AMF BOWLING WORLDWIDE INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2003

or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 001-12131



AMF BOWLING WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)

Delaware		13-3873272
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8100 AMF Drive Richmond, Virginia 23111
(Address of principal executive offices, including zip code)



(804) 730-4000
(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o

No x

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes x

No o

The number of shares of the Registrant’s common stock issued and outstanding or issuable under the Registrant’s Plan of Reorganization as of May 1, 2003 was 10,000,000 (excluding stock purchase warrants, restricted stock and stock options).

AMF BOWLING WORLDWIDE, INC.

TABLE OF CONTENTS

		Page

PART I

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	4

	Condensed Consolidated Statements of Operations (unaudited)	5

	Condensed Consolidated Statements of Cash Flows (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	31

Item 4.	Controls and Procedures	32

PART II

Item 1.	Legal Proceedings	33

Item 6.	Exhibits and Reports on Form 8-K	34

Signatures		35

PART I

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report contain forward-looking statements, which are statements other than historical information or statements of current condition. Statements set forth in this report or statements incorporated by reference from documents filed with the Securities and Exchange Commission (“SEC”) are or may be forward-looking statements, including possible or assumed future results of the operations of AMF Bowling Worldwide, Inc., a Delaware corporation (“Worldwide” and, together with its subsidiaries, the “Company”), including but not limited to:

•	any statements concerning:

	•	the results of operations of the Company’s businesses;

	•	the results of the Company’s initiatives to improve its bowling centers operations and its business of selling bowling equipment;

	•	the amounts of capital expenditures needed to maintain or improve the Company’s bowling centers;

	•	the Company’s ability to comply with covenants in its financing facilities and generate cash flow to service its indebtedness;

	•	the continued availability of sufficient borrowing capacity or other financing to supplement cash flow and fund operations; and

	•	the outcome of existing or future litigation;

•	any statements preceded by, followed by or including the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “estimates,” “should,” “may” or similar expressions; and

•	other statements contained or incorporated in this report that are not historical facts.

These forward-looking statements relate to the plans and objectives of the Company or future operations. In light of the risks and uncertainties inherent in all future projections and the Company’s financial position, the inclusion of forward-looking statements in this report should not be regarded as a representation by the Company that the objectives, projections or plans of the Company will be achieved. Many factors could cause the Company’s actual results to differ materially from those in any forward-looking statements, including, but not limited to:

•	the popularity of bowling;

•	the Company’s ability to retain and attract higher quality bowling center managers;

•	the Company’s ability to successfully implement initiatives designed to maintain bowling customer traffic in its bowling centers and improve performance;

•	the Company’s ability to successfully implement the Company’s business initiatives;

•	competition in the Company’s bowling products business;

•	the success of the Company’s ongoing restructuring efforts in its bowling products business;

•	the risk of adverse political acts or developments in the Company’s international markets;

•	fluctuations in foreign currency exchange rates;

•	the lack of improvement or a decline in general economic conditions;

•	adverse judgments in pending or future litigation; and

•	changes in interest rates.

The foregoing review should not be construed as exhaustive and should be read in conjunction with other cautionary statements 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 this date or to reflect the occurrence of unanticipated events.

Item 1. Financial Statements

AMF BOWLING WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

	March 30, 2003			June 30, 2002

Assets
Current assets:
Cash and cash equivalents	$	62,642		$	34,167
Accounts and notes receivable, net of allowance for doubtful accounts of $7,284 and $8,748, respectively		20,785			26,268
Inventories, net		36,226			38,901
Advances and deposits		18,581			19,411

Total current assets		138,234			118,747
Property and equipment, net		566,427			605,174
Leasehold interests and other		32,846			31,603

Total assets	$	737,507		$	755,524

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	14,584		$	17,938
Accrued expenses and other		86,653			91,219
Current portion of long-term debt		16,724			16,961

Total current liabilities		117,961			126,118
Long-term debt, less current portion		406,024			424,109
Liabilities subject to resolution		2,432			3,556
Other long-term liabilities		23			809

Total liabilities		526,440			554,592

Stockholders’ equity:
Preferred Stock ($.01 par value, 5,000,000 shares authorized, none issued and outstanding)		—			—
Common Stock ($.01 par value, 20,000,000 shares authorized, 9,958,465 issued and outstanding) (a)		100			100
Paid-in capital		212,256			211,800
Accumulated deficit		(8,089	)		(15,636	)
Accumulated other comprehensive income		6,800			4,668

Total stockholders’ equity		211,067			200,932

Total liabilities and stockholders’ equity	$	737,507		$	755,524


(a)	There were 9,958,465 shares outstanding on March 30, 2003. On March 31, 2003, the Company issued 224 shares to trade claimants and the remaining 41,297 shares will be issued as claims are resolved in accordance with the Company’s Second Amended Second Modified Joint Plan of Reorganization (the “Plan”).

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMF BOWLING WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)

				2002 Third Quarter									Nine Months Ended March 31, 2002

	Reorganized Company			Reorganized Company			Predecessor Company			Reorganized Company			Reorganized Company			Predecessor Company

	Three Months Ended March 30, 2003			One Month Ended March 31, 2002			Two Months Ended February 28, 2002			Nine Months Ended March 30, 2003			One Month Ended March 31, 2002			Eight Months Ended February 28, 2002

Operating revenue	$	187,861		$	67,268		$	122,886		$	515,060		$	67,268		$	460,645

Operating expenses:
Cost of goods sold		29,759			10,820			19,991			101,423			10,820			97,348
Bowling center operating expenses		95,230			31,881			62,032			278,698			31,881			247,187
Selling, general and administrative expenses		9,756			5,017			9,389			29,529			5,017			43,536
Restructuring, refinancing and other charges		—			2,797			302			—			2,797			5,346
Depreciation and amortization		20,735			7,780			17,144			62,971			7,780			80,580

Total operating expenses		155,480			58,295			108,858			472,621			58,295			473,997

Operating income (loss)		32,381			8,973			14,028			42,439			8,973			(13,352	)

Nonoperating expenses (income):
Interest expense		9,763			4,051			8,113			30,428			4,051			40,444
Interest income		(209	)		(63	)		—			(449	)		(63	)		—
Other expense (income), net		(844	)		(169	)		907			(287	)		(169	)		1,358

Total nonoperating expenses, net		8,710			3,819			9,020			29,692			3,819			41,802

Income (loss) before reorganization items, gain on debt discharge, and fresh start accounting adjustments		23,671			5,154			5,008			12,747			5,154			(55,154	)
Reorganization items, net		—			—			13,288			—			—			70,019
Gain on debt discharge, net		—			—			(774,803	)		—			—			(774,803	)
Fresh start accounting adjustments		—			—			65,991			—			—			65,991

Income before income taxes and cumulative effect of change in accounting for goodwill		23,671			5,154			700,532			12,747			5,154			583,639
Provision for income taxes		2,559			457			1,095			5,200			457			2,782

Income before cumulative effect of change in accounting for goodwill		21,112			4,697			699,437			7,547			4,697			580,857
Cumulative effect of change in accounting for goodwill		—			—			(718,414	)		—			—			(718,414	)

Net income (loss)	$	21,112		$	4,697		$	(18,977	)	$	7,547		$	4,697		$	(137,557	)

Net income per share of common stock:
Basic	$	2.11		$	0.47					$	0.75
Diluted		2.11			0.46						0.75

Weighted average common shares outstanding:
Basic		9,999,986			10,000,000						9,999,986
Diluted		9,999,986			10,184,783						10,112,515

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMF BOWLING WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

				Nine Months Ended March 31, 2002

	Reorganized Company			Reorganized Company			Predecessor Company

	Nine Months Ended March 30, 2003			One Month Ended March 31, 2002			Eight Months Ended February 28, 2002

Cash flows from operating activities:
Net income (loss)	$	7,547		$	4,697		$	(137,557	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock based compensation		456			—			—
Depreciation and amortization		62,971			7,780			80,580
Reorganization items, net		—			—			46,570
Fresh start accounting adjustments		—			—			65,991
Cumulative effect of change in accounting for goodwill		—			—			718,414
Gain on debt discharge, net		—			—			(774,803	)
Gain (loss) on the sale of property and equipment, net		1,354			(182	)		19
Impairment of assets		—			—			3,500
Changes in assets and liabilities:
Accounts and notes receivables, net		8,931			(1,817	)		17,253
Inventories		4,035			(2,658	)		1,359
Other assets		(2,376	)		(1,021	)		7,254
Accounts payable and accrued expenses		(7,867	)		1,249			34,858
Income taxes payable		(2,197	)		—			1,458
Other long-term liabilities		(305	)		38			(1,284	)

Net cash provided by operating activities		72,549			8,086			63,612

Cash flows from investing activities:
Purchases of property and equipment		(26,032	)		(2,550	)		(33,451	)
Proceeds from the sale of property and equipment		857			1			161
Other		137			—			—

Net cash used in investing activities		(25,038	)		(2,549	)		(33,290	)

Cash flows from financing activities:
Borrowing under DIP Loan		—			—			5,000
Repayment under DIP Loan		—			—			(5,000	)
Repayment under Bank Debt		—			—			(436,700	)
Borrowing under Term Facility		—			—			290,000
Borrowing under New Subordinated Notes		—			—			150,000
Borrowing under Revolver		15,000			—			10,000
Repayment under Revolver		(15,000	)		(10,000	)		—
Repayment under Term Facility		(19,474	)		—			—
Deferred finance costs		—			—			(11,743	)
Repayment under capital lease obligations		(156	)		—			—
Payments of noncompete obligations		(27	)		—			(16	)

Net cash provided by (used in) financing activities		(19,657	)		(10,000	)		1,541

Effect of exchange rates on cash		621			1,147			551

Net increase (decrease) in cash		28,475			(3,316	)		32,414
Cash and cash equivalents at beginning of period		34,167			50,094			17,680

Cash and cash equivalents at end of period	$	62,642		$	46,778		$	50,094

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and Note 12)
(unaudited)

NOTE 1. BUSINESS DESCRIPTION – ORGANIZATION, CHAPTER 11 AND EMERGENCE

Organization

The Company is engaged in two business segments:

•	the operation of bowling centers in the United States (“U.S. Centers”) and internationally (“International Centers” and collectively with U.S. Centers, “Centers”); and

•	the manufacture and sale of bowling equipment, such as automatic pinspotters, automatic scoring equipment, bowling pins, lanes, ball returns, lane machines, bowling center supplies and the resale of other related products, including bowling balls, bags and shoes (collectively, “Products”).

