE Director/Acting President and Chief Executive Officer/
- -------------------------------- Executive Vice President/Chief Financial Officer/
STEPHEN E. HARE Treasurer
/s/ MICHAEL P. BARDARO Senior Vice President/Corporate Controller/ Assistant
- -------------------------------- Secretary/Chief Accounting Officer
MICHAEL P. BARDARO
</TABLE>
<PAGE>
AMF BOWLING, INC
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE I
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
AMF BOWLING, INC.:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements included in the Form 10-K Annual Report
of AMF Bowling, Inc. and subsidiaries for the years ended December 31, 1998 and
1997, and for the period from inception (January 12, 1996) through December 31,
1996, and have issued our report thereon dated February 19, 1999. Our audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule I filed as part of the Company's Form
10-K Annual Report 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 audits 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 19, 1999
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets ....................................... $ 12,576 $ --
Investment in subsidiary ............................. 804,079 653,862
Other noncurrent assets .............................. 11,235 239
--------- ---------
TOTAL ASSETS ....................................... $ 827,890 $ 654,101
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities ............................ $ 1,382 $ 73
Long term debt ....................................... 296,873 --
Stockholders' equity ................................. 529,635 654,028
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 827,890 $ 654,101
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------ DECEMBER 31,
1998 1997 1996
--------------- ------------ -------------
<S> <C> <C> <C>
General & administrative expenses .......................... $ 6,246 $ -- $ --
Depreciation and amortization .............................. 341 -- --
----------- --------- ----------
Total operating expenses ................................... 6,587 -- --
----------- --------- ----------
Operating loss ............................................. (6,587) -- --
Interest expense ........................................... 12,732 -- --
Other expense .............................................. 329 -- --
Interest income ............................................ (581) (102) (137)
----------- --------- ----------
Income (loss) before income taxes .......................... (19,067) 102 137
----------- --------- ----------
Provision for income taxes ................................. -- 17 56
----------- --------- ----------
Income (loss) before equity in loss of subsidiary .......... (19,067) 85 81
Equity in loss of subsidiary ............................... (106,827) (55,649) (19,565)
----------- --------- ----------
Net loss ................................................... $ (125,894) $ (55,564) $ (19,484)
=========== ========= ==========
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------- DECEMBER 31,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss .................................................................... $ (125,894) $ (55,564) $ (19,484)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Interest income, net ....................................................... (150) (102) (137)
Amortization ............................................................... 341 -- --
Amortization of bond discount .............................................. 12,732 -- --
Deferred taxes ............................................................. -- -- --
Equity in loss of subsidiary ............................................... 106,827 55,649 19,565
Change in assets and liabilities ........................................... (168) 17 56
---------- ---------- ----------
Net cash used in operating activities ...................................... (6,312) -- --
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES:
Investment in subsidiary .................................................... (255,587) (315,671) (420,750)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from long-term debt, net of deferred financing costs ............... 273,010 -- --
Capital contributions ....................................................... -- 36,600 420,750
Net proceeds on issuance of shares .......................................... 44 279,071 --
---------- ---------- ----------
Net cash provided by financing activities ................................... 273,054 315,671 420,750
---------- ---------- ----------
Net change in cash and cash equivalents ..................................... 11,155 -- --
Cash and cash equivalents at beginning of period ............................ -- -- --
---------- ---------- ----------
Cash and cash equivalents at end of period .................................. $ 11,155 $ -- $ --
========== ========== ==========
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
NOTES TO AMF BOWLING, INC. CONDENSED FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION:
These notes to the AMF Bowling, Inc. ("AMF Bowling") condensed financial
statements should be read in conjunction with the Notes to Consolidated
Financial Statements of AMF Bowling and subsidiaries included in Part II, Item
8 of the Form 10-K Annual Report (the "Notes"). AMF Bowling Worldwide, Inc.,
Bowling Worldwide") is a wholly-owned subsidiary of AMF Group Holdings Inc.
("AMF Group Holdings"). AMF Group Holdings is a wholly-owned subsidiary of AMF
Bowling. 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.
