##### 









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 February 1,
    2003                                              
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from          to                                              

Commission file number 000-21543

Wilsons The Leather Experts Inc.


(Exact name of registrant as specified in its
charter)


|                                                                                   |  |                                         
|---------------------------------------------------------------------------------- |  | ----------------------------------------
|Minnesota                                                                          |  | 41-1839933                              
|(State or other jurisdiction of
    incorporation or organization)                 |  | (I.R.S. Employer
    Identification No.)
|                                                                                  
|7401 Boone Ave. N., Brooklyn Park, MN
    (Address of principal executive offices) |  | 55428
    (Zip Code)                    

Registrants telephone number, including
area code: (763) 391-4000

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


Securities registered pursuant to
Section 12(g) of the Act:


Common stock, $.01 par value

(Title of Class)


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

Indicate by check mark if the 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 the registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. o

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

The aggregate market value of the voting common
equity held by non-affiliates of the registrant was $44,896,383
based on the closing sale price for the common stock on
April 21, 2003 as reported by the Nasdaq National Market.
For purposes of determining such aggregate market value, all
executive officers and directors of the registrant are
considered to be affiliates of the registrant, as well as
shareholders holding 10% or more of the outstanding common stock
as reflected on Schedules 13D or 13G filed with the
registrant. This number is provided only for the purpose of this
report on Form 10-K and does not represent an admission by
either the registrant or any such person as to the status of
such person.

The number of shares outstanding of the
registrants common stock, $.01 par value, was 20,613,085
at April 21, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement of
Wilsons The Leather Experts Inc. for the Annual Meeting of
Shareholders to be held on June 11, 2003 (the Proxy
Statement), which will be filed within 120 days after the
registrants fiscal year ended February 1, 2003, are
incorporated by reference into Part III of this Annual
Report on Form 10-K (Form 10-K). (The Compensation
Committee Report, the Audit Committee Report, and the stock
performance graph contained in the registrants Proxy
Statement are expressly not incorporated by reference in this
Form 10-K.)



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WILSONS THE LEATHER EXPERTS INC.

FORM 10-K

For the fiscal year ended February 1,
2003

TABLE OF CONTENTS

|         |          |             |                                                                                                    |      |  |    | 
|-------- | -------- | ----------- | -------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|         |          | DESCRIPTION |                                                                                                    | PAGE
|         |          |             |                                                                                                    |     
|PART I   |          |             |                                                                                                    |      |  |   
|        
|         | Item 1.  |             | Business                                                                                           |      |  | 1  | 
|        
|         | Item 2.  |             | Properties                                                                                         |      |  | 16 | 
|        
|         | Item 3.  |             | Legal Proceedings                                                                                  |      |  | 16 | 
|        
|         | Item 4.  |             | Submission of Matters to a Vote of Security
    Holders                                            |      |  | 16 | 
|        
|         | Item 4a. |             | Executive Officers of the Registrant                                                               |      |  | 16 | 
|        
|PART II  |          |             |                                                                                                    |      |  |   
|        
|         | Item 5.  |             | Market for Registrants Common Equity and
    Related Stockholder Matters                          |      |  | 18 | 
|        
|         | Item 6.  |             | Selected Financial Data                                                                            |      |  | 19 | 
|        
|         | Item 7.  |             | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |      |  | 21 | 
|        
|         | Item 7a. |             | Quantitative and Qualitative Disclosures About
    Market Risk                                     |      |  | 33 | 
|        
|         | Item 8.  |             | Financial Statements                                                                               |      |  | 34 | 
|        
|         | Item 9.  |             | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |      |  | 34 | 
|        
|PART III |          |             |                                                                                                    |      |  |   
|        
|         | Item 10. |             | Directors and Executive Officers of the Registrant                                                 |      |  | 34 | 
|        
|         | Item 11. |             | Executive Compensation                                                                             |      |  | 34 | 
|        
|         | Item 12. |             | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |      |  | 35 | 
|        
|         | Item 13. |             | Certain Relationships and Related Transactions                                                     |      |  | 35 | 
|        
|         | Item 14. |             | Controls and Procedures                                                                            |      |  | 35 | 
|        
|PART IV  |          |             |                                                                                                    |      |  |   
|        
|         | Item 15. |             | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |      |  | 36 | 



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PART I

When we refer to we,
our, us or Wilsons Leather,
we mean Wilsons The Leather Experts Inc. and its subsidiaries,
including its predecessor companies. Unless otherwise indicated,
references to our fiscal year mean the year ended on the
Saturday closest to January 31, which for the most recent
fiscal year end was February 1, 2003, and references to
2003, 2002, 2001 and 2000 refer to the fiscal year ending
January 31, 2004, and the fiscal years ended
February 1, 2003, February 2, 2002, and
February 3, 2001, respectively.

Item 1.     Business

Disclosure Regarding Forward-Looking
Statements

The information presented in this Form 10-K
under the headings Item 1. Business and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations contain
certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). Such forward-looking statements are
based on the beliefs of our management as well as on assumptions
made by and information currently available to us at the time
such statements were made. Although we believe these statements
are reasonable, readers of this Form 10-K should be aware
that actual results could differ materially from those projected
by such forward-looking statements as a result of a number of
factors, many of which are outside of our control, including
those set forth under Risk Factors, beginning
on page 10 of this Form 10-K. Readers of this
Form 10-K should consider carefully the factors listed
under Risk Factors, as well as the other
information and data contained in this Form 10-K. All
forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the
cautionary statements set forth under Risk
Factors in this section. When used in this Form 10-K,
the words anticipate, believe,
estimate, expect, intend,
plan and similar expressions, as they relate to us,
are intended to identify such forward-looking statements.

Overview

We are the leading specialty retailer of quality
leather outerwear, accessories and apparel in the United States.
Our multi-channel store locations are designed to target a broad
customer base with a superior level of customer service. Through
our worldwide leather sourcing network and in-house design
capabilities, we are able to consistently provide our customers
high-quality, fashionable merchandise at attractive prices. Our
business structure results in shorter lead times, allowing us to
react quickly to popular and emerging fashion trends and
customer preferences, rapidly replenish fast-selling merchandise
and minimize fashion risk.

As of February 1, 2003, we operated a total
of 618 stores located in 45 states, the District of
Columbia, and Canada, including 483 mall stores, 110 outlet
stores and 25 airport locations. Each year we supplement our
permanent stores with temporary seasonal stores during our peak
selling season, which totaled 284 in 2002. Our mall stores
average approximately 2,600 total leased square feet and feature
a large assortment of classic and contemporary leather
outerwear, accessories and apparel. Our outlet stores are
operated primarily under the Wilsons Leather Outlet name,
average approximately 3,900 total leased square feet and offer a
combination of clearance merchandise from our mall stores,
special outlet-only merchandise and key in-season goods. Our
airport stores average approximately 700 total leased square
feet, feature travel-related products as well as leather
accessories and provide us the opportunity to showcase our
products and the Wilsons Leatherbrand to millions of
potential customers each year in some of the busiest airports.
Our proprietary labels, including M. Julian®,
Maxima®, Pelle Studio® and Wilsons
LeatherTM, are positioned to appeal to identified
customer lifestyle segments.

Wilsons House of Suede, Inc., one of our
predecessor companies, was founded in the late 1940s and
developed a strategy to sell quality leather products at
affordable prices to the average consumer. In 1982, CVS New
York, Inc. (CVS) acquired Wilsons House of Suede,
Inc. Following this acquisition, CVS engaged in other strategic
acquisitions, and in 1988 acquired Bermans The Leather Experts,
Inc. to become a leading specialty retailer of leather apparel
and accessories with expertise in all areas of the leather
apparel business. By the time CVS acquired Georgetown Leather
Design in 1993, our predecessor companies had

1



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grown to more than 500 stores nationally. In
May 1996, certain members of our current management participated
in a management buyout from CVS, and in May 1997, we completed
our initial public offering.


Discontinued Operations

On October 31, 2000, we acquired the El
Portal Group, Inc. (El Portal), a specialty retailer
of premium travel products and accessories with 38 stores
based in Las Vegas, Nevada. On April 14, 2001, we acquired
Bentleys Luggage Corp., including its subsidiary, Florida
Luggage Corp., (collectively Bentleys) a
specialty retailer of travel products with 106 stores based
in Miami, Florida. We operated these two chains for 24 and
19 months, respectively with unsatisfactory financial
results, and as a result, on November 19, 2002, we
announced the liquidation of all 135 stores operated by El
Portal and Bentleys (the Travel Subsidiaries).
The Travel Subsidiaries business is classified as discontinued
operations in our consolidated financial statements and in
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. Fiscal
years 2001 and 2000 have been reclassified to present
discontinued operations for the Travel Subsidiaries. As a result
of the significance of these reclassifications related to our
discontinued operations for the Travel Subsidiaries, our 2001
and 2000 consolidated financial statements, which were
previously audited by other independent auditors who have ceased
operations, have been re-audited by our current independent
auditors.

Restatement

During 2001, the Company recorded a pre-tax, net
adjustment of $5.4 million to cost of sales that related to
$11.1 million of under-absorbed freight charges offset by
reserve reversals of $5.7 million. In 2002, upon further
analysis of this adjustment, and in consultation with KPMG, we
determined that the timing of the recording of this adjustment
in 2001 was incorrect and that $5.3 million of the
$5.4 million net adjustment should have been reflected in
our 2000 consolidated financial statements. Additionally,
$3.2 million and $1.1 million of the $5.7 million
reserve reversals should have been classified as an adjustment
to tax expense and selling, general and administrative expense,
respectively, rather than cost of goods sold.

The effect of the correction of this error was to
increase income from continuing operations and diluted earnings
per share from continuing operations in 2001 by
$3.2 million and $0.19, respectively, and to decrease
income from continuing operations and diluted earnings per share
from continuing operations in 2000 by $1.5 million and
$0.09, respectively.

The consolidated financial statements as of
February 2, 2002, and February 3, 2001, and for the
fiscal years ended February 2, 2002, and February 3,
2001, and notes thereto included in this Annual Report on
Form 10-K have been restated to include the effects of the
change of the timing of recording the adjustment for
under-absorbed freight charges and the associated
reclassifications.

Business Strategy

The elements of our business strategy combine to
create an assortment of labels and products that appeal to
consumers from a broad range of socio-economic, demographic and
cultural profiles. We completed internal market research during
2002, which took an even closer look at our demographics. We
expect that our strategy will continue to position us as the
leading specialty retailer of quality leather outerwear,
accessories and apparel. The principal elements of our business
strategy include:

Pursue Multiple Store Formats.Our distribution network of multiple
store formats allows us to specifically tailor our stores with a
wide selection of merchandise at multiple price points and to
optimize raw materials usage, inventory flow and sales across
all channels. We operate our Wilsons Leather selling formats in
malls, outlet centers, airports and an e-commerce site. We also
operate temporary seasonal stores in malls and outlet centers
during our peak selling season to complement our existing store
base. These units provide us with opportunities to drive
incremental sales, test new markets and further strengthen the
Wilsons Leatherbrand nationally.

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Grow Brand Recognition.Our goal is to promote our proprietary
labels and enhance their recognition among consumers. Our
proprietary labels target specific customer segments:
(i) M. Julian® and Maxima® for fashion-savvy
young men and women, (ii) Pelle Studio® for the more
sophisticated, confident and fashion-aware segment and
(iii) Wilsons LeatherTM for the classic,
traditional, value-conscious segment. In addition to our
national network of stores, we promote the Wilsons Leatherbrand through a variety of in-store visual presentations,
radio and magazine advertising, direct mail promotions and on
our e-commerce site. Reflecting our strength as a mass-market
retailer, we are expanding the power of the Wilsons Leatherbrand by focusing our marketing and merchandising on classic
and contemporary styles designed to reach a much broader market.
We will continue to market to our customers ethnic
backgrounds, ages, income levels and fashion requirements
through our unique lifestyle sub-brands.

Target Core Customer Base.Our primary focus this year will be on
using our distinct proprietary labels to tailor price points and
levels of sophistication to grow with customers throughout their
lives. We are targeting customers 18-45 years old and we
are working to ensure that we are assorting our stores with the
products they want. Our recently completed market research
indicated that our high-potential, high-volume core customer is
26-37 years old.

Increase the Merchandising of Accessories.We are focused on maintaining our
accessories business within our retail concepts with an added
emphasis on handbags. To support our objective of generating
demand and sales throughout the year, we have expanded the
accessories assortment in our stores. Through the development of
new product styles and other merchandising activities, we plan
to utilize accessories as an additional way of attracting
customers into our stores. These products complement our
outerwear and apparel selection and lead to higher
add-on sales. Our accessories business has proven to
be less seasonal and is consistently one of the highest margin
categories in our stores.

Capitalize on Worldwide Sourcing Network.We are able to leverage our worldwide
sourcing network to benefit our Wilsons Leather stores. Our
staff of in-house designers combines industry experience with
the latest fashion trends to produce product lines that are both
classic and fashion-forward. We have established strong
relationships with suppliers globally and our design team works
closely with our suppliers to ensure seamless development of
leather colors and finishes. We have a staff of
45 professionals in Pacific Rim countries and South America
to ensure that our designs are manufactured quickly with
consistent, high-quality standards. Our control of design and
sourcing results in shorter lead times than our competitors,
reducing inventory requirements and fashion risk and permitting
in-season reorders.

Continue to Enhance Operations.In 2002, we consolidated our
marketing, merchandising and sales functions under one fully
integrated organization to accelerate improvements in the core
business and maximize operating margins. In 2003, we intend to
focus on improving store productivity, maximizing sales volume
and margins in our various channels and enhancing our supply
chain process to strategically control inventory levels. Our
focus is on improving store productivity rather than aggressive
store growth. We will continue to look for opportunities to
close stores that are not meeting profitability targets. During
2003, we will continue to streamline our organization and look
for alternative strategies to run our business more efficiently.

Improve Balance Sheet and Enhance Cash
Position.We are focused on conserving
cash through tight expense controls throughout the organization,
improved inventory management and limiting new store growth
until we improve the profitability of our current store base.
Capital expenditures for 2003 are capped at $10 million,
with the majority of the funds being allocated to certain fully
obligated store remodels.

Rationalize Store Count.We had a net reduction of one store in
2002. In 2003, we will preserve capital and plan to limit store
growth. We plan to open 10-15 stores where we have
pre-existing commitments and close approximately 40-45 other
locations for a net reduction of 30-35 stores. Beyond 2003,
we will continue to analyze our store profitability on a
market-by-market basis and will work to close unprofitable
stores. We will opportunistically open stores in markets where
we see growth prospects.

Emphasize Quality of Product and Value to
Customer.Our reputation was built by
offering consumers a large selection of high-quality leather
products at attractive prices. We are improving our quality,
simplifying our store merchandise presentation and offering
fashion-right products for our core customer group.

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Tighten Store Assortment.We are tightening our store assortment
and stringently controlling inventories via an accelerated
supply chain improvement initiative. We plan to reduce our
outerwear stock keeping unit (SKU) count by approximately
50% this fall. We will do this by emphasizing key styles in each
of our store formats. This will allow the best products to have
a prominent presence in our stores. We plan to more effectively
utilize our outlet channel to clear mall merchandise in order to
keep the stores fresh and up to date.

Product Design and Merchandising

Our mission is to tailor our merchandising to a
targeted customer base by offering a broad selection of
high-quality merchandise at attractive prices. Our merchandising
staff, including buyers and designers, continuously monitors
emerging trends and changing consumer preferences and utilizes
information provided by our customers to ensure that we maintain
a consistent and up-to-date selection of products. To further
minimize our inventory risk and maximize our sales performance,
our merchandising team utilizes an advanced management
information system to test new merchandise in many of our stores
before making large commitments and purchase orders with our
suppliers.

Our stores offer a large selection of leather
outerwear, accessories and apparel. Accessories consist
primarily of gloves, handbags, wallets, briefcases, computer
cases, planners, belts, at attractive prices. We offer more than
3,500  styles of leather outerwear, accessories, and
apparel throughout our Wilsons Leather stores.

We believe that our integrated worldwide sourcing
and in-house design capabilities enable us to gain numerous
competitive advantages. As new market trends are identified, we
make merchandise design decisions to ensure that key features of
fashion merchandise are incorporated in future designs. Our
in-house design staff will create and develop merchandise
designs to ensure a consistent quality, theme and image. As part
of the design process, we also consider the anticipated retail
prices and profit margins of the merchandise, the availability
of leather and raw materials and the capabilities of the
factories that will manufacture the merchandise.

Some key elements for merchandising our stores
include:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | identifying customer lifestyle segments based on
    demographic factors such as age, fashion awareness, purchasing
    behavior, income, location and ethnicity;
|
| |  | building strong brand recognition and utilizing
    our proprietary labels to target customer lifestyle segments;                                                
|
| |  | driving accessories growth through new styles
    designed to attract customers into our stores; and                                                             
|
| |  | actively managing pricing to maintain value for
    the largest possible customer base.                                                                          

We believe that the name and reputation of the
Wilsons Leatherbrand assures customers they are
purchasing high-quality and fashionable merchandise. Over
90 percent of the merchandise in our stores is designed and
sold under our proprietary labels: M. Julian®,
Maxima®, Pelle Studio®, and Wilsons
LeatherTM.

Each of our labels is supplemented with in-store
promotions and visual presentations to further emphasize
customer lifestyle segmentation. We additionally offer a limited
selection of other designer brands such as Kenneth Cole®
and Andrew Marc® in our stores to highlight the value of
our proprietary labels.

The following table sets forth the percentages of
net sales by major merchandise category from 2000 to 2002:

|                     |  |      |       |            |  |            |       |   |  |  |       |  
|-------------------- |  | ---- | ----- | ---------- |  | ---------- | ----- | - |  |  | ----- | -
|                     |  |      |       | 2001       |  | 2000      
|                     |  | 2002 |       | (Restated) |  | (Restated)
|Merchandise Category |  |      |       |            |  |           
|Accessories          |  |      | 31.6  | %          |  |            | 28.0  | % |  |  | 23.7  | %
|Womens apparel      |  |      | 35.0  | %          |  |            | 36.3  | % |  |  | 39.1  | %
|Mens apparel        |  |      | 33.4  | %          |  |            | 35.7  | % |  |  | 37.2  | %
|                     |  |      |       |            |  |            |       |   |  |  |       |  
|Total                |  |      | 100.0 | %          |  |            | 100.0 | % |  |  | 100.0 | %
|                     |  |      |       |            |  |            |       |   |  |  |       |  

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Sourcing and Quality Control

Throughout our history we have developed strong
and long-standing relationships with our manufacturers and
tanneries. In 2002, approximately 85.8% of our leather garments
and 52.4% of our accessories were manufactured by
41 independently owned manufacturing facilities in China.
We purchased 3.6 million leather garments and
8.9 million accessories in 2002. Our relationships, coupled
with our significant purchasing power, enable us to achieve
economies of scale and ensure that we can consistently obtain
sufficient manufacturing capacity when needed.

We believe that our extensive knowledge of the
worlds leather markets is critical in mitigating price
fluctuations in the cost of raw leather during times of high
volatility. While we do not normally obtain possession of a
significant level of raw material, we assist tanneries and
factories in sourcing raw material from all over the world,
ensuring broad access to the marketplace. However, from time to
time we purchase supplies of leather to take advantage of market
opportunities to ensure reserves of quality materials at
acceptable prices. Raw leather is primarily sourced in Italy and
South Korea, with additional product sourced from South America,
Australia and New Zealand. Our buying strategies coupled with
our expertise in leather development enable us to purchase
entire lots of raw leather and use varying grades of raw leather
in different products, providing us with significant price
advantages.

Our sourcing infrastructure and strong
relationships with our suppliers allow us to effectively control
merchandise production without owning manufacturing facilities.
Our designers and buyers work closely with our sourcing team to
identify and develop leather colors and finishes. We have a
staff of 45 professionals located in China, India, Hong
Kong, South Korea, Thailand and South America who are primarily
responsible for overseeing the production and quality control
process in overseas factories and are supervised by the sourcing
team at Wilsons Leathers headquarters in Minnesota. Their
responsibilities include inspecting leather at the tanneries,
coordinating the production capacity, matching product samples
to our technical specifications and providing technical
assistance and quality control through inspection in the
factories.

Our merchandising department works closely with
our overseas personnel to coordinate order fulfillment. We have
consistently maintained our merchandise production cycle at
approximately 90 days. We believe our merchandise
production cycle is shorter than our competitors, and allows us
to control our production needs and reorder faster-selling
merchandise during our peak selling season. Our management
believes that this strategy results in more effective and
efficient inventory management and gives us the ability to
tightly control our inventory and manage production as the
business climate changes, thus reducing our need for markdowns
on merchandise at the end of our peak selling season.

Store Formats and Locations

As of February 1, 2003, we operated
618 retail stores located in 45 states, the District
of Columbia, and Canada, including 483 mall stores,
110 outlet stores and 25 airport locations. We
regularly supplement our permanent mall stores with temporary
seasonal stores during our peak selling season. From October
2002 through January 2003, we operated 284 seasonal stores.

Our e-commerce site at
www.wilsonsleather.com offers leather outerwear,
accessories and apparel, as well as company background and
financial information.

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| |                                            
| | -------------------------------------------
| | Store Locations as of February 1,
    2003:

|                     |  |      |     |         |  |        |    |       |  |  |     |  |  |  |     | 
|-------------------- |  | ---- | --- | ------- |  | ------ | -- | ----- |  |  | --- |  |  |  | --- | 
|State                |  | Mall |     | Airport |  | Outlet |    | Total
|                     |  |      |     |         |  |        |    |      
|Alabama              |  |      | 2   |         |  |        |   |       |  |  | 2   |  |  |  | 4   | 
|Arkansas             |  |      | 2   |         |  |        |   |       |  |  |    |  |  |  | 2   | 
|Arizona              |  |      | 5   |         |  |        |   |       |  |  | 3   |  |  |  | 8   | 
|California           |  |      | 56  |         |  |        | 2  |       |  |  | 14  |  |  |  | 72  | 
|Colorado             |  |      | 9   |         |  |        |   |       |  |  | 3   |  |  |  | 12  | 
|Connecticut          |  |      | 9   |         |  |        |   |       |  |  |    |  |  |  | 9   | 
|Delaware             |  |      | 3   |         |  |        |   |       |  |  | 1   |  |  |  | 4   | 
|Florida              |  |      | 18  |         |  |        | 2  |       |  |  | 7   |  |  |  | 27  | 
|Georgia              |  |      | 16  |         |  |        | 3  |       |  |  | 5   |  |  |  | 24  | 
|Iowa                 |  |      | 7   |         |  |        |   |       |  |  | 1   |  |  |  | 8   | 
|Idaho                |  |      | 1   |         |  |        |   |       |  |  |    |  |  |  | 1   | 
|Illinois             |  |      | 29  |         |  |        | 5  |       |  |  | 3   |  |  |  | 37  | 
|Indiana              |  |      | 14  |         |  |        |   |       |  |  | 2   |  |  |  | 16  | 
|Kansas               |  |      | 4   |         |  |        |   |       |  |  | 1   |  |  |  | 5   | 
|Kentucky             |  |      | 4   |         |  |        |   |       |  |  |    |  |  |  | 4   | 
|Louisiana            |  |      | 5   |         |  |        |   |       |  |  | 1   |  |  |  | 6   | 
|Massachusetts        |  |      | 17  |         |  |        |   |       |  |  | 2   |  |  |  | 19  | 
|Maryland             |  |      | 14  |         |  |        | 1  |       |  |  | 4   |  |  |  | 19  | 
|Maine                |  |      | 3   |         |  |        |   |       |  |  | 2   |  |  |  | 5   | 
|Michigan             |  |      | 23  |         |  |        |   |       |  |  | 3   |  |  |  | 26  | 
|Minnesota            |  |      | 14  |         |  |        | 1  |       |  |  | 3   |  |  |  | 18  | 
|Missouri             |  |      | 9   |         |  |        |   |       |  |  | 3   |  |  |  | 12  | 
|Mississippi          |  |      |    |         |  |        |   |       |  |  | 2   |  |  |  | 2   | 
|North Carolina       |  |      | 12  |         |  |        | 2  |       |  |  | 3   |  |  |  | 17  | 
|North Dakota         |  |      | 4   |         |  |        |   |       |  |  |    |  |  |  | 4   | 
|Nebraska             |  |      | 3   |         |  |        |   |       |  |  |    |  |  |  | 3   | 
|New Hampshire        |  |      | 4   |         |  |        |   |       |  |  | 2   |  |  |  | 6   | 
|New Jersey           |  |      | 19  |         |  |        | 1  |       |  |  | 2   |  |  |  | 22  | 
|New Mexico           |  |      | 2   |         |  |        |   |       |  |  | 1   |  |  |  | 3   | 
|Nevada               |  |      | 4   |         |  |        |   |       |  |  | 2   |  |  |  | 6   | 
|New York             |  |      | 31  |         |  |        |   |       |  |  | 5   |  |  |  | 36  | 
|Ohio                 |  |      | 23  |         |  |        |   |       |  |  | 3   |  |  |  | 26  | 
|Oklahoma             |  |      | 4   |         |  |        |   |       |  |  |    |  |  |  | 4   | 
|Oregon               |  |      | 6   |         |  |        |   |       |  |  | 1   |  |  |  | 7   | 
|Pennsylvania         |  |      | 22  |         |  |        | 2  |       |  |  | 4   |  |  |  | 28  | 
|Rhode Island         |  |      | 2   |         |  |        |   |       |  |  | 1   |  |  |  | 3   | 
|South Carolina       |  |      | 2   |         |  |        |   |       |  |  | 4   |  |  |  | 6   | 
|South Dakota         |  |      | 2   |         |  |        |   |       |  |  |    |  |  |  | 2   | 
|Tennessee            |  |      | 9   |         |  |        |   |       |  |  | 4   |  |  |  | 13  | 
|Texas                |  |      | 24  |         |  |        | 2  |       |  |  | 7   |  |  |  | 33  | 
|Utah                 |  |      | 4   |         |  |        | 1  |       |  |  | 1   |  |  |  | 6   | 
|Virginia             |  |      | 11  |         |  |        | 1  |       |  |  | 3   |  |  |  | 15  | 
|Washington           |  |      | 14  |         |  |        |   |       |  |  | 2   |  |  |  | 16  | 
|Wisconsin            |  |      | 14  |         |  |        |   |       |  |  | 3   |  |  |  | 17  | 
|West Virginia        |  |      | 2   |         |  |        |   |       |  |  |    |  |  |  | 2   | 
|District of Columbia |  |      | 1   |         |  |        | 1  |       |  |  |    |  |  |  | 2   | 
|Canada               |  |      |    |         |  |        | 1  |       |  |  |    |  |  |  | 1   | 
|                     |  |      |     |         |  |        |    |       |  |  |     |  |  |  |     | 
|GRAND TOTAL          |  |      | 483 |         |  |        | 25 |       |  |  | 110 |  |  |  | 618 | 
|                     |  |      |     |         |  |        |    |       |  |  |     |  |  |  |     | 

Site Selection.We
utilize a detailed process to identify favorable store locations
in existing or new markets. Within each targeted market, we
identify potential sites for new and replacement stores by
evaluating market dynamics. Our site selection criteria include:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | customer segment and demographic data derived
    from our point-of-sale network and outside sources;
|
| |  | information relating to population density in
    concentric circles surrounding the mall;           
|
| |  | the performance of past seasonal stores within
    the mall;                                         
|
| |  | the proposed location within the mall; and                                                           
|
| |  | projected profitability, cost, return on
    investment and cash-flow objectives.                    