The Company is the largest operator of bowling centers in the world with 481 centers in operation as of March 30, 2003, comprised of 384 bowling centers in the U.S. and 97 bowling centers operating in five foreign countries.

Products is one of the two largest manufacturers of bowling center equipment in the world. Products revenue consists of two major sales categories:

•	New Center Packages (“NCPs”), which is all of the equipment necessary to outfit one lane at a new or existing bowling center; and

•	Modernization and Consumer Products, which is equipment used to upgrade an existing center, spare parts, pins, supplies and consumable products used in the operation of a center, and bowling balls and ancillary products for resale to bowlers. Products also manufactures and sells its Playmaster, Highland and Renaissance brands of billiard tables.

Worldwide serves as the corporate headquarters of the Company. Its employees provide certain management and administrative services for Centers and Products. Worldwide’s business operations and operating assets are held in subsidiaries. U.S. Centers is primarily operated through AMF Bowling Centers, Inc., a wholly owned, indirect subsidiary of Worldwide. International Centers is operated through separate, indirect subsidiaries of Worldwide that operate bowling centers in various countries. Products is primarily operated through AMF Bowling Products, Inc. (“AMF Products”), which is a wholly owned, indirect subsidiary of Worldwide.

Change of Fiscal Year

On March 20, 2002, the Company’s Board of Directors approved the change of the Company’s fiscal year end from December 31 to the Sunday closest to June 30. This will result in future fiscal years having 52 or 53 weeks. Previously, the Company’s fiscal year ran from January 1 through December 31. The Company also adopted a retail calendar year, with each quarter comprised of one 5-week period and two 4-week periods.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

NOTE 2. BASIS OF PRESENTATION

The Company’s interim condensed consolidated financial statements presented in this Form 10-Q are unaudited and for the two and eight months ended February 28, 2002, have been prepared in accordance with the American Institute of Certified Public Accountants’ Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”), which provides guidance for financial reporting by entities that have filed petitions under the Bankruptcy Code and have reorganized in accordance with the Bankruptcy Code.

The Company emerged from Chapter 11 on March 8, 2002. The Company as it existed prior to March 8, 2002, is sometimes referred to as the “Predecessor Company” and, as it existed on and after March 8, 2002, is sometimes referred to as the “Reorganized Company.”

Although the effective date of the Plan was March 8, 2002 (the “Effective Date”), the consummation of the Plan has been reflected as of February 28, 2002, the end of the Company’s most recent fiscal month prior to the Effective Date. As a result of the application of fresh start accounting at February 28, 2002, the Company’s financial results during the three and nine months ended March 31, 2002 include two different bases of accounting and, accordingly, the operating results and cash flows of the Reorganized Company and the Predecessor Company are separately presented. The Reorganized Company’s financial statements are not comparable with the Predecessor Company’s financial statements.

The following table describes the periods presented in these condensed consolidated financial statements and related notes thereto and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Period		Referred to as

Results for the Reorganized Company from January 1, 2003 through March 30, 2003		“2003 Third Quarter”
Results for the Reorganized Company from March 1, 2002 through March 31, 2002		“Reorganized Company 2002 One Month”
Results for the Predecessor Company from January 1, 2002 through February 28, 2002		“Predecessor Company 2002 Two Months”
Combined Reorganized Company 2002 One Month and Predecessor Company 2002 Two Months		“2002 Third Quarter”
Results for the Predecessor Company from July 1, 2001 through February 28, 2002		“Predecessor Company 2002 Eight Months”
Combined Reorganized Company 2002 One Month and Predecessor Company 2002 Eight Months		“nine months ended March 31, 2002”
Results for the Reorganized Company from July 1, 2002 through March 30, 2003		“nine months ended March 30, 2003”

All significant intercompany balances and transactions have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America for financial information requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimates. Certain previously reported amounts have been reclassified to conform to the current year presentation.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which are comprised only of normal recurring accruals, except those related to fresh start accounting and the change in accounting for goodwill) necessary to present fairly the consolidated financial position of the Company and the consolidated results of operations and cash flows for all periods presented.

These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Transition Report on Form 10-K for the transition period from January 1, 2002 through June 30, 2002. The balances presented as of June 30, 2002 are derived from the Company’s audited consolidated financial statements.

NOTE 3. GOODWILL

Goodwill represents the excess of the purchase price of acquisitions over the allocation among the acquired assets and liabilities in accordance with estimates of fair market value on the dates of acquisition. Through December 31, 2001, goodwill was being amortized over 40 years.

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” which specifies goodwill and certain intangible assets will no longer be amortized, but will be subject to periodic impairment testing. In conjunction with the adoption of SFAS No. 142, the Company wrote off all goodwill in the amount of $718,414 on January 1, 2002.

NOTE 4. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) was $23,108 and $9,679 for the 2003 Third Quarter and the nine months ended March 30, 2003, respectively, and $5,953, $17,027, and $(101,177) for the Reorganized Company 2002 One Month, the Predecessor Company 2002 Two Months and the Predecessor Company 2002 Eight Months, respectively. Accumulated other comprehensive income of $6,800 and $4,668 at March 30, 2003 and June 30, 2002, respectively, is included in stockholders’ equity and consists of the foreign currency translation adjustment.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

NOTE 5. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

On January 1, 2002, the Company adopted the provisions of SFAS No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets.” This statement addresses the accounting and reporting for the impairment or disposal of long lived assets. The adoption of this standard did not have a material effect on the Company’s results of operations or financial condition. On January 1, 2002, the Company also adopted the provisions of SFAS No. 142 as discussed in Note 3.

On July 1, 2002, the Company adopted the provisions of SFAS No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” The most significant provisions of SFAS No. 145 address the termination of extraordinary item treatment for gains and losses on certain extinguishments of debt. The Company is now required to modify the presentation of its transition period ended June 30, 2002 financial results with respect to its gain on discharge of debt, such that the previously reported gain is no longer classified as extraordinary.

On July 1, 2002, the Company adopted the provisions of SFAS No. 143 “Accounting for Asset Retirement Obligations.” This statement addresses the obligations and asset retirement costs associated with the retirement of tangible long lived assets. The adoption of this standard did not have a material effect on the Company’s results of operations or financial condition.

On January 1, 2003, the Company adopted the provisions of SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” The provisions of SFAS 146 modify the accounting for the costs of exit and disposal activities by requiring that liabilities for those activities be recognized when the liability is incurred. Previous accounting literature permitted recognition of some exit and disposal liabilities at the date of commitment to an exit plan. The provisions of this statement are effective for exit and disposal activities that are initiated after December 31, 2002.

On January 1, 2003, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 45 (“FIN 45”) “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The provisions of this interpretation clarify the accounting for and disclosures of certain guarantees and requires the Company to record the fair value of any equipment sale repurchase agreements (as discussed in Note 11) that are executed or modified after December 31, 2002. FIN 45 became effective for guarantees issued or modified on or after January 1, 2003, and did not have a material impact on the Company’s financial position as of March 30, 2003, or results of operations for the 2003 Third Quarter.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends SFAS No. 123 “Accounting for Stock-Based Compensation.” SFAS 148 provides alternative methods of transition to the fair value method of accounting for stock-based employee compensation, and also amends the transition and annual disclosure provisions of SFAS No. 123. SFAS No. 148’s amendment of disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. The disclosure requirements for interim financial statements containing condensed consolidated financial statements are effective for interim periods beginning after December 15, 2002. The Company currently uses the intrinsic value method of accounting for stock based employee compensation described by the Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees.” The Company has adopted SFAS No. 148 in this 2003 Third Quarter Form 10-Q and has included the required disclosures. If the Company had elected to recognize compensation expense based on the fair value of all stock awards at grant date as prescribed by SFAS No. 123 the net income and net income per basic and diluted share for the Reorganized Company 2003 Third Quarter, nine months ended March 30, 2003 and 2002 One Month would have been reduced to the pro forma amounts shown below:

	Reorganized Company			Reorganized Company			Reorganized Company

	2003 Third Quarter			Nine Months Ended March 30, 2003			2002 One Month

Net income, as reported	$	21,112		$	7,547		$	4,697
Stock-based employee compensation under APB 25, net of tax		105			456			—
Pro forma stock-based employee compensation expense under SFAS No. 123, net of tax		(679	)		(2,087	)		(184	)

Net income, pro forma	$	20,538		$	5,916		$	4,513

Net income per common share of stock, as reported
Basic	$	2.11		$	0.75		$	0.47
Diluted		2.11			0.75			0.46
Net income per common share of stock, pro forma
Basic	$	2.05		$	0.59		$	0.45
Diluted		2.05			0.58			0.44

On July 1, 2003, the Company will adopt the provisions of the FASB’s Emerging Issues Task Force 00-21 “Revenue Arrangements with Multiple Deliverables.” The Company does not expect the adoption of this statement to have a material effect on the Company’s results of operations or financial condition.

