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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

Commission file number:     333-57009  

Iron Age Holdings Corporation

Robinson Plaza Three, Suite 400, Pittsburgh, Pennsylvania 15205

(412) 787-4100

Not Applicable.

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

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.

PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements.

      The following financial statements are presented herein:

	Condensed Consolidated Balance Sheets as of April 29, 2000 and January 29, 2000
	Condensed Consolidated Statements of Income for the three months ended April 29, 2000 and May 1, 1999
	Condensed Consolidated Statements of Cash Flows for the three months ended April 29, 2000 and May 1, 1999
	Notes to Condensed Consolidated Financial Statements

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Iron Age Holdings Corporation

See accompanying notes.

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Iron Age Holdings Corporation

See accompanying notes.

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Iron Age Holdings Corporation

See accompanying notes.

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Iron Age Holdings Corporation

April 29, 2000

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 April 29, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ended January 27, 2001. For further information, refer to Iron Age Holdings Corporation’s (“Holdings” or the “Company”) consolidated financial statements and footnotes thereto for the fiscal year ended January 29, 2000.

2. Inventory

      Inventories consist of the following:

3.  Redeemable Preferred Stock

      On December 29, 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 Holdings’ majority stockholder, Fenway Partners Capital Fund, L.P. (“Fenway”), during fiscal 2000 for approximately $4.9 million, with a liquidation preference of $4,938 per share plus an additional amount of $2,044,325 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 9 7/8% Senior Subordinated Notes due 2008 (the “Senior Subordinated Notes”) of Iron Age Corporation, Holdings’ wholly-owned subsidiary (“Iron Age”). 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.

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4.  Comprehensive (Loss) Income

5.  Divestiture

      On May 25, 1999, Holdings sold the assets of its safety and medical products line, a component of its wholly owned subsidiary, Safety Supplies and Service Co., Inc. (“Safety Supplies”), which consisted primarily of inventory, with a carrying value of approximately $0.4 million to Stratford Safety Products, Inc. for $0.5 million. The sale resulted in a gain of $0.1 million, which was reflected as a reduction of goodwill that was recorded in connection with the acquisition of Safety Supplies. Holdings’ net income from the safety and medical products line was not material 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 April 29, 2000, and Holdings’ audited consolidated financial statements and Annual Report on Form 10-K for the fiscal year ended January 29, 2000.

Related Party Transaction

      On February 7, 2000, Fenway purchased Holdings’ 12 1/8% Senior Discount Notes due 2009 (the “Discount Notes”) with a face value of $10.0 million for $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.

September 1999 Transaction

      On September 22, 1999, Holdings purchased $9.0 million in principal amount of its Senior Subordinated Notes for $7.13 million. The purchase was funded by $4.7 million of borrowings under Holdings’ $61.6 million senior secured credit facility (as amended, the “New Credit Facility”) and the issuance of $2.375 million of Holdings Series B Preferred Stock to Holdings’ majority stockholder, Fenway. Holdings recorded an extraordinary gain of $0.88 million, net of unamortized deferred financing costs of $0.35 million, and income taxes of $0.64 million. Following the purchase, such principal amount of the Senior Subordinated Notes was retired. Holdings may, under favorable market conditions, purchase additional Senior Subordinated Notes.

July 1999 Transaction

      On July 20, 1999, Holdings purchased $9.64 million in principal amount of its Senior Subordinated Notes for $7.66 million. The purchase was funded by $5.1 million of borrowings under the New Credit Facility and the issuance of $2.563 million of Holdings Series B Preferred Stock to Holdings’ majority stockholder, Fenway. Holdings recorded an extraordinary gain of $0.92 million, net of unamortized deferred financing costs of $0.38 million, and income taxes of $0.67 million. Following the purchase, such principal amount of the Senior Subordinated Notes was retired.

Results of Operations

Three Months ended April 29, 2000 compared to Three Months ended May 1, 1999

      Net Sales for the three months ended April 29, 2000 (“first quarter 2001”) were $32.1 million compared to $32.9 million for the comparable three month period ended May 1, 1999 (“first quarter 1999”), a decrease of $0.8 million, or 2.4%. The decrease in net sales was primarily attributable to a decrease of $0.4 million, or 1.2%, related to the sale of the Company’s safety and medical products business line in May 1999 and a decrease of $0.3 million, or 0.9%, related to store closings in the Company’s primary footwear distribution business line in fiscal 2000.