Our cross-functional review committee approves
proposed store projects, including new sites and lease renewals.
We continually evaluate our stores to assess the needs for
remodeling or the timing of possible closure based on economic
factors. We use our knowledge of market areas and rely upon the
familiarity of our name and our national reputation with
landlords to enhance our ability to obtain prime store locations
and negotiate favorable lease terms.

We maintain a dedicated staff with extensive
experience in opening and closing our temporary seasonal stores,
which we leverage in our other concepts. Once a seasonal store
site is selected and the lease is executed, we are able to open
a store within three days after we are allowed to occupy the
space in the mall.

Our real estate, store planning and executive
management teams continually analyze the performance and
profitability of our stores and markets to assess the potential
for new and replacement stores and to identify underperforming
stores. We estimate that our average net investment in our
Wilsons Leather permanent mall stores is approximately $261,000
and approximately $288,000 for our outlet stores, including
inventory and capital investment, net of landlord contributions.
In 2003, we expect these stores to generate a three-year
internal rate of return of approximately 15% and have an average
discounted payback period of two-to-three years. We cannot
ensure that our future store openings will have similar results
to those experienced in the past.

6



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##### 



The following chart highlights the number of
stores, by format, opened in each of the last three years:

|                                       |                   |      |     |        |   |         |    |       |   |  |    |    |   |  |     |     |  
|-------------------------------------- | ----------------- | ---- | --- | ------ | - | ------- | -- | ----- | - |  | -- | -- | - |  | --- | --- | -
|                                       |                   | Mall |     | Outlet |   | Airport |    | Total
|                                       |                   |      |     |        |   |         |    |      
|Store count as of January 29, 2000     |                   |      | 444 |        |   |         | 55 |       |   |  | 30 |    |   |  | 529 |    
|                                      
|Fiscal year ended February 3,
    2001 |                   |      |     |        |   |         |    |       |   |  |    |    |   |  |     |    
|                                       | Stores opened     |      |     | 38     |   |         |    | 28    |   |  |    | 2  |   |  |     | 68  |  
|                                       | Stores closed     |      |     | (14    | ) |         |    | (9    | ) |  |    | (1 | ) |  |     | (24 | )
|                                       |                   |      |     |        |   |         |    |       |   |  |    |    |   |  |     |    
|                                       | End of year count |      |     | 468    |   |         |    | 74    |   |  |    | 31 |   |  |     | 573 |  
|                                      
|Fiscal year ended February 2,
    2002 |                   |      |     |        |   |         |    |       |   |  |    |    |   |  |     |    
|                                       | Stores opened     |      |     | 39     |   |         |    | 34    |   |  |    | 7  |   |  |     | 80  |  
|                                       | Stores closed     |      |     | (15    | ) |         |    | (14   | ) |  |    | (5 | ) |  |     | (34 | )
|                                       |                   |      |     |        |   |         |    |       |   |  |    |    |   |  |     |    
|                                       | End of year count |      |     | 492    |   |         |    | 94    |   |  |    | 33 |   |  |     | 619 |  
|                                      
|Fiscal year ended February 1,
    2003 |                   |      |     |        |   |         |    |       |   |  |    |    |   |  |     |    
|                                       | Stores opened     |      |     | 12     |   |         |    | 22    |   |  |    |   |   |  |     | 34  |  
|                                       | Stores closed     |      |     | (21    | ) |         |    | (6    | ) |  |    | (8 | ) |  |     | (35 | )
|                                       |                   |      |     |        |   |         |    |       |   |  |    |    |   |  |     |    
|                                       | End of year count |      |     | 483    |   |         |    | 110   |   |  |    | 25 |   |  |     | 618 |  
|                                       |                   |      |     |        |   |         |    |       |   |  |    |    |   |  |     |    

Mall Stores.We
operated 483 permanent Wilsons Leather mall stores in the
United States as of February 1, 2003. Our mall stores
showcase a full range of leather outerwear, apparel and
accessories primarily under our proprietary labels. These stores
average approximately 2,600 total leased square feet and are
located in all types of shopping malls, serving diverse
demographics. A typical mall store will carry a selection of
approximately 1,400 different styles of our merchandise.

We further supplement our permanent stores with
temporary seasonal stores to better capitalize on our peak
selling season. In 2002, we operated 259 seasonal mall
stores. Our temporary seasonal stores also provide us the
opportunity to test prospective mall locations and are generally
located in malls where there is not a permanent Wilsons Leather
store. A typical seasonal store will carry approximately 555
styles of our merchandise.

Outlet Stores.Our
110 outlet stores are located in 36 states and operate under the
names Wilsons Leather Outlet and Wallet Works. To maintain brand
image, we generally locate outlet stores in large outlet centers
in areas away from our permanent mall stores. Our Wilsons
Leather Outlet stores offer clearance items and special
outlet-only merchandise as well as certain key in-season
products. Wilsons Leather Outlet stores average approximately
3,900 total leased square feet and generally carry approximately
2,100 styles of merchandise. Our Wallet Works stores average
1,400 square feet and carry only accessories. We currently have
minimal Wallet Works stores open and plan to close the remaining
locations over time. Our outlet stores also help us to sell the
overages from our mall stores. We further supplement our
permanent outlet stores with temporary seasonal stores to better
capitalize on our peak selling season. We operated 25 seasonal
outlet stores in 2002.

Airport Stores.We
launched our airport stores in an effort to showcase our
Wilsons Leatherbrand and accessories. Our 25 airport
stores located in the United States and Canada play an
instrumental role in growing brand awareness, showcasing our
brand and products to millions of travelers who pass by our
airport stores each year. These stores average approximately 700
total leased square feet and carry approximately 1,000 of our
best-selling styles, primarily accessories.

E-Commerce.Our
e-commerce site www.wilsonsleather.com offers an
extension of our store experience and is intended to increase
brand awareness, strengthen the relationship with our customers,
make our

7



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merchandise more accessible to our customers and
facilitate cross-marketing with our stores. We are also using
e-mail as a means of reaching out to our customers. The
e-commerce site features key in-season merchandise as well as
promotional merchandise and has been revamped to decrease the
cost structure and to improve customer service. In 2002, we had
1.9 million visitors at our www.wilsonsleather.com
e-commerce site, and achieved $4.5 million in online sales,
an increase in sales of 16% over 2001. We plan to continue to
invest prudently in the development and maintenance of our
online presence, with the Internet serving as an additional
shopping format for our customers, as well as a vehicle for
building brand awareness.


Store Operations.Our store operations are organized by
region. The mall, outlet and airport stores are divided into six
regions, with each region subdivided into districts. Each
district manager is responsible for approximately 15 stores.
Individual stores are staffed by a manager, an assistant
manager, and a complement of full and part-time sales associates
whose numbers fluctuate based upon expected and actual sales. A
typical store manager has an average of more than four years of
experience with our company. Store managers are responsible for
sales and other operations including hiring and associate
training, visual display and inventory control. All other
aspects of store operations are administered centrally by our
corporate offices. Temporary seasonal stores have a dedicated
staff with the same responsibilities as the staff of our
permanent stores. Temporary seasonal stores also provide an
opportunity to develop and assess the skills of associates being
considered for future permanent store management positions.

A core aspect of our corporate culture is to
focus on employee training and customer service. We emphasize
sales associate training to ensure each associate has knowledge
of our merchandise and the customer segments that the various
labels are designed to serve. Our associates receive ongoing
training in the unique properties of leather, the appropriate
methods of care for the various leather finishes and the product
specifications and details of our merchandise. In addition, we
train associates to perform minor repairs in the store for
customers free of charge.

We regularly evaluate our customer service
performance through customer comment cards, direct surveys of
customers who return merchandise and mall intercept and
telephone interview surveys. We also periodically conduct
customer focus groups. Issues relating to policy, procedure or
merchandise are frequently reviewed to improve service and
quality.

Distribution

Merchandise for our stores is shipped directly
from merchandise vendors or overseas manufacturers to
distribution centers located in Brooklyn Park, Minnesota and Las
Vegas, Nevada. From time to time, we also use third-party
distribution centers on the West Coast during our peak selling
season. We are party to a 15-year operating lease, with a
five-year option to extend, for a 289,000 square-foot
distribution center in Brooklyn Park, Minnesota, which is
equipped with automated garment-sorting equipment and hand-held
radio frequency scanners for rapid bar code scanning and
enhanced merchandise control. Approximately 25% of the
merchandise received in the distribution center is immediately
sent to our stores through cross-docking, which allows for
minimal handling and storage. Additional merchandise is stored
in the distribution center to replenish stores weekly with key
styles and to build inventory for the peak selling season.
Through the integration of merchant and distribution systems, we
are able to replenish goods frequently to ensure that stores
maintain an appropriate level of inventory. We are also party to
a five-year operating lease for an 86,000 square-foot
distribution center in Las Vegas, Nevada, which is similarly
equipped to the Brooklyn Park, Minnesota, distribution center.
In addition, we are party to a three-year operating lease for a
45,600 square-foot distribution center in Maple Grove,
Minnesota, that we are currently marketing for sub-lease.

Marketing and Advertising

Our goal is to make Wilsons Leatherthe
preferred resource for quality leather products. Consequently,
our marketing strategy is to position Wilsons Leatheras
the leading fashion leather brand, capitalizing on our position
as the leading specialty retailer of leather outerwear,
accessories and apparel in the United States in all of our
channels. Through compelling fashion photo imagery in our stores
and store fronts, the Wilsons Leatherbrand identity and
current fashion trends are communicated effectively to
customers. Our airport

8



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##### 



stores showcase the Wilsons Leatherbrand
to millions of travelers annually in some of the busiest
airports in the world. Our e-commerce site makes our merchandise
more accessible to customers, increases brand awareness and
facilitates cross-marketing efforts with our brick-and-mortar
stores.


Marketing to a customers lifestyle supports
our proprietary label collections. Each label targets specific
lifestyles and offers apparel and accessories ranging from
classic to contemporary styling. Targeting Americans currently
between 26 to 37 years old is a key marketing initiative.
Market research we completed during 2002 indicates that those
consumers are high-potential, high-volume customers. We believe
cross-channel brand marketing will be an important driver in our
future success. By leveraging our various selling
formatsmalls, outlets, airports and our e-commerce
sitewe intend to strengthen Wilsons Leatherin the
marketplace as the fashion leather leader.

Our marketing efforts extend to our corporate
partners as well. In a move to target more than 75 million
NASCAR fans, Wilsons Leather has unveiled plans to launch an
exclusive line of Dale Earnhardt Incorporated products. The
products, including leather jackets and accessories bearing the
marks of Dale Earnhardt Jr., the Dale Earnhardt Legacy program
and NASCAR, will be sold exclusively throughout Wilsons Leather
stores nationwide. The official launch of the program will be
promoted and advertised in leading NASCAR publications in the
spring of 2003.

Information Systems

Since 1997, we have invested more than
$27.5 million in improving our information systems,
completing the replacement of major operating platforms in the
functional areas of merchandising, finance, human resources,
manufacturing and store point-of-sale and back-office systems.
These systems provide all levels of our organization access to
information, powerful analytical tools to improve our
understanding of sales and operating trends and the flexibility
needed to anticipate future business needs. We believe that our
current systems, which are fully scalable to accommodate future
growth, are adequate to meet our operational plans over the next
several years.

Our point-of-sale and back-office systems have
been designed to, among other things, free store employees
time so that they can focus on serving our customers. Our
point-of-sale system gives each store the ability to view
inventory at other store locations, automates store operations,
human resource and inventory management documentation and
enables customer information collection. On a daily basis, we
obtain sales and inventory data from stores, facilitating
merchandising decisions regarding the allocation of inventory,
pricing and inventory levels. Our connection to our overseas
product sourcing offices provides both field management and home
office personnel access to pertinent business information. The
continuous flow of information to and from our overseas
personnel permits us to control inventory better, plan
manufacturing capacity, regulate merchandise flow and ensure
product consistency among manufacturers.

Competition

The retail leather outerwear, accessories, and
apparel industry is both highly competitive and fragmented. We
believe that the principal bases upon which we compete are
selection, style, quality, price, value, store location and
service. We compete with a broad range of other retailers,
including specialty retailers, department stores, mass
merchandisers and discounters and other retailers of leather
apparel and accessories.

Trademarks

We conduct our business under various trade
names, brand names, trademarks and service marks in the United
States, including M. Julian®, Maxima®, Pelle
Studio®, Wilsons The Leather ExpertsTM, Tannery
West®, Georgetown Leather DesignTM,
WalletWorksTM, Wilsons LeatherTM,
Handcrafted by Wilsons The Leather ExpertsTM, and
Vintage by Wilsons The Leather ExpertsTM.

9



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Employees

As of February 1, 2003, we had approximately
4,350 full and part-time associates. During our peak selling
season, from October through January, we employ approximately
4,000 additional seasonal associates. We consider our
relationships with our associates to be good. None of our
associates are governed by collective bargaining agreements.

Available Information

Our Internet address is
www.wilsonsleather.com. We make available free of charge
through our Internet Web site our annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) of the Securities
and Exchange Act of 1934, as amended, as soon as reasonably
practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission.

Risk Factors

The risks and uncertainties described below are
not the only ones facing our company. Additional risks and
uncertainties also may impair our business operations. If any of
the following risks actually occur, our business, financial
condition and results of operations would likely suffer.



| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The decline in general economic conditions has
    led to reduced consumer demand for our leather apparel and
    accessories, and could adversely affect our business and
    liquidity.

Our future capital requirements depend on the
sustained demand for our leather products. Many factors affect
the level of consumer spending on our products, including, among
others:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | general business conditions;                                                        
|
| |  | interest rates;                                                                     
|
| |  | the availability of consumer credit;                                                
|
| |  | weather;                                                                            
|
| |  | the outbreak of war and other significant
    national and international events; and
|
| |  | taxation and consumer confidence in future
    economic conditions.                 

Consumer purchases of discretionary items, such
as our products, tend to decline during recessionary periods
when disposable income is lower. The general slowdown in the
United States economy and the uncertain economic outlook have
adversely affected consumer spending habits and mall traffic,
causing us to delay our expansion plans, and have resulted in
lower than expected net sales on a quarterly and annual basis.

Our ability to meet our debt service obligations
will be dependent upon our future performance, which will be
subject to general economic conditions and financial, business
and other factors affecting our operations. If we are unable to
generate sufficient cash flow from operations in the future to
service our debt, we may be required to refinance all or a
portion of existing debt or to obtain additional financing.
There can be no assurance that any such refinancing or
additional financing would be possible or could be obtained on
terms that are favorable to us.



| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If at any time our comparable store sales and
    quarterly results of operations decline or do not meet the
    expectations of research analysts, the price of our common stock
    could decline dramatically.

Our quarterly results of operations for our
stores have fluctuated in the past and can be expected to
continue to fluctuate in the future. For instance, our quarterly
comparable store sales increases have ranged as

10



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##### 



high as 2.1% and as low as a negative 16.0% over
the past eight quarters. Our comparable store sales and
quarterly results of operations are affected by a variety of
factors, including:




| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | the timing of new store openings and the relative
    proportion of new stores to mature stores;
|
| |  | general economic conditions and, in particular,
    the retail sales environment;               
|
| |  | fashion trends;                                                                                 
|
| |  | calendar shifts of seasonal periods;                                                            
|
| |  | weather conditions;                                                                             
|
| |  | maintaining appropriate inventory levels;                                                       
|
| |  | changes in our merchandise mix;                                                                 
|
| |  | timing of promotional events; and                                                               
|
| |  | actions by competitors or mall anchor tenants.                                                  

An inability to generate comparable store
increases could have a material adverse effect on our business,
financial condition and results of operations.



| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our accounting policies and methods are key to
    how we report our financial condition and results of operations,
    and they may require management to make estimates about matters
    that are inherently uncertain.

Our accounting policies and methods are
fundamental to how we record and report our financial condition
and results of operations. Our management must exercise
judgement in selecting and applying many of these accounting
policies and methods so that not only do they comply with
generally accepted accounting principles, but also that they
reflect managements judgement as to the most appropriate
manner in which to record and report our financial condition and
results of operations. In some cases, management must select the
accounting policy or method to apply from two or more
alternatives, any of which might be reasonable under the
circumstances, yet might result in our reporting materially
different amounts than would have been reported under a
different alternative. Note 2. Summary of Significant
Accounting Policies to our consolidated financial
statements describes our significant accounting policies.

We have identified two accounting policies as
being critical to the presentation of our financial
condition and results of operations because they require
management to make particularly subjective and/or complex
judgements about matters that are inherently uncertain and
because of the likelihood that materially different amounts
would be reported under different conditions or using different
assumptions. These critical accounting policies relate to:
(1) the valuation of inventory and (2) the valuation
of property and equipment for impairment. Because of the
uncertainty of estimates about these matters, we cannot provide
any assurance that we will not:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | significantly increase our allowance for obsolete
    inventory that is significantly higher than the amount reserved;
    or
|
| |  | recognize significant provision for impairment of
    our fixed assets at our stores.                                        

For more information, refer in this report to
Critical Accounting Policies, under
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.



| |                                                        
| | -------------------------------------------------------
| | We may not be able to grow our business as
    planned.

Our future operating results will depend, in
part, on our ability to successfully open new stores and to
effectively manage our business. Our ability to grow our
business will be limited, however, if we are unable to

11



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improve the sales performance and productivity of
our existing stores. Our future growth will also depend on our
ability to:




| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | design products, merchandise stores, manage
    inventory levels and take timely and necessary markdowns;                             
|
| |  | introduce and expand new selling concepts;                                                                                            
|
| |  | identify, negotiate, lease and open stores in
    suitable locations on a profitable and timely basis;                                
|
| |  | ensure the availability of and obtain the
    necessary capital to operate our business;                                              
|
| |  | build, expand, consolidate and upgrade our
    distribution centers and information systems in an efficient and
    timely manner; and
|
| |  | hire, train and retain qualified personnel,
    including management executives and hourly sales associates.                          

We cannot assure you that we will be able to
achieve all or any of these objectives.



| |                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The instruments governing our outstanding debt
    place certain obligations on us and restrictions on our
    operations which, if not met, could result in our inability to
    borrow under our senior credit facility or other
    penalties.

Covenants contained within our senior credit
facility require us to meet certain financial tests and limit
capital expenditures. In addition, certain covenants and
restrictions under our senior credit facility and the indenture
governing our 11 1/4% senior notes due 2004 limit our
ability to pay cash dividends or make other distributions, to
acquire or merge with another entity, to make investments, loans
or guarantees, to borrow additional funds or dispose of assets
and to create liens or other encumbrances, possibly affecting
our flexibility in planning for, and reacting to, changes in our
business, including possible acquisition activities.

The senior credit facility also contains a
requirement that we either amend, refund, renew, extend or
refinance the outstanding 11 1/4% senior notes due 2004 on
or before June 15, 2004, so that no principal payment with
respect to any such amended, refunded, renewed, extended or
refinanced notes is due on or before September 1, 2005. We
are required to provide our lenders a plan for achieving such
amendment, refunding, renewal, extension or refinancing by April
30, 2004. The terms of any refunded, renewed, extended or
refinanced notes cannot be more burdensome than the terms of the
11 1/4% senior notes and the rate of interest with respect
to any such notes cannot exceed the sum of the rate of interest
on United States treasury obligations of like tenor at the time
of such refunding, renewal, refinancing or extension, plus 7%
per annum. There can be no assurance that any such amendment,
refunding, renewal, extension or refinancing will be possible to
obtain on such terms.

The failure to comply with the covenants and
restrictions contained in either the senior credit facility or
the indenture governing our 11 1/4% senior notes could, if
not cured or waived, result in a default permitting the senior
lenders to accelerate payment of indebtedness (including letters
of credit) under the senior credit facility and allow them to
pursue other remedies (including foreclosing their liens on our
assets). Acceleration of the indebtedness under the senior
credit facility or the occurrence of another event of default
under the indenture governing our 11 1/4% senior notes
would also permit the holders of the 11 1/4% notes to
accelerate payment of such notes and allow such holders to
pursue their remedies.



| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Our inability to effectively respond to
    changes in fashion trends and consumer demands could adversely
    affect our sales.

Our success depends on our ability to identify
fashion and product trends as well as our ability to anticipate,
gauge and react swiftly to changes in consumer demand. Our
products must remain appealing for a broad range of consumers
with diverse and changing preferences and our orders for
products must be placed in advance of customer purchases. We
cannot assure you that we will be able to identify new fashion
trends and adjust our product mix in a timely manner. If we
misjudge market preferences, we may be faced with significant
excess inventories for some products and missed opportunities
for other products. In response, we

12



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may be forced to rely on additional markdowns or
promotional sales to dispose of excess, slow-moving inventories,
which may have a material adverse effect on our business,
financial condition and results of operations.


In addition, we cannot assure you that consumer
sentiment toward and demand for leather will not change or that
we will be able to react to any such changes effectively or at
all. For example, certain countries supplying the hides used to
make leather products have experienced outbreaks of certain
highly publicized diseases, namely Bovine Spongiform
Encephalopathy (so-called mad-cow disease) and
hoof-and-mouth disease. There can be no assurance that demand
for our leather products will not decline as a result of the
publicity regarding these diseases or new scientific findings
with respect to such diseases. If we are unable to anticipate,
gauge and respond to changes in demand or if we misjudge fashion
trends, our financial condition and operating results could be
harmed.



| |                                                                    
| | -------------------------------------------------------------------
| | The seasonality of our business could affect
    our profitability.