NOTE 6. INVENTORIES, NET

Inventories, net at March 30, 2003 and June 30, 2002 consist of:

	March 30, 2003		June 30, 2002

Products, at FIFO:
Raw materials	$	6,602	$	6,955
Work in progress		4,174		3,668
Finished goods and spare parts		17,583		20,312
Centers, at average cost:
Merchandise and spare parts		7,867		7,966

	$	36,226	$	38,901

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

NOTE 7. PROPERTY AND EQUIPMENT, NET

Property and equipment, net at March 30, 2003 and June 30, 2002 consist of:

	March 30, 2003			June 30, 2002

Land	$	116,789		$	116,563
Buildings		298,704			285,979
Equipment, furniture and fixtures		225,495			216,568
Other		472			5,346

		641,460			624,456
Less: accumulated depreciation		(75,033	)		(19,282	)

	$	566,427		$	605,174

Depreciation expense related to property and equipment was $20,612 and $62,533 for the 2003 Third Quarter and the nine months ended March 30, 2003, respectively, and $7,780, $17,144, and $66,757 for the Reorganized Company 2002 One Month, the Predecessor Company 2002 Two Months and the Predecessor Company 2002 Eight Months, respectively.

NOTE 8. LONG-TERM DEBT

On July 2, 2001 (the “Petition Date”), Worldwide and certain of its U.S. subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11, Title 11 of the United States Bankruptcy Code (“Chapter 11”). The bankruptcy court (the “Bankruptcy Court”) confirmed the Plan on February 1, 2002 and the Debtors emerged from Chapter 11 on March 8, 2002. Upon emergence from Chapter 11, the debt that the Predecessor Company had in place prior to the Effective Date was terminated, discharged or re-instated.

Credit Agreement

As of February 28, 2002, the Company entered into a senior secured credit agreement (the “Credit Agreement”) with Deutsche Bank Trust Company Americas (formerly Bankers Trust Company) and certain other lenders that consists of a $290,000 term facility (the “Term Facility”) maturing in February 2008 and a $45,000 revolving credit facility (the “Revolver”) maturing in February 2007. On December 19, 2002, after reviewing the Company’s future liquidity requirements, the Company voluntarily and permanently reduced the Revolver as provided in the Credit Agreement, from $60,000 to $45,000. This reduction will result in lower commitment fees in future periods.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

Outstanding borrowings under the Term Facility bear interest equal to either the adjusted Eurodollar rate (as defined in the Credit Agreement) plus the applicable margin (4.00% to 4.50%) or the Base Rate (as defined in the Credit Agreement) plus the applicable margin (3.00% to 3.50%), at the Company’s option depending on certain financial ratios. The average interest rate in effect under the Term Facility at March 30, 2003 was 6.00%. Outstanding borrowings under the Revolver bear interest equal to the adjusted Eurodollar rate plus the applicable margin (3.25% to 4.00%) or the Base Rate plus the applicable margin (2.25% to 3.00%), at the Company’s option depending on certain financial ratios. The Company pays a commitment fee of 0.50% on the unused portion of the Revolver. Drawings under the Revolver are subject to the fulfillment of certain conditions. The Credit Agreement contains certain restrictive covenants, including the achievement of certain financial covenants and maximum levels of capital expenditures. As of March 30, 2003, there were no outstanding borrowings under the Revolver. Outstanding standby letters of credit issued under the Revolver, as of March 30, 2003, totaled $6,968, leaving $38,032 available for additional borrowings or letters of credit. The principal amount of the Term Facility must be repaid on a quarterly basis in the amounts and at the times specified in the Credit Agreement, with a final principal payment of $143,853 due on February 28, 2008. Scheduled quarterly principal payments for fiscal year 2003 range from approximately $2,000 to approximately $6,300 and for the quarters thereafter, principal payments will range from $2,100 to $10,800. All payments are due on the last day of the calendar quarter. The Company made a principal payment of $6,563 on March 31, 2003. Repayment also is required in amounts specified in the Credit Agreement for certain events including unreinvested asset sale proceeds and equity and debt offering proceeds. The Credit Agreement requires the frequency of interest payments not to be less than quarterly and an annual mandatory prepayment of the Term Facility may be required based on a percentage of free cash flow, ranging from 25-75%, as specified in the Credit Agreement. The obligations of Worldwide under the Credit Agreement are secured by substantially all of the Company’s U.S. assets and a 66% pledge of the capital stock of certain first tier foreign subsidiaries. Certain of the Company’s U.S. subsidiaries have guaranteed, or are directly obligated on, the Credit Agreement. The Credit Agreement contains certain events of default including cross default provisions.

Pursuant to the Credit Agreement, the Company was required to calculate the amount of a mandatory prepayment of the Term Facility based on consolidated excess cash flow, as defined in the Credit Agreement, for the transition period from January 1, 2002 through June 30, 2002. The Company deposited $11,720 on October 18, 2002 into an account held by the Administrative Agent, which applied the prepayment to the Term Facility on November 7, 2002 upon expiration of a Eurodollar loan contract. The prepayment reduced the remaining scheduled principal payments on a pro rata basis.

Subordinated Notes

As of the Effective Date and pursuant to the Plan, the Company issued $150,000 aggregate principal amount of 13.00% Senior Subordinated Notes due September 2008 (the “Subordinated Notes”) with interest payable semi-annually. The Subordinated Notes were issued pursuant to an indenture dated as of March 8, 2002 (the “Indenture”). The Subordinated Notes are expressly subordinated to the payment of the Credit Agreement and any other senior indebtedness of the Company; contain affirmative and negative covenants generally no more restrictive than those contained in the Credit Agreement; contain certain events of default including cross default provisions; are unsecured; and have the benefit of guarantees of certain of the U.S. subsidiaries of the Company. Subject to certain exceptions, the Subordinated Notes may not be redeemed at the Company’s option before March 1, 2005. Thereafter, the Subordinated Notes are redeemable in the manner provided in the Indenture at redemption prices equal to 106.50% during the 12 month period beginning March 1, 2005, 103.25% during the 12 month period beginning March 1, 2006 and 100.00% beginning on March 1, 2007 and thereafter. Upon the occurrence of both a change of control of the Company (as defined in the Indenture) and a ratings decline (as defined in the Indenture), the Company is required to offer to purchase the Subordinated Notes at 101.00% of their principal amount, plus accrued interest, and has the option to redeem the Subordinated Notes at 110.00% of their principal amount, plus accrued interest.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

DIP Loan

During the Chapter 11 proceeding, the Debtors had a $75,000 debtor-in-possession financing facility (the “DIP Loan”) from a syndicate of banks, including Citibank N.A. (“Citibank”), as Collateral Agent and Administrative Agent. The DIP Loan permitted the Debtors to borrow up to $75,000 from time to time for general corporate and business purposes, subject to satisfaction of customary drawing conditions and the existence of no events of default. The DIP Loan was terminated on the Effective Date.

Pre-petition Bank Debt

The Company’s indebtedness under its former senior secured credit agreement, dated May 1, 1996, as amended and restated (the “Old Credit Agreement”) consisted of a $255,000 senior secured revolving credit facility and $365,100 senior secured term loan facilities (collectively, the “Old Bank Debt”).

The Old Credit Agreement was terminated and the Old Bank Debt was satisfied upon the Company’s emergence from Chapter 11. As a result of the default under the Old Bank Debt, which existed prior to the Petition Date, the Company paid interest to its former senior secured creditors (the “Former Secured Creditors”) at Citibank’s customary base rate plus a margin ranging from 2.75% to 3.75%. The interest rates included a 2% increment for default interest from January 1, 2001 until the Petition Date. After the Petition Date, the Company did not pay the 2% increment for default interest. From the Petition Date to the Effective Date, the unpaid 2% increment for default interest was included in the Former Secured Creditors allowed claim and satisfied under the Plan. Prior to cancellation on the Effective Date, the interest rates on the components of the Old Bank Debt ranged from 7.50% to 8.50%. During 2001 and through the Effective Date, no principal payments were made on the Old Bank Debt.

Long-Term Debt Summary

The Company’s long-term debt at March 30, 2003 and June 30, 2002 consists of:

	March 30, 2003		June 30, 2002

Term Facility	$	268,526	$	288,000
Revolver		—		—
Subordinated Notes		150,000		150,000
Mortgage note and capitalized leases (a)		4,222		3,070

Total debt		422,748		441,070
Current maturities		16,724		16,961

Total long-term debt	$	406,024	$	424,109



(a) As of March 30, 2003, represents debt under one mortgage note and three capitalized equipment leases.

