BOWLMOR AMF CORP. Consolidated Financial Statements. June 28, 2015 and June 29, (With Independent Auditors Report Thereon)

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1 Consolidated Financial Statements (With Independent Auditors Report Thereon)

2 Table of Contents Page(s) Independent Auditors Report 1 2 Consolidated Balance Sheets as of 3 Consolidated Statements of Operations for Fiscal years ended 4 Consolidated Statements of Comprehensive Loss for Fiscal years ended June 28, 2015 and June 29, Consolidated Statements of Cash Flows for Fiscal years ended 6 Consolidated Statements of Stockholders Equity for Fiscal years ended June 28, 2015 and June 29,

3 KPMG LLP Suite East Cary Street Richmond, VA Independent Auditors Report The Board of Directors Bowlmor AMF Corp.: Report on the Financial Statements We have audited the accompanying consolidated financial statements of Bowlmor AMF Corp. and its subsidiaries, which comprise the consolidated balance sheets as of, and the related consolidated statements of operations, comprehensive loss, cash flows, and stockholders equity for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Bowlmor AMF Corp. and its subsidiaries as of, and the results of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles. October 9,

5 Consolidated Balance Sheets (In thousands except share and per share amounts) Assets Current assets: Cash and cash equivalents $ 62,921 37,677 Restricted cash 1,625 Accounts and notes receivable, net of allowance for doubtful accounts of $85 and $86 2,441 1,191 Inventories, net 5,441 3,375 Prepaid expenses and other current assets 14,963 16,591 Assets held for sale 4,753 6,640 Total current assets 92,144 65,474 Property and equipment, net 341, ,663 Intangible assets, net 49,453 41,477 Goodwill 43,056 40,969 Investment in joint venture Other assets 13,143 17,635 Total assets $ 539, ,848 Liabilities and Stockholders Equity Current liabilities: Accounts payable $ 17,238 10,813 Accrued expenses 51,381 35,314 Current maturities of long-term debt 8,603 6,883 Other current liabilities 4,073 Total current liabilities 81,295 53,010 Long-term debt, net 398, ,566 Long-term obligations under capital leases 3,189 3,189 Other long-term liabilities 19,133 17,597 Deferred income taxes 19,840 21,768 Total liabilities 521, ,130 Stockholders equity: Common stock ($ par value, 20,000,000 shares authorized, 10,000,000 shares issued and outstanding) 1 1 Additional paid-in capital 99,795 99,795 Accumulated deficit (79,847) (33,234) Accumulated other comprehensive income (loss) (1,495) 1,156 Total stockholders equity 18,454 67,718 Total liabilities and stockholders equity $ 539, ,848 See accompanying notes to consolidated financial statements. 3

6 Consolidated Statements of Operations Years ended (In thousands) Operating revenue $ 531, ,200 Operating expenses: Cost of goods sold 53,210 34,942 Bowling center operating expenses 343, ,134 Selling, general and administrative expenses 54,203 37,087 Asset impairment 4,536 2,185 Depreciation and amortization 49,438 39,634 Other operating expenses 31,831 13,055 Total operating expenses 536, ,037 Operating (loss) income (5,012) 4,163 Nonoperating (income) expenses: Interest expense 33,600 34,352 Interest income (45) (41) Loss on extinguishment of debt 16,452 (Income) loss from joint ventures (2,630) 1,725 Gain on sale of joint venture (4,700) Impairment on joint venture 5,179 Total nonoperating expenses 42,677 41,215 Loss from continuing operations before income taxes (47,689) (37,052) Provision for income taxes (1,835) (1,958) Loss from continuing operations (45,854) (35,094) Discontinued operations: Loss from discontinued operations, net of tax (838) (310) Gain on disposals, net of tax 79 2,170 (Loss) gain from discontinued operations (759) 1,860 Net loss $ (46,613) (33,234) See accompanying notes to consolidated financial statements. 4

7 Consolidated Statements of Comprehensive Loss Years ended (In thousands) Net loss $ (46,613) (33,234) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustment (2,651) 1,156 Other comprehensive (loss) income (2,651) 1,156 Total comprehensive loss $ (49,264) (32,078) See accompanying notes to consolidated financial statements. 5

