##### Table of Contents



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
|           |  |                                                                                                                                   
|          
|          
|          
|          
|[ ]        |  | 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

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(Exact name of registrant as specified in its charter)


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

Robinson Plaza Three, Suite 400, Pittsburgh, Pennsylvania 15205

(Address of principal executive offices)


(412) 787-4100

(Registrants telephone number, including area code)


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


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
   NoX


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:) On May 12, 2003, all of the voting
stock of Iron Age Corporation was held by Iron Age Holdings Corporation
(Holdings), a Delaware corporation.

As of May 12, 2003, Iron Age Corporation had 1,000 shares of Common Stock issued
and outstanding.

Documents incorporated by reference: None





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TABLE OF CONTENTS



|                                  |                                                                                                |  |  |  |  |  |  | 
|--------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I                           
|                                  | Item 1. Business                                                                              
|                                  | Item 2. Properties.                                                                           
|                                  | Item 3. Legal Proceedings.                                                                    
|                                  | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|Part II                          
|                                  | Item 5. Market for Registrants Common Equity and Related Stockholder Matters.                
|                                  | Item 6. Selected Financial Data.                                                              
|                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                  | Item 7A. Quantitative and Qualitative Disclosures about Market Risk.                          
|                                  | Item 8. Financial Statements and Supplementary Data.                                          
|                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
|Part III                         
|                                  | Item 10. Directors and Executive Officers of the Registrant.                                  
|                                  | Item 11. Executive Compensation.                                                              
|                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management.                      
|                                  | Item 13. Certain Relationships and Related Transactions.                                      
|                                  | Item 14. Controls and Procedures.                                                             
|Part IV                          
|                                  | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                    
|Management Incentive Plan        
|Manadement Incentive Plan        
|Manadement Incentive Plan        
|Supplemental Indenture           
|Amendment to Loan Agreement      
|Amendment to Consulting Agreement
|CEO Certification                
|CFO Certification                



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##### Table of Contents



FORM 10-K INDEX

|         |          |                                     |                                                                  |  |    |    |      |  | 
|-------- | -------- | ----------------------------------- | ---------------------------------------------------------------- |  | -- | -- | ---- |  | 
|         |          |                                     |                                                                  |  |    |    | Page
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|Part I   |          |                                     |                                                                  |  |    |    | 3    | 
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|         | Item 2.  |                                     | Properties                                                       |  |    | 7  |     
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|         | Item 3.  |                                     | Legal Proceedings                                                |  |    | 7  |     
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|         | Item 4.  |                                     | Submission of Matters to a Vote of Security Holders              |  |    | 7  |     
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|Part II  |          |                                     |                                                                  |  |    |    | 8    | 
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|         | Item 5.  |                                     | Market for Registrant's Common Equity                            |  |    |    |     
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|         |          | and Related Stockholder Matters     |                                                                  |  | 8  |   
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|         | Item 6.  |                                     | Selected Financial Data                                          |  |    | 8  |     
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|         | Item 7.  |                                     | Management's Discussion and Analysis of Financial                |  |    |    |     
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|         |          | Condition and Results of Operations |                                                                  |  | 10 |   
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|         | Item 7A. |                                     | Quantitative and Qualitative Disclosures about Market Risk       |  |    | 20 |     
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|         | Item 8.  |                                     | Financial Statements and Supplementary Data                      |  |    | 21 |     
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|         | Item 9.  |                                     | Changes in and Disagreements with Accountants on Accounting and  |  |    |    |     
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|         |          | Financial Disclosure                |                                                                  |  | 53 |   
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|Part III |          |                                     |                                                                  |  |    |    | 54   | 
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|         | Item 10. |                                     | Directors and Executive Officers of the Registrant               |  |    | 54 |     
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|         | Item 11. |                                     | Executive Compensation                                           |  |    | 56 |     
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|         | Item 12. |                                     | Security Ownership of Certain Beneficial Owners and Management   |  |    | 61 |     
|        
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|         | Item 13. |                                     | Certain Relationships and Related Transactions                   |  |    | 64 |     
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|         | Item 14. |                                     | Controls and Procedures                                          |  |    | 66 |     
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|         |          |                                     |                                                                  |  |    |    |      | 
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|Part IV  |          |                                     |                                                                  |  |    |    | 67   | 
|        
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|         | Item 15. |                                     | Exhibits, Financial Statement Schedules, and Reports on Form 8-K |  |    | 67 |     

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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##### Table of Contents






Part I




Item 1. Business

Iron Age Corporation (the Company or 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 related 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 under the Iron Age, Knapp and 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, most 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

The Company, a wholly-owned subsidiary of Iron Age Holdings Corporation (Holdings), 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 the Company entered into a syndicated senior
bank loan facility (the Old Credit Facility), (ii) the Company 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) the Company 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 the Company 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 facility (the Acquisition Term Loan). Holdings and the Company 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 product 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 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
increased the categories and types of footwear offered. As the safety shoe market has diversified, the Company
has

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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 the Company.

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 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, 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 stricter 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, the Company employed 754 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.




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.

|                              |  |           |  |                          |  |            |         | 
|----------------------------- |  | --------- |  | ------------------------ |  | ---------- | ------- | 
|                              |  |           |  |                          |  | Square    
|Facility                      |  | Own/Lease |  | Location                 |  | Footage(1)
|                              |  |           |  |                          |  |           
|Corporate Headquarters        |  | Lease     |  | Pittsburgh, Pennsylvania |  |            | 20,000  | 
|                             
|                             
|                             
|                             
|Distribution Facility         |  | Own       |  | Penn Yan, New York       |  |            | 175,000 | 
|                             
|                             
|                             
|                             
|Falcon Manufacturing Facility |  | Lease     |  | Lewiston, Maine          |  |            | 120,000 | 

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




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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##### Table of Contents






Part II




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

As of May 12, 2003, the Company had 1,000 authorized shares of common stock, par value $1.00, all of
which were issued and outstanding and held by Holdings. There is no established public trading market for the
Companys common stock. The Companys ability to pay dividends is limited under an indenture dated as of April
24, 1998 between the Company and JPMorgan Chase Bank, as trustee (the Indenture).




Item 6. Selected Financial Data.

The following table sets forth selected historical consolidated financial data of the Company for the
five-year period ended January 25, 2003, which was derived from audited consolidated financial statements of the
Company. The following table should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and consolidated financial statements of the Company and
accompanying notes thereto included in Item 8 of this Annual Report on Form 10-K.

|                                                                                                 |  |                        |         |             |  |             |         |             |  |             |         |     |  |   |         |     |  |   |         |        
|------------------------------------------------------------------------------------------------ |  | ---------------------- | ------- | ----------- |  | ----------- | ------- | ----------- |  | ----------- | ------- | --- |  | - | ------- | --- |  | - | ------- | -------
|                                                                                                 |  | Fiscal Years Ending(1)
|                                                                                                 |  |                       
|                                                                                                 |  | January 25,            |         | January 26, |  | January 27, |         | January 29, |  | January 30,
|                                                                                                 |  | 2003                   |         | 2002        |  | 2001        |         | 2000        |  | 1999       
|                                                                                                 |  |                        |         |             |  |             |         |             |  |            
|Summary of Operations:                                                                           |  |                        |         |             |  |             |         |             |  |             |         |     |  |   |         |     |  |   |         |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Net sales                                                                                        |  | $                      | 100,449 |             |  | $           | 105,517 |             |  | $           | 118,932 |     |  | $ | 120,351 |     |  | $ | 124,294 |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Operating income                                                                                 |  | $                      | 5,712   |             |  | $           | 3,804   |             |  | $           | 12,646  |     |  | $ | 13,857  |     |  | $ | 9,019   |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|(Loss) income before cumulative
effect of change in accounting
principle and extraordinary
items |  | $                      | (3,331  | )           |  | $           | (4,892  | )           |  | $           | 173     |     |  | $ | 248     |     |  | $ | (1,590  | )      
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Net loss(2)                                                                                      |  | $                      | (81,047 | )(8)(9)     |  | $           | (4,892  | )(7)        |  | $           | 2,458   | (6) |  | $ | 2,052   | (5) |  | $ | (5,605  | )(3)(4)
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Financial Position at Year End:                                                                  |  |                        |         |             |  |             |         |             |  |             |         |     |  |   |         |     |  |   |         |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Total assets                                                                                     |  | $                      | 77,746  |             |  | $           | 155,462 |             |  | $           | 166,247 |     |  | $ | 169,964 |     |  | $ | 179,228 |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Total debt                                                                                       |  | $                      | 97,908  |             |  | $           | 92,720  |             |  | $           | 98,466  |     |  | $ | 109,123 |     |  | $ | 123,674 |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Holdings Series B Preferred Stock
(10)                                                           |  | $                      | 10,100  |             |  | $           | 8,300   |             |  | $           | 6,647   |     |  | $ | 5,361   |     |  | $ |        |        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Holdings Series C Preferred Stock
(11)                                                           |  | $                      | 8,193   |             |  | $           | 6,545   |             |  | $           | 5,152   |     |  | $ |        |     |  | $ |        |        



---

|(1) |  | The Company utilizes a fiscal year of 52 or 53 weeks, ending on the last Saturday in January. Each of                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|    |  | the Companys fiscal years set forth herein contained 52 weeks.                                                                                                                                                                                           
|   
|   
|   
|   
|(2) |  | Includes goodwill amortization expense of $0, $2,297, $2,304, $2,247 and $2,218 for the fiscal years
ending January 25, 2003, January 26, 2002, January 27, 2001, January 29, 2000 and January 30, 1999,
respectively.                                    
|   
|   
|   
|   
|(3) |  | Includes an extraordinary loss on early extinguishment of debt, net of tax effect, of $4,015 and
compensation payments to certain members of management of Iron Age, net of tax effect, of $1,285 incurred
in connection with the April 1998 Transactions.
|   
|   
|   
|   
|(4) |  | Includes a gain of $1,678 related to the sale of the Dunham trademark and related trademarks on August
31, 1998.                                                                                                                                          
|   
|   
|   
|   
|(5) |  | Includes an extraordinary gain of $1,804, net of tax effect of $1,310, due to the repurchase, at a
discount, of a portion of the Senior Subordinated Notes related to the July 1999 Transaction and the
September 1999 Transaction.                       
|   
|   
|   
|   
|(6) |  | Includes an extraordinary gain of $2,285, net of tax effect of $1,655, due to the repurchase, at a
discount, of a portion of the Senior Subordinated Notes related to the October 2000 Transaction.                                                       
|   
|   
|   
|   
|(7) |  | Includes a loss of $1,860 related to the sale of the vision products business line on December 14, 2001.                                                                                                                                                  

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##### Table of Contents



|(8)  |  | Includes a loss relating to the cumulative effect of a change in accounting principle of $77,510, net of
tax effect of $1,718, due to the impairment of goodwill, in connection with the adoption of Statement on
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(9)  |  | Includes an loss of $206, net of tax effect of $138, due to the write-off of unamortized debt issue
costs related to the Previuos Bank Credit Facility, in conjunction with the closing of the Bank Credit
Facility on September 23, 2002.                                                       
|    
|    
|    
|    
|(10) |  | The Holdings Series B Preferred Stock is included in the Companys consolidated financial statements for
financial reporting purposes since the proceeds of the Holdings Series B Preferred Stock was used to retire
a portion of the Companys Senior Subordinated Notes.                       
|    
|    
|    
|    
|(11) |  | The Holdings Series C Preferred Stock is included in the Companys consolidated financial statements for
financial reporting purposes since the proceeds of the Holdings Series C Preferred Stock was used to retire
a portion of the Companys Senior Subordinated Notes.                       

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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 the Company 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

The Companys 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, the Company also offered other 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 its manufacturing subsidiary Falcon. Approximately 89% of
Falcons net sales are to the Company. Further, Falcon manufactures approximately 19% of total pairs of shoes
sold by the Company. In addition, the Company began distributing prescription safety eyewear, on a limited basis,
in conjunction with the acquisition of a regional distributor in April 1998. The Company sold its prescription
safety eyewear business line in December 2001, as discussed below. The Companys 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 the Companys 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, the Company 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. The Companys net income from the vision
products business line was not material.

On October 20, 2000, Holdings purchased $16.4 million in principal amount of the Company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

The Company evaluates the collectability of its accounts receivable based on a combination of factors. In
circumstances where the Company is aware of a specific customers inability to meet its financial obligations
(e.g., bankruptcy filings, substantial downgrading of credit ratings), the Company 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, the Company 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), the Companys 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 the Company has
recently increased its purchased volume of outside branded product, the Company does not believe this increases
the risk of obsolescence as these products have replaced previous styles in the Companys product offerings.
Further, the Company continuously reviews its inventory levels and consumption rates, by style, and adjusts its
purchase of new merchandise as necessary. The Company 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

The Company 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. The Company 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 Company will continue to evaluate the need for a
valuation allowance on a quarterly basis.

Goodwill Impairment

In fiscal 2003, the Company 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, the Company ceased amortizing its goodwill. Total amortization expense recognized for the fiscal
years ended January 25, 2003, January 26, 2002 and January 27, 2001 was approximately $2.2 million, $4.3 million
and $4.0 million, respectively. 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

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related goodwill. The Company 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

The Company 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. The Company 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 periods indicated certain historical income statement data derived
from the consolidated statement of income of the Company.

|                                             |  |             |         |             |  |             |         |   |  |   |         |  
|-------------------------------------------- |  | ----------- | ------- | ----------- |  | ----------- | ------- | - |  | - | ------- | -
|                                             |  | Fiscal 2003 |         | Fiscal 2002 |  | Fiscal 2001
|                                             |  |             |         |             |  |            
|Income Statement Data:                       |  |             |         |             |  |             |         |   |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Net sales                                    |  | $           | 100,449 |             |  | $           | 105,517 |   |  | $ | 118,932 |  
|                                            
|                                            
|                                            
|                                            
|Gross profit                                 |  |             | 50,759  |             |  |             | 53,884  |   |  |   | 61,701  |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative          |  |             | 41,200  |             |  |             | 41,951  |   |  |   | 43,400  |  
|                                            
|                                            
|                                            
|                                            
|Depreciation and amortization                |  |             | 3,847   |             |  |             | 6,269   |   |  |   | 5,655   |  
|                                            
|                                            
|                                            
|                                            
|Loss on divestiture                          |  |             |        |             |  |             | 1,860   |   |  |   |        |  
|                                            
|                                            
|                                            
|                                            
|Operating income                             |  |             | 5,712   |             |  |             | 3,804   |   |  |   | 12,646  |  
|                                            
|                                            
|                                            
|                                            
|Interest expense                             |  |             | 9,289   |             |  |             | 8,636   |   |  |   | 11,389  |  
|                                            
|                                            
|                                            
|                                            
|(Benefit) provision for income taxes         |  |             | (246    | )           |  |             | 60      |   |  |   | 1,084   |  
|                                            
|                                            
|                                            
|                                            
|Cumulative effect of change in accounting    |  |             |         |             |  |             |         |   |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|principle, net of tax
effect                 |  |             | (77,510 | )           |  |             |        |   |  |   |        |  
|                                            
|                                            
|                                            
|                                            
|Extraordinary (loss) gain, net of tax effect |  |             | (206    | )           |  |             |        |   |  |   | 2,285   |  
|                                            
|                                            
|                                            
|                                            
|                                             |  |             |         |             |  |             |         |   |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Other Data:                                  |  |             |         |             |  |             |         |   |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Gross profit margin                          |  |             | 50.5    | %           |  |             | 51.1    | % |  |   | 51.9    | %
|                                            
|                                            
|                                            
|                                            
|Operating income margin                      |  |             | 5.7     | %           |  |             | 3.6     | % |  |   | 10.6    | %

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 the Companys primary footwear distribution business line, primarily related to (a) a decrease of $2.0
million, or 11.4%, in the Companys industrial direct business line, from customers who purchase directly from
the Companys 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 the Companys
retail business line, from customers who purchase from the Companys retail stores and shoemobiles, reflecting a
decline in the general economic environment, including plant closings and employee layoffs that affected the
Companys customers, (c) a decrease in the Companys 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 the Companys branded wholesale business line, as there were no sales to the Companys primary
wholesale customer in fiscal 2003, due to the bankruptcy of that customer in October 2001. In addition, sales
decreased by $0.5 million, or 25.9% in the Companys manufacturing subsidiary, due to decreased sales to its
external customers. Also, for fiscal 2003, there

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##### Table of Contents



were no sales relating to the Companys 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 the Companys 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 the Companys 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 5.5% 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 the Company 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 $9.3 million compared to $8.6 million for fiscal
2002, an increase of $0.7 million, or 8.1%. For fiscal 2002, interest expense was favorably impacted by an
increase of approximately $0.8 million in the fair market value of the Companys 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 decreased
due to the effect of lower interest rates and decreased indebtedness relating to the Previous Bank Credit
Facility.

Income Tax Expense. Income taxes for fiscal 2003 was a $0.2 million income tax benefit compared to
income tax expense of $0.06 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, the Company recorded no goodwill amortization for fiscal 2003. During fiscal 2003, the Company 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 state net operating loss
carryforwards.

At January 25, 2003, the Company 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. The
Company 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. The Company 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.

Cumulative Effect of Change in Accounting Principle. For fiscal 2003, the Company adopted SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. In connection with the adoption
of SFAS No. 142, the Company tested its goodwill for impairment, which required an assessment of

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##### Table of Contents



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 the Companys goodwill was impaired at January 27, 2002. 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 fiscal 2003.

Extraordinary Item. For fiscal 2003, the Company 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 the Companys primary footwear distribution business line, including decreases of
approximately $9.0, or 7.6%, in the Companys industrial business line, due to a decline in the general economic
environment, which included plant closings and employee layoffs that affected the Companys customers. Included
in the decrease in net sales in the Companys 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 the Companys branded wholesale business line due to reduced sales to the Companys 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 the Companys 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 the Companys 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 the Companys 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 the Company had committed to
a plan to sell the assets. The provision for impairment included goodwill and certain other intangible assets,
including customer lists, that the Companys 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 $8.6 million compared to $11.4 million for fiscal
2001, a decrease of $2.8 million, or 24.6%. The decrease in interest expense was primarily attributable to
decreased indebtedness of the Company 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 the Companys interest rate swap agreement due to decreases in interest
rates for fiscal 2002. The interest rate swap agreement was terminated in October 2001.

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##### Table of Contents



Income Tax Expense. Income tax expense for fiscal 2002 was a $0.06 million income tax expense compared to
income tax expense of $1.1 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, the Company had
available state net operating loss carryforwards of approximately $10.4 million, which expire in various years
beginning in 2002 through 2019. The Company 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.
The Company 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, the Company 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

|                                   |  |                        |         |                  |  |           |         |           |  |               |       |  |  |   |    |  |  |   |   | 
|---------------------------------- |  | ---------------------- | ------- | ---------------- |  | --------- | ------- | --------- |  | ------------- | ----- |  |  | - | -- |  |  | - | - | 
|                                   |  | Payments Due by Period
|                                   |  | (Thousands of Dollars)
|Contractual Obligations:           |  | Total                  |         | Less than 1 year |  | 1-3 years |         | 4-5 years |  | After 5 years
|                                   |  |                        |         |                  |  |           |         |           |  |              
|Long-Term Debt                     |  | $                      | 96,891  |                  |  | $         | 96,891  |           |  | $             |      |  |  | $ |   |  |  | $ |  | 
|                                  
|                                  
|                                  
|                                  
|Capital Lease Obligations          |  |                        | 1,017   |                  |  |           | 1,017   |           |  |               |      |  |  |   |   |  |  |   |  | 
|                                  
|                                  
|                                  
|                                  
|Operating Leases                   |  |                        | 5,655   |                  |  |           | 2,762   |           |  |               | 2,816 |  |  |   | 77 |  |  |   |  | 
|                                  
|                                  
|                                  
|                                  
|Unconditional Purchase Obligations |  |                        | 9,603   |                  |  |           | 9,603   |           |  |               |      |  |  |   |   |  |  |   |  | 
|                                  
|                                  
|                                  
|                                  
|Other Long-Term Obligations        |  |                        |        |                  |  |           |        |           |  |               |      |  |  |   |   |  |  |   |  | 
|                                  
|                                  
|                                  
|                                  
|Total Contractual Cash Obligations |  | $                      | 113,166 |                  |  | $         | 110,273 |           |  | $             | 2,816 |  |  | $ | 77 |  |  | $ |  | 

|                               |  |                                            |       |                  |  |           |       |           |  |              |   |  |  |   |   |  |  |   |   | 
|------------------------------ |  | ------------------------------------------ | ----- | ---------------- |  | --------- | ----- | --------- |  | ------------ | - |  |  | - | - |  |  | - | - | 
|                               |  | Amount of Commitment Expiration Per Period
|                               |  | (Thousands of Dollars)                    
|Other Commercial Commitments:  |  | Total                                      |       | Less than 1 year |  | 1-3 years |       | 4-5 years |  | Over 5 years
|                               |  |                                            |       |                  |  |           |       |           |  |             
|Lines of Credit                |  | $                                          | 2,000 |                  |  | $         | 2,000 |           |  | $            |  |  |  | $ |  |  |  | $ |  | 
|                              
|                              
|                              
|                              
|Guarantees                     |  |                                            |      |                  |  |           |      |           |  |              |  |  |  |   |  |  |  |   |  | 
|                              
|                              
|                              
|                              
|Standby Repurchase Obligations |  |                                            |      |                  |  |           |      |           |  |              |  |  |  |   |  |  |  |   |  | 
|                              
|                              
|                              
|                              
|Other Commercial Commitments   |  |                                            |      |                  |  |           |      |           |  |              |  |  |  |   |  |  |  |   |  | 
|                              
|                              
|                              
|                              
|Total Commercial Commitments   |  | $                                          | 2,000 |                  |  | $         | 2,000 |           |  | $            |  |  |  | $ |  |  |  | $ |  | 

The Companys primary cash needs are working capital, capital expenditures and debt service. The Company has
financed cash requirements primarily through internally generated cash flow and funds borrowed under Holdings
and the Company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
$6.0 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.

The Companys 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

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related to the acquisition of software for internal use (included in Property and equipment on the Balance
Sheet). The Companys investing activities for fiscal 2002 consisted of capital expenditures of $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).

The Companys financing activities for fiscal 2003, primarily under the Bank Credit Facility and the
Previous Bank Credit Facility, were 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. The Company 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. The Company used approximately $1.7 million from financing activities in
fiscal 2001, which included payments of approximately $1.5 million related to the Bank Credit Facility, excluding
the October 2000 Transaction. The Companys 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 Holdings. The amount of such equity contribution was
provided to Holdings by a $4.8 million aggregate equity contribution from Fenway II, for which Fenway II received
Holdings Series C Preferred Stock.

The Companys total working capital as of January 25, 2003 was $22.8 million. At January 26, 2002,
working capital was $33.4 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.

