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FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 1, 1999
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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
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Iron Age Corporation
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(Exact name of registrant as specified in its charter)
Delaware 25-1376723
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization Identification Number)
Robinson Plaza Three, Suite 400, Pittsburgh, Pennsylvania 15205
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(Address of principal executive offices)
(Zip Code)
(412) 787-4100
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Registrants telephone number, including area code)
Not Applicable.
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ] Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date. Not Applicable.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following financial statements are presented herein:
Condensed Consolidated Balance Sheets as of May 1, 1999 and
January 30, 1999
Condensed Consolidated Statements of Income for the three months ended
May 1, 1999 and May 2, 1998
Condensed Consolidated Statements of Cash Flows for the three
months ended May 1, 1999 and May 2, 1998
Notes to Condensed Consolidated Financial Statements
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Iron Age Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MAY 1 JANUARY 30
1999 1999
(UNAUDITED) (NOTE)
ASSETS (Dollars in Thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 121 $ 508
Accounts receivable, net 18,045 17,455
Inventories (Note 2) 36,076 36,681
Prepaid expenses 3,143 4,433
Deferred income taxes 866 861
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Total current assets 58,251 59,938
Notes receivable and other assets 538 431
Property and equipment, net 10,860 11,008
Intangible assets, net 106,821 107,851
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Total assets $ 176,470 $ 179,228
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 527 $ 544
Accounts payable 2,519 3,307
Accrued expenses 9,218 8,134
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Total current liabilities 12,264 11,985
Long-term debt, less current maturities 119,565 123,130
Accrued pension liability 504 516
Deferred income taxes 5,728 5,728
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Total liabilities 138,061 141,359
Commitments and contingencies -- --
Redeemable preferred stock -- --
Stockholder's 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 (6,019) (6,412)
Other comprehensive (loss) income (39) (186)
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Total stockholder's equity 38,409 37,869
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Total liabilities and stockholder's equity $ 176,470 $ 179,228
========= =========
</TABLE>
See accompanying notes.
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Iron Age Corporation
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 1 MAY 2
1999 1998
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales $32,907 $ 32,167
Cost of sales 16,419 16,046
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Gross profit 16,488 16,121
Selling, general and administrative 10,645 12,967
Depreciation 444 424
Amortization of intangible assets 904 846
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Operating income 4,495 1,884
Interest expense 3,362 2,678
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Income (loss) before income taxes 1,133 (794)
Provision (benefit) for income taxes 740 (102)
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Income (loss) before extraordinary item 393 (692)
Extraordinary item, net of tax effect -- (4,015)
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Net income (loss) $ 393 $ (4,707)
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</TABLE>
See accompanying notes.
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Iron Age Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MAY 1 MAY 2
1999 1998
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(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 393 $ (4,707)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Extraordinary item, net of tax -- 4,015
Depreciation and amortization 1,462 1,378
Amortization of deferred financing fees included in interest 347 31
Provision for losses on accounts receivable 30 47
Deferred income taxes (5) (134)
Changes in operating assets and liabilities:
Accounts receivable (620) (627)
Inventories 605 1
Prepaid expenses 1,290 (412)
Other assets (290) (294)
Accounts payable (788) 388
Accrued expenses 1,084 (2,565)
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Net cash provided by (used in) operating activities 3,508 (2,879)
INVESTING ACTIVITIES
Net cash used in business acquisitions -- (4,493)
Purchases of property and equipment (410) (374)
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Net cash used in investing activities (410) (4,867)
FINANCING ACTIVITIES
Borrowing under revolving credit agreement 750 33,800
Proceeds from senior subordinated notes -- 100,000
Contribution by Holdings -- 6,380
Principal payment on debt (4,250) (111,063)
Payment of financing costs (50) (4,237)
Call premium on early extinguishment of old subordinated notes -- (1,562)
Redemption of Preferred Stock, including
Cumulative unpaid dividends -- (17,664)
Principal payments on capital leases (82) 52
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Net cash provided by (used in) financing activities (3,632) 5,706
Effect of exchange rate changes on cash and cash equivalents 147 10
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(Decrease) increase in cash and cash equivalents (387) (2,030)
Cash and cash equivalents at beginning of period 508 2,060
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Cash and cash equivalents at end of period $ 121 $ 30
======= =========
</TABLE>
See accompanying notes.
