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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

for the fiscal year ended: January 26, 2002

OR

for the transition period from: ________________ to ________________

Commission file number: 333-57009

Iron Age Holdings Corporation

Robinson Plaza Three, Suite 400, Pittsburgh, Pennsylvania 15205

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]     No [   ]

Applicable only to registrants 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.

(Applicable only to corporate registrants:) As of April 25, 2002, Iron Age Holdings Corporation had 99,991.94 shares of Common Stock issued and outstanding.

Documents incorporated by reference: None

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K.   [X]

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FORM 10-K INDEX

     Reference in this Annual Report on Form 10-K is made to the Iron Age®, Knapp® and Grabber® trademarks which are owned by Iron Age Holdings Corporation or its subsidiaries.

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Part I

Item 1. Business.

     Iron Age Holdings Corporation (the “Company” or “Holdings”), together with its wholly-owned subsidiary, Iron Age Corporation (“Iron Age”), is a leading distributor of safety shoes in the United States. The Company’s primary business is the specialty distribution of safety, work and uniform shoes primarily under the Iron Age®, Knapp® and Grabber® brand names, which comprised 97% of fiscal 2002 sales. The Company also distributes footwear directly to retail and wholesale customers through its wholesale division and manufacturing subsidiary Falcon Shoe Mfg. Co. (“Falcon”). The Company distributes directly to its customers over 300 styles of footwear under the Iron Age, Knapp and Grabber brand names. The Iron Age, Knapp and Grabber products and services are marketed principally to industrial, service and government employers, many of which require safety shoes to be worn at the workplace and provide purchase subsidies under employer safety programs to the end-user employee.

Company History

     Iron Age was founded in 1817 and has specialized in safety footwear since the popularization of steel toe shoes during the 1940s. On February 26, 1997, Fenway Partners Capital Fund, L.P. (“Fenway”), together with certain investors, in partnership with certain members of management, formed Holdings in order to effect the acquisition of all of the outstanding stock of the predecessor to Holdings for an aggregate purchase price of $143.6 million (the “Fenway Acquisition”).

     Concurrent with the Fenway Acquisition, (i) Holdings and Iron Age entered into a syndicated senior bank loan facility (the “Old Credit Facility”), (ii) Iron Age issued its 12.5% Senior Subordinated Notes due 2006 (the “Old Subordinated Notes”) in the amount of $14.55 million, (iii) Holdings issued shares of Series A Preferred Stock (the “Holdings Series A Preferred Stock”) for $14.9 million, (iv) Holdings issued shares of Common Stock for approximately $32.2 million, (v) Holdings issued warrants to acquire Common Stock of Holdings for $0.1 million, and (vi) management rolled over certain options and were granted additional options to acquire shares of Common Stock of Holdings.

     On April 24, 1998, (i) Holdings issued its 12 1/8% Senior Discount Notes due 2009 (the “Discount Notes”) in an aggregate principal amount at maturity of $45.14 million, (ii) Iron Age issued its 9 7/8% Senior Subordinated Notes due 2008 (the “Senior Subordinated Notes”) in an aggregate principal amount of $100.0 million, and (iii) Holdings and Iron Age entered into a new credit facility (the “Bank Credit Facility”) that, as amended, provides for a $41.1 million senior secured credit facility consisting of a $20.0 million revolving working capital facility (the “Revolving Credit Facility”) and a $21.1 million acquisition term loan (the “Acquisition Term Loan”). The Company used excess cash and net proceeds from the Discount Notes, the Senior Subordinated Notes and the Bank Credit Facility to repay the Old Credit Facility, repay the Old Subordinated Notes and redeem the Holdings Series A Preferred Stock. The transactions described in this paragraph are collectively referred to herein as the “April 1998 Transactions.”

Industry Overview

     The work shoe market consists of men’s and women’s work, safety, uniform and non-slip shoes and boots. In the United States, the safety shoe sector of the work shoe market is comprised of three types of customers—industrial or commercial, government and mass merchandising retail. End-user safety shoe customers include workers in the primary metals, chemical and petroleum, automotive, paper, mining, utilities, electronics, aerospace, food service, hospitality and entertainment, pharmaceutical, biomedical, agriculture, construction and retail and wholesale trade industries.

     A significant factor influencing the demand for safety shoes is the increasing concern regarding workplace safety that is derived from the employer’s desire to reduce employee costs from on-the-job injury and to reduce workers’ compensation expenses. Beginning in the 1970s, the federal government adopted Occupational Safety and Health Administration (“OSHA”) regulations establishing heightened workplace safety standards, including regulations governing footwear. OSHA regulations established standards requiring employers to provide their

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workers with workplaces free from recognized hazards that could cause serious injury or death and requiring employees to abide by all safety and health standards that apply to their jobs. Changes to OSHA regulations in 1994 required employers to assess footwear related hazards and implement a program designed to mitigate such hazards.

     In order to satisfy the criteria set forth in OSHA regulations, protective footwear must comply with standards (the “ANSI Standards”) established by the American National Standards Institute (“ANSI”). There are six ANSI categories for foot protection: impact and compression, metatarsal footwear, conductive footwear, electrical hazard footwear, sole puncture resistance footwear and electro-static dissipative footwear. These OSHA regulations, stricter regulatory enforcement and increased consumer awareness of the regulations have heightened the focus on safety in the workplace.

