FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

(Mark One)

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: July 26, 2003 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the ~~quarterly~~transition period ~~ended~~from: ~~April~~ ~~26, 2003~~______ to OR

[ ] 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: 333-57011

Iron Age Corporation

(Exact name of registrant as specified in its charter)

Delaware		25-1376723
(State or other jurisdiction		(I.R.S. Employer
incorporation or organization		Identification Number)
incorporation or organization)		Identification Number)

Robinson Plaza Three, Suite 400, Pittsburgh, Pennsylvania 15205 ~~(Address of principal executive offices) (Zip Code)~~

(~~412)~~Address ~~787-4100~~of ~~Registrants~~principal ~~telephone~~executive ~~number,~~offices) (Zip ~~including area code~~Code)

~~Not Applicable.~~ (~~Former name, former address and former fiscal year, if changed since last report~~412) 787-4100

~~Indicate by check mark whether registrant~~ (~~1) has~~Registrants ~~filed~~telephone ~~all~~number, ~~reports~~including ~~required~~area ~~to be filed by Section 13 or 15(d~~code) ~~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 [ ]

Not Applicable.

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether 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 [ ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 [ ] No [ ] Not Applicable.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. Not Applicable.

TABLE OF CONTENTS

PART 1 — FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements.
	Item 1. Financial Statements
		Consolidated Balance Sheets
		Consolidated Statements of Operations (Unaudited)
		Consolidated Statements of Operations
		Consolidated Statements of Cash Flows (Unaudited)
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements (Unaudited)
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk.
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures.
	Item 4. Controls and Procedures
PART II OTHER INFORMATION
	Item 1. Legal Proceedings.
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds.
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities.
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders.
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information.
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K.
	Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.71
Letter Waiver to Loan & Security Agreement 6/26/03
Exhibit 99.1
Section 302 Certification by CEO
Exhibit 99.2
Section 302 Certification by CFO
Section 906 Certification by CEO
Section 906 Certification by CFO

PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
	~~The following financial statements are presented herein:~~	The following financial statements are presented herein:
	Consolidated Balance Sheets as of April 26, 2003 and January 25, 2003
		Consolidated Balance Sheets as of July 26, 2003 and January 25, 2003	3
	Consolidated Statements of Operations for the three months ended April 26, 2003 and April 27, 2002
		Consolidated Statements of Operations for the three months and six months ended July 26, 2003 and July 27, 2002	4
	Consolidated Statements of Cash Flows for the three months ended April 26, 2003 and April 27, 2002
		Consolidated Statements of Cash Flows for the six months ended July 26, 2003 and July 27, 2002	5
	~~Notes to Consolidated Financial Statements~~	Notes to Consolidated Financial Statements	6

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Iron Age Corporation ~~Consolidated Balance Sheets~~

		April 26			January 25
		2003			2003
		(unaudited)
		(Dollars in Thousands)
Assets
Current assets:
	Cash and cash equivalents	$	248		$	323
	Accounts receivable, net		14,486			13,548
	Inventories (Note 2)		33,114			31,671
	Prepaid expenses		3,259			3,134
	Deferred income taxes		775			713
Total current assets			51,882			49,389
Note receivable from parent			1,654			1,654
Property and equipment, net			12,687			12,681
Other noncurrent assets			172			170
Intangible assets, net			13,417			13,852
Total assets		$	79,812		$	77,746
Liabilities and stockholder’s deficit
Current liabilities:
	Long-term debt and revolving credit facilities	$	97,349		$	97,908
	Accounts payable		4,340			3,272
	Accrued expenses		8,074			5,999
Total current liabilities			109,763			107,179
Other noncurrent liabilities			319			324
Deferred income taxes			4,195			4,205
Total liabilities			114,277			111,708
Commitments and contingencies			—			—
Holdings’ Series B redeemable preferred stock			10,601			10,100
Holdings’ Series C redeemable preferred stock			8,648			8,193
Stockholder’s deficit:
	Common stock, $1 par value; 1,000 shares authorized, issued and outstanding		1			1
	Additional paid-in capital		44,466			44,466
	Accumulated deficit		(97,936	)		(96,435	)
	Accumulated other comprehensive loss		(245	)		(287	)
Total stockholder’s deficit			(53,714	)		(52,255	)
Total liabilities and stockholder’s deficit		$	79,812		$	77,746

Consolidated Balance Sheets


		July 26			January 25
		2003			2003

		(unaudited)
		(Dollars in Thousands)
Assets
Current assets:
	Cash and cash equivalents	$	14		$	323
	Accounts receivable, net		13,518			13,548
	Inventories (Note 2)		34,510			31,671
	Prepaid expenses		2,778			3,134
	Deferred income taxes		685			713

Total current assets			51,505			49,389
Note receivable from parent			1,654			1,654
Property and equipment, net			12,182			12,681
Other noncurrent assets			171			170
Intangible assets, net			13,045			13,852

Total assets		$	78,557		$	77,746

Liabilities and stockholder’s deficit
Current liabilities:
	Long-term debt and revolving credit facilities	$	101,081		$	97,908
	Accounts payable		4,479			3,272
	Accrued expenses		6,828			5,999

Total current liabilities			112,388			107,179
Other noncurrent liabilities			316			324
Deferred income taxes			4,183			4,205

Total liabilities			116,887			111,708
Commitments and contingencies			—			—
Holdings’ Series B redeemable preferred stock			11,115			10,100
Holdings’ Series C redeemable preferred stock			9,122			8,193
Stockholder’s deficit:
	Common stock, $1 par value; 1,000 shares authorized, issued and outstanding		1			1
	Additional paid-in capital		44,466			44,466
	Accumulated deficit		(102,798	)		(96,435	)
	Accumulated other comprehensive loss		(236	)		(287	)

Total stockholder’s deficit			(58,567	)		(52,255	)

Total liabilities and stockholder’s deficit		$	78,557		$	77,746

See accompanying notes.

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Iron Age Corporation ~~Consolidated Statements of Operations (Unaudited)~~

	Three months ended
	April 26			April 27
	2003			2002
	(Dollars in Thousands)
Net sales	$	27,481		$	27,576
Cost of sales		13,640			13,540
Gross profit		13,841			14,036
Selling, general and administrative		10,869			9,787
Depreciation		429			384
Amortization of intangible assets		556			544
Operating income		1,987			3,321
Interest expense		2,533			2,146
(Loss) income before income taxes		(546	)		1,175
Income tax (benefit) expense		(1	)		400
(Loss) income before cumulative effect of change in accounting principle		(545	)		775
Cumulative effect of change in accounting principle, net of tax effect of $1,718 (Note 3)		—			(77,510	)
Net loss	$	(545	)	$	(76,735	)

Consolidated Statements of Operations (Unaudited)


	Three months ended						Six months ended
	July 26			July 27			July 26			July 27
	2003			2002			2003			2002

	(Dollars in Thousands)
Net sales	$	23,733		$	23,830		$	51,214		$	51,406
Cost of sales		12,048			11,937			25,688			25,477

Gross profit		11,685			11,893			25,526			25,929
Selling, general and administrative		11,307			10,380			22,176			20,167
Depreciation		718			643			1,417			1,279
Amortization of intangible assets		286			287			572			579

Operating (loss) income		(626	)		583			1,361			3,904
Interest expense		3,143			2,184			5,676			4,330

Loss before income taxes and cumulative effect of change in accounting principle		(3,769	)		(1,601	)		(4,315	)		(426	)
Income tax expense (benefit)		105			(294	)		104			106

Loss before cumulative effect of change in accounting principle		(3,874	)		(1,307	)		(4,419	)		(532	)
Cumulative effect of change in accounting principle, net of tax effect of $1,718 (Note 3)		—			—			—			(77,510	)

Net loss	$	(3,874	)	$	(1,307	)	$	(4,419	)	$	(78,042	)

See accompanying notes.

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Iron Age Corporation ~~Consolidated Statements of Cash Flows (Unaudited)~~

			Three months ended			Three months ended
			April 26			April 27
			2003			2002
			(Dollars in Thousands)
Operating activities
Net loss			$	(545	)	$	(76,735	)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Cumulative effect of change in accounting principle, net of tax			—			77,510
	Depreciation and amortization			1,102			1,042
	Amortization of deferred financing fees included in interest			186			135
	Accrual of paid-in-kind interest			61			—
	Provision for losses on accounts receivable			71			70
	Deferred income taxes			(72	)		(146	)
Changes in operating assets and liabilities:
		Accounts receivable		(1,009	)		(869	)
		Inventories		(1,443	)		(1,544	)
		Prepaid expenses		(125	)		1,091
		Other noncurrent assets		(14	)		(36	)
		Accounts payable		1,068			1,080
		Accrued expenses		2,075			1,847
		Other noncurrent liabilities		(5	)		(17	)
Net cash provided by operating activities				1,350			3,428
Investing activities
Capitalization of internal use software costs				(76	)		(123	)
Purchases of property and equipment				(746	)		(297	)
Net cash used in investing activities				(822	)		(420	)
Financing activities
Borrowings under revolving credit agreement				25,748			2,350
Principal payments on debt				(26,726	)		(5,776	)
Payment of financing costs				(25	)		(15	)
Principal payments on capital leases, net				358			(49	)
Net cash used in financing activities				(645	)		(3,490	)
Effect of exchange rate changes on cash and cash equivalents				42			77
	Decrease in cash and cash equivalents			(75	)		(405	)
Cash and cash equivalents at beginning of period				323			615
Cash and cash equivalents at end of period			$	248		$	210
Supplemental schedule of noncash investing and financing activities
Dividends and accretion on redeemable preferred stock			$	956		$	808
Capital lease agreements for equipment				439			—

Consolidated Statements of Cash Flows (Unaudited)