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Iron Age Corporation
Notes to Condensed Consolidated
Financial Statements (Unaudited)
May 1, 1999
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended May 1, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ended January 29, 2000. For further information, refer to Iron Age Corporation's
("Iron Age" or "the Company") consolidated financial statements and footnotes
thereto for the fiscal year ended January 30, 1999.
2. INVENTORY MAY 1 JANUARY 30
Inventories consist of the following: 1999 1999
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Raw materials $ 2,259 $ 2,328
Work-in-process 662 815
Finished goods 33,155 33,538
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$36,076 $36,681
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THREE MONTHS ENDED
3. COMPREHENSIVE INCOME (LOSS) MAY 1 MAY 2
1999 1998
Net income (loss) $ 393 $(4,707)
Foreign currency translation gains 147 10
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Total comprehensive income (loss) $ 540 $(4,697)
======= ========
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4. DIVESTITURE
On May 25, 1999, the Company sold the assets (primarily inventory) of its safety
and medical products line with a carrying value of approximately $0.4 million to
Stratford Safety Products, Inc. for $0.5 million. The sale resulted in a gain of
$0.085 million, which was reflected as a reduction of goodwill that was recorded
in connection with the acquisition of Safety Supplies and Service Co., Inc. The
Company's net income from the safety and medical products line was not material
from the date of the acquisition to the date of sale.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussions should be read in conjunction with the accompanying
Condensed Consolidated Financial Statements for the period ended May 1, 1999,
and the Company's audited consolidated financial statements and Annual Report on
Form 10-K for the fiscal year ended January 30, 1999.
ACQUISITIONS AND CAPITAL RESTRUCTURING
The Fenway Acquisition occurred on February 26, 1997. Concurrent with the Fenway
Acquisition, (i) Holdings and the Company entered into the Old Credit Facility,
(ii) the Company issued the Old Subordinated Notes in the amount of $14.55
million (net of a $0.45 million discount), (iii) Holdings issued 1,500 shares of
the Holdings Series A Preferred Stock for an aggregate consideration of $14.9
million, (iv) Holdings issued 88,625 shares of Common Stock for an aggregate
consideration of approximately $32.2 million, (v) Holdings issued warrants to
acquire approximately 7,000 shares of Common Stock of Holdings at an exercise
price of $185.52 per share for an aggregate consideration of $0.1 million, and
(vi) management rolled over certain options to acquire approximately 6,000
shares of the predecessor company at an exercise price of $62 per share into
options to acquire approximately 11,500 shares of Common Stock of Holdings at an
exercise price of $36.36 per share and were granted additional options to
acquire shares of Common Stock of Holdings at an exercise price of $363.60 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 for Holdings. The Fenway Acquisition was accounted for by the
purchase method and the purchase price has been allocated to the Company's
assets and liabilities based on fair market value. The Fenway Acquisition
resulted in goodwill of approximately $84.1 million, which is being amortized
over 40 years. The exercise price of the options which were rolled over by
management 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 $3,772,700, or approximately $328 per
share.
The Company acquired Knapp Shoes, Inc. ("Knapp") on March 14, 1997 (the
"Knapp Acquisition"). As part of the Knapp Acquisition, Holdings contributed an
additional $4.0 million of common equity. The Knapp Acquisition was accounted
for under the purchase method for business combinations and, accordingly, the
results of operations for Knapp are included in the Company's financial
statements only from the date of the Knapp Acquisition.
On April 24, 1998 in the April 1998 Transactions, (i) Holdings
consummated the sale of the Discount Notes, its 12 1/8% Senior Discount Notes
due 2009, in an aggregate principal amount at maturity of $45.14 million, in a
transaction exempt from the registration requirements of the
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Securities Act, (ii) the Company issued the Senior Subordinated Notes, its
9 7/8% Senior Subordinated Notes due 2008, in an aggregate principal amount of
$100 million in a transaction exempt from the registration requirements of the
Securities Act, and (iii) Holdings and the Company entered into the New Credit
Facility, which, as amended, provides for a $51.6 million senior secured credit
facility consisting of a $30.0 million revolving working capital facility and a
$21.6 million revolving acquisition facility. Holdings and the Company used
excess cash and net proceeds from the Discount Notes, the Senior Subordinated
Notes and the New Credit Facility to repay the Old Credit Facility and the Old
Subordinated Notes, to make compensation payments to certain members of
management and to pay a dividend to Holdings to allow Holdings to redeem the
Holdings Series A Preferred Stock. The transactions described in this paragraph
are collectively referred to herein as the "April 1998 Transactions."