     Within the service sector of the work shoe market, a growing category of safety footwear is non-slip footwear. Uniform shoes with non-slip soles are used increasingly by customers in the food service, hotel, gaming, cruise line and resort industries. Fueling the demand are some of the same factors influencing traditional safety shoe users including the increasing concern regarding workplace safety. In addition, employers in these industries require consistency and uniformity in the performance and appearance of their employees’ footwear.

     In the industrial sector of the work shoe market, sales are made primarily between the distributor and employer, which generally maintain safety departments that monitor compliance with overall safety requirements and provide safety shoe purchase subsidies. Distributors of safety shoes to industrial customers typically provide a range of services, including advice with respect to assessment of workplace safety requirements, recommendations as to appropriate product selection, coordination of employer safety subsidy programs, worksite delivery and fitting of shoes and feedback and follow-up with corporate employers.

     Government sales, which include armed forces, penal institutions, federal, state, and local municipal employees or civilian employees, are made to two primary purchasers: GSA (“Government Services Administration”)-contracted vendors and the military. GSA-contracted purchases of safety shoes include retail sales to GSA-contracted vendors through store and shoemobile service and catalog operations. These orders are made for a variety of purposes and activities and involve a wide range of products. Suppliers bid for these orders on the basis of product style and quality, distribution capability and customer service. Sales to the military consist of price-sensitive, large-volume orders that are designed to strict specifications and are generally bid directly by the manufacturers. Style selection is minimal and geared towards a specific purpose.

     The retail/mass merchandiser sector includes large retail chain stores, specialty retailers and other retail outlets. This is a source of low-end, protective footwear, the buyers of which include workers whose employers do not have company-sponsored programs as well as self-employed individuals, occupational users and agricultural workers.

     The Company primarily services industrial companies throughout North America. During fiscal 2002, the Company’s customer base was significantly affected by the general economic downturn, which included plant closings and employee layoffs. From the US Department of Labor, according to the Bureau of Labor Statistics on Laborers, from February 2001 to February 2002, total unemployment has risen from approximately 7% to approximately 9% in the industrial services sector. Further, unemployment in the Durable Goods Manufacturing sector has risen more than 3% from February 2001 to a level of 7.5% in February 2002. The economic downturn had a significant adverse impact on the Company’s results of operations. In addition, the work shoe market is a mature industry that has experienced limited growth in the recent past.

Sales and Distribution

     Substantially all shoes sourced for distribution by the Company in the United States, Canada and Mexico are transported to its central distribution facility in Penn Yan, New York. From Penn Yan, the Company distributes its product to end-users through its multi-pronged distribution network. The Company also distributes its products through catalog operations and channels associated with consumer brands, which include wholesale merchandising, independent sales representatives and third-party vendors.

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     Mobile and Store Centers. Each “mobile and store center” consists of a retail store for its products and generally one or more affiliated shoemobiles. Each shoemobile acts as a mobile selling vehicle for the Company’s products, operating generally within a 150-mile radius of its affiliated retail store. Through the retail store channel, the Company is able to service corporate and individual customers generally located within a 40-mile radius of a given store.

     The Company operates its fleet of shoemobiles throughout the United States, Canada and Mexico. Shoemobiles vary in size—transporting from 900 to 1,600 pairs of shoes—and each contains a display area and a fitting room. The shoemobile driver/salesperson is responsible for the fitting of footwear and processing of orders.

     Catalog Direct and E-Commerce. The Company reaches both large and small customers with its safety shoe catalogs and web site. These sectors of the Company’s business provide direct service to certain customers who are either too small or do not require direct shoemobile service or who are remotely located. Sales are promoted through a combination of the product catalogs, the web site, the Company’s field sales force and trade advertising.

     In-Plant Stores. To add further flexibility to its distribution capabilities, the Company offers large-volume customers an in-plant store program, which provides the customer with a base stock of inventory and a sales staff to manage the store on-site at the customer’s manufacturing facility. The customer provides the Company with the necessary store space and all utilities.

     Consumer Channels. The Company markets primarily Knapp branded products directly to consumers through a Direct Mail and Counselor (independent sales representatives) business unit.

     Falcon Manufacturing. Through its Falcon subsidiary, the Company manufactures private label footwear for such well known customers as L.L. Bean, Inc., Cabela’s Inc., LaCrosse Footwear and Black Diamond.

Products

     The Company’s product line addresses a full range of protective footwear applications covering all six ANSI categories and non-slip footwear in styles for both men and women in both steel and non-metallic toe caps. Product categories include work, athletic, hikers, metatarsal, dress/casual and rubber footwear and consist of over 300 individual styles ranging in price from $15.00 for an inexpensive steel PVC boot to a $188.00 leather waterproof boot. The Company’s safety footwear is manufactured in more than 300 length and width combinations, ranging in sizes from 5 to 17. Sales of Iron Age products are concentrated in traditional, well-established styles, with sales of new styles representing less than 18% of net sales in fiscal 2002 and less than 6% of net sales in fiscal 2001. All the Company’s work and safety shoes and boots are designed, manufactured and laboratory tested to meet or exceed applicable ANSI Standards. Through its long-standing relationship with users of safety footwear, the Company has assembled a product line that is widely regarded as the industry’s most complete. In addition to the Iron Age product line, the Company distributes work, service oxfords, non-slip and high-end work and hunting boots under the brand names Knapp, Grabber and other consumer brands.

     The Company has successfully adapted its product line to meet new customer demands and substantially increased the categories and types of footwear offered. As the safety shoe market has diversified, the Company has modified its product line, moving from the basic heavy-duty styles toward casual, lightweight safety footwear that meet the needs of professional, light industrial and service sector employees.