8 Consolidated Statements of Cash Flows Years ended (In thousands) Operating activities: Net loss $ (46,613) (33,234) Less (loss) gain from discontinued operations (759) 1,860 Loss from continuing operations (45,854) (35,094) Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: Asset impairment 4,536 2,185 Noncash interest expense 2,979 9,127 Impairment on joint venture 5,179 Depreciation and amortization 49,438 39,634 Gain on sale of joint venture (4,700) Gain on sale or disposal of property, equipment and intangibles, net (2,807) (104) (Income) loss from joint ventures (2,630) 1,725 Loss on extinguishment of debt 12,437 Amortization of deferred financing costs 988 2,134 Amortization of deferred rent incentive (694) (694) Deferred income taxes (2,632) Decrease in restricted cash 10,787 Distributions from joint ventures 240 Changes in assets and liabilities: Accounts and notes receivable, net (1,250) 219 Inventories (183) 268 Other assets 3,291 4,099 Accounts payable and accrued expenses 12,863 (14,098) Other long-term liabilities 2, Net cash provided by operating activities from continuing operations 28,438 25,523 Investing activities: Acquisition of Brunswick Bowling Centers, net of cash acquired (253,245) Purchases of property and equipment (53,209) (31,025) Increase in restricted cash for acquisition (1,625) Proceeds from sale of property and equipment 202, Proceeds from sale of joint venture 5,498 Damage claim proceeds 1,258 4,896 Net cash used in investing activities from continuing operations (98,670) (26,089) Financing activities: Payments of long-term debt (307,244) (5,238) Proceeds from long-term debt 403,850 Payments of deferred financing costs (2,233) Net cash provided by (used in) financing activities from continuing operations 94,373 (5,238) Effect of exchange rates on cash (308) (61) Net cash provided by (used in) continuing operations 23,833 (5,865) Discontinued operations: Operating activities (2,707) (2,296) Investing activities 4,118 12,925 Net cash provided by discontinued operations 1,411 10,629 Net increase in cash and cash equivalents 25,244 4,764 Cash and cash equivalents at beginning of year 37,677 32,913 Cash and cash equivalents at end of year $ 62,921 37,677 Noncash investing activities: Brunswick property with fair value of $5,029 was received in exchange for a one year, interest-bearing note as part of the Brunswick acquisition on September 18, Ten istar centers deeded back to Bowlmor AMF on July 1, 2013 were recorded at fair value of $7,578 with an offsetting deferred rent incentive liability. See accompanying notes to consolidated financial statements. 6

9 Consolidated Statements of Stockholders Equity Years ended (In thousands) Accumulated other Total Common Paid-in Accumulated comprehensive stockholders stock capital deficit income (loss) equity Balance, July 1, 2013 $ 1 99,795 99,796 Net loss (33,234) (33,234) Foreign currency translation adjustment 1,156 1,156 Balance, June 29, ,795 (33,234) 1,156 67,718 Net loss (46,613) (46,613) Foreign currency translation adjustment (2,651) (2,651) Balance, June 28, 2015 $ 1 99,795 (79,847) (1,495) 18,454 See accompanying notes to consolidated financial statements. 7

10 (1) Organization Bowlmor AMF Corp., a Delaware corporation (Bowlmor AMF), and its subsidiaries (Bowlmor AMF and subsidiaries may be referred to collectively as the Company or Bowlmor AMF) are engaged in the business of operating bowling centers. The Company was incorporated on June 27, 2013 in connection with a Plan of Reorganization (the Plan) for AMF Bowling Worldwide, Inc. and its Debtor Affiliates (AMF). Pursuant to the Plan, various transactions occurred including the formation of Bowlmor AMF and the acquisition of the member interests in Strike Holdings, LLC (d/b/a Bowlmor Lanes) (Bowlmor). Bowlmor and its subsidiaries were not debtors in the bankruptcy proceedings. Rather, pursuant to the Plan, the companies that had operated as Bowlmor and AMF (which operates AMF bowling centers) each became subsidiaries of Bowlmor AMF on July 1, 2013, the effective date of the Plan. On September 18, 2014 (the Close Date), the Company completed a transaction to acquire the equity of certain subsidiaries of Brunswick Corporation (Brunswick) comprising its business of owning, operating, and leasing retail bowling centers, which, at the Close Date, included 85 locations in the United States and Canada. The acquisition expanded the number of bowling centers the Company operates to 315, including 304 centers in the United States, 8 centers in Mexico, and 3 centers in Canada as of June 28, Comparatively, the Company operated 253 centers, including 245 in the United States, 8 in Mexico, and zero in Canada as of June 29, Within the United States, 266 centers operate as traditional bowling centers under the AMF, Brunswick, and Brunswick Zone brand names, 18 are Bowlmor, 4 are Bowlero, 13 are Brunswick Zone XL, and 3 are Brunswick s. Bowlmor, Bowlero, Brunswick Zone XL, and Brunswick s branded centers offer a more upscale entertainment concept with lounge seating in the bowlers area, enhanced food and beverage offerings, and improved customer service for individuals and group events. As discussed in note 3, as of July 1, 2013 (the Emergence Date), AMF adopted fresh-start accounting upon emergence from bankruptcy in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 852, Reorganizations. The adoption of fresh-start accounting resulted in AMF becoming a new entity for financial reporting purposes (AMF Successor). The consolidated financial statements of Bowlmor AMF reflect all activity subsequent to the fresh-start accounting adopted upon emergence from bankruptcy and acquisition accounting for Bowlmor, both of which occurred on July 1, 2013, as discussed in notes 3 and 4. In addition, Bowlmor AMF acquired Brunswick Corporation s bowling center business on September 18, The Company recorded the acquired assets and liabilities in accordance with ASC 805, Business Combinations, and activity subsequent to the acquisition is reflected in the fiscal year 2015 consolidated financial statements. (2) Acquisition of Brunswick On July 17, 2014, AMF Bowling Centers, Inc. entered into an Equity Purchase Agreement with Brunswick Corporation pursuant to which AMF Bowling Centers, Inc. agreed to acquire all of the equity in Brunswick Centers Inc., Brunswick Recreation, LLC, Leiserv, LLC, Perry Hall Lounge, Inc., and Normandy Restaurant, Inc. for a purchase price equal to $270,000, consisting of a $4,000 subordinated secured note of AMF Bowling Centers, Inc. and $266,000 in cash, subject to certain adjustments. Following the consummation of certain restructuring transactions effected prior to the closing, these entities comprised Brunswick s business of owning, operating, and leasing retail bowling centers in the United States and Canada. 8 (Continued)