Cash flow from operations
for fiscal 2003 was sufficient to cover debt service requirements under the Bank
Credit Facility. The Companys ability to make scheduled payments of
principal, or to pay the interest or premium (if any) on, or to refinance, its
indebtedness (including the Senior Subordinated 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 the Companys anticipated
future requirements for working capital, budgeted capital expenditures and
scheduled payments of principal and interest on its indebtedness through fiscal
2004 and that the terms of the Bank Credit Facility should be amended to provide
sufficient borrowing capacity to allow the Company 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 the Companys business
will generate sufficient cash flow from operations or that future borrowing will
be available under the Bank Credit Facility in an amount sufficient to enable
the Company to service its indebtedness, including the Senior Subordinated
Notes, or to make capital expenditures.

As of January 25, 2003, the Companys debt consisted of 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. The Companys 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. The Company 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

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guarantor, as primary obligor and not merely as surety, will irrevocably and
unconditionally guarantee on an unsecured, senior subordinated basis the performance and punctual payment when
due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Company under the Senior
Subordinated Notes Indenture and the Senior Subordinated Notes, whether for payment of principal or of interest
on the Senior Subordinated Notes, expenses, indemnification or otherwise. As of January 25, 2003, Iron Age
Investment Company, one of the Companys Domestic Restricted Subsidiaries became a Material Subsidiary, and
therefore was required to provide a Subsidiary Guaranty with respect to the Senior Subordinated Notes. As of
January 25, 2003, none of the Company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. The Company pays a
0.375% commitment fee on the undrawn amounts of the Revolving Credit Facility. The Company pays a 2.00% letter of
credit fee on any outstanding Letters of Credit.

At closing, the Company drew the entire amount of Term Loan A, Term Loan B and Term Loan C and
approximately $14.2 million on the Revolving Credit Facility, to refinance its Previous Bank Credit Facility of
approximately $27.6 million, including accrued interest, and to pay certain financing fees and expenses. In
connection with the refinancing of the Companys Previous Bank Credit Facility, the Company 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.

The Company 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

The Companys Bank Credit Facility, which is guaranteed by Holdings, requires the Company to maintain
certain financial ratios as discussed in Note 7 to the Companys 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 the Companys 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 the Companys ability to engage in mergers or acquisitions, sell certain assets, pay dividends or
repurchase its stock. The

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Bank Credit Facility is secured by a first priority security interest in substantially
all of the Companys assets. Holdings domestic and Canadian subsidiaries are required to guarantee its
obligations under the Bank Credit Facility. If the Company defaults on this debt, due to cross-default provisions
in the indentures for the Discount Notes and Senior Subordinated Notes, this debt would also be in default.

The Company complied with
all debt covenants as of January 25, 2003. Historically, the Company 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, the Company 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, the Company 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 the Companys current operations and forecasts would
make it probable that the Company will be in compliance with its Bank
Credit Facility. The Company was not in compliance with its financial covenants for the first quarter April 26, 2003. Effective May 12, 2003, all
of the Companys long-term debt has been classified as current liabilities. As of May 12, 2003, the
Company and the senior lender 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. The Company 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 the Company 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 the
Company 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, the Company is required to maintain excess cash
availability of at least $3.0 million. As of May 12, 2003, the Companys
cash availability was $3.3 million. Should the Company 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, 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 its reported financial position and results of its operations. The
Company 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 the
Companys current operations.

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, the Company 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, the Company 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 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. The Company 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 SFAS No. 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. The Company adopted SFAS
No. 146 on January 1, 2003. Subsequent to the adoption, SFAS No. 146 may affect

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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

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

Forward Looking Statements

When used in this 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. The Company wishes to
caution readers that the following important factors and others in some cases have affected and in the future
could affect the Companys actual results and could cause the Companys actual results to differ materially from
those expressed in any forward looking statements made by the Company: (i) economic conditions in the safety shoe
market, (ii) availability and terms of credit and debt arrangements, (iii) increase in interest rates, (iv) cost
of raw 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 the Companys
relationships with its major suppliers, including the Companys largest supplier in China and (x) inability to
grow by acquisition of additional safety shoe distributors or to effectively consolidate operations of businesses
acquired.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

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

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

Interest Rates

At January 25, 2003, the Company had fixed-rate debt totaling $78.1 million in principal amount and
having a fair value of $45.5 million. These instruments bear interest at a fixed rate and, therefore, do not
expose the Company to the risk of earnings loss due to changes in market interest rates. However, the fair value
of these instruments would decrease (to the holder) by approximately $4.5 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 10.4% to a weighted average interest rate of 11.4%). At January 26, 2002, the Company had fixed-rate debt
totaling $65.7 million in principal amount and having a fair value of $30.6 million, which would have decreased
to $28.2 million had interest rates increased 10% from January 26, 2002 levels.

At January 25, 2003, the Company had variable-rate long-term 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, the Company would incur additional annual interest expense of approximately
$0.1 million. At January 26, 2002, the Company had variable-rate debt totaling $27.0 million in principal amount
and having a fair value of $27.0 million. The Company 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 the Companys 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 the Companys 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
$0.6 million and an increase in net loss of approximately $0.2 million for the year ended January 25, 2003. The
Companys 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. The Company has no
foreign currency exchange contracts.

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Item 8. Financial Statements and Supplementary Data.

Iron Age Corporation
(a wholly owned subsidiary of Iron Age Holdings Corporation)

Consolidated Financial Statements

Years ended January 25, 2003 and January 26, 2002

Contents

|                                                          |  |  |    | 
|--------------------------------------------------------- |  |  | -- | 
|Report of Independent Auditors                            |  |  | 22 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Audited Financial Statements                              |  |  |    | 
|                                                         
|                                                         
|                                                         
|                                                         
|Consolidated Balance Sheets                               |  |  | 23 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Consolidated Statements of Operations                     |  |  | 24 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Consolidated Statements of Stockholders (Deficit) Equity |  |  | 25 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Consolidated Statements of Cash Flows                     |  |  | 26 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Notes to Consolidated Financial Statements                |  |  | 28 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Schedule II-Valuation and Qualifying Accounts             |  |  | 53 | 

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REPORT OF INDEPENDENT AUDITORS

Board of Directors
Iron Age Corporation

We have audited the accompanying consolidated balance sheets of Iron Age Corporation (a wholly owned subsidiary
of Iron Age Holdings Corporation) (the Company) as of January 25, 2003 and January 26, 2002, and the related
consolidated statements of operations, stockholders (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 the Companys
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 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 the Company will continue as a going concern.
As more fully described in Note 1, the Company has incurred
recurring operating losses and there is uncertainty regarding the
Companys ability to meet the debt covenants of its credit
facilities with banks. These conditions raise substantial doubt about the
Companys 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 the Company 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 the Company 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 Corporation
(a wholly owned subsidiary of Iron Age Holdings Corporation)

Consolidated Balance Sheets

|                                                     |                                                                             |                                                |         |                |        |             |         |         |        | 
|---------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------- | ------- | -------------- | ------ | ----------- | ------- | ------- | ------ | 
|                                                     |                                                                             |                                                |         | January 25,    |        | January 26,
|                                                     |                                                                             |                                                |         | 2003           |        | 2002       
|                                                     |                                                                             |                                                |         |                |        |            
|                                                     |                                                                             |                                                |         | (In Thousands)
|Assets                                               |                                                                             |                                                |         |                |        |             |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Current assets:                                      |                                                                             |                                                |         |                |        |             |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Cash and cash equivalents                      |         | $              | 323    |             |         | $       | 615    | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Accounts receivable, net                       |         |                | 13,548 |             |         |         | 14,066 | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Inventories                                    |         |                | 31,671 |             |         |         | 32,089 | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Prepaid expenses                               |         |                | 3,134  |             |         |         | 2,120  | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Deferred income taxes                          |         |                | 713    |             |         |         | 726    | 
|                                                     |                                                                             |                                                |         |                |        |             |         |        
|Total current assets                                 |                                                                             |                                                | 49,389  |                |        |             | 49,616  |        
|                                                    
|                                                    
|                                                    
|                                                    
|Note receivable from parent                          |                                                                             |                                                | 1,654   |                |        |             |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|Property and equipment, net                          |                                                                             |                                                | 12,681  |                |        |             | 12,674  |        
|                                                    
|                                                    
|                                                    
|                                                    
|Other noncurrent assets                              |                                                                             |                                                | 170     |                |        |             | 212     |        
|                                                    
|                                                    
|                                                    
|                                                    
|Intangible assets, net                               |                                                                             |                                                | 13,852  |                |        |             | 92,960  |        
|                                                     |                                                                             |                                                |         |                |        |             |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Total assets                                         |                                                                             | $                                              | 77,746  |                |        | $           | 155,462 |        
|                                                     |                                                                             |                                                |         |                |        |             |         |        
|Liabilities and stockholders (deficit) equity       |                                                                             |                                                |         |                |        |             |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Current liabilities:                                 |                                                                             |                                                |         |                |        |             |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Long-term
debt and revolving credit facilities |         | $              | 97,908 |             |         | $       | 92,720 | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Accounts payable                               |         |                | 3,272  |             |         |         | 4,687  | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Accrued expenses                               |         |                | 5,999  |             |         |         | 5,076  | 
|                                                     |                                                                             |                                                |         |                |        |             |         |        
|Total current liabilities                            |                                                                             |                                                | 107,179 |                |        |             | 102,483 |        
|                                                    
|                                                    
|                                                    
|                                                    
|Other noncurrent liabilities                         |                                                                             |                                                | 324     |                |        |             | 390     |        
|                                                    
|                                                    
|                                                    
|                                                    
|Deferred income taxes                                |                                                                             |                                                | 4,205   |                |        |             | 5,589   |        
|                                                     |                                                                             |                                                |         |                |        |             |         |        
|Total liabilities                                    |                                                                             |                                                | 111,708 |                |        |             | 108,462 |        
|                                                    
|                                                    
|                                                    
|                                                    
|Commitments and contingencies                        |                                                                             |                                                |        |                |        |             |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|Holdings Series B redeemable preferred stock         |                                                                             |                                                | 10,100  |                |        |             | 8,300   |        
|                                                    
|                                                    
|                                                    
|                                                    
|Holdings Series C redeemable preferred stock         |                                                                             |                                                | 8,193   |                |        |             | 6,545   |        
|                                                    
|                                                    
|                                                    
|                                                    
|Stockholders (deficit) equity:                      |                                                                             |                                                |         |                |        |             |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding |                                                |         | 1              |        |             |         | 1       |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Additional paid-in capital                                                  |                                                |         | 44,466         |        |             |         | 44,466  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accumulated deficit                                                         |                                                |         | (96,435        | )      |             |         | (11,941 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accumulated other comprehensive loss                                        |                                                |         | (287           | )      |             |         | (371    | )     
|                                                     |                                                                             |                                                |         |                |        |             |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Total stockholders (deficit) equity                 |                                                                             |                                                | (52,255 | )              |        |             | 32,155  |        
|                                                     |                                                                             |                                                |         |                |        |             |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Total liabilities and stockholders (deficit) equity |                                                                             | $                                              | 77,746  |                |        | $           | 155,462 |        
|                                                     |                                                                             |                                                |         |                |        |             |         |        

See accompanying notes.

-23-



---



##### Table of Contents



Iron Age Corporation
(a wholly owned subsidiary of Iron Age Holdings Corporation)

Consolidated Statements of Operations

|                                                                                                        |  |                  |         |                  |  |                  |         |   |  |   |         | 
|------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ---------------- |  | ---------------- | ------- | - |  | - | ------- | 
|                                                                                                        |  |                  |         |                  |  | Year ended       |         |   |  |  
|                                                                                                        |  | January 25, 2003 |         | January 26, 2002 |  | January 27, 2001
|                                                                                                        |  |                  |         |                  |  |                 
|                                                                                                        |  | (In
Thousands)  
|                                                                                                        | 
|Net sales                                                                                               |  | $                | 100,449 |                  |  | $                | 105,517 |   |  | $ | 118,932 | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Cost of sales                                                                                           |  |                  | 49,690  |                  |  |                  | 51,633  |   |  |   | 57,231  | 
|                                                                                                        |  |                  |         |                  |  |                  |         |   |  |   |         | 
|Gross profit                                                                                            |  |                  | 50,759  |                  |  |                  | 53,884  |   |  |   | 61,701  | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Selling, general and administrative                                                                     |  |                  | 41,200  |                  |  |                  | 41,951  |   |  |   | 43,400  | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Depreciation                                                                                            |  |                  | 1,653   |                  |  |                  | 1,938   |   |  |   | 1,681   | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Amortization of intangible assets                                                                       |  |                  | 2,194   |                  |  |                  | 4,331   |   |  |   | 3,974   | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Loss on divestiture                                                                                     |  |                  |        |                  |  |                  | 1,860   |   |  |   |        | 
|                                                                                                        |  |                  |         |                  |  |                  |         |   |  |   |         | 
|Operating income                                                                                        |  |                  | 5,712   |                  |  |                  | 3,804   |   |  |   | 12,646  | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Interest expense                                                                                        |  |                  | 9,289   |                  |  |                  | 8,636   |   |  |   | 11,389  | 
|                                                                                                        |  |                  |         |                  |  |                  |         |   |  |   |         | 
|Loss before income taxes,
cumulative effect of change in
accounting principle and
extraordinary item    |  |                  | (3,577  | )                |  |                  | (4,832  | ) |  |   | 1,257   | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|(Benefit) provision for income taxes                                                                    |  |                  | (246    | )                |  |                  | 60      |   |  |   | 1,084   | 
|                                                                                                        |  |                  |         |                  |  |                  |         |   |  |   |         | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Loss before cumulative effect of
change in accounting principle and
extraordinary item                  |  |                  | (3,331  | )                |  |                  | (4,892  | ) |  |   | 173     | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Cumulative effect of change in
accounting principle, net of tax of
$1,718 (Note 6 )                     |  |                  | (77,510 | )                |  |                  |        |   |  |   |        | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Extraordinary (loss) gain , net of
tax effect of $138 in fiscal 2003
and $1,655 in fiscal 2001 (Note 7) |  |                  | (206    | )                |  |                  |        |   |  |   | 2,285   | 
|                                                                                                        |  |                  |         |                  |  |                  |         |   |  |   |         | 
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|Net (loss) income                                                                                       |  | $                | (81,047 | )                |  | $                | (4,892  | ) |  | $ | 2,458   | 
|                                                                                                        |  |                  |         |                  |  |                  |         |   |  |   |         | 

See accompanying notes.

-24-



---



##### Table of Contents



Iron Age Corporation
(a wholly owned subsidiary of Iron Age Holdings Corporation)

Consolidated Statements of Stockholders (Deficit) Equity

|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |         |         |  
|--------------------------- | ------------------------------------------ | --------------------------------------------------- | ----- | -------------- | - | ------- | - | ----------- | - | ------------------- | ------ | ---- | - | ----------- | ------- | ------ | ------- | - | ---- | - | ---- | - | ------- | ------- | ------- | -
|                            |                                            |                                                     |       | Common Stock   |   |         |   |             |   |                     |        |      |   | Accumulated |         |        |         |  
|                            |                                            |                                                     |       |                |   | Paid-In |   | Accumulated |   | Other Comprehensive |        |      |   |            
|                            |                                            |                                                     |       | Shares         |   | Amounts |   | Capital     |   | Deficit             |        | Loss |   | Total      
|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |            
|                            |                                            |                                                     |       | (In Thousands)
|Balance at January 29, 2000 |                                            |                                                     | 1,000 |                |   | $       | 1 |             |   | $                   | 44,466 |      |   | $           | (4,783  | )      |         | $ | (124 | ) |      | $ | 39,560  |        
|                           
|                           
|                           
|                           
|                            | Comprehensive income:                      |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |         |        
|                           
|                           
|                           
|                           
|                            |                                            | Net income                                          |       |                |  |         |   |             |  |                     |        |      |  |             |         |        | 2,458   |   |      |   |     |   |         |         | 2,458   |  
|                           
|                           
|                           
|                           
|                            |                                            | Foreign currency
translation
Adjustment, net of tax |       |                |  |         |   |             |  |                     |        |      |  |             |         |        |        |   |      |   | (97  | ) |         |         | (97     | )
|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |        
|                            | Comprehensive income                       |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         | 2,361   |        
|                           
|                           
|                           
|                           
|                            | Dividend and accretion on
preferred stock  |                                                     |       |               |   |         |   |            |   |                     |        |      |   |             |         | (1,678 | )       |   |      |  |      |   |         | (1,678  | )      
|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |        
|Balance at January 27, 2001 |                                            |                                                     | 1,000 |                |   |         | 1 |             |   |                     | 44,466 |      |   |             | (4,003  | )      |         |   | (221 | ) |      |   | 40,243  |        
|                           
|                           
|                           
|                           
|                            | Comprehensive loss:                        |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |         |        
|                           
|                           
|                           
|                           
|                            |                                            | Net loss                                            |       |                |  |         |   |             |  |                     |        |      |  |             |         |        | (4,892  | ) |      |   |     |   |         |         | (4,892  | )
|                           
|                           
|                           
|                           
|                            |                                            | Foreign currency
translation
Adjustment, net of tax |       |                |  |         |   |             |  |                     |        |      |  |             |         |        |        |   |      |   | (150 | ) |         |         | (150    | )
|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |        
|                            | Comprehensive loss                         |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         | (5,042  | )      
|                           
|                           
|                           
|                           
|                            | Dividend and accretion on
Preferred stock  |                                                     |       |               |   |         |   |            |   |                     |        |     |   |             |         | (3,046 | )       |   |      |  |      |   |         | (3,046  | )      
|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |        
|Balance at January 26, 2002 |                                            |                                                     | 1,000 |                |   |         | 1 |             |   |                     | 44,466 |      |   |             | (11,941 | )      |         |   | (371 | ) |      |   | 32,155  |        
|                           
|                           
|                           
|                           
|                            | Comprehensive loss:                        |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |         |        
|                           
|                           
|                           
|                           
|                            |                                            | Net loss                                            |       |                |  |         |   |             |  |                     |        |      |  |             |         |        | (81,047 | ) |      |   |     |   |         |         | (81,047 | )
|                           
|                           
|                           
|                           
|                            |                                            | Foreign currency
translation
Adjustment, net of tax |       |                |  |         |   |             |  |                     |        |      |  |             |         |        |        |   |      |   | 84   |   |         |         | 84      |  
|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |        
|                            | Comprehensive loss                         |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         | (80,963 | )      
|                           
|                           
|                           
|                           
|                            | Dividends and accretion
on preferred stock |                                                     |       |               |   |         |   |            |   |                     |        |     |   |             |         | (3,447 | )       |   |      |  |      |   |         | (3,447  | )      
|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |        
|Balance at January 25, 2003 |                                            |                                                     | 1,000 |                |   | $       | 1 |             |   | $                   | 44,466 |      |   | $           | (96,435 | )      |         | $ | (287 | ) |      | $ | (52,255 | )      
|                            |                                            |                                                     |       |                |   |         |   |             |   |                     |        |      |   |             |         |        |         |   |      |   |      |   |         |        

See accompanying notes.

-25-



---



##### Table of Contents



Iron Age Corporation
(a wholly owned subsidiary of Iron Age Holdings Corporation)

Consolidated Statements of Cash Flows

|                                                             |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |   |        |  
|------------------------------------------------------------ | --------------------------------- | --------------------------------------------------------------- | ------- | ---------------- | ------ | ---------------- | ------- | ---------------- | ------ | - | ------- | - | ------ | -
|                                                             |                                   |                                                                 |         |                  |        |                  |         | Year ended       |        |   |         |  
|                                                             |                                   |                                                                 |         | January 25, 2003 |        | January 26, 2002 |         | January 27, 2001
|                                                             |                                   |                                                                 |         |                  |        |                  |         |                 
|                                                             |                                   |                                                                 |         |                  |        |                  |         | (In Thousands)   |        |   |         |  
|Operating activities                                         |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|                                                            
|                                                            
|                                                            
|                                                            
|Net (loss) income                                            |                                   | $                                                               | (81,047 | )                |        | $                | (4,892  | )                |        | $ | 2,458   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Adjustments to reconcile net (loss) income to net cash       |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | provided by operating activities: |                                                                 |         |                  |        |                  |         |                  |        |   |         |   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Cumulative effect of change in accounting principle,
net of tax |         |                  | 77,510 |                  |         |                  |       |   |         |   |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Extraordinary loss (gain), net of tax                           |         |                  | 206    |                  |         |                  |       |   |         |   | (2,285 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Loss on divestiture                                             |         |                  |       |                  |         |                  | 1,860  |   |         |   |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Increase in fair value of interest rate swap                    |         |                  |       |                  |         |                  | (764   | ) |         |   |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Depreciation and amortization                                   |         |                  | 4,314  |                  |         |                  | 6,753  |   |         |   | 6,122  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Amortization of deferred financing fees included in
interest    |         |                  | 660    |                  |         |                  | 690    |   |         |   | 538    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Accrual of paid-in-kind interest                                |         |                  | 84     |                  |         |                  |       |   |         |   |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Provision for losses on accounts receivable                     |         |                  | 331    |                  |         |                  | 418    |   |         |   | 565    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Deferred income taxes                                           |         |                  | 347    |                  |         |                  | 119    |   |         |   | 224    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Stock-based compensation                                        |         |                  | 132    |                  |         |                  |       |   |         |   |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Changes in operating assets and liabilities:                    |         |                  |        |                  |         |                  |        |   |         |   |        |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Accounts receivable                                             |         |                  | 55     |                  |         |                  | 2,476  |   |         |   | 222    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Inventories                                                     |         |                  | 418    |                  |         |                  | 1,363  |   |         |   | 958    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Prepaid expenses                                                |         |                  | (1,014 | )                |         |                  | 266    |   |         |   | (793   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Other noncurrent assets                                         |         |                  | 152    |                  |         |                  | 2,637  |   |         |   | (96    | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Accounts payable                                                |         |                  | (1,415 | )                |         |                  | 1,660  |   |         |   | 454    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Accrued expenses                                                |         |                  | 923    |                  |         |                  | (3,242 | ) |         |   | (2,316 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Payment of other noncurrent liabilities                         |         |                  | (66    | )                |         |                  | (87    | ) |         |   | (50    | )
|                                                             |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|Net cash provided by operating activities                    |                                   |                                                                 | 1,590   |                  |        |                  | 9,257   |                  |        |   | 6,001   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Investing activities                                         |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|                                                            
|                                                            
|                                                            
|                                                            
|Capitalization of internal use software costs                |                                   |                                                                 | (305    | )                |        |                  | (1,116  | )                |        |   | (2,526  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Purchases of property and equipment, net                     |                                   |                                                                 | (2,866  | )                |        |                  | (1,465  | )                |        |   | (1,895  | )
|                                                             |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|Net cash used in investing activities                        |                                   |                                                                 | (3,171  | )                |        |                  | (2,581  | )                |        |   | (4,421  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Financing activities                                         |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|                                                            
|                                                            
|                                                            
|                                                            
|Borrowing under revolving credit agreement                   |                                   |                                                                 | 81,587  |                  |        |                  | 18,825  |                  |        |   | 48,650  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Issuance of redeemable preferred stock                       |                                   |                                                                 |        |                  |        |                  |        |                  |        |   | 4,761   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Principal payments on debt                                   |                                   |                                                                 | (78,613 | )                |        |                  | (24,384 | )                |        |   | (54,911 | )
|                                                            
|                                                            
|                                                            
|                                                            
|Payment of financing costs                                   |                                   |                                                                 | (2,246  | )                |        |                  | (247    | )                |        |   | (204    | )
|                                                            
|                                                            
|                                                            
|                                                            
|Principal payments on capital leases, net                    |                                   |                                                                 | 477     |                  |        |                  | (187    | )                |        |   | 43      |  
|                                                             |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|Net cash provided by (used in) financing activities          |                                   |                                                                 | 1,205   |                  |        |                  | (5,993  | )                |        |   | (1,661  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Effect of exchange rate changes on cash and cash equivalents |                                   |                                                                 | 84      |                  |        |                  | (150    | )                |        |   | (97     | )
|                                                             |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|Increase (decrease) in cash and cash equivalents             |                                   |                                                                 | (292    | )                |        |                  | 533     |                  |        |   | (178    | )
|                                                            
|                                                            
|                                                            
|                                                            
|Cash and cash equivalents at beginning of year               |                                   |                                                                 | 615     |                  |        |                  | 82      |                  |        |   | 260     |  
|                                                             |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  
|Cash and cash equivalents at end of year                     |                                   | $                                                               | 323     |                  |        | $                | 615     |                  |        | $ | 82      |  
|                                                             |                                   |                                                                 |         |                  |        |                  |         |                  |        |   |         |  

-26-



---



##### Table of Contents



Consolidated Statements of Cash Flows (continued)

|                                                                    |              |   |                  |       |                  |   |                  |       |  |   |       |        | 
|------------------------------------------------------------------- | ------------ | - | ---------------- | ----- | ---------------- | - | ---------------- | ----- |  | - | ----- | ------ | 
|                                                                    |              |   |                  |       |                  |   | Year ended       |       |  |   |      
|                                                                    |              |   | January 25, 2003 |       | January 26, 2002 |   | January 27, 2001
|                                                                    |              |   |                  |       |                  |   |                 
|                                                                    |              |   | (In Thousands)  
|Supplemental disclosures of cash flow information                   |              |   |                  |       |                  |   |                  |       |  |   |       |       
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Cash paid during the period for:                                    |              |   |                  |       |                  |   |                  |       |  |   |       |       
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Interest     |   | $                | 9,249 |                  |   | $                | 8,637 |  |   | $     | 10,782 | 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                    | Income taxes |   |                  | 387   |                  |   |                  | 925   |  |   |       | 3,238  | 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Supplemental schedule of noncash investing and
financing activities |              |   |                  |       |                  |   |                  |       |  |   |       |       
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Dividends and accretion on redeemable preferred stock               |              | $ | 3,447            |       |                  | $ | 3,046            |       |  | $ | 1,678 |       
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Capital lease agreements for equipment                              |              |   | 797              |       |                  |   | 253              |       |  |   | 450   |       

See accompanying notes.

