ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

AMF Bowling Worldwide, Inc. (“Worldwide”) and its subsidiaries (together with Worldwide, “the Company”) operate in two business segments: bowling center operations (“Centers”) and bowling products operations (“Products”). Centers, the largest segment, represents 83.8% and 369.2% of consolidated revenue and operating income, respectively, on a year to date basis. In reviewing Centers, management focuses on Center revenue, operating expenses and capital expenditures. In reviewing Products, management focuses on working capital as well as revenue, operating expenses and gross profit margin.

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 Centers in the United States (“U.S. Centers”) and internationally (“International Centers”) and 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 three and nine months ended March 28, 2004 versus the three and nine months ended March 30, 2003 reflect the closing of 12 and 22 centers, respectively.

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.

Merger

On November 26, 2003, Kingpin Holdings, LLC (“Kingpin Holdings”) and its wholly-owned subsidiary, Kingpin Merger Sub, Inc. (“Merger Sub”), entered into an Agreement and Plan of Merger with Worldwide (the “Merger Agreement”). Pursuant to the Merger Agreement, on February 27, 2004, the Merger Sub was merged into Worldwide with Worldwide being the surviving corporation (the “Merger”). Each shareholder of Worldwide received $25.00 in cash for each share of the Old Common Stock (as defined in Part II. Legal Proceedings) including vested options and warrants, for aggregate proceeds (including option proceeds) of $258.7 million. The Old Common Stock was cancelled and the common stock of Merger Sub became the new common stock of Worldwide (the “New Common Stock”). As part of the Merger, Kingpin Intermediate Corp., a wholly-owned subsidiary of Kingpin Holdings, became the sole shareholder of Worldwide.

Kingpin Holdings is a Delaware limited liability company formed at the direction of Code Hennessy & Simmons LLC, a Chicago-based private equity firm (“CHS”). Kingpin Holdings is owned by Code Hennessy & Simmons IV, certain members of Worldwide’s management team and other equity investors (collectively, the “Equity Investors”). In connection with the Merger, the following transactions occurred:

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Simultaneously with the Merger, all of the directors of Worldwide resigned and George W. Vieth, Jr. resigned as president and Chief Executive Officer of Worldwide. Frederick R. Hipp was elected as the sole director and the President and Chief Executive Officer of Worldwide.

As a result of the Merger, the Company’s financial results during the three and nine months ended March 28, 2004 include results of the Predecessor Company and the New Company. Accordingly, the operating results of the New Company and the Predecessor Company are separately presented.

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

Consolidated revenue for the 2004 Third Quarter was $200.7 million, an increase of $12.8 million, or 6.8%, compared with the 2003 Third Quarter. This increase was attributable to the increase in Products revenue due to an increase in revenue in most geographic markets, as well as an increase in international centers revenue primarily the result of favorable exchange rate changes.

Consolidated revenue for the Nine Months ended March 28, 2004 was $522.9 million, an increase of $7.8 million, or 1.5%, compared with the prior year period. This increase was attributable to the increase in Products revenue primarily attributable to an increase in revenue in the Japanese market as well as an increase in international centers revenue primarily the result of favorable exchange rate changes. These increases were partially offset by a decrease in U.S. Centers revenue due to a decrease in bowling, food and beverage, and ancillary revenue. In addition, U.S. closed centers represent a $4.3 million negative variance compared with the prior year period.

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Depreciation and Amortization

Depreciation and amortization decreased $5.7 million, or 27.5%, in the 2004 Third Quarter and $17.0 million, or 27.0%, in the Nine Months ended March 28, 2004 compared with the prior year periods. This change was primarily attributable to decreased Centers depreciation as a result of certain U.S. assets acquired in 1996 becoming fully depreciated. In addition, due to center closures, there are 22 fewer centers when compared with the Nine Months ended March 30, 2003. The impact of the Sale-Leaseback Agreements on depreciation for the 2004 Third Quarter and the Nine Months ended March 28, 2004 was not material.

Interest Expense

Gross interest expense increased $33.5 million in the 2004 Third Quarter and $31.1 million in the Nine Months ended March 38, 2004 compared with the prior year periods. These increases are primarily attributable to Merger related interest costs of $26.5 million in prepayment penalties related to the tender of the Old Subordinated Notes and $8.8 million related to the write-off of previously capitalized debt issuance costs under the Old Subordinated Notes and Old Credit Agreement.