			Six months ended			Six months ended
			July 26			July 27
			2003			2002

			(Dollars in Thousands)
Operating activities
Net loss			$	(4,419	)	$	(78,042	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
	Cumulative effect of change in accounting principle, net of tax			—			77,510
	Depreciation and amortization			2,214			2,087
	Amortization of deferred financing fees included in interest			380			270
	Accrual of paid-in-kind interest			121			—
	Provision for losses on accounts receivable			142			193
	Deferred income taxes			6			(480	)
	Stock-based compensation			—			132
Changes in operating assets and liabilities:
		Accounts receivable		(112	)		657
		Inventories		(2,839	)		(1,791	)
		Prepaid expenses		356			881
		Other noncurrent assets		(31	)		(150	)
		Accounts payable		1,207			(23	)
		Accrued expenses		829			(123	)
		Other noncurrent liabilities		(8	)		(33	)

Net cash (used in) provided by operating activities				(2,154	)		1,088
Investing activities
Capitalization of internal use software costs				(162	)		(167	)
Purchases of property and equipment				(981	)		(1,543	)

Net cash used in investing activities				(1,143	)		(1,710	)
Financing activities
Borrowings under revolving credit agreement				53,756			10,500
Principal payments on debt				(51,000	)		(9,953	)
Payment of financing costs				(115	)		(149	)
Principal payments on capital leases, net				296			253

Net cash provided by financing activities				2,937			651
Effect of exchange rate changes on cash and cash equivalents				51			39

(Decrease) increase in cash and cash equivalents				(309	)		68
Cash and cash equivalents at beginning of period				323			615

Cash and cash equivalents at end of period			$	14		$	683

Supplemental schedule of noncash investing and financing activities
Dividends and accretion on redeemable preferred stock			$	1,944		$	1,655
Capital lease agreements for equipment				459			400

See accompanying notes.

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Iron Age Corporation ~~Notes to Consolidated~~ ~~Financial Statements (Unaudited)~~

~~April 26,~~Notes ~~2003~~to Consolidated ~~(Dollars~~Financial inStatements ~~thousands~~(Unaudited)

July 26, 2003
(Dollars in thousands)

1. Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~three~~ six-month period ended ~~April~~July 26, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ended January 31, 2004. For further information, refer to Iron Age Corporation’s (“Iron Age” or the “Company”) consolidated financial statements and footnotes thereto for the fiscal year ended January 25, 2003.

Going Concern

The Company was not in compliance with the financial covenants under the Bank Credit Facility, including the Senior Debt Ratio and Fixed Charge Coverage Ratio (as defined in the Bank Credit Facility) for the first quarter ended April 26, 2003. In addition, based upon forecasted net income and cash flows, the Company determined that it would not likely be able to make the interest payment on the Senior Subordinated Notes that is due on November 1, 2003. As a result, during the first quarter, the Company requested that the senior lenders to the Bank Credit Facility (the “Lenders”) amend the financial covenants for the first quarter and every other quarter of the fiscal year ending January 31, 2004 to a level that considering the Company’s current operations and forecasts would make it probable that the Company would be in compliance with its Bank Credit Facility. On May 12, 2003, the Company and the Lenders ~~senior lenders under the Bank Credit Facility~~ entered into the First Amendment to Loan and Security Agreement and Limited Waiver (the “First Amendment”) to the Bank Credit Facility that ~~allows~~ allowed the Company to continue to operate under the existing requirements of the Bank Credit Facility through June 2526, 2003,. ~~with~~As ~~certain~~required ~~modifications~~by ~~relating~~the toFirst ~~excess~~Amendment, ~~cash~~the ~~availability,~~Company ~~and~~retained ~~will~~a ~~allow~~financial ~~the~~consultant ~~Company~~ and ~~the~~a ~~lenders~~financial ~~under~~advisor ~~the~~to ~~Bank~~advise ~~Credit~~the ~~Facility~~Company towith ~~continue~~respect to ~~negotiate~~improving the financial ~~covenants~~condition ~~for~~of the ~~year~~Company ~~ending~~and to ~~January 31,~~consider ~~2004~~alternative financing strategies. ~~During~~Through July 26, 2003, the ~~45-day~~Company has ~~period~~incurred ofapproximately ~~the~~$0.6 million ~~First~~in ~~Amendment~~consulting, ~~the~~accounting ~~Company~~and legal isservices ~~required~~associated towith ~~maintain~~its adebt ~~defined~~restructuring ~~level~~plan. ofOn ~~excess~~June 26, ~~cash~~2003, ~~availability. Under~~the Company and the ~~terms~~Lenders ofagreed to an additional waiver allowing the ~~First~~Company ~~Amendment,~~to continue to operate under the ~~minimum~~Bank ~~level~~Credit ofFacility ~~excess~~through ~~cash~~October 31, ~~availability~~2003, ~~was~~subject ~~set~~to atcertain $3conditions. The Company incurred $0.5 million. Onof ~~May~~waiver and forbearance fees that have been charged to interest expense for the second quarter ended July 2926, 2003. ~~the~~One ~~senior~~condition ~~lenders~~is ~~under~~for the ~~Bank Credit~~Company ~~Facility~~to ~~reduced~~continue ~~the~~to maintain a minimum level of excess cash availability toof $2.5 ~~million. As of June~~ 6million, ~~2003,~~as agreed with the ~~Company’s~~Lenders ~~cash~~on ~~availability~~May 29, ~~was $3~~2003.9 ~~million.~~ As of ~~June 10~~September 5, 2003, the Company ~~and~~had excess ~~the~~cash ~~senior~~availability ~~lenders have not finalized negotiations~~ of an ~~amendment to the Bank Credit~~$3.9

-6-

million. During the 120 day period through October 31, 2003, the Lenders have waived all other financial covenants. Further, by August 25, 2003, the Company was required to submit binding agreements and commitments regarding a series of transactions to reduce indebtedness and improve the financial condition of the Company, including the exchange of Senior Subordinated Notes for new securities and replacing the Bank Credit Facility with ~~respect~~new tosenior indebtedness. If the Company ~~covenants~~did not submit these binding agreements and commitments, or if the Lenders did not reasonably approve the terms of the transactions described ~~second~~above, ~~third~~the Company would have seven business days to provide the Lenders with a debt restructuring plan for their approval. The Company did not submit such binding agreements and ~~fourth~~commitments ~~quarter~~to the Lenders on August 25, 2003. The Company, however, timely submitted a preliminary debt restructuring plan to the Lenders for their review and approval. Further, the ~~year~~Company ~~ending~~has ~~January~~commenced discussions with the holders of its Senior Subordinated Notes (the “Note Holders”) with respect to its debt restructuring plan. As of September 319, ~~2004~~2003, negotiations continue with the Lenders and the Note Holders. ~~Should~~The Company intends to finalize a debt restructuring plan prior to October 31, 2003, to significantly reduce the amount of the Company’s long-term indebtedness. The tax implications of the debt restructuring will be dependent on several factors including the terms and ~~its~~consideration ~~senior~~of the ~~lenders~~debt restructuring and the financial position of the Company after the debt restructuring. If such debt restructuring plan is not approved by the Lenders, the waiver shall expire. Should the Company not be able to fulfill the conditions of the waiver or not be able to reach an agreement on an additional amendment to the Bank Credit Facility prior to the expiration of the ~~First~~waiver ~~Amendment~~ or not be able to obtain an additional waiver, the Company would be in default under the Bank Credit Facility and such default would also constitute an event of default under the terms of the Senior Subordinated Notes, which would have a material adverse impact on the Company’s reported financial position and results of its operations. ~~As a result, all of the Company’s long-term debt continue to be classified as current liabilities.~~ The Company’s ability to continue as a going concern is largely dependent on its ability to maintain its existing financing arrangements to operate the business.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. However, as discussed above, the Company was not in compliance with certain financial covenants under the Bank Credit Facility at the end of the first quarter of the year ending January 31, 2004. ~~The~~On ~~Company~~June 26, ~~plans~~2003, tothe ~~continue~~Company toreceived ~~negotiate~~a ~~with~~waiver ~~its~~of ~~senior~~all ~~lenders~~financial ~~to amend the~~covenants ~~Bank~~through ~~Credit Facility by June~~October 2531, 2003 tofrom ~~amend~~ the ~~financial~~Lenders. ~~covenants~~The Company is continuing to ~~levels~~negotiate ~~for~~a debt restructuring plan with the ~~year~~Lenders ~~ending~~and ~~January 31,~~the ~~2004~~Note ~~that~~Holders. ~~more~~As ~~closely~~a result, ~~correspond~~all toof the Company’s long-term debt continue to be classified as current ~~operations~~liabilities.

If the debt restructuring plan includes a conversion of the Senior Subordinated Notes to equity, approximately $1.6 million of unamortized deferred financing costs, as of July 26, 2003, would be expensed at the conversion date.