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Iron Age Corporation
(a wholly owned subsidiary of Iron Age Holdings Corporation)

Notes to Consolidated Financial Statements

January 25, 2003 and January 26, 2002

Organization and Significant Accounting Policies

Organization and Activities

The accompanying consolidated financial statements include the accounts of Iron
Age Corporation and its wholly owned subsidiaries, Falcon Shoe Mfg. Co.
(Falcon), Iron Age Investment Company, Iron Age Mexico S.A. de C.V.
(Mexico) and Iron Age Canada Ltd. (Canada) (together, the Company). All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company is a wholly owned subsidiary of Iron Age Holdings
Corporation (Holdings) which is majority-owned by Fenway Partners Capital
Fund, L.P. (Fenway). The consolidated financial statements of the Company
reflect Holdings cost in the Company because the Company is a wholly owned
subsidiary of Holdings and Holdings has no assets other than its investment in
the Company.

Going Concern

The Company was in
compliance with its debt covenants under the Bank Credit Facility (see Note 7 to
financial statements) as of January 25, 2003. However, 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, the
Company 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, the Company 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 the Companys current
operations and forecasts would make it probable that the Company
would be in compliance with its Bank Credit Facility. The Company was
not in compliance with its financial covenants for the first quarter
ending April 26, 2003. Effective May 12, 2003, all of the
Companys long-term debt has been classified as current
liabilities. As of May 12, 2003, the Company 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. The Company 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 the Company 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 the Company 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, the Company is
required to maintain excess cash availability of at least $3.0 million. As of
May 12, 2003, the Companys cash availability was $3.3 million. Should the
Company 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, 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 does not anticipate being 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. 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 the Company
current operations.

The Company distributes and manufactures work footwear with operations
concentrated in North America. As a percentage of sales, 98% and 2% of the
Companys operations are related to distributing and manufacturing,
respectively. The Company has one reportable segment, distribution of work
footwear in the United States.

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##### Table of Contents



1. Organization and Significant Accounting Policies (continued)

Fiscal Year

The Company utilizes a fiscal year of 52 or 53 weeks, ending on the last
Saturday in January. Each of the Companys fiscal years set forth herein
contained 52 weeks.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of 90 days
or less at the time of original purchase to be cash equivalents.

Inventories

Approximately 94% of inventories at January 25, 2003 and 93% of inventories at
January 26, 2002 are stated at the lower of last-in, first-out (LIFO) cost or
market. The remaining inventories are stated at the lower of first-in,
first-out (FIFO) cost or market.

Catalog Costs

The Company produces periodic catalogs and amortizes the mailing and production
costs over the related revenue stream, generally four to twelve months. The
Company has approximately $0.3 million and $0.4 million of unamortized catalog
costs at January 25, 2003 and January 26, 2002, respectively. For the years
ended January 25, 2003, January 26, 2002 and January 27, 2001, advertising
expense recorded by the Company was approximately $1.4 million, $1.8 million
and $2.1 million, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method based on estimated useful
lives, as follows:

|                          |  |           
|------------------------- |  | ----------
|Building and improvements |  | 40 years  
|Machinery and equipment   |  | 3-10 years

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##### Table of Contents



1.     Organization and Significant Accounting Policies (continued)

Property and Equipment (continued)

Leasehold improvements are amortized over the shorter of the useful life of the
asset or the term of the lease. Expenses for repairs, maintenance and renewals
are charged to operations as incurred. Expenditures which improve an asset or
extend its useful life are capitalized.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets,management evaluates the ongoing value of leasehold
improvements and store fixtures associated with retail stores which have been
open longer than one year. Impairment losses are recorded on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. 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.

Intangible Assets

Customer ListsCustomer lists represent the estimated cost of replacing the
Companys customer base and are being amortized by the straight-line method
over 15 years. The amortization period of 15 years approximates the Companys
historical customer loss experience.

Deferred Financing CostDeferred financing costs relate to the costs of
obtaining financing. These costs are being amortized over the period the
related loans are outstanding.

Internal Use Software Costs

The Company records internal use software costs in accordance with Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. The Company capitalized approximately $0.3 million,
$1.1 million and $2.5 million related to internal use software costs for the
fiscal years ended January 25, 2003, January 26, 2002 and January 27, 2001,
respectively. These costs are included in Property and equipment in the
financial statements. Internal use software costs are being amortized by the
straight-line method over three to five years.

Foreign Currency Translation

The assets and liabilities of the Companys foreign subsidiaries are measured
using the local currency as the functional currency and are translated into
U.S. dollars at exchange rates as of the balance sheet date. Income statement
amounts are translated at the weighted average rates of exchange during the
year. The translation adjustment is accumulated in other comprehensive loss.
Foreign currency transaction gains and losses are included in determining net
income. Such amounts are not material.

Revenue Recognition

Revenue from product sales is recognized at the time products are shipped, at
which time title passes to the customer.

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Shipping and handling costs associated with the delivery of products to the
Companys customers, retail stores and shoemobiles of approximately $2.4
million, $2.1 million and $2.2 million are recorded as components of selling,
general and administrative expenses for the years ended January 25, 2003,
January 26, 2002 and January 27, 2001, respectively.

Financial Instruments

Effective January 28, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.

The Company periodically enters into interest rate swap agreements to moderate
its exposure to interest rate changes. Until its termination on October 19,
2001, the interest rate swap agreement had a notional amount of $25 million.
The Company paid floating rate amounts computed at 4.16% above the LIBOR rate
in exchange for fixed interest payments at a rate of 9.875%. Upon adoption,
the Company recorded the cumulative fair value of the interest rate swap of
$0.1 million in other noncurrent assets, with a corresponding amount to other
noncurrent liabilities. Interest payment amounts were exchanged over the life
of the agreement without an exchange of the underlying principal amounts. The
differential paid or received was accrued as interest rates changed and was
recognized as an adjustment to interest expense related to the debt. The
related amount payable to or receivable from counterparties was included in
accrued interest. Since the interest rate swap agreement was not determined to
be highly effective, it was not designated as a hedge. Based upon the terms of
the agreement, the fair value of the interest rate swap was recognized in the
financial statements and changes in the fair value were included in interest
expense. Total gains recognized in interest expense, including the gain on
termination, were $0.8 million for the fiscal year ended January 26, 2002.

Stock-Based Compensation

Certain members of the Companys management are granted options to purchase
stock in Holdings. Holdings recognizes stock-based compensation using the
intrinsic value method. Compensation expense related to stock option grants is
reflected in the Companys financial statements as a charge to income and as an
addition to paid-in capital. For disclosure purposes, pro forma net income is
provided as if the fair value method had been applied.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which amends SFAS No. 123, Accounting
for Stock-Based Compensation,to provide alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. The Company continues to account for its
stock-based employee compensation plan using the intrinsic value method under
Accounting Principles Board Opinion No. 25.

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

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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:

|                   |                                                                                             |  |                  |         |                  |  |                  |        |   |  |   |       |  
|------------------ | ------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ---------------- |  | ---------------- | ------ | - |  | - | ----- | -
|                   |                                                                                             |  |                  |         |                  |  | Year ended       |        |   |  |  
|                   |                                                                                             |  | January 25, 2003 |         | January 26, 2002 |  | January 27, 2001
|                   |                                                                                             |  |                  |         |                  |  |                 
|                   |                                                                                             |  | (In Thousands)  
|Net (loss) income: |                                                                                             |  |                  |         |                  |  |                  |        |   |  |   |      
|                  
|                  
|                  
|                  
|                   | As reported                                                                                 |  | $                | (81,047 | )                |  | $                | (4,892 | ) |  | $ | 2,458 |  
|                  
|                  
|                  
|                  
|                   | Less: Total
stock-based
compensation expense
determined under fair
value method, net of
tax |  |                  | (27     | )                |  |                  | (36    | ) |  |   | (21   | )
|                  
|                  
|                  
|                  
|                   | Pro forma                                                                                   |  | $                | (81,074 | )                |  |                  | (4,928 | ) |  |   | 2,437 |  

Income Taxes

Deferred income taxes are provided for the tax consequences of temporary
differences between financial statement carrying amounts and the tax bases of
assets and liabilities. The effect on deferred taxes of a change in tax rates
is recognized in income in the period of the enactment.

Other Comprehensive Income

The Company applies SFAS No. 130, Reporting Comprehensive Income,in accounting
for foreign currency translation gains and losses. SFAS No. 130 requires
foreign currency translation gains and losses, which are reported separately in
stockholders equity, to be included in other comprehensive income.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

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, the Company 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, the Company 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

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the related long-lived asset. Over time, the liability is accreted to its present value each period, and the
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. The Company 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 SFAS No. 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, with
early application encouraged. The Company is currently evaluating the
provisions of SFAS No. 146 to determine what impact, if any, it will have on
its financial statements.

2.     Divestitures

On December 14, 2001, the Company 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 annualized 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. The Companys net income from the
vision products business line was not material.

Reclassifications

The year ended January 26, 2002 financial
statements have been reclassified to conform with the current year
presentation.

3.     Accounts Receivable

Accounts receivable are presented net of an allowance for doubtful accounts of
approximately $0.5 million and $0.4 million as of January 25, 2003 and January
26, 2002, respectively. The Company does not require collateral for its trade
accounts receivable. Management continually evaluates its accounts receivable
and adjusts its allowance for doubtful accounts for changes in potential credit
risk. The Company serves a diverse customer base and believes there is minimal
concentration of credit risk.

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##### Table of Contents



4.     Inventories

The major components of inventories are as follows:

|                                                      |  |                  |        |                  |  |   |        | 
|----------------------------------------------------- |  | ---------------- | ------ | ---------------- |  | - | ------ | 
|                                                      |  | January 25, 2003 |        | January 26, 2002
|                                                      |  |                  |        |                 
|                                                      |  | (In Thousands)  
|Finished products                                     |  | $                | 29,625 |                  |  | $ | 29,894 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Raw materials and work in process                     |  |                  | 1,940  |                  |  |   | 2,689  | 
|                                                      |  |                  |        |                  |  |   |        | 
|                                                      |  |                  | 31,565 |                  |  |   | 32,583 | 
|                                                     
|                                                     
|                                                     
|                                                     
|Less excess of current cost over LIFO inventory value |  |                  | (106   | )                |  |   | 494    | 
|                                                     
|                                                     
|                                                     
|                                                     
|Inventories                                           |  | $                | 31,671 |                  |  | $ | 32,089 | 
|                                                      |  |                  |        |                  |  |   |        | 

5.     Property and Equipment

Property and equipment consist of the following:

|                                               |  |                  |        |                  |  |   |        | 
|---------------------------------------------- |  | ---------------- | ------ | ---------------- |  | - | ------ | 
|                                               |  | January 25, 2003 |        | January 26, 2002
|                                               |  |                  |        |                 
|                                               |  | (In Thousands)  
|Land and buildings                             |  | $                | 3,165  |                  |  | $ | 3,189  | 
|                                              
|                                              
|                                              
|                                              
|Vehicles                                       |  |                  | 6,993  |                  |  |   | 5,231  | 
|                                              
|                                              
|                                              
|                                              
|Furniture and fixtures                         |  |                  | 1,615  |                  |  |   | 1,475  | 
|                                              
|                                              
|                                              
|                                              
|Machinery and equipment                        |  |                  | 7,859  |                  |  |   | 7,298  | 
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |                  | 2,199  |                  |  |   | 1,846  | 
|                                              
|                                              
|                                              
|                                              
|Software                                       |  |                  | 5,265  |                  |  |   | 4,966  | 
|                                               |  |                  |        |                  |  |   |        | 
|                                               |  |                  | 27,096 |                  |  |   | 24,005 | 
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |                  | 14,415 |                  |  |   | 11,331 | 
|                                               |  |                  |        |                  |  |   |        | 
|Net property and equipment                     |  | $                | 12,681 |                  |  | $ | 12,674 | 
|                                               |  |                  |        |                  |  |   |        | 

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##### Table of Contents



6.     Intangible Assets

Intangible assets consist of the following:

|                              |  |                  |        |                  |  |   |         | 
|----------------------------- |  | ---------------- | ------ | ---------------- |  | - | ------- | 
|                              |  | January 25, 2003 |        | January 26, 2002
|                              |  |                  |        |                 
|                              |  | (In Thousands)  
|Goodwill                      |  | $                |       |                  |  | $ | 90,290  | 
|                             
|                             
|                             
|                             
|Customer lists                |  |                  | 16,680 |                  |  |   | 16,654  | 
|                             
|                             
|                             
|                             
|Deferred financing costs      |  |                  | 5,207  |                  |  |   | 4,664   | 
|                             
|                             
|                             
|                             
|Other                         |  |                  | 152    |                  |  |   | 152     | 
|                              |  |                  |        |                  |  |   |         | 
|                              |  |                  | 22,039 |                  |  |   | 111,760 | 
|                             
|                             
|                             
|                             
|Less accumulated amortization |  |                  |        |                  |  |   |         | 
|Goodwill                      |  |                  |       |                  |  |   | 11,065  | 
|                             
|                             
|                             
|                             
|Customer lists                |  |                  | 6,570  |                  |  |   | 5,443   | 
|                             
|                             
|                             
|                             
|Deferred financing costs      |  |                  | 1,486  |                  |  |   | 2,183   | 
|                             
|                             
|                             
|                             
|Other                         |  |                  | 131    |                  |  |   | 109     | 
|                              |  |                  |        |                  |  |   |         | 
|                              |  |                  | 8,187  |                  |  |   | 18,800  | 
|                              |  |                  |        |                  |  |   |         | 
|Intangible assets, net        |  | $                | 13,852 |                  |  | $ | 92,960  | 
|                              |  |                  |        |                  |  |   |         | 

Effective January 27, 2002, the Company adopted 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
will no longer be reflected in the Companys financial statements, amortization
related to certain of the Companys other intangible assets will continue to be
deductible for income tax purposes. Amortization expense related to the
Companys goodwill was $2.3 million for the fiscal years ended January 26, 2002
and January 27, 2001.

In connection with the adoption of SFAS No. 142, the Company tested its
goodwill for impairment, which required an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption, January 27,
2002. The Company identified two reporting units, distribution and
manufacturing, and determined the carrying value of those units as of the date
of adoption. Only the distribution reporting unit had related goodwill. The
Company assessed the fair value of the distribution reporting unit and compared
it to the reporting units carrying amount, as computed in Step 1 of the
evaluation. The fair value of the distribution reporting unit in Step 1 of the
evaluation was determined using a 5-year discounted cash flow model. Key
assumptions included managements estimates of future profitability, capital
requirements, a discount rate of 14.6% and a terminal growth rate of 2%. Based
upon the initial evaluation, Step 2 of the evaluation was required, as the
distribution reporting unit had a carrying value in excess of its fair value.
In conjunction with Step 2, The Company retained an independent valuation firm
to prepare a valuation of the Companys assets and liabilities. Step 2
requires the implied fair value of goodwill to be calculated by allocating the
fair value of the reporting unit to its tangible and intangible net assets,
other than goodwill. The remaining unallocated fair value represents the
implied fair value of the goodwill. Management, using the independent
valuation firm, has determined that all of the Companys goodwill was impaired
at January 27, 2002. Accordingly, the Company has 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 fiscal year ended January
25, 2003. The goodwill impairment charge has 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.

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The following table presents reported net (loss) income exclusive of goodwill
amortization expense for the years ended January 25, 2003, January 26, 2002 and
January 27, 2001, respectively.

|                                  |  |                |         |             |  |             |        |   |  |   |       | 
|--------------------------------- |  | -------------- | ------- | ----------- |  | ----------- | ------ | - |  | - | ----- | 
|                                  |  | January 25,    |         | January 26, |  | January 27,
|                                  |  | 2003           |         | 2002        |  | 2001       
|                                  |  |                |         |             |  |            
|                                  |  | (In
Thousands)
|Reported net (loss) income        |  | $              | (81,047 | )           |  | $           | (4,892 | ) |  | $ | 2,458 | 
|                                 
|                                 
|                                 
|                                 
|Add back:                         |  |                |         |             |  |             |        |   |  |   |       | 
|                                 
|                                 
|                                 
|                                 
|Goodwill amortization, net of tax |  |                |        |             |  |             | 2,297  |   |  |   | 2,304 | 
|                                  |  |                |         |             |  |             |        |   |  |   |       | 
|Adjusted net (loss) income        |  | $              | (81,047 | )           |  | $           | (2,595 | ) |  | $ | 4,762 | 
|                                  |  |                |         |             |  |             |        |   |  |   |       | 

Amortization expense for other intangible assets subject to amortization for
the year ended January 25, 2003, January 26, 2002 and January 27, 2001 are
$2.1 million, $2.0 million and $1.6 million, respectively. Estimated
amortization expense for the next five fiscal years is approximately $2.2
million per year.

Financing costs incurred in connection with obtaining the Senior Subordinated
Notes and the Bank Credit Facility of approximately $3.7 million have been
deferred by the Company as of January 25, 2003 and will be amortized over the
periods the Senior Subordinated Notes and the Bank Credit Facility are
outstanding (see Note 7).

During the year ended January 27, 2001, the Company expensed approximately $0.6
million, in connection with the
repurchase of certain Senior Subordinated Notes (see Note 7).

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7. Long-Term Debt

Long-term debt consists of the following:

|                                          |  |   |                  |  |                  |   |        |  | 
|----------------------------------------- |  | - | ---------------- |  | ---------------- | - | ------ |  | 
|                                          |  |   | January 25, 2003 |  | January 26, 2002
|                                          |  |   |                  |  |                 
|                                          |  |   | (In Thousands)  
|Revolving Credit Facility                 |  | $ | 16,107           |  |                  | $ |       | 
|                                         
|                                         
|                                         
|                                         
|Term Loan A                               |  |   | 933              |  |                  |   |       | 
|                                         
|                                         
|                                         
|                                         
|Term Loan B                               |  |   | 2,767            |  |                  |   |       | 
|                                         
|                                         
|                                         
|                                         
|Term Loan C                               |  |   | 12,084           |  |                  |   |       | 
|                                         
|                                         
|                                         
|                                         
|Previous Bank Credit Facility             |  |   |                 |  |                  |   | 27,002 | 
|                                         
|                                         
|                                         
|                                         
|9-7/8% Senior Subordinated Notes due 2008 |  |   | 65,000           |  |                  |   | 65,000 | 
|                                         
|                                         
|                                         
|                                         
|Other notes                               |  |   |                 |  |                  |   | 178    | 
|                                         
|                                         
|                                         
|                                         
|Capitalized lease obligations             |  |   | 1,017            |  |                  |   | 540    | 
|                                          |  |   |                  |  |                  |   |        | 
|                                          |  | $ | 97,908           |  |                  | $ | 92,720 | 
|                                          |  |   |                  |  |                  |   |        | 

Bank Credit Facility

On September 23, 2002, the Company, Holdings 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.
Availability under the Bank Credit Facility is governed by a borrowing base
determined by advance rates against the qualified inventory and accounts
receivable of Iron Age Corporation and Falcon, as defined in the Bank Credit
Facility agreement. Outstanding obligations under the letter of credit
subfacility were $0.5 million at January 25, 2003.

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 the Company, 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. The Company pays a 0.375% commitment fee on the
undrawn amounts of the Revolving Credit Facility and a 2.00% letter of credit
fee on any outstanding Letters of Credit. As of January 25, 2003, the prime
rate was 4.25% and the LIBOR rate was approximately 1.40%.

At closing, the Company drew the entire amount of Term Loan A, Term Loan B and
Term Loan C and approximately $14.2 million on the Revolving Credit Facility,
to refinance its Previous Bank Credit Facility of

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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 the Companys Previous Bank Credit Facility,
The Company 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.