Since our leather outerwear and apparel products
are most often purchased during the holiday season, we
experience substantial fluctuations in our sales and
profitability. We generate a significant portion of our sales
from October through January, which includes the holiday selling
season. We generated 62.0% of our annual sales in that time
period in 2002, and 32.0% in December alone. Because our
profitability, if any, is historically derived in the fourth
quarter, our annual results of operations have been, and will
continue to be, heavily dependent on the results of operations
from October through January.

Given the seasonality of our business,
misjudgments in fashion trends, the outbreak of war and other
significant national and international events or unseasonably
warm or severe weather during our peak selling season could have
a material adverse effect on our financial condition and results
of operations. Our results of operations may also fluctuate
significantly as a result of a variety of other factors,
including:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | merchandise mix offered during the peak selling
    season;                         
|
| |  | the timing and level of markdowns and promotions
    during the peak selling season;
|
| |  | the net sales contributed by seasonal stores;                                       
|
| |  | the timing of certain holidays; and                                                 
|
| |  | the number of shopping days and weekends between
    Thanksgiving and Christmas.    



| |                                                                               
| | ------------------------------------------------------------------------------
| | We could have difficulty obtaining merchandise
    from our foreign suppliers.

We import our leather garments and accessories
from independent foreign contract manufacturers located
primarily in the countries of China, Indonesia and India. We do
not have long-term contracts or formal supply arrangements with
our contract manufacturers. In 2002, of the 12.5 million
leather garments and accessories contracted for manufacture,
approximately 75.2% were purchased from foreign suppliers.
Foreign contract manufacturers located in The Peoples
Republic of China account for approximately 82.4% of our
purchases from foreign suppliers. Additionally, in 2002, of the
leather garments and accessories that we contracted for
manufacture overseas, approximately 3% and 14% were from
Indonesia and India, respectively. Trade relations with China,
Indonesia and India have traditionally been unstable. If trade
relations with these countries or any other country from which
we source goods deteriorate, or if any new or additional duties,
quotas or taxes are imposed on imports from these countries,
leather purchase and production costs could increase
significantly, negatively impacting our sales prices,
profitability or the demand for leather merchandise. Further, we
cannot predict whether any of the countries in which our
products currently are manufactured or may be manufactured in
the future will be subject to trade restrictions imposed by the
United States government, including the likelihood, type, or
effect of any such restrictions, or whether any other conditions
having an adverse effect on our ability to source products will
occur. In addition, it will take time for us to transition our
sourcing to other countries.

13



---



##### 



Certain other risks related to foreign sourcing
include:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | economic and political instability;                                                                                                                         
|
| |  | transportation delays and interruptions,
    including delays relating to labor disputes;                                                                   
|
| |  | restrictive actions by foreign governments;                                                                                                                 
|
| |  | trade and foreign tax laws;                                                                                                                                 
|
| |  | fluctuations in currency exchange rates and
    restrictions on the transfer of funds; and                                                                  
|
| |  | the possibility of boycotts or other actions
    prompted by domestic concerns regarding foreign labor practices
    or other conditions beyond our control.

Any event causing a sudden disruption of imports
from China or other foreign countries, including a disruption
due to financial difficulties of a supplier, could have a
material adverse effect on our business, financial condition and
results of operations.



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | A decrease in the availability of leather or
    an increase in its price could harm our business.

The purchase of leather comprised approximately
62.8% and 65.2% of our costs of goods sold for leather apparel
and 49.7% and 48.5% of the costs of goods sold for accessories
in 2002 and 2001, respectively. A number of factors affect the
price of leather, including the demand for leather in the shoe,
furniture and automobile upholstery industries. In addition,
leather supply is influenced by worldwide meat consumption and
the availability of hides, including during times of rapid
destruction of animals to contain the spread of disease.
Fluctuations in leather supply and pricing, which can be
significant, may have a material adverse effect on our business
and profitability.



| |                                                                
| | ---------------------------------------------------------------
| | Changes in customer shopping patterns could
    harm our sales.

Most of our stores are located in enclosed
shopping malls and regional outlet centers. Our ability to
sustain or increase the level of sales depends in part on the
continued popularity of malls and outlet centers as shopping
destinations and the ability of malls and outlet centers,
tenants and other attractions to generate a high volume of
customer traffic. Many factors beyond our control may decrease
mall traffic, including, among other things, economic downturns,
the closing of anchor department stores, weather, concerns of
terrorist attacks, construction and accessibility to strip malls
or alternative shopping formats (such as catalogs or
e-commerce). Any changes in consumer preferences and shopping
patterns could adversely affect our financial condition and
operating results.



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The high level of competition in our markets
    may lead to reduced sales and profits.

The retail leather apparel and accessories
markets are highly competitive and fragmented. We compete with a
broad range of other retailers, including other specialty
retailers, department stores, mass merchandisers and
discounters, many of which have greater financial and other
resources. Increased competition may reduce sales, increase
operating expenses, decrease profit margins and negatively
affect our ability to obtain site locations and sales associates
and other employees. There can be no assurance that we will be
able to compete successfully in the future and, if we are unable
to do so, our financial condition and operating results could be
adversely affected.



| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | The loss of key members of our senior
    management team could adversely affect our business.

Our success depends largely on the efforts and
abilities of our current senior management team. Their
experience and worldwide contacts in the leather products
industry significantly benefit us. If we were to lose the
benefit of their experience and contacts, our business could be
adversely affected. We do not maintain key-man life insurance on
any members of our senior management team.

14



---



##### 





| |                                                                                    
| | -----------------------------------------------------------------------------------
| | We rely on third parties for upgrading and
    maintaining our information systems.

The efficient operation of our business is
heavily dependent on our information systems. In particular, we
rely heavily on the automated sortation system used in our
primary distribution center and the merchandise management
system used to track sales and inventory. We also rely on a
third-party package for our accounting, financial reporting and
human resource functions. We depend on our vendors to maintain
and periodically upgrade these systems so that these systems
continue to support our business as we expand. The software
programs supporting our automated sorting equipment and
processing our inventory management information were licensed to
us by independent software developers. The inability of these
developers to continue to maintain and upgrade these software
programs would disrupt our operations if we were unable to
convert to alternate systems in an efficient and timely manner.



| |                                                   
| | --------------------------------------------------
| | Ownership of our common stock is
    concentrated.

Our directors and executive officers beneficially
own, in the aggregate, 16.2 percent of our common stock as
of April 21, 2003. If these shareholders vote together as a
group, they will be able to exert significant influence over our
business and affairs, including the election of individuals to
our board of directors. They will also be able to significantly
affect the outcome of certain actions that require shareholder
approval, including the adoption of amendments to our Amended
and Restated Articles of Incorporation and the approval of
certain mergers, sales of assets and other business acquisitions
or dispositions. In addition, the ownership concentration of our
stock may limit liquidity and cause shareholders to experience
price fluctuations when selling large blocks of our stock.

The
market price for our common stock may be volatile.

Our stock price has been, and is expected to
continue to be, highly volatile. There could be an immediate
adverse impact on our stock price as a result of:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | a decline in any month or quarter of our revenues
    or earnings;                                                  
|
| |  | a decline in any month or quarter of comparable
    store sales;                                                    
|
| |  | a deviation in our revenues, earnings or
    comparable store sales from levels expected by securities
    analysts;
|
| |  | changes in financial estimates by securities
    analysts;                                                          
|
| |  | changes in market valuations of other companies
    in the same or similar markets; and                             
|
| |  | any future sales of our common stock or other
    securities.                                                       

In addition, the Nasdaq National Market has
experienced extreme volatility that has often been unrelated to
the performance of particular companies. Future market
fluctuations may cause our stock price to fall regardless of our
performance. Such volatility may limit our ability in the future
to raise additional capital.

War,
acts of terrorism, or the threat of either may negatively impact
the availability of merchandise and otherwise adversely impact
our business.

In the event of war or acts of terrorism, or if
either is threatened, our ability to obtain merchandise
available for sale in our stores may be negatively affected. We
import a substantial portion of our merchandise from other
countries. If imported goods become difficult or impossible to
bring into the United States, and if we cannot obtain such
merchandise from other sources at similar costs, our sales and
profit margins may be adversely affected. In the event that
commercial transportation is curtailed or substantially delayed
due to a dock-workers strike or other similar work action,
our business may be adversely impacted, as we may have
difficulty shipping merchandise to our distribution centers and
stores.

The majority of our stores are located in
enclosed shopping malls and regional outlet centers. In response
to the terrorist attacks of September 11, 2001, security is
being heightened in public areas. Any further threat of
terrorist attacks or actual terrorist events, particularly in
public areas, could lead to lower customer traffic in

15



---



##### 



shopping malls and outlet centers. In addition,
local authorities or mall management could close shopping malls
and outlet centers in response to any immediate security
concern. Mall closures, as well as lower customer traffic due to
security concerns, could result in decreased sales that would
have a material adverse effect on our business, financial
condition and results of operations.


Any
significant interruption in the operation of our corporate
offices and distribution centers could have a material adverse
effect on our business.

Our corporate offices and distribution centers
are highly centralized in two main locations. Our operations
could be materially and adversely affected if a catastrophic
event (such as, but not limited to, fire, hurricanes, floods or
acts of terrorism) impacts the use of these facilities. There
can be no assurances that we would be successful in obtaining
alternative facilities in a timely manner if such a catastrophic
event were to occur.



|        |           
|------- | ----------
|Item 2. | Properties

As of February 1, 2003, we operated 617
leased store locations and one owned store location.
Substantially all of our stores were located in shopping malls,
outlet malls or airport retail locations. Store leases with
third parties are typically five to 10 years in duration.
Most leases require us to pay annual minimum rent plus a
contingent rent dependent on the stores annual sales in
excess of a specified threshold. As of February 1, 2003, of
the 617 open leased Wilsons Leather stores, an affiliate of
CVS guaranteed approximately 101 leases, all of which were
entered into before the management buyout.

We are party to a 15-year operating lease, with a
five-year option to extend, for a 289,000 square-foot
distribution center and 69,000 square-foot corporate office
space located in Brooklyn Park, Minnesota. We are also party to
a five-year operating lease for an 86,000 square-foot
distribution center in Las Vegas, Nevada. In addition, we are
party to a three-year operating lease for a
45,600 square-foot distribution center in Maple Grove,
Minnesota, which we are currently marketing for sub-lease.



|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are involved in various routine legal
proceedings incidental to the conduct of our business. Although
the outcome of these matters cannot be determined, we do not
believe that any of these legal proceedings will have a material
adverse effect on our financial condition or results of
operation.



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

None.



|         |                                     
|-------- | ------------------------------------
|Item 4a. | Executive Officers of the Registrant

The following table sets forth certain
information concerning our executive officers as of
April 1, 2003:

|                     |  |     |    |          |  |                                                         
|-------------------- |  | --- | -- | -------- |  | --------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Joel N. Waller       |  |     | 63 |          |  | Chairman and Chief Executive Officer                    
|David L. Rogers      |  |     | 60 |          |  | President and Chief Operating Officer                   
|Peter G. Michielutti |  |     | 46 |          |  | Executive Vice President and Chief Financial
    Officer
|Linda F. Angelacci   |  |     | 48 |          |  | Vice President                                          
|Brian R. Bootay      |  |     | 49 |          |  | Vice President                                          
|Betty A. Goff        |  |     | 46 |          |  | Vice President                                          
|Jenele C. Grassle    |  |     | 43 |          |  | Vice President                                          
|Jeffrey W. Orton     |  |     | 47 |          |  | Vice President                                          
|Arthur J. Padovese   |  |     | 52 |          |  | Vice President                                          
|Steven R. Waller     |  |     | 39 |          |  | Vice President                                          

16



---



##### 



Joel N. Wallerhas
served as Chairman and Chief Executive Officer of Wilsons
Leather since April 1992. In 1983, CVS hired Mr. Waller as
President of Wilsons Leather, and he served in such capacity
until April 1992. Prior to joining Wilsons Leather,
Mr. Waller served in several capacities at Bermans The
Leather Experts, Inc., a specialty leather retailer, including
Senior Vice President, General Merchandise Manager from 1980 to
1983, Division Merchandise Manager from 1978 to 1980 and Buyer
from 1976 to 1978.

David L. Rogershas
served as President and Chief Operating Officer of Wilsons
Leather since April 1992. In 1988, Mr. Rogers joined
Wilsons Leather as Executive Vice President and Chief Operating
Officer when Bermans The Leather Experts, Inc., a specialty
leather retailer, was acquired by Wilsons Leather, and he served
in such capacity until April 1992. Mr. Rogers served as
Chief Operating Officer of Bermans The Leather Experts, Inc.,
from 1983 to 1988 and Chief Financial Officer from 1980 to 1984.

Peter G. Michieluttihas served as our Executive Vice
President and Chief Financial Officer since March 2003,
responsible for Finance, Information Systems, and Real Estate
and also served as our Senior Vice President and Chief Financial
Officer from March 2001 to February 2003. Prior to joining
Wilsons Leather, Mr. Michielutti held various positions
with US Bancorp, a financial services holding company, from 1998
to 2001, most recently as Executive Vice President from 1999 to
2001. Mr. Michielutti held various positions with Fingerhut
Companies, Inc., a direct marketing retail business, most
recently as Vice President and Chief Operating Officer from 1996
to 1998. He served at Household International, Inc., a financial
service organization, from 1979 to 1995 in various finance
positions.

Linda F. Angelaccihas served as our Vice President
responsible for marketing since October 2002. Prior to joining
Wilsons Leather, Ms. Angelacci was Senior Vice President of
Marketing and Merchandise at The San Francisco Music Box
Company, a specialty retailer of musical giftware, from 1999 to
2002. Ms. Angelacci served in various marketing and
merchandising positions with WH Smith, an airport and hotel gift
store retailer, from 1995 to 1999, most recently as Vice
President of Marketing and Merchandising and as Vice President,
Account Supervisor for W.B. Doner Advertising Inc., an
advertising agency, from 1991 to 1995.

Brian R. Bootayhas
served as our Vice President responsible for real estate and
construction since October 2000. Prior to joining Wilsons
Leather, Mr. Bootay was Vice President, Leasing at Venator
Group Realty Corporation, a subsidiary of Venator Group, Inc. a
specialty retailer of athletic footwear and apparel, from 1996
to 2000, Senior Vice President, Real Estate at CVS (formerly
Melville Corporation), a diversified specialty retailer, from
1994 to 1996. Mr. Bootay also served as Vice President,
Real Estate at Filenes Basement, Inc., an off-price
specialty retailer, from 1989 to 1994.

Betty A. Goffhas
served as our Vice President responsible for human resources
since February 1992 and served as our Director of Executive
Recruitment and Placement from October 1987 to February 1992.
Prior to joining Wilsons Leather, Ms. Goff served in
various human resource management positions with Fingerhut
Corporation, a subsidiary of Fingerhut Companies, Inc., a
general merchandise catalog retailer, from 1983 to 1987, and
most recently as Manager, Staffing and Employment from 1984 to
1987.

Jenele C. Grasslehas served as our Vice President
responsible for all of merchandising since February 2003, and
Vice President responsible for mall, airport, and holiday stores
merchandising from July 2000 to January 2003. Prior to joining
Wilsons Leather, Ms. Grassle held various merchandising
positions at Target Corporation, a general merchandise retailer
(formerly Dayton Hudson Corporation, now Marshall Fields),
an upscale department store retailer, from 1988 to 2000 and most
recently as Division Merchandise Manager (Dayton Hudson
Corporation) from 1994 to 2000.

Jeffrey W. Ortonhas
served as our Chief Information Officer and Vice President
responsible for information systems and logistics since October
1997 and served as our Director of Strategic Analysis from March
1997 to October 1997, and Director of Business Process
Reengineering from September 1993 to March 1997. Prior to
joining Wilsons Leather, Mr. Orton held various positions
at United States Shoe Corporation, a manufacturing and retail
apparel and footwear company, from 1986 to 1993, and most
recently as Director of Footwear Retail Systems from 1992 to
1993.

Arthur J. Padovesehas served as our Vice President
responsible for store sales since February 2003 and Vice
President responsible for outlets from October 2000 to January
2003. Prior to joining Wilsons Leather,

17



---



##### 



Mr. Padovese was an independent management
consultant serving as Chief Operating Officer and Chief
Financial Officer at Appraisal Enhancement Services, a property
appraisal company, from 1999 to 2000, an investment banker for
Green Tree Capital, a financial services company, from 1998 to
2000, and was co-founder of Jungle Adventures International
Inc., a developer of entertainment centers, in 1998. He also
served as President of Prints Plus, Inc., a specialty retailer,
from 1986 to 1997.


Steven R. Wallerhas
served as our Vice President responsible for sourcing since
January 1999, and served as our Director, Product Development
from September 1998 to January 1999. Prior to joining Wilsons
Leather, Mr. Waller served in various operations and import
positions with G-III Apparel Group, Ltd., a leather and
non-leather apparel manufacturer and distributor, most recently
as Director of Imports from 1987 to 1998. Mr. Waller is the
son of Joel N. Waller, our Chairman and Chief Executive
Officer.

PART II



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

Market Information

Our common stock, $.01 par value, trades on the
Nasdaq National Market under the symbol WLSN. As of
April 21, 2003, the market price of the common stock was
$4.35. The following table presents the high and low market
prices from February 3, 2001 through February 1, 2003.

|                                    |  |      |       |     |  |   |       | 
|----------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                   
|Quarterly Common Stock Price Ranges
|                                   
|Fiscal Quarter Ended                |  | High |       | Low
|                                    |  |      |       |    
|May 5, 2001                         |  | $    | 24.00 |     |  | $ | 15.89 | 
|August 4, 2001                      |  |      | 22.91 |     |  |   | 15.12 | 
|November 3, 2001                    |  |      | 19.25 |     |  |   | 8.46  | 
|February 2, 2002                    |  |      | 14.10 |     |  |   | 11.06 | 
|                                   
|May 4, 2002                         |  |      | 14.26 |     |  |   | 10.11 | 
|August 3, 2002                      |  |      | 15.40 |     |  |   | 8.25  | 
|November 2, 2002                    |  |      | 9.75  |     |  |   | 3.99  | 
|February 1, 2003                    |  |      | 7.25  |     |  |   | 3.97  | 

There were 84 record holders of our common stock
as of April 21, 2003.

Dividends

We have not declared any cash dividends since our
inception in May 1996. We currently intend to continue a policy
of retaining all earnings to finance the continued growth and
development of our business and do not anticipate paying cash
dividends in the foreseeable future. Any future determination as
to the payment of cash dividends will be dependent upon our
financial condition, results of operations and other factors
deemed relevant by our board of directors. Our loan agreements
and the indenture relating to the 11 1/4% senior notes due
2004 contain certain covenants limiting, among other things, our
ability to pay cash dividends or make other distributions. See
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Liquidity
and Capital Resources.

18



---



##### 





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

You should read the selected historical
consolidated financial data set forth below with
Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the Consolidated Financial Statements of the
Company, beginning on page F-1. The selected
historical consolidated financial data has been derived from our
audited consolidated financial statements.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND
OPERATING DATA

(in thousands except per share amounts and
operating data)


|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ----------- | ------- | ------------- | - | ------------- | ------- | ----------- | - | ----------- | ------- | ------ | - | - | ------- | ------ | - | - | ------- | ------ | 
|                                                                                                                                                   |                                                                                                                                      |            
|                                                                                                                                                   |                                                                                                                                      | Years Ended
|                                                                                                                                                   |                                                                                                                                      |            
|                                                                                                                                                   |                                                                                                                                      |             |         | February 2,   |   | February 3,   |         |            
|                                                                                                                                                   |                                                                                                                                      | February 1, |         | 2002(1)(2)(3) |   | 2001(2)(3)(4) |         | January 29, |   | January 30,
|                                                                                                                                                   |                                                                                                                                      | 2003(1)     |         | (Restated)    |   | (Restated)    |         | 2000        |   | 1999       
|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |            
|Statement of Operations Data:                                                                                                                      |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Net sales                                                                                                                                          |                                                                                                                                      | $           | 571,547 |               |   | $             | 598,299 |             |   | $           | 619,932 |        |   | $ | 543,608 |        |   | $ | 459,372 |       
|Gross margin                                                                                                                                       |                                                                                                                                      |             | 167,243 |               |   |               | 194,964 |             |   |             | 232,531 |        |   |   | 202,868 |        |   |   | 155,871 |       
|Operating income (loss)                                                                                                                            |                                                                                                                                      |             | (13,603 | )             |   |               | 22,511  |             |   |             | 66,523  |        |   |   | 59,725  |        |   |   | 37,711  |       
|Income (loss) from continuing operations before
    income taxes, extraordinary item and cumulative effect of a
    change in accounting principle |                                                                                                                                      |             | (23,856 | )             |   |               | 12,927  |             |   |             | 62,318  |        |   |   | 54,732  |        |   |   | 29,896  |       
|Provision (benefit) for income taxes                                                                                                               |                                                                                                                                      |             | (9,543  | )             |   |               | 5,171   |             |   |             | 21,289  |        |   |   | 21,674  |        |   |   | 11,719  |       
|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Income (loss) from continuing operations before
    extraordinary item and cumulative effect of a change in
    accounting principle               |                                                                                                                                      |             | (14,313 | )             |   |               | 7,756   |             |   |             | 41,029  |        |   |   | 33,058  |        |   |   | 18,177  |       
|Income (loss) from discontinued operations, net
    of tax                                                                                         |                                                                                                                                      |             | (42,014 | )             |   |               | (22,093 | )           |   |             | 29      |        |   |   |        |        |   |   |        |       
|Extraordinary loss on early extinguishment of
    debt, net of tax                                                                                 |                                                                                                                                      |             |        |               |   |               |        |             |   |             | (623    | )      |   |   | (958    | )      |   |   |        |       
|Cumulative effect of a change in accounting
    principle, net of tax(5)                                                                           |                                                                                                                                      |             | (24,567 | )             |   |               |        |             |   |             |        |        |   |   | (1,449  | )      |   |   |        |       
|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Net income (loss)                                                                                                                                  |                                                                                                                                      | $           | (80,894 | )             |   | $             | (14,337 | )           |   | $           | 40,435  |        |   | $ | 30,651  |        |   | $ | 18,177  |       
|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Basic earnings (loss) per share:                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|                                                                                                                                                   | Income (loss) from continuing operations before
    extraordinary item and cumulative effect of a change in
    accounting principle |             | $       | (0.71         | ) |               |         | 0.45        |   |             | $       | 2.45   |   |   | $       | 2.02   |   |   | $       | 1.17   | 
|                                                                                                                                                   | Loss from discontinued operations                                                                                                    |             |         | (2.10         | ) |               |         | (1.28       | ) |             |         |       |   |   |         |       |   |   |         |       | 
|                                                                                                                                                   | Extraordinary loss on early extinguishment of debt                                                                                   |             |         |              |   |               |         |            |   |             |         | (0.04  | ) |   |         | (0.06  | ) |   |         |       | 
|                                                                                                                                                   | Cumulative effect of a change in accounting
    principle                                                                            |             |         | (1.22         | ) |               |         |            |   |             |         |       |   |   |         | (0.09  | ) |   |         |       | 
|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Basic earnings (loss) per share                                                                                                                    |                                                                                                                                      | $           | (4.03   | )             |   | $             | (0.83   | )           |   | $           | 2.41    |        |   | $ | 1.87    |        |   | $ | 1.17    |       
|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Diluted earnings (loss) per share:                                                                                                                 |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|                                                                                                                                                   | Income (loss) from continuing operations before
    extraordinary item and cumulative effect of a change in
    accounting principle |             | $       | (0.71         | ) |               |         | 0.45        |   |             | $       | 2.36   |   |   | $       | 1.94   |   |   | $       | 1.11   | 
|                                                                                                                                                   | Loss from discontinued operations                                                                                                    |             |         | (2.10         | ) |               |         | (1.28       | ) |             |         |       |   |   |         |       |   |   |         |       | 
|                                                                                                                                                   | Extraordinary loss on early extinguishment of debt                                                                                   |             |         |              |   |               |         |            |   |             |         | (0.03  | ) |   |         | (0.05  | ) |   |         |       | 
|                                                                                                                                                   | Cumulative effect of a change in accounting
    principle                                                                            |             |         | (1.22         | ) |               |         |            |   |             |         |       |   |   |         | (0.09  | ) |   |         |       | 
|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Diluted earnings (loss) per share                                                                                                                  |                                                                                                                                      | $           | (4.03   | )             |   | $             | (0.83   | )           |   | $           | 2.33    |        |   | $ | 1.80    |        |   | $ | 1.11    |       
|                                                                                                                                                   |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Weighted average common shares outstanding:                                                                                                        |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|                                                                                                                                                   | Basic                                                                                                                                |             |         | 20,053        |   |               |         | 17,172      |   |             |         | 16,732 |   |   |         | 16,408 |   |   |         | 15,536 | 
|                                                                                                                                                   | Diluted                                                                                                                              |             |         | 20,053        |   |               |         | 17,172      |   |             |         | 17,342 |   |   |         | 17,064 |   |   |         | 16,381 | 
|Selected Operating Data:                                                                                                                           |                                                                                                                                      |             |         |               |   |               |         |             |   |             |         |        |   |   |         |        |   |   |         |       
|Number of permanent stores open at end of period                                                                                                   |                                                                                                                                      |             | 618     |               |   |               | 619     |             |   |             | 573     |        |   |   | 529     |        |   |   | 518     |       
|Change in comparable store sales(6)                                                                                                                |                                                                                                                                      |             | (7.0    | )%            |   |               | (12.1   | )%          |   |             | 4.1     | %      |   |   | 11.5    | %      |   |   | 6.3     | %     
|Net sales per square foot for stores open entire
    period                                                                                        |                                                                                                                                      | $           | 380     |               |   |               | 415     |             |   | $           | 503     |        |   | $ | 478     |        |   | $ | 426     |       
|Total selling square footage at end of period (in
    thousands)                                                                                   |                                                                                                                                      |             | 1,377   |               |   |               | 1,359   |             |   |             | 1,203   |        |   |   | 1,046   |        |   |   | 1,024   |       
|Peak number of seasonal stores during period                                                                                                       |                                                                                                                                      |             | 284     |               |   |               | 281     |             |   |             | 239     |        |   |   | 274     |        |   |   | 265     |       