2. GUARANTEES:
The Subsidiary Senior Subordinated Notes and Subsidiary Senior
Subordinated Discount 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 Bowling Worldwide, as discussed in "Note 21. Condensed
Consolidating Financial Statements" in the Notes.
3. ZERO COUPON CONVERTIBLE DEBENTURES:
The Company's Zero Coupon Convertible Debentures (the "Debentures") (as
described in "Note 9. Long-Term Debt" in the Notes) were issued May 12, 1998 by
the Company and are due in 2018.
4. RESTRICTED ASSETS OF AMF GROUP HOLDINGS AND BOWLING WORLDWIDE:
The 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 Credit Agreement
also contains certain provisions which limit the amount of funds available for
transfer from Bowling Worldwide to AMF Group Holdings, and from AMF Group
Holdings to AMF Bowling. Limits exist on, among other things, the declaration
or payments of dividends, distribution of assets, and issuance or sale of
capital stock.
So long as Bowling Worldwide 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 make payments of approximately $0.15
million in May 1997 and May 1998 and, to the extent necessary, to make payments
of approximately $0.05 million due in May 1999 under certain noncompete
agreements with the Prior Owners; iii) declare and pay cash dividends for
general and 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.
5. TOTAL ASSETS AND LIABILITIES:
At December 31, 1998, assets represent AMF Bowling's investment in AMF
Group Holdings, cash held for general corporate purposes, deferred financing
costs associated with issuance of the Debentures and other assets related to
commitments under non-compete agreements and shareholder receivables associated
with subscription of AMF Bowling's Common Stock. At December 31, 1997, assets
represent AMF Bowling's investment in AMF Group Holdings and other assets
related to shareholder receivables associated with subscription of AMF
Bowling's Common Stock. At December 31, 1998, liabilities represent accrued
expenses primarily related to commitments under noncompete agreements. At
December 31, 1997, liabilities represent federal income taxes payable arising
from interest earned on the shareholder receivables previously described.
6. AMF BOWLING OPERATIONS:
In the year ended December 31, 1998, the Company began allocating certain
corporate, general and administrative expenses to AMF Bowling based on the
percentage of resources specifically used in administrative activities of AMF
Bowling.
<PAGE>
SCHEDULE II
AMF BOWLING GROUP
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------- ------------ ----------------------------- ---------------- -----------
ADDITIONS
-----------------------------
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 .....................
Four months ended April 30, 1996 .......... $3,373 $ (17) $ (246) $3,110
Inventory -- Reserves ......................
Four months ended April 30, 1996 .......... $1,256 $ 104 $ (553) $ 807
</TABLE>
Exhibit 10.34
AMENDMENT
TO THE
AMF BOWLING, INC.
1998 STOCK INCENTIVE PLAN
THIS AMENDMENT to the AMF Bowling, Inc. 1998 Stock Incentive Plan (the
"Plan") is made pursuant to the authority under Section 10 of the Plan for the
Board of Directors to amend the Plan. The Plan is hereby amended by deleting the
first sentence of Section 3(a) of the Plan and replacing it with the following
new sentence:
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be four million shares (4,000,000).
EXHIBIT 11.1
<TABLE>
<CAPTION>
AMF BOWLING, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996 (a) 1997 1998
------------------ ----------------- ----------------
<S> <C> <C> <C>
Shares
Weighted average number of
common shares outstanding 39,713 45,249 59,717
================== ================= ================
Net loss before extraordinary items $ (19,484) $ (32,198) $ (125,894)
================== ================= ================
Net loss $ (19,484) $ (55,564) $ (125,894)
================== ================= ================
Net loss per share, basic and diluted:
Net loss per share before extraordinary items (b) $ (0.49) $ (0.71) $ (2.11)
Per share effect of extraordinary items (b) - (0.52) -
------------------ ----------------- ----------------
Net loss per share (b) $ (0.49) $ (1.23) $ (2.11)
================== ================= ================
</TABLE>
- ------------------------------------------------
(a) For the period from the inception date of January 12, 1996 which includes
results of operations of the acquired business from May 1, 1996 through the
period ended December 31, 1996.