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

The Bank Credit Facility contains certain financial and other covenants,
including covenants requiring the Company to maintain various financial ratios,
limiting its ability to incur additional indebtedness, restricting
the Companys ability to upstream cash to Holdings for payment of
interest on the Discount Notes, restricting the amount
of capital expenditures that may be incurred, and limiting transactions with
affiliates. The Bank Credit Facility also limits the Companys ability to
engage in mergers or acquisitions, sell certain assets, pay dividends or
repurchase its stock. The Bank Credit Facility is secured by a first priority
security interest in substantially all of the Companys assets. The Companys
domestic and Canadian subsidiaries are required to guarantee its obligations
under the Bank Credit Facility.

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.

Previous Bank Credit Facility

The Company entered into the Previous Bank Credit Facility with a syndicate of
lenders and a financial institution, as agent for itself and the other lenders
which, as amended, provided for a $41.1 million senior secured credit facility
that was comprised of a $20.0 million revolving working capital facility and,
as amended, a $21.1 million acquisition term loan facility. The Previous Bank
Credit Facility was paid in full on September 23, 2002, in conjunction with
closing on the Bank Credit Facility, as discussed above.

Borrowings under the Previous Bank Credit Facility accrued interest, at the
option of the Company, at either LIBOR plus 3.25% or the greater of the
financial institutions prime rate and the federal funds rate plus 1.75%.
Borrowings on the Previous Bank Credit Facility accrued interest at 6.50% for
prime rate borrowings and between 5.00% and 5.44% for LIBOR borrowings,
respectively, at January 26, 2002.

The Company classified its borrowings under the Previous Bank Credit Facility
as long-term as of January 26, 2002 due to its ability and intent to maintain
such borrowings on a long-term basis.

9-7/8% Senior Subordinated Notes Due 2008

The 9-7/8% Senior Subordinated Notes (the Senior Subordinated Notes) accrue
interest at the rate of 9-7/8% per annum and are payable semiannually in
arrears on May 1 and November 1, commencing on November 1, 1998.

The Senior Subordinated Notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company.

The Senior Subordinated Notes are redeemable at the option of the Company on
and after May 1, 2003 at prices decreasing from 104.938% of the principal
amount thereof to par on May 1, 2006 and thereafter. The Company is

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required to redeem the outstanding notes based upon certain events as described in the
indenture for the Senior Subordinated Notes.

The indenture for the Senior Subordinated Notes requires the Company and its
subsidiaries to comply with certain restrictive covenants, including a
restriction on dividends and limitations on the incurrence of indebtedness,
certain payments and distributions and sales of the Companys assets and stock.

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

On October 20, 2000, Holdings purchased $16.4 million in principal amount of
its Senior Subordinated Notes for $11.9 million (the October 2000
Transaction). The purchase was funded by $7.1 million of borrowings under the
Bank Credit Facility and the issuance of $4.8 million of 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
transactions described in this paragraph are referred to herein as the October
2000 Transaction.

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##### Table of Contents



8.     Financial Information for Subsidiary Guarantors

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

Iron Age Corporation
Summarized Financial Information
Balance Sheets

January 25, 2003
(In thousands)

|                                                     |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|---------------------------------------------------- |  | ------ | ------- | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ |  |  | - | ------- | - |  | - | ------- | -
|                                                     |  |        |         |            |  | Guarantor    |        | Non-Guarantor |  |              |        |  |  |   |         |  
|                                                     |  | Parent |         | Subsidiary |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                                     |  |        |         |            |  |              |        |               |  |             
|ASSETS                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents                            |  | $      | 183     |            |  | $            | 25     |               |  | $            | 115    |  |  | $ |        |   |  | $ | 323     |  
|                                                    
|                                                    
|                                                    
|                                                    
|Accounts receivable, net                             |  |        | 22,249  |            |  |              | 31     |               |  |              | 6,119  |  |  |   | (14,851 | ) |  |   | 13,548  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Inventories                                          |  |        | 27,679  |            |  |              |       |               |  |              | 4,171  |  |  |   | (179    | ) |  |   | 31,671  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Prepaid expenses                                     |  |        | 2,233   |            |  |              |       |               |  |              | 829    |  |  |   | 72      |   |  |   | 3,134   |  
|                                                    
|                                                    
|                                                    
|                                                    
|Deferred income taxes                                |  |        |        |            |  |              |       |               |  |              | 99     |  |  |   | 614     |   |  |   | 713     |  
|                                                     |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|TOTAL CURRENT ASSETS                                 |  |        | 52,344  |            |  |              | 56     |               |  |              | 11,333 |  |  |   | (14,344 | ) |  |   | 49,389  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Note receivable from parent                          |  |        | 1,654   |            |  |              |       |               |  |              |       |  |  |   |        |   |  |   | 1,654   |  
|                                                    
|                                                    
|                                                    
|                                                    
|Other noncurrent assets                              |  |        | 31,586  |            |  |              | 52,520 |               |  |              | 6      |  |  |   | (83,942 | ) |  |   | 170     |  
|                                                    
|                                                    
|                                                    
|                                                    
|Property and equipment, net                          |  |        | 10,554  |            |  |              |       |               |  |              | 2,127  |  |  |   |        |   |  |   | 12,681  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Deferred income taxes                                |  |        |        |            |  |              |       |               |  |              |       |  |  |   |        |   |  |   |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|Intangible assets, net                               |  |        | 13,578  |            |  |              |       |               |  |              | 274    |  |  |   |         |   |  |   | 13,852  |  
|                                                     |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|TOTAL ASSETS                                         |  | $      | 109,716 |            |  | $            | 52,576 |               |  | $            | 13,740 |  |  | $ | (98,286 | ) |  | $ | 77,746  |  
|                                                     |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|                                                    
|                                                    
|                                                    
|                                                    
|Long-term
debt and revolving credit facilities       |  | $      | 150,734 |            |  | $            |       |               |  | $            | 2,821  |  |  | $ | (55,647 | ) |  | $ | 97,908  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Accounts payable                                     |  |        | 2,788   |            |  |              | 1      |               |  |              | 483    |  |  |   |        |   |  |   | 3,272   |  
|                                                    
|                                                    
|                                                    
|                                                    
|Accrued expenses                                     |  |        | 5,019   |            |  |              | 12,855 |               |  |              | 2,918  |  |  |   | (14,793 | ) |  |   | 5,999   |  
|                                                     |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|TOTAL CURRENT LIABILITIES                            |  |        | 158,541 |            |  |              | 12,856 |               |  |              | 6,222  |  |  |   | (70,440 | ) |  |   | 107,179 |  
|                                                    
|                                                    
|                                                    
|                                                    
|Other noncurrent liabilities                         |  |        |        |            |  |              |       |               |  |              | 324    |  |  |   |        |   |  |   | 324     |  
|                                                    
|                                                    
|                                                    
|                                                    
|Deferred income taxes                                |  |        | 2,744   |            |  |              |       |               |  |              | 955    |  |  |   | 506     |   |  |   | 4,205   |  
|                                                     |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|TOTAL LIABILITIES                                    |  |        | 161,285 |            |  |              | 12,856 |               |  |              | 7,501  |  |  |   | (69,934 | ) |  |   | 111,708 |  
|                                                    
|                                                    
|                                                    
|                                                    
|Holdings Series B redeemable preferred stock         |  |        |        |            |  |              |       |               |  |              |       |  |  |   | 10,100  |   |  |   | 10,100  |  
|                                                    
|                                                    
|                                                    
|                                                    
|Holdings Series C redeemable preferred stock         |  |        |        |            |  |              |       |               |  |              |       |  |  |   | 8,193   |   |  |   | 8,193   |  
|                                                    
|                                                    
|                                                    
|                                                    
|TOTAL STOCKHOLDERS EQUITY (DEFICIT)                 |  |        | (51,569 | )          |  |              | 39,720 |               |  |              | 6,239  |  |  |   | (46,645 | ) |  |   | (52,255 | )
|                                                     |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT) |  | $      | 109,716 |            |  | $            | 52,576 |               |  | $            | 13,740 |  |  | $ | (98,286 | ) |  | $ | 77,746  |  
|                                                     |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         |  

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##### Table of Contents



Iron Age Corporation
Summarized Financial Information
Statements of Operations

For the year ended January 25, 2003
(In thousands)

|                                                                                                              |  |        |         |            |  |              |        |               |  |              |        |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ------ | ------- | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                              |  |        |         |            |  | Guarantor    |        | Non-Guarantor |  |              |        |   |  |   |         |  
|                                                                                                              |  | Parent |         | Subsidiary |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                                                                                              |  |        |         |            |  |              |        |               |  |             
|Net sales                                                                                                     |  | $      | 92,761  |            |  | $            |       |               |  | $            | 20,449 |   |  | $ | (12,761 | ) |  | $ | 100,449 |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Cost of sales                                                                                                 |  |        | 45,098  |            |  |              |       |               |  |              | 17,293 |   |  |   | (12,701 | ) |  |   | 49,690  |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Selling, general and administrative                                                                           |  |        | 37,817  |            |  |              | (142   | )             |  |              | 3,525  |   |  |   |        |   |  |   | 41,200  |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Depreciation                                                                                                  |  |        | 1,350   |            |  |              |       |               |  |              | 303    |   |  |   |        |   |  |   | 1,653   |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Amortization of intangible assets                                                                             |  |        | 2,146   |            |  |              |       |               |  |              | 48     |   |  |   |        |   |  |   | 2,194   |  
|                                                                                                              |  |        |         |            |  |              |        |               |  |              |        |   |  |   |         |   |  |   |         |  
|OPERATING
INCOME (LOSS)                                                                                       |  |        | 6,350   |            |  |              | 142    |               |  |              | (720   | ) |  |   | (60     | ) |  |   | 5,712   |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Interest expense                                                                                              |  |        | 12,396  |            |  |              | (3,117 | )             |  |              | 10     |   |  |   |        |   |  |   | 9,289   |  
|                                                                                                              |  |        |         |            |  |              |        |               |  |              |        |   |  |   |         |   |  |   |         |  
|(LOSS) INCOME BEFORE INCOME TAXES, CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
AND EXTRAORDINARY ITEM |  |        | (6,046  | )          |  |              | 3,259  |               |  |              | (730   | ) |  |   | (60     | ) |  |   | (3,577  | )
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Income tax (benefit) expense                                                                                  |  |        | (1,468  | )          |  |              | 1,108  |               |  |              | 128    |   |  |   | (14     | ) |  |   | (246    | )
|                                                                                                              |  |        |         |            |  |              |        |               |  |              |        |   |  |   |         |   |  |   |         |  
|(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE
AND EXTRAORDINARY ITEM               |  |        | (4,578  | )          |  |              | 2,151  |               |  |              | (858   | ) |  |   | (46     | ) |  |   | (3,331  | )
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Cumulative effect of change in                                                                                |  |        | (76,772 | )          |  |              |       |               |  |              | (738   | ) |  |   |        |   |  |   | (77,510 | )
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Accounting principle, net of tax of $1.7 million
Extraordinary loss, net of tax of $0.1 million               |  |        | (206    | )          |  |              |       |               |  |              |       |   |  |   |        |   |  |   | (206    | )
|                                                                                                              |  |        |         |            |  |              |        |               |  |              |        |   |  |   |         |   |  |   |         |  
|NET (LOSS) INCOME                                                                                             |  | $      | (81,556 | )          |  | $            | 2,151  |               |  | $            | (1,596 | ) |  | $ | (46     | ) |  | $ | (81,047 | )
|                                                                                                              |  |        |         |            |  |              |        |               |  |              |        |   |  |   |         |   |  |   |         |  

Iron Age Corporation
Summarized Financial Information
Condensed Statement of Cash Flows

For the year ended January 25, 2003
(In thousands)

|                                                      |  |        |        |            |  |              |        |               |  |              |      |   |  |   |   |  |  |   |        |  
|----------------------------------------------------- |  | ------ | ------ | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ---- | - |  | - | - |  |  | - | ------ | -
|                                                      |  |        |        |            |  | Guarantor    |        | Non-Guarantor |  |              |      |   |  |   |   | 
|                                                      |  | Parent |        | Subsidiary |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                                      |  |        |        |            |  |              |        |               |  |             
|CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES |  | $      | (665   | )          |  | $            | 2,177  |               |  | $            | 78   |   |  | $ |  |  |  | $ | 1,590  |  
|                                                     
|                                                     
|                                                     
|                                                     
|CASH FLOWS USED IN
INVESTING ACTIVITIES               |  |        | (2,876 | )          |  |              |       |               |  |              | (295 | ) |  |   |  |  |  |   | (3,171 | )
|                                                     
|                                                     
|                                                     
|                                                     
|CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES |  |        | 3,604  |            |  |              | (2,200 | )             |  |              | (115 | ) |  |   |  |  |  |   | 1,289  |  
|                                                      |  |        |        |            |  |              |        |               |  |              |      |   |  |   |   |  |  |   |        |  
|INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS      |  | $      | 63     |            |  | $            | (23    | )             |  | $            | (332 | ) |  | $ |  |  |  | $ | (292   | )
|                                                      |  |        |        |            |  |              |        |               |  |              |      |   |  |   |   |  |  |   |        |  

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Iron Age Corporation
Summarized Financial information
Balance Sheets

January 26, 2002
(In thousands)

|                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|---------------------------------------------- |  | ------ | ------- | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ |  |  | - | ------- | - |  | - | ------- | 
|                                               |  |        |         |            |  | Guarantor    |        | Non-Guarantor |  |              |        |  |  |   |         |  
|                                               |  | Parent |         | Subsidiary |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                               |  |        |         |            |  |              |        |               |  |             
|ASSETS                                         |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents                      |  | $      | 120     |            |  | $            | 58     |               |  | $            | 437    |  |  | $ |        |   |  | $ | 615     | 
|                                              
|                                              
|                                              
|                                              
|Accounts receivable, net                       |  |        | 23,507  |            |  |              | 50     |               |  |              | 5,164  |  |  |   | (14,655 | ) |  |   | 14,066  | 
|                                              
|                                              
|                                              
|                                              
|Inventories                                    |  |        | 26,980  |            |  |              |       |               |  |              | 5,228  |  |  |   | (119    | ) |  |   | 32,089  | 
|                                              
|                                              
|                                              
|                                              
|Prepaid expenses                               |  |        | 1,608   |            |  |              |       |               |  |              | 546    |  |  |   | (34     | ) |  |   | 2,120   | 
|                                              
|                                              
|                                              
|                                              
|Deferred income taxes                          |  |        |        |            |  |              |       |               |  |              | 94     |  |  |   | 632     |   |  |   | 726     | 
|                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|TOTAL CURRENT ASSETS                           |  |        | 52,215  |            |  |              | 108    |               |  |              | 11,469 |  |  |   | (14,176 | ) |  |   | 49,616  | 
|                                              
|                                              
|                                              
|                                              
|Other noncurrent assets                        |  |        | 31,627  |            |  |              | 50,320 |               |  |              | 7      |  |  |   | (81,742 | ) |  |   | 212     | 
|                                              
|                                              
|                                              
|                                              
|Property and equipment, net                    |  |        | 10,072  |            |  |              |       |               |  |              | 2,602  |  |  |   |        |   |  |   | 12,674  | 
|                                              
|                                              
|                                              
|                                              
|Deferred income taxes                          |  |        |        |            |  |              |       |               |  |              |       |  |  |   |        |   |  |   |        | 
|                                              
|                                              
|                                              
|                                              
|Intangible assets, net                         |  |        | 91,930  |            |  |              |       |               |  |              | 1,030  |  |  |   |        |   |  |   | 92,960  | 
|                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|TOTAL ASSETS                                   |  | $      | 185,844 |            |  | $            | 50,428 |               |  | $            | 15,108 |  |  | $ | (95,918 | ) |  | $ | 155,462 | 
|                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|                                              
|                                              
|                                              
|                                              
|Long-term debt and revolving credit facilities |  | $      | 143,146 |            |  | $            |       |               |  | $            | 3,021  |  |  | $ | (53,447 | ) |  | $ | 92,720  | 
|                                              
|                                              
|                                              
|                                              
|Accounts payable                               |  |        | 4,207   |            |  |              |       |               |  |              | 480    |  |  |   |        |   |  |   | 4,687   | 
|                                              
|                                              
|                                              
|                                              
|Accrued expenses                               |  |        | 4,307   |            |  |              | 12,859 |               |  |              | 2,569  |  |  |   | (14,659 | ) |  |   | 5,076   | 
|                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|TOTAL CURRENT LIABILITIES                      |  |        | 151,660 |            |  |              | 12,859 |               |  |              | 6,070  |  |  |   | (68,106 | ) |  |   | 102,483 | 
|                                              
|                                              
|                                              
|                                              
|Other noncurrent liabilities                   |  |        |        |            |  |              |       |               |  |              | 390    |  |  |   |        |   |  |   | 390     | 
|                                              
|                                              
|                                              
|                                              
|Deferred income taxes                          |  |        | 4,199   |            |  |              |       |               |  |              | 899    |  |  |   | 491     |   |  |   | 5,589   | 
|                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|TOTAL LIABILITIES                              |  |        | 155,859 |            |  |              | 12,859 |               |  |              | 7,359  |  |  |   | (67,615 | ) |  |   | 108,462 | 
|                                              
|                                              
|                                              
|                                              
|Holdings Series B redeemable preferred stock   |  |        |        |            |  |              |       |               |  |              |       |  |  |   | 8,300   |   |  |   | 8,300   | 
|                                              
|                                              
|                                              
|                                              
|Holdings Series C redeemable preferred stock   |  |        |        |            |  |              |       |               |  |              |       |  |  |   | 6,545   |   |  |   | 6,545   | 
|                                              
|                                              
|                                              
|                                              
|TOTAL STOCKHOLDERS EQUITY                     |  |        | 29,985  |            |  |              | 37,569 |               |  |              | 7,749  |  |  |   | (43,148 | ) |  |   | 32,155  | 
|                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $      | 185,844 |            |  | $            | 50,428 |               |  | $            | 15,108 |  |  | $ | (95,918 | ) |  | $ | 155,462 | 
|                                               |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 

Iron Age Corporation
Summarized Financial Information
Statements of Operations

For the year ended January 26, 2002
(In thousands)

|                                    |  |        |        |            |  |              |        |               |  |              |        |   |  |   |        |   |  |   |         |  
|----------------------------------- |  | ------ | ------ | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                    |  |        |        |            |  | Guarantor    |        | Non-Guarantor |  |              |        |   |  |   |        |  
|                                    |  | Parent |        | Subsidiary |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                    |  |        |        |            |  |              |        |               |  |             
|Net sales                           |  | $      | 97,163 |            |  | $            |       |               |  | $            | 17,585 |   |  | $ | (9,231 | ) |  | $ | 105,517 |  
|                                   
|                                   
|                                   
|                                   
|Cost of sales                       |  |        | 46,243 |            |  |              |       |               |  |              | 14,721 |   |  |   | (9,331 | ) |  |   | 51,633  |  
|                                   
|                                   
|                                   
|                                   
|Selling, general and administrative |  |        | 38,311 |            |  |              | (146   | )             |  |              | 3,786  |   |  |   |       |   |  |   | 41,951  |  
|                                   
|                                   
|                                   
|                                   
|Depreciation                        |  |        | 1,709  |            |  |              |       |               |  |              | 229    |   |  |   |       |   |  |   | 1,938   |  
|                                   
|                                   
|                                   
|                                   
|Amortization of intangible assets   |  |        | 4,266  |            |  |              |       |               |  |              | 65     |   |  |   |       |   |  |   | 4,331   |  
|                                   
|                                   
|                                   
|                                   
|Loss on divestiture                 |  |        | 1,860  |            |  |              |       |               |  |              |       |   |  |   |       |   |  |   | 1,860   |  
|                                    |  |        |        |            |  |              |        |               |  |              |        |   |  |   |        |   |  |   |         |  
|OPERATING INCOME (LOSS)             |  |        | 4,774  |            |  |              | 146    |               |  |              | (1,216 | ) |  |   | 100    |   |  |   | 3,804   |  
|                                   
|                                   
|                                   
|                                   
|Interest expense                    |  |        | 12,521 |            |  |              | (3,899 | )             |  |              | 14     |   |  |   |       |   |  |   | 8,636   |  
|                                    |  |        |        |            |  |              |        |               |  |              |        |   |  |   |        |   |  |   |         |  
|(LOSS) INCOME BEFORE INCOME TAXES   |  |        | (7,747 | )          |  |              | 4,045  |               |  |              | (1,230 | ) |  |   | 100    |   |  |   | (4,832  | )
|                                   
|                                   
|                                   
|                                   
|Income tax (benefit) expense        |  |        | (1,037 | )          |  |              | 1,375  |               |  |              | (278   | ) |  |   |       |   |  |   | 60      |  
|                                    |  |        |        |            |  |              |        |               |  |              |        |   |  |   |        |   |  |   |         |  
|NET (LOSS) INCOME                   |  | $      | (6,710 | )          |  | $            | 2,670  |               |  | $            | (952   | ) |  | $ | 100    |   |  | $ | (4,892  | )
|                                    |  |        |        |            |  |              |        |               |  |              |        |   |  |   |        |   |  |   |         |  

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Iron Age Corporation
Summarized Financial Information
Condensed Statement of Cash Flows

For the year ended January 26, 2002
(In thousands)

|                                                 |  |        |        |            |  |              |        |               |  |              |        |   |  |   |   |  |  |   |        |  
|------------------------------------------------ |  | ------ | ------ | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ | - |  | - | - |  |  | - | ------ | -
|                                                 |  |        |        |            |  | Guarantor    |        | Non-Guarantor |  |              |        |   |  |   |   | 
|                                                 |  | Parent |        | Subsidiary |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                                 |  |        |        |            |  |              |        |               |  |             
|CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES      |  | $      | 4,996  |            |  | $            | 2,784  |               |  | $            | 1,477  |   |  | $ |  |  |  | $ | 9,257  |  
|                                                
|                                                
|                                                
|                                                
|CASH FLOWS USED IN
INVESTING ACTIVITIES          |  |        | (2,126 | )          |  |              |       |               |  |              | (455   | ) |  |   |  |  |  |   | (2,581 | )
|                                                
|                                                
|                                                
|                                                
|CASH FLOWS USED IN
FINANCING ACTIVITIES          |  |        | (2,324 | )          |  |              | (2,780 | )             |  |              | (1,039 | ) |  |   |  |  |  |   | (6,143 | )
|                                                 |  |        |        |            |  |              |        |               |  |              |        |   |  |   |   |  |  |   |        |  
|INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS |  | $      | 546    |            |  | $            | 4      |               |  | $            | (17    | ) |  | $ |  |  |  | $ | 533    |  
|                                                 |  |        |        |            |  |              |        |               |  |              |        |   |  |   |   |  |  |   |        |  

Iron Age Corporation
Summarized Financial Information
Condensed Statement of Cash Flows