Manufacturing

     Company Facilities. Work shoes are manufactured in the Falcon facility in Lewiston, Maine, primarily for sale by the Company under the Iron Age and Knapp brand names. In addition, the Company sells work shoes manufactured at the Falcon facility directly to third parties, including L.L. Bean, Inc., Cabela’s Inc., LaCrosse Footwear and Black Diamond. Falcon manufactures approximately 20% of total pairs of shoes sold by Holdings.

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     Outside Suppliers. As a result of its market leadership position and long operating history, the Company has developed key supply arrangements with 37 leading footwear manufacturers in twelve countries: the United States, China, Korea, Canada, Mexico, Maylasia, Dominican Republic, United Kingdom, Thailand, Vietnam, Macau and the Netherlands. Although in fiscal 2002 one supplier in China manufactured approximately 29% of the pairs of shoes sold by the Company, the Company does not believe that it is dependent upon any specific supplier for its product manufacturing. In fiscal 2002, 65% of its total pairs sold were produced by foreign suppliers, with 59% produced in China. The Company has not experienced any material adverse effects as a result of any economic downturn in Asia. However, the economic climate could have an adverse effect on the Company’s suppliers located in Asia. The Company believes that it could find alternative manufacturing sources for those products it currently sources from Asia, including its largest supplier in China, through its existing relationships with independent third-party manufacturing facilities located outside of Asia. However, the loss of a substantial portion of this manufacturing capacity or the inability of Asian suppliers to provide products on schedule or on terms satisfactory to the Company, could have a material adverse effect on the Company’s business, financial condition or results of operations during the transition to alternative manufacturing facilities.

     Transportation/Freight. The Company primarily utilizes its own trucks as well as common carriers to deliver product orders from its Penn Yan distribution center and the Falcon manufacturing subsidiary to its mobile and store centers.

Competition

     The work shoe market is highly competitive. Management believes that competition in the industry is based on distribution capabilities, retail presence, brand name recognition, corporate relationships, systems, service, product characteristics, product quality and price. The Company’s major competitors in the safety shoe sector of the work shoe industry are Lehigh (a subsidiary of Citicorp Venture Capital), Hy-Test (a subsidiary of Wolverine World Wide, Inc.) and Red Wing Shoe Co. Some of the Company’s competitors have greater financial and other resources than the Company. Because of the lack of reliable published statistics, the Company is unable to state with certainty its position in the work shoe industry. Market shares in the work shoe industry are highly fragmented and no one company has a dominant market position. However, the Company believes that it is the largest provider of work shoes in the work shoe industry.

Environmental Matters

     The Company’s operations, primarily manufacturing, are subject to federal, state, local, and foreign laws and regulations relating to the storage, handling, generation, treatment, emission, release, transportation, discharge and disposal of certain substance and waste materials. Permits are required for certain of the Company’s manufacturing operations, and these permits are subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations, and violations may result in the payment of fines or the entry of injunctions, or both. The Company does not believe it will be required under existing environmental laws and enforcement policies to expend amounts that will have a material adverse effect on its results of operations or financial condition. The requirements of such laws and enforcement policies, however, have generally become more strict in recent years. Accordingly, the Company is unable to predict the ultimate cost of compliance with environmental laws and enforcement policies.

Employees

     As of January 26, 2002, the Company employed 787 people in sales and distribution, manufacturing and administration. None of the Company’s employees is presently covered by collective bargaining agreements. Management considers its employee relations to be good.

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Item 2. Properties.

     The Company’s executive offices are located in Pittsburgh, Pennsylvania. All of the Company’s properties are maintained on a regular basis and are adequate for the Company’s present requirements.

     The following table identifies, as of January 26, 2002, the principal properties utilized by the Company.

Item 3. Legal Proceedings.

     The Company is a party to various legal actions arising in the ordinary course of its business. The Company believes that the resolution of these legal actions will not have a material adverse effect on the Company’s business, results of operations and financial condition.

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

     The Company did not submit any matters during the fourth quarter of the fiscal year covered by this report to a vote of security holders through the solicitation of proxies or otherwise.

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Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

     As of April 25, 2002, Holdings had 200,000 authorized shares of common stock, par value $.01, of which 99,991.94 were issued and outstanding. There is no established public trading market for Holdings’ common stock. As of April 25, 2002, there were eight holders of Holdings’ common stock. Holdings’ ability to pay dividends is limited under an indenture dated as of April 24, 1998 between Holdings and The Chase Manhattan Bank, as trustee (the “Indenture”).

Item 6. Selected Financial Data.

     The following table sets forth selected historical consolidated financial data of Holdings and its predecessor for the five-year period ended January 26, 2002 which were derived from audited consolidated financial statements of Holdings and its predecessor. The following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes thereto included in Item 8 of this Annual Report on Form 10-K.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following is management’s discussion and analysis of the financial condition and results of operations of Holdings for the fiscal years ended January 26, 2002 (“fiscal 2002”), January 27, 2001 (“fiscal 2001”) and January 29, 2000 (“fiscal 2000”). This discussion and analysis should be read in conjunction with, and is qualified in its entirety by, “Selected Financial Data” and the consolidated financial statements and accompanying notes thereto included in Item 8 of this Annual Report on Form 10-K.