On October 21, 1998, the Company consummated an exchange offer of Senior
Subordinated Notes registered under the Securities Act of 1933, as amended. The
Senior Subordinated Notes and the notes exchanged therefor are referred to as
the "Senior Subordinated Notes."
In April 1998, the Company, through its subsidiary IA Vision Acquisition Co.,
acquired the stock of Safety Supplies & Service Company, Inc. and acquired
certain assets and assumed certain liabilities of Safety Depot Ltd., ACT Safety,
Inc. and J Mars-Knapp Shoes (the "First Quarter 1998 Acquisitions"). The
combined purchase price for the First Quarter 1998 Acquisitions was
approximately $4.64 million, including transaction costs of approximately $0.15
million. In addition, on July 7, 1998, the Company acquired certain assets of
Work-Saf, Inc. for approximately $0.75 million (the "Second Quarter 1998
Acquisition"). The First Quarter 1998 Acquisitions and the Second Quarter 1998
Acquisition have been accounted for using the purchase method of accounting for
business combinations, and accordingly, (i) the results of operations for each
of the acquired companies are included in the Company's financial statements
only from the date of the respective acquisitions and (ii) the purchase price
has been allocated to the Company's assets and liabilities based upon fair
market value. The First Quarter 1998 Acquisitions and the Second Quarter 1998
Acquisition resulted in goodwill of approximately $2.8 million, which is being
amortized over 40 years.
DIVESTITURES
Effective August 31, 1998, the Company sold the Dunham trademark and related
trademarks to New Balance Athletic Shoe, Inc. ("New Balance") for $2.0 million
and recorded a gain of $1.7 million (the "Dunham Sale"). Dunham wholesale sales
were $3.1 million in fiscal 1999, consisting of Dunham sales of $1.3 million
prior to the Dunham Sale, sales of on-hand inventory to New Balance for
approximately $0.6 million in conjunction with the Dunham Sale and sales of
Dunham products of $1.2 million to New Balance after the Dunham Sale. In
conjunction with the Dunham Sale, the Company's subsidiary, Falcon Shoe Mfg.
Co., agreed to manufacture for New Balance certain
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products which New Balance will continue to sell under the Dunham brand name
pursuant to a two year supply agreement with New Balance.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 1, 1999 COMPARED TO
THREE MONTHS ENDED MAY 2, 1998
Net Sales for the three months ended May 1, 1999 ("first quarter 2000") were
$32.9 million compared to $32.2 million for the comparable three month period
ended May 2, 1998 ("first quarter 1999"), an increase of $0.7 million, or 2.2%.
The increase was attributable to growth in the Company's primary footwear
distribution business of $0.5 million, or 1.6%, and new sales of $0.7 million,
or 2.2%, related to the Company's vision and safety products business lines
which were acquired in the First Quarter 1998 Acquisitions. The increase in net
sales was partially offset by a $0.5 million, or 1.6%, decrease in net sales
from the Company's manufacturing facility, primarily related to the Dunham Sale.
Gross Profit for first quarter 2000 was $16.5 million compared to $16.1 million
for first quarter 1999, an increase of $0.4 million, or 2.5%. As a percentage of
net sales, gross profit for first quarter 2000 was the same as first quarter
1999.
Selling, General and Administrative Expenses for first quarter 2000 were $10.6
million compared to $13.0 million for first quarter 1999, a decrease of $2.4
million, or 18.5%. Excluding the effect of $2.2 million of compensation payments
to certain members of management in connection with the April 1998 Transactions
in first quarter 1999, selling, general and administrative expenses decreased by
$0.2 million, or 1.9%, due primarily to the effect of cost containment
initiatives which included the consolidation of the Knapp division into the
Company's primary footwear distribution business and redundant store closings.
Operating Income for first quarter 2000 was $4.5 million, or 13.7% of net sales,
compared to $1.9 million, or 5.9% of net sales, for first quarter 1999. The
increase was primarily attributable to the increase in gross profit and the
decrease in selling, general and administrative expenses as discussed above.
Interest Expense for first quarter 2000 was $3.4 million compared to $2.7
million for first quarter 1999, an increase of $0.7 million, or 25.9%. The
increase in interest expense was attributable to increased indebtedness of the
Company related to the Senior Subordinated Notes and the New Credit Facility.