19



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##### 



|                                 |  |               |         |               |  |               |         |             |  |             |         |  |  |   |         |  |  |   |         | 
|-------------------------------- |  | ------------- | ------- | ------------- |  | ------------- | ------- | ----------- |  | ----------- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                 |  |              
|                                 |  | At Year Ended
|                                 |  |              
|                                 |  |               |         | February 2,   |  | February 3,   |         |            
|                                 |  | February 1,   |         | 2002(1)(2)(3) |  | 2001(2)(3)(4) |         | January 29, |  | January 30,
|                                 |  | 2003(1)       |         | (Restated)    |  | (Restated)    |         | 2000        |  | 1999       
|                                 |  |               |         |               |  |               |         |             |  |            
|Balance Sheet Data:              |  |               |         |               |  |               |         |             |  |             |         |  |  |   |         |  |  |   |         | 
|Working capital                  |  | $             | 108,551 |               |  | $             | 102,262 |             |  | $           | 99,191  |  |  | $ | 126,855 |  |  | $ | 131,549 | 
|Inventories                      |  |               | 118,701 |               |  |               | 92,940  |             |  |             | 106,164 |  |  |   | 79,221  |  |  |   | 84,971  | 
|Total assets                     |  |               | 246,491 |               |  |               | 332,946 |             |  |             | 305,992 |  |  |   | 272,554 |  |  |   | 245,391 | 
|Total debt (short and long-term) |  |               | 55,740  |               |  |               | 55,590  |             |  |             | 30,590  |  |  |   | 43,890  |  |  |   | 70,000  | 
|Shareholders equity             |  |               | 117,228 |               |  |               | 184,495 |             |  |             | 174,710 |  |  |   | 131,207 |  |  |   | 98,177  | 



---

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Includes a charge to operations, before tax, of
    $1.0 and $5.4 million in 2002 and 2001, respectively,
    resulting from the impairment of property and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|2. | Reclassified for the presentation of discontinued
    operations for the Travel Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|3. | The years as of and ended February 2, 2002,
    and February 3, 2001, have been restated for a correction
    of an error. During 2001, the Company recorded a pre-tax, net
    adjustment of $5.4 million to cost of sales that related to
    $11.1 million of under-absorbed freight charges offset by
    reserve reversals of $5.7 million. Upon further analysis of
    this adjustment, and in consultation with KPMG, we determined
    that the timing of recording this adjustment in 2001 was
    incorrect and that $5.3 million of the $5.4 million
    net adjustment should have been reflected in our 2000
    consolidated financial statements. Additionally,
    $3.2 million and $1.1 million of the $5.7 million
    reserve reversals should have been classified as an adjustment
    to tax expense and selling, general and administrative expense,
    respectively, rather than cost of goods sold. The 2001 balance
    sheet also includes a tax effect of $1.7 million
    restatement related to reserve reversals stated above.
    Therefore, we have restated our consolidated financial
    statements for 2001 and 2000 to reflect this correction of an
    error and these misclassifications.
|  
|4. | Our results of operations for the year ended
    February 3, 2001, consisted of 53 weeks as compared to
    52 weeks for all other years presented in this
    Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|5. | Includes a charge to operations, net of tax, of
    $24.6 million for the year ended February 1, 2003,
    resulting from the cumulative effect of adopting SFAS
    No. 142, Goodwill and Other Intangible Assets, and
    of $1.4 million, net of tax, for the year ended
    January 29, 2000, resulting from the cumulative effect of
    the adoption of a new method of accounting for revenue
    recognition of layaway sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|6. | A store is included in the comparable store sales
    calculation after it has been opened and operated by us for more
    than 52 weeks. The percentage change is computed by
    comparing total net sales for comparable stores as thus defined
    at the end of the applicable reporting period with total net
    sales from comparable stores for the comparable period in the
    prior year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

20



---



##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations

The following discussion of our financial
condition and results of operations should be read with our
selected historical consolidated financial data and consolidated
financial statements and notes thereto appearing elsewhere in
this Form 10-K. The consolidated financial statements for
all periods present the Travel Subsidiaries segment as
discontinued operations. See Discontinued
Operations. Unless otherwise indicated, the following
discussion relates only to Wilsons Leathers continuing
operations.

Our fiscal year-end is the Saturday closest to
January 31. Unless otherwise indicated, references to 2003,
2002, 2001 and 2000 in this Form 10-K refer to the fiscal
year ending January 31, 2004, and the fiscal years ended
February 1, 2003, February 2, 2002 and
February 3, 2001, respectively.

Overview

At February 1, 2003, we operated 618 stores
using various formats including mall stores, outlet stores and
airport locations. We also operated temporary seasonal stores to
better capitalize on our peak selling season from October
through December.

We generate a significant portion of our sales
from October through January, 62.0% in 2002, which includes the
holiday selling season. During December, we generated 32.0% of
our annual sales for 2002. As part of our strategy to improve
operating margins and maximize revenue and profitability during
non-peak selling seasons, we increased the number of outlet
locations, which are less seasonal, and modified our product mix
to emphasize accessories. Accessories sales grew as a percentage
of sales to 31.6% in 2002 from 23.5% in 1999 largely due to
creating new styles designed to match our customers
lifestyle needs.

Comparable store sales decreased 7.0% and 12.1%
in 2002 and 2001, respectively, and increased 4.1% in 2000.
Income (loss) from continuing operations as a percentage of
sales for the three years was (2.5)%, 1.3% and 6.6%,
respectively. A store is included in the comparable store sales
calculation after it has been opened and operated by us for more
than 52 weeks. The percentage change is computed by
comparing total net sales for comparable stores as thus defined
at the end of the applicable reporting period with total net
sales from comparable stores for the comparable period in the
prior year.

The following table contains selected information
for each of our store formats for 2002.

|                                                            |  |               |       |            |  |              |      |                |  |  |       |  |  |   |         | 
|----------------------------------------------------------- |  | ------------- | ----- | ---------- |  | ------------ | ---- | -------------- |  |  | ----- |  |  | - | ------- | 
|                                                            |  |               |       | Comparable |  |              |      | Sales per     
|                                                            |  | Sales         |       | Sales      |  | Average Size |      | Square Foot(1)
|                                                            |  |               |       |            |  |              |      |               
|                                                            |  | (in millions) |       |            |  | (in selling  |      |               
|                                                            |  |               |       |            |  | square feet) |      |               
|Mall stores                                                 |  | $             | 376.7 |            |  |              | (9.2 | )%             |  |  | 2,100 |  |  | $ | 369.3   | 
|Outlet stores (Wilsons Leather Outlet and Wallet
    Works) |  |               | 123.1 |            |  |              | 0.1  |                |  |  | 3,200 |  |  |   | 370.8   | 
|Airport stores                                              |  |               | 20.3  |            |  |              | 3.1  |                |  |  | 600   |  |  |   | 1,193.5 | 
|E-commerce                                                  |  |               | 4.5   |            |  |              |     |                |  |  |      |  |  |   |        | 
|Seasonal                                                    |  |               | 46.9  |            |  |              |     |                |  |  |      |  |  |   |        | 
|                                                            |  |               |       |            |  |              |      |                |  |  |       |  |  |   |         | 
|Total                                                       |  | $             | 571.5 |            |  |              |      |                |  |  |       |  |  |   |         | 
|                                                            |  |               |       |            |  |              |      |                |  |  |       |  |  |   |         | 

21



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##### 



The following table contains selected information
for each of our store formats for 2001.

|                                                            |  |               |       |                  |  |              |       |                |  |  |       |  |  |   |         | 
|----------------------------------------------------------- |  | ------------- | ----- | ---------------- |  | ------------ | ----- | -------------- |  |  | ----- |  |  | - | ------- | 
|                                                            |  |               |       |                  |  |              |       | Sales per     
|                                                            |  | Sales         |       | Comparable Sales |  | Average Size |       | Square Foot(1)
|                                                            |  |               |       |                  |  |              |       |               
|                                                            |  | (in millions) |       |                  |  | (in selling  |       |               
|                                                            |  |               |       |                  |  | square feet) |       |               
|Mall stores                                                 |  | $             | 410.9 |                  |  |              | (13.9 | )%             |  |  | 2,100 |  |  | $ | 405.7   | 
|Outlet stores (Wilsons Leather Outlet and Wallet
    Works) |  |               | 107.4 |                  |  |              | (0.1  | )              |  |  | 3,100 |  |  |   | 403.8   | 
|Airport stores                                              |  |               | 23.4  |                  |  |              | (9.6  | )              |  |  | 700   |  |  |   | 1,073.6 | 
|E-commerce                                                  |  |               | 3.9   |                  |  |              |      |                |  |  |      |  |  |   |        | 
|Seasonal                                                    |  |               | 52.7  |                  |  |              |      |                |  |  |      |  |  |   |        | 
|                                                            |  |               |       |                  |  |              |       |                |  |  |       |  |  |   |         | 
|Total                                                       |  | $             | 598.3 |                  |  |              |       |                |  |  |       |  |  |   |         | 
|                                                            |  |               |       |                  |  |              |       |                |  |  |       |  |  |   |         | 



---

|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Sales per square foot is defined as net sales for
    stores open a full 12 months divided by total selling
    square feet for stores open a full 12 months.

Critical Accounting Policies

On December 12, 2001, the United States
Securities and Exchange Commission (the SEC) issued
Financial Reporting Release (FRR) No. 60,
Cautionary Advice Regarding Disclosure About Critical
Accounting Policies, which encourages the identification and
disclosure of the most critical accounting policies applied in
the preparation of a companys financial statements. In
response to FRR No. 60, management has determined that our
most critical accounting policies are those related to
inventories and property and equipment impairment.

Our significant accounting policies are described
in Note 2 to our consolidated financial statements. We
believe that the following discussion addresses our critical
accounting policies, which are those that are most important to
the portrayal of our financial condition and results and require
managements most difficult, subjective and complex
judgements, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.



| |            
| | -----------
| | Inventories

We value our inventories, consisting primarily of
finished goods held for sale purchased from domestic and foreign
vendors, at the lower of cost or market value, determined by the
retail inventory method on the last-in, first-out
(LIFO) basis, which approximated first-in, first-out
(FIFO) cost as of February 1, 2003, and
February 2, 2002. The inventory cost includes the cost of
both merchandise and freight. A periodic review of inventory
quantities on hand is performed in order to determine if
inventory is properly stated at the lower of cost or market.
Factors related to current inventories such as future consumer
demand and fashion trends, current and anticipated retail
markdowns, and class or type of inventory are analyzed to
determine estimated net realizable values. A provision is
recorded to reduce the cost of inventories to the estimated net
realizable values, if required. Any significant unanticipated
changes in the factors noted above could have a significant
impact on the value of our inventories and our reported
operating results.



| |                                  
| | ---------------------------------
| | Property and Equipment Impairment

Our property and equipment consists principally
of store leasehold improvements and are included in the
Property and Equipment line item in our consolidated
balance sheets included in our consolidated financial
statements. These long-lived assets are recorded at cost and are
amortized using the straight-line method over the lesser of the
applicable store lease term or the estimated useful life of the
leasehold improvements. The typical initial lease term for our
stores is ten years. We review long-lived assets for impairment
whenever events, such as decisions to close a store or changes
in circumstances, indicate that the carrying value of an asset
may not be recoverable. If the undiscounted future cash flows
from the long-lived assets are less than the carrying value, we
recognize a loss for a particular market of stores impaired
equal to the difference between

22



---



##### 



the carrying value and the assets fair
value, which is indicated by the discounted future cash flows
using a risk-adjusted rate of return. We recorded charges of
$1.0 and $5.4 million for impaired assets during the fourth
quarters of 2002 and 2001, respectively. Decisions to close
stores in a market can also result in accelerated depreciation
over the revised useful life. Most store closures occur upon the
lease expiration.


Results of Operations

The following table contains selected information
from our historical consolidated statements of operations,
expressed as a percentage of net sales:

|                                                                      |                                                                                                                                      |             |       |               |   |               |       |      |  |  |       |      | 
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ----------- | ----- | ------------- | - | ------------- | ----- | ---- |  |  | ----- | ---- | 
|                                                                      |                                                                                                                                      |            
|                                                                      |                                                                                                                                      | Years Ended
|                                                                      |                                                                                                                                      |            
|                                                                      |                                                                                                                                      |             |       | February 2,   |   | February 3,  
|                                                                      |                                                                                                                                      | February 1, |       | 2002          |   | 2001         
|                                                                      |                                                                                                                                      | 2003        |       | (Restated)(1) |   | (Restated)(1)
|                                                                      |                                                                                                                                      |             |       |               |   |              
|Net sales                                                             |                                                                                                                                      |             | 100.0 | %             |   |               | 100.0 | %    |  |  | 100.0 | %   
|                                                                      | Cost of goods sold, buying and occupancy costs                                                                                       |             |       | 70.7          |   |               |       | 67.4 |  |  |       | 62.5 | 
|                                                                      |                                                                                                                                      |             |       |               |   |               |       |      |  |  |       |     
|Gross profit                                                          |                                                                                                                                      |             | 29.3  |               |   |               | 32.6  |      |  |  | 37.5  |     
|Selling, general and administrative expenses                          |                                                                                                                                      |             | 28.8  |               |   |               | 26.5  |      |  |  | 25.1  |     
|Depreciation and amortization                                         |                                                                                                                                      |             | 2.9   |               |   |               | 2.3   |      |  |  | 1.7   |     
|                                                                      |                                                                                                                                      |             |       |               |   |               |       |      |  |  |       |     
|Operating income (loss)                                               |                                                                                                                                      |             | (2.4  | )             |   |               | 3.8   |      |  |  | 10.7  |     
|                                                                      | Interest expense, net                                                                                                                |             |       | 1.8           |   |               |       | 1.6  |  |  |       | 0.7  | 
|                                                                      | Income tax provision (benefit)                                                                                                       |             |       | (1.7          | ) |               |       | 0.9  |  |  |       | 3.4  | 
|                                                                      |                                                                                                                                      |             |       |               |   |               |       |      |  |  |       |     
|                                                                      | Income (loss) from continuing operations before
    extraordinary item and cumulative effect of a change in
    accounting principle |             |       | (2.5          | ) |               |       | 1.3  |  |  |       | 6.6  | 
|Loss from discontinued operations, net of tax                         |                                                                                                                                      |             | (7.4  | )             |   |               | (3.7  | )    |  |  |      |     
|Cumulative effect of a change in accounting
    principle, net of tax |                                                                                                                                      |             | (4.3  | )             |   |               |      |      |  |  |      |     
|Extraordinary loss on early extinguishment of
    debt, net of tax    |                                                                                                                                      |             |      |               |   |               |      |      |  |  | (0.1  | )   
|Net income (loss)                                                     |                                                                                                                                      |             | (14.2 | )%            |   |               | (2.4  | )%   |  |  | 6.5   | %   
|                                                                      |                                                                                                                                      |             |       |               |   |               |       |      |  |  |       |     



---

|    |                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts have been restated to reflect a
    correction of an error in 2001 and 2000. All amounts have also
    been reclassified for the presentation of discontinued
    operations for the Travel Subsidiaries. See Notes 2 and 3 under
    Item 6. Selected Financial Data for more
    information.



| |                      
| | ---------------------
| | 2002 Compared to 2001

Net sales decreased 4.5% to $571.5 million
in 2002 from $598.3 million in 2001. The $26.8 million
sales decrease was due to: (1) a $35.6 million
decrease from a 7.0% comparable store sales decrease,
(2) an $18.4 million decrease from 2002 and 2001 store
closings, and (3) a $5.8 million decrease from lower
seasonal store sales. These decreases were offset by (1) a
$32.4 million increase due to new store openings in 2002
that were not accounted for as part of comparable store sales,
and (2) a $0.6 million increase in e-commerce sales
volume.

Causes for the net sales decrease were threefold:
(1) the sluggish economy that has not yet recovered from
the tragic events of September 11, 2001, and the threat of
war, (2) the dock workers strike on the West Coast that
delayed product shipments to stores at the beginning of the peak
retail season (October), and (3) over-assortment, more
promotional goods at lower price points and a higher than
average proportion of suede products.

23



---



##### 



We opened 34 stores and closed 35 stores in 2002,
compared to opening 80 stores and closing 34 stores in 2001. As
of February 1, 2003, we operated 618 stores compared to 619
stores at February 2, 2002. Our selling square footage
increased 1.28% to 1,376,600 from 1,359,200 in 2001. We operated
284 seasonal stores during the 2002 holiday season as compared
to 281 seasonal stores during 2001.

Cost of goods sold, buying and occupancy costs
increased to 70.7% as a percentage of net sales in 2002 from
67.4% of net sales in 2001 due to lower sales volume of
$26.8 million. The 3.3% increase translates into a
$1.0 million increase over 2001. The percentage variance is
greater due to the deleveraging effect of occupancy costs on a
reduced sales base. This $1.0 million increase from 2001
was due to: (1) $9.5 million in higher buying and occupancy
costs, resulting from an increase in the average number of
permanent stores operated of 3.2% from 604 in 2001 to 623 in
2002, (2) a $1.9 million increase in freight costs,
due primarily to the West Coast port shutdown, partially offset
by (3) $10.4 million in lower cost of goods sold costs due
to lower sales volume in 2002 compared to 2001. The difference
in inventories between the LIFO and FIFO methods was not
material as of February 1, 2003.

Selling, general and administrative expenses
increased to $164.5 million in 2002 from
$158.5 million in 2001, and increased as a percentage of
net sales to 28.8% from 26.5%. The increase was primarily due
to: (1) a $3.1 million increase in store selling
expenses, including, but not limited to payroll expense, which
fluctuates with the store count, (2) a $5.9 million
increase in general administrative costs for higher employee
benefit costs due to increased insurance costs, costs for
corporate restructuring activities and higher legal fees, and
(3) $2.4 million in lower credit memo service charge
income compared to 2001 since 2001 included the initial impact
of recording the fee and 2002 represented only current year
activity, partially offset by (4) approximately
$3.7 million in lower amounts of fixed asset impairments
and write-off in 2002, and a $1.7 million reduction in 2002
expenses due primarily to lower sales volume.

Depreciation and amortization increased to
$16.3 million in 2002 from $13.9 million in 2001, and
increased as a percentage of net sales to 2.9% from 2.3%. The
increase resulted from depreciation on a higher base of assets
resulting from the $33.0 million prior year increase in
fixed assets coupled with $8.8 million in new capital
expenditures in 2002 ($5.4 million on construction of new
stores and the renovation of existing stores and $3.4 million in
administrative projects).

As a result of the above, operating income (loss)
decreased to a net loss of $13.6 million, or 2.4% of net
sales in 2002 from income of $22.5 million, or 3.8% of net
sales in 2001.

Net interest expense increased to
$10.3 million in 2002 from $9.6 million in 2001 due to
$0.7 million of lower interest income in 2002 from fewer
short-term investments that were held, on average, for a shorter
period, and an increase in interest rates on short-term debt
outstanding, partially offset by lower average borrowings of
long-term debt.

The income tax benefit was $9.5 million in
2002 compared to a $5.2 million tax provision in 2001. The
effective rate of 40% remained constant from 2001 to 2002.

Net loss from continuing operations for 2002 was
$14.3 million compared to net income from continuing
operations of $7.8 million in 2001.

Loss from discontinued operations was
$42.0 million in 2002 compared to $22.1 million in
2001. Included in the 2002 figure is $27.2 million in
charges, net of tax, for the disposal of substantially all fixed
assets, the markdown of inventory and severance and lease
termination costs for the Travel Subsidiaries in 2002 and
$14.8 million in losses from operations prior to
liquidation. In addition, in 2002 there was a cumulative effect
of change in accounting principle charge of $24.6 million,
net of tax, for the Travel Subsidiaries related to the
implementation of SFAS No. 142, Goodwill and Other
Intangible Assets. See Consolidated Financial
Statements of the Company, Note 3. Discontinued
Operations, beginning on page F-14, for further
details.

2001 Compared to
2000

Net sales decreased 3.5% to $598.3 million
in 2001 from $619.9 million in 2000. The $21.6 million
sales decrease was due to: (1) a $63.6 million
decrease associated with a 12.1% comparable store sales decrease

24



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##### 



which was the result of weakness in all
merchandise categories, offset by (2) increased sales of
$35.7 million from 80 new stores offset by
34 stores closing for a net additional 46 stores
during 2001, and $5.9 million in increased seasonal sales
from 42 additional seasonal stores operated in 2001 as
compared to 2000, and (3) increased e-commerce sales of
$0.4 million. Causes for the comparable store sales
decrease were twofold: (1) at the onset of our peak season,
severe damage was done to consumer spending and retail traffic
levels by the tragic events of September 11, 2001, and
(2) results for our stores for the fourth quarter were
adversely affected by one of the warmest, driest winters on
record for the continental United States.


We opened 80 stores and closed 34 stores in 2001
compared to 68 store openings and 24 store closings in 2000. As
of February 2, 2002, we operated 619 stores compared to 573
stores at February 3, 2001. Our selling square footage
increased 13.0% to 1,359,200 from 1,203,100 in 2000. We operated
281 seasonal stores during the 2001 holiday season compared
to 239 seasonal stores during 2000.

Cost of goods sold, buying and occupancy costs
increased to 67.4% of net sales, from 62.5% of net sales in
2000. This $15.9 million increase from 2000 was due to:
(1) $28.3 million from clearance activity which
necessitated higher markdowns to generate sales, (2)
$8.7 million from higher buying and occupancy expenses from
the increased store count in 2001 compared to 2000, partially
offset by (3) an $11.5 million reduction due to the
decrease in sales and a one-time $9.6 million charge for
previously under-absorbed freight and customs charges in 2000.
Our inventories are valued under the retail inventory method
using the LIFO basis. The difference in inventories between the
LIFO and the FIFO methods was not material as of
February 2, 2002.

Selling, general and administrative expenses
increased to $158.5 million in 2001 from
$155.8 million in 2000, and increased as a percentage of
net sales to 26.5% from 25.1%. The increase was primarily due
to: (1) a $4.9 million increase in store selling
expenses, including, but not limited to payroll expense, which
fluctuates with the store count, and (2) a
$6.1 million increase in loss on asset disposal, primarily
due to the $5.4 million charge taken in the fourth quarter
of 2001 discussed further below, and (3) a
$0.7 million increase in various corporate expenses,
partially offset by (4) a $2.7 million reduction in
e-commerce operating expenses, (5) $3.1 million in
service charge income due to the initial impact of assessing a
service charge on outstanding credit memos, and (6) a
$3.2 million decrease for general administrative cost
savings initiatives.