Interest Expense

As of the Petition Date, the Predecessor Company discontinued accruing interest on certain pre-petition debt that management believed would receive little, if any, distribution under the Plan (primarily the 10 7/8% Series B Senior Subordinated Notes due 2006 and the 12 1/4% Series B Senior Subordinated Discount Notes due 2006 (collectively, the “Old Subordinated Notes”)). If such interest had been accrued for the Predecessor 2002 Two Months and the Predecessor Company 2002 Eight Months, interest expense for these periods would have been approximately $11,500 and $42,060, respectively, higher than the amount reported.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

NOTE 9. LIABILITIES SUBJECT TO RESOLUTION

Liabilities subject to resolution in the Chapter 11 proceeding at March 30, 2003 and June 30, 2002 were $2,432 and $3,556, respectively. These balances consist primarily of real and personal property taxes expected to be paid upon settlement of the claim or over a six year period.

NOTE 10. REORGANIZATION ITEMS, NET AND OTHER CHARGES

Reorganization items, net for the Predecessor Company 2002 Two Months and the Predecessor Company 2002 Eight Months consisted of:

	Predecessor Company 2002 Two Months			Predecessor Company 2002 Eight Months

Provision for center closings	$	—		$	22,396
Professional fees (a)		10,303			30,086
Write off of deferred financing costs (b)		—			9,068
Employee retention program (c)		—			2,447
Claims settlement (d)		4,757			4,757
Other (e)		(1,772	)		1,265

	$	13,288		$	70,019


	(a)	Included amounts for legal, accounting and financial advisory fees related to the Chapter 11 proceeding.
	(b)	Represented financing costs associated with amounts borrowed under the Old Credit Agreement and with the issuance of the Old Subordinated Notes.
	(c)	Represented a bonus, severance and retention program approved by the Bankruptcy Court to ensure the retention of certain employees who were actively involved in the Company’s restructuring.
	(d)	Included amounts reversed for the settlement of administration claims, property tax interest and penalties and the related professional fees.
	(e)	Included the reversal of $3,180 that the Company had accrued in connection with the sale of its South American bowling centers.

Restructuring, Refinancing and Other Charges

During the Predecessor Company 2002 Eight Months, the Company recorded $5,044 of refinancing charges related to the proposed restructuring of debt. The charges primarily included amounts paid prior to the Petition Date for legal and advisory services and certain payments made in connection with employee retention programs. There were no such charges during the 2003 Third Quarter and the nine months ended March 30, 2003.

In the Reorganized Company 2002 One Month, the Company recorded restructuring charges necessary for Products to move from a direct presence in The People’s Republic of China, Hong Kong and India to a presence through distributors. The charges, excluding compensation amounts, were approximately $2,515 and related to costs associated with doing business on a direct basis in these countries.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

The Company recorded asset impairment charges of approximately $282 in the Reorganized Company 2002 One Month. These charges relate to the Company’s moving to distributors in The People’s Republic of China, Hong Kong and India. There were no such charges during the 2003 Third Quarter and the nine months ended March 30, 2003.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Equipment Warranties

The following table provides a roll-forward from June 30, 2002 of the Company’s exposure related to equipment warranties for the period ended March 30, 2003:

June 30, 2002 Balance	$	2,726
Provision		825
Payments		(1,083	)
Exchange Rate Effect		13

March 30, 2003 Balance	$	2,481

Equipment Sale Repurchase Agreements and Operating Lease Guarantees

Effective January 1, 2003, the Company adopted the provisions of FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which require the Company to record the fair value of any equipment sale repurchase agreement executed or modified after December 31, 2002. The Company entered into one repurchase agreement during the 2003 Third Quarter, which did not have a material impact for the 2003 Third Quarter or the nine months ended March 30, 2003.

In connection with certain equipment sales, AMF Products offers to certain lenders and leasing companies outside of the U.S. an equipment repurchase agreement. The repurchase price under such agreements is calculated to equal a portion of the debt incurred by customers to finance the purchase of the equipment. The Company’s aggregate amount of exposure related to equipment repurchase agreements is approximately $17,949 at March 30, 2003 of which $13,358 relates to equipment repurchase agreements entered into prior to the Petition Date. If a customer defaults under an equipment loan or lease, AMF Products may be requested to repurchase the equipment from the lender or leasing company and would be at risk for the difference of the repurchase price paid to the lender or leasing company and the amount AMF Products could realize in re-selling the equipment.

The obligations under the repurchase agreements that were incurred prior to the Petition Date were impaired under the Plan. Management has taken the position that the beneficiaries of such agreements are only entitled to their distributions as unsecured creditors of the Company under the Plan.

The Company’s exposure under equipment repurchase agreements entered into after the Petition Date is approximately $4,591. This amount includes 15 equipment repurchase agreements that have been entered into as of March 30, 2003. The Company believes it can realize approximately $3,886 upon the sale of equipment if it was required to perform under such agreements, leaving the Company with a net exposure of approximately $705. While there can be no assurance as to the timing, such equipment sales would occur in the normal course of business.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

Asset Sales

From time to time, the Company will sell real estate on which a bowling center is operated, either in connection with the closing of a bowling center or in response to an attractive offer to buy such real estate. In addition, the Company will, from time to time, sell excess real estate.

During the quarter ended December 29, 2002, the Company sold the land and building associated with a bowling center in the United States for $620. During the 2003 Third Quarter the Company sold the land associated with a bowling center that had been previously destroyed by fire in the United States for $201.

The Company closed one bowling center in Australia in December 2002 and one center in the United States in January 2003 and is currently negotiating the sale of these centers. The Company closed one bowling center in the United Kingdom in March 2003.

During the 2003 Third Quarter the Company sold its three bowling centers in Hong Kong for $200. The selling activity related to the bowling centers in Hong Kong was initiated during or prior to the Company’s transition period ended June 30, 2002.

Litigation and Claims

The Company emerged from Chapter 11 on March 8, 2002. However, under the Plan, the Bankruptcy Court retained jurisdiction over certain matters, including matters relating to claims objections, executory contracts and unexpired leases, litigation pending in the Bankruptcy Court at the time of confirmation, litigation the Company or other parties may commence relating to the Chapter 11 proceeding, and specific matters relating to the implementation and consummation of the Plan. In management’s opinion, the matters over which the Bankruptcy Court has retained jurisdiction are not expected to have a material adverse impact on the Company’s financial position or results of operations.

The Company currently and from time to time is subject to claims and actions arising in the ordinary course of its business, including general liability, workers’ compensation and environmental claims. In some actions, plaintiffs request punitive and other damages that may not be covered by insurance. In management’s opinion, the ordinary course claims and actions in which the Company is involved are not expected to have a material adverse impact on its financial position or results of operations. In addition, the Company has been recently named as a defendant in two actions, one in Georgia and the other in Missouri, alleging violations of the Federal Telephone Consumer Protection Act for transmission of unsolicited faxes. The plaintiff in each action seeks statutory damages and has requested geographically-limited class certifications in Georgia and Missouri. Given the preliminary nature of these proceedings, the Company is unable at this time to assess the potential effect of these actions, but intends to vigorously defend both actions. It is not possible at this time to predict the outcome of any such claims and actions.

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

NOTE 12. BUSINESS SEGMENTS

The Company operates in two business segments: operation of bowling centers and manufacture and sale of bowling and related products. Information concerning these operations is presented below (in millions):

	Reorganized Company Three Months ended March 30, 2003

	Centers						Products

	U.S.		Inter- national		Sub- total		U.S.		Inter- national			Sub- total			Corporate			Elim- inations			Total

Revenue from unaffiliated customers	$	141.7	$	28.6	$	170.3	$	10.8	$	6.8		$	17.6		$	—		$	—		$	187.9
Intersegment sales		—		—		—		3.6		0.8			4.4			—			(4.4	)		—
Operating income (loss)		36.2		2.9		39.1		0.2		(2.3	)		(2.1	)		(4.8	)		0.2			32.4
Total assets		476.2		88.1		564.3		88.7		25.3			114.0			53.9			5.3			737.5
Depreciation and amortization		16.4		3.2		19.6		0.9		0.1			1.0			0.3			(0.2	)		20.7
Capital expenditures		5.4		1.0		6.4		0.4		—			0.4			0.4			—			7.2

	Reorganized Company One Month ended March 31, 2002

	Centers						Products

	U.S.		Inter- national		Sub- total		U.S.			Inter- national			Sub- total			Corporate			Elim- inations			Total

Revenue from unaffiliated customers	$	50.7	$	9.2	$	59.9	$	5.2		$	2.2		$	7.4		$	—		$	—		$	67.3
Intersegment sales		—		—		—		1.4			0.2			1.6			—			(1.6	)		—
Operating income (loss)		13.4		1.2		14.6		(1.1	)		(2.8	)		(3.9	)		(1.8	)		0.1			9.0
Total assets		523.7		96.1		619.8		88.0			41.0			129.0			28.0			6.4			783.2
Depreciation and amortization		6.5		0.9		7.4		0.4			—			0.4			0.1			(0.1	)		7.8
Capital expenditures		1.6		0.5		2.1		0.2			—			0.2			0.3			—			2.6

	Predessor Company Two Months ended February 28, 2002

	Centers						Products

	U.S.		Inter- national		Sub- total		U.S.			Inter- national		Sub- total			Corporate			Elim- inations			Total

Revenue from unaffiliated customers	$	93.1	$	18.2	$	111.3	$	6.5		$	5.0	$	11.5		$	—		$	—		$	122.9
Intersegment sales		—		—		—		1.7			0.5		2.2			—			(2.2	)		—
Operating income (loss)		19.6		1.7		21.3		(4.1	)		—		(4.1	)		(3.3	)		0.2			14.0
Total assets		526.2		92.7		618.9		90.1			33.8		123.9			36.7			6.2			785.7
Depreciation and amortization		13.6		2.2		15.8		1.3			0.1		1.4			0.1			(0.2	)		17.1
Capital expenditures		1.1		0.5		1.6		0.4			0.1		0.5			0.4			—			2.5