11 On September 18, 2014, the Company consummated the acquisition of such equity interests from Brunswick for $266,491 as the initial agreed-upon purchase price was adjusted for league and customer deposits, working capital, and other items. The transaction was funded from $60,043 of cash from the concurrent debt refinancing discussed in note 14, $200,000 from proceeds under the sale-leaseback transaction described in note 17 for the majority of the centers owned by the acquired entities, the issuance of a one-year 6% subordinated secured promissory note to Brunswick Corp. for $4,000, and $2,643 held-back for working capital adjustments. The purchase price was subsequently decreased by $195 based on final calculations of established working capital levels. Transaction costs related to the Brunswick acquisition of $3,949 were recorded as a component of other operating expenses in the Company s consolidated statement of operations. The acquisition was recorded using the acquisition method in accordance with ASC Topic 805, and the net assets acquired were recorded at their estimated fair values as of September 18, 2014, the acquisition date. The following table summarizes the purchase price allocation for the Brunswick acquisition: Current assets $ 12,919 Property and equipment 248,213 Identifiable intangible assets and favorable leases 11,800 Investment in joint venture 700 Goodwill 2,087 Total assets acquired 275,719 Current liabilities 7,387 Unfavorable leases 1,500 Deferred income taxes 341 Total liabilities assumed 9,228 Net assets acquired $ 266,491 Cash paid at close $ 58,418 Restricted cash held in escrow 1,625 Proceeds from sale-leaseback transaction (note 17) 200,000 Cash consideration paid 260,043 Accrued working capital adjustment 2,448 Note payable 4,000 Purchase price $ 266,491 9 (Continued)

12 (3) Fresh Start Accounting As discussed in note 1, the Company applied fresh-start accounting to the balance sheets of AMF, determined as of July 1, 2013 in accordance with ASC 852, pursuant to which, among other things: (i) the reorganization value as derived from the enterprise value was assigned to the assets and liabilities of AMF Successor in conformity with FASB ASC 805, Business Combinations (ASC 805), which requires recording assets and liabilities at fair value (except for deferred income taxes), with the excess of reorganization value over net asset values recorded as goodwill, and (ii) the stockholders equity accounts of AMF were eliminated. In connection with the development of the Plan, the Company engaged an independent financial advisor to assist it in the determination of the enterprise value of AMF Successor. Using a number of estimates and assumptions, the Company prepared financial projections through 2018, and based on these financial projections and with the assistance of the financial advisor, the Company estimated a going concern enterprise value, exclusive of cash, of AMF Successor for $295,000. This enterprise value was estimated using a discounted cash flow (DCF) analysis and is considered a Level 3 fair value measurement due to the use of unobservable inputs. The reorganization value for AMF Successor was assigned first to tangible and identifiable intangible assets and then the excess of reorganization value over the net asset values was recorded as goodwill. The reorganization value was determined as follows: AMF Enterprise value, exclusive of cash $ 295,000 Add: Cash on hand as of July 1, ,834 Working capital liabilities as of July 1, ,221 AMF Successor reorganization value $ 389,055 (4) Acquisition of Bowlmor In accordance with the Plan, the Company entered into a purchase agreement to acquire all of the outstanding interests in Bowlmor (the Purchase Agreement). The total consideration of approximately $60,000 consisted of cash of $32,700 from proceeds of debt and cash on the Company s balance sheet, $2,500 in principal amount of Second Lien Debt, a $2,500 principal note payable to GBC Strike Holdings LLC, valued at $1,800, and 22.47% of the common stock in Bowlmor AMF valued at $22,400. The note payable to GBC Strike Holdings LLC has a 0% stated interest rate and was valued using a present value factor of 14% of the five year life of the loan. The fair value of 22.47% of the common stock in Bowlmor AMF was valued at $22,400 using the discounted cash flow method, a variation of the income approach. The cash consideration included $10,000 paid to the prior owners of Bowlmor and $22,700 to repay Bowlmor s existing debt. 10 (Continued)