Income Tax Expense for first quarter 2000 was $0.7 million compared to an income
tax benefit of $0.1 million for first quarter 1999. Income tax expense for first
quarter 2000 and income tax benefit
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for first quarter 1999 differ from that of the statutory income tax rate due
primarily to nondeductible goodwill amortization. The Company recognized a state
income tax benefit of $1.1 million from net operating loss carryforwards for
first quarter 1999. The Company needs to generate $10.0 million of state taxable
income to realize this benefit. The Company evaluates the adequacy of the
valuation reserve and the realization of the deferred tax benefit on an ongoing
basis. Management believes that future taxable income will more likely than not
allow the Company to realize this benefit.
Extraordinary Item for first quarter 1999 was an extraordinary loss of $4.0
million, net of a $2.9 million tax benefit, due to the early extinguishment of
indebtedness resulting from the repayment of the Old Subordinated Notes and the
Old Credit Facility in April 1998 in connection with the April 1998
Transactions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are working capital, capital expenditures and
debt service. The Company anticipates that it may use cash in the future to
finance acquisitions. The Company has financed cash requirements primarily
through internally generated cash flow and funds borrowed under credit
facilities.
Net cash provided by operating activities was $3.5 million for first quarter
2000, an increase of $6.4 million as compared to net cash used in operating
activities of $2.9 million in first quarter 1999. The increase in cash from
operating activities is primarily the result of the increase in accrued interest
of $2.5 million in connection with the April 1998 Transactions and a decrease of
$0.6 million in inventory levels.
Excluding cash paid for acquisitions, the Company's investing activities
consisted of capital expenditures of $0.4 million for both first quarter 2000
and first quarter 1999. Capital expenditures for first quarter 2000 included
capital expenditures related to improvements in retail stores, shoemobiles and
equipment. Capital expenditures for first quarter 1999 included $0.2 million in
remaining costs related to the addition to the Company's central distribution
center building. The remaining $0.2 million in capital expenditures was related
to improvements in retail stores, shoemobiles and equipment in the primary
footwear distribution business and installing POS (Point-of-Sale) systems in
stores and trucks acquired in connection with the First Quarter 1998
Acquisitions.
The Company's total working capital as of May 1, 1999 was $46.0 million. At
January 30, 1999, working capital was $48.0 million. The primary reason for the
decrease to working capital was accrued interest incurred in connection with the
April 1998 Transactions.
The Company used approximately $3.6 million from financing activities for first
quarter 2000 due primarily to repayments of the New Credit Facility. Excluding
cash paid for the First Quarter 1998 Acquisitions, the Company generated cash of
$1.2 million for first quarter 1999 due primarily to borrowings under the New
Credit Facility.
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Cash flow from operations for first quarter 2000 was sufficient to cover debt
service requirements under the New Credit Facility. The Company's ability to
make scheduled payments of principal, or to pay the interest or premium (if any)
on, or to refinance, its indebtedness, or to fund planned capital expenditures
will depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations,
management believes that cash flow from operations and available cash, together
with available borrowings under the New Credit Facility, will 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 for the next several years. 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 New Credit Facility in an amount
sufficient to enable the Company to service its indebtedness, including the
Senior Subordinated Notes, or to make capital expenditures.
The Company's debt consists of the Senior Subordinated Notes, the New Credit
Facility and certain other debt. The New Credit Facility, as amended, consists
of a $21.6 million multiple draw acquisition term loan facility (the "New
Acquisition Credit Facility") and $30.0 million in revolving credit loans,
letters of credit and swing line loans (the "New Revolving Credit Facility").
The Company's other debt of $0.9 million consists of capital leases and other
notes. As of May 1, 1999, approximately $11.7 million of the New Acquisition
Credit Facility and approximately $7.5 million of the New Revolving Credit
Facility were outstanding. The Company has additional borrowing availability of
$9.9 million under the New Acquisition Credit Facility and approximately $22.5
million under the New Revolving Credit Facility. The New Acquisition Credit
Facility matures in quarterly installments from July 2001 until final payment in
April 2004. The New Revolving Credit Facility will mature in April 2004 and has
no scheduled interim principal payments.
The Senior Subordinated Notes are fully and unconditionally guaranteed on an
unsecured, senior subordinated basis by each Domestic Restricted Subsidiary that
is a Material Subsidiary (as such terms are defined in the indenture for the
Senior Subordinated Notes (the "Senior Subordinated Notes Indenture")) (whether
currently existing, newly acquired or created). Each such subsidiary guaranty (a
"Subsidiary Guaranty") will provide that the subsidiary guarantor, as primary
obligor and not merely as surety, will irrevocably and unconditionally guarantee
on an unsecured, senior subordinated basis the performance and punctual payment
when due, whether at stated maturity, by acceleration or otherwise, of all
obligations of 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 30, 1999, none of the Company's Domestic Restricted Subsidiaries was a
Material Subsidiary, and therefore no Subsidiary Guaranty was in force or
effect.