For the year ended January 27, 2001
(In thousands)

|                                                         |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|-------------------------------------------------------- |  | ------ | ------- | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ |  |  | - | ------- | - |  | - | ------- | 
|                                                         |  |        |         |            |  | Guarantor    |        | Non-Guarantor |  |              |        |  |  |   |         |  
|                                                         |  | Parent |         | Subsidiary |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                                         |  |        |         |            |  |              |        |               |  |             
|Net sales                                                |  | $      | 108,501 |            |  | $            |       |               |  | $            | 25,441 |  |  | $ | (15,010 | ) |  | $ | 118,932 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Cost of sales                                            |  |        | 52,310  |            |  |              |       |               |  |              | 19,972 |  |  |   | (15,051 | ) |  |   | 57,231  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Selling, general and administrative                      |  |        | 39,453  |            |  |              | (190   | )             |  |              | 4,137  |  |  |   |        |   |  |   | 43,400  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Depreciation                                             |  |        | 1,444   |            |  |              |       |               |  |              | 237    |  |  |   |        |   |  |   | 1,681   | 
|                                                        
|                                                        
|                                                        
|                                                        
|Amortization of intangible assets                        |  |        | 3,907   |            |  |              |       |               |  |              | 67     |  |  |   |        |   |  |   | 3,974   | 
|                                                         |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|OPERATING INCOME                                         |  |        | 11,387  |            |  |              | 190    |               |  |              | 1,028  |  |  |   | 41      |   |  |   | 12,646  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Interest expense                                         |  |        | 16,676  |            |  |              | (5,305 | )             |  |              | 18     |  |  |   |        |   |  |   | 11,389  | 
|                                                         |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|(LOSS) INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM |  |        | (5,289  | )          |  |              | 5,495  |               |  |              | 1,010  |  |  |   | 41      |   |  |   | 1,257   | 
|                                                        
|                                                        
|                                                        
|                                                        
|Income tax (benefit) expense                             |  |        | (1,182  | )          |  |              | 1,868  |               |  |              | 398    |  |  |   |        |   |  |   | 1,084   | 
|                                                         |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|(LOSS) INCOME BEFORE
AND EXTRAORDINARY ITEM              |  |        | (4,107  | )          |  |              | 3,627  |               |  |              | 612    |  |  |   | 41      |   |  |   | 173     | 
|                                                        
|                                                        
|                                                        
|                                                        
|Extraordinary gain, net of tax of $1.7 million           |  |        | 2,285   |            |  |              |       |               |  |              |       |  |  |   |        |   |  |   | 2,285   | 
|                                                         |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 
|NET (LOSS) INCOME                                        |  | $      | (1,822  | )          |  | $            | 3,627  |               |  | $            | 612    |  |  | $ | 41      |   |  | $ | 2,458   | 
|                                                         |  |        |         |            |  |              |        |               |  |              |        |  |  |   |         |   |  |   |         | 

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Iron Age Corporation
Summarized Financial Information
Condensed Statement of Cash Flows

For the year ended January 27, 2001
(In thousands)

|                                                      |  |        |        |            |  |              |        |               |  |              |        |   |  |   |   |  |  |   |        |  
|----------------------------------------------------- |  | ------ | ------ | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ | - |  | - | - |  |  | - | ------ | -
|                                                      |  |        |        |            |  | Guarantor    |        | Non-Guarantor |  |              |        |   |  |   |   | 
|                                                      |  | Parent |        | Subsidiary |  | Subsidiaries |        | Eliminations  |  | Consolidated
|                                                      |  |        |        |            |  |              |        |               |  |             
|CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES |  | $      | 6,180  |            |  | $            | 3,487  |               |  | $            | (3,666 | ) |  | $ |  |  |  | $ | 6,001  |  
|                                                     
|                                                     
|                                                     
|                                                     
|CASH FLOWS USED IN
INVESTING ACTIVITIES               |  |        | (3,881 | )          |  |              |       |               |  |              | (540   | ) |  |   |  |  |  |   | (4,421 | )
|                                                     
|                                                     
|                                                     
|                                                     
|CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES |  |        | (2,613 | )          |  |              | (3,540 | )             |  |              | 4,395  |   |  |   |  |  |  |   | (1,758 | )
|                                                      |  |        |        |            |  |              |        |               |  |              |        |   |  |   |   |  |  |   |        |  
|(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS      |  | $      | (314   | )          |  | $            | (53    | )             |  | $            | 189    |   |  | $ |  |  |  | $ | (178   | )
|                                                      |  |        |        |            |  |              |        |               |  |              |        |   |  |   |   |  |  |   |        |  

9.     Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

Cash and cash equivalentsThe carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value.

Long-term debtThe carrying amounts of the Companys borrowings under its Bank
Credit Facility approximate its fair value because the Bank Credit Facility is
a variable rate debt instrument. The fair values of the Companys Senior
Subordinated Notes are estimated based upon quoted market prices. The fair
values of the Companys capital lease obligations and other notes are estimated
using discounted cash flow analysis, based on the Companys current incremental
borrowing rates for similar types of arrangements.

The carrying amounts and fair values of the Companys financial instruments at
January 25, 2003 and January 26, 2002 are as follows:

|                                          |  |                  |        |                  |  |                 |        |            |  |   |        |  |  |   |        | 
|----------------------------------------- |  | ---------------- | ------ | ---------------- |  | --------------- | ------ | ---------- |  | - | ------ |  |  | - | ------ | 
|                                          |  | January 25, 2003 |        | January 26, 2002
|                                          |  |                  |        |                 
|                                          |  | Carrying Amount  |        | Fair Value       |  | Carrying Amount |        | Fair Value
|                                          |  |                  |        |                  |  |                 |        |           
|                                          |  | (In Thousands)  
|Cash and cash equivalents                 |  | $                | 323    |                  |  | $               | 323    |            |  | $ | 615    |  |  | $ | 615    | 
|                                         
|                                         
|                                         
|                                         
|Bank credit facility                      |  |                  | 31,891 |                  |  |                 | 31,891 |            |  |   | 27,002 |  |  |   | 27,002 | 
|                                         
|                                         
|                                         
|                                         
|9-7/8% Senior Subordinated Notes due 2008 |  |                  | 65,000 |                  |  |                 | 32,500 |            |  |   | 65,000 |  |  |   | 29,900 | 
|                                         
|                                         
|                                         
|                                         
|Other notes                               |  |                  |       |                  |  |                 |       |            |  |   | 178    |  |  |   | 178    | 
|                                         
|                                         
|                                         
|                                         
|Capital lease obligations                 |  |                  | 1,017  |                  |  |                 | 1,027  |            |  |   | 540    |  |  |   | 545    | 

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10.     Employee Benefit Plans

The Company sponsors a 401(k) profit sharing defined contribution pension plan.
Contributions to the plan are based on a percentage of profits, but may be
increased or decreased at the discretion of the Board of Directors. The plan
covers substantially all of its salaried employees. For the fiscal years ended
January 25, 2003, January 26, 2002 and January 27, 2001, pension and profit
sharing expenses were approximately $0.4 million, $0.4 million and $0.6
million, respectively.

11.     Income Taxes

Income tax (benefit) expense before extraordinary gains and losses consists of
the following:

|              |  |           |      |         |  |                  |      |                  |  |                  |       |   |  |   |       |  
|------------- |  | --------- | ---- | ------- |  | ---------------- | ---- | ---------------- |  | ---------------- | ----- | - |  | - | ----- | -
|              |  |           |      |         |  |                  |      |                  |  | Year ended       |       |   |  |  
|              |  |           |      |         |  | January 25, 2003 |      | January 26, 2002 |  | January 27, 2001
|              |  |           |      |         |  |                  |      |                  |  |                 
|              |  |           |      |         |  | (In
Thousands)  
|Income taxes: |  |           |      |         |  |                  |      |                  |  |                  |       |  
|             
|             
|             
|             
|              |  | Current:  |      |         |  |                  |      |                  |  |                  |       |   |  |  
|             
|             
|             
|             
|              |  |           |      | Federal |  | $                | (971 | )                |  | $                | (118  | ) |  | $ | 1,219 |  
|             
|             
|             
|             
|              |  |           |      | State   |  |                  |     |                  |  |                  |      |   |  |   | (459  | )
|             
|             
|             
|             
|              |  |           |      | Foreign |  |                  | 158  |                  |  |                  | 59    |   |  |   | 100   |  
|              |  |           |      |         |  |                  |      |                  |  |                  |       |  
|              |  |           | (813 | )       |  |                  | (59  | )                |  |                  | 860   |  
|             
|             
|             
|             
|              |  | Deferred: |      |         |  |                  |      |                  |  |                  |       |   |  |  
|             
|             
|             
|             
|              |  |           |      | Federal |  |                  | 606  |                  |  |                  | 102   |   |  |   | 171   |  
|             
|             
|             
|             
|              |  |           |      | State   |  |                  | (39  | )                |  |                  | 17    |   |  |   | 53    |  
|              |  |           |      |         |  |                  |      |                  |  |                  |       |  
|              |  |           | 567  |         |  |                  | 119  |                  |  |                  | 224   |  
|              |  |           |      |         |  |                  |      |                  |  |                  |       |  
|              |  | $         | (246 | )       |  | $                | 60   |                  |  | $                | 1,084 |  
|              |  |           |      |         |  |                  |      |                  |  |                  |       |  

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A reconciliation of U.S. income tax computed at the statutory rate and actual
expense is as follows:

|                                                         |  |                  |        |                  |  |                  |        |   |  |   |       |  
|-------------------------------------------------------- |  | ---------------- | ------ | ---------------- |  | ---------------- | ------ | - |  | - | ----- | -
|                                                         |  |                  |        |                  |  | Year ended       |        |   |  |  
|                                                         |  | January 25, 2003 |        | January 26, 2002 |  | January 27, 2001
|                                                         |  |                  |        |                  |  |                 
|                                                         |  | (In Thousands)  
|Amount computed at statutory rate                        |  | $                | (1,216 | )                |  | $                | (1,660 | ) |  | $ | 427   |  
|                                                        
|                                                        
|                                                        
|                                                        
|State and local taxes less
applicable federal income tax |  |                  | (394   | )                |  |                  | (273   | ) |  |   | (302  | )
|                                                        
|                                                        
|                                                        
|                                                        
|Taxes on foreign investments                             |  |                  | 158    |                  |  |                  | 59     |   |  |   | 100   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Goodwill and other amortization                          |  |                  |       |                  |  |                  | 1,547  |   |  |   | 774   |  
|                                                        
|                                                        
|                                                        
|                                                        
|Increase in valuation allowance                          |  |                  | 632    |                  |  |                  | 872    |   |  |   |      |  
|                                                        
|                                                        
|                                                        
|                                                        
|Increase in tax reserves                                 |  |                  | 525    |                  |  |                  |       |   |  |   |      |  
|                                                        
|                                                        
|                                                        
|                                                        
|Tax rate change                                          |  |                  |       |                  |  |                  | (425   | ) |  |   |      |  
|                                                        
|                                                        
|                                                        
|                                                        
|Other                                                    |  |                  | 49     |                  |  |                  | (60    | ) |  |   | 85    |  
|                                                         |  |                  |        |                  |  |                  |        |   |  |   |       |  
|                                                         |  | $                | (246   | )                |  | $                | 60     |   |  | $ | 1,084 |  
|                                                         |  |                  |        |                  |  |                  |        |   |  |   |       |  

The components of the net deferred tax asset and liability are as follows:

|                               |                                        |                        |       |                  |       |                  |       |       |       | 
|------------------------------ | -------------------------------------- | ---------------------- | ----- | ---------------- | ----- | ---------------- | ----- | ----- | ----- | 
|                               |                                        |                        |       | January 25, 2003 |       | January 26, 2002
|                               |                                        |                        |       |                  |       |                 
|                               |                                        |                        |       | (In Thousands)  
|Deferred tax liabilities:      |                                        |                        |       |                  |       |                  |       |      
|                              
|                              
|                              
|                              
|                               |                                        | Inventory              |       | $                | 1,753 |                  |       | $     | 1,678 | 
|                              
|                              
|                              
|                              
|                               |                                        | Property and equipment |       |                  | 1,081 |                  |       |       | 999   | 
|                              
|                              
|                              
|                              
|                               |                                        | Customer lists         |       |                  | 3,469 |                  |       |       | 3,851 | 
|                              
|                              
|                              
|                              
|                               |                                        | Other                  |       |                  |      |                  |       |       | 554   | 
|                               |                                        |                        |       |                  |       |                  |       |      
|Total deferred tax liabilities |                                        |                        | 6,303 |                  |       |                  | 7,082 |      
|                              
|                              
|                              
|                              
|Deferred tax assets:           |                                        |                        |       |                  |       |                  |       |      
|                              
|                              
|                              
|                              
|                               | Interest expense                       |                        |       | 577              |       |                  |       | 1,608 |      
|                              
|                              
|                              
|                              
|                               | State net operating loss carryforwards |                        |       | 2,013            |       |                  |       | 1,211 |      
|                              
|                              
|                              
|                              
|                               | Goodwill                               |                        |       | 1,250            |       |                  |       |      |      
|                              
|                              
|                              
|                              
|                               | Accrued expenses                       |                        |       | 406              |       |                  |       | 428   |      
|                              
|                              
|                              
|                              
|                               | Other                                  |                        |       | 578              |       |                  |       | 183   |      
|                               |                                        |                        |       |                  |       |                  |       |      
|Total deferred tax assets      |                                        |                        | 4,824 |                  |       |                  | 3,430 |      
|                               |                                        |                        |       |                  |       |                  |       |      
|                               |                                        |                        | 1,479 |                  |       |                  | 3,652 |      
|                              
|                              
|                              
|                              
|Valuation allowance            |                                        |                        | 2,013 |                  |       |                  | 1,211 |      
|                               |                                        |                        |       |                  |       |                  |       |      
|Net deferred tax liabilities   |                                        | $                      | 3,492 |                  |       | $                | 4,863 |      
|                               |                                        |                        |       |                  |       |                  |       |      

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As of January 25, 2003, the Company has foreign and state net operating loss
carryforwards (NOLs) of approximately $1.0 million and approximately $15.3
million, respectively. The NOLs expire at various times through 2020. At
January 26, 2002, the Companys management assessed the likelihood of utilizing
the net operating loss carryforwards, determined that it is currently more
likely than not that the benefit will not be realized and established a
valuation allowance of approximately $1.2 million. At January 25, 2003, the
Company increased the valuation allowance to $2.0 million to fully reserve for
net operating loss carryforwards generated in fiscal 2003.

Income and (loss) before income taxes for Canada were $(0.7) million, $(0.4)
million and $(0.04) million and for Mexico were $(0.07) million, $(0.02)
million and $0.06 million for the fiscal years ended January 25, 2003, January
26, 2002 and January 27, 2001, respectively.

12.     Commitments and Contingencies

Purchase Commitments

The Company purchases the majority of its inventory through purchase order
commitments which are denominated in U.S. dollars. The Company purchased
approximately 27%, 29%, and 29% of its inventory from one vendor for the fiscal
years ended January 25, 2003, January 26, 2002 and January 27, 2001,
respectively. At January 25, 2003 and January 26, 2002, the Company had
outstanding inventory purchase commitments of approximately $9.6 million and
$12.3 million, respectively.

A significant amount of the Companys products are produced in the Far East. As
a result, the Companys operations could be adversely affected by political
instability resulting in the disruption of trade from the countries in which
these suppliers are located or by the imposition of additional duties or
regulations relating to imports or by the suppliers inability to meet the
Companys production requirements.

Lease Commitments

The Company leases substantially all of its vehicles and certain other
equipment and facilities. These leases are subject to renewal options for
varying periods. Future minimum payments, by year and in the aggregate, under
capital leases and noncancelable operating leases with initial or remaining
terms of one year or more consisted of the following:

|                                               |  |         |       |           |  |   |       | 
|---------------------------------------------- |  | ------- | ----- | --------- |  | - | ----- | 
|                                               |  | Capital |       | Operating
|                                               |  | Leases  |       | Leases   
|                                               |  |         |       |          
|2003                                           |  | $       | 375   |           |  | $ | 2,762 | 
|                                              
|                                              
|                                              
|                                              
|2004                                           |  |         | 318   |           |  |   | 1,684 | 
|                                              
|                                              
|                                              
|                                              
|2005                                           |  |         | 265   |           |  |   | 878   | 
|                                              
|                                              
|                                              
|                                              
|2006                                           |  |         | 184   |           |  |   | 254   | 
|                                              
|                                              
|                                              
|                                              
|2007                                           |  |         | 57    |           |  |   | 77    | 
|                                               |  |         |       |           |  |   |       | 
|Total minimum lease payments                   |  |         | 1,199 |           |  | $ | 5,655 | 
|                                               |  |         |       |           |  |   |       | 
|Less amounts representing interest             |  |         | 182   |           |  |   |       | 
|                                               |  |         |       |           |  |   |       | 
|Present value of future minimum lease payments |  | $       | 1,017 |           |  |   |       | 
|                                               |  |         |       |           |  |   |       | 

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Operating lease expense under such arrangements was approximately $3.5 million
for each of the fiscal years ended January 25, 2003, January 26, 2002 and
January 27, 2001, respectively. Amortization of assets recorded under capital
leases is included with depreciation expense in the Companys results of
operations.

At January 25, 2003 and January 26, 2002, property and equipment include
capitalized vehicle leases of approximately $3.1 million and $2.3 million,
respectively, and accumulated amortization of approximately $2.1 million and
$1.7 million, respectively.

Litigation

The Company is involved from time to time in lawsuits that arise in the normal
course of business. The Company actively and vigorously defends all lawsuits.
Management believes that there are no lawsuits that will have a material effect
on the Companys financial position, results of operations or liquidity.

13.     Stock Purchase Warrants and Redeemable Preferred Stock

On February 26, 1997, Holdings issued to New York Life Insurance Company and
American Home Assurance Company (the Outside Investors) common stock purchase
warrants (Warrants) to acquire 6,962 shares of Holdings common stock for an
aggregate consideration of $0.1 million. The Warrants can be exercised at any
time through February 26, 2007 for an exercise price of approximately $186 per
share. No Warrants have been exercised as of January 25, 2003.

On December 20, 1999, Holdings authorized 2,500 shares of Series B non voting,
cumulative, redeemable preferred stock with a par value of $0.01 per share
(the Holdings Series B Preferred Stock). Holdings issued 1,000 shares of
Holdings Series B Preferred Stock to Fenway during fiscal year 2000 for
approximately $4.9 million, with a liquidation preference of $4,938 per share
plus an additional amount of approximately $2.0 million divided by the total
number of outstanding and accrued shares of Holdings Series B Preferred Stock
as of the event of liquidation. A sale of all or substantially all
of Holdings assets, merger or other change of control constitutes a liquidation.
Dividends are cumulative at an annual rate of $953.97 per share and are payable
in-kind, semi annually in arrears on February 21 and August 21, beginning
February 21, 2000. The Holdings Series B Preferred Stock ranks junior to
outstanding Holdings Series A Preferred Stock, if any, and is senior to
Holdings common stock in dividends and liquidation. The Holdings Series B
Preferred Stock is redeemable upon a change of control or a public offering, as
defined in the indenture governing the Senior Subordinated Notes. The
redemption price will be equal to the amount that would be paid to the Holdings
Series B Preferred Stock under a liquidation. The difference between the
carrying value and redemption amount is being accreted as a charge to retained
earnings using the interest method. Holdings Series B Preferred Stock is
reflected in the financial statements of the Company because the Company is a
wholly-owned subsidiary of Holdings and the proceeds of the Series B Preferred
Stock were used to retire a portion of the Companys Senior Subordinated Notes.

On December 29, 2000, in connection with the October 2000 Transaction as
described in Note 7, Holdings authorized 2,500 shares of Series C non voting,
cumulative, redeemable preferred stock with a par value of $0.01 per share
(the Holdings Series C Preferred Stock). Holdings issued 1,000 shares of
Holdings Series C Preferred Stock to Fenway II during fiscal 2001 for
approximately $4.8 million, with a liquidation preference of $4,761 per share
plus an additional amount of approximately $2.3 million divided by the total
number of outstanding and accrued shares of Holdings Series C Preferred Stock
as of the event of liquidation. A sale of all or substantially all

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of Holdings assets, merger or other change of control constitutes a liquidation.
Dividends are cumulative at an annual rate of $985.42 per share and are payable
in-kind, semi annually in arrears on April 13 and October 13, beginning April
13, 2001. The Holdings Series C Preferred Stock ranks junior to outstanding
Holdings Series A Preferred Stock, if any, pari passu,with Holdings Series B
Preferred Stock and senior to Holdings common stock in dividends and
liquidation. The Holdings Series C Preferred Stock is redeemable upon a change
of control or a public offering, as defined in the indenture governing the
Senior Subordinated Notes. The redemption price will be equal to the amount
that would be paid to the Holdings Series C Preferred Stock under a
liquidation. The difference between the carrying value and redemption amount is
being accreted as a charge to retained earnings using the interest method.
Holdings Series C Preferred Stock is reflected in the financial statements of
the Company because the Company is a wholly-owned subsidiary of Holdings and
the proceeds of the Series C Preferred Stock were used to retire a portion of
the Companys Senior Subordinated Notes.

14.     Stock Options

Holdings 1997 Stock Option Plan (the Option Plan) provides for the granting
of either incentive stock options or nonqualified stock options to purchase
shares of Holdings common stock and for other stock-based awards to officers,
directors, key employees, consultants and advisors who, in the opinion of
Holdings Board of Directors, are in a position to make a significant
contribution to the success of Holdings and its subsidiaries. The Option Plan
authorized the issuance of options to purchase up to an aggregate of 20,245
shares of Holdings common stock, 11,528 of which shall be for Series A Options
and 8,717 of which shall be for Series B Options.

Nonqualified Series A Options of 11,528 were granted to certain officers of the
Company in connection with the Fenway Acquisition effective February 26, 1997
in exchange for options to acquire shares of the predecessor to Holdings. The
exercise price of Series A Options is approximately $36 per share and
represents the difference between the fair market value of Holdings common
stock at the date of grant and the total fair value of the exchanged options
which was recognized as a capital contribution to Holdings of approximately
$3.8 million, or approximately $328 per share. The total fair value of the
exchanged options was recognized as a capital contribution to Holdings because
the exchanged options represented a portion of the purchase price of Holdings.
The basis used to determine the fair market value of Holdings common stock was
the purchase price paid by Fenway as of the date of the Fenway Acquisition,
which was the date of grant of the Series A Options. No Series A Options were
exercised during the years ended January 25, 2003, January 26, 2002 or January
27, 2001. As of January 25, 2003, 10,794 Series A Options are fully vested and
exercisable.