Overview

     Holdings’ primary business is the specialty distribution of safety, work, uniform and non-slip shoes directly to end users primarily under the Iron Age, Knapp and Grabber brand names, which comprised 97% of fiscal 2002 sales. Holdings also distributes footwear directly to retail and wholesale customers through its wholesale division and its manufacturing subsidiary Falcon. Falcon manufactures approximately 20% of total pairs of shoes sold by Holdings. In addition, Holdings began distributing prescription safety eyewear, on a limited basis, in conjunction with the acquisition of a regional distributor in April 1998. Holdings sold its prescription safety eyewear business line in December 2001, as discussed below. Holdings’ net sales decreased by 11.3% in fiscal 2002. The decrease in net sales was due primarily to a decline in the general economic environment, which included plant closings and employee layoffs by Holdings’ customers.

Certain Transactions

     On October 20, 2000, Holdings purchased $16.4 million in principal amount of its outstanding Senior Subordinated Notes for $11.9 million. The purchase was funded by $7.1 million of borrowings under the Bank Credit Facility and the issuance of $4.8 million of Series C Preferred Stock of Holdings (the “Holdings Series C Preferred Stock”) to Fenway Partners Capital Fund II, L.P. (“Fenway II”), an affiliate of Holdings’ majority stockholder, Fenway. Holdings recorded an extraordinary gain of $2.3 million, net of unamortized deferred financing costs of $0.6 million, and income taxes of $1.7 million. Following the purchase, such principal amount of the Senior Subordinated Notes was retired. The transaction described in this paragraph is referred to as the “October 2000 Transaction.”

     On September 22, 1999, Holdings purchased $9.0 million in principal amount of its outstanding Senior Subordinated Notes for $7.1 million. The purchase was funded by $4.7 million of borrowings under the Bank Credit Facility and the issuance of $2.4 million of Series B Preferred Stock of Holdings (the “Holdings Series B Preferred Stock”) to Holdings’ majority stockholder, Fenway. Holdings recorded an extraordinary gain of $0.9 million, net of unamortized deferred financing costs of $0.4 million, and income taxes of $0.6 million. Following the purchase, such principal amount of the Senior Subordinated Notes was retired. The transaction described in this paragraph is referred to as the “September 1999 Transaction.”

     On July 20, 1999, Holdings purchased $9.6 million in principal amount of its outstanding Senior Subordinated Notes for $7.7 million. The purchase was funded by $5.1 million of borrowings under the Bank Credit Facility and the issuance of $2.6 million of Holdings Series B Preferred Stock to Holdings’ majority stockholder, Fenway. Holdings recorded an extraordinary gain of $0.9 million, net of unamortized deferred financing costs of $0.4 million, and income taxes of $0.7 million. Following the purchase, such principal amount of the Senior Subordinated Notes was retired. The transaction described in this paragraph is referred to as the “July 1999 Transaction.”

     On August 29, 2000, Fenway II purchased Discount Notes with a face value of approximately $7.3 million for approximately $1.4 million. The purchase resulted in an income tax liability to Holdings of approximately $0.9 million. In October 2000, Fenway II funded the income tax liability through a capital contribution.

     On February 7, 2000, Fenway purchased Discount Notes with a face value of approximately $10.0 million for approximately $1.9 million. The purchase resulted in an income tax liability to Holdings of approximately $1.3

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million. In May 2000, Fenway funded the income tax liability through a capital contribution. On February 6, 2001, Fenway transferred the Discount Notes to Fenway II.

     On December 14, 2001, Iron Age sold the assets of its vision products business line, which consisted primarily of inventory, accounts receivable, fixed assets and certain intangible assets with a carrying value of approximately $2.6 million and revenues of approximately $1.2 million to AEARO Company I for approximately $0.7 million. The sale resulted in a loss of approximately $1.9 million. Holdings’ net income from the vision products business line was not material.

     On May 25, 1999, Iron Age sold the assets of its safety and medical products line, a component of Safety Supplies’ business, which consisted primarily of inventory, with a carrying value of approximately $0.4 million to Stratford Safety Products, Inc. for $0.5 million. The sale resulted in a gain of approximately $0.1 million, which was reflected as a reduction of goodwill that was recorded in connection with the acquisition of Safety Supplies. Holdings’ net income from the safety and medical products line was not material.

Critical Accounting Policies

Allowance for Doubtful Accounts-Methodology

     Holdings evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where Holdings is aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filings, substantial downgrading of credit ratings), Holdings records a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount reasonably believed will be collected. For all other customers, Holdings recognizes reserves for bad debts based upon historical bad debt experience ranging from approximately 4% of total outstanding receivables to approximately 12% for amounts delinquent more than 60 days. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations), Holdings’ estimates of the recoverability of amounts due could be reduced by a material amount.

Inventories – Slow Moving and Obsolescence

     Historically, a reserve has not been necessary. Merchandise risk is not considered inherent to industrial footwear as merchandise is not tied as closely to fashion trends as consumer footwear. Although Holdings has recently increased its purchased volume of outside branded product, Holdings does not believe this increases the risk of obsolescence as the incremental sales of outside brands are at the high-end of the market, which is a smaller segment of the overall market. Holdings routinely reviews the on-hand merchandise to identify slowdowns in particular products and follows up with sales promotions to sell that specific footwear.

