AMF Bowling, Inc.

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AMF Bowling, Inc.

8100 AMF Drive
Richmond, Virginia 23111
U.S.A.
Telephone: (804) 730-4000
Toll Free: (800) 342-5263
Fax: (804) 730-1313
Web site: http://www.amf.com

Public Company
Incorporated: 1900 as American Machine Foundry Co.
Employees: 15,683
Sales: $732.7 million (1999)
Stock Exchanges: OTC
Ticker Symbol: AMBW
NAIC: 71395 Bowling Centers; 33992 Sporting and Athletic Goods Manufacturing; 42191 Sporting and Recreational Goods and Supplies Wholesalers

AMF Bowling, Inc. is the leading bowling company in the world. It manufactures a complete line of equipment including automated lanes, pins, balls, and shoes; operates more than 500 bowling centers in the United States and nine other countries; and also makes billiard tables and runs golfing facilities through subsidiaries. Expanding rapidly in the late 1990s, AMF suffered huge losses due to both the Asian economic downturn and the company’s own overly ambitious business plan. The debt-ridden company has subsequently instituted cost-cutting and quality improvement measures in an effort to remain viable. Investment banking firm Goldman, Sachs & Co. owns a majority interest in AMF Bowling.

Beginnings

The roots of AMF Bowling date to March 16,1900 when the American Machine Foundry Co. was formed by Moorehead Patterson. The New Jersey-based concern began as a manufacturer of equipment for the tobacco industry, and continued to ply its trade in this field over the next several decades. In the late 1930s an inventor named Fred Schmidt patented a method for picking up and re-setting bowling pins through the use of mechanical suction cups. Schmidt initially approached Brunswick Corporation, a leading bowling products manufacturer, but his appeal for financial backing was turned down. Brunswick itself had earlier attempted to create a pin-setting device, but had abandoned the concept as unworkable. Without backing, Schmidt sold the rights to his invention, at which point American Machine picked up the scent. They bought the patents, and then spent six years fine-tuning the idea. In 1946, at the American Bowling Congress’s annual tournament in Buffalo, New York, the first fully automated “Pinspotter” was unveiled. Although many in attendance were impressed, the two-ton prototype proved unreliable, and another five years were spent refining the machine.

Reintroduced in 1951, the perfected Pinspotter was greatly improved, reliable, and accurate. The ingenious device’s operation began when a bowling ball rolled through the pins and off the end of the lane into a cushion. This triggered a suction cupequipped rack to descend toward the pins that remained standing, lifting them out of the way while a bar dropped to the lane and raked away the fallen pins. Finally, the lifted pins were lowered back into place. The total cycle took less than 20 seconds. After the second and last ball of the bowling “frame” had been rolled, the bar would drop again and remove any remaining pins, and a fresh set would be lowered from above for the next player. The Pinspotter would then reload the original ten pins into their rack. Other devices were created to complement the Pinspotter, including an under-lane ball return, the “Pindicator” lighted pin indicator (to aid in scoring), and an electric-eye foul line violation detector.

The Pinspotter, which American Machine leased to alley owners for a fee of 12 cents per game, caused a revolution in the bowling industry. Prior to its availability, all pins had to be reset by hand, with stereotypically surly and unkempt teenage boys the usual workers, earning five to ten cents a game. Noisy, maledominated bowling alleys had a reputation similar to billiard parlors as places of drinking, smoking, and gambling, where upstanding women and children dared not go. With the efficient new Pinspotter and its quieter, more user-friendly accouterments, alleys began to take on a less seedy ambience, and the bowling industry began to promote the sport heavily to families and women. Business picked up industry-wide in the wake of the Pinspotter, which was joined by the competing Brunswick “Pinsetter” in 1956. By 1960 an estimated 90 percent of American lanes had been outfitted with automatic pin-setting machines. American Machine’s headquarters, which had been in Manhattan for some time, were moved to Westbury, Long Island, that same year.

Diversification

In the wake of this success American Machine began to diversify away from the tobacco machinery it had previously concentrated on. The company’s offerings came to include Hatteras brand boats, Head skis, and Harley-Davidson motorcycles, the latter acquired in 1968. Officially shortening its name in 1971, the company became known simply as AMF, Inc.