13 The acquisition was recorded using the acquisition method in accordance with ASC Topic 805. Accordingly, the net assets acquired were recorded at their estimated fair values at July 1, 2013, the acquisition date. Total consideration was allocated to the assets acquired and liabilities assumed based on their fair values. The following table summarizes the purchase price allocation as of July 1, 2013: Current assets $ 4,874 Property and equipment 30,516 Identifiable intangible assets 6,935 Goodwill 31,042 Total assets acquired 73,367 Current liabilities 4,131 Deferred income taxes 9,024 Total liabilities assumed 13,155 Net assets acquired $ 60,212 (5) Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements and related notes include the accounts of Bowlmor AMF and its subsidiaries. (b) (c) (d) Fiscal Year The Company reports on a fiscal year with each quarter comprised of one 5-week period and two 4-week periods. Fiscal years 2015 and 2014 ended on, respectively. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the balance sheets and accompanying notes. Significant estimates made by management include determination of enterprise values of AMF Successor and Bowlmor companies, allocation of AMF Successor enterprise value, Bowlmor purchase price, and Brunswick purchase price to assets and liabilities, depreciation and impairment of long-lived assets, valuation of goodwill and other intangible assets, valuation of deferred tax assets, and reserves for litigation, claims, and self-insurance costs. Actual results could differ from those estimates. Reclassification of Financials Certain prior year information for other assets and other long-term liabilities in the consolidated balance sheets and consolidated statements of cash flows has been reclassified to conform to current year presentation for reporting self-insurance liabilities on a gross basis rather than net of any stop-loss receivables. A $1,797 receivable of stop-loss amounts in excess of retention has been reflected in prior 11 (Continued)

14 year other assets along with a corresponding increase to other long-term liabilities. The presentation of certain prior year information for other operating expenses in the consolidated statements of operations has been adjusted as prior year business optimization expenses of $3,377 have been reclassified to selling, general, and administrative expenses. This reclassification conforms to current year treatment of these expenses. (e) (f) (g) (h) Principles of Consolidation All significant intercompany balances and transactions have been eliminated in consolidation. Cash and Cash Equivalents and Restricted Cash All highly liquid fixed-income investments purchased with an original maturity of three months or less are classified as cash equivalents. There were no cash equivalents at. Restricted cash at June 28, 2015 represents cash held in escrow to pay certain Canadian taxes in relation to the acquisition of the Brunswick bowling centers. Accounts Receivable The Company records accounts receivable at the invoiced amount. Accounts receivable do not bear interest unless specified in a formal agreement. An allowance for doubtful accounts is provided based on management s best estimate of the amount of probable credit losses in the existing accounts receivable. The Company determines the allowance based on a number of factors, including historical write-off experience and its knowledge of specific customer accounts. Past-due balances meeting specific criteria are reviewed individually for collectability. The Company reviews all other balances on a pooled basis. Accounts are written off once collection efforts have been exhausted and the potential for recovery is considered remote. Actual uncollectable accounts could exceed the Company s estimates, and changes to estimates are accounted for in the period of change. The Company does not have any off-balance sheet credit exposures to its customers. Revenue Recognition Revenue for bowling, food, beverage, and merchandise is recognized at the time service is provided. Game revenue is recognized as game cards or game-play tokens are purchased by customers, and the Company accrues unearned revenue as a liability for the estimated amount of unused cash, unused bonus cash, and unredeemed tickets that may be redeemed or used in the future. Taxes collected from customers and remitted to government authorities are excluded from revenue in the consolidated statements of operations. The remittance obligation is included in accrued liabilities until the taxes are sent to the appropriate taxing authorities. The Company sells gift cards that do not expire. Gift card sales are recorded as an unearned gift card revenue liability when sold and are recognized as revenue when: (a) the gift card is redeemed by the guest or (b) the likelihood of the gift card being redeemed by the guest is remote (gift card breakage). The Company has determined that there is no legal obligation to remit the value of the unredeemed gift cards under applicable state unclaimed property escheat statutes in any states in which the 12 (Continued)

