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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
x		Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended: January 25, 2003   OR
o		Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from: _________ to ________

Commission file number:  333-57009

Iron Age Holdings Corporation

Robinson Plaza Three, Suite 400, Pittsburgh, Pennsylvania 15205

(412) 787-4100

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  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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

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

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  o   No  o   Not Applicable.

Applicable only to corporate registrants: As of May 12, 2003, Iron Age Holdings Corporation had 99,991.94 shares of Common Stock issued and outstanding.

Documents incorporated by reference: None

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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 82% of fiscal 2003 sales. In addition, the Company also offered safety, work and uniform shoes under other third-party consumer brands, primarily Timberland® and Dr. Martens™, which comprised 16% of sales in fiscal 2003. 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 primarily under the Iron Age, Knapp, Grabber, Timberland and Dr. Martens 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 “Previous Bank Credit Facility”) that, as amended, provided for a $41.1 million senior secured credit facility consisting of a $20.0 million revolving working capital facility (the “Previous Revolving Credit Facility”) and a $21.1 million acquisition term loan (the “Acquisition Term Loan”). Holdings used excess cash and net proceeds from the Discount Notes, the Senior Subordinated Notes and the Previous 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.”

     On September 23, 2002, Holdings, Iron Age and Falcon, entered into a $50.0 million Loan and Security Agreement (the “Bank Credit Facility”) with a financial institution and another lender. The Bank Credit Facility consists of a $38.0 million 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. At closing, Holdings 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. The transactions described in this paragraph are collectively referred to herein as the “September 2002 Transactions.”

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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 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. During the past 24 months, the industrial sector has been adversely affected by the general economic downturn in the United States and Canada, resulting in significant reductions in the industrial work force that require safety shoes.

     Government sales, which include armed forces, penal institutions, federal, state, and local municipal employees or civilian employees, are made to two primary purchasers: Government Services Administration(“GSA”) 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 the past 24 months, the Company’s customer base was significantly affected by the general economic downturn, which included plant

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closings and employee layoffs. From the US Department of Labor, according to the Bureau of Labor Statistics on Laborers, total unemployment continues to approximate 6%. Further, unemployment in the Durable Goods Manufacturing sector remains at approximately 7% in February 2003. The continued economic downturn has 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.

     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 Black Diamond, Wearguard Work Clothes and Cabela’s Inc.

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 $222.00 leather fire retardant boot. The Company’s safety footwear is manufactured in more than 300 length and width combinations, ranging in sizes from 5 to 17. 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

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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. Approximately 89% of Falcon’s net sales are to the Company. In addition, the Company sells work shoes manufactured at the Falcon facility directly to third parties, including Black Diamond, Wearguard Work Clothes and Cabela’s Inc. Falcon manufactures approximately 19% of total pairs of shoes sold by Holdings.

     Outside Suppliers. As a result of its market leadership position and long operating history, the Company has developed key supply arrangements with 35 leading footwear manufacturers in twelve countries: the United States, China, Italy, Canada, Maylasia, Dominican Republic, United Kingdom, Thailand, Vietnam, Myanmar, Macao and the Netherlands. Although in fiscal 2003 one supplier in China manufactured approximately 27% 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 2003, 68% of its total pairs sold were produced by foreign suppliers, with 61% 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 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 Safety Shoe, Inc., Hy-Test (a subsidiary of Wolverine World Wide, Inc.) and Red Wing Shoe Co. According to the SATRA-World Safety Market Overview and the Occupational Safety &Industrial Hygiene Market reports, annual sales in the safety footwear market are more than $800 million. The Company sells in the $350 million industrial sector of the safety footwear market. The Company’s market share of the industrial sector is believed to be approximately 28%.

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.

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Employees

     As of January 25, 2003, Iron Age employed 754 people in sales and distribution, manufacturing and administration. None of Iron Age’s employees is presently covered by collective bargaining agreements. Management considers its employee relations to be good.