	Reorganized Company Nine Months ended March 30, 2003

	Centers						Products

	U.S.		Inter- national		Sub- total		U.S.		Inter- national			Sub- total			Corporate			Elim- inations			Total

Revenue from unaffiliated customers	$	356.1	$	81.4	$	437.5	$	46.7	$	30.9		$	77.6		$	—		$	—		$	515.1
Intersegment sales		—		—		—		10.5		2.3			12.8			—			(12.8	)		—
Operating income (loss)		50.5		6.1		56.6		2.5		(3.1	)		(0.6	)		(14.0	)		0.4			42.4
Total assets		476.2		88.1		564.3		88.7		25.3			114.0			53.9			5.3			737.5
Depreciation and amortization		50.1		9.3		59.4		2.9		0.3			3.2			0.9			(0.5	)		63.0
Capital expenditures		19.8		3.6		23.4		1.3		0.1			1.4			1.2			—			26.0

	Predessor Company Eight Months ended February 28, 2002

	Centers						Products

	U.S.		Inter- national		Sub- total		U.S.			Inter- national			Sub- total			Corporate			Elim- inations			Total

Revenue from unaffiliated customers	$	317.3	$	72.7	$	390.0	$	35.2		$	35.4		$	70.6		$	—		$	—		$	460.6
Intersegment sales		—		—		—		8.6			2.3			10.9			—			(10.9	)		—
Operating income (loss)		23.9		4.3		28.2		(20.5	)		(8.9	)		(29.4	)		(12.3	)		0.1			(13.4	)
Total assets		526.2		92.7		618.9		90.1			33.8			123.9			36.7			6.2			785.7
Depreciation and amortization		55.9		10.7		66.6		13.5			0.5			14.0			0.8			(0.8	)		80.6
Capital expenditures		23.8		4.4		28.2		2.2			0.3			2.5			2.8			—			33.5

AMF BOWLING WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data and Note 12)
(unaudited)

NOTE 13. SUBSEQUENT EVENTS

On April 30, 2003 the Company sold excess property in Wisconsin for net proceeds of $416. The Company also closed two bowling centers in the United States on April 30, 2003.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Chapter 11 and Emergence

On July 2, 2001 (the “Petition Date”), AMF Bowling Worldwide, Inc., a Delaware corporation (“Worldwide” and together with its subsidiaries, the “Company”) and certain of its U.S. subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 (“Chapter 11”), Title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Eastern District of Virginia, Richmond Division (the “Bankruptcy Court”).

On February 1, 2002, the Bankruptcy Court confirmed the Second Amended Second Modified Joint Plan of Reorganization (the “Plan”) of the Debtors. The Plan became effective March 8, 2002 (the “Effective Date”), which is the date on which the Debtors formally emerged from Chapter 11. As part of the Plan, Worldwide entered into a senior secured credit agreement with Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), as Administrative Agent, and certain other lenders dated as of February 28, 2002 (the “Credit Agreement”). Worldwide also entered into an indenture dated as of March 8, 2002 (the “Indenture”), providing for the issuance of $150.0 million aggregate principal amount of 13.00% Senior Subordinated Notes due 2008 (the “Subordinated Notes”). During and immediately after the Chapter 11 proceeding, the Company closed 14 U.S. bowling centers and two golf driving ranges. The Company rejected related leases, where applicable, for those locations and for nine other centers closed prior to the commencement of the Chapter 11 proceeding.

Background

To facilitate a meaningful comparison, certain portions of this Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss results of bowling center operations in the United States (“U.S. Centers”) and internationally (“International Centers” and collectively with U.S. Centers, “Centers”) and bowling products operations (“Products”) separately.

The results of operations of Centers, 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 this provides a more accurate comparison of performance by segment. The intersegment eliminations are included in the consolidated results and are not material. The comparative results of Centers for the 2003 Third Quarter versus the 2002 Third Quarter reflect the closing of 35 centers and the opening of one center.

The following discussion should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company and the notes thereto set forth in this Quarterly Report on Form 10-Q. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. Certain totals may be affected by rounding. Unless the context otherwise indicates, dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in millions.

As required under the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission (the “SEC”) issued final rules on January 24, 2002 to address the disclosure of certain financial information that is calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles (“GAAP”). In response to the SEC’s ruling, the Company will discuss results of operations and financial condition in terms of GAAP measurements, such as net income, cash flow from operating activities and operating income.

On March 20, 2002, the Board of Directors approved the change of the Company’s fiscal year end from December 31 to the Sunday closest to June 30. This will result in future fiscal years having 52 or 53 weeks. Previously, the Company’s fiscal year ran from January 1 through December 31. The Company also adopted a retail calendar year, with each quarter comprised of one 5-week period and two 4-week periods. Management believes the change in fiscal year and quarterly reporting will complement the seasonal cycle of U.S. centers, which is the Company’s largest business segment. The U.S. Centers peak business cycle begins in late summer as leagues are formed and ends in mid spring as bowling leagues end.

The Company emerged from Chapter 11 on March 8, 2002. The Company, as it existed prior to March 8, 2002, is sometimes referred to as the “Predecessor Company” and, as it existed on and after March 8, 2002, is sometimes referred to as the “Reorganized Company.”

	Reorganized Company						Reorganized Company			Predecessor Company			Reorganized Company						Predecessor Company

	Three Months Ended March 30, 2003			Three Months Ended March 31, 2002			One Month Ended March 31, 2002			Two Months Ended February 28, 2002			Nine Months Ended March 30, 2003			Nine Months Ended March 31, 2002			Eight Months Ended February 28, 2002

Consolidated
Operating revenue	$	187.9		$	190.2		$	67.3		$	122.9		$	515.1		$	527.9		$	460.6
Cost of goods sold		29.8			30.8			10.8			20.0			101.4			108.2			97.3
Bowling center operating expenses		95.2			93.9			31.9			62.0			278.7			279.1			247.2
Selling, general and administrative expenses		9.8			14.4			5.0			9.4			29.5			48.5			43.5
Restructuring, refinancing and other charges		—			3.1			2.8			0.3			—			8.1			5.3
Depreciation and amortization		20.7			24.9			7.8			17.1			63.0			88.4			80.6

Operating income (loss)		32.4			23.0			9.0			14.0			42.4			(4.4	)		(13.4	)
Interest expense, gross		9.8			12.1			4.0			8.1			30.4			44.4			40.4
Other expense (income), net		(1.1	)		0.7			(0.2	)		0.9			(0.7	)		1.2			1.4

Income (loss) before reorganization items, net, gain on discharge of debt, net and fresh start accounting adjustments		23.7			10.2			5.2			5.0			12.7			(50.0	)		(55.2	)
Reorganization items, net		—			13.3			—			13.3			—			70.0			70.0
Gain on discharge of debt, net		—			(774.8	)		—			(774.8	)		—			(774.8	)		(774.8	)
Fresh start accounting adjustments		—			66.0			—			66.0			—			66.0			66.0

Income before provision for income taxes and cumulative effect of change in accounting for goodwill		23.7			705.7			5.2			700.5			12.7			588.8			583.6
Provision for income taxes		2.6			1.6			0.5			1.1			5.2			3.2			2.8

Income before cumulative effect of change in accounting for goodwill		21.1			704.1			4.7			699.4			7.5			585.6			580.8
Cumulative effect of change in accounting for goodwill		—			(718.4	)		—			(718.4	)		—			(718.4	)		(718.4	)

Net income (loss)	$	21.1		$	(14.3	)	$	4.7		$	(19.0	)	$	7.5		$	(132.9	)	$	(137.6	)

Consolidated revenue for the 2003 Third Quarter was $187.9 million, a decrease of $2.3 million, or 1.2%, compared with the 2002 Third Quarter. Consolidated revenue for the nine months ended March 30, 2003 was $515.1 million, a decrease of $12.8 million, or 2.4%, compared with the prior year.

Depreciation and Amortization

Depreciation and amortization decreased $4.2 million, or 16.9%, in the 2003 Third Quarter and $25.4 million, or 28.7%, in the nine months ended March 30, 2003 compared with the prior year periods. This change was primarily due to the write off of $718.4 million of goodwill as of January 1, 2002 in accordance with the Company’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets.” In addition, the Company wrote down long lived assets by approximately $66.0 million as of February 28, 2002 in connection with the application of fresh start accounting.

Interest Expense

Gross interest expense decreased $2.5 million, or 20.7%, in the 2003 Third Quarter and $14.4 million, or 32.4%, in the nine months ended March 30, 2003 compared with the prior year periods. These decreases are primarily attributable to the discharge of debt under the Company’s senior secured credit agreement, dated May 1,

1996, as amended and restated (the “Old Credit Agreement”) and under the Company’s 10 7/8% Series B Senior Subordinated Notes dues 2006 and 12 1/4% Series B Senior Subordinated Discount Notes due 2006 (collectively, the “Old Subordinated Notes”) in connection with the Company’s emergence from Chapter 11, and lower principal amounts and interest rates under the Credit Agreement and the Indenture. As of the Petition Date, the Predecessor Company did not accrue interest on its pre-petition subordinated debt. If such interest had continued to be accrued, interest expense for the 2002 Third Quarter and nine months ended March 31, 2002 would have been approximately $11.5 million and $42.1 million, respectively, higher than the reported amounts. The pre-petition subordinated debt was materially impaired or discharged in the Chapter 11 proceeding.