15 Company operates. Gift card breakage is determined based upon historical redemption patterns of the Company s gift cards. Breakage income from game and gift cards is included in operating revenue in the consolidated statements of operations. Management fee revenue from centers not owned but managed by the Company (Managed Centers) is recognized when earned and is included in operating revenue in the consolidated statements of operations. Management fee revenue earned from Managed Centers totaled $691 during fiscal year 2015; there was no management fee revenue in fiscal year 2014 as these arrangements originated with the Brunswick acquisition. (i) (j) (k) Inventories Inventory is valued at the lower of cost or market, with cost determined using an average cost method. Long-Lived Assets Long-lived assets, such as property and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds the asset s fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals. The Company recognized impairment charges of $4,536 and $2,185 in fiscal years 2015 and 2014, respectively. Property and Equipment Property and equipment purchased in the normal course of business are recorded at cost less accumulated depreciation. In connection with the adoption of fresh-start accounting for AMF Successor companies and acquisition accounting for Bowlmor, property and equipment in place as of July 1, 2013 were recorded at fair value. Property and equipment purchased with the acquisition of the Brunswick properties were also recorded at fair value. Depreciation is calculated principally on the straight-line method over the estimated useful lives. Estimated useful lives of property and equipment are as follows: Buildings and improvements Leasehold improvements Equipment, furniture, and fixtures years lesser of 15 years or remaining lease term 3 10 years Expenditures for routine maintenance and repairs that do not improve or extend the life of an asset are expensed as incurred. Major renewals or improvements are capitalized and amortized over the lesser of the remaining life of the asset or, if applicable, lease term. Upon retirement or sale of an asset, its 13 (Continued)

16 cost and related accumulated depreciation or amortization are removed from property and equipment and any gain or loss is recognized. (l) Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statements carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year in which those temporary differences are expected to be reversed or settled. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. (m) (n) Advertising Costs Costs for advertising are expensed when incurred and recorded as bowling center operating expenses in continuing operations. Total advertising expenses for fiscal years 2015 and 2014 were $13,696 and $10,753, respectively. Foreign Currency Translation All assets and liabilities of the Company s international operations are translated from foreign currencies into U.S. dollars at exchange rates in effect at the balance sheet dates. Adjustments resulting from the translation of the financial statements of international operations into U.S. dollars (including the Company s portion of the QubicaAMF joint venture adjustments prior to its sale on November 26, 2014) are included in the foreign currency translation adjustment as part of other comprehensive income in the accompanying consolidated balance sheets. Revenue and expenses of international operations are translated using average exchange rates that existed during each fiscal year. Currency exchange gains and losses resulting from transactions conducted in other than local currencies are included in other operating expenses and resulted in a net loss of $192 and a net gain of $1 in fiscal years 2015 and 2014, respectively. (o) Self-Insurance Programs The Company is self-insured for a portion of its general liability, workers compensation, and certain health care exposures. The undiscounted cost of these self-insurance programs is accrued based upon estimates of settlements and costs for known and anticipated claims. For claims that exceed the deductible amount, the Company records a receivable representing expected recoveries pursuant to the stop-loss coverage and a corresponding gross liability for its legal obligation to the claimant. The Company recorded gross estimated liabilities of $12,312 and $9,587 at June 28, 2015 and June 29, 2014, respectively, to cover known general liability, health and workers compensation claims, and claims incurred but not reported. Corresponding stop-loss receivables for expected recoveries of 14 (Continued)

17 self-insured claims in the amounts of $2,802 and $1,797 were recorded in fiscal years 2015 and 2014, respectively. The short-term portion of the self-insurance liabilities is included in accrued expenses in the accompanying consolidated balance sheets. The long-term portion is included in other long-term liabilities in the accompanying consolidated balance sheets. The stop-loss receivable is included in other assets. (p) Goodwill and Indefinite-Lived Intangible Assets Goodwill and indefinite-lived intangible assets, including liquor licenses and certain trade names, are not amortized as there is no foreseeable limit to the cash flows generated from them. Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business combination. Liquor licenses to which values are ascribed are brokered licenses that are on a quota system and have a market value. The Bowlmor and AMF trade names are representative of the corporate brands associated with several of the Company s bowling centers, and the fair value of each trade name stems from the customer appeal and revenue streams derived from these brands. In accordance with applicable accounting standards for evaluating goodwill for impairment, management assesses goodwill for impairment on an annual basis at fiscal year-end or more frequently under certain circumstances. The Company has the option to perform a qualitative assessment to determine whether it is more-likely than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required. The first step of the goodwill impairment test is to compare the fair value of the reporting unit with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists and the entity must perform the second step of the impairment test (measurement). Under the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, and the residual fair value after this allocation is the implied fair value of the reporting unit s goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. The Company performed its annual impairment review of indefinite-lived intangible assets at June 28, 2015 and June 29, 2014 and determined that the assets fair values exceeded their carrying values on each review date. 15 (Continued)