Provision for Income Taxes

As of March 28, 2004, the Company had net operating loss carryforwards of approximately $67.7 million. The net operating loss carryforwards will begin to expire in 2022. The Company recorded a valuation allowance, as of June 29, 2003, totaling $218.1 million related to net operating losses and other deferred tax assets that management believes do not meet the “more likely than not” realization criteria of SFAS No. 109 “Accounting for Income Taxes.” Total income tax expense decreased to $2.4 million for the 2004 Third Quarter from $2.6 million for the 2003 Third Quarter. The decrease is a result of the taxation of individual subsidiaries by separate state, local and foreign jurisdictions. A current federal alternative minimum tax expense of $0.2 million was recorded in the 2004 Third Quarter for an extension payment for tax calendar year ending December 31, 2003. This payment can be used in the future as a credit against regular taxable income when the Company becomes a federal taxpayer. The credit was recorded as an addition to the deferred tax asset. An additional valuation allowance for $0.2 was recorded against this deferred tax asset. The remaining tax provision recorded for the 2004 Third Quarter and the 2003 Third Quarter primarily relates to certain state, local and foreign income taxes. AMF Bowling Centers, Inc. (“AMF Centers”), a wholly owned subsidiary, recorded a state tax expense of $1.6 million for the 2004 Third Quarter. Various foreign subsidiaries and branches recorded a combined tax expense of $0.5 million for the 2004 Third Quarter based on various foreign tax rates. AMF Centers recorded a state tax expense of $2.4 million for the Nine Months ended March 28, 2004 and the various foreign subsidiaries and branches recorded a combined tax expense of $1.5 million for the same period.

Net Income (Loss)

Net income (loss) for the 2004 Third Quarter and the Nine Months ended March 28, 2004 totaled $(49.2) million and $(49.4) million, respectively, compared with $21.1 million and $7.5 million, respectively, in the 2003 Third Quarter and the Nine Months ended March 30, 2003, respectively. This change was primarily attributable to costs incurred in the current quarter related to the Merger of $34.6 million, of which $0.6 million was related to severance for the former chief executive officer, as well as interest incurred related to the Merger of $35.4 million. These increases were partially offset by the decrease in depreciation and amortization mentioned above.

Comprehensive Income (Loss)

Comprehensive income (loss) for the 2004 Third Quarter and the Nine Months ended March 28, 2004 totaled $(68.0) million and $(63.0) million, respectively, compared with $23.1 million and $9.7 million, respectively, in the 2003 Third Quarter and Nine Months ended March 30, 2003. This decrease was primarily attributable to expenses incurred in connection with the Merger.

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Liquidity - Capital Resources – Asset Sales – Capital Expenditures

General

In connection with the Merger, as of February 27, 2004, the Company entered into the Credit Agreement that consisted of a $135.0 million Term Loan maturing in August 2009 and a $40.0 million Revolver maturing in February 2009.

The Company generally relies on cash flow from operations and borrowings under 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 consisted of a $290.0 million term facility and a $45.0 million revolving credit facility.

As of April 30, 2004, there were no outstanding borrowings under the Revolver and outstanding standby letters of credit issued under the Revolver totaled approximately $18.6 million, leaving approximately $21.4 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. The Company is in compliance with its covenants as of the quarter ended March 28, 2004. There can be no assurance that the Company will be able to satisfy such covenant tests in the future.

Liquidity

As of March 28, 2004, working capital was $(3.0) million compared with $(10.4) million at June 29, 2003, an increase of $7.4 million. This increase is primarily attributable to a decrease in debt outstanding as a result of the Merger and funding of operations and is comprised of the following:

Net cash provided by operating activities was $11.8 million for the Nine Months ended March 28, 2004 compared with net cash provided by operating activities of $72.5 million in the Nine Months ended March 30, 2003, as the effect of decreased operating income was accompanied by an increase in cash used for working capital in connection with transactions related to the Merger.