At the start of the 1980s, AMF’s corporate makeup began changing again through divestiture of some of its leisure and consumer goods operations, including lawnmower, boat, and bicycle manufacturing. Harley-Davidson was also sold, purchased by its management in June 1981 for $81.5 million. At the same time, investments were made in a number of energy-related and scientific businesses. Though early results were positive, the changes soon backfired, with energy operations racking up $24 million in losses by 1983. With bowling still profitable, the company began a campaign of expansion in this area, spending nearly $100 million on acquisitions of bowling centers in 1984 and 1985.

By this time AMF chief Thomas York was becoming a controversial figure, both for his reputation as an autocrat and for the lavish perks he and other top executives enjoyed. In early 1985 the company’s board applied pressure for change. One hundred staffers were laid off, the company moved to smaller quarters, and York even relinquished his limousine.

In April 1985 AMF became the subject of a hostile takeover bid from corporate raider Irwin L. Jacobs’s Minstar, Inc. Despite adoption of a “poison pill” clause and other tactics, the company was sold to Minstar in June for $563.8 million. AMF’s president, all but one of the company’s directors, and CEO York resigned or were fired shortly afterwards. By that fall, Jacobs was making plans to sell 13 of AMF’s subsidiaries, which accounted for more than half of the company’s revenues. These were primarily the company’s energy, scientific products, and foodservice ventures, with the majority of the sporting and leisure goods companies being retained. Jacobs also fired most of the conglomerate’s 400 corporate employees, leaving only a skeletal staff remaining.

Sale of Bowling Companies

In early 1986 several unsolicited offers came in to purchase the company’s bowling division, which Jacobs had not put on the market. It was still AMF’s most profitable business, making an impressive $13.6 million in profits on revenues of $109 million. However, an agreement was reached for its acquisition by New York investment firm Clayton & Dubilier, Inc. The deal fell through at the 11th hour, but then Commonwealth Venture Partners of Richmond, Virginia, stepped in with an identical offer of $223 million. Headed by William Goodwin, Jr., and Beverley Armstrong, the partners included executives of Major League Bowling Corp., which ran a chain of 22 southeastern U.S. bowling centers, and AMF-Union Machinery, which had been acquired from Minstar the previous year. AMF-Union President Frank Genovese was called on to run the newly independent company, which was renamed AMF Bowling Companies, Inc. At the time of its sale, AMF owned 110 bowling centers in the United States and abroad, and supplied almost half the pinsetting equipment worldwide.

Following the divestiture, AMF Bowling’s headquarters were moved from Long Island, New York, to Richmond, home of its new owners. Over the next several years a successful campaign was launched to improve AMF’s market share of bowling ball sales, with print and television ads for the company’s Cobra and Sumo lines featuring real snakes and a Sumo wrestler rolling down a lane. AMF’s AccuScore automatic scoring system was also being installed in increasing numbers of alleys nationwide. The computerized system displayed the results of each roll on a video screen above the lane, eliminating the need to rely on the traditional method of scoring by hand. During the early years of Commonwealth ownership several bowling center chains were also acquired, bringing the company’s total holdings to 114 centers in the United States and 85 abroad.

By the 1980s the number of Americans who bowled regularly was declining as leisure time shrank, and new measures were needed to put the fizz back in the company’s business. AMF Bowling Centers, Inc., the domestic bowling center arm, installed former PepsiCo executive Mark Willoughby as division head in 1991, and he rolled out a series of promotions intended to increase attendance among younger bowlers. Declaring that AMF would become “The McDonald’s of bowling,” Willoughby talked of building a chain of nationwide, lookalike centers and offering branded food from such names as Pizza Hut and Taco Bell.

Company Perspectives:

Our long-term business strategy is designed to: Create a nationally recognized chain of bowling centers in the U.S. and key international markets.

Leverage our brand and strong base of installed bowling equipment to grow sales of bowling products on a global basis. Become the employer of choice in our industry and in the communities in which we operate.