During the fourth quarter of 2001, our long-term
forecast for the profitability of certain stores decreased
significantly due to industry trends and revised forecasts. We
prepared an analysis in accordance with SFAS No. 121 to
determine if there was impairment of certain store property and
equipment and goodwill. The analysis resulted in impairment
charges based on the difference between the carrying value and
the estimated fair value of these assets. Fair value was based
on discounting identifiable cash flows at a discount rate
commensurate with the risks involved. Based on the analysis that
we performed, we recorded a charge in 2001 of $5.4 million
for impaired assets and closed stores in selling, general and
administrative costs.

Depreciation and amortization increased to
$13.9 million in 2001 from $10.2 million in 2000, and
increased as a percentage of net sales to 2.3% from 1.6%. The
increase resulted from depreciation on a higher base of assets
resulting from the $30.6 million prior year increase in
fixed assets coupled with the $24.7 million in new capital
expenditures for the construction of new stores and the
renovation of existing stores. In addition, $8.3 million
was spent on administrative projects, for a total of
$33.0 million in new capital assets placed in service
during 2001.

As a result of the above, operating income
decreased to $22.5 million or 3.8% of net sales in 2001
from $66.5 million or 10.7% of net sales in 2000.

Net interest expense increased to
$9.6 million in 2001 from $4.2 million in 2000 due to
additional financing required for the acquisitions of
Bentleys in 2001 and El Portal in 2000.

The income tax provision was $5.2 million in
2001 compared to a $21.3 million tax provision in 2000. The
effective rate increased to 40% in 2001 from 34% in 2000 due to
the use of tax reserves in 2000.

25



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##### 



Net income from continuing operations for 2001
was $7.8 million compared to net income from continuing
operations of $41.0 million in 2000.

Loss from discontinued operations for 2001 was
$22.1 million compared to net income from discontinued
operations of $29,000 in 2000.

Liquidity and Capital Resources

Our capital requirements are primarily driven by
our seasonal working capital needs, investments in new stores,
remodeling existing stores, enhancing information systems and
increasing capacity for our distribution centers. Our peak
working capital needs typically occur during the period from
August through early December as inventory levels are increased
in advance of our peak selling season from October through
January.

General Electric Capital Corporation and a
syndicate of banks have provided us with a senior credit
facility, which was amended on April 11, 2003, that
provides for borrowings of up to $205 million in aggregate
principal amount, including a $25 million Term B promissory
note and a $75 million letter of credit subfacility. The
maximum amount available under the revolving credit portion of
the senior credit facility is limited to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 85% of net inventories, provided that such
    percentage at no time may exceed 85% of the then applicable
    discount rate applied in appraising such inventories to reflect
    their value as if sold in an orderly liquidation, except that
    the discount rate is gradually increased from August 17 to
    October 1 of each year and gradually decreased from
    December 17 to February 1 of each year;                                                                                                                                                                                                   
|
| |  | plus 85% of outstanding and undrawn trade letters
    of credit, provided that such percentage at no time may exceed
    85% of the discount rate applied in appraising the future
    inventories related to such letters of credit to reflect their
    value as if sold in an orderly liquidation;                                                                                                                                                                                                                                                                                                                 
|
| |  | plus 85% of credit card receivables;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | plus, during the months of September, October and
    November and the first fifteen days of December, 2003 (or until
    we receive our anticipated tax refund, whichever is earlier),
    85% of the amount we expect to receive as a tax refund, provided
    that prior to the filing of our tax return, such amount cannot
    exceed $2 million during the first week of September,
    $4 million during the second week of September or
    $6 million at any time after the second week of September;
    and provided further that after we file our tax return such
    amount cannot exceed $15.0 million;
|
| |  | minus $10 million ($5 million from July
    2003 through December 15, 2003, and during the months of
    August, September, October and November of 2004 and 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                   

In addition, borrowings under the senior credit
facility are subject to the further limitations that:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the revolving credit portion of such borrowings
    cannot exceed the sum of 85% of credit card receivables, plus
    85% of the appraised value of inventory (including inventory
    subject to trade letters of credit) as if sold on a going-out-of
    business basis; and                                                                                                                          
|
| |  | the total borrowings (i.e. the revolving
    credit portion of the facility and the Term B promissory note)
    cannot exceed the sum of 85% of the book value of credit card
    receivables, plus 95% (100% during August, September and
    October) of the appraised value of inventory (including
    inventory subject to trade letters of credit) as if sold on a
    going-out-of business basis;
|
| |  | from December 31, 2003, through
    March 31, 2004, we must have no borrowings under the
    revolving credit portion of the facility and outstanding letters
    of credit must be no greater than $20 million;                                                                                                                                                                                         
|
| |  | from April 1, 2004, through May 15,
    2004, borrowings under the revolving credit portion of the
    facility must be no greater than $15 million, and
    outstanding letters of credit must be no greater than
    $20 million; and                                                                                                                                                                  
|
| |  | from December 31, 2004, through
    March 31, 2005, we must have no borrowings under the
    revolving credit portion of the facility and outstanding letters
    of credit must be no greater than $40 million.                                                                                                                                                                                         

26



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As of February 1, 2003, we had no borrowings
under the senior credit facility, except for the Term B
promissory note, and we had $15.2 million in outstanding
letters of credit.

Interest is payable on revolving credit
borrowings at variable rates determined by LIBOR plus 3.25%,
except as noted in the next sentence, or the prime
rate plus 2.0% (commercial paper rate plus 3.25% if the loan is
made under the swing line portion of the revolver).
Borrowings in an amount that is available to us only because we
have included our anticipated tax refund in determining
availability will bear interest at the prime rate plus 5%.
Interest is payable on the $25 million Term B promissory
note at a variable rate equal to the prime rate plus
4%, plus an additional 5% payable pursuant to a separate letter
agreement with General Electric Capital Corporation. We pay
monthly fees on the unused portion of the senior credit facility
and on the average daily amount of letters of credit outstanding
during each month. If we have any borrowings that are only
available to us because we have included our anticipated tax
refund in determining availability, we will pay a fee of
$150,000. The senior credit facility expires in June 2005, at
which time all borrowings, including the Term B promissory
note, become due and payable. Prepayment of the Term B
promissory note is subject to a 2% prepayment fee if prepaid on
or after July 1, 2002, but on or prior to November 30,
2003, and a 1% prepayment fee thereafter. The revolving credit
portion of the facility is subject to a 1% prepayment fee under
most circumstances. The Term B promissory note is
prepayable on or after July 1, 2002, only with the consent
of the senior lenders under the senior credit facility.

The senior credit facility contains certain
restrictions and covenants which, among other things, restrict
our ability to make capital expenditures; acquire or merge with
another entity; make investments, loans or guarantees; incur
additional indebtedness; prepay, repurchase or pay any principal
on any 11 1/4% senior notes, except pursuant to a permitted
refinancing; create liens or other encumbrances; or pay cash
dividends or make other distributions. We are currently in
compliance with or have obtained waivers for all covenants under
the senior credit facility.

The senior credit facility also contains a
requirement that we either amend, refund, renew, extend or
refinance the outstanding 11 1/4% senior notes on or before
June 15, 2004, so that no principal payment with respect to
any such amended, refunded, renewed, extended or refinanced
notes is due on or before September 1, 2005. We are
required to provide our lenders a plan for achieving such
amendment, refunding, renewal, extension or refinancing by
April 30, 2004. The terms of any refunded, renewed,
extended or refinanced notes cannot be more burdensome than the
terms of the 11 1/4% senior notes due 2004 and the rate of
interest with respect to any such notes cannot exceed the sum of
the rate of interest on United States treasury obligations of
like tenor at the time of such refunding, renewal, refinancing
or extension plus 7% per annum.

We plan to use the senior credit facility for our
immediate and future working capital needs. Peak borrowings
typically occur from October through December and outstanding
letters of credit typically peak from August through September.
We are dependent on the senior credit facility to fund working
capital and letter of credit needs. We believe that borrowing
capacity under the senior credit facility, together with current
and anticipated cash flow from operations, will be adequate to
meet our working capital and capital expenditure requirements
during the term of the senior credit facility, provided that we
either amend, refund, renew, extend or refinance the outstanding
11 1/4% senior notes on or before June 15, 2004, so
that no principal payment with respect to any such amended,
refunded, renewed, extended or refinanced notes is due on or
before September 1, 2005. For 2002, the peak borrowings and
peak letters of credit outstanding under the senior credit
facility were $132.4 million and $34.2 million,
respectively, and the average amount of borrowings and the
average amount of letters of credit outstanding were
$41.2 million and $19.4 million, respectively. For
2001, the peak borrowings and peak letters of credit outstanding
under the senior credit facility were $145.2 million and
$47.9 million, respectively, and the average amount of
borrowings and the average amount of letters of credit
outstanding were $65.2 million and $25.9 million,
respectively. For 2000, the peak borrowings and peak letters of
credit outstanding under the senior credit facility were
$128.8 million and $57.2 million, respectively, and
the average amount of borrowings and the average amount of
letters of credit outstanding were $67.4 million and
$33.5 million, respectively.

27



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##### 



On August 18, 1997, we completed a private
offering of $75 million of 11 1/4% senior notes due
2004, referred to above, to certain institutional buyers.
Interest on the 11 1/4% senior notes is payable
semi-annually in arrears on February 15 and August 15
of each year. The 11 1/4% senior notes mature on
August 15, 2004. The 11 1/4% senior notes are callable
after August 15, 2001, at a defined premium. The
11 1/4% senior notes are our general unsecured obligations
and rank senior in right of payment to all of our existing and
future subordinated indebtedness and rank on equal terms in
right of payment with all of our other current and future
unsubordinated indebtedness. During 2000 and 1999, we
repurchased $13.3 million and $26.1 million,
respectively, of our 11 1/4% senior notes. As of
February 1, 2003, we had $30.6 million of 11 1/4%
senior notes outstanding.

We entered into a $40.0 million interest
rate swap transaction on July 7, 1999 with First Union
National Bank (First Union) whereby First Union paid us interest
at a fixed rate of 11.25% and we paid First Union interest at a
commercial paper rate plus 5.37%. The agreement terminated on
August 15, 2001. The transaction did not have a material
impact on our financial position or results of operations.

On October 31, 2000, we acquired El Portal,
a specialty retailer of premium travel products and accessories,
for approximately $17.8 million. The acquisition was funded
with cash from working capital and our senior credit facility.
On April 13, 2001, we acquired Bentleys, a specialty
retailer of travel products and accessories, for
$34.3 million. The acquisition was funded with cash from
working capital and our senior credit facility.

During the third quarter of 2001, we completed
the offering of unsecured short-term promissory notes in the
principal amount of $20.0 million at an interest rate of
7.9%, which matured on January 15, 2002. The notes were
paid in full at maturity.

In January 2002, we sold 1,900,000 shares of
common stock to an institutional investor in a private placement
for a price of $11.00 per share for net proceeds of
approximately $20.0 million. In April 2002, affiliates of
the institutional investor exercised the option to purchase
100,000 shares of our common stock at a purchase price of $11.00
per share. The sale was completed on April 12, 2002, for
net proceeds of approximately $1.0 million.

On April 30, 2002, we sold 900,000 shares of
our common stock in a private placement at a purchase price of
$11.00 per share, for net proceeds of approximately
$9.9 million. On June 10, 2002, the purchasers in the
April private placement exercised the option to purchase an
additional 100,000 shares of our common stock at a purchase
price of $11.00 per share. The sale was completed on
June 13, 2002, for net proceeds of approximately
$1.1 million.

On June 21, 2002, we completed a sale
leaseback transaction for our headquarters facility and
distribution center in Brooklyn Park, Minnesota, for net
proceeds of $12.5 million. A portion of the net proceeds
from the sale leaseback, $4.8 million, was used to pay down
the Term B promissory note from $25.0 million to
$20.2 million. The remainder of the proceeds is being used
for general corporate purposes.

On November 4, 2002, pursuant to the First
Amendment to Fourth Amended and Restated Credit Agreement with
General Electric Capital Corporation and the syndicate, we
reborrowed $4.8 million of the Term B promissory note,
which brought the outstanding balance to $25.0 million.

On November 19, 2002, we announced the
liquidation of the stores operated by our Travel Subsidiaries,
as described in Note 3 to the Consolidated Financial Statements
on page F-14 of this report.

Cash Flow Analysis

Operating activities of continuing operations for
2002 resulted in cash used of $37.3 million compared to
cash provided of $21.6 and $15.7 million in 2001 and 2000,
respectively.

The $37.3 million of cash used by operating
activities was comprised of cash used for: (1) the net loss
from continuing operations of $14.3 million, (2) a
$25.8 million increase in inventories due to lower sales
volumes than anticipated, (3) a $12.0 million decrease
in taxes payable/receivable and other liabilities primarily due
to net operating losses, (4) a $10.8 million increase
in deferred taxes, and (5) $0.5 million in

28



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##### 



cash used by various other operating activities.
These uses were partially offset with cash provided by:
(1) $19.0 million in non-cash adjustments for
depreciation, amortization and property and equipment
impairment, (2) a $3.7 million decrease in accounts
receivable due to fewer tenant allowances due to a reduction in
capital expenditures from 2001, and (3) a $3.4 million
increase in accounts payable from longer aging of payables.


We had $21.6 million in cash provided by
operating activities in 2001 as a result of: (1)
$7.8 million provided by net income from continuing
operations, (2) $19.6 million in non-cash adjustments
for depreciation and amortization and property and equipment
impairment, (3) a $13.2 million decrease in
inventories, (4) a $5.6 million decrease in prepaid
expenses due to the timing of February 2002 rent payments,
(5) a $1.9 million decrease in accounts receivable,
(6) a $1.6 million increase in deferred taxes, and
(7) $0.2 million in cash provided by various other
operating activities, offset by (8) a $7.0 million
decrease in accounts payable and (9) a $21.3 million
decrease in income taxes payable and other liabilities due to
reduced income.

The $15.7 million in cash provided by
operating activities in 2000 was primarily a result of:
(1) net income from continuing operations of
$41.0 million, (2) $11.1 million in non-cash
adjustments for depreciation and amortization and property and
equipment impairment, and (3) $4.6 million provided by
various other operating activities. Offsetting operating uses of
cash included (1) a $26.9 million increase in
inventories, (2) a $10.9 million decrease in accounts
payable and accrued expenses due to prompt payment of invoices
due, and (3) a $3.2 million increase in accounts
receivable due to a large increase in construction spending.

Investing activities of continuing operations for
2002 were comprised of $8.8 million in capital expenditures
and additions to other assets used primarily for the
construction of new stores, the renovation of and improvements
to existing stores, and $12.5 million in net proceeds from
the sale/ leaseback of our headquarters facility in Brooklyn
Park, Minnesota. Investing activities for 2001 and 2000 were
primarily comprised of $33.0 million and
$30.6 million, respectively, in capital expenditures and
additions to other assets used primarily for the construction of
new stores and the renovation of and improvements to existing
stores. For 2003, capital expenditures are capped at
$10.0 million.

Cash provided (used) by financing activities of
continuing operations in 2002 was $11.2 million,
$13.2 million provided by the issuance of common stock from
two private placement transactions and exercise of stock
options, and $2.0 million used for debt acquisition costs.
Cash provided by financing activities in 2001 was
$45.8 million, $23.4 million from the issuance of debt
net of repayments and debt acquisition costs, and
$22.4 million from the issuance of common stock and
exercise of stock options. Cash used in financing activities in
2000 was $14.8 million, of which approximately
$14.4 million was used to repurchase 11 1/4% senior
notes due 2004 and for various debt acquisition costs,
$2.4 million was used to cover bank overdrafts, and
$2.0 million was provided by the exercise of stock options.

We have entered into agreements that create
contractual obligations and commercial commitments. These
obligations and commitments will have an impact on future
liquidity and the availability of capital resources. The tables
noted below present a summary of these obligations and
commitments:

Contractual Obligations

Payments Due by Period (in
thousands)

|                                   |  |             |         |           |  |              |        |              |  |            |         |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ----------- | ------- | --------- |  | ------------ | ------ | ------------ |  | ---------- | ------- |  |  | - | ------ |  |  | - | ------ | 
|                                   |  | Total       |         | Less Than |  | One to Three |        | Four to Five |  | After Five
|                                   |  | Obligations |         | One Year  |  | Years        |        | Years        |  | Years     
|                                   |  |             |         |           |  |              |        |              |  |           
|Operating leases(1)                |  | $           | 299,244 |           |  | $            | 47,012 |              |  | $          | 116,665 |  |  | $ | 87,678 |  |  | $ | 47,889 | 
|Long-term debt                     |  |             | 55,740  |           |  |              | 45     |              |  |            | 55,695  |  |  |   |       |  |  |   |       | 
|                                   |  |             |         |           |  |              |        |              |  |            |         |  |  |   |        |  |  |   |        | 
|Total contractual cash obligations |  | $           | 354,984 |           |  | $            | 47,057 |              |  | $          | 172,360 |  |  | $ | 87,678 |  |  | $ | 47,889 | 
|                                   |  |             |         |           |  |              |        |              |  |            |         |  |  |   |        |  |  |   |        | 



---

|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes store operating leases, which generally
    provide for payment of direct operating costs in addition to
    rent. These obligation amounts include future minimum lease
    payments and exclude such direct operating costs.

29



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##### 



Commercial Commitments

Amount of Commitment Per Period (in
thousands)

|                              |  |           |        |           |  |              |        |              |  |            |   |  |  |   |   |  |  |   |   | 
|----------------------------- |  | --------- | ------ | --------- |  | ------------ | ------ | ------------ |  | ---------- | - |  |  | - | - |  |  | - | - | 
|                              |  | Total     |        |           |  |              |        |              |  |           
|                              |  | Amounts   |        | Less Than |  | One to Three |        | Four to Five |  | After Five
|                              |  | Committed |        | One Year  |  | Years        |        | Years        |  | Years     
|                              |  |           |        |           |  |              |        |              |  |           
|Documentary letters of credit |  | $         | 9,712  |           |  | $            | 9,712  |              |  | $          |  |  |  | $ |  |  |  | $ |  | 
|Standby letters of credit     |  |           | 5,522  |           |  |              | 5,522  |              |  |            |  |  |  |   |  |  |  |   |  | 
|                              |  |           |        |           |  |              |        |              |  |            |   |  |  |   |   |  |  |   |   | 
|Total commercial commitments  |  | $         | 15,234 |           |  | $            | 15,234 |              |  | $          |  |  |  | $ |  |  |  | $ |  | 
|                              |  |           |        |           |  |              |        |              |  |            |   |  |  |   |   |  |  |   |   | 

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect
on our financial condition, changes in our financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.

Seasonality and Inflation

A majority of our net sales and operating profit
is generated in the peak selling period from October through
January, which includes the holiday selling season. As a result,
our annual operating results have been, and will continue to be,
heavily dependent on the results of our peak selling period. Net
sales are generally lowest during the period from April through
July, and we typically do not become profitable, if at all,
until the fourth quarter of a given year. Most of our stores are
unprofitable during the first three quarters. Conversely, in a
typical year nearly all of our stores are profitable during the
fourth quarter, even those that may be unprofitable for the full
year. Historically, we have opened most of our stores during the
last half of the year. As a result, new mall stores opened just
prior to the fourth quarter produce profits in excess of their
annualized profits since the stores typically generate losses in
the first nine months of the year.

We do not believe that inflation has had a
material effect on the results of operations during the past
three years; however, there can be no assurance that our
business will not be affected by inflation in the future.

Discontinued Operations

In October 2000, Wilsons Leather acquired
El Portal, a 38-store chain of premium travel products and
accessories located in Las Vegas, Nevada. In April 2001,
Wilsons Leather acquired Bentleys, a 106-store chain of
specialty luggage products based in Miami, Florida. During 2001
and 2002, we worked to integrate the operations of both
companies by consolidating the two corporate operations in Las
Vegas, Nevada, and moving all back-office processing to Wilsons
Leathers headquarters in Brooklyn Park and Maple Grove,
Minnesota. Due to substantial losses experienced by the Travel
Subsidiaries during 2001 and 2002, on November 19, 2002,
Wilsons Leather decided to close the stores operated by the
Travel Subsidiaries. The Travel Subsidiaries and certain of
their affiliates entered into an agreement with a joint venture
comprised of Hilco Real Estate, LLC and Hilco Merchant
Resources, LLC (Hilco) to liquidate the remaining
travel stores inventory and exit the store leases. As a
result of this decision, the Travel Subsidiaries have been
presented as discontinued operations effective November 19,
2002, and the consolidated financial statements were
reclassified to separate the net investment in, and the
liabilities and operating results of, the Travel Subsidiaries.

During 2002, we received net proceeds totaling
$13.9 million as a result of discontinued operations. We
also recorded a $27.2 million charge, net of tax, related
to the exit of the Travel Subsidiaries. This charge primarily
included severance costs, inventory markdowns, a write-off of
store fixed assets, and lease termination fees. For 2002, we
recorded a loss on discontinued operations of $42.0 million
(net of tax), including the $27.2 million charge for the
closure of the Travel Subsidiaries and the $14.8 million
net operating loss in the Travel Subsidiaries during 2002. See
Consolidated Financial Statements of the Company,
Note 3. Discontinued Operations for more detail.

30



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##### 



As of February 1, 2003, all of the Travel
Subsidiaries stores had closed and substantially all of
the lease terminations had been executed. We do not expect to
receive any significant additional proceeds from Hilco related
to the discontinued operations of the stores operated by the
Travel Subsidiaries. At February 1, 2003, we had net
obligations related to its discontinued operations of
approximately $11.7 million, primarily for remaining lease
termination and severance costs. We believe that we have
adequately reserved for future obligations of the Travel
Subsidiaries.