Provision for Income Taxes

As of March 30, 2003, the Company had net operating loss carryforwards of approximately $30.1 million. The net operating loss carryforwards will expire in 2022. The Company has recorded a valuation allowance, as of June 30, 2002, for $226.5 million related to net operating losses and other deferred tax assets that the Company may not be able to utilize prior to their expirations. The tax provision recorded for the 2003 Third Quarter, the nine months ended March 30, 2003, the 2002 Third Quarter and the nine months ended March 31, 2002 primarily relates to certain state and foreign taxes.

Net Income (Loss)

Net income in the 2003 Third Quarter and nine months ended March 30, 2003 totaled $21.1 million and $7.5 million, respectively, compared with a net loss of $(14.3) million and $(132.9) million, respectively, in the 2002 Third Quarter and nine months ended March 31, 2002. During the nine months ended March 31, 2002, the Company recorded $15.1 million in unusual expenses of Products, including $6.8 million related to increased reserves for accounts receivable, $5.1 million for increased reserves related to excess inventory, $2.5 million to adjust the net carrying value of certain assets and liabilities, $0.7 million related to legal matters and claims in Germany and an increase in the reserve for expenses involving a former employee. In addition to the impact of changes in depreciation and amortization, interest and provisions for income taxes discussed above, in the 2002 Third Quarter and nine months ended March 31, 2002, the Company recorded additional non-recurring amounts associated with the change in accounting for goodwill, $718.4 million; gain on debt discharge, net, $774.8 million; and fresh start accounting adjustments, $66.0 million. The Company recorded charges related to reorganization and restructuring of $16.4 million and $78.1 million for the 2002 Third Quarter and nine months ended March 31, 2002, respectively. The Company recorded charges related to asset impairment of $0.3 million and $3.8 million for the 2002 Third Quarter and nine months ended March 31, 2002, respectively.

Liquidity - Capital Resources – Asset Sales – Capital Expenditures

General

The Company generally relies on cash flow from operations and borrowings under its $45.0 million revolving credit facility (the “Revolver”) to fund its liquidity and capital expenditure needs. The Company’s ability to repay its indebtedness will depend on its future performance, which is subject to general economic, financial, competitive, legislative, regulatory and other factors. Management believes that available cash flow from operations and borrowings under the Revolver will be sufficient to fund its liquidity and capital expenditure needs.

The Company’s indebtedness under the Old Credit Agreement was $620.1 million. This indebtedness was discharged and terminated in the Chapter 11 proceeding. As of February 28, 2002, the Company entered into the Credit Agreement. The Credit Agreement provides for a $290.0 million term facility (the “Term Facility”) maturing in February 2008 and the Revolver maturing in February 2007. On December 19, 2002, after reviewing the Company’s future liquidity requirements, the Company voluntarily and permanently reduced the Revolver as provided in the Credit Agreement, from $60.0 million to $45.0 million. This reduction will result in lower commitment fees in future periods.

As of April 30, 2003, there were no outstanding borrowings under the Revolver and outstanding standby letters of credit issued under the Revolver totaled approximately $7.0 million, leaving approximately $38.0 million available for additional borrowings or letters of credit. The Revolver continues to be available for the Company’s working capital and general corporate needs, subject to customary borrowing conditions.

Both the Credit Agreement and the Indenture contain certain restrictive covenants, including the achievement of certain financial covenants and maximum levels of capital expenditures.

Liquidity

As of March 30, 2003, working capital was $20.3 million compared with working capital of $(7.4) million at June 30, 2002, an increase of $27.7 million. The increase is comprised of the following:

	Increase (Decrease)

	(in millions)
Cash	$	28.5
Accounts and notes receivable, net		(5.5	)
Inventory		(2.7	)
Other current assets		(0.8	)
Accounts payable		3.4
Accrued expenses		4.6
Current maturities of long-term debt		0.2

	$	27.7

Net cash provided by operating activities was $72.5 million for the nine months ended March 30, 2003 compared with $71.7 million in the nine months ended March 31, 2002, an increase of $0.8 million. This increase is comprised of the following:

	Increase (Decrease)

	(in millions)
Net income	$	140.4
Reorganization items		(46.6	)
Depreciation and amortization		(25.4	)
Accounts and notes receivable, net		(6.5	)
Accounts payable and accrued expenses		(44.0	)
Impairment of assets		(3.5	)
Cumulative effect of change in accounting for goodwill		(718.4	)
Fresh start accounting adjustments		(66.0	)
Gain on discharge of debt		774.8
Other		(4.0	)

	$	0.8

Net cash used in investing activities was $25.0 million for the nine months ended March 30, 2003 compared with $35.8 million in the nine months ended March 31, 2002, a decrease of $10.8 million. This decrease is primarily due to decreased Centers expenditures, primarily related to capital improvements of $8.5 million, asset sales of $0.8 million, a decrease in company-wide information systems expenditures of $0.6 million, and a decrease in Products expenditures of $0.9 million. These decreases are primarily the result of reduced levels of planned spending and the timing of expenditures during the current fiscal year.

Net cash used in financing activities was $19.7 million for the nine months ended March 30, 2003 compared with $8.5 million in the nine months ended March 31, 2002, a increase of $11.2 million. Payments of long-term debt and capital lease obligations exceeded proceeds by $19.6 million.

As a result of the aforementioned, cash increased by $28.5 million during the nine months ended March 30, 2003 compared with an increase of $29.1 million during the nine months ended March 31, 2002.

Capital Resources

The Company’s debt at March 30, 2003 and June 30, 2002 consisted of the following:

	March 30, 2003		June 30, 2002

Term Facility	$	268.5	$	288.0
Subordinated Notes		150.0		150.0
Revolver		—		—
Mortgage note and capitalized leases		4.2		3.1

	$	422.7	$	441.1

As of March 30, 2003, the Company had approximately $38.0 million available for borrowing under the Revolver, with no amounts outstanding and approximately $7.0 million of issued but undrawn standby letters of credit. As of June 30, 2002, the Company had $52.3 million available for borrowing or letters of credit under the Revolver, with no amounts outstanding and $7.7 million of issued but undrawn standby letters of credit.

During the nine months ended March 30, 2003, the Company funded its obligations primarily through cash flows from operations and borrowings under the Revolver. The Company made cash interest payments of $32.4 million during the nine months ended March 30, 2003.

For the nine months ended March 31, 2002, the Company did not accrue interest of approximately $42.1 million under the Old Subordinated Notes, which were discharged under the Plan.

Asset Sales

During the period ended December 29, 2002, the Company sold the land and building associated with a bowling center in the United States for $0.6 million. During the 2003 Third Quarter the Company sold the land associated with a bowling center that had been previously destroyed by fire in the United States for $0.2 million.

During the 2003 Third Quarter, the Company sold its three bowling centers in Hong Kong for $0.2 million. The selling activity related to the bowling centers in Hong Kong was initiated during or prior to the Company’s transition period ended June 30, 2002.

On April 30, 2003, the Company sold excess property in Wisconsin for net proceeds of $0.4 million. The Company also closed two bowling centers in the United States on April 30, 2003.

Capital Expenditures

The Company’s capital expenditures were $26.0 million in the nine month period ended March 30, 2003 compared with $36.0 million in the nine month period ended March 31, 2002, a decrease of $10.0 million. This decrease is primarily due to decreased Centers expenditures, primarily related to capital improvements of $8.5 million, a decrease in company-wide information systems expenditures of $0.6 million, and a decrease in Products expenditures of $0.9 million. These decreases are primarily the result of reduced levels of planned spending and the timing of expenditures during the current fiscal year.

Seasonality and Market Development Cycles

The Centers business is seasonal, primarily due to the bowling league season that begins in late summer and ends in mid spring. Cash flow from operations typically peaks in the winter and is lower in the summer.

Products sales are also seasonal, most notably in Modernization and Consumer Products sales in the U.S. While U.S. bowling center operators purchase spare parts, supplies and consumer products throughout the year, they often place larger orders during the late spring and early summer in preparation for the start of league play in the late summer. Summer is also generally the peak period for installation of modernization equipment in the U.S. Operators in the U.S. typically sign purchase orders for modernization equipment during the spring, which is then shipped and installed during the summer when U.S. bowling centers generally have fewer bowlers.

International Operations

The Company’s international operations are subject to the usual risks inherent in operating internationally, including, but not limited to, currency exchange rate fluctuations, economic and political instability, other disruption of markets, restrictive laws, tariffs and other actions by foreign governments (such as restrictions on transfer of funds, import and export duties and quotas, foreign customs, tariffs and value added taxes and unexpected changes in regulatory environments), difficulty in obtaining distribution and support for products, the risk of nationalization, the laws and policies of the U.S. affecting trade, international investment and loans, and foreign tax law changes. As is the case of other U.S.-based manufacturers with export sales, local currency devaluations increase the cost of Products bowling equipment. In addition, local currency devaluation negatively impacts the translation of operating results from International Centers.

Foreign currency exchange rates also impact the translation of operating results from International Centers. Revenue and operating income of International Centers represented 15.8% and 14.4% of consolidated revenue and operating income, respectively, for the nine months ended March 30, 2003. Revenue and operating income of International Centers represented 15.5% and 125.0% of consolidated revenue and operating income (loss), respectively, for the nine months ended March 31, 2002. For the nine months ended March 31, 2002, consolidated operating results reflected a loss while International Centers operating results reflected income.