Acquisitions continued in the early 1990s, with new subsidiaries including Bowler’s Tape, Inc., billiard table maker Play Master-Renaissance, Inc., cue stick manufacturer Legendary Billiards, boating company Pompanette, Inc., industrial sewing company AMF Reece, Inc., the Ben Hogan Golf Co., and baking firm AMF Bakery Systems. In 1995 AMF became the largest bowling chain in the United States when it acquired control of Fair Lanes, Inc., owner of 106 centers. The purchase gave AMF more than 200 locations, easily topping Brunswick’s 125. The company was continuing to seek new ways to draw in bowlers and, following Brunswick’s example, introduced “Xtreme” bowling which featured day-glo balls, ultraviolet lighting, and loud rock music to create an otherworldly environment.

In 1996 AMF’s owners approached New York investment banking giant Goldman, Sachs & Co., seeking advice on selling the bowling operations. After examining AMF’s business, the investment firm made an offer of $1.37 billion itself, which was accepted. A new entity, AMF Group, Inc., was formed which owned AMF Bowling Centers, Inc., AMF Bowling, Inc., and related businesses. Goldman, Sachs held 65 percent of the company. AMF Bowling’s former owners, Michael Goodwin and Beverley Armstrong, caused a sensation when they distributed $50 million of their profits to 3,400 company employees, giving each the equivalent of 10 percent of his or her salary for every year they had been with the firm.

An Aggressive Expansion Plan

The new corporation, headed by former bowling center division head Douglas Stanard, set out on a course of rapid expansion, and by year’s end had picked up the 50-center Bowling Corporation of America chain for $106 million and the 43-unit American Recreation Centers chain for $70 million. Plans were also announced to create a $5 million, 40-lane bowling and entertainment center in Manhattan’s Chelsea Piers, and to build a series of centers in India. CEO Stanard was also ramping up the company’s marketing and modernization efforts, which were intended to solidify the company’s position as a familiar, consistent global brand.

In early 1997 a $40 million joint venture to build 20 bowling centers in Southeast Asia was launched with Hong Leong Corporation of Singapore. In the spring, another was formed with Playcenter of Sao Paolo, Brazil, to build as many as 39 centers in South America. Acquisitions of several small U.S. chains followed these moves, as did the purchase of Michael Jordan Golf Co., which operated several practice ranges. Gaining access to Jordan’s services as an AMF spokesperson was a major part of the deal.

In November 1997 AMF Bowling Co. went public with an IPO on the New York Stock Exchange, offering 13.5 million shares at an opening price of $19.50. Goldman, Sachs retained more than 50 percent ownership. To celebrate, and to push the offering, the company set up a bowling lane in front of the exchange for six hours on opening day, during which time the price rose by more than 10 percent. Plans to acquire an additional 100 to 150 bowling centers during 1998 were announced soon thereafter.

Looking for a Strike, but Rolling a Gutter Ball Instead

By mid-1998 the corporation’s numbers began to show signs of trouble. Earnings figures were considerably lower than expected, and revenues per existing center dropped by 3 percent instead of rising as anticipated. The most disappointing results came from the Bowling Products division, which reported downward revenue spikes of more than 20 percent two quarters in a row. This was attributed to the financial turmoil enveloping much of Southeast Asia, where AMF had been counting on a lucrative campaign of expansion. When the losses were calculated, they amounted to 60 cents per share for the second quarter, compared with a loss of 29 cents per share for the same quarter the previous year. The share price immediately tumbled, then continued to work its way down to less than $5 by year’s end.

Although a few additional bowling centers were still being purchased, the company’s expansion was put on hold, and a reorganization was effected, with the U.S. bowling center operation consolidated into six regional divisions from ten. The company also developed plans to move its Golden, Colorado lane-machine manufacturing and supply operation to Richmond. Some of the plant’s 50 workers lost their jobs in the process.

When the third quarter results were announced in October, the company reported even bleaker figures. Losses for the period totaled $35.7 million, with bowling products sales down more than 36 percent. Soon after the information was released, CEO Stanard gave notice that he would be leaving by the end of the year.