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 25, 2003, the principal properties utilized by the Company.

(1)  Square footage has been rounded up to the nearest 500 square feet.

Item 3.  Legal Proceedings.

     Iron Age is a party to various legal actions arising in the ordinary course of its business. Iron Age believes that the resolution of these legal actions will not have a material adverse effect on Iron Age’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 May 12, 2003, 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 May 12, 2003, 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 JPMorgan Chase Bank, as trustee (the “Indenture”).

Item 6.  Selected Financial Data.

     The following table sets forth selected historical consolidated financial data of Holdings for the five-year period ended January 25, 2003 which were derived from audited consolidated financial statements of Holdings. 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 25, 2003 (“fiscal 2003”), January 26, 2002 (“fiscal 2002”) and January 27, 2001 (“fiscal 2001”). 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 82% of fiscal 2003 sales. In addition, Holdings also offered other consumer brands, primarily Timberland and Dr. Martens, which comprised 16% of sales in fiscal 2003. Holdings also distributes footwear directly to retail and wholesale customers through its wholesale division and its manufacturing subsidiary Falcon. Approximately 89% of Falcon’s net sales are to Holdings. Further, Falcon manufactures approximately 19% 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 4.8% in fiscal 2003. The decrease in net sales was due primarily to the continued decline in the general economic environment, which included plant closings and employee layoffs by Holdings’ customers.

Certain Transactions

     On November 27, 2002, Holdings purchased $3.205 million in face value of its Discount Notes for $0.617 million. The purchase was funded by borrowings of Iron Age under the Bank Credit Facility, which were loaned to Holdings pursuant to the promissory note between Holdings and Iron Age. Holdings recorded an extraordinary gain of approximately $1.96 million, net of unamortized deferred financing costs and expenses of $0.07 million and income taxes of $0.41 million. Following the purchase, such principal amount of the Discount Notes were retired. The transaction described in this paragraph is referred to as the “November 2002 Transaction.”

     On October 11, 2002, Holdings purchased $6.801 million in face value of its Discount Notes for $1.037 million. The purchase was funded by borrowings under the Bank Credit Facility, which were loaned to Holdings pursuant to the promissory note between Holdings and Iron Age. Holdings recorded an extraordinary gain of $4.33 million, net of unamortized deferred financing costs of $0.14 million and income taxes of $0.85 million. Following the purchase, such principal amount of the Discount Notes was retired. The transaction described in this paragraph is referred to as the “October 2002 Transaction.”

     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 October 20, 2000, Holdings purchased $16.4 million in principal amount of Iron Age’s 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.”

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     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 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.

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 5% of total delinquent receivables to approximately 16% 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 these products have replaced previous styles in the Holdings’ product offerings. Further, Holdings continuously reviews its inventory levels and consumption rates, by style, and adjusts its purchase of new merchandise as necessary. Holdings routinely reviews the on-hand merchandise to identify slowdowns in particular products and follows up with sales promotions to sell that specific footwear, primarily through “rack rooms” in its retail stores.

Income Taxes-Valuation Allowance

     Holdings calculates income taxes in accordance with Statement on Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the tax rates in effect in the years when those temporary differences are expected to reverse. Holdings has generated foreign and state operating loss carryforwards. Management has determined that it is currently more likely than not that the benefit will not be realized and has established a valuation allowance against these assets. The utilization of the remaining net deferred tax asset is dependent on the execution of certain tax planning strategies. Holdings has continuously implemented these tax planning strategies and plans to implement these strategies in the future. Holdings will continue to evaluate the need for a valuation allowance on a quarterly basis.