18 (q) Fair Value Measurements The Company utilizes fair value measurements for its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows: Level 1 Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2 Other observable inputs available at the measurement date, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets in nonactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by other observable market data. Level 3 Unobservable inputs that reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management s estimates of market participant assumptions. (r) Recently Issued Accounting Standards In March 2013, the FASB issued ASU providing guidance on a parent s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance was effective for the Company beginning June 30, The adoption of this new standard did not have a material impact on the Company s consolidated financial statements. In January 2014, the FASB issued ASU changing the criteria for reporting discontinued operations. The new guidance raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The Company adopted this new standard effective June 30, 2014 on a prospective basis. The adoption of the new accounting standard did have an impact on amounts reported as discontinued operations as detailed in note 6. In May 2014, the FASB issued ASU addressing revenue recognition associated with customer contracts. The new guidance will be effective for the Company beginning in fiscal year The Company does not anticipate a material impact on its consolidated financial statements upon adoption. In August 2015, the FASB issued ASU providing guidance for the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. The new guidance will be applied on a retrospective basis by adjusting the balance sheet of each period presented and requires debt issuance costs to be reported as a direct reduction to the related liability. The recognition and measurement guidance for debt issuance costs does not change. The new accounting standard will be effective for the Company beginning July 4, (Continued)

19 (s) Acquisitions Acquisitions are recorded as of the purchase date and are included in the consolidated financial statements from the date of acquisition. In all acquisitions, the purchase price of the acquired business is allocated to the assets acquired and liabilities assumed at their fair values on the date of the acquisition. The fair values of these items are based upon management s best estimates using various valuation approaches, including the relief from royalty method, cost approach, and income approach, depending on the circumstances. Certain of the acquired assets are intangible in nature, including trade names and customer relationships. The excess purchase price over the amounts allocated to the net identifiable assets is recorded as goodwill. All such valuation methodologies, including the determination of subsequent amortization periods, involve significant judgments and estimates. Different assumptions and subsequent actual events could yield materially different results. Purchase accounting requires the establishment of deferred tax liabilities on purchased intangible assets (excluding goodwill) to the extent the carrying value of these assets for financial reporting exceeds the tax basis. (t) Variable Interest Entity As part of the acquisition of Brunswick, the Company acquired a variable interest entity (VIE), Thousand Oaks Company (Thousand Oaks). The Company accounts for its 50% ownership interest in Thousand Oaks, a joint venture in Texas with C & C Co., under the equity method of accounting. The Company is not the primary beneficiary of Thousand Oaks since it does not have the power to direct activities of the VIE that most significantly impact the VIE s economic performance. Further, the Company and its equity at-risk investor partner either absorb the losses or receive the benefits of the VIE on a proportionate basis. Under the equity method of accounting, the Company does not consolidate the VIE but recognizes its proportionate share of the profits and losses of the unconsolidated VIE. The nature of the Company s involvement with Thousand Oaks does not meet the criteria of sponsorship for a qualifying special purpose entity in regards to the transfer of financial assets. Thousand Oaks is a self-sustaining bowling center. The assets of Thousand Oaks are used in the joint venture s operations, and the VIE relationship does not expose the Company to risks outside of those inherent in normal operations. (6) Discontinued Operations (a) U.S. Bowling Centers In fiscal year 2014, 12 leased and 6 owned bowling centers in the United States (U.S. Centers) were closed and classified as discontinued operations. The financial results of these same U.S. centers were reflected as discontinued operations in fiscal year 2015 and 2014, as the Company adopted ASU Per the guidance, the Company determined that the closure of any additional centers in fiscal year 2015 did not constitute a strategic shift that materially affected its operations. Therefore, only the current year results of centers classified as discontinued operations and held for sale at June 29, 2014 are reflected as discontinued operations in fiscal year 2015 to ensure comparability of the statement periods. Financial results of the 22 leased centers and 1 owned center that closed in fiscal year 2015 are reflected in continuing operations for both statement periods presented. 17 (Continued)