Key Dates:

1900:: American Machine Foundry Co. is formed to make tobacco production equipment.
1940:: Company purchases patents in order to manufacture an automated pin-setting machine.
1946:: Pinspotter debuts, but is returned to the drawing board for improvements.
1952:: Re-engineered Pinspotter enters production, gains widespread acceptance.
1960s:: Company acquires various sporting and leisure goods companies, including Harley-Davidson.
1971:: Company name is officially changed to AMF, Inc.
1980s:: AMF diversifies into energy and scientific industries.
1981:: Harley-Davidson is sold for $81.5 million.
1985:: AMF, Inc. is purchased by Irwin Jacobs’s Minstar, Inc.
1986:: AMF Bowling is sold to Commonwealth Venture Partners for $223 million.
1996:: Goldman, Sachs-led group acquires AMF Bowling for $1.37 billion.
1997:: AMF goes public on the New York Stock Exchange.
1998:: Stock price plummets as losses begin to mount; expansion plans are put on hold.
1999:: Roland Smith takes over as CEO and begins restructuring program.
2000:: AMF stock, trading at less than $1 per share, is delisted from the NYSE and moved to the over-the-counter (OTC) market.

His replacement was found in April 1999, when Roland C. Smith was recruited from Triare Companies, where he had served as head of a restaurant group that ran the Arby’s chain. Smith, a West Point graduate, announced that he wanted to learn the bowling business from the ground up, and did a stint as manager of a bowling center to get acquainted with his new employer.

In the fall of 1999, with losses continuing unabated, AMF downsized its bowling products operations. The company closed several plants and warehouses, and also began taking steps to recapitalize. Final figures for the year were not encouraging, as the company posted a net loss of $226 million on revenues of $733 million. By the summer of 2000, AMF stock was trading at less than a dollar per share, and a few months later it was delisted by the New York Stock Exchange, moving to the over-the-counter (OTC) market. Bankruptcy plans were reportedly under serious consideration after the company failed to make a September interest payment of $13.6 million. AMF now faced over $1.3 billion in debt, almost exactly the amount it had cost when purchased some five years earlier.

Though it was a leading bowling equipment manufacturer and the top operator of bowling centers around the world, debt-ridden AMF faced a difficult business environment and appeared down for the count. While it was still possible to prevail amidst these circumstances, the near future looked bleak, with only the courage and vision of the company’s management and a much hoped for turnaround in the world bowling products market likely to bring the company back from the brink.

Principal Subsidiaries

AMF Group Holdings Inc.; AMF Bowling Worldwide, Inc; AMF Bowling Holdings Inc.; AMF Bowling Centers Holdings; AMF Bowling Products, Inc.; AMF Bowling Products International, B.V. (Netherlands); AMF Bowling India Private Ltd. (India); AMF Bowling Poland Sp.zo.o. (Poland); AMF Worldwide Bowling Centers Holdings Inc.; AMF Bowling Centers, Inc.; AMF Beverage Company of Oregon, Inc.; AMF Beverage Company of W. VA, Inc.; Bush River Corporation; King Louie Lenexa, Inc.; 300, Inc.; The 400 Club, Inc.; American Recreation Centers, Inc.; Michael Jordan Golf Company, Inc.; MJGO’Hare, Inc.; Michael Jordan Golf Youth Program, Inc.; AMF Catering Services Pty. Ltd. (New South Wales); AMF Bowling Centers (Canada) International Inc.; AMF Bowling Centers (Hong Kong) International Inc.; AMF Bowling Centers International Inc.; AMF BCO-UK One, Inc.; AMF BCO-UK Two, Inc.; AMF BCO-France One, Inc.; AMF BCO-France Two, Inc.; AMF Bowling Centers Spain Inc.; AMF Bowling Mexico Holding, Inc.; AMF International BCO Holdings B.V. (Netherlands); AMF Bowling (U.K.); Worthing North Properties, Ltd. (U.K.); AMF Bowling France SNC (France); AMF Bowling de Paris SNC (France); AMF Bowling de Lyon la Part Dieu SNC (France); Boliches AMF y Compania (Mexico); 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).