Net cash provided by investing activities was $223.2 million for the Nine Months ended March 28, 2004 compared with net cash used in investing activities of $25.0 million in the Nine Months ended March 30, 2003. In the Nine Months ended March 28, 2004, the Company received proceeds of $254.0 million related to the Sale-Leaseback Agreements in connection with the Merger. This increase was partially offset by an increase in Centers expenditures, primarily related to capital improvements.

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Net cash used in financing activities was $267.1 million for the Nine Months ended March 28, 2004 compared with cash used in financing activities of $19.7 million in the Nine Months ended March 30, 2003. This increase is primarily the result of the satisfaction of the Old Subordinated Notes and the Old Credit Agreement. Additionally, the Company paid dividends of $250.3 million in connection with the Merger. The Company also received a net equity investment of $133.7 million from the Equity Investors in connection with the Merger.

As a result of the aforementioned, cash decreased by $33.3 million during the Nine Months ended March 28, 2004 compared with an increase of $28.5 million during the Nine Months ended March 30, 2003.

As of March 28, 2004, the Company had approximately $21.4 million available for borrowing under the Revolver, with no amounts outstanding and approximately $18.6 million of issued but undrawn standby letters of credit. As of June 29, 2003, the Company had $35.8 million available for borrowing or letters of credit under the Revolver, with no amounts outstanding and $9.2 million of issued but undrawn standby letters of credit.

During the Nine Months ended March 28, 2004, the Company funded its obligations primarily through cash flows from operations and borrowings under the Revolver. The Company made cash interest payments of $31.4 million and paid $26.5 million in prepayment penalties on the Old Subordinated Notes during the Nine Months ended March 28, 2004. For the fiscal year ended June 29, 2003, the Company calculated a mandatory prepayment on the Old Term Facility of $24.4 million based on consolidated excess cash flow, $23.3 million of which was paid and applied to the Old Term Facility on August 28, 2003. The remaining $1.1 million was paid on October 8, 2003 upon expiration of a Eurodollar loan contract. The prepayments reduced the remaining scheduled principal payments on a pro rata basis.

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 2004 Third Quarter, the Company sold the land and building associated with three bowling centers in the United States for net proceeds of $0.8 million and a loss of $1.1 million, of which $0.4 million was reserved, and excess property in the United States for net proceeds of $0.3 million and a gain of the same amount. The Company also sold the land and building associated with a bowling center in Australia for net proceeds of $1.7 million and a gain of $0.9 million. During the quarter ended December 28, 2003, the Company sold the land and building associated with a bowling center in the United States for net proceeds of $2.2 million and a loss of $0.2 million, which was fully reserved, and one parcel of excess property in the United States for net proceeds of $0.2 million and a gain of the same amount. During the quarter ended September 28, 2003, the Company sold excess property in the United States for net proceeds of $0.8 million and a gain of the same amount.

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Capital Expenditures

The Company’s capital expenditures were $35.9 million in the Nine Months ended March 28, 2004 compared with $26.0 million in the Nine Months ended March 30, 2003, an increase of $9.9 million. This increase is primarily due to increased Centers expenditures, primarily related to capital improvements targeted to enhance the appearance of the Company’s bowling centers to its customers. Capital expenditures are funded from cash generated from operations.

Seasonality and Market Development Cycles

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 to operating in foreign countries, 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 and Products. International Centers represented 17.3% and 15.8% of consolidated revenue, respectively, for the Nine Months ended March 28, 2004 and March 30, 2003. International Centers represented 31.9% and 14.4% of consolidated operating income, respectively, for the Nine Months ended March 28, 2004 and March 30, 2003.

Products’ international operations represented 8.0% and 6.0% of consolidated revenue, respectively, for the Nine Months ended March 28, 2004 and March 30, 2003. International operations of Products represented $(1.8) million of the $13.3 million consolidated operating income for the Nine Months ended March 28, 2004 and $(3.1) million of the $42.4 million consolidated operating income for the Nine Months ended March 30, 2003.

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 28, 2004 and March 30, 2003, respectively.

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Critical Accounting Policies

In preparing the condensed consolidated financial statements, GAAP requires management to select and apply accounting policies that involve estimates and judgment. The following accounting policies may require a higher degree of judgment or involve amounts that could have a material impact on the condensed consolidated financial statements. The development and selection of the critical accounting policies, and the related disclosure below have been reviewed with the Board.