(b) Outstanding stock options and warrants are not considered as their effect is
antidilutive.
EXHIBIT 21.1
AMF BOWLING, INC.
List of Subsidiary Corporations
Entity Jurisdiction
- ------ of Origin
------------
AMF Group Holdings Inc. Delaware
AMF Bowling Worldwide, 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
AMF Beverage Company of Oregon, Inc. Oregon
AMF Beverage Company of W. VA, Inc. West Virginia
Bush River Corporation South Carolina
Fair Lanes Texas Concession Co., Inc. Texas
King Louie Lenexa, Inc. Kansas
300, Inc. Texas
AMF Bowling Products International, B.V. Netherlands
KOAM Bowling Equipment Company, Ltd. Korea
AMF Commercial Corporation Virginia
American Recreation Centers, Inc. California
Michael Jordan Golf Company, Inc. Delaware
Lake Grove Centers, Inc. Virginia
AMF Bowling India Private Ltd. India
AMF Bowling Poland Sp.zo.o. Poland
AWI No. 1, LLC Delaware
MBI No. 1, LLC Delaware
MJG-O'Hare, Inc. Delaware
AMF Bowling Centers (Aust) International, Inc. Virginia
AMF Catering Services Pty. Ltd. New South Wales
AMF Bowling Centers (Canada) International, Inc. Virginia
AMF Bowling Centers (Hong Kong) International, Inc. Virginia
AMF Bowling Centers International, Inc. Virginia
AMF BCO-UK One, Inc. Virginia
AMF BCO-UK 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 International BCO Holdings B.V. Netherlands
AMF Bowling United Kingdom
AMF Bowling France SNC France
Boliches AMF y Compania Mexico
AMF Bowling Centers (China) Company Hong Kong
AMF Bowling Ltda. Brazil
Worthing North Properties, Ltd. United Kingdom
Gravesend Bowling Limited United Kingdom
Channel Holdings Limited Guernsey
Pentagon Bowling Place United Kingdom
AMF Bowling de Paris SNC France
Societe Anonyme du Bowling Montparnasse France
AMF Bowling de Lyon la Part Dieu SNC France
Operadora Mexicano de Boliches, SA Mexico
Promotora de Boliches SA de CV Mexico
Inmuebles Minerva, SA Mexico
Inmuebles Obispado, SA Mexico
Boliches Mexicanos SA Mexico
AMF Garden Hotel Bowling Center Company China
ARTHUR ANDERSON LLP
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports, dated February 19, 1999, included in this Form 10-K, into AMF
Bowling, Inc.'s previously filed Registration Statement File No. 333-41773.
Richmond, Virginia
March 17, 1999
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-41773) of AMF Bowling, Inc. of our report dated
June 28, 1996, appearing on page 64 of this Form 10K.
PricewaterhouseCoopers LLP
Virginia Beach, Virginia
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 33,002
<SECURITIES> 0
<RECEIVABLES> 82,435
<ALLOWANCES> 6,492
<INVENTORY> 64,735
<CURRENT-ASSETS> 204,132
<PP&E> 873,985
<DEPRECIATION> 89,080
<TOTAL-ASSETS> 1,979,974
<CURRENT-LIABILITIES> 133,485
<BONDS> 1,311,589
0
0
<COMMON> 749,902
<OTHER-SE> (220,267)
<TOTAL-LIABILITY-AND-EQUITY> 1,979,974
<SALES> 738,113
<TOTAL-REVENUES> 738,113
<CGS> 202,224
<TOTAL-COSTS> 728,581
<OTHER-EXPENSES> 5,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,662
<INCOME-PRETAX> (110,393)
<INCOME-TAX> 7,294
<INCOME-CONTINUING> (117,687)
<DISCONTINUED> 0
<EXTRAORDINARY> (8,207)
<CHANGES> 0
<NET-INCOME> (125,894)
<EPS-PRIMARY> (2.11)
<EPS-DILUTED> (2.11)
</TABLE>