Goodwill

     Holdings evaluates the carrying value of goodwill for potential impairment on an ongoing basis. Such evaluation considers projected future operating results, trends and other circumstances. By applying the standards of Financial Accounting Standards Board (FASB) Statement No. 122, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, Holdings has determined that future undiscounted cash flows support the carrying value of goodwill and that no impairment was necessary at January 26, 2002. If future undiscounted cash flows were to be 10% less than the projected amounts, an impairment charge would be necessary.

     FASB Statement No. 141, “Business Combinations”, and FASB Statement No. 142, “Goodwill and Other Intangible Assets”, are effective for Holdings’ fiscal year ended January 25, 2003. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Holdings is currently assessing, but has not yet determined the impact, including the potential for an impairment charge in accordance with the Statements, on its financial position and results of operations.

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Debt

     The Critical Accounting Policy relating to Debt is discussed below in Liquidity and Capital Resources.

Results of Operations

     The following table sets forth for the period indicated certain historical income statement data derived from the consolidated statement of income of Holdings.

Fiscal 2002 Compared to Fiscal 2001

     Net Sales. Net sales for fiscal 2002 were $105.5 million compared to $118.9 million for fiscal 2001, a decrease of $13.4 million, or 11.3%. The decrease in net sales was primarily attributable to decreased sales of $12.5 million, or 10.5%, in Holdings’ primary footwear distribution business line, including decreases of approximately $9.0, or 7.6%, due to a decline in the general economic environment, which included plant closings and employee layoffs that affected Holdings’ customers. In addition, a decrease of approximately $1.6 million, or 1.4%, related to the loss of a large customer order that occurred in fiscal 2001 and did not occur in fiscal 2002. The decrease in fiscal 2002 was also attributable to a decrease of approximately $1.9 million, or 1.6%, in Holdings’ branded wholesale business line due to reduced sales to Holdings’ primary wholesale customer, Quality Stores, Inc., which filed for protection under Chapter 11 in fiscal 2002. The decrease in fiscal 2002 was also attributable to decreased sales to non-affiliated customers in Holdings’ manufacturing subsidiary of $0.6 million, or 0.5% of the decrease in net sales. In addition, $0.3 million, or 0.2%, of the decrease was due to decreased sales in Holdings’ vision products business line, which was sold in December 2001.

     Gross Profit. Gross profit for fiscal 2002 was $53.9 million compared to $61.7 million for fiscal 2001, a decrease of $7.8 million, or 12.6%. The decrease in gross profit was primarily related to the decrease in net sales as previously discussed. Total gross profit percentage decreased 0.8% to 51.1% in fiscal 2002 compared to fiscal 2001. The decrease in gross profit percentage was primarily related to a reduced gross profit percentage in Holdings’ manufacturing subsidiary, relating to reduced sales and the effect of fixed manufacturing costs in that subsidiary

     Selling, General and Administrative Expenses. Selling, general and administrative expenses for fiscal 2002 were $42.0 million compared to $43.4 million for fiscal 2001, a decrease of $1.4 million, or 3.2%, due primarily to the effect of employee related cost reductions, including salaries, wages and commissions, and decreases in advertising costs and bad debts. The decrease in selling, general and administrative expenses was partially offset by an increase of approximately $0.3 million or 0.7% in insurance costs, including various casualty and property coverages.

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     Loss on Divestiture. Loss on divestiture for fiscal 2002 was $1.9 million. The loss on divestiture relates to the sale of the vision products business line in December 2001 as discussed above. A provision for impairment of $1.8 million was established for the third quarter ended October 27, 2001 because Holdings had committed to a plan to sell the assets. The provision for impairment included goodwill and certain other intangible assets, including customer lists, that Holdings’ management deemed to be impaired.

     Operating Income. Operating income for fiscal 2002 was $3.8 million, or 3.6% of net sales, compared to $12.6 million, or 10.6% of net sales, for fiscal 2001. The decrease was primarily attributable to decreased net sales and the associated decrease in gross margins and the loss on divestiture, partially offset by decreased selling, general and administrative expenses as discussed above.

     Interest Expense. Interest expense for fiscal 2002 was $13.1 million compared to $15.4 million for fiscal 2001, a decrease of $2.3 million, or 14.9%. The decrease in interest expense was primarily attributable to decreased indebtedness of Holdings related to the repurchase of a portion of the Senior Subordinated Notes of Iron Age in the October 2000 Transaction and by decreased indebtedness and lower interest rates under the Bank Credit Facility. In addition, the decrease in interest expense relates to the favorable change of approximately $0.8 million in the fair market value of Holdings’ interest rate swap agreement due to decreases in interest rates for fiscal 2002. The interest rate swap agreement was terminated in October 2001.

     Income Tax Expense. Income tax expense for fiscal 2002 was a $1.4 million income tax benefit compared to income tax benefit of $0.2 million for fiscal 2001. Income tax benefit for fiscal 2002 differs from that of the statutory income tax rate due primarily to the nondeductibility of goodwill amortization. In addition, fiscal 2002 included a charge of approximately $1.0 million related to the recognition of a valuation allowance against the deferred tax benefit for state net operating loss carryforwards. At January 26, 2002, Iron Age had available state net operating loss carryforwards of approximately $10.4 million, which expire in various years beginning in 2002 through 2019. Iron Age reviewed the likelihood of utilizing the state net operating loss carryforwards and determined that it is currently more likely than not that the benefit will not be realized. Iron Age will continually monitor its state tax position and may determine in the future that some or all of the state net operating losses will be realizable. At that point, the valuation allowance will be reduced to reflect the net realizable amount which will result in an increase in net income.

