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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

(Mark One)

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

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ______ to

Commission file number: 333-57011

Iron Age Corporation

Robinson Plaza Three, Suite 400, Pittsburgh, Pennsylvania 15205

(412) 787-4100

Not Applicable.

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes [  ]          No [  ] Not Applicable.

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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

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Iron Age Corporation

See accompanying notes.

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Iron Age Corporation

See accompanying notes.

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Iron Age Corporation

See accompanying notes.

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Iron Age Corporation

July 26, 2003
(Dollars in thousands)

1.     Accounting Policies

Basis of Presentation

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

Going Concern

The Company was not in compliance with the financial covenants under the Bank Credit Facility, including the Senior Debt Ratio and Fixed Charge Coverage Ratio (as defined in the Bank Credit Facility) for the first quarter ended April 26, 2003. As a result, during the first quarter, the Company requested that the senior lenders to the Bank Credit Facility (the “Lenders”) amend the financial covenants for the first quarter and every other quarter of the fiscal year ending January 31, 2004 to a level that considering the Company’s current operations and forecasts would make it probable that the Company would be in compliance with its Bank Credit Facility. On May 12, 2003, the Company and the Lenders entered into the First Amendment to Loan and Security Agreement and Limited Waiver (the “First Amendment”) to the Bank Credit Facility that allowed the Company to continue to operate under the existing requirements of the Bank Credit Facility through June 26, 2003. As required by the First Amendment, the Company retained a financial consultant and a financial advisor to advise the Company with respect to improving the financial condition of the Company and to consider alternative financing strategies. Through July 26, 2003, the Company has incurred approximately $0.6 million in consulting, accounting and legal services associated with its debt restructuring plan. On June 26, 2003, the Company and the Lenders agreed to an additional waiver allowing the Company to continue to operate under the Bank Credit Facility through October 31, 2003, subject to certain conditions. The Company incurred $0.5 million of waiver and forbearance fees that have been charged to interest expense for the second quarter ended July 26, 2003. One condition is for the Company to continue to maintain a minimum level of excess cash availability of $2.5 million, as agreed with the Lenders on May 29, 2003. As of September 5, 2003, the Company had excess cash availability of $3.9

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million. During the 120 day period through October 31, 2003, the Lenders have waived all other financial covenants. Further, by August 25, 2003, the Company was required to submit binding agreements and commitments regarding a series of transactions to reduce indebtedness and improve the financial condition of the Company, including the exchange of Senior Subordinated Notes for new securities and replacing the Bank Credit Facility with new senior indebtedness. If the Company did not submit these binding agreements and commitments, or if the Lenders did not reasonably approve the terms of the transactions described above, the Company would have seven business days to provide the Lenders with a debt restructuring plan for their approval. The Company did not submit such binding agreements and commitments to the Lenders on August 25, 2003. The Company, however, timely submitted a preliminary debt restructuring plan to the Lenders for their review and approval. Further, the Company has commenced discussions with the holders of its Senior Subordinated Notes (the “Note Holders”) with respect to its debt restructuring plan. As of September 9, 2003, negotiations continue with the Lenders and the Note Holders. The Company intends to finalize a debt restructuring plan prior to October 31, 2003, to significantly reduce the amount of the Company’s long-term indebtedness. The tax implications of the debt restructuring will be dependent on several factors including the terms and consideration of the debt restructuring and the financial position of the Company after the debt restructuring. If such debt restructuring plan is not approved by the Lenders, the waiver shall expire. Should the Company not be able to fulfill the conditions of the waiver or not be able to reach an agreement on an additional amendment to the Bank Credit Facility prior to the expiration of the waiver or not be able to obtain an additional waiver, the Company would be in default under the Bank Credit Facility and such default would also constitute an event of default under the terms of the Senior Subordinated Notes, which would have a material adverse impact on the Company’s reported financial position and results of its operations. The Company’s ability to continue as a going concern is largely dependent on its ability to maintain its existing financing arrangements to operate the business.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. However, as discussed above, the Company was not in compliance with certain financial covenants under the Bank Credit Facility at the end of the first quarter of the year ending January 31, 2004. On June 26, 2003, the Company received a waiver of all financial covenants through October 31, 2003 from the Lenders. The Company is continuing to negotiate a debt restructuring plan with the Lenders and the Note Holders. As a result, all of the Company’s long-term debt continue to be classified as current liabilities.

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

Stock-Based Compensation

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

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

2.     Inventories

Inventories consist of the following:

3.     Intangible Assets

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

In connection with the adoption of SFAS No. 142, the Company tested its goodwill for impairment, which required an assessment of whether there is an indication that goodwill is impaired as of the date of adoption, January 27, 2002. The Company identified two reporting units, distribution and manufacturing, and determined the carrying value of those units as of the date of adoption. Only the distribution reporting unit had related goodwill. The Company assessed the fair value of the distribution reporting unit and compared it to the reporting unit’s carrying amount, as computed in Step 1 of the evaluation. The fair value of the distribution reporting unit in Step 1 of the evaluation was determined using a 5-year discounted cash flow model. Key assumptions included management’s estimates of future profitability, capital requirements, a discount rate of 14.6% and a

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

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

4.     Comprehensive Loss

5.     Financial Information for Subsidiary Guarantors

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

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Iron Age Corporation
Summarized Financial Information
Balance Sheets

July 26, 2003
(In thousands)

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Iron Age Corporation
Summarized Financial Information
Statements of Operations

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

Iron Age Corporation
Summarized Financial Information
Statements of Operations

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

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Iron Age Corporation
Summarized Financial Information
Condensed Statement of Cash Flows

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

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Iron Age Corporation
Summarized Financial Information
Balance Sheets

January 25, 2003
(In thousands)