Goodwill Impairment

     In fiscal 2003, Holdings adopted the new standard of accounting for goodwill and intangible assets with indefinite lives. The cumulative effect adjustment recognized on January 27, 2002, upon adoption of the new standard, was a charge of approximately $77.5 million, net of tax effect of approximately $1.7 million. Also, in fiscal 2003, Holdings ceased amortizing itsgoodwill. Total amortization expense recognized for the fiscal years

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ended January 25, 2003, January 26, 2002 and January 27, 2001 was approximately $2.2 million, $4.3 million and $4.0 million, respectively. Holdings 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. Holdings assessed the fair value of the distribution reporting unit and compared it to the reporting unit’s carrying amount. The fair value of the distribution reporting unit 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%. However, actual fair values that could be realized in an actual transaction may differ from those used to evaluate the impairment of goodwill.

Asset Impairment

     Holdings is required to test for asset impairment whenever events or changes in circumstances indicate that the carrying value of an asset might not be recoverable. Holdings applies SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in order to determine whether or not an asset is impaired. Management evaluates the ongoing value of assets associated with retail stores that have been open longer than one year. When undiscounted cash flows estimated to be generated by those assets are less than the carrying value of those assets, impairment losses are recorded. When events such as these occur, the impaired assets are adjusted to estimated fair value and an impairment loss is recorded in selling, general and administrative expenses. Should actual results or market conditions differ from those anticipated, additional losses may be recorded.

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 2003 Compared to Fiscal 2002

     Net Sales. Net sales for fiscal 2003 were $100.4 million compared to $105.5 million for fiscal 2002, a decrease of $5.1 million, or 4.8%. The decrease in net sales was attributable to a decrease of $3.4 million, or 3.3%, in Holdings’ primary footwear distribution business line, primarily related to (a) a decrease of $2.0 million, or 11.4%, in Holdings’ industrial direct business line, from customers who purchase directly from Holdings’ distribution center, as a result of decreases in purchases by several large customers, reflecting a continued softness in the general economic environment, (b) a decrease of $0.5 million, or 0.6%, in Holdings’ retail business line, from customers who purchase from Holdings’ retail stores and shoemobiles, reflecting a decline in the general economic environment, including plant closings and employee layoffs that affected Holdings’ customers, (c) a decrease in Holdings’ direct mail business line of $0.4 million, or 7.3%, related to the general condition of the economy and (d) a decrease of $0.4 million, or 7.8% of the overall decrease in net sales, in Holdings’ branded wholesale business line, as there were no sales to Holdings’ primary wholesale customer in fiscal 2003, due to the bankruptcy of that

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customer in October 2001. In addition, sales decreased by $0.5 million, or 25.9% in Holdings’ manufacturing subsidiary, due to decreased sales to its external customers. Also, for fiscal 2003, there were no sales relating to Holdings’ vision products business line, which was sold in December 2001, compared to $1.2 million in net sales for fiscal 2002, or 23.5% of the overall decrease in net sales.

     Gross Profit. Gross profit for fiscal 2003 was $50.8 million compared to $53.9 million for fiscal 2002, a decrease of $3.1 million, or 5.8%. The decrease in gross profit was primarily related to the decrease in net sales as discussed above. As a percentage of net sales, gross profit for fiscal 2003 decreased to 50.5%, a decrease of 0.6% from fiscal 2002. Gross profit percentage decreased in Holdings’ primary footwear distribution line by 1.4% for fiscal 2003, due primarily to general changes in product mix and the impact of competitive pricing strategies. The decrease in gross profit percentage was partially offset by a 5.0% increase in gross profit percentage in Holdings’ manufacturing subsidiary, primarily due to a higher volume in net sales.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses for fiscal 2003 were $41.2 million compared to $42.0 million for fiscal 2002, a decrease of $0.8 million, or 1.9%. The decrease was due primarily to the effect of employee related cost reductions, including salaries and wages, decreases in advertising costs and telephone expenses of approximately $1.5 million. The decrease was partially offset by increases in professional fees of $0.5 million, related to legal, accounting and consulting services and executive recruitment fees. In addition, the decrease was partially offset by increases of approximately $0.3 million in insurance costs related to more expensive insurance markets.