Nonqualified Series B Options of 8,567 were granted in August 1997 in
connection with the Fenway Acquisition to certain officers of the Company with
an exercise price of approximately $364 per share. Approximately 65% of the
options (Series B Basic) become exercisable, subject to the achievement of
certain target earnings by Holdings and continued employment of the
optionholders, at the rate of 20% per year commencing with the Companys fiscal
year ended January 31, 1998. Holdings is deemed to have achieved the target
earnings in a given fiscal year if Holdings net income before interest, taxes,
depreciation, amortization, extraordinary or unusual gains or losses,
management fees payable to Fenway Partners, Inc., an affiliate of Fenway,
directors fees and expenses payable to Fenway representatives and fees and
expenses associated with acquisitions equals or exceeds the target amount set
by the Board of Directors for such fiscal year. The remaining 35% of Series B
Options (Series B Extra) vest upon a change of control of the Company and the
attainment of certain internal rate of return objectives by Holdings
stockholders as defined in the Option Plan. The exercise price of Series B
Options granted in August 1997 was approximately $364 per share at the time
such Series B Options were granted. On April 24, 1998, in connection with the
April 1998 Transactions, the exercise price of Series B Options that were not
vested as of April 24, 1998 was

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reduced. The exercise price of (i) Series B Options of 7,465 that were not vested (as such term is defined in the Option
Plan) as of April 24, 1998 is approximately $186 per share and (ii) Series B
Options of 1,102 that were vested (as such term is defined in the Option Plan)
as of April 24, 1998 is approximately $364 per share. Upon the vesting of the
Series B Options, Holdings will recognize compensation expense related to the
Series B Options based upon the difference, if any, between the estimated fair
value of Holdings common stock at the time such options vest and the exercise
prices of $186 or $364, respectively. During the years ended January 25, 2003,
January 26, 2002 and January 27, 2001, no Series B Basic options that vest
subject to the achievement of target earnings were exercised.

During the year ended January 25, 2003, 171 Series B Basic options became
vested at an exercise price of approximately $186 per share. In addition, 909
Series B Basic options were forfeited due to the failure to meet certain target
earnings.

During the year ended January 26, 2002, 685 Series B Basic options were granted
and became exercisable on a pro rata basis over the years ended in 2002 and
2003. One hundred seventy one of these Series B Basic options became vested
during the year ended January 26, 2002 at an exercise price of approximately
$186 per share. In addition, 906 Series B Basic options were forfeited due to
the failure to meet certain target earnings.

During the year ended January 27, 2001, 250 Series B Basic options were granted
and became exercisable on a pro rata basis over the years ended 2001, 2002 and
2003, and the remainder of which become exercisable subject to the achievement
of certain performance objectives. Eighty three of these Series B Basic options
became vested during the year ended January 27, 2001 at an exercise price of
approximately $186 per share. In addition, 598 Series B Basic options were
forfeited due to the failure to meet certain target earnings.

The fair values of options granted were estimated at the date of the grant
using the minimum value option-pricing model based on the following
assumptions:

|                        |  |                  |   |                  |  |                  |     |         |  |  |     | 
|----------------------- |  | ---------------- | - | ---------------- |  | ---------------- | --- | ------- |  |  | --- | 
|                        |  |                  |   |                  |  | Year ended       |     |         |  | 
|                        |  | January 25, 2003 |   | January 26, 2002 |  | January 27, 2001
|                        |  |                  |   |                  |  |                 
|Risk-free interest rate |  |                  |  |                  |  |                  | 6.0 |         |  |  | 6.0 | 
|                       
|                       
|                       
|                       
|Dividend yield          |  |                  |  |                  |  |                  | 0.0 |         |  |  | 0.0 | 
|                       
|                       
|                       
|                       
|Expected life           |  |                  |  |                  |  | 5 years          |     | 5 years
|                       
|                       
|                       
|                       
|Volatility              |  |                  |  |                  |  |                  |    |         |  |  |    | 

A summary of the status of the shares under the Option Plan is as follows:

|                                   |  |                  |        |                  |  |                  |        |   |  |  |        |  
|---------------------------------- |  | ---------------- | ------ | ---------------- |  | ---------------- | ------ | - |  |  | ------ | -
|                                   |  |                  |        |                  |  | Year ended       |        |   |  | 
|                                   |  | January 25, 2003 |        | January 26, 2002 |  | January 27, 2001
|                                   |  |                  |        |                  |  |                 
|Outstanding, beginning of year     |  |                  | 17,112 |                  |  |                  | 18,134 |   |  |  | 18,515 |  
|                                  
|                                  
|                                  
|                                  
|Exercised                          |  |                  |       |                  |  |                  |       |   |  |  |       |  
|                                  
|                                  
|                                  
|                                  
|Granted                            |  |                  |       |                  |  |                  | 685    |   |  |  | 500    |  
|                                  
|                                  
|                                  
|                                  
|Forfeited                          |  |                  | (1,553 | )                |  |                  | (1,707 | ) |  |  | (881   | )
|                                   |  |                  |        |                  |  |                  |        |   |  |  |        |  
|Outstanding, end of year           |  |                  | 15,559 |                  |  |                  | 17,112 |   |  |  | 18,134 |  
|                                   |  |                  |        |                  |  |                  |        |   |  |  |        |  
|Options exercisable at end of year |  |                  | 12,284 |                  |  |                  | 12,601 |   |  |  | 12,596 |  
|                                   |  |                  |        |                  |  |                  |        |   |  |  |        |  

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14.     Stock Options (continued)

Additional information regarding stock options granted in connection with the
Option Plan is outlined below:

|                                                                                 |  |                  |        |                  |  |                  |       |        |  |          |       |          |  |            |        |          |  |          |       |  |  |  |       |  |  |  |        |  |  |  |       |  |  |  |       | 
|-------------------------------------------------------------------------------- |  | ---------------- | ------ | ---------------- |  | ---------------- | ----- | ------ |  | -------- | ----- | -------- |  | ---------- | ------ | -------- |  | -------- | ----- |  |  |  | ----- |  |  |  | ------ |  |  |  | ----- |  |  |  | ----- | 
|                                                                                 |  |                  |        |                  |  |                  |       |        |  |          |       |          |  | Year ended |        |          |  |          |       |  |  |  |       |  |  | 
|                                                                                 |  | January 25, 2003 |        | January 26, 2002 |  | January 27, 2001
|                                                                                 |  |                  |        |                  |  |                 
|                                                                                 |  | Series           |        | Series B         |  | Series B         |       | Series |  | Series B |       | Series B |  | Series     |        | Series B |  | Series B
|                                                                                 |  | A                |        | Basic            |  | Extra            |       | A      |  | Basic    |       | Extra    |  | A          |        | Basic    |  | Extra   
|                                                                                 |  |                  |        |                  |  |                  |       |        |  |          |       |          |  |            |        |          |  |         
|Weighted average fair value of
options at grant date                             |  |                  |       |                  |  |                  |      |        |  |          |      |          |  |            |       |          |  |          | 52    |  |  |  |      |  |  |  |       |  |  |  | 52    |  |  |  |      | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Weighted average exercise price
of all outstanding options                       |  |                  | 36     |                  |  |                  | 250   |        |  |          | 186   |          |  |            | 36     |          |  |          | 235   |  |  |  | 186   |  |  |  | 36     |  |  |  | 223   |  |  |  | 186   | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Weighted average exercise price
of options exercisable                           |  |                  | 36     |                  |  |                  | 285   |        |  |          |      |          |  |            | 36     |          |  |          | 298   |  |  |  |      |  |  |  | 36     |  |  |  | 303   |  |  |  |      | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Weighted average exercise price
of options granted during the
year               |  |                  |       |                  |  |                  |      |        |  |          |      |          |  |            |       |          |  |          | 186   |  |  |  |      |  |  |  |       |  |  |  | 186   |  |  |  |      | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Weighted average exercise price
of options exercised during the                  |  |                  |        |                  |  |                  |       |        |  |          |       |          |  |            |        |          |  |          |       |  |  |  |       |  |  |  |        |  |  |  |       |  |  |  |       | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|year                                                                             |  |                  |       |                  |  |                  |      |        |  |          |      |          |  |            |       |          |  |          |      |  |  |  |      |  |  |  |       |  |  |  |      |  |  |  |      | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Weighted average exercise price
of options expired and forfeited
during the year |  |                  |       |                  |  |                  | 197   |        |  |          |      |          |  |            |       |          |  |          | 189   |  |  |  |      |  |  |  |       |  |  |  | 192   |  |  |  |      | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Weighted average remaining
contractual life of options                           |  |                  |        |                  |  |                  |       |        |  |          |       |          |  |            |        |          |  |          |       |  |  |  |       |  |  |  |        |  |  |  |       |  |  |  |       | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|outstanding                                                                      |  |                  | 4.1    |                  |  |                  | 5.0   |        |  |          | 4.1   |          |  |            | 5.1    |          |  |          | 6.0   |  |  |  | 5.1   |  |  |  | 6.1    |  |  |  | 7.0   |  |  |  | 6.1   | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Options outstanding at end of year                                               |  |                  | 10,794 |                  |  |                  | 2,316 |        |  |          | 2,449 |          |  |            | 11,161 |          |  |          | 3,447 |  |  |  | 2,504 |  |  |  | 11,161 |  |  |  | 4,469 |  |  |  | 2,504 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Options exercisable at end of year                                               |  |                  | 10,794 |                  |  |                  | 1,490 |        |  |          |      |          |  |            | 11,161 |          |  |          | 1,440 |  |  |  |      |  |  |  | 11,161 |  |  |  | 1,435 |  |  |  |      | 

15.     Related Party Transactions

Fenway Partners Resources, Inc., an affiliate of Fenway (Fenway Resources),
provides consulting and advisory services to Holdings and the Company pursuant
to a consulting agreement effective April 1, 2002, and as amended on December
20, 2002 (the Consulting Agreement) among the Company, Holdings and Fenway
Resources. Pursuant to the Consulting Agreement, the Company pays Fenway
Resources a quarterly consulting fee of $12,500 plus all out-of -pocket
expenses incurred by Fenway Resources. For the fiscal year ended January 25,
2003, the Company paid Fenway Resources consulting fees of approximately $0.04
million and reimbursed Fenway Resources an immaterial amount for out-of-pocket
expenses.

Fenway Partners, Inc., an affiliate of Fenway (Fenway Partners), provides
management services to Holdings and the Company pursuant to an amended and
restated management agreement (the Management Agreement) among Holdings, the
Company and Fenway Partners. Pursuant to the Management Agreement, Fenway
Partners provides Holdings and the Company with general management, advisory
and consulting services with respect to the Companys business and with respect
to such other matters as the Company may reasonably request from time to time,
including, without limitation, strategic planning, financial planning, business
acquisition and general business development services. The Company paid
management fees of approximately $0.3 million in each of the fiscal years ended
January 25, 2003, January 26, 2002 and January 27, 2001, for management and
other advisory services. In

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addition, the Company has reimbursed Fenway Partners for certain related expenses incurred in connection with rendering
such services in an amount equal to approximately $0.06 million, $0.1 million
and $0.1 million for the fiscal years ended January 25, 2003, January 26, 2002
and January 27, 2001, respectively.

Holdings, Fenway, the Outside Investors, Company management and all of the
other stockholders and option holders of Holdings are party to a stockholders
agreement (the Stockholders Agreement) that, among other things, provides
for tag-along rights, registration rights, restrictions on the transfer of
shares held by parties to the Stockholders Agreement, certain rights of first
refusal for Holdings and certain preemptive rights for certain stockholders.
The Stockholders Agreement also provides that the parties thereto will vote
their shares in the same manner as Fenway in connection with certain
transactions and that Fenway will be entitled to fix the number of directors of
Holdings. Pursuant to the Stockholders Agreement, Fenway is entitled to
designate a sufficient number of directors to maintain a majority of the board
of directors of Holdings and Donald R. Jensen is entitled to designate one
director.

On October 1, 2002, the Company and Holdings entered into a promissory note
permitting Holdings to borrow up to $4.8 million for purposes of repurchasing
Holdings Discount Notes. The promissory note bears interest at 14.0% and
matures on October 1, 2009. Holdings borrowed approximately $1.04 million from
the Company under the promissory note on October 11, 2002 to fund its
repurchase of $6.801 million in face value of its Discount Notes. In addition,
Holdings borrowed approximately $0.62 million from the Company under the
promissory note on November 27, 2002 to fund its repurchase of $3.057 million
in face value of its Discount Notes.

On May 23, 2002, the Company purchased 25.08 shares of Iron Age Holdings
Corporations Series B non voting, cumulative, redeemable preferred stock with
a par value of $.01 per share (the Holdings Series B Preferred Stock) from
certain officers of the Company, in exchange for the unpaid balance of
principal and accrued interest of their outstanding Term Promissory Notes in
the amount of approximately $0.14 million. Following the purchase, these
officers held 22.67 shares of Holdings Series B Preferred Stock. The Company
recorded $0.13 million as stock-based compensation for the year ended January
25, 2003.

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.

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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
IRON AGE CORPORATION
January 25, 2003

|                             |                                |                                 |  |              |         |            |  |           |         |             |  |                |   |  |  |   |         |     |  |   |         | 
|---------------------------- | ------------------------------ | ------------------------------- |  | ------------ | ------- | ---------- |  | --------- | ------- | ----------- |  | -------------- | - |  |  | - | ------- | --- |  | - | ------- | 
|COL. A                       |                                | COL. B                          |  | COL. C       |         | COL. D     |  | COL. E   
|                             |                                |                                 |  |              |         |            |  |          
|                             |                                |                                 |  |              |         |            |  | Additions |         |             |  |                |   |  |  |  
|                             |                                |                                 |  |              |         |            |  |           |         |             |  |                |   |  |  |  
|                             |                                |                                 |  |              |         |            |  |           |         |             |  | Charged to     |   |  |  |   |         |     |  |  
|                             |                                |                                 |  | Balance at   |         | Charged to |  | Other     |         |             |  |                |   |  |  |  
|                             |                                |                                 |  | Beginning of |         | Costs and  |  | Accounts |         | Deductions |  | Balance at End
|Descriptions                 |                                | Period                          |  | Expenses     |         | Describe   |  | Describe  |         | Of Period  
|                             |                                |                                 |  |              |         |            |  |           |         |            
|Year ended January 25, 2003: |                                |                                 |  |              |         |            |  |           |         |             |  |                |   |  |  |   |         |     |  |  
|                            
|                            
|                            
|                            
|                             | Deducted from assets accounts: |                                 |  |              |         |            |  |           |         |             |  |                |   |  |  |   |         |     |  |   |        
|                            
|                            
|                            
|                            
|                             |                                | Allowance for doubtful
accounts |  | $            | 431,000 |            |  | $         | 331,000 |             |  |                |  |  |  | $ | 267,000 | (1) |  | $ | 495,000 | 
|                            
|                            
|                            
|                            
|Year ended January 26, 2002: |                                |                                 |  |              |         |            |  |           |         |             |  |                |   |  |  |   |         |     |  |  
|                            
|                            
|                            
|                            
|                             | Deducted from assets accounts: |                                 |  |              |         |            |  |           |         |             |  |                |   |  |  |   |         |     |  |   |        
|                            
|                            
|                            
|                            
|                             |                                | Allowance for doubtful
accounts |  | $            | 612,000 |            |  | $         | 418,000 |             |  |                |  |  |  | $ | 599,000 | (1) |  | $ | 431,000 | 
|                            
|                            
|                            
|                            
|Year ended January 27, 2001: |                                |                                 |  |              |         |            |  |           |         |             |  |                |   |  |  |   |         |     |  |  
|                            
|                            
|                            
|                            
|                             | Deducted from assets accounts: |                                 |  |              |         |            |  |           |         |             |  |                |   |  |  |   |         |     |  |   |        
|                            
|                            
|                            
|                            
|                             |                                | Allowance for doubtful
accounts |  | $            | 444,000 |            |  | $         | 565,000 |             |  |                |  |  |  | $ | 397,000 | (1) |  | $ | 612,000 | 

(1)  Uncollectible accounts written off, net of recoveries.




Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

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##### Table of Contents






Part III




Item 10. Directors and Executive Officers of the Registrant.

The following table sets forth certain information regarding the Companys
directors and executive officers, including their respective ages, as of May
12, 2003.

|                  |  |     |    |          |  |                                                                                   
|----------------- |  | --- | -- | -------- |  | ----------------------------------------------------------------------------------
|Name              |  | Age |    | Position
|                  |  |     |    |         
|William J. Mills  |  |     | 43 |          |  | Chief Executive Officer, President and Director                                   
|                 
|                 
|                 
|                 
|Bart R.
Huchel    |  |     | 47 |          |  | Vice President-Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
|                 
|                 
|                 
|                 
|Richard A. Kusmer |  |     | 50 |          |  | Executive Vice President, Sales and Marketing                                     
|                 
|                 
|                 
|                 
|Sean M. Cumbie    |  |     | 43 |          |  | Executive Vice President, Operations                                              
|                 
|                 
|                 
|                 
|Dale F. Morrison  |  |     | 54 |          |  | Chairman and Director                                                             
|                 
|                 
|                 
|                 
|Andrea Geisser    |  |     | 60 |          |  | Director                                                                          
|                 
|                 
|                 
|                 
|John Q. Anderson  |  |     | 51 |          |  | Director                                                                          

William J. Millsis Chief Executive Officer and President of the Company.
Prior to February 1, 1999, he was President and Chief Operating Officer of the
Company. Mr. Mills became a director of the Company in 1995. Mr. Mills
joined the Company in 1987 as a District Manager before moving on to manage all
national accounts and assume the position of National Sales Manager. He was
promoted to regional Vice President of Sales in 1991 and to Executive Vice
President in 1994. Prior to 1987, he held various positions at Endicott Johnson
in product development, sales, importing and sales management.

Bart R. Huchelis Vice President-Finance, Chief Financial Officer and
Treasurer of the Company. Mr. Huchel is responsible for all financial matters,
including Accounting, Treasury, Taxes and Investor Relations. Prior to August
2001, he was the Chief Financial Officer of HVL, Inc., a manufacturer and
distributor of dietary supplements. From October 1995 to January 1999, he was
Vice President-Corporate Development for Centimark Corporation, a national
roofing contracor, where he directed acquisition, financing and planning
activities. Prior to October 1995, he was a senior manager in Ernst &Young,
LLPs business valuation practice. Prior to 1994, he held various financial
management positions with Westinghouse Credit Corporation, Allegheny
International and Texas Instruments.

Richard A. Kusmerbecame Executive Vice President, Sales and Marketing of
the Company in November 2002. Prior to joining Iron Age, Mr. Kusmer was Vice
President, General Manager of Fisher Safety, a division of Fisher Scientific
from 2000 to 2001. Mr. Kusmer also was Vice President, Sales and Marketing,
Americas for the automotive group of Allied Signal from 1997 to 2000 and Vice
President-Northeast Account Group for Coca Cola USA from 1989 to 1997. Mr
Kusmer has also held various other general management, sales and marketing
positions within the consumer environment industry during his 27 year career.

Sean M. Cumbiebecame Executive Vice President, Operations of the Company
in September 2002. Mr. Cumbie is responsible for Store Operations, Purchasing,
Distribution, Transportation, Customer Service, Information Technology and
Facilities. Prior to joining the Company, Mr. Cumbie was Executive Vice
President of Operations of Fatbrain.com, a division of Barnes & Noble.com from
October 1998 to May 2002. From October 1996 to September 1998, Mr. Cumbie
owned Cumbie and Associates, Inc., a logistics management consulting firm.
From January 1993 to November 1996, Mr. Cumbie served as Vice President of
Logistics for West Marine, Inc., a retailer of recreational boating supplies
and apparel.

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##### Table of Contents



Dale F. Morrisonbecame Chairman and a director of the Company in June
2002. Mr. Morrison is Chief Executive Officer of Fenway Partners Resources,
Inc. Prior to joining Fenway Partners Resources, Inc., from 2000 to 2001, Mr.
Morrison was Chief Executive Officer of Ci4net, a technology equity holding
company. From 1995 to 2000, Mr. Morrison was with Campbell Soup Company and
served as President, Chief Executive Officer and a director from 1997 to 2000.
Mr. Morrison currently serves as a director of several companies, including
Aurora Foods, Inc. and Simmons Company.

Andrea Geisserbecame a director of the Company in 1997. Mr. Geisser has
been a Managing Director of Fenway Partners since its formation in 1994. From
February 1989 to June 1994, Mr. Geisser was a Managing Director of Butler
Capital Corporation. From 1986 to 1989, Mr. Geisser served as a Managing
Director of Onex Investment Corporation, the largest Canadian leveraged buyout
company. Mr. Geisser currently serves as a director of Aurora Foods, Inc., DCI
Holdings, Inc. and Harry Winston, Inc.

John Q. Andersonbecame a director of the Company in 2001. Mr. Anderson
is Chairman of Big Wheel Partners, Inc., an affiliate of Fenway Partners,
investing in transportation and logistics companies. From May 1996 to October
1999, he served as Executive Vice-President of CSX Transportation. Prior to
that, he was with BNSF and served as a senior executive in charge of sales and
marketing with additional responsibilities for field operations. Prior to
that, Mr. Anderson was with McKinsey & Company. Mr. Anderson is a director of
Transport Industries, L.P. and elogex, Inc.

All directors are elected and serve until a successor is duly elected and
qualified or until the earlier of his death, resignation or removal. There are
no family relationships between any of the directors or executive officers of
the Company. The executive officers of the Company are elected by and serve at
the discretion of the Board of Directors.

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##### Table of Contents






Item 11. Executive Compensation.

The following table sets forth information concerning the compensation
earned in fiscal 2001, 2002 and 2003 by Mr. Mills, the Companys Chief
Executive Officer, and each of the two other most highly compensated executive
officers of the Company (collectively, the Named Executive Officers). The
current compensation arrangements, if any, for these officers are described in
Employment Agreements.