20 Asset impairment of $1,529 was recorded on four Brunswick idle properties acquired in fiscal year 2015 that were held for sale assets at June 28, In conjunction with the U.S. centers closed in fiscal year 2014, the Company recognized impairment charges of $2,294 to write down the related carrying amounts of the centers to their fair values less costs to sell. No additional impairment was recorded in fiscal year 2015 on centers comprising held for sale assets at June 28, The assets of the closed centers to be sold at are presented separately under the caption Assets held for sale in the accompanying consolidated balance sheets for $4,753 and $6,640, respectively. Assets held for sale consist of property and equipment and liquor license intangible assets and are measured at fair value based on estimated proceeds less costs to sell (Level 2) on a nonrecurring basis. (b) Summary of Discontinued Operations A summary of the financial results of the Company s discontinued operations is as follows: Fiscal years Revenue $ 74 9,922 Loss from discontinued operations, pretax $ (838) (675) Benefit for income taxes 365 Loss from discontinued operations, after tax (838) (310) Net (loss) gain on disposals, pretax (951) 1,879 Benefit for income taxes 1, Net gain on disposals, after tax 79 2,170 (Loss) gain from discontinued operations $ (759) 1,860 With the adoption of ASU effective on a prospective basis beginning in fiscal year 2015, individual centers that are closed will not be reported separately as discontinued operations in the consolidated statements of operations. (7) QubicaAMF Joint Venture On October 7, 2005, AMF formed a joint venture with the shareholder of Qubica. In these transactions, AMF contributed the equity of Qubica AMF Worldwide, LLC, formerly known as AMF Bowling Products, LLC, and substantially all of the other subsidiaries that conducted AMF s Products business to Qubica AMF Worldwide, S.à.R.L. (QubicaAMF), in exchange for a 50% equity interest in QubicaAMF. The shareholder of Qubica also contributed the equity of Qubica and its subsidiaries to QubicaAMF in exchange for a 50% equity interest in QubicaAMF. The board of managers of QubicaAMF had six members split equally between Bowlmor AMF and the shareholder of Qubica. The Company s investment in QubicaAMF was accounted for using the equity method of accounting up until the Company sold its 50% interest in the investment on November 26, 2014 (note 8). The investment s 18 (Continued)

21 basis was adjusted for the Company s equity share in net income (loss), any cash contributions and distributions, and foreign currency translation adjustments. In QubicaAMF s financial statements, a significant portion of the Company s investment in the joint venture via preferred securities was reported as a liability of QubicaAMF. A difference in book accounting for these securities and historical impairment charges are the primary reasons that 50% of the QubicaAMF s stockholders deficit did not equal the investment in joint venture balance as reported in the Company s fiscal year 2014 consolidated balance sheet. The Company reviewed QubicaAMF s audited financial statements on an annual basis for indicators of triggering events or circumstances that indicated a potential impairment. The Company evaluated its investment in QubicaAMF for impairment at June 29, 2014 and concluded that the investment in QubicaAMF was other-than-temporarily impaired due to successive years of declining revenues and pretax operating losses coupled with poor projections of future financial performance. Consequently, an impairment charge of $5,179 was recorded in fiscal year The valuation was estimated using a discounted cash flow model and was considered a Level 3 fair value measurement due to the use of significant unobservable inputs (notes 5 and 20). In performing the valuation of the investment in QubicaAMF as of June 29, 2014, the Company estimated the fair value of its investment using a DCF valuation method. The DCF valuation method requires an estimation of future cash flows of an entity and discounting of those cash flows to their present value using the Company s appropriate weight average cost of capital, or discount rate. The discount rate selected should reflect the risks inherent in the projected cash flows. The key inputs and assumptions of the DCF method are the projected cash flows, the terminal value, and the discount rate. The growth rate used for the terminal value calculation was 2%, and the discount rate was 13.5%. The Company continues to purchase capital equipment and supplies from QubicaAMF even after the sale of its interest in the joint venture. Prior to the sale, the Company eliminated its share of the intercompany profit when adjusting the basis of its investment in QubicaAMF using equity method accounting. Total purchases from QubicaAMF in fiscal year 2015 prior to the Company s sale of its investment in the joint venture were $3,063, while purchases from QubicaAMF were $7,958 in fiscal year (Continued)

22 Financial information from QubicaAMF was received on a delayed basis in fiscal year 2014; as such, the Company recorded its share of the income or losses on the investment one quarter in arrears at June 29, Selected financial results of QubicaAMF as of the date it was sold in fiscal year 2015 and as of March 31, 2014 are as follows: November 26, March 31, Financial position: Current assets $ 39,265 42,167 Noncurrent assets 14,479 16,144 Total assets 53,744 58,311 Current liabilities 17,889 22,287 Noncurrent liabilities 89,956 95,478 Total liabilities 107, ,765 Stockholders deficit $ (54,101) (59,454) Fiscal Fiscal year-to-date year ended November 26, March 31, Results of operations: Revenue $ 72, ,624 Gross profit 23,139 28,644 Net loss (1,378) (11,202) (8) Sale of QubicaAMF Joint Venture Effective November 26, 2014, the Company sold its 50% interest in QubicaAMF to QU2 S.A. for $5,498. As part of the sale of its investment to QU2 S.A., the Company also entered into amended supply and trademark agreements with QubicaAMF. The amended supply agreement extends contract terms for three years until December 1, 2017 and requires the Company to purchase a minimum of $12,000 in supplies from QubicaAMF over the prolonged contract life. The amended trademark agreement clarifies the terms of usage for various trademarks associated with the terminated joint venture going forward. 20 (Continued)