      Gross Profit was $16.5 million for both first quarter 2001 and first quarter 2000. As a percentage of net sales, gross profit for first quarter 2001 increased to 51.3%, an increase of 1.2% from first quarter 2000. Gross profit percentage increased in the Company’s primary footwear distribution business line by 0.9% for first quarter 2000. The increase in gross profit percentage was also attributable to a decrease in sales related to the lower gross profit margin wholesale and safety and medical products business lines.

      Selling, General and Administrative Expenses for first quarter 2001 were $10.9 million compared to $10.6 million for first quarter 2000, an increase of $0.3 million, or 2.8%, due primarily to the effect of general inflationary increases in operating expenses and unfavorable changes in foreign exchange rates.

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      Operating Income for first quarter 2001 was $4.2 million, or 13.1% of net sales, compared to $4.5 million, or 13.7% of net sales, for first quarter 2000. The decrease was primarily attributable to the increase in selling, general and administrative expenses as discussed above.

      Interest Expense for first quarter 2001 was $3.8 million compared to $4.2 million for first quarter 2000, a decrease of $0.4 million, or 9.5%. The decrease in interest expense was attributable to decreased indebtedness of Holdings related to the repurchase of a portion of the Senior Subordinated Notes in the July 1999 Transaction and the September 1999 Transaction.

      Income Tax Expense was a $0.4 million income tax expense for first quarter 2001 and for first quarter 2000. Income tax expense for first quarter 2001 and income tax expense for first quarter 2000 differ from that of the statutory income tax rate due primarily to nondeductible goodwill amortization.

Liquidity and Capital Resources

      Holdings’ primary cash needs are working capital, capital expenditures and debt service. Holdings anticipates that it may use cash in the future to finance acquisitions. Holdings has financed cash requirements primarily through internally generated cash flow and funds borrowed under Holdings’ and Iron Age’s credit facilities.

      Net cash provided by operating activities was $3.3 million for first quarter 2001, a decrease of $0.2 million as compared to net cash provided by operating activities of $3.5 million for first quarter 2000. The decrease in cash from operating activities is primarily the result of overall increases in working capital.

      Holdings’ investing activities for first quarter 2001 consisted of capital expenditures of approximately $0.3 million for improvements in footwear and vision retail stores, shoemobiles and equipment and approximately $0.3 million for the acquisition of software for internal use. Capital expenditures of approximately $0.4 million for first quarter 2000 included capital expenditures related to improvements in footwear and vision retail stores, shoemobiles and equipment.

      Holdings used approximately $2.8 million from financing activities for first quarter 2001, which primarily consisted of net working capital payments.

      Holdings’ total working capital as of April 29, 2000 was $43.4 million. At January 29, 2000, working capital was $44.2 million. The primary reason for the decrease to working capital was a reduced investment in inventory.

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

      Cash flow from operations for first quarter 2001 was sufficient to cover debt service requirements under the New Credit Facility. Holdings’ ability to make scheduled payments of principal, or to pay the interest or premium (if any) on, or to refinance, its indebtedness (including the Discount Notes), or to fund planned capital expenditures will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations, management believes that cash flow from operations and available cash, together with available borrowings by Iron Age under the New Credit Facility, will be adequate to meet Holdings’ anticipated future requirements for working capital, budgeted capital expenditures and scheduled payments of principal and interest on its indebtedness for the next several years. There can be no assurance that the Holdings’ 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 Holdings to service its indebtedness, including the Discount Notes, or to make capital expenditures.

      Holdings’ debt consists of the Discount Notes, the Senior Subordinated Notes, the New Credit Facility and certain other debt. The New Credit Facility, as amended, consists of a $31.6 million multiple draw acquisition

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      The Senior Subordinated Notes are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by each Domestic Restricted Subsidiary that is a Material Subsidiary (as such terms are defined in the indenture for the Senior Subordinated Notes (the “Senior Subordinated Notes Indenture”)) (whether currently existing, newly acquired or created). Each such subsidiary guaranty (a “Subsidiary Guaranty”) will provide that the subsidiary guarantor, as primary obligor and not merely as surety, will irrevocably and unconditionally guarantee on an unsecured, senior subordinated basis the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of Iron Age under the Senior Subordinated Notes Indenture and the Senior Subordinated Notes, whether for payment of principal or of interest on the Senior Subordinated Notes, expenses, indemnification or otherwise. As of April 29, 2000, none of Iron Age’s Domestic Restricted Subsidiaries was a Material Subsidiary, and therefore no Subsidiary Guaranty was in force or effect.