     Extraordinary Item. For fiscal 2001, Holdings recorded an extraordinary gain of $2.3 million, net of a $1.7 million tax expense, due to the repurchase, at a discount, and subsequent retirement of a portion of the Senior Subordinated Notes in the October 2000 Transaction.

Fiscal 2001 Compared to Fiscal 2000

     Net Sales. Net sales for fiscal 2001 were $118.9 million compared to $120.4 million for fiscal 2000, a decrease of $1.5 million, or 1.2%. The decrease in fiscal 2001 was primarily attributable to decreased sales to non-affiliated customers in Holdings’ manufacturing subsidiary of $0.9 million, or 60.0% of the decrease in net sales. In addition, $0.5 million, or 33.3%, of the decrease was due to the sale of Holdings’ safety and medical products business line in fiscal 2000. The decrease in net sales was partially offset by increased sales of $0.3 million in Holdings’ vision products business line.

     Gross Profit. Gross profit for fiscal 2001 was $61.7 million compared to $60.8 million for fiscal 2000, an increase of $0.9 million, or 1.5%. Total gross profit percentage increased 1.4% to 51.9% in fiscal 2001 compared to fiscal 2000. Gross profit percentage increased in Holdings’ primary footwear distribution business line by 0.9% in fiscal 2001. The increase is generally attributed to improved gross profit margins in Holdings’ primary footwear distribution business, including sales to a large customer of higher gross profit margin safety footwear produced by Holdings’ manufacturing subsidiary. The increase in gross margin percentage was also attributable to a decrease in sales related to the lower gross profit margin safety and medical product business lines.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses for fiscal 2001 were $43.4 million compared to $41.5 million for fiscal 2000, an increase of $1.9 million, or 4.6%, related to the effect of general inflationary increases in operating expenses, including rising fuel prices that affected fleet

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operating costs and freight, bad debts, due primarily to the bankruptcy of Safety-Kleen Corp., a customer of Holdings, and the adverse effect of changes in foreign exchange rates.

     Operating Income. Operating income for fiscal 2001 was $12.6 million, or 10.6% of net sales, compared to $13.9 million, or 11.5% of net sales, for fiscal 2000. The decrease was primarily attributable to decreased net sales and increased selling, general and administrative expenses as discussed above.

     Interest Expense. Interest expense for fiscal 2001 was $15.4 million compared to $15.7 million for fiscal 2000, a decrease of $0.3 million, or 1.9%. The decrease in interest expense was primarily attributable to decreased indebtedness of Holdings related to the repurchase of a portion of the Senior Subordinated Notes in the July 1999 Transaction, the September 1999 Transaction and the October 2000 Transaction, partially offset by increased indebtedness under the New Credit Facility.

     Income Tax Expense. Income tax expense for fiscal 2001 was a $0.2 million income tax benefit compared to income tax expense of $0.2 million for fiscal 2000. Income tax benefit for fiscal 2001 differs from that of the statutory income tax rate due primarily to nondeductible goodwill amortization. Iron Age recognized a state income tax benefit of $1.1 million from net operating loss carryforwards for fiscal 1999, $0.2 million of which was offset against state income tax liabilities in fiscal 2001.

     Iron Age needs to generate $6.1 million of state taxable income to realize this benefit before expiration of the net operating loss carryforward periods, which begin in fiscal 2002 through fiscal 2019. Iron Age evaluates the adequacy of the valuation reserve and the realization of the deferred tax benefit on an ongoing basis. Management believes that future taxable income will more likely than not allow Iron Age to realize this benefit.

     Extraordinary Item. For fiscal 2001, Holdings recorded an extraordinary gain of $2.3 million, net of a $1.7 million tax expense, due to the repurchase, at a discount, and subsequent retirement of a portion of the Senior Subordinated Notes in the October 2000 Transaction. For fiscal 2000, Holdings recorded an extraordinary gain of $1.8 million, net of a $1.3 million tax expense, due to the repurchase, at a discount, and subsequent retirement of a portion of the Senior Subordinated Notes in the July 1999 Transaction and the September 1999 Transaction.

Liquidity and Capital Resources

Amendment to the Bank Credit Facility

     On December 10, 2001, the Bank Credit Facility was amended to (i) amend the definition of “Applicable Margin”; (ii) amend the definition of “EBITDA” and “Loan Value”, (iii) amend certain negative covenants, (iv) amend certain covenants relating to the “Leverage Ratio”, “Fixed Charge Coverage Ratio”, “Interest Coverage Ratio” and “Capital Expenditures” for fiscal 2002 and fiscal 2003 and add a “Senior Leverage Ratio” for fiscal 2003 and (v) waive the restriction of asset sales, in order to permit the sale of assets related to the optical business line.

Contractual Obligations and Commercial Commitments

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

     Net cash provided by operating activities was $9.3 million in fiscal 2002, as compared to net cash provided by operating activities of $6.1 million in fiscal 2001 and net cash provided by operating activities of $8.7 million in fiscal 2000. The increase in cash provided by operating activities in fiscal 2002 from fiscal 2001 is primarily the result of overall decreases in its working capital amounts.

     Holdings’ investing activities for fiscal 2002 consisted of capital expenditures of approximately $1.5 million for improvements in footwear retail stores, shoemobiles and equipment and approximately $1.1 million related to the acquisition of software for internal use (included in “Other noncurrent assets” on the Balance Sheet). Holdings’ investing activities for fiscal 2001 consisted of capital expenditures of approximately $1.9 million for improvements in footwear and vision retail stores, shoemobiles and equipment and expenditures of approximately $2.5 million related to the acquisition of software for internal use (included in “Other noncurrent assets” on the Balance Sheet).