Quarterly Results

The following table sets forth certain unaudited
financial information from our historical consolidated
statements of operations for each fiscal quarter of 2002 and
2001. This quarterly information has been prepared on a basis
consistent with our audited financial statements appearing
elsewhere in this Form 10-K and reflects adjustments which,
in the opinion of management, consist of normal recurring
adjustments, necessary for a fair presentation of such unaudited
quarterly results when read in conjunction with the audited
financial statements and notes thereto. All prior periods have
been reclassified to reflect discontinued operations of the
Travel Subsidiaries. The fourth quarter results for 2001 have
been restated for the correction of an error, as previously
described in Item 1. Business 
Restatement.

|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ----------- |  | ------- | ------- | ------ |  | ------- | ------- | ------- |  | ------- | ------- | ------ |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                                                                                          |  |                 
|                                                                                                          |  | Quarter Ended(1)
|                                                                                                          |  |                 
|                                                                                                          |  |                  |         |            
|                                                                                                          |  | Fiscal 2002      |         | Fiscal 2001
|                                                                                                          |  |                  |         |            
|                                                                                                          |  | Feb. 1,          |         | Nov. 2,     |  | Aug. 3, |         | May 4, |  | Feb. 2, |         | Nov. 3, |  | Aug. 4, |         | May 5,
|                                                                                                          |  | 2003             |         | 2002        |  | 2002    |         | 2002   |  | 2002(3) |         | 2001    |  | 2001    |         | 2001  
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |       
|Net sales                                                                                                 |  | $                | 303,108 |             |  | $       | 110,187 |        |  | $       | 63,195  |         |  | $       | 95,057  |        |  | $ | 327,911 |   |  | $ | 114,281 |   |  | $ | 58,895  |   |  | $ | 97,212 |  
|Gross margin                                                                                              |  |                  | 115,204 |             |  |         | 26,339  |        |  |         | 3,753   |         |  |         | 21,947  |        |  |   | 130,458 |   |  |   | 32,202  |   |  |   | 2,303   |   |  |   | 30,001 |  
|Operating income (loss)                                                                                   |  |                  | 52,632  |             |  |         | (18,104 | )      |  |         | (32,426 | )       |  |         | (15,705 | )      |  |   | 71,403  |   |  |   | (12,338 | ) |  |   | (31,806 | ) |  |   | (4,748 | )
|Income (loss) from continuing operations before
    cumulative effect of a change in accounting principle |  |                  | 29,801  |             |  |         | (12,799 | )      |  |         | (20,870 | )       |  |         | (10,445 | )      |  |   | 40,970  |   |  |   | (9,562  | ) |  |   | (20,344 | ) |  |   | (3,308 | )
|Loss from discontinued operations                                                                         |  |                  | (27,403 | )           |  |         | (4,212  | )      |  |         | (6,167  | )       |  |         | (4,232  | )      |  |   | (15,095 | ) |  |   | (4,176  | ) |  |   | (2,452  | ) |  |   | (370   | )
|Cumulative effect of a change in accounting
    principle(2)                                              |  |                  |        |             |  |         |        |        |  |         | (24,567 | )       |  |         |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       |  
|Net income (loss)                                                                                         |  | $                | 2,398   |             |  | $       | (17,011 | )      |  | $       | (51,604 | )       |  | $       | (14,677 | )      |  | $ | 25,875  |   |  | $ | (13,738 | ) |  | $ | (22,796 | ) |  | $ | (3,678 | )
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Basic earnings (loss) per share:                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Income (loss) from continuing operations before
    cumulative effect of a change in accounting principle |  | $                | 1.46    |             |  | $       | (0.63   | )      |  | $       | (1.03   | )       |  | $       | (0.54   | )      |  | $ | 2.35    |   |  | $ | (0.56   | ) |  | $ | (1.18   | ) |  | $ | (0.20  | )
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Loss from discontinued operations                                                                         |  |                  | (1.34   | )           |  |         | (0.21   | )      |  |         | (0.30   | )       |  |         | (0.22   | )      |  |   | (0.87   | ) |  |   | (0.24   | ) |  |   | (0.14   | ) |  |   | (0.02  | )
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Cumulative effect of a change in accounting
    principle(2)                                              |  |                  |        |             |  |         |        |        |  |         | (1.22   | )       |  |         |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       |  
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Net income (loss)                                                                                         |  | $                | 0.12    |             |  | $       | (0.84   | )      |  | $       | (2.55   | )       |  | $       | (0.76   | )      |  | $ | 1.48    |   |  | $ | (0.80   | ) |  | $ | (1.32   | ) |  | $ | (0.22  | )
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Diluted earnings per share:                                                                               |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Income (loss) from continuing operations before
    cumulative effect of a change in accounting principle |  | $                | 1.46    |             |  | $       | (0.63   | )      |  | $       | (1.03   | )       |  | $       | (0.54   | )      |  | $ | 2.28    |   |  | $ | (0.56   | ) |  | $ | (1.18   | ) |  | $ | (0.20  | )
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Loss from discontinued operations                                                                         |  |                  | (1.34   | )           |  |         | (0.21   | )      |  |         | (0.30   | )       |  |         | (0.22   | )      |  |   | (0.84   | ) |  |   | (0.24   | ) |  |   | (0.14   | ) |  |   | (0.02  | )
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Cumulative effect of a change in accounting
    principle(2)                                              |  |                  |        |             |  |         |        |        |  |         | (1.22   | )       |  |         |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |       |  
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  
|Net income (loss)                                                                                         |  | $                | 0.12    |             |  | $       | (0.84   | )      |  | $       | (2.55   | )       |  | $       | (0.76   | )      |  | $ | 1.44    |   |  | $ | (0.80   | ) |  | $ | (1.32   | ) |  | $ | (0.22  | )
|                                                                                                          |  |                  |         |             |  |         |         |        |  |         |         |         |  |         |         |        |  |   |         |   |  |   |         |   |  |   |         |   |  |   |        |  



---

|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The sum of the per share amounts for the quarters
    does not equal the totals for the year due to the application of
    the treasury stock method.
|   
|(2) | Relates to implementation of SFAS 142,
    Goodwill and Other Intangible Assets.                                                                   
|   
|(3) | Restated for correction of an error and
    reclassifications in 2000 originally recorded in 2001.                                                   

31



---



##### 



Presented below are the changes in the 2001
fourth quarter line items that have been impacted by both the
correction of an error and reclassifications to present
discontinued operations of the Travel Subsidiaries.

|                                  |  |                                |         |            |  |              |       |          |  |   |        |   |  |   |         | 
|--------------------------------- |  | ------------------------------ | ------- | ---------- |  | ------------ | ----- | -------- |  | - | ------ | - |  | - | ------- | 
|                                  |  |                               
|                                  |  | Quarter Ended February 2, 2002
|                                  |  |                               
|                                  |  | As Previously                  |         | Correction |  | Discontinued |       |         
|                                  |  | Reported                       |         | of Error   |  | Operations   |       | Restated
|                                  |  |                                |         |            |  |              |       |         
|Gross margin                      |  | $                              | 128,555 |            |  | $            | 5,335 |          |  | $ | (3,432 | ) |  | $ | 130,458 | 
|Operating income                  |  |                                | 45,649  |            |  |              | 5,335 |          |  |   | 20,419 |   |  |   | 71,403  | 
|Income from continuing operations |  |                                | 22,674  |            |  |              | 3,201 |          |  |   | 15,095 |   |  |   | 40,970  | 
|Net income                        |  | $                              | 22,674  |            |  | $            | 3,201 |          |  | $ |       |   |  | $ | 25,875  | 
|Basic earnings per share:         |  |                                |         |            |  |              |       |          |  |   |        |   |  |   |         | 
|Income from continuing operations |  | $                              | 1.30    |            |  | $            | 0.18  |          |  | $ | 0.87   |   |  | $ | 2.35    | 
|Net income                        |  | $                              | 1.30    |            |  | $            | 0.18  |          |  | $ |       |   |  | $ | 1.48    | 
|Diluted earnings per share:       |  |                                |         |            |  |              |       |          |  |   |        |   |  |   |         | 
|Income from continuing operations |  | $                              | 1.26    |            |  | $            | 0.18  |          |  | $ | 0.84   |   |  | $ | 2.28    | 
|Net income                        |  | $                              | 1.26    |            |  | $            | 0.18  |          |  | $ |       |   |  | $ | 1.44    | 

Recently Issued Accounting
Pronouncements

In June 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement Obligations,which requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs would be capitalized
as part of the carrying amount of the long-lived asset and
depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating
expense. If the obligation is settled for other than the
carrying amount of the liability, a company will recognize a
gain or loss on settlement. The provisions of SFAS No. 143
are effective for fiscal years beginning after June 15,
2002. The implementation of SFAS No. 143 is effective for
the Company beginning February 2, 2003, and is not expected
to have a material impact on our consolidated financial
statements.

In April 2002, the FASB issued SFAS No. 145,
Recission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002,which is effective for
fiscal years beginning after May 15, 2002. SFAS
No. 145 rescinds SFAS No. 4, which required that all
gains and losses from extinguishment of debt be aggregated, and
if material, classified as an extraordinary item. As a result,
gains and losses from debt extinguishment are to be classified
as extraordinary only if they meet the criteria set forth in
Accounting Principles Board Opinion No. 30, Reporting
the Results of OperationsReporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions.SFAS
No. 145 also requires that sale/ leaseback accounting be
used for capital lease modifications with economic effects
similar to sale/ leaseback transactions. Upon implementation of
SFAS No. 145 in 2003 we will be required to reclassify our
extraordinary losses on early extinguishment of debt in our
consolidated statement of operations for all periods presented.

In June 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities,which supersedes Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity.SFAS No. 146 requires that a
liability for a cost associated with an exit activity or
disposal activity be recognized and measured initially at fair
value only when the liability is incurred. EITF Issue
No. 94-3 requires recognition of a liability at the date an
entity commits to an exit plan. All provisions of SFAS
No. 146 were effective for exit or disposal activities that
were initiated after December 31, 2002. We adopted SFAS
No. 146 during the fourth quarter of 2002 with no material
impact on our consolidated financial statements.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure,an amendment of
SFAS No. 123. The purpose of the amendment is to enable
companies that choose to adopt the fair-value based method of
accounting for stock-based compensation to report the full
effect of employee stock options in their financial statements
immediately upon adoption. We will continue to apply the
disclosure-only provisions of SFAS No. 123. See
Notes 2 and 12 for additional

32



---



##### 



information regarding our stock options. The
transition provisions are effective for fiscal years ending
after December 15, 2002. We adopted the annual disclosure
provision of SFAS No. 148 in 2002. The interim disclosure
provisions are effective for financial reports containing
condensed financial statements for interim periods beginning
after December 15, 2002, which we will adopt in the first
quarter of 2003.


In November 2002, the FASB published
interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,which we refer to as
FIN 45. FIN 45 expands on the accounting guidance of
statements No. 5, 57 and 107 and incorporates without
change the provisions of FASB interpretation No. 34, which
is being superseded. FIN 45 elaborates on the existing
disclosure requirements for most guarantees, including loan
guarantees such as standby letters of credit. FIN 45 also
clarifies that at the time a company issues a guarantee, the
company must recognize an initial liability for the fair value,
or market value, of the obligations it assumes under that
guarantee and must disclose that information in its interim and
annual financial statements. The initial recognition and initial
measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002,
regardless of the guarantors fiscal year-end. The
disclosure requirements in FIN 45 are effective for
financial statements with respect to interim or annual periods
ending after December 15, 2002. We adopted the provisions
of FIN 45 during the fourth quarter of fiscal 2002. Our
adoption of FIN 45 had no impact on our consolidated
financial statements.

In January 2003, FASB published interpretation
No. 46, Consolidation of Variable Interest Entities,which we refer to as FIN 46, to clarify the conditions
under which assets, liabilities and activities of another entity
should be consolidated into the financial statements of a
company. FIN 46 requires the consolidation of a variable
interest entity (including a special purpose entity such as that
utilized in an accounts receivable securitization transaction)
by a company that bears the majority of the risk of loss from
the variable interest entitys activities or is entitled to
receive a majority of the variable interest entitys
residual returns or both. The provisions of FIN 46 are
required to be adopted in fiscal 2003. We do not believe the
adoption of FIN 46 will have a material impact on our
consolidated financial statements.

In January 2003, the FASBs EITF reached a
consensus on Issue 02-16, Accounting by a Customer
(including a Reseller) for Cash Consideration Received from a
Vendor.Issue 02-16 provides guidance on how a customer
should account for cash consideration received from a vendor.
The transition provisions apply prospectively to arrangements
entered into or modified subsequent to December 31, 2002
and would require all amounts received from vendors to be
accounted for as a reduction of the cost of the products
purchased unless certain criteria are met to allow presentation
as a reduction of advertising expense. We adopted the provisions
of Issue 02-16 during the fourth quarter of fiscal 2002.
The adoption of Issue 02-16 did not have a material impact
on our consolidated financial statements.



|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure About
    Market Risk

At February 1, 2003, we had cash and cash
equivalents totaling $30.4 million. The effect of a
100 basis point change in interest rates would have an
estimated $0.4 million pre-tax earnings and cash flow
impact, assuming other variables are held constant.

Our senior credit facility carries interest rate
risk that is generally related to LIBOR, the commercial paper
rate or the prime rate. If any of those rates were to change
while we were borrowing under the facility, interest expense
would increase or decrease accordingly. As of February 1,
2003, there were no outstanding borrowings under the senior
credit facility (other than the Term B promissory note) and
$15.2 million in outstanding letters of credit.

We have no earnings or cash flow exposure due to
market risks on our long-term debt obligations as a result of
the fixed-rate nature of the debt. However, interest rate
changes would affect the fair market value of the debt. At
February 1, 2003, we had long-term fixed rate debt of
$30.6 million maturing in August 2004. In July 1999, we
entered into a $40.0 million interest rate swap transaction
whereby a financial institution paid us interest at a fixed rate
of 11.25%, and we paid the financial institution interest at a
commercial paper rate plus 5.37% (10.78% at February 3,
2001). The agreement terminated on August 15, 2001.

33



---



##### 





|        |                     
|------- | --------------------
|Item 8. | Financial Statements

Financial statements required pursuant to this
Item begin on page F-1 of this Form 10-K. Pursuant to the
applicable accounting regulations of the Securities and Exchange
Commission, we are not required to provide supplementary data.



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

On May 9, 2002, we discontinued the
engagement of Arthur Andersen LLP (Arthur
Andersen) as our independent auditors and engaged
KPMG LLP (KPMG) as our independent auditors for
the fiscal year ending February 1, 2003. Our Audit
Committee approved discontinuing the engagement of Arthur
Andersen and engaging KPMG as our independent auditors.

In connection with Arthur Andersens audits
for our fiscal years ended February 2, 2002, and
February 3, 2001, and through May 9, 2002, there were
no disagreements between us and Arthur Andersen on any matters
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of Arthur
Andersen, would have caused Arthur Andersen to make reference to
the subject matter of the disagreements in connection with its
report on our consolidated financial statements for such years,
and there were no reportable events as defined in
Item 304(a)(i)(v) of Regulation S-K.

Reports of Arthur Andersen on our consolidated
financial statements for the fiscal years ended February 2,
2002, and February 3, 2001, contained no adverse opinions
or disclaimers of opinion, nor were the reports qualified or
modified as to uncertainty, audit scope or accounting principles.

During the years ended February 2, 2002, and
February 3, 2001, and through May 9, 2002, we did not
consult KPMG with respect to the application of accounting
principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on
the consolidated financial statements of the Company and its
subsidiaries, or any other matters or reportable events as set
forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

PART III

Certain information required by Part III is
incorporated by reference from our definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on
June 11, 2003 (the Proxy Statement), which will be filed
with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after February 1,
2003.

Except for those portions specifically
incorporated in this Form 10-K by reference to our Proxy
Statement, no other portions of the Proxy Statement are deemed
to be filed as part of this Form 10-K.



|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Incorporated by reference in this Form 10-K
is the information appearing under the headings Election
of Directors and Section 16(a) Beneficial
Ownership Reporting Compliance in our Proxy Statement. For
information concerning executive officers and family
relationships between any director or executive officer, see
Item 4a. Executive Officers of the Registrant
in this Form 10-K.

Item 11.     Executive
Compensation

Incorporated by reference in this Form 10-K
is the information appearing under the headings Election
of DirectorsDirector Compensation and
Executive CompensationSummary Compensation
Table,Stock Options,Option Grants in Last Fiscal
Year,Aggregate Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values,Equity Compensation Plan
Information,Equity Compensation Plans Not Approved by
Security Holders,Employment Contracts
andCompensation Committee Interlocks and Insider
Participation, in our Proxy Statement.

34



---



##### 



Item 12.     Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Incorporated by reference in this Form 10-K
is the information appearing under the heading Security
Ownership of Principal Shareholders and Management and in
our Proxy Statement.

Item 13.     Certain
Relationships and Related Transactions

Incorporated by reference in this Form 10-K
is the information appearing under the heading Certain
Relationships and Related Transactions in our Proxy
Statement.

Item 14.     Controls
and Procedures

Evaluation of Disclosure Controls and
Procedures

Our chief executive officer and our chief
financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-14
(c) and 15-d-14 (c)) as of a date (the
Evaluation Date) within 90 days before the
filing date of this annual report on Form 10-K, have
concluded that as of the Evaluation Date, our disclosure
controls and procedures were adequate and designed to ensure
that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those
entities.

Changes in Internal Controls

In the year ended February 1, 2003, we did
not make any significant changes in our internal controls or in
other factors that could significantly affect these controls,
nor did we take any corrective actions with regard to
significant deficiencies or material weaknesses in our internal
controls.

35



---



##### 



PART IV

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

(a)     Documents
filed as part of this report:



|   |                      
|-- | ---------------------
|1. | Financial Statements:

Independent
Auditors Report

Consolidated
Balance Sheets

Consolidated
Statements of Operations

Consolidated
Statements of Shareholders Equity

Consolidated
Statements of Cash Flows

Notes
to Consolidated Financial Statements



| |     |                     
| | --- | --------------------
| | (b) | Reports on Form 8-K:

Form 8-K
filed on December 3, 2002, regarding the closing of all 135
stores operated by our Travel Subsidiaries.



| |     |          
| | --- | ---------
| | (c) | Exhibits:

The
following exhibits are filed as part of this Form 10-K for
the year ended February 1, 2003.

|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |  |                           | 
|------- | --- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ------------------------- | 
|Exhibit |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|No.     |     | Description |  | Method of Filing                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 2.1 |             |  | Sale Agreement dated as of May 24, 1996 by
    and among CVS New York, Inc. (formerly known as Melville
    Corporation), Wilsons Center Inc. and Wilsons The Leather
    Experts Inc. (1)                                                                                                                                                                                                                                                             |  |  | Incorporated by Reference | 
|        | 3.1 |             |  | Amended and Restated Articles of Incorporation of
    Wilsons The Leather Experts Inc. adopted June 16, 1998, as
    amended by the Articles of Amendment dated February 17,
    2000, and the Articles of Amendment dated May 23,
    2002.(2)                                                                                                                                                                                                        |  |  | Incorporated by Reference | 
|        | 3.2 |             |  | Restated Bylaws of Wilsons The Leather Experts
    Inc. as amended June 16, 1998, January 25, 2000, and
    May 23, 2002.(2)                                                                                                                                                                                                                                                                                                                           |  |  | Incorporated by Reference | 
|        | 4.1 |             |  | Specimen of common stock
    certificate.(3)                                                                                                                                                                                                                                                                                                                                                                                                           |  |  | Incorporated by Reference | 
|        | 4.2 |             |  | Indenture dated as of August 18, 1997, by
    and among Wilsons The Leather Experts Inc., the other
    corporations listed on the signature pages thereof, and Wells
    Fargo Bank Minnesota, National Association (formerly known as
    Norwest Bank Minnesota, National Association), including
    specimen Certificate of 11 1/4% Series A Senior Notes
    due 2004 and specimen Certificate of 11 1/4% Series B
    Senior Notes due 2004.(4) |  |  | Incorporated by Reference | 
|        | 4.3 |             |  | Registration Rights Agreement dated as of
    May 25, 1996, by and among CVS New York, Inc. (formerly
    known as Melville Corporation), Wilsons The Leather Experts
    Inc., the Managers listed on the signature pages thereto,
    Leather Investors Limited Partnership I and the Partners
    listed on the signature pages thereto.(5)                                                                                                         |  |  | Incorporated by Reference | 
|        | 4.4 |             |  | Amendment to Registration Rights Agreement dated
    as of August 12, 1999, by and among Wilsons The Leather
    Experts Inc. and the Shareholders listed on the attachments
    thereto.(6)                                                                                                                                                                                                                                                           |  |  | Incorporated by Reference | 
|        | 4.5 |             |  | Registration Rights Agreement dated as of
    January 10, 2002, by and among Wilsons The Leather Experts
    Inc. and the Investors signatory thereto.(7)                                                                                                                                                                                                                                                                                              |  |  | Incorporated by Reference | 

36



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##### 



|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                           | 
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------- | 
|Exhibit |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|No.     |       | Description |  | Method of Filing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.6   |             |  | Letter Amendment to the Common Stock Purchase
    Agreement and the Registration Rights Agreement dated
    January 14, 2002, by and between Wilsons The Leather
    Experts Inc. and Bricoleur Capital Management LLC.(8)                                                                                                                                                                                                                                                                                                 |  |  | Incorporated by Reference | 
|        | 4.7   |             |  | Registration Rights Agreement dated as of
    April 24, 2002, by and among Wilsons The Leather Experts
    Inc. and the Investors signatory thereto.(9)                                                                                                                                                                                                                                                                                                                                                                    |  |  | Incorporated by Reference | 
|        | 10.1  |             |  | Parent Guaranty dated as of May 25, 1996, by
    Wilsons The Leather Experts Inc., Wilsons Center, Inc., Rosedale
    Wilsons, Inc. and River Hills Wilsons, Inc. in favor of General
    Electric Capital Corporation.(10)                                                                                                                                                                                                                                                                                                |  |  | Incorporated by Reference | 
|        | *10.2 |             |  | Wilsons The Leather Experts Inc. Amended
    Executive and Key Management Incentive Plan.(11)                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  | Incorporated by Reference | 
|        | *10.3 |             |  | Wilsons The Leather Experts Inc. 401(k)
    Plan.(12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  | Incorporated by Reference | 
|        | *10.4 |             |  | Employment Agreement dated as of May 25,
    1996, between Wilsons The Leather Experts Inc. and Joel
    Waller.(1)                                                                                                                                                                                                                                                                                                                                                                                                        |  |  | Incorporated by Reference | 
|        | *10.5 |             |  | Employment Agreement dated as of May 25,
    1996, between Wilsons The Leather Experts Inc. and David
    Rogers.(1)                                                                                                                                                                                                                                                                                                                                                                                                       |  |  | Incorporated by Reference | 
|        | 10.6  |             |  | Fourth Amended and Restated Credit Agreement
    dated as of April 23, 2002, among Wilsons Leather Holdings
    Inc., as Borrower, the Lenders signatory thereto from time to
    time, as Lenders, and General Electric Capital Corporation, as
    Agent, Lender, Term Lender and Swing Line Lender, GECC Capital
    Markets Corp., Inc. as Lead Arranger, the CIT Group/ Business
    Credit, Inc., as Lender and Documentation Agent and Wells Fargo
    Retail Finance LLC, as Lender and Syndication
    Agent.(13) |  |  | Incorporated by Reference | 
|        | 10.7  |             |  | Store Guarantors Guaranty dated as of
    May 25, 1996, by Bermans The Leather Experts, Inc., Wilsons
    House of Suede, Inc., Wilsons Tannery West, Inc., the Georgetown
    Subsidiaries that are signatories thereto and the Individual
    Store Subsidiaries that are signatories thereto, in favor of
    General Electric Capital Corporation.(14)                                                                                                                                                                |  |  | Incorporated by Reference | 
|        | *10.8 |             |  | Wilsons The Leather Experts Inc. Amended 1996
    Stock Option Plan.(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  | Incorporated by Reference | 
|        | 10.9  |             |  | Joinder Agreement dated as of May 24, 1999,
    by and between the Store Guarantors that are signatories thereto
    and General Electric Capital Corporation.(15)                                                                                                                                                                                                                                                                                                                                                         |  |  | Incorporated by Reference | 
|        | 10.10 |             |  | Pledge Agreement dated as of May 24, 1999,
    by and between Wilsons Leather of Delaware Inc. and General
    Electric Capital Corporation, individually and as agent for the
    lenders signatory to the Credit Agreement.(16)                                                                                                                                                                                                                                                                                          |  |  | Incorporated by Reference | 
|        | 10.11 |             |  | Pledge Agreement dated as of May 24, 1999,
    between Wilsons International, Inc. and General Electric Capital
    Corporation, individually and as agent for the lenders signatory
    to the Credit Agreement.(17)                                                                                                                                                                                                                                                                                                      |  |  | Incorporated by Reference | 
|        | 10.12 |             |  | Pledge Agreement dated as of May 25, 1996,
    between Wilsons The Leather Experts Inc. and General Electric
    Capital Corporation, individually and as agent for the lenders
    signatory to the Credit Agreement.(18)                                                                                                                                                                                                                                                                                                 |  |  | Incorporated by Reference | 
|        | 10.13 |             |  | Pledge Agreement dated as of May 25, 1996,
    between Wilsons Center, Inc. and General Electric Capital
    Corporation, individually and as agent for the lenders signatory
    to the Credit Agreement.(19)                                                                                                                                                                                                                                                                                                             |  |  | Incorporated by Reference | 