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.

Impairment of Long-Lived Assets

The Company assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Factors that are considered in deciding when to perform an impairment review include significant under-performance of a center or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. As a result, the Company has closed certain individual center locations with some regularity. Recoverability of assets that will continue to be used in operations is measured by comparing the carrying amount of the asset to the related total future net cash flows. If an asset’s carrying value is not recoverable through those cash flows, the asset is considered to be impaired. The impairment is measured by the difference between the asset’s carrying amount and its fair value, based on the best information available, including market prices or a discounted cash flow analysis.

Inventory Obsolescence

As the Company monitors working capital (defined as current assets minus current liabilities), net inventory represents nearly one third of the Company’s current assets. 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

Warranty expense is an indicator of product quality and handling. Products sells capital equipment where warranty and after sale service are very important to the customer. Products generally warrants all new products for one year and maintains an estimated reserve 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.

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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 June 29, 2003, the Company had approximately $218.1 million of gross deferred tax assets on its consolidated balance sheet. 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 reserve is 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 reserve 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 income tax expense.

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 468 centers (374 U.S. Centers and 94 International Centers) that have been in operation one full fiscal year as of June 29, 2003. Centers derives its revenue from three principal sources:

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For the Nine Months ended March 28, 2004, bowling, food and beverage and ancillary sources represented 57.6%, 26.5% and 15.9% of total Centers revenue, respectively. For the Nine Months ended March 30, 2003, bowling, food and beverage and ancillary sources represented 58.2%, 27.4% and 14.4% 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 U.S. Centers 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 an average bowling lineage mix of approximately 67% recreational lineage and 33% 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. Price increases have generally paralleled local country inflation rates.

2004 Third Quarter compared with the 2003 Third Quarter

Centers operating revenue for the 2004 Third Quarter increased $4.5 million, or 2.6%, as compared to the 2003 Third Quarter. U.S. constant center revenue increased $1.5 million, or 1.1%, primarily the result of increased food and beverage revenue as well as increased open play revenue. International constant center revenue increased $5.8 million, or 21.4%, primarily attributable to a favorable foreign exchange rate variance of $5.0 million. These increases are partially offset by a decrease in revenue of $2.9 million attributable to the closure of 12 centers since March 30, 2003.

Bowling center operating expenses increased $21.8 million, or 22.9%, of which approximately $14.0 million were costs incurred in connection with the Merger. Additionally, U.S. constant center operating expenses increased $6.0 million, or 8.4%, primarily attributable to increased payroll and $2.3 million of rent expenses associated with the Sale-Leaseback Agreements. International constant center operating expenses increased $4.0 million, or 26.1%, primarily attributable to an unfavorable foreign exchange rate variance of $3.1 million as well as increases in payroll expense as a result of the Company’s strategic initiatives to increase revenue through more focused marketing efforts. These increases were partially offset by a decrease in operating expenses of $2.0 million as a result of closed centers. As a percentage of revenue, Centers operating expenses were 67.1% for the 2004 Third Quarter compared with 56.0% for the 2003 Third Quarter.

Depreciation and amortization decreased $6.0 million, or 30.6%, primarily attributable to a decrease in U.S. Centers’ depreciation expense as machinery and equipment acquired in 1996 became fully depreciated. In addition, due to center closures, there are 12 less centers when compared with the 2003 Third Quarter.

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Operating income decreased $17.9 million versus the prior year quarter primarily due to the $14.0 million of expenses incurred in connection with the Merger as well as increased bowling center operating expenses as discussed above. In addition, $6.3 million in cost of sales adjustments were incurred in the current quarter in conjunction with the application of purchase method accounting.

Nine Months ended March 28, 2004 compared with the Nine Months ended March 30, 2003

Centers operating revenue increased $0.8 million, or 0.2%, compared with the prior year. International constant center revenue increased $12.4 million, or 16.3%, primarily attributable to a favorable foreign exchange rate variance of $11.2 million. U.S. constant center revenue decreased $3.7 million, or 1.1%, primarily a result of decreases in league play revenue as well as a decrease in ancillary revenue. An additional $8.1 million decrease in revenue is attributable to the closure of 22 centers since June 30, 2002.