     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.

     Operating Income. Operating income for fiscal 2003 was $5.7 million, or 5.7% of net sales, compared to $3.8 million, or 3.6% of net sales, for fiscal 2002. The increase in operating income is the result of the decrease in gross profit, offset by decreases in selling, general and administrative expenses as discussed above, the loss on divestiture that occurred in fiscal 2002 as discussed above and a decrease of $2.3 million of goodwill amortization, as Holdings did not amortize goodwill in fiscal 2003 in conjunction with its adoption of SFAS No. 142, “Goodwill and Other Intangible Assets”.

     Interest Expense. Interest expense for fiscal 2003 was $14.0 million compared to $13.1 million for fiscal 2002, an increase of $0.9 million, or 6.9%. For fiscal 2002, interest expense was favorably impacted by an increase of approximately $0.8 million in the fair market value of Holdings’ interest rate swap agreement due to decreases in interest rates. The interest rate swap agreement was terminated in October 2001. Excluding the favorable impact of the interest rate swap agreement in fiscal 2002, interest expense for fiscal 2003 increased due to the effect of an increase in interest expense of approximately $0.2 million related to the Discount Notes, partially offset by lower interest rates and decreased indebtedness relating to the Previous Bank Credit Facility.

     Income Tax Expense. Income taxes for fiscal 2003 was a $1.8 million income tax benefit compared to an income tax benefit of $1.4 million for fiscal 2002. Income tax benefit for fiscal 2003 differs from that of the statutory income tax rate due primarily to the nondeductibility of goodwill amortization. Upon adoption of SFAS No. 142, Holdings recorded no goodwill amortization for fiscal 2003. During fiscal 2003, Holdings increased its valuation allowance related to the deferred tax benefit for foreign and state net operating loss carryforwards by $0.8 million. In addition, fiscal 2002 included a charge of approximately $1.2 million related to the recognition of a valuation allowance against the deferred tax benefit for foreign and state net operating loss carryforwards.

     At January 25, 2003, Holdings had available foreign and state net operating loss carryforwards of approximately $1.0 million and $15.3 million, respectively, which expire in various years through 2020. Holdings reviewed the likelihood of utilizing the foreign and state net operating loss carryforwards and determined that it is currently more likely than not that the benefit will not be realized. Holdings will continually monitor its foreign and state tax position and may determine in the future that some or all of the 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.

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     Holdings has recognized a net deferred tax asset of $1.2 million. The utilization of the net deferred tax asset is dependent on the execution of certain tax planning strategies. Holdings has continuously implemented these tax planning strategies and plans to implement these strategies in the future. As of January 25, 2003, Holdings would need to recognize approximately $3.7 million in taxable income to utilize the net deferred tax asset.

     Cumulative Effect of Change in Accounting Principle. For fiscal 2003, Holdings adopted SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. In connection with the adoption of SFAS No. 142, Holdings 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. Management, using an independent valuation firm, determined that all of Holdings’ goodwill was impaired at January 27, 2002. Holdings 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 fiscal 2003.

     Extraordinary Item. For fiscal 2003, Holdings recorded an extraordinary gain of $6.3 million, net of a $1.3 million tax expense, due to the repurchase, at a discount, and subsequent retirement of a portion of the Discount Notes in the October 2002 Transaction and November 2002 Transaction. In addition, Holdings recorded an extraordinary loss of approximately $0.2 million, net of tax effect of $0.14 million, related to the write-off of unamortized debt issue costs for the Previous Bank Credit Facility which was refinanced in September 2002.

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%, in Holdings’ industrial business line, due to a decline in the general economic environment, which included plant closings and employee layoffs that affected Holdings’ customers. Included in the decrease in net sales in Holdings’ industrial business line was 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.

     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.