     Holdings used approximately $6.0 million for financing activities in fiscal 2002, which primarily consisted of payments related to the Bank Credit Facility, including approximately $3.8 million in payment of the Acquisition Term Loan. Holdings used approximately $1.8 million for financing activities in fiscal 2001, which included payments of approximately $1.5 million related to the Bank Credit Facility, excluding the October 2000 Transaction. Holdings’ financing activities also included a borrowing of $7.1 million on the Bank Credit Facility in October 2000. The proceeds were used to pay for the repurchase of a portion of the Senior Subordinated Notes in the October 2000 Transaction. The remaining portion of the repurchase was provided by a $4.8 million aggregate equity contribution from Fenway II, an affiliate of Holdings’ majority stockholder, Fenway, for which Fenway II received Holdings Series C Preferred Stock. Holdings used approximately $6.0 million from financing activities in fiscal 2000, which consisted of payments of approximately $5.5 million related to the Bank Credit Facility, excluding the July 1999 Transaction and the September 1999 transaction. Holdings’ financing activities also included a borrowing of $5.1 million on the Bank Credit Facility in July 1999 and a borrowing of $4.7 million in September 1999. The proceeds were used to pay for the repurchase of a portion of the Senior Subordinated Notes in the July 1999 Transaction and the September 1999 Transaction. The remaining portion of the repurchase was provided by a $4.9 million aggregate equity contribution from Holdings’ majority stockholder, Fenway, for which Fenway received Holdings Series B Preferred Stock. In addition to the aforementioned transactions, during fiscal 2001, Fenway and Fenway II purchased a portion of the Discount Notes, which resulted in a $2.2 million tax liability to Holdings. This liability was funded by a capital contribution from Fenway and Fenway II.

     Holdings’ total working capital as of January 26, 2002 was $33.0 million. At January 27, 2001, working capital was $38.5 million. The primary reason for the decrease to working capital were decreases in certain working capital items, primarily accounts receivable and inventory and an increase in current maturities of long-term debt of the Bank Credit Facility.

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     Holdings is a holding company, and its ability to pay interest on the Discount Notes in the future is dependent upon the receipt of dividends from its subsidiaries. Holdings does not have, and may not in the future have, any significant assets other than the common stock of Iron Age (which is pledged to secure the obligations of Iron Age under the Bank Credit Facility). Iron Age is a party to the Bank Credit Facility and the indenture for the Senior Subordinated Notes, each of which imposes substantial restrictions on Iron Age’s ability to pay dividends to Holdings.

     Cash flow from operations for fiscal 2002 was sufficient to cover debt service requirements under the Bank Credit Facility. Holdings’ ability to make scheduled payments of principal, or to pay the interest or premium (if any) on, or to refinance, its indebtedness (including the Discount Notes), 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 Iron Age under the Bank Credit Facility, will be adequate to meet Holdings’ anticipated future requirements for working capital, budgeted capital expenditures and scheduled payments of principal and interest on its indebtedness through fiscal 2003. However, there can be no assurance that Holdings’ 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 Holdings to service its indebtedness, including the Discount Notes, or to make capital expenditures.

     As of January 26, 2002 Holdings’ debt consisted of the Discount Notes, the Senior Subordinated Notes, the Bank Credit Facility and certain other debt. As of January 26, 2002, the Bank Credit Facility, as amended, consisted of a $21.1 million Acquisition Term Loan and a $20.0 million Revolving Credit Facility consisting of revolving credit loans, letters of credit and swing line loans. Holdings’ other debt of $0.7 million consisted of capital leases and other notes. As of January 26, 2002, approximately $17.3 million of the Acquisition Term Loan and approximately $9.7 million of the Revolving Credit Facility were outstanding. Holdings has no additional borrowing availability under the Acquisition Term Loan and had approximately $10.3 million availability under the Revolving Credit Facility. The Acquisition Term Loan matures in quarterly installments from July 2001 until final payment in April 2004. The Revolving Credit Facility will mature in April 2004 and has no scheduled interim principal payments.

     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 Iron Age 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 26, 2002, none of Iron Age’s Domestic Restricted Subsidiaries was a Material Subsidiary, and therefore no Subsidiary Guaranty was in force or effect.

Debt Covenants

     Iron Age’s Bank Credit Facility, which is guaranteed by Holdings, requires Holdings to maintain certain financial ratios as discussed in Note 7 to Holdings’ consolidated financial statements. Holdings and the subsidiaries whose debt Holdings guarantees complied with these covenants as of January 26, 2002. If Holdings defaults on this debt, due to cross-default provisions in the indentures for the Senior Discount Notes and Senior Subordinated Notes, this debt would also be in default. Holdings’ ability to avoid a default will depend on an improvement in its results of operation in the fiscal year ending January 25, 2003. Expectations of future operating results and continued compliance with the debt covenants cannot be assured. If projections of future operating results are not achieved and waivers are not obtained and the debt is in default, Holdings could experience a material adverse impact on its reported financial position and results of operations.