Impact of Inflation

The Company historically offsets the impact of inflation through price increases. Periods of high inflation could have a material adverse impact on the Company to the extent that increased borrowing costs for floating rate debt may not be offset by increases in cash flow. There was no significant impact on the Company’s operations as a result of inflation for the nine months ended March 30, 2003 and March 31, 2002, respectively.

Critical Accounting Policies

Allowance for Doubtful Accounts

Products maintains an allowance for doubtful accounts for estimated losses resulting from the failure of customers to make payment. Management determines the allowance based upon an evaluation of individual accounts, aging of the portfolio, issues raised by customers that may suggest non payment, historical experience and/or the current economic environment. A substantial portion of the allowance relates to the sale of New Center Packages to international customers. If the financial condition of individual customers or countries in which Products operates or the general worldwide economy were to vary materially from the assumptions made by management, the allowance may require adjustment in the future. Products evaluates the adequacy of the allowance on a regular basis, modifying, as necessary, its assumptions, updating its record of historical experience and adjusting reserves as appropriate.

Inventory Obsolescence

Products evaluates the levels, composition and salability of its inventory on a regular basis. The evaluations include assumptions regarding potential sales of such inventory, estimated time periods over which such sales might take place and assessment of the potential usability of such inventory in future production. Products modifies, as necessary, its assumptions, updates its record of historical experience and adjusts its reserves as appropriate.

Equipment Warranties

Products generally warrants all new products for one year and charges to expense an estimated amount for future warranty obligations. The reserve is determined based on prior warranty experience. If future warranty experience were to vary materially, management would review the reserve and make any appropriate adjustment. Products evaluates the adequacy of the reserve on a regular basis, modifying as necessary, its assumptions, updating its record of historical experience and adjusting its reserves as appropriate.

Self Insurance, Litigation and Claims

The Company self-insures certain risks up to established limits, including general and product liability exposures, workers compensation, health care coverage, and property damage. Other risks, such as litigation and claims relating to contractual disputes and employment issues, may not be covered by insurance. The reserves related to such self-insurance programs and to such other risks are determined based on estimates of future settlements and costs of known and anticipated claims as well as on forces impacting the current economic environment. In the case of matters in litigation or involving threatened litigation, legal advice on the Company’s potential liability and the potential for the award of damages is considered in making any estimate. The Company maintains systems to track and monitor these risks. If actual results were to vary materially from the assumptions, management would review the reserve and make any appropriate adjustment. The Company evaluates the adequacy of these reserves on a regular basis, modifying, as necessary, its assumptions, updating its records of historical experience and adjusting its reserves as appropriate.

Deferred Tax Assets

As of March 30, 2003, the Company had approximately $229.1 million of gross deferred tax assets on its consolidated balance sheet. Since there is no assurance that these assets will be ultimately realized, management periodically reviews its deferred tax positions to determine if it is more likely than not that such assets will be realized. Such periodic reviews include, among other things, the nature and amount of the tax income and expense items, the expected timing when certain assets will be used or liabilities will be required to be reported, and the reliability of historical profitability of businesses expected to provide future earnings. If after conducting such a review, management determines that the realization of the tax asset does not meet the “more likely than not” criteria, an offsetting valuation allowance would be recorded, thereby reducing net earnings and the deferred tax asset in that period. Due to the Company’s historical and expected future earnings from operations, management concluded that it is “more likely than not” that the Company will not realize the benefit of its deferred tax assets. Therefore, a

valuation allowance has been set up for the entire amount of the deferred tax asset. If expectations for future performance, the timing of deductibility of expenses, or tax statutes change in the future, the Company could decide to adjust the valuation allowance, which may increase or decrease the tax provision.

Centers

Centers results reflect both U.S. and International Centers operations. To facilitate a meaningful comparison, the constant center results discussed below reflect the results of 481 centers (384 U.S. Centers and 97 International Centers) that have been in operation twelve months as of June 30, 2002. The discussion of new center results reflects the results of one center that has been in operation less than twelve months as of June 30, 2002. Centers derives its revenue from three principal sources:

•	bowling;

•	food and beverage sales; and

•	ancillary sources.

	Reorganized Company				Reorganized Company		Predecessor Company		Reorganized Company				Predecessor Company

	Three Months Ended March 30, 2003		Three Months Ended March 31, 2002		One Month Ended March 31, 2002		Two Months Ended February 28, 2002		Nine Months Ended March 30, 2003		Nine Months Ended March 31, 2002		Eight Months Ended February 28, 2002

Centers (before intersegment eliminations)
Operating revenue	$	170.3	$	171.2	$	59.9	$	111.3	$	437.5	$	449.9	$	390.0

Cost of goods sold		16.2		16.2		5.6		10.6		42.2		44.4		38.8
Bowling center operating expenses		95.4		95.7		32.2		63.5		279.3		285.0		252.8
Restructuring, refinancing and other charges		—		0.1		—		0.1		—		3.6		3.6
Depreciation and amortization		19.6		23.2		7.4		15.8		59.4		74.0		66.6

Operating income	$	39.1	$	36.0	$	14.6	$	21.3	$	56.6	$	42.9	$	28.2

For the nine months ended March 30, 2003, bowling, food and beverage and ancillary sources represented 58.6%, 27.4% and 14.0% of total Centers revenue, respectively. For the nine months ended March 31, 2002, bowling, food and beverage and ancillary sources represented 58.6%, 27.4% and 14.0% of total Centers revenue, respectively.

Bowling revenue, the largest component of a center’s revenue, is derived from league play and recreational play, each representing approximately 50% of annual bowling revenue in U.S. Centers. League lineage (number of games bowled per lane per day) has been declining for a number of years. Recreational play includes managed, or scheduled play (such as birthday or corporate parties), and open, or unscheduled play.

The decline in revenue that could be expected from the decline in lineage has been generally offset with price increases. International Centers, which operates in five different countries, has a bowling lineage mix of approximately 65% recreational lineage and 35% league lineage. Lineage has been declining for a number of years. Australia has experienced the most significant decline in lineage, particularly in league play. With the exception of Australia, the impact on revenue from the decline in International Centers lineage has also been generally offset with price increases. Typically, price increases have generally paralleled local country inflation rates.

2003 Third Quarter compared with the 2002 Third Quarter

Centers operating revenue was down $0.9 million, or 0.5%, for the 2003 Third Quarter compared with the prior year quarter, of which $4.3 million was attributable to the closure of 35 centers since March 31, 2002. The decrease in revenue as a result of closed centers was offset by an increase in constant center revenue. U.S. constant center revenue increased $1.9 million, or 1.3%, primarily as a result of higher average price per game as compared with the prior year quarter, partially offset by decreased recreational play. International constant center revenue increased $1.2 million, or 4.4%, primarily attributable to a favorable foreign exchange rate variance of $3.2 million, partially offset by a decline in lineage.

Bowling center operating expenses decreased $0.3 million, or 0.3%, of which $3.2 million was a result of center closings. U.S. constant center operating expenses increased $2.1 million, or 3.0%, primarily due to increased insurance, utility and payroll expenses. International constant center operating expenses increased $2.0 million, or 13.9%, primarily due to increased insurance and payroll expenses and unfavorable foreign exchange rate variances. As a percentage of revenue, Centers operating expenses were 56.0% for the 2003 Third Quarter compared with 55.9% for the 2002 Third Quarter.

Depreciation and amortization decreased $3.6 million, or 15.5%, primarily due to the write-off of $268.6 million of goodwill as of January 1, 2002 in accordance with the Company’s adoption of SFAS No. 142.

Operating income increased $3.1 million, or 8.6%, versus the prior year quarter primarily due to the decrease in operating expenses, depreciation and amortization. In addition to the impact of changes discussed above, Centers recorded non-recurring charges related to restructuring of $0.1 million in the 2002 Third Quarter.

Nine Months Ended March 30, 2003 compared with the Nine Months Ended March 31, 2002

Centers operating revenue was down $12.4 million, or 2.8%, compared with the prior year, of which $13.6 million was attributable to the closure of 40 centers since June 30, 2001. U.S. constant center revenue decreased $1.6 million, or 0.4%, primarily as a result of decreased recreational play. International constant center revenue increased $2.0 million, or 2.6%, primarily attributable to a favorable foreign exchange rate variance of $6.3 million, partially offset by a decline in lineage.

Bowling center operating expenses decreased $5.7 million, or 2.0%, of which $12.1 million was a result of center closings. U.S. constant centers operating expenses increased $2.3 million, or 1.1%, primarily due to an increase in insurance, taxes and licenses expense of $1.3 million and $1.1 million of expenses associated with potential lease closure costs. International constant center operating expenses increased $3.6 million, or 8.1%, primarily due to unfavorable foreign exchange rate variances and $0.2 million associated with potential lease closure costs. As a percentage of revenue, Centers operating expenses were 63.8% for the nine months ended March 30, 2003, compared with 63.3% for the nine months ended March 31, 2002.

Depreciation and amortization decreased $14.6 million, or 19.7%, primarily due to the write-off of $268.6 million of goodwill as of January 1, 2002 in accordance with the Company’s adoption of SFAS No. 142.