Stock-Based Compensation

The Company accounts for its stock-based employee compensation plan using the intrinsic value method under Accounting Principles Board Opinion No. 25. Pro forma information regarding net income and earnings per share is required by SFAS No. 148, which also requires that the information be determined as if the Company has accounted for its employee stock options granted beginning in the fiscal year subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model ~~with the following weighted-average~~. ~~assumptions:~~

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option’s vesting period. The Company’s pro forma information follows:

		Three Months ended
		April 26, 2003			April 27, 2002
		(In Thousands)
Net loss:
	As reported	$	(545	)	$	(76,735	)
	Less: Total stock-based compensation expense determined under fair value method, net of tax		(4	)		(9	)
	Pro forma	$	(549	)	$	(76,744	)

-7-

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option’s vesting period. The Company’s pro forma information follows:


		Three Months Ended						Six Months Ended
		July 26,			July 27,			July 26,			July 27,
		2003			2002			2003			2002

		(Dollars in Thousands)
Net loss:
	As reported	$	(3,874	)	$	(1,307	)	$	(4,419	)	$	(78,042	)
	Add: Total stock-based compensation expense determined under fair value method, net of tax		(4	)		(9	)		(7	)		(18	)

	Pro forma	$	(3,878	)	$	(1,316	)	$	(4,426	)	$	(78,060	)

2. Inventories

	April 26		January 25
	2003		2003
Inventories consist of the following:
Finished products	$	30,735	$	29,625
Raw materials and work in process		2,333		1,940
		33,068		31,565
Add excess of current cost over LIFO inventory value		46		106
	$	33,114	$	31,671

Inventories consist of the following:


	July 26,			January 25,
	2003			2003

Finished products	$	32,072		$	29,625
Raw materials and work in process		2,392			1,940

		34,464			31,565
Less excess of current cost over LIFO inventory value		(46	)		(106	)

	$	34,510		$	31,671

3. Intangible Assets

Effective January 27, 2002, the Company adopted Statement on Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the provisions of SFAS No. 142. While amortization of goodwill is no longer reflected in the Company’s financial statements, amortization related to certain of the Company’s other intangible assets will continue to be ~~deductible for income tax purposes~~recorded.

In connection with the adoption of SFAS No. 142, the Company tested its goodwill for impairment, which required an assessment of whether there is an indication that goodwill is impaired as of the date of adoption, January 27, 2002. The Company identified two reporting units, distribution and manufacturing, and determined the carrying value of those units as of the date of adoption. Only the distribution reporting unit had related goodwill. The Company assessed the fair value of the distribution reporting unit and compared it to the reporting unit’s carrying amount, as computed in Step 1 of the evaluation. The fair value of the distribution reporting unit in Step 1 of the evaluation was determined using a 5-year discounted cash flow model. Key assumptions included management’s estimates of future profitability, capital requirements, a discount rate of 14.6% and a ~~terminal growth rate of 2%. Based~~ ~~upon the initial evaluation, Step 2 of the evaluation was required, as the~~ distribution reporting unit had a carrying value in excess of its fair value. In conjunction with Step 2, the Company retained an independent valuation firm to prepare a valuation of the Company’s assets and liabilities. Step 2 requires the implied fair value of goodwill to be calculated by allocating the fair value of the reporting unit to its tangible and intangible net assets, other than goodwill. The remaining unallocated fair value represents the implied fair value of the goodwill. Management, using the independent valuation firm, determined that all of the Company’s goodwill was impaired at January 27, 2002. Accordingly, the Company recorded a goodwill impairment charge of $77.5 million, net of tax of $1.7 million, as a cumulative effect of change in accounting for goodwill, for the first quarter ended April 27, 2002. The goodwill impairment charge had no effect on cash, the ongoing operation of the Company, the covenants relating to the Bank Credit Facility or the indentures for the Senior Subordinated Notes.

Amortization for other intangible assets subject to amortization for the three month periods ended April 26, 2003 and April 27, 2002 was $0.6 million and $0.5 million. Estimated amortization expense for the fiscal year ending January 31, 2004 and the succeeding five fiscal years is $2.2 million.

4. Comprehensive Loss

	Three Months Ended
	April 26			April 27
	2003			2002
Net loss	$	(545	)	$	(76,735	)
Foreign currency translation gain		42			77
Total comprehensive loss	$	(503	)	$	(76,658	)

-8-

terminal growth rate of 2%. Based upon the initial evaluation, Step 2 of the evaluation was required, as the distribution reporting unit had a carrying value in excess of its fair value. In conjunction with Step 2, the Company retained an independent valuation firm to prepare a valuation of the Company’s assets and liabilities. Step 2 requires the implied fair value of goodwill to be calculated by allocating the fair value of the reporting unit to its tangible and intangible net assets, other than goodwill. The remaining unallocated fair value represents the implied fair value of the goodwill. Management, using the independent valuation firm, determined that all of the Company’s goodwill was impaired at January 27, 2002. Accordingly, the Company recorded a goodwill impairment charge of $77.5 million, net of tax of $1.7 million, as a cumulative effect of change in accounting for goodwill, for the first quarter ended April 27, 2002. The goodwill impairment charge had no effect on cash, the ongoing operation of the Company, the covenants relating to the Bank Credit Facility or the indentures for the Senior Subordinated Notes.

Amortization for other intangible assets subject to amortization for the three month and six month periods ended July 26, 2003 and July 27, 2002, respectively, was $0.3 million and $0.6 million , respectively. Estimated amortization expense for the fiscal year ending January 31, 2004 and the succeeding five fiscal years is $1.1 million.

4. Comprehensive Loss


	Three Months Ended						Six Months Ended
	July 26,			July 27,			July 26,			July 27,
	2003			2002			2003			2002

	(Dollars in Thousands)
Net loss	$	(3,874	)	$	(1,307	)	$	(4,419	)	$	(78,042	)
Foreign currency translation gain (loss)		9			(29	)		51			48

Total comprehensive loss	$	(3,865	)	$	(1,336	)	$	(4,368	)	$	(77,994	)

5. Financial Information for Subsidiary Guarantors

The payment obligations under the Senior Subordinated Notes issued by the Company are fully and unconditionally guaranteed by Iron Age Investment Company (the “Subsidiary Guarantor”). The Senior Subordinated Notes have not been guaranteed by Falcon, Canada or Mexico (the “Non-Guarantor Subsidiaries”). Separate complete financial statements of the Subsidiary Guarantor are not presented because management has determined that they would not provide additional material information that would be useful in assessing the financial composition of the guarantors and non-guarantors. In accordance with positions established by the Securities and Exchange Commission, the following financial information sets forth separately financial information with respect to Iron Age Corporation (the “Parent”), the Subsidiary Guarantor and the Non-Guarantor Subsidiaries. The principal elimination entries eliminate investments in subsidiaries and certain intercompany balances and transactions.

Iron Age Corporation Summarized Financial Information Balance Sheets

April 26, 2003 (In thousands)

					Non-
			Guarantor		Guarantor
	Parent		Subsidiary		Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	160	$	18	$	70	$	—		$	248
Accounts receivable, net		22,274		841		6,432		(15,061	)		14,486
Inventories		28,546		—		4,772		(204	)		33,114
Prepaid expenses		2,729		—		856		(326	)		3,259
Deferred income taxes		—		—		104		671			775
TOTAL CURRENT ASSETS		53,709		859		12,234		(14,920	)		51,882
Note receivable from parent		1,654		—		—		—			1,654
Property and equipment, net		10,683		—		2,004		—			12,687
Other noncurrent assets		31,590		52,520		4		(83,942	)		172
Intangible assets, net		13,141		—		278		(2	)		13,417
TOTAL ASSETS	$	110,777	$	53,379	$	14,520	$	(98,864	)	$	79,812

-9-

						Non-
				Guarantor		Guarantor
	Parent			Subsidiary		Subsidiaries		Eliminations			Consolidated
LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY
Long-term debt and revolving credit facilities	$	149,856		$	—	$	3,129	$	(55,636	)	$	97,349
Accounts payable		3,638			—		702		—			4,340
Accrued expenses		6,896			13,132		3,444		(15,398	)		8,074
TOTAL CURRENT LIABILITIES		160,390			13,132		7,275		(71,034	)		109,763
Other noncurrent liabilities		319			—		—		—			319
Deferred income taxes		2,667			—		956		572			4,195
TOTAL LIABILITIES		163,376			13,132		8,231		(70,462	)		114,277
Holdings’ Series B redeemable preferred stock		—			—		—		10,601			10,601
Holdings’ Series C redeemable preferred stock		—			—		—		8,648			8,648
TOTAL STOCKHOLDER’S (DEFICIT) EQUITY		(52,599	)		40,247		6,289		(47,651	)		(53,714	)
TOTAL LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY	$	110,777		$	53,379	$	14,520	$	(98,864	)	$	79,812

Iron Age Corporation
Summarized Financial Information
Balance Sheets

July 26, 2003
(In thousands)


						Non-
				Guarantor		Guarantor
	Parent			Subsidiary		Subsidiaries		Eliminations			Consolidated

ASSETS
Cash and cash equivalents	$	(160	)	$	12	$	162	$	—		$	14
Accounts receivable, net		21,032			1,639		6,275		(15,428	)		13,518
Inventories		29,281			—		5,229		—			34,510
Prepaid expenses		2,590			—		774		(586	)		2,778
Deferred income taxes		—			—		109		576			685

TOTAL CURRENT ASSETS		52,743			1,651		12,549		(15,438	)		51,505
Note receivable from parent		1,654			—		—		—			1,654
Property and equipment, net		10,259			—		1,923		—			12,182
Other noncurrent assets		31,591			52,520		2		(83,942	)		171
Intangible assets, net		12,761			—		284		—			13,045

TOTAL ASSETS	$	109,008		$	54,171	$	14,758	$	(99,380	)	$	78,557

LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY
Long-term debt and revolving credit facilities	$	153,593		$	—	$	3,112	$	(55,624	)	$	101,081
Accounts payable		3,799			—		680		—			4,479
Accrued expenses		5,592			13,406		3,866		(16,036	)		6,828

TOTAL CURRENT LIABILITIES		162,984			13,406		7,658		(71,660	)		112,388
Other noncurrent liabilities		316			—		—		—			316
Deferred income taxes		2,741			—		956		486			4,183

TOTAL LIABILITIES		166,041			13,406		8,614		(71,174	)		116,887
Holdings’ Series B redeemable preferred stock		—			—		—		11,115			11,115
Holdings’ Series C redeemable preferred stock		—			—		—		9,122			9,122
TOTAL STOCKHOLDER’S (DEFICIT) EQUITY		(57,033	)		40,765		6,144		(48,443	)		(58,567	)

TOTAL LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY	$	109,008		$	54,171	$	14,758	$	(99,380	)	$	78,557