Amendments to the New Credit Facility

      On February 26, 1999, the New Credit Facility was amended to (i) amend the definition of “EBITDA” for fiscal year 2000 for certain purposes of the New Credit Facility, (ii) add as a condition to drawing on the New Acquisition Credit Facility prior to April 2000 certain required interest coverage ratios and leverage ratios, (iii) amend required interest coverage ratios applicable to fiscal year 2000, and (iv) add to the financial covenants applicable to fiscal year 2000 certain required senior coverage ratios.

      On June 23, 1999, the New Credit Facility was amended to (i) permit the use of up to $13,300,000 of the New Acquisition Credit Facility to repurchase Senior Subordinated Notes at or below par value; provided that no more than two-thirds of the purchase price of such Senior Subordinated Notes comes from borrowings under the New Acquisition Credit Facility; (ii) amend the definition of “Fixed Charge Coverage Ratio” to eliminate the tax effect of any permitted repurchases of the Senior Subordinated Notes; (iii) add as a permitted use of proceeds of the New Acquisition Credit Facility the permitted repurchases of the Senior Subordinated Notes; (iv) reduce the borrowing base availability under the New Revolving Credit Facility by $3,000,000 from the time the Company first borrows under the New Acquisition Credit Facility to repurchase Senior Subordinated Notes until the lenders consent to terminate such restriction on availability; (v) amend the required interest coverage ratios applicable to fiscal year 2000; and (vi) amend the required senior leverage ratios applicable to fiscal year 2000.

      On March 17, 2000, the New Credit Facility was amended to (i) permit the use of up to $1,500,000 of the Acquisition Credit Facility to repurchase Discount Notes at or below par value; (ii) extend the right to purchase the Senior Subordinated Notes and the Discount Notes through August 31, 2000; (iii) amend the definition of “Fixed Charge Coverage Ratio” to eliminate the tax effect of any permitted repurchases of the Discount Notes; (iv) add as a permitted use of proceeds of the Acquisition Credit Facility the permitted repurchases of the Discount Notes; and (v) reinstate the borrowing base availability under the Revolving Credit Facility by $3,000,000.

Recently Issued Accounting Standards

      In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (the “Statement”). As amended by FASB Statement No. 137, Deferral of the Effective Date of FASB Statement No. 133, the Statement is required to be adopted for all fiscal quarters in years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. Holdings expects to adopt the Statement effective with the first fiscal quarter of fiscal year 2002. The Statement will require Holdings to recognize all derivatives on the balance sheet at fair

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      In December 1999, the Staff of the Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition,” to provide guidance on the recognition, presentation and disclosure of revenues in financial statements. Holdings’ revenue recognition practices are in conformity with SAB No. 101.

Inflation and Changing Prices

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

Forward Looking Statements

      When used in this 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. Holdings wishes to caution readers that the following important factors and others in some cases have affected and in the future could affect Holdings’ actual results and could cause Holdings’ actual results to differ materially from those expressed in any forward statements made by Holdings: (i) economic conditions in the safety shoe market, (ii) availability of credit, (iii) increase in interest rates, (iv) cost of raw materials, (v) inability to maintain state-of-the-art manufacturing facilities, (vi) heightened competition, including intensification of price and service competition, the entry of new competitors and the introduction of new products by existing competitors, (vii) inability to capitalize on opportunities presented by industry consolidation, (viii) loss or retirement of key executives, (ix) loss or disruption of Holdings’ relationships with its major suppliers, including Holdings’ largest supplier in China and (x) inability to grow by acquisition of additional safety shoe distributors or to effectively consolidate operations of businesses acquired.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

      There have been no material changes in Holdings’ exposure to market risk since January 29, 2000.

PART II OTHER INFORMATION

Item 1.  Legal Proceedings.

      None.

Item 2.  Changes in Securities and Use of Proceeds.

      None.

Item 3.  Defaults upon Senior Securities.

      None.

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

      None.

Item 5.  Other Information.

      None.

Item 6.  Exhibits and Reports on Form 8-K.

      (a)  Exhibit Index.

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      (b)  Reports on Form 8-K.

      No reports on Form 8-K were filed during the first quarter ended April 29, 2000.

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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 HOLDINGS CORPORATION

	By:	/s/ KEITH A. MCDONOUGH

	Name: Keith A. McDonough

	Title:	Vice President-Finance

	Chief Financial Officer
	(Principal financial and
	accounting officer)

Dated: June 9, 2000

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