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     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 in the October 2000 Transaction and by decreased indebtedness and lower interest rates under the Previous 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, Holdings had available state net operating loss carryforwards of approximately $10.4 million, which expire in various years beginning in 2002 through 2019. Holdings 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. Holdings 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.

Liquidity and Capital Resources

Contractual Obligations and Commercial Commitments

     Holdings’ primary cash needs are working capital, capital expenditures and debt service. Holdings has financed

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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 $1.6 million in fiscal 2003, as compared to net cash provided by operating activities of $9.3 million in fiscal 2002 and net cash provided by operating activities of $6.1 million in fiscal 2001. The decrease in cash provided by operating activities was primarily related to changes in operating assets and liabilities, particularly increases in accounts receivable and decreases in accounts payable. The change in accounts receivable relates to the impact of new orders from a large customer in fiscal 2003 as well as collection activity in fiscal 2003 that paralleled the decline in sales volume. The change in accounts payable reflects a reduced level of product purchases and the timing of payments to certain key vendors.

     Holdings’ investing activities for fiscal 2003 consisted of capital expenditures of approximately $2.9 million for improvements in footwear retail stores, shoemobiles and equipment and approximately $0.3 million related to the acquisition of software for internal use (included in “Property and equipment” on the Balance Sheet). 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 expenditures of approximately $1.1 million related to the acquisition of software for internal use (included in “Property and equipment” on the Balance Sheet).

     Holdings’ financing activities for fiscal 2003, primarily under the Bank Credit Facility and the Previous Bank Credit Facility, were net borrowings of approximately $1.2 million. Financing activities included the scheduled principal payments of approximately $0.3 million on the Bank Credit Facility and $4.6 million on the Previous Bank Credit Facility and $2.3 million of financing costs related to the refinancing of the Previous Bank Credit Facility. Holdings used approximately $6.0 million for financing activities in fiscal 2002, which primarily consisted of payments related to the Previous 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 Previous Bank Credit Facility, excluding the October 2000 Transaction. Holdings’ financing activities also included a borrowing of $7.1 million on the Previous 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, for which Fenway II received Holdings Series C 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 to Holdings from Fenway and Fenway II.

     Holdings’ total working capital as of January 25, 2003 was $22.3 million. At January 26, 2002, working capital was $33.0 million. The decrease in working capital is primarily related to the classification of the revolving credit facility as current in accordance with SFAS No. 6, Classification of Short Term Obligations Expected to be Refinanced.

     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 2003 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, will not 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 2004 and that the terms of the Bank Credit Facility should be amended to provide sufficient borrowing capacity to allow Holdings to meet its anticipated future requirements for working capital, budgeted capital expenditures and scheduled payments of principal and interest on its indebtedness through fiscal 2004. As a result, 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.

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     As of January 25, 2003, Holdings’ debt consisted of the Discount Notes, the Senior Subordinated Notes, the Bank Credit Facility and certain other debt. The Bank Credit Facility consists of a $38.0 million 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 $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. Holdings’ other debt of $1.0 million consists of capital leases. As of January 25, 2003, approximately $16.1 million of the Revolving Credit Facility was outstanding. In addition, outstanding balances as of January 25, 2003, for Term Loan A, Term Loan B and Term Loan C were approximately $0.9 million, $2.8 million and $12.1 million, respectively. Holdings has borrowing availability of approximately $5.0 million under the Revolving Credit Facility as of January 25, 2003. Term Loan A and Term Loan B mature in monthly installments from October 2002 until final payment in September 2007. The Revolving Credit Facility and Term Loan C will mature in September 2007 and have 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 25, 2003, Iron Age Investment Company, one of Iron Age’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 January 25, 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