37



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##### 



|        |        |             |  |                                                                                                                                                                                                                                                                                                               |  |  |                           | 
|------- | ------ | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------- | 
|Exhibit |        |             |  |                                                                                                                                                                                                                                                                                                              
|No.     |        | Description |  | Method of Filing                                                                                                                                                                                                                                                                                             
|        |        |             |  |                                                                                                                                                                                                                                                                                                              
|        | 10.14  |             |  | Pledge Agreement dated as of May 25, 1996,
    between Rosedale Wilsons, Inc. and General Electric Capital
    Corporation, individually and as agent for the lenders signatory
    to the Credit Agreement.(20)                                                                                              |  |  | Incorporated by Reference | 
|        | 10.15  |             |  | Pledge Agreement dated as of May 25, 1996,
    between River Hills Wilsons, Inc. and General Electric Capital
    Corporation, individually and as agent for the lenders signatory
    to the Credit Agreement.(21)                                                                                           |  |  | Incorporated by Reference | 
|        | 10.16  |             |  | Reaffirmation of Guaranty dated as of
    May 24, 1999, by Wilsons The Leather Experts Inc., Wilsons
    Center, Inc., Rosedale Wilsons, Inc., River Hills Wilsons, Inc.
    and the Store Guarantors listed on the signature pages thereto
    in favor of General Electric Capital Corporation.(22)         |  |  | Incorporated by Reference | 
|        | 10.17  |             |  | Amendment No. 2 to Pledge Agreement dated as
    of July 31, 1997, between River Hills Wilsons, Inc. and
    General Electric Capital Corporation.(23)                                                                                                                                                        |  |  | Incorporated by Reference | 
|        | 10.18  |             |  | Joinder Agreement dated as of July 31, 1997,
    by and between Wilsons International Inc. and General Electric
    Capital Corporation.(24)                                                                                                                                                                  |  |  | Incorporated by Reference | 
|        | 10.19  |             |  | Reaffirmation of Guaranty dated as of
    July 31, 1997, by Wilsons The Leather Experts Inc., Wilsons
    Center, Inc., Rosedale Wilsons, Inc. and River Hills Wilsons,
    Inc., in favor of General Electric Capital
    Corporation.(25)                                                                   |  |  | Incorporated by Reference | 
|        | 10.20  |             |  | Wilsons The Leather Experts Inc. 1998 Stock
    Option Plan. (26)                                                                                                                                                                                                                                             |  |  | Incorporated by Reference | 
|        | 10.21  |             |  | Reaffirmation of Guaranty dated
    September 24, 1999, by Wilsons The Leather Experts Inc.,
    Wilsons Center, Inc., Rosedale Wilsons, Inc. and River Hills
    Wilsons, Inc.(27)                                                                                                                           |  |  | Incorporated by Reference | 
|        | *10.22 |             |  | First Amendment to Employment Agreement dated as
    of April 3, 2000, between Wilsons The Leather Experts Inc.
    and Joel N. Waller.(28)                                                                                                                                                                   |  |  | Incorporated by Reference | 
|        | *10.23 |             |  | First Amendment to Employment Agreement as of
    March 23, 2000, between Wilsons The Leather Experts Inc.
    and David L. Rogers.(29)                                                                                                                                                                       |  |  | Incorporated by Reference | 
|        | 10.24  |             |  | Amended and Restated Security Agreement dated as
    of June 19, 2001, by and among Wilsons Leather Holdings
    Inc. and the other Grantors listed on the signature pages
    thereto, in favor of General Electric Capital Corporation, in
    its capacity as Agent for Lenders.(30)                       |  |  | Incorporated by Reference | 
|        | 10.25  |             |  | Joinder Agreement dated as of October 31,
    2000, by and between the Store Guarantors that are signatories
    thereto and General Electric Capital Corporation.(31)                                                                                                                                        |  |  | Incorporated by Reference | 
|        | 10.26  |             |  | Pledge Amendment dated as of October 31,
    2000, by River Hills Wilsons, Inc.(32)                                                                                                                                                                                                                           |  |  | Incorporated by Reference | 
|        | 10.27  |             |  | Pledge Agreement dated as of October 31,
    2000, by and between WWT, Inc. and General Electric Capital
    Corporation, individually and as agent for the lenders signatory
    to the Credit Agreement.(33)                                                                                                |  |  | Incorporated by Reference | 
|        | 10.28  |             |  | Reaffirmation of Guaranty dated as of
    October 31, 2000, by Wilsons The Leather Experts Inc.,
    Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills
    Wilsons, Inc. and the Store Guarantors listed on the signature
    pages thereto in favor of General Electric Capital
    Corporation.(34) |  |  | Incorporated by Reference | 
|        | 10.29  |             |  | Wilsons The Leather Experts Inc. 2000 Long Term
    Incentive Plan, as amended on August 24, 2000, and
    March 21, 2002. (35)                                                                                                                                                                               |  |  | Incorporated by Reference | 

38



---



##### 



|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                 |  |  |                           | 
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------- | 
|Exhibit |       |             |  |                                                                                                                                                                                                                                                                                                                                                
|No.     |       | Description |  | Method of Filing                                                                                                                                                                                                                                                                                                                               
|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                
|        | 10.30 |             |  | Joinder Agreement dated as of April 13,
    2001, by and between the Store Guarantors that are signatory
    thereto and General Electric Capital Corporation.(36)                                                                                                                                                                              |  |  | Incorporated by Reference | 
|        | 10.31 |             |  | Pledge Amendment, dated as of April 13,
    2001, by WWT, Inc. (37)                                                                                                                                                                                                                                                                             |  |  | Incorporated by Reference | 
|        | 10.32 |             |  | Pledge Agreement, dated as of April 13,
    2001, between Bentleys Luggage Corp. and General Electric
    Capital Corporation, individually and as agent for the lenders
    signatory to the Credit Agreement.(38)                                                                                                                            |  |  | Incorporated by Reference | 
|        | 10.33 |             |  | Reaffirmation Of Guaranty dated as of
    April 13, 2001, by Wilsons The Leather Experts Inc.,
    Wilsons Center, Inc., Rosedale Wilsons, Inc. and River Hills
    Wilsons, Inc., in favor of General Electric Capital
    Corporation(39)                                                                                                     |  |  | Incorporated by Reference | 
|        | 10.34 |             |  | Reaffirmation Of Guaranty dated as of
    June 19, 2001, by Wilsons The Leather Experts Inc., Wilsons
    Center, Inc., Rosedale Wilsons, Inc. and River Hills Wilsons,
    Inc., in favor of General Electric Capital
    Corporation.(40)                                                                                                     |  |  | Incorporated by Reference | 
|        | 10.35 |             |  | Reaffirmation of Guaranty dated as of
    April 23, 2002, by Wilsons The Leather Experts Inc.,
    Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills
    Wilsons, Inc. and the Store Guarantors listed on the signature
    pages thereto in favor of General Electric Capital Corporation
    as Agent for Lenders.(41)                |  |  | Incorporated by Reference | 
|        | 10.36 |             |  | Agreement to Purchase Office/ Warehouse Building
    by and between Bermans The Leather Experts, Inc., a Delaware
    Corporation, as Seller and IRET Properties, a North Dakota
    limited partnership, as Purchaser, Dated as of June 19,
    2002.(42)                                                                                      |  |  | Incorporated by Reference | 
|        | 10.37 |             |  | Lease, IRET Properties Landlord to Bermans The
    Leather Experts, Inc. Tenant, dated June 21,
    2002.(43)                                                                                                                                                                                                                                   |  |  | Incorporated by Reference | 
|        | 10.38 |             |  | First Amendment to Fourth Amended and Restated
    Credit Agreement dated as of November 1, 2002, by and among
    Wilsons Leather Holdings Inc., General Electric Capital
    Corporation, the credit parties signatory thereto and the
    lenders signatory thereto.(44)                                                                     |  |  | Incorporated by Reference | 
|        | 10.39 |             |  | Unqualified Release Agreement dated
    August 22, 2002, by and between John A. Fowler and Wilsons
    Leather Holdings Inc. (45)                                                                                                                                                                                                               |  |  | Incorporated by Reference | 
|        | 10.40 |             |  | Consulting Agreement dated August 11, 2002,
    by and between John A. Fowler and Wilsons Leather Holdings
    Inc.(46)                                                                                                                                                                                                                         |  |  | Incorporated by Reference | 
|        | 10.41 |             |  | Limited Waiver and Second Amendment to Fourth
    Amended and Restated Credit Agreement dated as of
    January 21, 2003, among Wilsons Leather Holdings Inc.,
    General Electric Capital Corporation, as Lender, Term Lender,
    Swing Line Lender and as Agent, the Credit Parties signatory
    thereto and the Lenders signatory thereto |  |  | Electronic Transmission   | 
|        | 10.42 |             |  | Unqualified Release Agreement dated
    December 9, 2002, by and between John Serino and River
    Hills Wilsons, Inc.                                                                                                                                                                                                                          |  |  | Electronic Transmission   | 
|        | 10.43 |             |  | Limited Waiver and Third Amendment to Fourth
    Amended and Restated Credit Agreement dated as of April 11,
    2003, among Wilsons Leather Holdings Inc., General Electric
    Capital Corporation, as Lender, Term Lender, Swing Line Lender
    and as Agent, the Credit Parties signatory thereto and the
    Lenders signatory thereto.   |  |  | Electronic Transmission   | 

39



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##### 



|        |        |             |  |                                                                                                                                                                                                                                                                                                                              |  |  |                           | 
|------- | ------ | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------- | 
|Exhibit |        |             |  |                                                                                                                                                                                                                                                                                                                             
|No.     |        | Description |  | Method of Filing                                                                                                                                                                                                                                                                                                            
|        |        |             |  |                                                                                                                                                                                                                                                                                                                             
|        | 10.44  |             |  | Reaffirmation of Guaranty dated as of
    April 11, 2003, by Wilsons The Leather Experts Inc.,
    Wilsons Center, Inc., Rosedale Wilsons, Inc., River Hills
    Wilsons, Inc. and the Store Guarantors listed on the signature
    pages thereto in favor of General Electric Capital Corporation
    as Agent for Lenders. |  |  | Electronic Transmission   | 
|        | *10.45 |             |  | Wilsons The Leather Experts Inc. Employee Stock
    Purchase Plan                                                                                                                                                                                                                                                            |  |  | Electronic Transmission   | 
|        | 16.1   |             |  | Letter Regarding Arthur Andersen
    LLP.(47)                                                                                                                                                                                                                                                                                |  |  | Incorporated by Reference | 
|        | 21.1   |             |  | Subsidiaries of Wilsons The Leather Experts Inc.                                                                                                                                                                                                                                                                             |  |  | Electronic Transmission   | 
|        | 23.1   |             |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                          |  |  | Electronic Transmission   | 
|        | 99.1   |             |  | Certifications of Chief Executive Officer and
    Chief Financial Officer, pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                  |  |  | Electronic Transmission   | 



---



| |     |                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *   | Management contract or compensation plan or
    arrangement required to be filed as an exhibit to this Form 10-K.                                                                                    
|
| | (1) | Incorporated by reference to the same numbered
    exhibit to the Companys Registration Statement on
    Form S-1 (333-13967) filed with the Commission on
    October 11, 1996.                    
|
| | (2) | Incorporated by reference to the same numbered
    exhibit to the Companys Report on Form 10-Q for the
    quarter ended May 4, 2002 (File No. 0-21543).                                            
|
| | (3) | Incorporated by reference to the same numbered
    exhibit to Amendment No. 1 to the Companys
    Registration Statement on Form S-1 (333-13967) filed with
    the Commission on December 24, 1996.
|
| | (4) | Incorporated by reference to Exhibit 10.3 to
    the Companys Report on Form 10-Q for the quarter
    ended August 2, 1997, filed with the Commission.                                              
|
| | (5) | Incorporated by reference to Exhibit 4.8 to
    the Companys Registration Statement on Form S-1
    (333-13967) filed with the Commission on October 11, 1996.                                      
|
| | (6) | Incorporated by reference to the same numbered
    exhibit to the Companys Report on Form 10-K for the
    fiscal year ended January 29, 2000, filed with the
    Commission (File No. 0-21543).    
|
| | (7) | Incorporated by reference to Exhibit 4.2 to
    the Companys Report on Form 8-K filed with the
    Commission on January 23, 2002.                                                                  
|
| | (8) | Incorporated by reference to Exhibit 4.3 to
    the Companys Report on Form 8-K filed with the
    Commission on January 23, 2002.                                                                  
|
| | (9) | Incorporated by reference to Exhibit 4.2 to
    the Companys Report on Form 8-K filed with the
    Commission on May 3, 2002.                                                                       



|     |                                                                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Exhibit 10.8 to
    the Companys Report on Form 10-Q for the quarter
    ended August 2, 1997, filed with the Commission.      
|    
|(11) | Incorporated by reference to Exhibit 10.2 to
    the Companys Report on Form 10-Q for the quarter
    ended May 4, 2002, filed with the Commission.         
|    
|(12) | Incorporated by Reference to Exhibit 10.3 to
    the Companys Report on Form 10-K for the fiscal year
    ended February 2, 2002, filed with the Commission.
|    
|(13) | Incorporated by reference to Exhibit 10.1 to
    the Companys Report on Form 10-Q for the quarter
    ended May 4, 2002 filed, with the Commission.         
|    
|(14) | Incorporated by reference to Exhibit 10.10
    to the Companys Report on Form 1O-Q for the quarter
    ended August 2, 1997, filed with the Commission.     
|    
|(15) | Incorporated by reference to Exhibit 10.3 to
    the Companys Report on Form 10-Q for the quarter ended
    May 1, 1999, filed with the Commission.         
|    
|(16) | Incorporated by reference to Exhibit 10.4 to
    the Companys Report on Form 10-Q for the quarter ended
    May 1, 1999, filed with the Commission.         

40



---



##### 





|     |                                                                                                                                                                                     
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(17) | Incorporated by reference to Exhibit 10.5 to
    the Companys Report on Form 10-Q for the quarter ended
    May 1, 1999, filed with the Commission.                                
|    
|(18) | Incorporated by reference to Exhibit 10.21
    to Amendment No. 4 to the Companys Registration
    Statement on Form S-1 (333-13967) filed with the Commission
    on May 27, 1997.
|    
|(19) | Incorporated by reference to Exhibit 10.22
    to Amendment No. 4 to the Companys Registration
    Statement on Form S-1 (333-13967) filed with the Commission
    on May 27, 1997.
|    
|(20) | Incorporated by reference to Exhibit 10.23
    to Amendment No. 4 to the Companys Registration
    Statement on Form S-1 (333-13967) filed with the Commission
    on May 27, 1997.
|    
|(21) | Incorporated by reference to Exhibit 10.24
    to Amendment No. 4 to the Companys Registration
    Statement on Form S-1 (333-13967) filed with the Commission
    on May 27, 1997.
|    
|(22) | Incorporated by reference to Exhibit 10.6 to
    the Companys Report on Form 10-Q for the quarter ended
    May 1, 1999, filed with the Commission.                                
|    
|(23) | Incorporated by reference to Exhibit 10.6 to
    the Companys Report on Form 10-Q for the quarter ended
    August 2, 1997, filed with the Commission.                             
|    
|(24) | Incorporated by reference to Exhibit 10.7 to
    the Companys Report on Form 10-Q for the quarter ended
    August 2, 1997, filed with the Commission.                             
|    
|(25) | Incorporated by reference to Exhibit 10.9 to
    the Companys Report on Form 10-Q for the quarter
    ended August 2, 1997, filed with the Commission.                             
|    
|(26) | Incorporated by reference to Exhibit 10.31
    to the Companys Report on Form 10-K for the fiscal
    year ended January 31, 1998, filed with the Commission.                      
|    
|(27) | Incorporated by reference to Exhibit 10.2 to
    the Companys Report on Form 10-Q for the quarter
    ended October 30, 1999, filed with the Commission.                           
|    
|(28) | Incorporated by reference to Exhibit 10.27
    to the Companys Report on Form 10-K for the fiscal
    year ended January 29, 2000, filed with the Commission.                      
|    
|(29) | Incorporated by reference to Exhibit 10.28
    to the Companys Report on Form 10-K for the fiscal
    year ended January 29, 2000, filed with the Commission.                      
|    
|(30) | Incorporated by reference to Exhibit 10.2 to
    the Companys Report on Form 8-K filed with the Commission
    on June 25, 2001.                                                   
|    
|(31) | Incorporated by reference to Exhibit 10.4 to
    the Companys Report on Form 10-Q for the quarter ended
    October 28, 2000, filed with the Commission.                           
|    
|(32) | Incorporated by reference to Exhibit 10.5 to
    the Companys Report on Form 10-Q for the quarter ended
    October 28, 2000, filed with the Commission.                           
|    
|(33) | Incorporated by reference to Exhibit 10.6 to
    the Companys Report on Form 10-Q for the quarter ended
    October 28, 2000, filed with the Commission.                           
|    
|(34) | Incorporated by reference to Exhibit 10.3 to
    the Companys Report on Form 10-Q for the quarter ended
    October 28, 2000, filed with the Commission.                           
|    
|(35) | Incorporated by reference to Exhibit 10.29
    to the Companys Report on Form 10-K for the fiscal
    year ended February 2, 2002, filed with the Commission.                      
|    
|(36) | Incorporated by reference to Exhibit 10.1 to
    the Companys Report on Form 10-Q for the quarter ended
    May 5, 2001, filed with the Commission.                                
|    
|(37) | Incorporated by reference to Exhibit 10.2 to
    the Companys Report on Form 10-Q for the quarter ended
    May 5, 2001, filed with the Commission.                                
|    
|(38) | Incorporated by reference to Exhibit 10.3 to
    the Companys Report on Form 10-Q for the quarter ended
    May 5, 2001, filed with the Commission.                                
|    
|(39) | Incorporated by reference to Exhibit 10.4 to
    the Companys Report on Form 10-Q for the quarter ended
    May 5, 2001, filed with the Commission.                                

41



---



##### 





|     |                                                                                                                                                          
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(40) | Incorporated by reference to Exhibit 10.3 to
    the Companys Report on Form 8-K filed with the Commission
    on June 25, 2001.                        
|    
|(41) | Incorporated by reference to Exhibit 10.2 to
    the Companys Report of Form 10-Q for the quarter ended
    May 4, 2002, filed with the Commission.     
|    
|(42) | Incorporated by reference to Exhibit 10.1 to
    the Companys Report on Form 10-Q for the quarter ended
    August 3, 2002, filed with the Commission.  
|    
|(43) | Incorporated by reference to Exhibit 10.2 to
    the Companys Report on Form 10-Q for the quarter ended
    August 3, 2002, filed with the Commission.  
|    
|(44) | Incorporated by reference to Exhibit 10.1 to
    the Companys Report on Form 10-Q for the quarter ended
    November 2, 2002, filed with the Commission.
|    
|(45) | Incorporated by reference to Exhibit 10.2 to
    the Companys Report on Form 10-Q for the quarter ended
    November 2, 2002, filed with the Commission.
|    
|(46) | Incorporated by reference to Exhibit 10.3 to
    the Companys Report on Form 10-Q for the quarter ended
    November 2, 2002, filed with the Commission.
|    
|(47) | Incorporated by reference to Exhibit 16.1 to
    the Companys Report on Form 8-K filed on May 15,
    2002, with the Commission.                        

42



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES

Index to Consolidated Financial
Statements

|                                                                                                                                                                |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                |  | Page
|                                                                                                                                                                |  |     
|Independent Auditors Report                                                                                                                                    |  |      | F-2 | 
|                                                                                                                                                               
|Consolidated Balance SheetsFebruary 1,
    2003, and February 2, 2002, (Restated)                                                                              |  |      | F-3 | 
|                                                                                                                                                               
|Consolidated Statements of Operations for the
    years ended February 1, 2003, February 2, 2002,
    (Restated) and February 3, 2001, (Restated)               |  |      | F-4 | 
|                                                                                                                                                               
|Consolidated Statements of Shareholders
    Equity for the years ended February 1, 2003,
    February 2, 2002, (Restated) and February 3, 2001,
    (Restated) |  |      | F-5 | 
|                                                                                                                                                               
|Consolidated Statements of Cash Flows for the
    years ended February 1, 2003, February 2, 2002,
    (Restated) and February 3, 2001, (Restated)               |  |      | F-6 | 
|                                                                                                                                                               
|Notes to Consolidated Financial Statements                                                                                                                      |  |      | F-7 | 
|                                                                                                                                                               
|Financial Statement Schedule                                                                                                                                    |  |      |     | 
|                                                                                                                                                               
|Schedule IIValuation and Qualifying
    Accounts                                                                                                               |  |      |     | 

F-1



---



##### 



INDEPENDENT AUDITORS REPORT

To The Board of Directors and Shareholders,

Wilsons The Leather Experts Inc.:


We have audited the accompanying consolidated
balance sheets of Wilsons The Leather Experts Inc. and
subsidiaries as of February 1, 2003, and February 2,
2002, and the related consolidated statements of operations,
shareholders equity and cash flows for each of the three
fiscal years in the period ended February 1, 2003. In
connection with our audits of the consolidated financial
statements, we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. 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 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Wilsons The Leather Experts
Inc. and subsidiaries as of February 1, 2003, and
February 2, 2002, and the results of their operations and
their cash flows for each of the three fiscal years in the
period ended February 1, 2003, in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, effective February 3, 2002, the
Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets.

As discussed in Note 4 to the consolidated
financial statements, the Companys consolidated balance
sheet as of February 2, 2002, and the consolidated
statements of operations, shareholders equity and cash
flows for each of the two fiscal years then ended, which were
previously audited by other independent auditors who have ceased
operations, have been restated.



| |                 
| | ----------------
| | /s/     KPMG LLP

Minneapolis, Minnesota

April 18, 2003


F-2



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share
amounts)

|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |        |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | ----------- | ------- |  | ------ | ------ | ------- | 
|                                                                                                                                                                                         |                                                                                            | February 1,                                |        | February 2,
|                                                                                                                                                                                         |                                                                                            | 2003                                       |        | 2002       
|                                                                                                                                                                                         |                                                                                            |                                            |        |            
|                                                                                                                                                                                         |                                                                                            |                                            |        | (Restated) 
|ASSETS                                                                                                                                                                                   |                                                                                            |                                            |        |             |         |  |        |       
|CURRENT ASSETS:                                                                                                                                                                          |                                                                                            |                                            |        |             |         |  |        |       
|                                                                                                                                                                                         | Cash and cash equivalents                                                                  |                                            | $      | 30,442      |         |  | $      | 38,953 |        
|                                                                                                                                                                                         | Accounts receivable, net of allowance of $145 and
    $351, in 2002 and 2001, respectively |                                            |        | 5,162       |         |  |        | 8,877  |        
|                                                                                                                                                                                         | Inventories                                                                                |                                            |        | 118,701     |         |  |        | 92,940 |        
|                                                                                                                                                                                         | Prepaid expenses                                                                           |                                            |        | 3,812       |         |  |        | 2,938  |        
|                                                                                                                                                                                         | Assets of discontinued operations                                                          |                                            |        | 3,379       |         |  |        | 46,514 |        
|                                                                                                                                                                                         | Deferred taxes                                                                             |                                            |        | 3,777       |         |  |        |       |        
|                                                                                                                                                                                         | Refundable income taxes                                                                    |                                            |        | 3,064       |         |  |        |       |        
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       
|                                                                                                                                                                                         |                                                                                            | TOTAL CURRENT ASSETS                       |        |             | 168,337 |  |        |        | 190,222 | 
|Property and equipment, net                                                                                                                                                              |                                                                                            |                                            | 73,974 |             |         |  | 84,007 |       
|Goodwill and other assets, net of accumulated
    amortization of $2,979 and $1,874 in 2002 and 2001, respectively                                                                       |                                                                                            |                                            | 3,315  |             |         |  | 2,478  |       
|Deferred taxes                                                                                                                                                                           |                                                                                            |                                            | 865    |             |         |  |       |       
|Other assets of discontinued operations                                                                                                                                                  |                                                                                            |                                            |       |             |         |  | 56,239 |       
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       
|                                                                                                                                                                                         |                                                                                            | TOTAL ASSETS                               |        | $           | 246,491 |  |        | $      | 332,946 | 
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                                                                                                 |                                                                                            |                                            |        |             |         |  |        |       
|CURRENT LIABILITIES:                                                                                                                                                                     |                                                                                            |                                            |        |             |         |  |        |       
|                                                                                                                                                                                         | Accounts payable                                                                           |                                            | $      | 19,492      |         |  | $      | 15,264 |        
|                                                                                                                                                                                         | Accrued expenses                                                                           |                                            |        | 25,219      |         |  |        | 25,410 |        
|                                                                                                                                                                                         | Liabilities of discontinued operations                                                     |                                            |        | 15,075      |         |  |        | 31,583 |        
|                                                                                                                                                                                         | Income taxes payable                                                                       |                                            |        |            |         |  |        | 10,096 |        
|                                                                                                                                                                                         | Deferred income taxes                                                                      |                                            |        |            |         |  |        | 5,607  |        
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       
|                                                                                                                                                                                         |                                                                                            | TOTAL CURRENT LIABILITIES                  |        |             | 59,786  |  |        |        | 87,960  | 
|Long-term debt                                                                                                                                                                           |                                                                                            |                                            | 55,695 |             |         |  | 55,590 |       
|Other long-term liabilities                                                                                                                                                              |                                                                                            |                                            | 13,782 |             |         |  | 4,024  |       
|Deferred income taxes                                                                                                                                                                    |                                                                                            |                                            |       |             |         |  | 541    |       
|Other liabilities of discontinued operations                                                                                                                                             |                                                                                            |                                            |       |             |         |  | 336    |       
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       
|                                                                                                                                                                                         |                                                                                            | TOTAL LIABILITIES                          |        |             | 129,263 |  |        |        | 148,451 | 
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                            |                                                                                            |                                            |        |             |         |  |        |       
|SHAREHOLDERS EQUITY:                                                                                                                                                                    |                                                                                            |                                            |        |             |         |  |        |       
|Common stock, $.01 par value;
    150,000,000 shares authorized; 20,473,033 and
    19,204,545 shares issued and outstanding on
    February 1, 2003, and February 2, 2002, respectively |                                                                                            |                                            | 205    |             |         |  | 192    |       
|Additional paid-in capital                                                                                                                                                               |                                                                                            |                                            | 99,010 |             |         |  | 85,896 |       
|Retained earnings                                                                                                                                                                        |                                                                                            |                                            | 18,707 |             |         |  | 99,680 |       
|Unearned compensation                                                                                                                                                                    |                                                                                            |                                            | (691   | )           |         |  | (1,243 | )     
|Accumulated other comprehensive income (loss)                                                                                                                                            |                                                                                            |                                            | (3     | )           |         |  | (30    | )     
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       
|                                                                                                                                                                                         |                                                                                            | TOTAL SHAREHOLDERS EQUITY                 |        |             | 117,228 |  |        |        | 184,495 | 
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       
|                                                                                                                                                                                         |                                                                                            | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |        | $           | 246,491 |  |        | $      | 332,946 | 
|                                                                                                                                                                                         |                                                                                            |                                            |        |             |         |  |        |       

The accompanying notes are an integral part of
these consolidated financial statements.