23 Below is a summary of the gain the Company recognized on the sale of its 50% interest in QubicaAMF on November 26, 2014: Investment in QubicaAMF $ 2,074 Foreign currency translation adjustment (1,316) Net investment on November 26, Sales price less selling expenses 5,458 Net gain on sale of investment, pretax $ 4,700 (9) Intangible Assets (a) Goodwill On the Emergence Date, the Company recorded goodwill of $40,969 in connection with the adoption of fresh-start accounting relating to AMF Successor and application of acquisition accounting relating to Bowlmor. In fiscal year 2015, the Company recorded goodwill of $2,087 for the excess purchase price paid for Brunswick s bowling center business not allocated to net identifiable assets acquired on September 18, 2014 as the Company anticipates increased cash flow, earnings, and strategic synergies to result from the acquisition. For purposes of allocating goodwill from its acquisitions, the Company has determined it has one reporting unit. The Company evaluated goodwill for impairment as of using a DCF valuation approach. The key inputs and assumptions of the DCF method are the projected cash flows, the terminal value, and the discount rate. The growth rate used for the terminal value calculation was 2% at June 28, 2015 (3% at June 29, 2014), and the discount rate was 12% at June 28, 2015 (10.5% at June 29, 2014). No impairment losses were recorded in fiscal years 2015 and 2014, and the carrying amounts of goodwill as of were $43,056 and $40,969, respectively. (b) Trade names The Company recorded intangible assets for trade names of $34,700 on the Emergence Date. The Bowlmor and AMF trade name intangibles are considered indefinite lived and thus are not amortized, but are reviewed by the Company on an annual basis for impairment. The Company used a derivation of an income approach called the Royalty Savings Method to value the trade names at June 28, 2015 and June 29, The Royalty Savings Method approach measures the economic benefit of intangibles by capitalizing the royalties saved because the Company owns the intangible. The key inputs and assumptions of the Royalty Savings Method are the royalty rate, the discount rate, and projected cash flows. No impairment losses were recorded in fiscal years 2015 and 2014, and the carrying amounts as of were $34,700 and $34,700, respectively. The Company recorded an intangible asset for the Brunswick trade name license agreement acquired in fiscal year 2015 of $3,700. This intangible asset is being amortized over five years from the Brunswick acquisition date, which is the term the Company is contractually allowed to use the 21 (Continued)

24 Brunswick name. The accumulated amortization on the Brunswick trade name asset at June 28, 2015 is $583. (c) (d) Liquor licenses The liquor license intangibles are considered indefinite-lived and thus are not amortized; however, these assets are reviewed by the Company on an annual basis for impairment. The Company recorded brokered liquor licenses of $4,477 on the Emergence Date. With the acquisition of Brunswick in fiscal year 2015, the Company acquired 31 liquor licenses at Brunswick properties with fair value of $3,500 at the acquisition date. The Company purchased one additional license and sold a total of five licenses in the current year, while four licenses were purchased and sold in fiscal year The Company used a Market approach to assess the value of the licenses as of. No impairment losses were recorded in fiscal years 2015 and 2014, and the carrying amounts of the licenses as of were $7,707 and $4,499, respectively. Amortizable intangible assets On the Emergence Date, the Company recorded a group event customer list intangible and a league customer list intangible of $2,100 and $700, respectively. The weighted average life over which the intangible assets are amortized is seven years. Concurrent with the Brunswick acquisition in fiscal year 2015, the Company recorded a league customer list intangible of $900. The weighted average life over which this league customer list intangible asset is amortized is ten years. Total accumulated amortization as of for the group event list was $840 and $420, respectively. Total accumulated amortization of the league lists as of was $211 and $70, respectively. On the Emergence Date, the Company recorded favorable operating lease intangibles and unfavorable operating lease intangibles of $7,200 and $1,736, respectively. Remaining lives of the favorable and unfavorable operating lease intangibles range from 1 44 years, and these intangibles are amortized on a straight-line basis. In fiscal year 2015, the Company acquired favorable operating lease intangibles and unfavorable operating lease intangibles from Brunswick for $400 and $1,500, respectively. Remaining lives of the Brunswick favorable and unfavorable operating lease intangibles range from 2 11 years, and these intangibles are also amortized on a straight line basis. Total accumulated amortization for the years ended for all favorable operating lease intangibles was $903 and $424, respectively. Total accumulated amortization for the years ended for all unfavorable operating lease intangibles was $1,202 and $513, respectively. Favorable lease terms net of accumulated amortization are reflected in other long-term assets on the consolidated balance sheets, while net unfavorable lease terms are reflected in other long-term liabilities. As part of the Brunswick acquisition, the Company acquired three management contracts to manage three bowling centers not owned by the Company. The Company recorded the value of the contracts as intangible assets of $3,300 on the acquisition date and is amortizing these assets over the contract lives ranging from 7 to 10 years. Subsequent to the Brunswick acquisition, one of the management contracts was breached by the other party; as such, the Company wrote off the net value of this 22 (Continued)