-10-

Iron Age Corporation
Summarized Financial Information
Statements of Operations

For the three month period ended ~~April~~July 26, 2003 (In thousands)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Net sales	$	2521,~~366~~486		$	—		$	5,~~658~~118		$	(32,~~543~~871	)	$	2723,~~481~~733
Cost of sales		1210,~~606~~759			—			4,~~552~~160			(32,~~518~~871	)		1312,~~640~~048
Selling, general and administrative		910,~~911~~310			(4544	)		1,~~003~~041			—			1011,~~869~~307
Depreciation		~~374~~659			—			5559			—			~~429~~718
Amortization of intangible assets		~~546~~276			—			10			—			~~556~~286
OPERATING INCOME		1,929			45			38			(25	)		1,987
OPERATING (LOSS) INCOME		(518	)		44			(152	)		—			(626	)
Interest expense (income)		3,~~288~~887			(~~753~~742	)		(2	)		—			23,~~533~~143
(LOSS) INCOME BEFORE INCOME TAXES		(14,~~359~~405	)		~~798~~786			40(150	)		~~(25~~—	)		(~~546~~3,769	)
Income tax (benefit) expense		(~~329~~175	)		~~271~~268			5712			—			(1105	)
NET (LOSS) INCOME	$	(14,~~030~~230	)	$	~~527~~518		$	(17162	)	$	~~(25~~—	)	$	(~~545~~3,874	)

Iron Age Corporation Summarized Financial Information ~~Condensed~~Statements ~~Statement~~ of ~~Cash Flows~~Operations

For the ~~three~~six month period ended ~~April~~July 26, 2003 (In thousands)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	1,405		$	(7	)	$	(48	)	$	—		$	1,350
Net sales	$	46,852		$	—		$	10,776		$	(6,414	)	$	51,214
CASH FLOWS USED IN INVESTING ACTIVITIES		(787	)		—			(35	)		—			(822	)
Cost of sales		23,390			—			8,712			(6,414	)		25,688
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES		(641	)		—			38			—			(603	)
Selling, general and administrative		20,221			(89	)		2,044			—			22,176
DECREASE IN CASH AND CASH EQUIVALENTS	$	(23	)	$	(7	)	$	(45	)	$	—		$	(75	)
Depreciation		1,303			—			114			—			1,417
Amortization of intangible assets		552			—			20			—			572
OPERATING INCOME		1,386			89			(114	)		—			1,361
Interest expense (income)		7,175			(1,495	)		(4	)		—			5,676
(LOSS) INCOME BEFORE INCOME TAXES		(5,789	)		1,584			(110	)		—			(4,315	)
Income tax (benefit) expense		(504	)		539			69			—			104
NET (LOSS) INCOME	$	(5,285	)	$	1,045		$	(179	)	$	—		$	(4,419	)

-11-

Iron Age Corporation
Summarized Financial Information
Condensed Statement of Cash Flows

For the six month period ended
July 26, 2003
(In thousands)


							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations		Consolidated

CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(2,253	)	$	(13	)	$	112		$	—	$	(2,154	)
CASH FLOWS USED IN INVESTING ACTIVITIES		(1,036	)		—			(107	)		—		(1,143	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES		2,895			—			42			—		2,937

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		51			—			—			—		51

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	$	(343	)	$	(13	)	$	47		$	—	$	(309	)

-12-

Iron Age Corporation
Summarized Financial Information
Balance Sheets

January 25, 2003
(In thousands)


						Non-
				Guarantor		Guarantor
	Parent			Subsidiary		Subsidiaries		Eliminations			Consolidated

ASSETS
Cash and cash equivalents	$	183		$	25	$	115	$	—		$	323
Accounts receivable, net		22,249			31		6,119		(14,851	)		13,548
Inventories		27,679			—		4,171		(179	)		31,671
Prepaid expenses		2,233			—		829		72			3,134
Deferred income taxes		—			—		99		614			713

TOTAL CURRENT ASSETS		52,344			56		11,333		(14,344	)		49,389
Note receivable from parent		1,654			—		—		—			1,654
Property and equipment, net		10,554			—		2,127		—			12,681
Other noncurrent assets		31,586			52,520		6		(83,942	)		170
Intangible assets, net		13,578			—		274					13,852

TOTAL ASSETS	$	109,716		$	52,576	$	13,740	$	(98,286	)	$	77,746

LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY
Long-term debt and revolving credit facilities	$	150,410		$	—	$	3,145	$	(55,647	)	$	97,908
Accounts payable		2,788			1		483		—			3,272
Accrued expenses		5,019			12,855		2,918		(14,793	)		5,999

TOTAL CURRENT LIABILITIES		158,217			12,856		6,546		(70,440	)		107,179
Other noncurrent liabilities		324			—		—		—			324
Deferred income taxes		2,744			—		955		506			4,205

TOTAL LIABILITIES		161,285			12,856		7,501		(69,934	)		111,708
Holdings’ Series B redeemable preferred stock		—			—		—		10,100			10,100
Holdings’ Series C redeemable preferred stock		—			—		—		8,193			8,193
TOTAL STOCKHOLDER’S (DEFICIT) EQUITY		(51,569	)		39,720		6,239		(46,645	)		(52,255	)

TOTAL LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY	$	109,716		$	52,576	$	13,740	$	(98,286	)	$	77,746

-1213-

Iron Age Corporation
Summarized Financial Information
Statements of Operations

For the three month period ended ~~April~~July 27, 2002 (In thousands)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Net sales	$	2521,~~515~~833		$	—		$	5,~~404~~190		$	(3,~~343~~193	)	$	2723,~~576~~830
Cost of sales		1210,~~379~~608			—			4,~~504~~522			(3,~~343~~193	)		1311,~~540~~937
Selling, general and administrative		89,~~915~~550			(3735	)		~~909~~865			—			910,~~787~~380
Depreciation		~~327~~586			—			57			—			~~384~~643
Amortization of intangible assets		~~528~~276			—			1611			—			~~544~~287
OPERATING INCOME (LOSS)		~~3,366~~813			3735			(82265	)		—			~~3,321~~583
Interest expense (income)		2,~~926~~966			(~~784~~785	)		43			—			2,~~146~~184
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		440			821			(86	)		—			1,175
(LOSS) INCOME BEFORE INCOME TAXES		(2,153	)		820			(268	)		—			(1,601	)
Income tax expense		72			279			49			—			400
Income tax (benefit) expense		(613	)		279			40			—			(294	)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		368			542			(135	)		—			775
NET (LOSS) INCOME		(1,540	)		541			(308	)		—			(1,307	)
Cumulative effect of change in Accounting principle, net of tax of $1.7 million		(76,772	)		—			(738	)		—			(77,510	)
NET (LOSS) INCOME	$	(76,404	)	$	542		$	(873	)	$	—		$	(76,735	)

-1314-

Iron Age Corporation
Summarized Financial Information
Statements of Operations

For the six month period ended
July 27, 2002
(In thousands)


							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated

Net sales	$	47,348		$	—		$	10,594		$	(6,536	)	$	51,406
Cost of sales		22,987			—			9,026			(6,536	)		25,477
Selling, general and administrative		18,465			(72	)		1,774			—			20,167
Depreciation		1,165			—			114			—			1,279
Amortization of intangible assets		552			—			27			—			579

OPERATING INCOME (LOSS)		4,179			72			(347	)		—			3,904
Interest expense (income)		5,892			(1,569	)		7			—			4,330

(LOSS) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(1,713	)		1,641			(354	)		—			(426	)
Income tax (benefit) expense		(541	)		558			89			—			106

(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(1,172	)		1,083			(443	)		—			(532	)
Cumulative effect of change in Accounting principle, net of tax of $1.7 million		(76,772	)		—			(738	)		—			(77,510	)

NET (LOSS) INCOME	$	(77,944	)	$	1,083		$	(1,181	)	$	—		$	(78,042	)

Iron Age Corporation
Summarized Financial Information
Condensed Statement of Cash Flows

For the year ~~three~~six month period ended ~~April~~July 27, 2002 (In thousands)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations		Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	31,~~477~~292		$	(621	)	$	(43183	)	$	—	$	31,~~428~~088
CASH FLOWS USED IN INVESTING ACTIVITIES		(~~339~~1,534	)		—			(81176	)		—		(~~420~~1,710	)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES		(3,484	)		—			71			—		(3,413	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES		627			—			24			—		651
DECREASE IN CASH AND CASH EQUIVALENTS	$	(346	)	$	(6	)	$	(53	)	$	—	$	(405	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		39			—			—			—		39
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	424		$	(21	)	$	(335	)	$	—	$	68

-1415-

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

General

The following discussions should be read in conjunction with the accompanying Consolidated Financial Statements for the period ended ~~April~~July 26, 2003, and the Company’s audited consolidated financial statements and Annual Report on Form 10-K for the fiscal year ended January 25, 2003.

Results of Operations Three Months ended July 26, 2003 compared to Three Months ended July 27, 2002

~~Three~~Net ~~Months~~Sales for the three months ended ~~April~~July 26, 2003 (“second quarter 2004”) were $23.7 million compared to ~~Three~~ ~~Months~~$23.8 million for the comparable three month period ended ~~April~~July 27, 2002 (“second quarter 2003”), a decrease of $0.1 million, or 0.4%. The decrease in net sales was primarily attributable to (a) a decrease in the Company’s domestic retail business line (retail stores and shoemobiles) of $0.2 million, or 1.1%, related to the general condition of the economy and (b) a decrease of $0.3 million related to the impact of a large customer order that occurred in second quarter 2003 and did not reoccur in second quarter 2004. The decrease in net sales was partially offset by an increase of $0.3 million, or 23.1%, in the Company’s Canadian retail business line, from customers who purchase from the Company’s retail stores and shoemobiles, reflecting an improvement in the Canadian market for the Company’s products and an improvement in exchange rates.