     On September 23, 2002, Holdings, Iron Age and Falcon, entered into the Bank Credit Facility with a financial institution and another lender. The Bank Credit Facility consists of 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 January 25, 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 $2.1 million and $14.0 million, respectively. As of January 25, 2003, borrowings of approximately $0.9 million for Term Loan A are at prime rate plus a margin of 1.50%. As of January 25, 2003, borrowings on Term Loan B at prime rate plus a margin of 3.25% and LIBOR plus a margin of 5.50% are approximately $0.3 million and $2.5 million, respectively. The interest rate for Term Loan C is 13.25%, including 2.00% paid-in-kind. As of January 25, 2003, outstanding borrowings For Term Loan C, including paid-in-kind interest, approximate $12.1 million. Holdings pays a 0.375% commitment fee on the undrawn amounts of the Revolving Credit Facility. Holdings pays a 2.00% letter of credit fee on any outstanding Letters of Credit.

     At closing, Holdings 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

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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, Holdings 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.

     Holdings incurred approximately $2.1 million in capitalizable debt issuance costs in connection with the Bank Credit Facility which are being amortized over its term.

     Although the Bank Credit Facility expires on September 23, 2007, the Revolving Credit Facility has been classified as current in accordance with SFAS No. 6, Classification of Short Term Obligations Expected to be Refinanced.

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 25, 2003. The Bank Credit Facility also limits Holdings’ ability to incur additional indebtedness, restricting the amount of capital expenditures that may be incurred, and limiting transaction with affiliates. The Bank Credit Facility also limits Holdings’ 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 Holdings’ assets. Holdings’ domestic and Canadian subsidiaries are required to guarantee its obligations under the Bank Credit Facility. If Holdings defaults on this debt, due to cross-default provisions in the indentures for the Discount Notes and Senior Subordinated Notes, this debt would also be in default.

     Holdings and the subsidiaries whose debt Holdings guarantees complied with all debt covenants as of January 25, 2003. Historically, Holdings has not met its debt covenants and has had to amend its credit agreements or receive waivers from its lending institutions. During a review of anticipated net income and cash flows for the first quarter of the year ending January 31, 2004, management has determined that, more likely than not, Holdings will not be 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). As a result, Holdings has requested that the senior lenders to the Bank Credit Facility amend the financial covenants for the first quarter and every other quarter of the year ending January 31, 2004 to a level that considering Holdings’ current operations and forecasts would make it probable that Holdings will be in compliance with its Bank Credit Facility. Holdings was not in compliance with its financial covenants for the first quarter ending April 26, 2003. Effective May 12, 2003, all of Holdings’ long-term debt and debt payable to majority stockholder having been classified as current liabilities. As of May 12, 2003, Holdings and the senior lenders have not finalized negotiations of an amendment to the Bank Credit Facility with respect to the covenants of the second, third and fourth quarter for the year ending January 31, 2004. Holdings and the senior lenders under the Bank Credit Facility have entered into the First Amendment to Loan and Security Agreement and Limited Waiver (the “First Amendment”) to the Bank Credit Facility that will allow Holdings to continue to operate under the existing requirements of the Bank Credit Facility, for an additional 45 days through June 25, 2003, with certain modifications relating to excess cash availability, and will allow Holdings and the lenders under the Bank Credit Facility to continue to negotiate financial covenants for the year ending January 31, 2004. During the 45-day period of the First Amendment, Holdings is required to maintain excess cash availability of at least $3.0 million. As of May 12, 2003, Holdings’ cash availability was $3.3 million. Should Holdings and its senior lenders not be able to reach an agreement on an additional amendment to the Bank Credit Facility prior to the expiration of the First Amendment or not be able to obtain an additional waiver, Holdings would be in default under the Bank Credit Facility and such default would also constitute an event of default under the terms of the Discount Notes and the Senior Subordinated Notes, which would have a material adverse impact on its reported financial position and results of its operations. Holdings plans to continue to negotiate with its senior lenders to amend the Bank Credit Facility during the next 45 days to amend the financial covenants to levels for the year ending January 31, 2004 that more closely correspond to Holdings’ current operations. Holdings’ 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

     In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). A variable interest entity (“VIE”) is one where the contractual or ownership interests in an entity change with changes in the entity’s net asset value. This interpretation requires the consolidation of a VIE by the primary beneficiary, and also requires disclosure about VIEs where an enterprise has a significant variable interest but is not the primary beneficiary. At the effective date, Holdings has not entered into any VIEs.