Summary Compensation Table

|                                                                                   |  |          |      |            |  |                     |         |                 |  |  |        |  |  |           |        |     
|---------------------------------------------------------------------------------- |  | -------- | ---- | ---------- |  | ------------------- | ------- | --------------- |  |  | ------ |  |  | --------- | ------ | ----
|                                                                                   |  |          |      |            |  | Annual Compensation |         |                 |  | 
|                                                                                   |  |          |      |            |  |                     |         |                 |  | 
|                                                                                   |  |          |      |            |  |                     |         |                 |  |  |        |  |  | All Other
|Name and Position                                                                  |  | Year (1) |      | Salary ($) |  | Bonus($)(2)         |         | Compensation($)
|                                                                                   |  |          |      |            |  |                     |         |                
|William J. Mills                                                                   |  |          | 2001 |            |  |                     | 217,253 |                 |  |  | 51,600 |  |  |           | 13,237 | (3) 
|President and Chief Executive Officer                                              |  |          | 2002 |            |  |                     | 211,087 |                 |  |  | 39,070 |  |  |           | 11,303 | (4) 
|                                                                                   |  |          | 2003 |            |  |                     | 229,744 |                 |  |  |       |  |  |           | 6,300  | (5) 
|                                                                                  
|Bart R. Huchel                                                                     |  |          | 2002 |            |  |                     | 57,732  |                 |  |  |       |  |  |           | 90     | (6) 
|Vice President/Finance, Chief
Financial Officer, Treasurer and
Assistant Secretary |  |          | 2003 |            |  |                     | 128,172 |                 |  |  |       |  |  |           | 360    | (7) 
|                                                                                  
|Keith A. McDonough                                                                 |  |          | 2001 |            |  |                     | 140,628 |                 |  |  | 34,400 |  |  |           | 11,032 | (8) 
|Formerly Executive Vice President                                                  |  |          | 2002 |            |  |                     | 137,689 |                 |  |  | 26,659 |  |  |           | 8,037  | (9) 
|and Chief Operating Officer                                                        |  |          | 2003 |            |  |                     | 134,750 |                 |  |  |       |  |  |           | 4,771  | (10)



|(1)  |  | 2001: Fiscal year ended January 27, 2001.
2002: Fiscal year ended January 26, 2002.
2003: Fiscal year ended January 25, 2003.                                                                                               
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Bonuses earned in fiscal 2000 were paid in fiscal 2001. Bonuses earned
in fiscal 2001 were paid in fiscal 2002. No bonuses were earned in fiscal
2002 or 2003.                                                              
|    
|(3)  |  | Includes Iron Age allocations of $7,210 under defined contribution plan
for the Plan Year ended December 31, 2000 and group life insurance
premiums of $300 paid by Iron Age during the Plan Year ended December 31,
2000.  
|    
|(4)  |  | Includes Iron Age allocations of $5,100 under defined contribution plan
for the Plan Year ended December 31, 2001 and group life insurance
premiums of $300 paid by Iron Age during the Plan Year ended December 31,
2001.  
|    
|(5)  |  | Includes Iron Age allocations of $6,000 under defined contribution plan
for the Plan Year ended December 31, 2002 and group life insurance
premiums of $300 paid by Iron Age during the Plan Year ended December 31,
2002.  
|    
|(6)  |  | Represents group life insurance premiums of $90 paid by Iron Age during
the Plan Year ended December 31, 2001.                                                                                                              
|    
|(7)  |  | Represents group life insurance premiums of $360 paid by Iron Age during
the Plan Year ended December 31, 2002.                                                                                                             
|    
|(8)  |  | Includes Iron Age allocations of $7,210 under defined contribution plan
for the Plan Year ended December 31, 2000 and group life insurance
premiums of $275 paid by Iron Age during the Plan Year ended December 31,
2000   
|    
|(9)  |  | Includes Iron Age allocations of $4,950 under defined contribution plan
for the Plan Year ended December 31, 2001 and group life insurance
premiums of $300 paid by Iron Age during the Plan year ended December 31,
2001.  
|    
|(10) |  | Represents Iron Age allocations of $4,471 under defined contribution plan
for the Plan Year ended December 31, 2002 and group life insurance
premiums of $300 paid by Iron Age during the Plan Year ended December 31,
2002.

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##### Table of Contents



Aggregated Fiscal Year-End Option Values

The following table sets forth information concerning the value of
unexercised stock options granted under Holdings 1997 Stock Option plan (the Option
Plan) at the end of fiscal 2003 for the Named Executive Officers.

Aggregated Fiscal Year-End Option Values

|                   |                  |               |                        |               |                      |  |  |           | 
|------------------ | ---------------- | ------------- | ---------------------- | ------------- | -------------------- |  |  | --------- | 
|                   |                  |               | Number of Securities   |               | Value of Unexercised
|                   |                  |               | Underlying Unexercised |               | In-the-Money Options
|                   |                  |               | Options at             |               | at Fiscal Year      
|                   |                  |               | Fiscal Year End(#)(1)  |               | End($)(2)           
|                   |                  |               |                        |               |                     
|                   |                  |               | Exercisable/           |               | Exercisable/        
|Name               |                  | Unexercisable |                        | Unexercisable
|                   |                  |               |                        |              
|William J. Mills   |                  |               |                        |               |                      |  |  |          
|                  
|                  
|                  
|                  
|                   | Series A         |               |                        | 2,194.43/0    |                      |  |  | 327,321/0 | 
|                  
|                  
|                  
|                  
|                   | Series BBasic B |               |                        | 248/177       |                      |  |  | 0/0       | 
|                  
|                  
|                  
|                  
|                   | Series BExtra B |               |                        | 0/600         |                      |  |  | 0/0       | 
|                  
|                  
|                  
|                  
|Keith A. McDonough |                  |               |                        |               |                      |  |  |          
|                  
|                  
|                  
|                  
|                   | Series A         |               |                        | 2,194.42/0    |                      |  |  | 327,321/0 | 
|                  
|                  
|                  
|                  
|                   | Series BBasic B |               |                        | 227/158       |                      |  |  | 0/0       | 
|                  
|                  
|                  
|                  
|                   | Series BExtra B |               |                        | 0/600         |                      |  |  | 0/0       | 

(1)  Options to acquire common stock of
Holdings.
(2)  Value based on assumed value at January 25, 2003 of $185.52 per share.

Long-Term Incentive Plan Awards

The Iron Age Corporation 2002 Management Incentive Plan (Incentive Plan)
provides awards in the form of Class A and Class B Units to directors and
members of management based upon the net proceeds (Net Proceeds) arising out
of a sale of substantially all the assets of Iron Age, all the stock of Iron
Age or at least 50% of the stock of Holdings in a single transaction or a
series of transactions (collectively a Liquidity Event). Net Proceeds are
defined as all the proceeds of a Liquidity Event, minusall debt of Holdings,
Iron Age and all subsidiaries, minusthe Preferred Stock initial share value,
minusall transaction costs and fees and minusthe value of any additional
securities, if any, which may be issued by Holdings in the future and any
accrued and unpaid dividends thereon. All awards are paid in cash following a
Liquidity Event.

The aggregate number of Class A Units that may be granted under the
Incentive Plan is 100 and the aggregate number of Class B Units is 200. The
value of a Class A Unit is 1% of the lesserof 10% of Net Proceeds or
$2,000,000 times the vested percentage. The value of a Class B Unit is .5% of
the lesserof (i) 5% of Net Proceeds minus$2,000,000 or (ii) the Preferred
Stock initial share value and the value of any additional securities, if any,
plusaccrued and unpaid dividends thereon, and plus$18,000,000 times the
vested percentage.

Class A and Class B Units vested ratably over three years of participation
beginning on the later of February 1, 2003 or the second anniversary of
employment.

On December 20, 2002, Iron Age awarded 100 Class A Units and 186.66 Class
B Units to certain management employees and directors.

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##### Table of Contents



The following table sets forth information concerning Management Incentive
awards made in fiscal 2003 for the applicable Named Executive Officers.

|                 |  |                      |    |                      |  |                |    |  |  |                   |         | 
|---------------- |  | -------------------- | -- | -------------------- |  | -------------- | -- |  |  | ----------------- | ------- | 
|                 |  |                      |    |                      |  |                |    |  |  | Estimated Future 
|                 |  |                      |    |                      |  |                |    |  |  | Payouts under    
|                 |  |                      |    |                      |  |                |    |  |  | Non-Stock        
|                 |  |                      |    |                      |  |                |    |  |  | Price-Based Plans
|Name             |  | No. of Class A Units |    | No. of Class B Units |  | Maximum ($)(1)
|                 |  |                      |    |                      |  |               
|William J. Mills |  |                      | 32 |                      |  |                | 32 |  |  |                   | 640,000 | 
|                
|                
|                
|                
|Bart R. Huchel   |  |                      | 12 |                      |  |                | 12 |  |  |                   | 240,000 | 



---

|(1) |  | It is only possible to estimate the maximum future value of Class A Units
because of the $2 Million ceiling. It is not possible to estimate the
maximum value of Class B Units because all calculations require a
Liquidity Event to occur at some future unknown date.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Compensation of Directors

The Company pays no compensation to its independent directors and pays no
additional remuneration to its employees or to executives of the Company for
serving as directors except for certain options provided to Mr. Anderson, under
the Option Plan of Holdings, certain awards granted to Mr. Morrison under the
Incentive Plan and a $3,750 per meeting fee paid to Mr. Anderson. On October
12, 2001, Mr. Anderson was granted 685 Series B Options at an exercise price of
$185.52 per share. One half of these Series B Options vest ratably over the
years ended in 2002 and 2003 and one half are subject to certain vesting
restrictions based upon performance. On December 20, 2002, Mr. Morrison was
granted 12 Class A Units and 12 Class B Units under the Incentive Plan. One
third of these Units vest ratably each February 1 of 2003, 2004 and 2005.

Employment Agreements

Mr. Mills is currently employed by the Company pursuant to an amended and
restated agreement dated August 1, 2002. Under this amended and restated
agreement, which is extended from year to year in the absence of a notice of
non-renewal given at least 90 days prior to end of each fiscal year, Mr. Mills
receives an annual salary of $240,000, subject to annual increases, and is
eligible for a bonus of not less than $120,000 based upon the Companys
achievement of EBITDA targets. If Mr. Mills is terminated other than for cause
or resigns voluntarily for good reason, he is entitled to receive continued
salary for 18 months and continued coverage under group health plans for one
year following his termination or resignation.

Mr. McDonough prior to his resignation on December 31, 2002 was employed
by the Company pursuant to an agreement dated November 20, 1995 and as amended
on May 28, 2002. Under this amended agreement, he is entitled to receive
continued salary for 18 months and continued coverage under group health plans
for one year following December 31, 2002. In lieu of further salary
continuation, Mr. McDonough is entitled to a lump-sum cash payment equal to six
months salary if he accepts full time employment with another employer on or
before June 30, 2003.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of Holdings (the Committee) was formed on
September 15, 1988 to function as an oversight board of the Company.
Membership as of January 25, 2003 consisted of Messrs. Anderson and Geisser.

Concurrent with the formation of the Committee on September 15, 1998, the
Audit Committee was formed. Membership as of January 25, 2003 consists of
Messrs. Anderson, Geisser, and LaFollette.

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##### Table of Contents



Compensation Committee Report on Executive Compensation

The Committee is responsible for the general compensation policies of the
Company, and in particular is responsible for setting and administering the
policies that govern executive compensation. The Committee evaluates the
performance of management and determines the compensation levels for the Chief
Executive Officer (the CEO) and the executive officers of the Company. The
CEO determines compensation levels for all other executive officers subject to
the informal approval of the Committee.

The objective of the Committee is to establish policies and programs to
attract and retain key executives, and to reward performance by these
executives which benefit the Company. The primary elements of executive
compensation are base salary, annual cash bonus and Incentive Plan awards. The
salary is based on factors such as the individual executive officers level of
responsibility, and comparison to similar positions in the Company and in
comparable companies. The annual cash bonuses are currently based on the
Companys performance measured against attainment of financial objectives.
Incentive Plan awards are intended to align the executive officers interests
with those of the Company and its stockholders in promoting a merger or sale of
the Company or Holdings, and are determined based on the executive officers
level of responsibility and contributions toward achieving the objectives of
the Company and its stockholders. Further information on each of these
compensation elements follows.

SALARIES

Base salaries are adjusted annually, following a review by the CEO. In the
course of the review, performance of the individual with respect to specific
objectives is evaluated, as are any increases in responsibility and salaries
for similar positions. The specific objectives for each executive officer are
set by the CEO, and will vary for each executive position and for each year.
Because the focus of the review is individual achievement, performance of the
Company does not weigh heavily in the result. When all reviews are completed,
the CEO makes a recommendation to the Committee for their review and final
approval.

With respect to the CEO, his employment agreement fixes his base salary,
but the Committee reviews and assesses of his performance and its expectations
as to his future contributions. The Committees review takes place annually.

ANNUAL CASH BONUSES

Certain of the Companys employees, including the CEO (pursuant to his
employment agreement), are eligible to receive annual cash bonuses based upon
the financial performance of the Company.

LONG-TERM INCENTIVE PLAN AWARDS

The Company adopted the Incentive Plan to provide long-term incentives to our
executive employees by granting them awards tied to a potential merger or sale
of Holdings or the Company. These Incentive Plan awards are intended to provide
an incentive to create value in Holdings and the Company, and to align their
interest with Holdings and its stockholders in consummating a merger or sale
transaction. In making grants, the Committee takes into account the total
number of units available for grant, prior grants outstanding, and estimated
requirements for future grants. Individual awards take into account the
executive officers contributions to the Company, scope of responsibilities,
strategies and operational goals. In determining unit grants for the CEO, the
Committee weighs all of the above factors, but also recognizes the CEOs
critical role in developing strategies for Holdings and the Company in
consummating a merger or sale transaction.

OTHER BENEFITS

Periodically, the Committee assesses the other benefits provided to
Executive Officers of the Company, including annual contributions to its
defined contribution pension plan.

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##### Table of Contents



The Committee continually reviews the Companys compensation programs to
ensure the overall package is competitive, balanced, and that proper incentives
and rewards are provided.

Compensation Committee:

John Q. Anderson
Andrea Geisser

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##### Table of Contents






Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table shows, as of January 25, 2003, the number of shares of
common stock of Holdings that could be issued upon exercise of outstanding
options, the weighted average exercise price of the outstanding options and the
remaining shares available for future issuance inder the Option Plan approved
by the shareholders of Holdings.

|                                                       |                  |     |                                      |        |                   |     |                  |     |                 |  |                      |     | 
|------------------------------------------------------ | ---------------- | --- | ------------------------------------ | ------ | ----------------- | --- | ---------------- | --- | --------------- |  | -------------------- | --- | 
|                                                       |                  |     | Equity Compensation Plan Information
|                                                       |                  |     |                                     
|                                                       |                  |     |                                      |        |                   |     |                  |     |                 |  | Number of securities
|                                                       |                  |     |                                      |        |                   |     |                  |     |                 |  | remaining available 
|                                                       |                  |     |                                      |        |                   |     |                  |     |                 |  | for                 
|                                                       |                  |     | Number of                            |        |                   |     |                  |     | future issuance
|                                                       |                  |     | securities to be                     |        | Weighted-         |     | under equity    
|                                                       |                  |     | issued upon                          |        | average exercise  |     | compensation    
|                                                       |                  |     | exercise of                          |        | price of          |     | plans (excluding
|                                                       |                  |     | outstanding                          |        | outstanding       |     | securities      
|                                                       |                  |     | options, warrants                    |        | options, warrants |     | reflected in    
|                                                       |                  |     | and rights                           |        | and rights        |     | column (a))     
|Plan Category                                          |                  | (a) |                                      | (b)    |                   | (c)
|Equity compensation
plans approved by
shareholders     |                  |     |                                      |        |                   |     |                  |     |                 |  |                      |    
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Series A         |     |                                      | 10,794 |                   |     | $                | 36  |                 |  |                      | 367 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Series B Basic-B |     |                                      | 2,316  |                   |     | $                | 250 |                 |  |                      | 636 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Series B Extra-B |     |                                      | 2,449  |                   |     | $                | 186 |                 |  |                      | 610 | 
|                                                      
|                                                      
|                                                      
|                                                      
|Equity compensation
plans not approved
by shareholders |                  |     |                                     |        |                   |     |                 |     |                 |  |                     |    
|                                                      
|                                                      
|                                                      
|                                                      
|Total                                                  |                  |     | 15,559                               |        |                   | $   | 92               |     |                 |  | 1,613                |    

All of the Companys issued and outstanding capital stock is owned by
Holdings. As of May 12, 2003, the outstanding capital stock of Holdings
consisted of 99,991.94 shares of common stock, par value $0.01 per share,
999.13 shares of Holdings Series B Preferred Stock, par value $0.01 per share
and 1,000 shares of Holdings Series C Preferred Stock, par value $0.01 per
share.

The following table sets forth certain information as of May 12, 2003
regarding the beneficial ownership of (i) each class of voting securities of
Holdings by each person known to Holdings to own more than 5% of any class of
outstanding voting securities of Holdings and (ii) the equity securities of
Holdings by each director of the Company, each executive officer of the
Company, and the directors and executive officers of the Company as a group.
To the knowledge of the Company, each such stockholder has sole voting and
investment power as to the shares owned unless otherwise noted. Beneficial
ownership of the securities listed in the table has been determined in
accordance with the applicable rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended.

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##### Table of Contents



|                                                                                   |                                               |        |                              |       |                          |        |                          |       |               |        |           |       |               |  |       |   |  |  |       |  |  |  |     |   | 
|---------------------------------------------------------------------------------- | --------------------------------------------- | ------ | ---------------------------- | ----- | ------------------------ | ------ | ------------------------ | ----- | ------------- | ------ | --------- | ----- | ------------- |  | ----- | - |  |  | ----- |  |  |  | --- | - | 
|                                                                                   |                                               |        | Shares Beneficially Owned(1)
|                                                                                   |                                               |        | Common Stock                 |       | Series B Preferred Stock |        | Series C Preferred Stock
|                                                                                   |                                               |        |                              |       |                          |        |                         
|                                                                                   |                                               |        | Number of                    |       | Percentage of            |        | Number of                |       | Percentage of |        | Number of |       | Percentage of
|Name and Address                                                                   |                                               | Shares |                              | Class |                          | Shares |                          | Class |               | Shares |           | Class
|                                                                                   |                                               |        |                              |       |                          |        |                          |       |               |        |           |      
|Principal Stockholders:                                                            |                                               |        |                              |       |                          |        |                          |       |               |        |           |       |               |  |       |   |  |  |       |  |  |  |     |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Fenway Entities(2)                                                                 |                                               |        | 88,431.57                    |       |                          |        | 88.44                    | %     |               |        | 949.88    |       |               |  | 94.99 | % |  |  | 1,000 |  |  |  | 100 | %
|                                                                                   | 152
West 57th Street
New York, New York 10019 |        |                              |       |                          |        |                          |       |               |        |           |       |               |  |       |   |  |  |       |  |  |  |     |   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|New York Life Insurance Company(3)                                                 |                                               |        | 11,187.21                    |       |                          |        | 10.69                    |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|51
Madison Avenue
New York, NY 10010                                              
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|American Home Assurance Company(4)                                                 |                                               |        | 5,593.61                     |       |                          |        | 5.47                     |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|c/o AIG Global Investment Co.
200 Liberty Street
New York, NY 10281                |                                               |        |                              |       |                          |        |                          |       |               |        |           |       |               |  |       |   |  |  |       |  |  |  |     |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Directors and Executive Officers:                                                  |                                               |        |                              |       |                          |        |                          |       |               |        |           |       |               |  |       |   |  |  |       |  |  |  |     |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|William J
Mills(5)                                                                 |                                               |        | 2,442.43                     |       |                          |        | 2.38                     |       |               |        | 7.34      |       |               |  | *     |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Bart R. Huchel                                                                     |                                               |        |                             |       |                          |        |                         |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Richard A
Kusmer                                                                   |                                               |        |                             |       |                          |        |                         |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Sean M
Cumbie                                                                      |                                               |        |                             |       |                          |        |                         |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Keith A. McDonough(6)                                                              |                                               |        | 2,421.42                     |       |                          |        | 2.36                     |       |               |        | 4.90      |       |               |  | *     |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Bart R. Huchel                                                                     |                                               |        |                             |       |                          |        |                         |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Andrea Geisser(7)                                                                  |                                               |        |                             |       |                          |        |                         |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|John Q. Anderson(8)                                                                |                                               |        | 342.00                       |       |                          |        | *                        |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Dale F. Morrison(9)                                                                |                                               |        |                             |       |                          |        |                         |       |               |        |          |       |               |  |      |   |  |  |      |  |  |  |    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|All directors and executive officers as a group,
including the above named persons |                                               |        | 5,205.85                     |       |                          |        | 4.95                     | %     |               |        | 12.24     |       |               |  | 1.21  | % |  |  |      |  |  |  |    |  



---

|*   |  | Less than one percent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(1) |  | As used in this table, beneficial ownership means the sole or shared
power to vote, or to direct the voting of a security, or the sole shared
power to dispose, or direct the disposition, of a security and includes
options and warrants exercisable within 60 days.                                                                                                                                                                                                                                          
|   
|   
|   
|   
|(2) |  | Includes (a) 85,968.12 shares of common stock held by Fenway, (b)
2,463.45 shares of common stock held by its affiliated entities, FPIP, LLC
and FPIP Trust, LLC, (c) 921.52 shares of Holdings Series B Preferred
Stock held by Fenway, (d) 28.36 shares of Holdings Series B Preferred
Stock held by its affiliated entities, FPIP, LLC and FPIP Trust, LLC, and
(e) 1,000 shares of Holdings Series C Preferred Stock held by Fenway II,
an affiliate of Fenway.                                             
|   
|   
|   
|   
|(3) |  | Includes 4,641.66 shares of common stock subject to acquisition from
Holdings at a purchase price of $185.52 per share pursuant to a warrant
that expires on February 26, 2007.                                                                                                                                                                                                                                                                                                                                 
|   
|   
|   
|   
|(4) |  | Includes 2,320.83 shares of common stock subject to acquisition from
Holdings at a purchase price of $185.52 per share pursuant to a warrant
that expires on February 26, 2007.                                                                                                                                                                                                                                                                                                                                 
|   
|   
|   
|   
|(5) |  | Includes 2,194.43 shares of common stock that may be acquired upon the
exercise of outstanding Series A Options at an exercise price of $36.36
per share, 165 shares that may be acquired upon the exercise of
outstanding Series B Options at an exercise price of $363.60 per share and
83 shares that may be acquired upon the exercise of outstanding Series B
Options at an exercise price of $185.52 per share pursuant to the Option
Plan (as defined) of Holdings. See Management Equity Arrangements.
|   
|   
|   
|   
|(6) |  | Includes 2,194.42 shares of common stock that may be acquired upon the
exercise of outstanding Series A Options at an exercise price of $36.36
per share, 153 shares that may be acquired upon the exercise of
outstanding Series B Options at an exercise price of $363.60 per share and
74 shares that may be acquired upon the exercise of outstanding Series B
Options at an exercise price of $185.52 per share pursuant to the Option                                                                     

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##### Table of Contents



|    |  | Plan of Holdings. See Management Equity Arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(7) |  | Mr. Geisser is a limited partner of Fenway Partners, L.P., the general
partner of Fenway. Accordingly, Mr. Geisser may be deemed to beneficially
own shares owned by Fenway. Mr. Geisser is a member of Fenway Partners II,
LLC, the general partner of Fenway II, and accordingly may be deemed to
beneficially own shares owned by Fenway II. Mr. Geisser is a member of
FPIP, LLC and FPIP Trust, LLC and, accordingly, may be deemed to
beneficially own shares owned by such funds. Mr. Geisser disclaims
beneficial ownership of any such shares in which he does not have pecuniary
interests. The business address of Mr. Geisser is c/o Fenway Partners,
Inc., 152 West 57thStreet, New York, New York 10019.
|   
|   
|   
|   
|(8) |  | Represents 342 shares of common stock that may be acquired upon exercise
of outstanding Series B Options at an exercise price of $185.52 per share
pursuant to the Option Plan of Holdings. See Management Equity
Arrangements. Mr. Andersons business address is c/o Big Wheel Partners,
4190 Belfort Road, Jacksonville, Florida 32216.                                                                                                                                                                                                                                                                                                                                                                          
|   
|   
|   
|   
|(9) |  | Mr. Morrisons business address is c/o Fenway Partners Resources, Inc.,
152 West 57thStreet, New York, New York 10019.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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##### Table of Contents






Item 13. Certain Relationships and Related Transactions.