~~Net~~Gross ~~Sales~~Profit ~~for~~was ~~the three months ended April~~$11.7 ~~26,~~million ~~2003~~for ~~(“first~~second quarter 2004”) ~~were $27.5 million~~and ~~compared to~~ $2711.69 million for ~~the comparable three month period~~ ~~ended~~second ~~April 27, 2002 (“first~~ quarter 2003”), a decrease of $0.12 million, or 0 1.47%. The decrease in gross ~~net~~profit ~~sales~~ was primarily ~~attributable~~related to ~~(a) a~~decreased ~~decrease~~net ~~of $0.3 million~~sales inas ~~the~~discussed ~~Company’s industrial direct mail order business line, due~~above and to ~~the~~general ~~continued~~changes ~~softness~~ in ~~the~~product ~~general~~mix ~~economic environment~~ and ~~(b) a decrease in~~ the ~~Company’s~~impact ~~consumer direct mail order business line~~ of ~~$0.2 million,~~competitive ~~or 13~~pricing strategies.~~4%,~~ ~~related~~As toa ~~the~~percentage ~~general condition~~ of ~~the economy. The decrease in~~ net sales, ~~was~~gross ~~partially~~profit ~~offset~~for bysecond anquarter ~~increase~~2004 decreased ofto $049.~~3 million, or 18.4~~2%, ~~in the Company’s international retail business line,~~ from ~~customers who purchase from the Company’s retail stores and shoemobiles, reflecting an improvement in the general economic environment in the international market, primarily Canada~~49.7% ~~Net sales in the Company’s domestic retail business line (retail stores and shoemobiles) in first quarter 2004 were comparable to sales~~ for ~~first~~second quarter 2003.

~~Gross~~Selling, ~~Profit~~General ~~was~~and Administrative Expenses were $1311.83 million for ~~first~~ second quarter 2004 and $1410.04 million for ~~first~~ second quarter 2003, aan ~~decrease~~increase of $0.2 9 million, or 18.47%. The ~~decrease~~increase in ~~gross profit~~selling, general and administrative expenses was primarily related to ~~decreased~~the ~~net~~effect ~~sales~~of asincreases ~~discussed~~in ~~above.~~professional Asfees ~~a percentage~~relating ofto ~~net sales~~legal, ~~gross~~accounting ~~profit~~and ~~for~~consulting ~~first quarter 2004 decreased to 50.4%~~services, ~~a decrease~~including of $0.5%6 million ~~from first quarter 2003. Gross profit percentage decreased in~~associated with the Company’s ~~primary~~debt ~~footwear~~restructuring ~~distribution~~plan, ~~business~~and ~~line~~employee byrelated ~~1.1% for first~~cost ~~quarter 2004~~increases, ~~due~~including ~~primarily~~salaries ~~to general changes in product mix~~ and ~~the impact of competitive pricing strategies~~wages. ~~The decrease in gross profit percentage was~~ ~~partially offset by a 1.9% increase in gross profit percentage in the Company’s~~ ~~manufacturing subsidiary.~~

~~Selling,~~Operating ~~General~~Loss ~~and~~for ~~Administrative~~second ~~Expenses~~quarter 2004 was $100.96 million ~~for~~compared ~~first~~to operating ~~quarter~~income ~~2004~~of ~~and~~ $90.86 million for ~~first~~second quarter 2003~~, an increase of $1~~.~~1 million,~~ ~~or 11.2%.~~ The ~~increase~~decrease in ~~selling, general and administrative~~operating ~~expenses~~income was primarily related to the ~~effect~~increase ~~of employee related cost increases, including salaries and wages, increases~~ in ~~insurance costs related to more expensive insurance markets~~selling, ~~increases~~general ~~in operating costs related to the shoemobiles, including fuel increases,~~ and ~~increases in professional fees~~ ~~relating~~administrative ~~to legal, accounting and consulting services~~expenses.

-1516-

~~Operating~~Interest ~~Income~~Expense for ~~first~~second quarter 2004 was $23.01 million, orcompared 7to $2.3%2 million offor ~~net~~second ~~sales~~quarter 2003, ~~compared~~ toan increase of $30.39 million, or 1240.09 %. Interest expense for second quarter 2004 primarily increased due to approximately $0.5 million of ~~net~~waiver ~~sales,~~and forbearance fees charged by the senior lenders under the Bank Credit Facility. Interest expense for ~~first~~second quarter 2004 ~~2003.~~also ~~The~~increased due to increased borrowings and to the effect of higher ~~decrease~~interest inrates, ~~operating~~including ~~income~~default ~~was~~interest ~~primarily~~of approximately $0.1 million related to the ~~increase~~June 26, in2003 ~~selling,~~Letter Waiver to the Loan and Security Agreement ~~general~~associated with the Bank Credit Facility. The default interest rate of an additional 3.0% will apply to all borrowings and ~~administrative~~letters ~~expenses~~of ascredit ~~discussed~~under ~~above~~the Bank Credit Facility through October 31, 2003.

~~Interest~~Income Tax Expense for ~~first~~second quarter 2004 was $20.51 million compared to ~~$2.1~~an ~~million~~income ~~for~~tax ~~first~~benefit ~~quarter 2003, an increase~~ of $0.43 million, ~~or 19.1 %. Interest expense~~ for ~~first~~second quarter ~~2004 primarily increased due to the effect of higher interest rates relating to the Bank Credit Facility~~2003.

~~Income~~At ~~Tax~~July 26, ~~Expense~~2003, ~~for~~the ~~first~~Company ~~quarter~~had ~~2004~~available ~~was~~foreign, anstate ~~immaterial~~and ~~income~~federal ~~tax benefit~~net ~~compared~~operating toloss ancarryforwards ~~income~~of ~~tax~~approximately ~~expense~~$1.2 million, of$20.7 million and $05.46 million, ~~for~~respectively, ~~first~~which ~~quarter~~expire ~~2003~~in various years through 2023.

AtSix ~~April~~Months ended July 26, 2003, ~~the~~compared ~~Company had available foreign, state and federal net~~to ~~operating~~Six ~~loss~~Months ~~carryforwards~~ended ~~of approximately $1.0~~July ~~million~~27, ~~$16.3 million and~~2002 ~~$0.4 million, respectively, which expire in various years through 2023.~~

~~Cumulative~~Net ~~Effect~~Sales offor ~~Change~~the insix ~~Accounting~~months ~~Principle~~ended ~~was $77.5~~July ~~million~~26, ~~net~~2003 of(“first half 2004”) were $51.2 ~~tax~~million ofcompared to $151.74 million, for ~~first~~the ~~quarter~~comparable ~~2003.~~six Onmonth ~~January~~period ended July 27, 2002 (“first half 2003”), ~~the~~a ~~Company adopted~~decrease ~~SFAS~~of No$0.2 ~~141~~million, ~~“Business~~or ~~Combinations”,~~0.4%. ~~and~~The decrease ~~SFAS~~in ~~No. 142,~~net ~~“Goodwill~~sales ~~and~~was primarily attributable to the continued softness in ~~Other~~the ~~Intangible~~general ~~Assets”.~~economic Inenvironment, ~~connection~~including ~~with~~increased unemployment in the manufacturing ~~adoption~~sector. ofThe ~~SFAS~~decrease Noin net sales is specifically related to (a) a decrease of $0.4 ~~142~~million, or 5.8%, in the Company’s ~~tested~~industrial ~~its~~direct ~~goodwill~~mail order ~~for~~business ~~impairment~~line, ~~which~~(b) a ~~required~~decrease anin ~~assessment~~the ~~of whether~~Company’s ~~there~~consumer ~~was~~direct anmail ~~indication~~order business ~~that~~line ~~goodwill~~of ~~was~~$0.2 million, ~~impaired~~or as8.0% ofand (c) a decrease in the ~~date~~Company’s domestic retail business line (retail stores and shoemobiles) of $0.2 million, ~~adoption~~or 0.4%. ~~Management,~~The ~~using~~decrease in net sales was partially offset by an ~~independent~~increase ~~valuation~~of ~~firm~~$0.6 million, ~~determined~~or ~~that~~20.7%, ~~all of~~in the Company’s ~~goodwill~~international ~~was~~retail ~~impaired~~business atline, primarily ~~January 27~~Canada, ~~2002.~~from ~~The~~customers who purchase from the Company’s retail stores ~~recorded~~and ~~the~~shoemobiles, ~~goodwill~~reflecting ~~impairment~~an ~~charge~~improvement asin athe ~~cumulative~~Canadian ~~effect~~market offor ~~change~~the Company’s products and an improvement in ~~accounting~~ ~~for~~exchange ~~goodwill~~rates.

Gross Profit was $25.5 million for first half 2004 and $25.9 million for first half 2003, a decrease of $0.4 million, or 1.5%. The decrease in gross profit was related to decreased net sales as discussed above and to general changes in product mix and the impact of competitive pricing strategies. As a percentage of net sales, gross profit for first half 2004 was 49.8%, a decrease of 0.6% from first half 2003.

Selling, General and Administrative Expenses was $22.2 million for first half 2004 and $20.2 million for first half 2003, an increase of $2.0 million, or 9.9%. The increase in selling, general and administrative expenses was primarily related to the effect of employee related cost increases, including salaries and wages, increases in insurance costs related to more expensive insurance markets, increases in operating costs related to the shoemobiles, including fuel increases, and increases in professional fees relating to legal, accounting and consulting services, including $0.6 million associated with the Company’s debt restructuring plan.

-17-

Operating Income for first half 2004 was $1.4 million, or 2.7% of net sales, compared to $3.9 million, or 7.6% of net sales, for first half 2003. The decrease in operating income was primarily related to the increase in selling, general and administrative expenses as discussed above.