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YEAR 2000 ISSUE
Many existing computer programs use only two digits, rather than four, to
represent a year. The Year 2000 issue arises because date-sensitive software or
hardware written or developed in this manner may recognize a date using "00" as
the year 1900 rather than the year 2000. This could potentially result in system
failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company classifies its response to the Year 2000 Issue into five phases:
inventory, assessment, renovation, validation and implementation. Inventory is
the process in which all electronic/computer components are defined for all
systems (information technology ("IT") and non-information technology
("non-IT")). Assessment is the process in which all components are classified as
either compliant or non-compliant. Renovation is the process in which a system
is upgraded, replaced or retired. Validation is the process in which compliant
systems are tested within the Company's infrastructure to validate that either
the initial compliant assessment is correct or the upgrade or replacement from
the renovation phase is compliant with the Company's infrastructure.
Implementation is the process in which a compliant system is installed into the
Company's production environment and is used to support business operations.
The Company has completed the inventory, assessment, renovation and validation
of its IT systems, and implemented these systems in March 1999. In the ordinary
course of business, the Company upgraded the applications software covering the
main integrated system. As of May 1, 1999, the Company had expended $37,000 and
has a total expected cost of $65,000 to replace, renovate, validate and
implement software to address the Year 2000 Issue. This cost is being funded out
of operating cash flow with the entire amount being capitalized as new hardware
and software, in accordance with EITF 96-14.
The Company's inventory and assessment of its non-IT systems (including
telephone, heating/air-conditioning, electricity and security systems) was
completed by December 31, 1998. This is being followed by any required
renovation in calendar year 1999. The Company is using internal resources to
address the Year 2000 Issue of its non-IT systems and has not incurred
significant, separately identifiable costs through May 1, 1999 and does not
expect to incur significant additional costs in order to upgrade its non-IT
systems. All validation and implementation of these non-IT systems is expected
to be completed by mid-1999.
The costs of the systems implementation and Year 2000 modifications are based
upon management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties. As of May 1, 1999, the cost of bringing the Company's IT
and non-IT systems into Year 2000 compliance is not expected to have a material
effect on the Company's financial condition or results of operations.
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In addition to reviewing its internal systems, the Company has polled its major
footwear and other vendors to determine whether they are Year 2000 compliant or
to identify any potential issues. As a result of the correspondence, management
has no reason to believe that the Company's major footwear and other vendors
will not be Year 2000 compliant. If the Company's customers and vendors do not
achieve Year 2000 compliance before the end of 1999, the Company may experience
a variety of problems which may have a material adverse effect on the Company.
To the extent such vendors are not Year 2000 compliant by the end of 1999, such
vendors may fail to deliver ordered materials and products to the Company and
may fail to bill the Company properly and promptly. Consequently, the Company
may experience delays in sourcing product to send to its customers. The Company
plans to address potential problems with its vendors by identifying and
arranging for alternate sources of supply. Due to the nature of its product, the
Company does not believe it has any exposure to contingencies related to the
Year 2000 Issue for the products it has sold.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt the new Statement effective January 30,
2000. The Statement will require Holdings to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If a derivative is a hedge, depending upon the nature
of the hedge, changes in the fair value of the derivative will either be offset
against the change in fair value of the hedged asset, liability or firm
commitment through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.
FORWARD LOOKING STATEMENTS
When used in this quarterly report, 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 statements made by the Company: (i) economic
conditions in the safety shoe market, (ii) availability of credit, (iii)
increase in interest rates, (iv) cost of raw materials, (v) inability to
maintain state-of-the-art manufacturing facilities, (vi) heightened competition,
including intensification of price and service competition, the entry of new
competitors and the introduction of new products by existing competitors, (vii)
inability to capitalize on opportunities presented by industry consolidation,
(viii) loss or retirement of key executives, (ix) loss or disruption of the
Company's relationships with its
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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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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IRON AGE CORPORATION
By: /s/ Keith A. McDonough
----------------------
Name: Keith A. McDonough
Title: Executive Vice President
Chief Financial Officer
Dated: June 15, 1999 (Principal financial and
accounting officer)
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