Management Equity Arrangements

Holdings adopted a Stock Option Plan (the Option Plan) for the benefit
of directors, executive officers, other employees, consultants and advisors of
Holdings and its subsidiaries on February 26, 1997. The Plan provides for
issuance of Series A options (Series A Options) and Series B options (Series
B Options). Series B Options are designated as either Series BBasic B
Options or Series BExtra B Options. Series A Options vest immediately in
full on the date such options are granted, Series BBasic B Options are subject
to certain time and performance vesting restrictions and Series BExtra B
Options vest only in connection with the consummation by Fenway of a sale,
other than to one of its affiliates, of its entire equity interest in Holdings
and the attainment of certain internal rate of return objectives. Holdings has
reserved 20,244.70 shares of Holdings common stock for issuance under the
Option Plan, 11,527.78 of which shares are reserved for Series A Options and
8,716.92 of which shares are reserved for Series B Options.

In February 1997, Holdings granted Series A Options to certain management
employees to purchase an aggregate of 11,527.78 shares of common stock at an
exercise price of $36.36 per share. These Series A Options were issued in
exchange for existing options for shares of the parent of the predecessor in
connection with the Fenway Acquisition. The Series A Options granted expire on
February 28, 2007. In August 1997, Holdings granted to certain management
employees Series BBasic B Options to purchase an aggregate of 5,508 shares of
common stock and Series BExtra B Options to purchase an aggregate of 3,058.77
shares of common stock. All of the Series B Options granted expire on February
28, 2007. The exercise price of Series B Options granted in August 1997 (i)
that were not vested (as such term is defined in the Option Plan) as of April
24, 1998 is $185.52 per share and (ii) that were vested (as such term is
defined in the Option Plan) as of April 24, 1998 is $363.60 per share. 367.05
of the Series A Options granted under the Option Plan have been exercised.

On May 23, 2000, in connection with the February 7, 2000 Fenway purchase
of Discount Notes (see Related Party Transactions), Fenway and Holdings,
pursuant to a secutities purchase agreement agreed to sell 50.12 shares of
Holdings Series B Preferred Stock to a group of officers, including Mr. Mills,
and certain other management employees for an aggregate purchase price of
approximately $0.26 million. One third of the purchase price was paid in cash
and the remaining two-thirds was loaned by the Company to the officers and
other management employees pursuant to non-recourse interest bearing notes
which mature on May 22, 2003. Mr. Mills purchased 15.19 shares for a purchase
price of approximately $0.08 million, of which approximately $0.05 million was
borrowed from the Company. On May 23, 2002, Iron Age purchased 7.85 shares of
Holdings Series B Preferred Stock from Mr. Mills, in exchange for the unpaid
principal balance of approximately $0.04 million and accrued interest on his
outstanding term promissory note (see Related Party Transactions).

Stockholders Agreement

Holdings, Fenway and all of the other stockholders and optionholders of
Holdings entered into a stockholders agreement (the Stockholders Agreement)
that, among other things, provides for tag-along rights, take-along rights,
registration rights, restrictions on the transfer of shares held by parties to
the Stockholders Agreement, certain rights of first refusal for Holdings and
certain preemptive rights for certain stockholders. The Stockholders Agreement
also provides that the parties thereto will vote their shares in the same
manner as Fenway in connection with certain transactions and that Fenway will
be entitled to fix the number of directors of Holdings. Pursuant to the
Stockholders Agreement, Fenway is entitled to designate a sufficient number of
directors to maintain a majority of the board of directors of Holdings and
Donald R. Jensen is entitled to designate one director.

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##### Table of Contents



Management Agreement

Holdings and the Company are party to the amended and restated management
agreement (the Management Agreement) with Fenway Partners, Inc., an affiliate
of Fenway (Fenway Partners) pursuant to which Fenway Partners agreed to
provide management and advisory services to Holdings and the Company. In
exchange for such services, Holdings and the Company agreed to pay Fenway
Partners (i) annual management fees equal to $250,000 for fiscal 1999 and
fiscal 1998, $275,000 for fiscal 2000, $300,000 for fiscal 2001 and, for each
subsequent fiscal year, 0.25% of the net sales for the immediately preceding
fiscal year which annual management fees shall be increased by an amount to be
negotiated in good faith in the event of an acquisition of a business with an
enterprise value in excess of $50.0 million, (ii) fees in connection with the
negotiation and consummation by Fenway Partners of senior financing for any
acquisition transactions, which fees shall not exceed the greater of $1.0
million or 1.5% of the aggregate transaction value and (iii) certain fees and
expenses, including legal and accounting fees and any out-of-pocket expenses
incurred by Fenway Partners in connection with providing services to Holdings
and the Company. Holdings and the Company also agreed to indemnify Fenway
Partners under certain circumstances. In addition, pursuant to the Management
Agreement, Fenway Partners received approximately $2.1 million in connection
with the structuring of the Fenway Acquisition and the related senior secured
financing. The Company believes that the fees payable pursuant to the
Management Agreement are comparable to fees payable to unaffiliated third
parties for similar services.

Related Party Transactions

Fenway Partners Resources, an affiliate of Fenway, provides consulting and
advisory services to Holdings and Iron Age pursuant to a consulting agreement
effective April 1, 2002, and as amended on December 20, 2002 (the Consulting
Agreement) among Holdings, the Company and Fenway Partners Resources. Pursuant
to the Consulting Agreement, Holdings and Iron Age pay Fenway Partners
Resources a quarterly consulting fee of $12,500 plus all out-of -pocket
expenses incurred by Fenway Partners Resources. For the fiscal year ended
January 25, 2003, Holdings and Iron Age paid Fenway Partners Resources
consulting fees of approximately $0.04 million and reimbursed Fenway Partners
Resources an immaterial amount for out-of-pocket expenses.

On October 1, 2002, Holdings and the Company entered into a promissory
note permitting Holdings to borrow up to $4.8 million for purposes of
repurchasing its Discount Notes. The promissory note bears interest at 14.0%
and matures on October 1, 2009. Holdings borrowed approximately $1.04 million
from the Company under the promissory note on October 11, 2002 to fund its
repurchase of $6.801 million in face value of its Discount Notes. In addition,
Holdings borrowed approximately $0.62 million from the Company under the
promissory note on November 27, 2002 to fund its repurchase of $3.057 million
in face value of its Discount Notes.

On May 23, 2002, Iron Age purchased 25.08 shares of Holdings Series B
Preferred Stock from certain officers and management employees of the Company,
in exchange for the unpaid balance of principal and accrued interest of their
outstanding Term Promissory Notes in the amount of approximately $0.14 million.
Following the purchase, these officers and management employees held 21.40
shares of Holdings Series B Preferred Stock. Holdings recorded $0.13 million
as stock-based compensation for the fiscal year ended January 25, 2003.

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.

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##### Table of Contents






Item 14. Controls and Procedures.

Within the 90 days prior to the date of filing this Annual Report on Form 10-K,
the Company carried out an evaluation, under the supervision and with the
participation of its disclosure committee and management, including the
President (Chief Executive Officer) and the Treasurer (Chief Financial
Officer), of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 15d-14. Based
upon that evaluation, the President (Chief Executive Officer) and the Treasurer
(Chief Financial Officer) concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to
be included in the Companys periodic SEC filings. Subsequent to the date of
that evaluation, there have been no significant changes in the Companys
internal controls or in other factors that could significantly affect internal
controls, nor were any corrective actions required with regard to significant
deficiencies and material weaknesses.

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##### Table of Contents






Part IV




Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1) Financial Statements

See Index to Financial Statements appearing at page 21.

(a)(2) Financial Statement Schedules



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following Financial Statement Schedule is included at page 53:                                                                                                             
|
| | Schedule II  Valuation and Qualifying Accounts.                                                                                                                               
|
| | Information required by other schedules called for under Regulation S-X
is either not applicable or is included in the consolidated
     financial statements or notes thereto.

(a)(3) Exhibit Index

|         |  |                                                                                                                                                                                                        
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1)   |  | Iron Age Certificate of Incorporation, as amended.                                                                                                                                                     
|        
|        
|        
|        
|3.2(1)   |  | Iron Age By-laws.                                                                                                                                                                                      
|        
|        
|        
|        
|4.1(1)   |  | Indenture dated as of April 24, 1998.                                                                                                                                                                  
|        
|        
|        
|        
|10.1(1)  |  | Credit Agreement dated as of April 24, 1998.                                                                                                                                                           
|        
|        
|        
|        
|10.2(1)  |  | Security Agreement dated April 24, 1998.                                                                                                                                                               
|        
|        
|        
|        
|10.3(1)  |  | Intellectual Property Security Agreement dated April 24, 1998.                                                                                                                                         
|        
|        
|        
|        
|10.4(1)  |  | Canadian Security Agreement dated April 24, 1998.                                                                                                                                                      
|        
|        
|        
|        
|10.5(1)  |  | Mortgage, Assignment of Leases and Rents, Fixture Filing, Security
Agreement and Financing Statement dated February 26, 1997, as
amended April 24, 1998.                                               
|        
|        
|        
|        
|10.6(1)  |  | Intercompany Subordination agreement dated April 24, 1998.                                                                                                                                             
|        
|        
|        
|        
|10.7(1)  |  | Subsidiary Guaranty dated April 24, 1998.                                                                                                                                                              
|        
|        
|        
|        
|10.8(1)  |  | Iron Age Trademark License Agreement with W.L Gore & Associates,
Inc. dated August 15, 1994.                                                                                                           
|        
|        
|        
|        
|10.9(1)  |  | Falcon Trademark License Agreement with W.L. Gore & Associates,
Inc. dated July 25, 1994.                                                                                                              
|        
|        
|        
|        
|10.10(1) |  | Falcon Manufacturing Certification Agreement with W.L Gore & Associates, Inc. dated July 25, 1994. 10.11(1) General Services
Administration Contract effective July 26, 1994, as modified May
24, 1995.
|        
|        
|        
|        
|10.12(1) |  | Amended and Restated Management Agreement dated as of February 26,
1997.                                                                                                                               
|        
|        
|        
|        
|10.13(1) |  | Stockholders Agreement dated as of February 26, 1997.                                                                                                                                                  
|        
|        
|        
|        
|10.14(1) |  | Amendment No. 1 to Stockholders Agreement dated as of March 25,
1997.                                                                                                                                  
|        
|        
|        
|        
|10.15(1) |  | American Home Assurance Company Joinder to the Stockholders
Agreement dated as of March 25, 1997.                                                                                                      
|        
|        
|        
|        
|10.16(1) |  | Banque Nationale de Paris Joinder to the Stockholders Agreement
dated as of March 25, 1997.                                                                                                            
|        
|        
|        
|        
|10.17(1) |  | Stock Option Plan dated February 26, 1997.                                                                                                                                                             
|        
|        
|        
|        
|10.18(1) |  | Securities Purchase Agreement dated February 26, 1997.                                                                                                                                                 
|        
|        
|        
|        
|10.19(1) |  | Stock Purchase Agreement dated as of December 26, 1996. 10.20(1)
Amendment No. 1 to the Stock Purchase Agreement dated as of
February 26, 1997.                                                        
|        
|        
|        
|        
|10.21(1) |  | Pittsburgh, Pennsylvania Lease Agreement dated March 1, 1993, as
amended June 2, 1994, as amended June 12, 1996, as amended
December 10, 1997.                                                         
|        
|        
|        
|        
|10.22(1) |  | Jerusalem, New York Lease Agreement dated December 9, 1992, as
amended January 1, 1994, as amended April 1997.                                                                                         
|        
|        
|        
|        
|10.23(1) |  | Jerusalem, New York Lease Agreement dated June 20, 1997, as
amended January 9, 1998.                                                                                                                   
|        
|        
|        
|        
|10.24(1) |  | Lewiston, Maine Lease Agreement dated January 14, 1994.                                                                                                                                                
|        
|        
|        
|        
|10.25(1) |  | Lewiston, Maine Lease Agreement dated November 30, 1990, as
amended June 8, 1994.                                                                                                                      
|        
|        
|        
|        
|10.26(1) |  | Ontario, Canada Lease Agreement dated June 11, 1991, as amended
November 23, 1995.                                                                                                                     
|        
|        
|        
|        
|10.27(1) |  | Jensen Employment Agreement dated February 26, 1997.                                                                                                                                                   

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##### Table of Contents



|          |  |                                                                                                                                                                                     
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         
|         
|         
|         
|10.28(1)  |  | Mills Employment Agreement dated November 20, 1995.                                                                                                                                 
|         
|         
|         
|         
|10.29(1)  |  | McDonough Employment Agreement dated November 20, 1995.                                                                                                                             
|         
|         
|         
|         
|10.30(1)  |  | Johanson Employment Agreement dated August 1, 1994.                                                                                                                                 
|         
|         
|         
|         
|10.31(1)  |  | Johanson Non-Competition Agreement dated August 1, 1994.                                                                                                                            
|         
|         
|         
|         
|10.32(2)  |  | Taaffe Severance Agreement dated January 13, 1999.                                                                                                                                  
|         
|         
|         
|         
|10.33(2)  |  | Taaffe Agreement and General Release dated January 13, 1999.                                                                                                                        
|         
|         
|         
|         
|10.34(2)  |  | Letter Waiver to Banque Nationale de Paris Credit Agreement dated
August 28, 1998.                                                                                                  
|         
|         
|         
|         
|10.35(2)  |  | Amendment No. 2 and Waiver to Banque Nationale de Paris Credit
Agreement dated February 26, 1999.                                                                                   
|         
|         
|         
|         
|10.36(2)  |  | Election to reduce Acquisition Commitment of Banque Nationale de
Paris Credit Agreement dated March 5, 1999                                                                         
|         
|         
|         
|         
|10.37(3)  |  | Amendment No. 3 to Banque Nationale de Paris Credit Agreement
dated June 23, 1999.                                                                                                  
|         
|         
|         
|         
|10.38(4)  |  | Amendment No. 4 to Banque Nationale de Paris Credit Agreement
dated March 17, 2000.                                                                                                 
|         
|         
|         
|         
|10.39(4)  |  | Amendment No. 1 to Stock Option Plan dated April 8, 1999.                                                                                                                           
|         
|         
|         
|         
|10.40(4)  |  | Amendment No. 2 to Stock Option Plan dated January 29, 2000.                                                                                                                        
|         
|         
|         
|         
|10.41(4)  |  | Johanson Consulting Agreement dated February 1, 2000.                                                                                                                               
|         
|         
|         
|         
|10.42(4)  |  | Certificate of Designation, Preferences and Rights of the Series B
Preferred Stock of Iron Age Holdings Corporation dated December
29, 1999.                                        
|         
|         
|         
|         
|10.43(5)  |  | Amendment No. 5 to Banque Nationale de Paris Credit Agreement
dated September 15, 2000.                                                                                             
|         
|         
|         
|         
|10.44(6)  |  | Certificate of Designation, Preferences and Rights of the Series C
Preferred Stock of Iron Age Holdings Corporation dated December
29, 2000.                                        
|         
|         
|         
|         
|10.45(6)  |  | Amendment No. 6 to Banque Nationale de Paris Credit Agreement
dated April 24, 2001.                                                                                                 
|         
|         
|         
|         
|10.46(7)  |  | Amendment No. 7 to Banque Nationale de Paris Credit Agreement
dated December 10, 2001.                                                                                              
|         
|         
|         
|         
|10.47(8)  |  | Amendment to Mills Employment Agreement dated August 1, 2002.                                                                                                                       
|         
|         
|         
|         
|10.48(8)  |  | Amendment to McDonough Employment Agreement dated May 28, 2002.                                                                                                                     
|         
|         
|         
|         
|10.49(8)  |  | Morrison Consulting Agreement dated September 1, 2002.                                                                                                                              
|         
|         
|         
|         
|10.50(8)  |  | Letter Waiver to Banque Nationale de Paris Credit Agreement dated
September 4, 2002.                                                                                                
|         
|         
|         
|         
|10.51(9)  |  | Promissory Note between Iron Age Holdings Corporation and Iron Age
Corporation dated October 1, 2002.                                                                               
|         
|         
|         
|         
|10.52(10) |  | Loan and Security Agreement dated September 23, 2002.                                                                                                                               
|         
|         
|         
|         
|10.53(10) |  | Mortgage, Assignment of Leases and Rents Security Agreement dated
September 23, 2002.                                                                                               
|         
|         
|         
|         
|10.54(10) |  | Holdings and Subsidiary Guaranty dated September 23, 2002.                                                                                                                          
|         
|         
|         
|         
|10.55(10) |  | Guarantor Security Agreement dated September 23, 2002.                                                                                                                              
|         
|         
|         
|         
|10.56(10) |  | Pledge and Security Agreement dated September 23, 2002.                                                                                                                             
|         
|         
|         
|         
|10.57(10) |  | Patent Security Agreement dated September 23, 2002.                                                                                                                                 
|         
|         
|         
|         
|10.58(10) |  | Trademark Security Agreement dated September 23, 2002.                                                                                                                              
|         
|         
|         
|         
|10.59(10) |  | Canadian Guarantee Agreement dated September 23, 2002                                                                                                                               
|         
|         
|         
|         
|10.60(10) |  | Canadian Security Agreement dated September 23, 2002.                                                                                                                               
|         
|         
|         
|         
|10.61(10) |  | Letter Agreement dated September 23, 2002.                                                                                                                                          
|         
|         
|         
|         
|10.62(10) |  | Contribution Agreement dated September 23, 2002.                                                                                                                                    
|         
|         
|         
|         
|10.63(10) |  | Intercompany Subordination Agreement dated September 23, 2002.                                                                                                                      
|         
|         
|         
|         
|10.64(10) |  | Payoff Letter for Banque Nationale de Paris Credit Agreement dated
September 23, 2002.                                                                                              
|         
|         
|         
|         
|10.65     |  | Iron Age 2002 Management Incentive Plan adopted December 20,2002.                                                                                                                   
|         
|         
|         
|         
|10.66     |  | Form Class A Unit Certificate under 2002 Management Incentive
Plan.                                                                                                                 
|         
|         
|         
|         
|10.67     |  | Form Class B Unit Certificate under 2002 Management Incentive
Plan.                                                                                                                 
|         
|         
|         
|         
|10.68     |  | Supplemental Indenture, dated as of January 25, 2003, among Iron
Age, Iron Age Investment Company and JP Morgan Chase Bank, as
trustee under the Senior Subordinated Note Indenture.
|         
|         
|         
|         
|10.69     |  | First Amendment to Loan and Security
Agreement and Limited Waiver dated May 12, 2003.                                                                                               
|         
|         
|         
|         
|10.70     |  | Amendment to Morrison Consulting Agreement dated December 20,
2002.                                                                                                                 
|         
|         
|         
|         
|21.1(1)   |  | Subsidiaries of Holdings.                                                                                                                                                           
|         
|         
|         
|         
|99.1      |  | Certification by CEO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                      

-68-



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##### Table of Contents



|     |  |                                                                                                                              
|---- |  | -----------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|99.2 |  | Certification by CFO pursuant to 18 U.S.C Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



---

|(1)  |  | Incorporated by reference to the similarly numbered exhibit in the
Companys Registration Statement on Form S-4, No. 333-57009, filed June
17, 1998.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(2)  |  | Incorporated by reference to the similarly numbered exhibit in the
Companys Annual Report on
Form 10-K, filed April 30, 1999.                      
|    
|    
|    
|    
|(3)  |  | Incorporated by reference to the similarly numbered exhibit in the
Companys Quarterly Report on
Form 10-Q, filed September 14, 1999.               
|    
|    
|    
|    
|(4)  |  | Incorporated by reference to the similarly numbered exhibit in the
Companys Annual Report on Form 10K, filed April 18, 2000.                       
|    
|    
|    
|    
|(5)  |  | Incorporated by reference to the similarly numbered exhibit in the
Companys Quarterly Report on
Form 10Q, filed December 11, 2000.                 
|    
|    
|    
|    
|(6)  |  | Incorporated by reference to the similarly numbered exhibit in the
Companys Annual Report on Form 10K, filed April 26, 2001.                       
|    
|    
|    
|    
|(7)  |  | Incorporated by reference to the similarly number exhibit in the
Companys Quarterly Report on Form 10Q, filed December 11, 2001.                   
|    
|    
|    
|    
|(8)  |  | Incorporated by reference to the similarly number exhibit in the
Companys Quarterly Report on Form 10Q, filed September 10, 2002.                  
|    
|    
|    
|    
|(9)  |  | Incorporated by reference to the similarly number exhibit in the
Companys Quarterly Report on Form 10Q, filed December 10, 2002.                   
|    
|    
|    
|    
|(10) |  | Incorporated by reference to the similarly number exhibit in the
Companys Report on Form 8K, filed September 27, 2002.                             

(b)  Reports on Form 8-K.

A report on Form 8-K was filed on September 27, 2002 to disclose the terms
of the Bank Credit Facility that the Company completed on September 23, 2002,
as discussed elsewhere in this Annual Report on Form 10K.

-69-



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

|                    |  |                                                                                                                                  
|------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|                    |  | Iron Age Corporation                                                                                                             
|                   
|Dated: May 12, 2003 |  | By: /S/ BART R. HUCHEL
Vice President-Finance, Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|                                     |  |                                                                                                            |  |             
|------------------------------------ |  | ---------------------------------------------------------------------------------------------------------- |  | ------------
|SIGNATURE                            |  | TITLE                                                                                                      |  | DATE        
|                                     |  |                                                                                                            |  |             
|/S/WILLIAM J. MILLS
William J. Mills |  | Chief Executive Officer, President
and Director (principal executive officer)                              |  | May 12, 2003
|                                    
|/S/BART R. HUCHEL
Bart R. Huchel     |  | Vice President-Finance,
Chief Financial Officer and Treasurer
(principal financial and accounting
officer) |  | May 12, 2003
|                                    
|/S/DALE F. MORRISON                  |  | Chairman and Director                                                                                      |  | May 12, 2003
|                                    
|Dale F. Morrison                     |  |                                                                                                            |  |             
|                                    
|/S/JOHN Q. ANDERSON
John Q. Anderson |  | Director                                                                                                   |  | May 12, 2003
|                                    
|/S/ANDREA GEISSER
Andrea Geisser     |  | Director                                                                                                   |  | May 12, 2003

-70-



---



##### Table of Contents



CERTIFICATIONS

I, William J. Mills, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Iron Age Corporation;                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                      
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                  



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                     



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Dated: May 12, 2003

-71-



---



##### Table of Contents



I, Bart R. Huchel, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Iron Age Corporation;                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                  



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                     



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | /s/ Bart R. Huchel
| | ------------------



| | Bart R. Huchel
Vice President  Finance and Treasurer and Chief
Financial Officer
| | ---------------------------------------------------------------------------------

Dated: May 12, 2003

-72-