Interest Expense for first half 2004 was $5.7 million compared to $4.3 million for first half 2003, an increase of $1.4 million, or 32.6%. Interest expense for second quarter 2004 increased due to approximately $0.5 million of waiver and forbearance fees charged by the senior lenders under the Bank Credit Facility. Interest expense for first half 2004 also increased due to increased borrowings and to the effect of higher interest rates, including default interest of approximately $0.1 million related to the June 26, 2003 Letter Waiver to Loan and Security Agreement associated with the Bank Credit Facility. The default interest rate of an additional 3.0% will apply to all borrowings and letters of credit under the Bank Credit Facility through October 31, 2003.

Income Tax Expense for first half 2004 and first half 2003 was $0.1 million.

At July 26, 2003, the Company had available foreign, state and federal net operating loss carryforwards of approximately $1.2 million, $20.7 million and $5.6 million, respectively, which expire in various years through 2023.

Cumulative Effect of Change in Accounting Principle was $77.5 million, net of tax of $1.7 million, for first half 2003. On January 27, 2002, the Company adopted SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. In connection with the adoption of SFAS No. 142, the Company tested its goodwill for impairment, which required an assessment of whether there was an indication that goodwill was impaired as of the date of adoption. Management, using an independent valuation firm, determined that all of the Company’s goodwill was impaired at January 27, 2002. The Company recorded the goodwill impairment charge as a cumulative effect of change in accounting for goodwill.

Liquidity and Capital Resources

Contractual Obligations and Commercial Commitments

	Payments Due by Period
	(Thousands of Dollars)
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Contractual Obligations:
Long-Term Debt	$	9599,~~974~~768	$	9599,~~974~~768	$	—	$	—	$	—
Capital Lease Obligations		1,~~375~~313		1,~~375~~313		—		—		—
Operating Leases		5,~~077~~379		2,~~609~~442		2,~~418~~702		50235		—
Unconditional Purchase Obligations		1410,~~153~~755		1410,~~153~~755		—		—		—
Other Long-Term Obligations		—		—		—		—		—
Total Contractual Cash Obligations	$	~~116~~117,~~579~~215	$	114,~~111~~278	$	2,~~418~~702	$	50235	$	—


	Amount of Commitment Expiration Per Period
	(Thousands of Dollars)
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years

Other Commercial Commitments:
Lines of Credit	$	2,000	$	2,000	$	—	$	—	$	—
Guarantees		—		—		—		—		—
Standby Repurchase Obligations		—		—		—		—		—
Other Commercial Commitments		—		—		—		—		—
Total Commercial Commitments	$	2,000	$	2,000	$	—	$	—	$	—

-1618-

Sources and Uses of Cash

The Company’s primary cash needs are working capital, capital expenditures and debt service. The Company has financed cash requirements primarily through internally generated cash flow and funds borrowed under credit facilities.

Net cash ~~provided~~used byin operating activities was $12.42 million for first ~~quarter~~ half 2004, a an decrease of $23.02 million as compared to net cash provided by operating activities of $31.41 million for first ~~quarter~~half 2003. The decrease in cash ~~provided~~ provided by operating activities in first ~~quarter~~half 2004 from first ~~quarter~~half 2003 is primarily the result of the general decline in the Company’s results of operations, increased interest expense and an increase in inventory. Inventory levels for first half 2004, reflect the timing of inventory received and the introduction of several new styles to meet planned customer demands.

The Company’s investing activities for first ~~quarter~~half 2004 consisted of capital expenditures of approximately $01.70 million for improvements in retail stores, shoemobiles and equipment and approximately $0.1 million for the acquisition of software for internal use. The Company’s investing activities for first ~~quarter~~half 2003 consisted of capital expenditures of approximately $01.35 million for improvements in retail stores, shoemobiles and equipment and approximately $0.12 million for the acquisition of software for internal use.

The Company’s ~~used approximately $0.6 million for~~ financing activities for first ~~quarter~~ half 2004, ~~which~~ primarily ~~consisted~~under ofthe Bank ~~payments~~Credit ~~related~~Facility, towere ~~the~~net ~~Bank~~borrowings ~~Credit~~of $2.9 million. Financing ~~Facility,~~activities ~~including~~for first half 2004 included the scheduled principal ~~payment~~payments of approximately $0.2 5 million on Term Loan A and Term Loan B. The Company ~~used approximately $3.5~~’s ~~million for~~ financing activities for first ~~quarter~~half 2003, ~~which~~ primarily ~~consisted~~ ofunder ~~payments related to~~ the previous bank credit facility, ~~including~~were net borrowings of $0.6 million. Financing activities for first half 2003 included the scheduled principal ~~payment~~payments of approximately $13.5 1 million on ~~the~~a ~~previous~~ term loan under the previous bank credit facility.

The Company’s total working capital as of ~~April~~July 26, 2003 was a deficit of $5760.9 million. At January 25, 2003, working capital was a deficit of $57.8 million. The deficit was related to the reclassification of all of the Company’s long-term debt as current liabilities.

Cash flow from operations for first ~~quarter~~half 2004 was sufficient to cover debt service requirements under the Bank Credit Facility. The Company’s ability to make scheduled payments of principal, or to pay the interest or premium (if any) on, or to refinance, its indebtedness, or to fund planned capital expenditures will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations, management believes that cash flow from operations and available cash, together with available borrowings by the Company under the Bank Credit Facility, will not be adequate to meet the Company’s anticipated future requirements for working capital, budgeted capital expenditures and scheduled payments of principal and interest on its indebtedness ~~through fiscal 2004. The~~ ~~terms of the Bank Credit Facility are currently being negotiated. As a~~ result, there can be no assurance that the Company’s business will generate sufficient cash flow from operations or that future borrowing will be available under the Bank Credit Facility in an amount sufficient to enable the Company to service its indebtedness, including the Senior Subordinated Notes, or to make capital expenditures.

-1719-

Asthrough offiscal ~~April 26,~~2004. ~~2003,~~The ~~the~~ Company’s ~~debt~~has ~~consists~~commenced ofdiscussions with the ~~Senior Subordinated~~senior ~~Notes,~~lenders under the Bank Credit Facility and ~~certain other debt. The Bank Credit Facility consists of a $38.0 million revolving credit facility (~~the ~~“Revolving Credit~~holders ~~Facility”), including a $2.0 million letter~~ of ~~credit~~its ~~subfacility, and~~Senior ~~two~~Subordinated ~~term~~Notes ~~loans:~~with ~~Term~~respect ~~Loan A of up~~ to anits ~~aggregate~~debt $1restructuring plan.~~0 million~~ ~~and~~As ~~Term Loan B~~ of ~~up to an aggregate of $3.0~~ September ~~million. In addition~~9, ~~the Bank Credit Facility includes a third term loan~~2003, ~~Term~~negotiations ~~Loan~~have C,not ofbeen ~~up to an aggregate of $12~~completed.~~0 million.~~ The Company’s ~~other~~intends ~~debt~~to finalize ofa ~~$1.4 million~~restructuring ~~consists~~plan ofprior ~~capital~~to ~~leases. As of April~~October 2631, 2003, ~~approximately~~which ~~$15.4 million~~would significantly ofreduce the ~~Revolving~~amount ~~Credit Facility~~of ~~was~~the ~~outstanding.~~Company’s Inlong-term ~~addition,~~indebtedness. ~~outstanding~~As ~~balances as of April 26,~~a ~~2003~~result, ~~for~~there ~~Term~~can ~~Loan~~be A,no ~~Term~~assurance ~~Loan~~that Bthe ~~and Term Loan C were approximately $0.9 million, $2.6 million and $12.1 million, respectively. The~~ Company’s ~~had borrowing~~business ~~availability~~will ~~of approximately $7.3 million under the Revolving Credit~~generate ~~Facility~~sufficient ascash offlow ~~April 26,~~from ~~2003,~~operations ~~taking~~or ~~into account events of default in existence on April 26, 2003~~ that ~~were~~future ~~waived~~borrowing bywill ~~the~~be ~~senior lenders~~ available under the Bank Credit Facility ~~on May 12, 2003. Term Loan A and Term Loan B mature~~ in ~~monthly~~ ~~installments~~an ~~from~~amount ~~October~~sufficient ~~2002~~to ~~until~~enable ~~final~~the ~~payment~~Company ~~in September 2007.~~to ~~The~~service ~~Revolving~~its ~~Credit~~indebtedness, ~~Facility~~including ~~and~~the ~~Term~~Senior ~~Loan~~Subordinated CNotes, ~~will~~or ~~mature~~to ~~in September 2007 and~~make ~~have~~capital ~~no scheduled interim principal payments~~expenditures.

The Senior Subordinated Notes are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by each Domestic Restricted Subsidiary that is a Material Subsidiary (as such terms are defined in the indenture for the Senior Subordinated Notes (the “Senior Subordinated Notes Indenture”)) (whether currently existing, newly acquired or created). Each such subsidiary guaranty (a “Subsidiary Guaranty”) will provide that the subsidiary guarantor, as primary obligor and not merely as surety, will irrevocably and unconditionally guarantee on an unsecured, senior subordinated basis the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Company under the Senior Subordinated Notes Indenture and the Senior Subordinated Notes, whether for payment of principal or of interest on the Senior Subordinated Notes, expenses, indemnification or otherwise. As of January 25, 2003, Iron Age Investment Company, one of the Company’s Domestic Restricted Subsidiaries became a Material Subsidiary, and therefore was required to provide a Subsidiary Guaranty with respect to the Senior Subordinated Notes. As of April 26, 2003, none of Iron Age’s other Domestic Restricted Subsidiaries became a Material Subsidiary and were not required to provide a Subsidiary Guaranty with respect to the Senior Subordinated Notes.