Operating income increased $13.7 million, or 31.9%, versus the prior year period primarily due to the decrease in operating expenses, depreciation and amortization. In addition to the impact of changes discussed above, Centers recorded non-recurring amounts associated with charges related to asset impairment of $3.5 million and $0.1 million related to restructuring in the nine months ended March 31, 2002.

Products

	Reorganized Company						Reorganized Company			Predecessor Company			Reorganized Company						Predecessor Company

	Three Months Ended March 30, 2003			Three Months Ended March 31, 2002			One Month Ended March 31, 2002			Two Months Ended February 28, 2002			Nine Months Ended March 30, 2003			Nine Months Ended March 31, 2002			Eight Months Ended February 28, 2002

Products (before intersegment eliminations)
Operating revenue	$	22.0		$	22.7		$	9.0		$	13.7		$	90.4		$	90.5		$	81.5
Cost of goods sold		17.7			18.0			6.6			11.4			71.3			75.2			68.6

Gross profit		4.3			4.7			2.4			2.3			19.1			15.3			12.9
Selling, general and administrative expenses		5.4			7.8			3.1			4.7			16.5			29.5			26.4
Restructuring, refinancing and other charges		—			3.1			2.8			0.3			—			4.7			1.9
Depreciation and amortization		1.0			1.8			0.4			1.4			3.2			14.4			14.0

Operating loss	$	(2.1	)	$	(8.0	)	$	(3.9	)	$	(4.1	)	$	(0.6	)	$	(33.3	)	$	(29.4	)

2003 Third Quarter compared with the 2002 Third Quarter

Products operating revenue decreased $0.7 million, or 3.1%.

Gross profit decreased $0.4 million, or 8.5% primarily as a result of the decrease in revenue. The gross profit margin was 19.5% in the 2003 Third Quarter compared with 20.7% in the prior year quarter.

Products selling, general and administrative expenses decreased $2.4 million, or 30.8%, compared with the prior year quarter. The decrease in expenses is primarily attributable to reductions in payroll expenses. A decrease of $0.7 million was due to the recording of charges in the 2002 Third Quarter for legal matters in Germany and an increase in the reserve for expenses involving a former employee.

Depreciation and amortization decreased $0.8 million, or 44.4%, primarily due to the write-off of $449.8 million of goodwill as of January 1, 2002 in accordance with the Company’s adoption of SFAS No. 142.

Operating loss for the 2003 Third Quarter was $2.1 million, a decrease of $5.9 million when compared to the prior year quarter. In addition to the impact of changes discussed above, Products recorded non-recurring charges related to restructuring of $2.8 million and $0.3 million related to asset impairment in the 2002 Third Quarter.

Nine Months Ended March 30, 2003 compared with the Nine Months Ended March 31, 2002

Products operating revenue decreased $0.1 million, or 0.1%.

Gross profit increased $3.8 million, or 24.8%. The gross profit margin was 21.1% in the nine months ended March 30, 2003 compared with 16.9% in the prior year nine month period. The improved margin percentage was primarily due to $5.1 million of additional reserves recorded in the nine months ended March 31, 2002 related to the estimated net realizable value of certain excess inventory.

Products selling, general and administrative expenses decreased $13.0 million, or 44.1%, compared with the prior year nine month period. The reduction in expenses is primarily attributable to charges recorded in the nine months ended March 31, 2002 of $6.8 million reflecting increased reserves for accounts receivable, the adjustment of the net carrying value of certain other assets and liabilities of $2.5 million, and charges of $0.7 million related to legal matters in Germany and an increase in the reserve for expenses involving a former employee.

Depreciation and amortization decreased $11.2 million, or 77.8%, primarily due to the write-off of $449.8 million of goodwill as of January 1, 2002 in accordance with the Company’s adoption of SFAS No. 142.

Operating loss for the nine months ended March 30, 2003 was $0.6 million, a decrease of $32.7 million when compared to the prior year period In addition to the impact of the changes discussed above, the prior year also included non-recurring charges of $4.4 million for increased reserves related to excess inventory and $0.3 million related to asset impairment charges.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates that could impact its results of operations and financial condition. The Company manages its exposure to these risks through its normal operating and financing activities and through the use of interest rate cap agreements. At March 30, 2003, one interest rate cap agreement was outstanding. There were no other derivative instruments outstanding during any of the periods presented. Management periodically reviews its exposure to changes in interest rates and may enter into interest rate cap agreements as it deems appropriate.

As with other U.S.-based exporters, local currency devaluations increase the cost of the Company’s bowling equipment in that market. As a result, a strengthening U.S. dollar exchange rate may adversely impact sales volume and profit margins. Foreign currency exchange rates also impact the translation of operating results from the international bowling centers.

The Company has not hedged against fluctuations in its investment in foreign operations.

The Company uses interest rate cap agreements to mitigate the effect of changes in interest rates on variable rate borrowings under the Credit Agreement. While the Company is exposed to credit risk in the event of non-performance by the counterparties to the interest rate swap agreements, in all cases such counterparties are highly-rated financial institutions and the Company does not anticipate non-performance. The Company does not hold or issue derivative financial instruments for trading purposes.

The following table provides information about the Company’s fixed and variable-rate debt at March 30, 2003, weighted average interest rates and respective maturity dates (dollar amounts in millions).

Maturity	Fixed Rate Debt		Weighted Average Interest Rate			Variable Rate Debt		Weighted Average Interest Rate

September 1, 2008	$	150.0		13.00	%		—		—
February 28, 2008		—		—		$	268.5		6.06	%

The fair value of the Term Facility and the Subordinated Notes at March 30, 2003 was approximately $268.5 million and $159.4 million, respectively.

On June 7, 2002, the Company entered into an interest rate swap agreement with Deutsche Bank, AG to reduce the interest rate risk of certain amounts borrowed under the Credit Agreement. The table below summarizes the interest rate cap agreement at March 30, 2003:

Expiration Date	Notional Amount		Cap Rate (a)

June 7, 2003	$	100.0		4.0	%


	(a)	The cap rate is the 3 month U.S. Dollar-London Interbank Offer Rate (“USD-LIBOR”) quoted by Deutsche Bank, AG.

The Company paid a fixed fee of approximately $0.1 million for the interest rate cap. The Company will receive quarterly payments from Deutsche Bank, AG if the quoted three month USD-LIBOR on the quarterly floating rate reset dates is above the cap rate.

ITEM 4.

CONTROLS AND PROCEDURES

Based on their most recent review, which was completed within 90 days of the filing of this report, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.

PART II

Item 1.

Legal Proceedings

The Company emerged from Chapter 11 on March 8, 2002. However, under the Plan, the Bankruptcy Court retained jurisdiction over certain matters, including matters relating to claims objections, executory contracts and unexpired leases, litigation pending in the Bankruptcy Court at the time of confirmation, litigation the Company or other parties may commenced or may commence relating to the Chapter 11 proceeding, and specific matters relating to the implementation and consummation of the Plan. In management’s opinion, the matters over which the Bankruptcy Court has retained jurisdiction are not expected to have a material adverse impact on the Company’s financial position or results of operations.

Regulatory Matters

There are no unique regulations applicable to bowling center operations or bowling equipment manufacturing. State and local governments require bowling centers 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).

Environmental Matters

The Company’s operations are subject to federal, state, local and foreign environmental laws and regulations that impose limitations on the discharge of, and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of, certain materials, substances and wastes.

The Company currently and from time to time is subject to environmental claims. In management’s opinion, the various 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.

The Company cannot predict with any certainty whether existing conditions or future events, such as changes in existing laws and regulations, may give rise to additional environmental costs. Furthermore, actions by federal, state, local and foreign governments concerning environmental matters could result in laws or regulations that could increase the cost of producing the Company’s products, or providing its services, or otherwise adversely affect the demand for its products or services.

Item 6.	Exhibits and Reports on Form 8-K

(a)	Exhibits

	10.1	Employment Agreement, dated as of December 6, 2002, between AMF Bowling Worldwide, Inc. and George W. Vieth, Jr.
	10.2	Grant Notice and Option Agreement, dated as of March 17, 2003, between AMF Bowling Worldwide, Inc. and George W. Vieth, Jr.

(b)	Reports on Form 8-K:

	The Company filed one Current Report on Form 8-K during the quarterly period ended March 30, 2003. On February 4, 2003, the Company filed a Form 8-K in which it announced the resignation of John Suddarth as Chief Operating Officer of AMF Bowling Products, Inc., a subsidiary of AMF Bowling Worldwide, Inc., and the appointment of John Walker as acting Chief Operating Officer.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMF BOWLING WORLDWIDE, INC.
(Registrant)

/s/ CHRISTOPHER F. CAESAR		May 14, 2003

Christopher F. Caesar Senior Vice President, Chief Financial Officer and Treasurer (principal financial officer)

CERTIFICATIONS

I, George W. Vieth, Jr., Interim President and Chief Executive Officer of AMF Bowling Worldwide, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of AMF Bowling Worldwide, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	(a)	Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	(c)	Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	(a)	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

	/s/ GEORGE W. VIETH, JR.

	George W. Vieth, Jr. Interim President and Chief Executive Officer

CERTIFICATIONS

I, Christopher F. Caesar, Senior Vice President, Chief Financial Officer and Treasurer of AMF Bowling Worldwide, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of AMF Bowling Worldwide, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	(a)	Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	(c)	Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	(a)	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

	/s/ CHRISTOPHER F. CAESAR

	Christopher F. Caesar Senior Vice President, Chief Financial Officer and Treasurer

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