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Recently Issued Accounting Standards

     Effective January 28, 2001, Holdings adopted Financial Accounting Standards Board (FASB) Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Based upon Holdings’ derivative position at January 27, 2001, Holdings recorded an asset of approximately $0.1 million representing the fair market value of its interest rate swap agreement and an offsetting premium on its fixed rate debt. Subsequent changes in the fair value of Holdings’ interest rate swap agreement were recognized immediately in earnings. The debt premium is being amortized to earnings over the life of the debt using the interest method. The interest rate swap agreement was terminated on October 19, 2001.

     In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

     Holdings will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of the 2003 fiscal year. Holdings will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 27, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of Holdings. Holdings has also not determined the effect that the nonamortization provisions of the Statement will have on net income each year after adoption.

     In August 2001, Statement of Financial Accounting Standards No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” was issued. This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supercedes FAS Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business (as previously defined in that Opinion). FAS 144 is effective for Holdings’ fiscal year ended January 25, 2003. Holdings is currently assessing, but has not yet determined, the impact of FAS 144 on its financial position and results of operations.

Inflation and Changing Prices

     Holdings’ 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 Holdings’ results of operations.

Forward Looking Statements

     When used in this Annual Report on Form 10-K, the words “believes”, “anticipates”, “expects” and similar expressions are used to identify forward looking statements. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Holdings wishes to caution readers that the following important factors in some cases have affected and in the future could affect Holdings’ actual results and could cause Holdings’ actual results to differ materially from those expressed in any forward looking statements made by Holdings: (i) economic conditions in the safety shoe market, (ii) availability of credit, (iii) increase in interest rates, (iv) cost of raw materials, (v) inability to maintain state-of-the-art manufacturing facilities, (vi) heightened competition, including intensification of price and service competition, the entry of new competitors and the introduction of new products by existing competitors, (vii) inability to capitalize on opportunities presented by industry consolidation, (viii) loss or retirement of key executives, (ix) loss or disruption of Holdings’ relationships with its major suppliers, including Holdings’ 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 7A. Quantitative and Qualitative Disclosures about Market Risk.

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

     The following discussion of Holdings’ 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 Holdings. 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 January 26, 2002, Holdings had fixed-rate debt totaling $110.9 million in principal amount and having a fair value of $33.8 million. These instruments bear interest at a fixed rate and, therefore, do not expose Holdings 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 $3.0 million if interest rates were to increase by 10% from their levels at January 26, 2002 (i.e., an increase from the weighted average interest rate of 10.8% to a weighted average interest rate of 11.9%). At January 27, 2001, Holdings had fixed-rate debt totaling $111.0 million in principal amount and having a fair value of $52.7 million, which would have decreased to $48.1 million had interest rates increased 10% from January 27, 2001 levels.

     At January 26, 2002, Holdings had variable-rate debt totaling $27.0 million in principal amount and having a fair value of $27.0 million. These borrowings are under the Bank Credit Facility (see “Notes to Consolidated Financial Statements-Note 7, Long-term debt”). If interest rates were to increase by 10% from their levels at January 26, 2002, Holdings would incur additional annual interest expense of approximately $0.1 million. At January 27, 2001, Holdings had variable-rate debt totaling $32.6 million in principal amount and having a fair value of $32.6 million. Holdings would have incurred additional interest expense of approximately $0.3 million had interest rates increased by 10% from their levels at January 27, 2001.

Foreign Exchange Rates

     A substantial majority of Holdings’ sales, expenses and cash flows are transacted in U.S. dollars. For the fiscal year ended January 26, 2002, sales denominated in currencies other than U.S. dollars (primarily Mexican peso and the Canadian dollar) totaled $6.3 million, or approximately 6.0% of total sales. Net loss denominated in currencies other than U.S. dollars was $0.4 million for the fiscal year ended January 26, 2002. An adverse change in exchange rates of 10% would have resulted in a decrease in sales of approximately $0.6 million and an increase in net loss of approximately $0.04 million for the fiscal year ended January 26, 2002. Holdings’ subsidiaries that operate in Mexico and Canada have certain accounts receivable and payable accounts in their home currencies which further mitigate the impact of foreign exchange rate changes. Holdings has no foreign currency exchange contracts.

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Item 8. Financial Statements and Supplementary Data.

Iron Age Holdings Corporation

Consolidated Financial Statements
 
Years ended January 26, 2002 and January 27, 2001

Contents

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REPORT OF INDEPENDENT AUDITORS

Board of Directors
Iron Age Holdings Corporation

We have audited the accompanying consolidated balance sheets of Iron Age Holdings Corporation (“Holdings”) as of January 26, 2002 and January 27, 2001, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years ended January 26, 2002, January 27, 2001 and January 29, 2000. Our audits also included the financial statement schedule listed in the index at Item 8. These financial statements and schedule are the responsibility of Holdings’ management. Our responsibility is to express an opinion on these financial statements and schedule based upon our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Iron Age Holdings Corporation at January 26, 2002 and January 27, 2001, and the consolidated results of its operations and its cash flows for the years ended January 26, 2002, January 27, 2001 and January 29, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the financial statements, in 2001 Holdings changed its method of accounting for derivative financial instruments to conform with the adoption of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.

Ernst & Young LLP

Pittsburgh, Pennsylvania
March 28, 2002

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Iron Age Holdings Corporation

Consolidated Balance Sheets

See accompanying notes.

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Iron Age Holdings Corporation

Consolidated Statements of Operations

See accompanying notes.

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Iron Age Holdings Corporation

Consolidated Statements of Stockholders’ (Deficit) Equity

See accompanying notes.

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Iron Age Holdings Corporation

Consolidated Statements of Cash Flows