Long-term debt

OnAs ~~September~~of July 2326, ~~2002~~2003, ~~Holdings,~~ the Company’s ~~and~~debt ~~Falcon,~~consists ~~entered~~of ~~into~~its ~~the~~9 ~~Bank Credit~~7/8% ~~Facility with a financial institution and another lender. The Bank~~Senior ~~Credit~~Subordinated ~~Facility~~Notes ~~consists~~due of2008 (the ~~Revolving~~“Senior ~~Credit~~Subordinated ~~Facility~~Notes”), ~~including~~ a $250.0 million ~~letter of credit subfacility, and two term loans: Term~~ Loan ~~A of up to an aggregate of $1.0 million~~ and ~~Term~~Security ~~loan~~Agreement ~~B of up to an aggregate of $3.0 million. In addition,~~ (the “Bank Credit Facility”) ~~includes~~and acertain ~~third term loan, Term~~other ~~Loan C, of up to an aggregate of $12~~debt.~~0 million. Availability under the Bank~~ ~~Credit Facility is governed by a borrowing base determined by advance rates~~ ~~against the inventory and accounts receivable of the Company and Falcon.~~

~~-18-~~On September 23, 2002, Holdings, the Company and Falcon, entered into the Bank Credit Facility with a financial institution and another lender. The Bank Credit Facility consists of a $38.0 revolving credit facility (the “Revolving Credit Facility”), including a $2.0 million letter of credit subfacility, and two term loans: Term Loan A of up to an aggregate of $1.0 million and Term Loan B of up to an aggregate of $3.0 million. In addition, the Bank Credit Facility includes a third term loan, Term Loan C, of up to an aggregate of $12.0 million. Availability under the Bank Credit Facility is governed by a borrowing base determined by advance rates against the inventory and accounts receivable of the Company and Falcon.

The Revolving Credit Facility and the Term Loan C are due in full on September 23, 2007. The outstanding balances of the Term Loan A and the Term Loan B are due in installments through September 23, 2007. Term Loan A, Term Loan B and the Revolving Credit Facility bear interest at either the prime rate or LIBOR, at the option of Holdings, plus an applicable margin. As of July 26, 2003, outstanding borrowings on the Revolving Credit Facility at prime rate plus a margin of 4.50% and LIBOR plus a margin of 6.75% are approximately $1.8 million and $17.5 million, respectively. As of July 26, 2003, borrowings of approximately $0.8 million for Term Loan A are at prime rate plus a margin of 4.50%. As of July 26, 2003, borrowings on Term Loan B at prime rate plus a margin of 6.25% and LIBOR plus a margin of 8.50% are approximately $0.4 million and $2.0 million, respectively. The interest rate for Term Loan C is 16.25%, including 5.00% paid-in-kind. As of July 26, 2003, outstanding borrowings For Term Loan C, including paid-in-kind interest, approximate $12.2 million. The Company pays a 0.375% commitment fee on the undrawn amounts of the Revolving Credit Facility. The Company pays a 5.00% letter of credit fee on any outstanding Letters of Credit. All margins on outstanding borrowings and letters of credit reflect the default rate of interest of an additional 3.0%

At closing, the Company drew the entire amount of Term Loan A, Term Loan B and Term Loan C and approximately $14.2 million on the Revolving Credit Facility, to refinance its previous bank credit facility of approximately $27.6 million, including accrued interest, and to pay certain financing fees and expenses. In connection with the refinancing of Holdings’ previous bank credit facility, The

-20-

~~The~~Company ~~Revolving~~wrote-off Credit Facility and the Term Loan C are due in full on September 23, 2007. The outstanding balances of the Term Loan A and the Term Loan B are due in installments through September 23, 2007. Term Loan A, Term Loan B and the Revolving Credit Facility bear interest at either the prime rate or LIBOR, at the option of Holdings, plus an applicable margin. As of April 26, 2003, outstanding borrowings on the Revolving Credit Facility at prime rate plus a margin of 1.50% and LIBOR plus a margin of 3.75% are approximately $~~1.9 million and $13.5 million, respectively. As of April 26, 2003, borrowings of approximately $~~0.92 million ~~for Term Loan A are at prime rate plus a margin of 1.50%. As of April 26~~, ~~2003,~~net ~~borrowings on Term Loan B at prime rate plus a margin~~ of ~~3.25%~~tax ~~and LIBOR plus a margin~~ of ~~5.50% are~~ approximately $0.1 ~~million~~ ~~and $2.5~~ million, ~~respectively. The interest rate for Term Loan C is 13.25%, including 2.00% paid-in-kind. As~~ of ~~April 26,~~unamortized ~~2003,~~debt ~~outstanding~~issuance ~~borrowings~~costs ~~for Term~~remaining ~~Loan~~from C,its ~~including~~previous ~~paid-in-kind interest, approximate $12.1 million. The~~bank ~~Company pays a 0.375% commitment fee on the undrawn amounts of the Revolving Credit Facility. The Company pays a 2.00% letter of~~ credit ~~fee on any outstanding Letters of Credit~~facility.

AtThe ~~closing, the~~ Company ~~drew~~incurred ~~the entire amount of Term Loan A, Term Loan B and Term Loan C and~~ approximately $142.2 million onin ~~the~~capitalizable ~~Revolving~~debt ~~Credit Facility,~~issuance tocosts ~~refinance~~in ~~its previous bank credit facility of approximately $27.6 million, including accrued interest, and to pay certain financing fees and expenses. In~~ connection with the ~~refinancing~~Bank ofCredit ~~Holdings’~~Facility ~~previous~~which ~~bank~~are ~~credit~~being ~~facility, The~~amortized ~~Company~~over ~~wrote-off approximately $0.2 million, net of tax of approximately $0.1 million, of unamortized debt issuance costs remaining from~~ its ~~previous bank credit facility~~term.

The Company ~~incurred~~had borrowing availability of approximately $2.17 million inunder ~~capitalizable debt issuance~~the ~~costs~~Revolving ~~in connection with the Bank~~ Credit Facility ~~which~~as ~~are~~of ~~being~~July 26, ~~amortized over its term~~2003.

The Company’s other debt of $1.3 million consists of capital leases.

The Senior Subordinated Notes are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by each Domestic Restricted Subsidiary that is a Material Subsidiary (as such terms are defined in the indenture for the Senior Subordinated Notes (the “Senior Subordinated Notes Indenture”)) (whether currently existing, newly acquired or created). Each such subsidiary guaranty (a “Subsidiary Guaranty”) will provide that the subsidiary guarantor, as primary obligor and not merely as surety, will irrevocably and unconditionally guarantee on an unsecured, senior subordinated basis the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Company under the Senior Subordinated Notes Indenture and the Senior Subordinated Notes, whether for payment of principal or of interest on the Senior Subordinated Notes, expenses, indemnification or otherwise. As of January 25, 2003, Iron Age Investment Company, one of the Company’s Domestic Restricted Subsidiaries became a Material Subsidiary, and therefore was required to provide a Subsidiary Guaranty with respect to the Senior Subordinated Notes. As of July 26, 2003, none of Iron Age’s other Domestic Restricted Subsidiaries became a Material Subsidiary and were not required to provide a Subsidiary Guaranty with respect to the Senior Subordinated Notes.

Debt Covenants

The Company’s Bank Credit Facility, which is guaranteed by Holdings, requires the Company to maintain certain financial ratios. The Bank Credit Facility also limits the Company’s ability to incur additional indebtedness, restricting the amount of capital expenditures that may be incurred, and limiting transactions with affiliates. The Bank Credit Facility also limits the Company’s ability to engage in mergers or acquisitions, sell certain assets, pay dividends or repurchase its stock. The Bank Credit Facility is secured by a first priority security interest in substantially all of the Company’s assets. The Company’s domestic and Canadian subsidiaries are required to guarantee its obligations under the Bank Credit Facility. If the Company defaults on this debt, due to cross-default provisions in the ~~indentures~~indenture for the ~~Discount Notes and~~ Senior Subordinated Notes, this debt would also be in default.

Historically, the Company has not met its debt covenants and has had to amend its credit agreements or receive waivers from its lending institutions. The Company was not in compliance with the financial covenants under the Bank Credit Facility, including the Senior Debt Ratio and Fixed Charge Coverage Ratio (as defined in the Bank Credit Facility) for the first quarter ended April 26, 2003. In addition, based upon forecasted net income and cash flows, the Company determined that it would not likely be able to make the interest payment on the Senior ~~Subordinated Notes that is due on November 1, 2003. As a~~ ~~result, during the first quarter, the~~