     In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others” (“FIN 45”). This interpretation changes the accounting recognition and disclosure requirements for certain guarantees issued on behalf of other parties which represent either a contingent or a non-contingent obligation for the guarantor to make payments or to perform specified activities. Effective January 1, 2003, FIN 45 mandates the separate fair value recognition of guarantees entered into on or after that date. At January 25, 2003, Holdings has no material guarantees as defined in FIN 45.

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the

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capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. This standard is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. Holdings is currently evaluating the provisions of SFAS No. 143, but does not believe that SFAS No. 143 will have a material impact on its financial statements.

     SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The principal differences between SFAS No. 146 and Issue 94-3 relates to No. SFAS 146’s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. A fundamental conclusion reached by the FASB in SFAS No. 146 is that an entity’s commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, SFAS No. 146 eliminates the definition and requirements for recognition of exit costs in Issue 94-3. This Statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Holdngs adopted SFAS No. 146 on January 1, 2003. Subsequent to the adoption, SFAS No. 146 may affect the periods in which costs are recognized for workforce reductions of facility closures, although the ultimate amount of costs recognized would be the same.

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 and terms of credit and debt arrangements, (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 25, 2003, Holdings had fixed-rate debt totaling $113.2 million in principal amount and having a fair value of $47.4 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 $4.7 million if interest rates were to increase by 10% from their levels at January 25, 2003 (i.e., an increase from the weighted average interest rate of 10.9% to a weighted average interest rate of 12.0%). 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, which would have decreased to $30.8 million had interest rates increased 10% from January 26, 2002 levels.

     At January 25, 2003, Holdings had variable-rate debt totaling $19.8 million in principal amount and having a fair value of $19.8 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 25, 2003, Holdings would incur additional annual interest expense of approximately $0.1 million. 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. Holdings would have incurred additional interest expense of approximately $0.1 million had interest rates increased by 10% from their levels at January 26, 2002.

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 25, 2003, sales denominated in currencies other than U.S. dollars (primarily Mexican peso and the Canadian dollar) totaled $6.2 million, or approximately 6.1% of total sales. Net losses incurred at Holdings’ subsidiaries that operate in Mexico and Canada were $1.6 million for the fiscal year ended January 25, 2003. 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 $0.2 million for the fiscal year ended January 25, 2003. 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 25, 2003 and January 26, 2002

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 25, 2003 and January 26, 2002, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years ended January 25, 2003, January 26, 2002 and January 27, 2001. 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 25, 2003 and January 26, 2002, and the consolidated results of its operations and its cash flows for the years ended January 25, 2003, January 26, 2002 and January 27, 2001, 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.

The accompanying financial statements have been prepared assuming that Holdings will continue as a going concern. As more fully described in Note 1, Holdings has incurred recurring operating losses and there is uncertainty regarding Holdings’ ability to meet the debt covenants of its credit facilities with banks. These conditions raise substantial doubt about Holdings’ ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

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.

As discussed in Note 6 to the financial statements, in 2003 Holdings changed its method of accounting for goodwill and other intangible assets to conform with the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Ernst & Young LLP

Pittsburgh, Pennsylvania
March 28, 2003, except for
certain matters discussed in
Note 1, as to which the date is May 12, 2003

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Iron Age Holdings Corporation

Consolidated Balance Sheets

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Table of Contents

Iron Age Holdings Corporation

Consolidated Statements of Operations

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Iron Age Holdings Corporation

Consolidated Statements of Stockholders’ (Deficit) Equity

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Iron Age Holdings Corporation

Consolidated Statements of Cash Flows