Bowling center operating expenses increased $20.4 million, or 7.3%, of which approximately $14.0 million were costs incurred in connection with the Merger. Additionally, U.S. constant center operating expenses increased $6.4 million, or 3.1%, primarily attributable to increased payroll and $2.3 million of rent expenses associated with the Sale-Leaseback Agreements. International constant center operating expenses increased $8.9 million, or 19.7%, primarily attributable to an unfavorable foreign exchange rate variance of $6.7 million as well as increases in payroll expense as a result of the Company’s strategic initiatives to increase revenue through more focused marketing efforts. These increases were partially offset by a decrease in operating expenses as a result of closed centers of $6.8 million. Additionally, U.S. Centers recognized $1.4 million related to gains on casualty losses and $0.7 million related to gains on disposals of fixed assets, while International Centers recognized $0.8 million related to gains on disposals of fixed assets. Severance for the former U.S. Centers chief operating officer totaling approximately $0.3 million is included in the year to date period within payroll. Additionally, U.S. Centers’ also includes a charge totaling $0.3 million related to one action alleging violations of federal legislation involving unsolicited communications. As a percentage of revenue, Centers operating expenses were 68.4% for the Nine Months ended March 28, 2004 compared with 63.8% for the Nine Months ended March 30, 2002.

Depreciation and amortization decreased $18.2 million, or 30.6%, primarily attributable to a decrease in U.S. Centers’ depreciation expense as machinery and equipment acquired in 1996 became fully depreciated. In addition, due to center closures, there are 22 less centers when compared with the prior year.

Operating income decreased $7.5 million, or 13.3%, as compared to the prior year primarily due to the increase in operating expenses as discussed above. In addition, $6.3 million in cost of sales adjustments were incurred in the current quarter in conjunction with the application of purchase method accounting.

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2004 Third Quarter compared with the 2003 Third Quarter

Products operating revenue increased $8.5 million, or 38.6%, primarily attributable to increased revenue in Europe, Japan and the U.S. of $3.8 million, $1.9 million and $1.5 million, respectively.

Gross profit increased $1.1 million, or 25.6%. The gross profit margin was 17.7% for the 2004 Third Quarter compared with 19.5% in the 2003 Third Quarter. The decreased margin percentage is primarily attributable to cost of sales adjustments of $0.8 million incurred in conjunction with the application of purchase method accounting as a result of the Merger.

Products selling, general and administrative expenses decreased $0.2 million, or 3.7%, compared with the prior year quarter. This decrease is primarily attributable to a decrease in bad debt and legal expenses.

Depreciation and amortization increased $0.4 million, or 40.0%, primarily attributable to the addition of assets in fiscal year 2003.

Operating loss for the 2004 Third Quarter was $1.2 million compared with an operating loss of $2.1 million in the 2003 Third Quarter. The decrease in the operating loss is primarily attributable to the increase in the international markets which was partially offset by the 2004 Third Quarter cost of sales adjustment of $0.8 million discussed above.

Nine Months ended March 28, 2004 compared with the Nine Months ended March 30, 2003

Products operating revenue increased $10.1 million, or 11.2%, primarily attributable to an increase in revenue in Japan and Europe of $7.8 million and $3.5 million, respectively as compared to the prior year. This increase was partially offset by a decrease in revenue in the U.S. of $2.1 million.

Gross profit increased $1.4 million, or 7.3%. The gross profit margin was 20.4% for the Nine Months ended March 28, 2004 compared with 21.1% in the Nine Months ended March 30, 2003.

Products selling, general and administrative expenses increased $0.3 million, or 1.8%, compared with the prior year period. The increase in expenses is primarily attributable to increased advertising and facilities expenses.

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Depreciation and amortization increased $1.0 million, or 31.3%, primarily attributable to the addition of assets in fiscal year 2003.

Operating loss for the Nine Months ended March 28, 2004 was $0.5 million, compared to an operating loss of $0.6 million in the prior year period. The decrease in the operating loss is primarily attributable to the increase in revenue in the international markets which was partially offset by the 2004 Third Quarter cost of sales adjustment of $0.8 million discussed above.

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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 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:

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:

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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.

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