-1921-

Subordinated Notes that is due on November 1, 2003. As a result, during the first quarter, the Company requested that the senior lenders to the Bank Credit Facility (the “Lenders”) amend the financial covenants for the first quarter and every other quarter of the year ending January 31, 2004 to a level that considering the Company’s current operations and forecasts would make it probable that the Company ~~will~~would be in compliance with its Bank Credit Facility. On May 12, 2003, the Company and the ~~senior~~ ~~lenders~~Lenders ~~under the Bank Credit Facility~~ entered into the First Amendment to Loan and Security Agreement and Limited Waiver (the “First Amendment”) to the Bank Credit Facility that ~~allows~~allowed the Company to continue to operate under the existing requirements of the Bank Credit Facility through June 2526, 2003. As required by the First Amendment, the Company retained a financial consultant ~~with~~and ~~certain~~a ~~modifications~~financial ~~relating~~advisor to ~~excess~~advise ~~cash~~the ~~availability,~~Company with respect to improving the financial condition of the Company and ~~will~~to ~~allow~~consider alternative financing strategies. On June 26, 2003, the Company and the ~~lenders~~Lenders agreed to an additional waiver allowing the Company to continue to operate under the Bank Credit Facility through October 31, 2003, subject to certain conditions. One condition is for the Company to continue to maintain a minimum level of excess ~~negotiate~~cash ~~financial~~availability ~~covenants~~of ~~for~~$2.5 million, as agreed with the ~~year~~Lenders ~~ending~~on ~~January~~May 3129, ~~2004~~2003. As ~~required~~of September 5, 2003, the Company had excess cash byavailability of $3.9 million. During the ~~First~~120 day ~~Amendment,~~period ~~Holdings~~through ~~and~~October 31, 2003, the ~~Company~~Lenders have waived ~~retained~~all aother financial ~~consultant~~ ~~and~~covenants. aFurther, ~~financial~~by ~~advisor~~August 25, 2003, the Company was required to ~~advise~~submit ~~Holdings~~binding agreements and ~~the~~commitments ~~Company~~regarding ~~with~~a series of ~~respect~~transactions to ~~improving~~reduce indebtedness and improve the financial condition of ~~Holdings~~the Company, ~~and~~including the ~~Company.~~exchange of Senior Subordinated Notes for new securities ~~During~~and replacing the ~~45-day~~Bank ~~period~~Credit ofFacility ~~the~~with ~~First~~new ~~Amendment,~~senior ~~the~~indebtedness. If the Company isdid ~~required~~not ~~to maintain~~submit athese ~~defined~~binding ~~level~~agreements ofand ~~excess~~commitments, ~~cash~~or ~~availability.~~if ~~Under~~the Lenders did not reasonably approve the terms of the ~~First~~ ~~Amendment~~transactions described above, the ~~minimum~~Company ~~level~~would ofhave ~~excess~~seven ~~cash~~business ~~availability~~days ~~was~~to ~~set~~provide atthe ~~$3.0~~Lenders with a ~~million~~debt restructuring plan for their approval. OnThe ~~May~~Company did not submit such binding agreements and commitments to the Lenders on August 2925, 2003. The Company, however, timely submitted a preliminary debt restructuring plan to the Lenders ~~senior~~for ~~lenders~~their ~~under~~review and approval. Further, the ~~Bank~~Company ~~Credit~~has ~~Facility~~commenced ~~reduced~~discussions with the ~~minimum~~holders ~~level~~ of ~~excess~~its ~~cash~~Senior ~~availability~~Subordinated Notes (the “Note Holders”) with respect to its debt restructuring plan. Through July 26, 2003, the Company has incurred approximately $20.56 million in consulting, accounting and legal services associated with its debt restructuring plan. As of ~~June~~September 69, 2003, negotiations continue with the ~~Company’s~~Lenders ~~cash~~and ~~availability~~the ~~was~~Note $3Holders.9 The ~~million.~~Company Asintends ofto ~~June~~finalize a debt restructuring plan prior to October 1031, 2003, ~~the~~to ~~Company~~significantly ~~and~~reduce the ~~senior~~amount ~~lenders~~of ~~have~~the ~~not~~Company’s ~~finalized~~long-term indebtedness. ~~negotiations~~The tax implications of anthe debt restructuring will be ~~amendment~~dependent toon several factors including the ~~Bank~~terms ~~Credit~~and ~~Facility~~consideration ~~with~~of the ~~respect~~debt torestructuring and the ~~covenants~~financial position of the Company ~~second,~~after ~~third~~the ~~and~~debt ~~fourth~~restructuring. ~~quarter~~If ~~for~~such ~~the~~debt ~~year~~restructuring ~~ending~~plan ~~January 31~~is not approved by the Lenders, the ~~2004~~waiver shall expire. Should the Company ~~and~~not ~~its~~be ~~senior~~able ~~lenders~~to fulfill the conditions of the waiver or not be able to reach an agreement on an additional amendment to the Bank Credit Facility prior to the expiration of the ~~First~~waiver ~~Amendment~~ or not be able to obtain an additional waiver, the Company would be in default under the Bank Credit Facility and such default would also constitute an event of default under the terms of the Senior Subordinated Notes, which would have a material adverse impact on the Company’s reported financial position and results of its operations. As a result, all of the Company’s long-term debt continue to be classified as current liabilities. The Company’s ability to continue as a going concern is largely dependent on its ability to maintain its existing financing arrangements to operate the business.

~~Recently Issued Accounting Standards~~-22-

On May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. Application to pre-existing instruments should be recognized as the cumulative effect of a change in accounting principle. The Company is currently evaluating the provisions of SFAS No. 150, but does not believe that Holdings’ Series B and Series C Redeemable Preferred Stock require reclassification as a liability as the redemption provisions of these instruments is contingent upon a Change of Control or Public Offering, as defined in the indenture governing the Senior Subordinated Notes.

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Recently Issued Accounting Standards

On May 15, 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. Application to pre-existing instruments should be recognized as the cumulative effect of a change in accounting principle. The Company evaluated the provisions of SFAS No. 150, and concluded that Holdings’ Series B and Series C Redeemable Preferred Stock does not require reclassification as a liability as the redemption provisions of these instruments is contingent upon a Change of Control or Public Offering, as defined in the indenture governing the Senior Subordinated Notes.

Inflation and Changing Prices

The Company’s sales and costs are subject to inflation and price fluctuations. However, they historically have not, and in the future are not expected to have, a material adverse effect on the Company’s results of operations.

Forward Looking Statements

When used in this quarterly report, the words “believes”, “anticipates”, “expects”, “intends”, and similar expressions are used to identify forward ~~looking~~ looking statements. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. The ~~Company~~ Company wishes to caution readers that the following important factors and others in some cases have affected and in the future could affect the Company’s ~~actual~~ actual results and could cause the Company’s actual results to differ materially from those expressed in any forward statements made by the Company: (i) economic conditions in the safety shoe market, (ii) availability and terms of credit and debt arrangements, (iii) increase in interest rates, (iv) cost of ~~raw~~ raw materials, (v) inability to maintain state-of-the-art manufacturing facilities, (vi) heightened competition, including intensification of price and ~~service~~ service competition, the entry of new competitors and the introduction of new ~~products~~ products by existing competitors, (vii) inability to capitalize on ~~opportunities~~ opportunities presented by industry consolidation, (viii) loss or retirement of ~~key~~ key executives, (ix) loss or disruption of the Company’s relationships with its major suppliers, including the Company’s largest supplier in China and (x) inability to grow by acquisition of additional safety shoe distributors or to effectively consolidate operations of businesses acquired.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Company is exposed to market risk primarily from changes in interest rates and foreign exchange rates.

The following discussion of the Company’s exposure to various market risks contains “forward looking statements” that are subject to risks and uncertainties. These projected results have been prepared utilizing certain assumptions considered reasonable in the circumstances and in light of information currently available to the Company. Nevertheless, because of the inherent unpredictability of interest rates and foreign currency translation rates, actual results could differ materially from those projected in such forward looking statements.

Interest Rates

At ~~April~~July 26, 2003, the Company had fixed-rate debt totaling $78.5 million in principal amount and having a fair value of $46.0 million. These instruments bear interest at a fixed rate and, therefore, do not expose the Company to the risk of earnings loss due to changes in market interest rates. However, the fair value of these instruments would decrease (to the holder) by approximately $4.6 million if interest rates were to increase by 10% from their levels at ~~April~~July 26, 2003 (i.e., an increase from the weighted average interest rate of 10.49% to a weighted average interest rate of 11.49%).

At ~~April~~July 26, 2003, the Company had variable-rate debt totaling $1822.86 million in principal amount and having a fair value of $1822.86 million. These borrowings are under the Bank Credit Facility. If interest rates were to increase by 10% from their levels at ~~April~~July 26, 2003, the Company would incur additional annual interest expense of approximately $0.12 million.

Foreign Exchange Rates

Information relating to the sensitivity to foreign currency exchange rate changes is omitted as foreign exchange exposure risk has not materially changed from that disclosed in the Company’s Annual Report on Form 10-K for the year ended January 25, 2003.

Item 4. Controls and Procedures.

Within the 90 days prior to the date of filing this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its disclosure committee and management, including the President (Chief Executive Officer) and the Treasurer (Chief Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-1415(ce) and 15d-1415(ce). Based upon that evaluation, the President (Chief Executive Officer) and the Treasurer (Chief Financial Officer) concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. Subsequent to the date of that evaluation, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 2. Changes in Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

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

(a) Exhibit Index.

10.71		Letter Waiver to Loan and Security Agreement dated May 29, 2003.
10.72		Letter Waiver to Loan and Security Agreement dated June 26, 2003.
99.1		Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.1		Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
99.2		Certification by CFO pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.2		Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification by CFO pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K.

NoA ~~reports~~report on Form 8-K ~~were~~was filed ~~during~~on June 27, 2003 to disclose a new waiver under the ~~first~~Company’s ~~quarter~~existing ~~ended~~Loan ~~April 26~~and Security Agreement, as discussed ~~2003~~elsewhere on this quarterly report on Form 10-Q.

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

	IRON AGE CORPORATION
	By:	/s/Bart R. Huchel
Dated: June 10, 2003		Name: Title:	Bart R. Huchel Vice President-Finance Chief Financial Officer and Treasurer (Principal financial and accounting officer)

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CERTIFICATIONS

I, William J. Mills, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Iron Age Corporation; 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.

/s/William J. Mills William J. Mills Chief Executive Officer, President and Director

Dated: June 10, 2003

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I, Pursuant ~~Bart~~to R.the ~~Huchel~~requirements of the Securities Exchange Act of 1934, ~~certify~~the registrant ~~that:~~has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	IRON AGE CORPORATION

	By:	/s/Bart R. Huchel

		Name: Bart R. Huchel
		Title: Vice President-Finance
		Chief Financial Officer and
Dated: September 9, 2003		Treasurer
		(Principal financial and
		accounting officer)

/s/Bart R. Huchel Bart R. Huchel Vice President – Finance and Treasurer and Chief Financial Officer

Dated: June 10, 2003

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Filing Compare · IRON AGE CORP