F-3



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
amounts)

|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |         |        | 
|------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ----------- | ------- | ----------- | ------- | ------- | ------- | - | ------- | ------- | ------ | 
|                                                                                                                                     |                                                                                                                                                    |                                            
|                                                                                                                                     |                                                                                                                                                    | For the years ended                        
|                                                                                                                                     |                                                                                                                                                    |                                            
|                                                                                                                                     |                                                                                                                                                    |                                             |         | February 2, |         | February 3,
|                                                                                                                                     |                                                                                                                                                    | February 1,                                 |         | 2002        |         | 2001       
|                                                                                                                                     |                                                                                                                                                    | 2003                                        |         | (Restated)  |         | (Restated) 
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |            
|NET SALES                                                                                                                            |                                                                                                                                                    | $                                           | 571,547 |             |         | $           | 598,299 |         |         | $ | 619,932 |        
|COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS                                                                                       |                                                                                                                                                    |                                             | 404,304 |             |         |             | 403,335 |         |         |   | 387,401 |        
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     | Gross margin                                                                                                                                       |                                             |         | 167,243     |         |             |         | 194,964 |         |   |         | 232,531 |       
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                                                                         |                                                                                                                                                    |                                             | 164,513 |             |         |             | 158,511 |         |         |   | 155,801 |        
|DEPRECIATION AND AMORTIZATION                                                                                                        |                                                                                                                                                    |                                             | 16,333  |             |         |             | 13,942  |         |         |   | 10,207  |        
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     | Operating income (loss)                                                                                                                            |                                             |         | (13,603     | )       |             |         | 22,511  |         |   |         | 66,523  |       
|INTEREST EXPENSE, net                                                                                                                |                                                                                                                                                    |                                             | 10,253  |             |         |             | 9,584   |         |         |   | 4,205   |        
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     | Income (loss) from continuing operations
    before income taxes, extraordinary item and cumulative effect of
    a change in accounting principle |                                             |         | (23,856     | )       |             |         | 12,927  |         |   |         | 62,318  |       
|INCOME TAX PROVISION (BENEFIT)                                                                                                       |                                                                                                                                                    |                                             | (9,543  | )           |         |             | 5,171   |         |         |   | 21,289  |        
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|Income (loss) from continuing operations
    before extraordinary item and cumulative effect of a change in
    accounting principle |                                                                                                                                                    |                                             | (14,313 | )           |         |             | 7,756   |         |         |   | 41,029  |        
|INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
    net of tax (including loss on disposal of $27,247, $0 and $0)                        |                                                                                                                                                    |                                             | (42,014 | )           |         |             | (22,093 | )       |         |   | 29      |        
|EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
    DEBT, net of tax of $410                                                           |                                                                                                                                                    |                                             |        |             |         |             |        |         |         |   | (623    | )      
|CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
    PRINCIPLE, net of tax of $1,727                                                      |                                                                                                                                                    |                                             | (24,567 | )           |         |             |        |         |         |   |        |        
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     |                                                                                                                                                    | Net income (loss)                           |         | $           | (80,894 | )           |         | $       | (14,337 | ) |         | $       | 40,435 | 
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|BASIC EARNINGS (LOSS) PER
    SHARE:                                                                                                 |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     | Income (loss) from continuing operations
    before extraordinary item and cumulative effect of a change in
    accounting principle               |                                             | $       | (0.71       | )       |             | $       | 0.45    |         |   | $       | 2.45    |       
|                                                                                                                                     | Loss from discontinued operations                                                                                                                  |                                             |         | (2.10       | )       |             |         | (1.28   | )       |   |         |        |       
|                                                                                                                                     | Extraordinary loss on early extinguishment of debt                                                                                                 |                                             |         |            |         |             |         |        |         |   |         | (0.04   | )     
|                                                                                                                                     | Cumulative effect of a change in accounting
    principle                                                                                          |                                             |         | (1.22       | )       |             |         |        |         |   |         |        |       
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     |                                                                                                                                                    | Basic earnings (loss) per share             |         | $           | (4.03   | )           |         | $       | (0.83   | ) |         | $       | 2.41   | 
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     |                                                                                                                                                    | Weighted average shares outstandingbasic   |         |             | 20,053  |             |         |         | 17,172  |   |         |         | 16,732 | 
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|DILUTED EARNINGS (LOSS) PER
    SHARE:                                                                                               |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     | Income (loss) from continuing operations
    before extraordinary item and cumulative effect of a change in
    accounting principle               |                                             | $       | (0.71       | )       |             | $       | 0.45    |         |   | $       | 2.36    |       
|                                                                                                                                     | Loss from discontinued operations                                                                                                                  |                                             |         | (2.10       | )       |             |         | (1.28   | )       |   |         |        |       
|                                                                                                                                     | Extraordinary loss on early extinguishment of debt                                                                                                 |                                             |         |            |         |             |         |        |         |   |         | (0.03   | )     
|                                                                                                                                     | Cumulative effect of a change in accounting
    principle                                                                                          |                                             |         | (1.22       | )       |             |         |        |         |   |         |        |       
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     |                                                                                                                                                    | Diluted earnings (loss) per share           |         | $           | (4.03   | )           |         | $       | (0.83   | ) |         | $       | 2.33   | 
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        
|                                                                                                                                     |                                                                                                                                                    | Weighted average shares outstandingdiluted |         |             | 20,053  |             |         |         | 17,172  |   |         |         | 17,342 | 
|                                                                                                                                     |                                                                                                                                                    |                                             |         |             |         |             |         |         |         |   |         |        

The accompanying notes are an integral part of
these consolidated financial statements.

F-4



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(In thousands, except share amounts)

|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |         |  
|------------------------------------ | ------------------------------------------------------------------ | ------------ | ---------- | ---------- | - | -------- | --- | ------------ |  | ------------- | ------ | ------------- | - | ------ | ------ | ------ | - | - | ------- | ------- | - | - | --- | --- | - | - | ------- | ------- | -
|                                     |                                                                    |              |            |            |   |          |     |              |  | Accumulated   |        |              
|                                     |                                                                    | Common Stock |            | Additional |   |          |     |              |  | other         |        | Total        
|                                     |                                                                    |              |            | paid-in    |   | Deferred |     | Retained     |  | comprehensive |        | shareholders
|                                     |                                                                    | Shares       |            | Amount     |   | capital  |     | compensation |  | earnings      |        | income (loss) |   | equity
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |       
|BALANCE, January 29, 2000            |                                                                    |              | 16,585,234 |            |   | $        | 166 |              |  | $             | 57,485 |               |   | $      |       |        |   | $ | 73,582  |         |   | $ | (26 | )   |   | $ | 131,207 |        
|                                     | Net income (restated)                                              |              |            |           |   |          |     |             |  |               |        |              |   |        |        |       |   |   |         | 40,435  |   |   |     |    |   |   |         | 40,435  |  
|                                     | Other comprehensive income-                                        |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |         |  
|                                     | Foreign currency translation adjustment                            |              |            |           |   |          |     |             |  |               |        |              |   |        |        |       |   |   |         |        |   |   |     | 55  |   |   |         | 55      |  
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|                                     | Comprehensive income                                               |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         | 40,490  |  
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|                                     | Stock options exercised                                            |              |            | 256,398    |   |          |     | 3            |  |               |        | 1,475         |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 1,478   |  
|                                     | Tax benefit on employee stock options                              |              |            |           |   |          |     |             |  |               |        | 1,021         |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 1,021   |  
|                                     | Shares issued under the Companys employee
    stock purchase plan |              |            | 44,118     |   |          |     |             |  |               |        | 514           |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 514     |  
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|BALANCE, February 3, 2001 (restated) |                                                                    |              | 16,885,750 |            |   |          | 169 |              |  |               | 60,495 |               |   |        |       |        |   |   | 114,017 |         |   |   | 29  |     |   |   | 174,710 |        
|                                     | Net loss (restated)                                                |              |            |           |   |          |     |             |  |               |        |              |   |        |        |       |   |   |         | (14,337 | ) |   |     |    |   |   |         | (14,337 | )
|                                     | Other comprehensive loss-                                          |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |         |  
|                                     | Foreign currency translation adjustment                            |              |            |           |   |          |     |             |  |               |        |              |   |        |        |       |   |   |         |        |   |   |     | (59 | ) |   |         | (59     | )
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|                                     | Comprehensive loss                                                 |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         | (14,396 | )
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|                                     | Stock options exercised                                            |              |            | 281,921    |   |          |     | 2            |  |               |        | 1,874         |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 1,876   |  
|                                     | Tax benefit on employee stock options                              |              |            |           |   |          |     |             |  |               |        | 1,412         |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 1,412   |  
|                                     | Shares issued under the Companys employee
    stock purchase plan |              |            | 54,374     |   |          |     | 1            |  |               |        | 526           |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 527     |  
|                                     | Restricted stock issued to employees                               |              |            | 82,500     |   |          |     | 1            |  |               |        | 1,569         |   |        |        | (1,570 | ) |   |         |        |   |   |     |    |   |   |         |        |  
|                                     | Compensation expense for restricted stock issued
    to employees  |              |            |           |   |          |     |             |  |               |        |              |   |        |        | 327    |   |   |         |        |   |   |     |    |   |   |         | 327     |  
|                                     | Private placement of common stock, net of
    issuance costs       |              |            | 1,900,000  |   |          |     | 19           |  |               |        | 20,020        |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 20,039  |  
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|BALANCE, February 2, 2002 (restated) |                                                                    |              | 19,204,545 |            |   |          | 192 |              |  |               | 85,896 |               |   |        | (1,243 | )      |   |   | 99,680  |         |   |   | (30 | )   |   |   | 184,495 |        
|                                     | Net loss                                                           |              |            |           |   |          |     |             |  |               |        |              |   |        |        |       |   |   |         | (80,894 | ) |   |     |    |   |   |         | (80,894 | )
|                                     | Other comprehensive loss-                                          |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |         |  
|                                     | Foreign currency translation adjustment                            |              |            |           |   |          |     |             |  |               |        |              |   |        |        |       |   |   |         |        |   |   |     | 27  |   |   |         | 27      |  
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|                                     | Comprehensive loss                                                 |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         | (80,867 | )
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|                                     | Stock options exercised                                            |              |            | 108,664    |   |          |     | 1            |  |               |        | 720           |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 721     |  
|                                     | Tax benefit on employee stock options                              |              |            |           |   |          |     |             |  |               |        | 168           |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 168     |  
|                                     | Shares issued under the Companys employee
    stock purchase plan |              |            | 71,449     |   |          |     | 1            |  |               |        | 498           |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 499     |  
|                                     | Restricted stock cancellation                                      |              |            | (11,625    | ) |          |     |             |  |               |        | (221          | ) |        |        | 221    |   |   |         |        |   |   |     |    |   |   |         |        |  
|                                     | Compensation expense for restricted stock issued
    to employees  |              |            |           |   |          |     |             |  |               |        |              |   |        |        | 331    |   |   |         |        |   |   |     |    |   |   |         | 331     |  
|                                     | Private placement of common stock, net of
    issuance costs       |              |            | 1,100,000  |   |          |     | 11           |  |               |        | 11,949        |   |        |        |       |   |   |         |        |   |   |     |    |   |   |         | 11,960  |  
|                                     | Joint venture distribution                                         |              |            |           |   |          |     |             |  |               |        |              |   |        |        |       |   |   |         | (79     | ) |   |     |    |   |   |         | (79     | )
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        
|BALANCE, February 1, 2003            |                                                                    |              | 20,473,033 |            |   | $        | 205 |              |  | $             | 99,010 |               |   | $      | (691   | )      |   | $ | 18,707  |         |   | $ | (3  | )   |   | $ | 117,228 |        
|                                     |                                                                    |              |            |            |   |          |     |              |  |               |        |               |   |        |        |        |   |   |         |         |   |   |     |     |   |   |         |        

The accompanying notes are an integral part of
these consolidated financial statements.

F-5



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)

|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |         |         |         |  
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------- | ------- | ---------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | -
|                                                           |                                                                                                                                   |                                                                      
|                                                           |                                                                                                                                   | For the years ended                                                  
|                                                           |                                                                                                                                   |                                                                      
|                                                           |                                                                                                                                   | February 1,                                                           |                                                                                  | February 2, 2002 |         | February 3, 2001
|                                                           |                                                                                                                                   | 2003                                                                  |                                                                                  | (Restated)       |         | (Restated)      
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                 
|OPERATING ACTIVITIES:                                      |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           | Net Income (loss)                                                                                                                 |                                                                       | $                                                                                | (80,894          | )       |                  | $       | (14,337 | )       |         | $       | 40,435  |        
|                                                           |                                                                                                                                   | (Income) loss from discontinued operations, net
    of tax            |                                                                                  |                  | 42,014  |                  |         |         | 22,093  |         |         |         | (29     | )      
|                                                           |                                                                                                                                   | Cumulative effect of a change in accounting
    principle, net of tax |                                                                                  |                  | 24,567  |                  |         |         |        |         |         |         |        |        
|                                                           |                                                                                                                                   | Extraordinary loss on early extinguishment of
    debt, net of tax    |                                                                                  |                  |        |                  |         |         |        |         |         |         | 623     |        
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           | Income (loss) from continuing operations                                                                                          |                                                                       |                                                                                  | (14,313          | )       |                  |         | 7,756   |         |         |         | 41,029  |        
|                                                           | Adjustments to reconcile income (loss) from
    continuing operations to net cash provided by (used in)
    operating activities: |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |         |        
|                                                           |                                                                                                                                   | Depreciation                                                          |                                                                                  |                  | 16,291  |                  |         |         | 13,878  |         |         |         | 10,165  |        
|                                                           |                                                                                                                                   | Amortization                                                          |                                                                                  |                  | 42      |                  |         |         | 64      |         |         |         | 41      |        
|                                                           |                                                                                                                                   | Amortization of deferred financing costs                              |                                                                                  |                  | 1,104   |                  |         |         | 728     |         |         |         | 468     |        
|                                                           |                                                                                                                                   | Loss on disposal of assets                                            |                                                                                  |                  | 1,586   |                  |         |         | 4,924   |         |         |         | 435     |        
|                                                           |                                                                                                                                   | Restricted stock compensation expense                                 |                                                                                  |                  | 331     |                  |         |         | 327     |         |         |         |        |        
|                                                           |                                                                                                                                   | Deferred income taxes                                                 |                                                                                  |                  | (10,790 | )                |         |         | 1,600   |         |         |         | 3,866   |        
|                                                           | Changes in operating assets and liabilities:                                                                                      |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |         |        
|                                                           |                                                                                                                                   | Accounts receivable, net                                              |                                                                                  |                  | 3,715   |                  |         |         | 1,866   |         |         |         | (3,196  | )      
|                                                           |                                                                                                                                   | Inventories                                                           |                                                                                  |                  | (25,761 | )                |         |         | 13,224  |         |         |         | (26,942 | )      
|                                                           |                                                                                                                                   | Prepaid expenses                                                      |                                                                                  |                  | (874    | )                |         |         | 5,619   |         |         |         | (82     | )      
|                                                           |                                                                                                                                   | Refundable income taxes                                               |                                                                                  |                  | (3,064  | )                |         |         |        |         |         |         |        |        
|                                                           |                                                                                                                                   | Accounts payable and accrued expenses                                 |                                                                                  |                  | 3,365   |                  |         |         | (7,025  | )       |         |         | (10,935 | )      
|                                                           |                                                                                                                                   | Income taxes payable and other liabilities                            |                                                                                  |                  | (8,962  | )                |         |         | (21,326 | )       |         |         | 811     |        
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           |                                                                                                                                   |                                                                       | Net cash provided by (used in) operating
    activities of continuing operations |                  |         | (37,330          | )       |         |         | 21,635  |         |         |         | 15,660  |  
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|INVESTING ACTIVITIES:                                      |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           | Additions to property, equipment and other assets                                                                                 |                                                                       |                                                                                  | (8,754           | )       |                  |         | (32,990 | )       |         |         | (30,635 | )      
|                                                           | Net proceeds from sale leaseback                                                                                                  |                                                                       |                                                                                  | 12,546           |         |                  |         |        |         |         |         |        |        
|                                                           | Changes in other assets                                                                                                           |                                                                       |                                                                                  | (79              | )       |                  |         | (25     | )       |         |         | (200    | )      
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           |                                                                                                                                   |                                                                       | Net cash provided by (used in) investing
    activities of continuing operations |                  |         | 3,713            |         |         |         | (33,015 | )       |         |         | (30,835 | )
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|FINANCING ACTIVITIES:                                      |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           | Proceeds from issuance of common stock, net                                                                                       |                                                                       |                                                                                  | 13,180           |         |                  |         | 22,442  |         |         |         | 1,992   |        
|                                                           | Checks written in excess of cash balance                                                                                          |                                                                       |                                                                                  |                 |         |                  |         |        |         |         |         | (2,433  | )      
|                                                           | Debt acquisition costs                                                                                                            |                                                                       |                                                                                  | (2,108           | )       |                  |         | (1,586  | )       |         |         | (373    | )      
|                                                           | Proceeds from issuance of long-term debt                                                                                          |                                                                       |                                                                                  | 4,950            |         |                  |         | 25,000  |         |         |         |        |        
|                                                           | Repayments of long-term debt                                                                                                      |                                                                       |                                                                                  | (4,800           | )       |                  |         |        |         |         |         | (13,300 | )      
|                                                           | Other                                                                                                                             |                                                                       |                                                                                  | 27               |         |                  |         | (59     | )       |         |         | (636    | )      
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           |                                                                                                                                   |                                                                       | Net cash provided by (used in) financing
    activities of continuing operations |                  |         | 11,249           |         |         |         | 45,797  |         |         |         | (14,750 | )
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|NET CASH PROVIDED BY (USED IN) DISCONTINUED
    OPERATIONS |                                                                                                                                   |                                                                       | 13,857                                                                           |                  |         |                  | (48,406 | )       |         |         | (44,492 | )      
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS                  |                                                                                                                                   |                                                                       | (8,511                                                                           | )                |         |                  | (13,989 | )       |         |         | (74,417 | )      
|CASH AND CASH EQUIVALENTS, beginning of period             |                                                                                                                                   |                                                                       | 38,953                                                                           |                  |         |                  | 52,942  |         |         |         | 127,359 |        
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|CASH AND CASH EQUIVALENTS, end of period                   |                                                                                                                                   | $                                                                     | 30,442                                                                           |                  |         | $                | 38,953  |         |         | $       | 52,942  |        
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|SUPPLEMENTAL CASH FLOW INFORMATION:                        |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           | Cash paid during the year for- Interest                                                                                           |                                                                       | $                                                                                | 9,199            |         |                  | $       | 8,478   |         |         | $       | 7,281   |        
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        
|                                                           |                                                                                                                                   | Income taxes                                                          |                                                                                  | $                | 1,651   |                  |         | $       | 14,699  |         |         | $       | 23,490  |        
|                                                           |                                                                                                                                   |                                                                       |                                                                                  |                  |         |                  |         |         |         |         |         |        

The accompanying notes are an integral part of
these consolidated financial statements.

F-6



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

February 1, 2003, and February 2,
2002, (Restated)



|  |                       
|- | ----------------------
|1 | Nature of organization

Wilsons The Leather Experts Inc. (Wilsons Leather
or the Company), a Minnesota corporation, acquired
100 percent of the common stock of Wilsons Center, Inc. and
its subsidiaries (the Predecessor Companies prior to the
Management Buyout) in a management-led buyout (the Management
Buyout) from CVS New York, Inc. (CVS) (formerly Melville
Corporation, the parent company to the Predecessor Companies), a
New York corporation. In May 1996, pursuant to a sale agreement
between Wilsons Leather and CVS, Wilsons Leather acquired the
common stock for (i) $2.0 million, (ii) a
10 percent senior secured subordinated note due
December 31, 2000, in the principal amount of
$55.8 million, (iii) a warrant to purchase
2,025,000 shares of common stock, (iv) a warrant to
purchase 1,620,000 shares of common stock (reduced by terms
of the restricted stock agreement),
(v) 6,480,000 shares of common stock, and
(vi) 7,405 shares of preferred stock (Series A
Preferred). As part of the Management Buyout, the Leather
Investors Limited Partnerships I and II (LILP) in turn
purchased from CVS the 6,480,000 shares of common stock and
the 7,405 shares of Series A Preferred stock for
$10.0 million.

The Company is a leading specialty retailer of
quality leather outerwear, apparel and accessories in the United
States. At February 1, 2003, Wilsons Leather operated
618 stores located in 45 states, the District of
Columbia and Canada, including 483 Wilsons Leather mall
stores, 110 Wilsons Leather outlet stores and
25 airport locations. The Company supplemented permanent
mall stores with 284, 281, and 239 seasonal stores during
its peak selling season from October through January during
fiscal years 2002, 2001, and 2000, respectively.



|  |                                               
|- | ----------------------------------------------
|2 | Summary of significant accounting
    policies



| |                      
| | ---------------------
| | Basis of presentation

The accompanying consolidated financial
statements include those of the Company and all of its
subsidiaries. All material intercompany balances and
transactions between the entities have been eliminated in
consolidation. At February 1, 2003, Wilsons Leather
operated in one segment: selling leather outerwear, accessories
and apparel. The Companys chief operating decision-maker
evaluates revenue and profitability performance on an enterprise
basis to make operating and strategic decisions.

As more fully described in Note 3,
El Portal Group, Inc., Bentleys Luggage Corp. and
Florida Luggage Corp. (the Travel Subsidiaries) were liquidated
during 2002 and are being presented as discontinued operations
effective November 19, 2002, and the consolidated financial
statements have been reclassified to segregate the net
investment in, and the liabilities and operating results of the
Travel Subsidiaries for all prior periods presented. Prior to
the liquidation, the Travel Subsidiaries were reported as a
separate operating segment.



| |            
| | -----------
| | Fiscal Year

Wilsons Leathers fiscal year ends on the
Saturday closest to January 31. The periods ended
February 1, 2003, February 2, 2002, and
February 3, 2001 are referred to herein as fiscal years
2002, 2001, and 2000, respectively. The results of operations
for fiscal years 2002 and 2001 consisted of 52 weeks, as
compared to 53 weeks for fiscal year 2000.



| |                 
| | ----------------
| | Use of estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial

F-7



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

statements and the reported amounts of revenues
and expenses during the reporting period. Matters of
significance in which management relies on these estimates
relate primarily to the realizability of assets, such as
accounts receivable, property and equipment, and inventories,
and the adequacy of certain accrued liabilities and reserves.
Ultimate results could differ from those estimates.



| |                  
| | -----------------
| | Reclassifications

Certain amounts included in the consolidated
financial statements have been reclassified in prior years to
conform with the fiscal 2002 financial statement presentation.
These amounts had no effect on previously reported
shareholders equity or net income (loss).



| |                                     
| | ------------------------------------
| | Fair values of financial instruments

The carrying value of the Companys current
financial assets and liabilities, because of their short-term
nature, approximates fair value. The carrying value of the
Companys long-term debt issued in August 1997 approximated
fair value as of February 1, 2003, and February 2,
2002.



| |                          
| | -------------------------
| | Cash and cash equivalents

Cash equivalents consist principally of
short-term investments with original maturities of three months
or less and are recorded at cost, which approximates fair value.
The short-term investments consist primarily of commercial paper
and money market funds. Interest income of $0.2 million,
$0.8 million and $2.8 million in fiscal years 2002,
2001 and 2000, respectively, is included in interest expense,
net in the accompanying statements of operations.



| |            
| | -----------
| | Inventories

We value our inventories, which consist primarily
of finished goods held for sale that have been purchased from
domestic and foreign vendors, at the lower of cost or market
value, determined by the retail inventory method on the last-in,
first-out (LIFO) basis. As of February 1, 2003, and
February 2, 2002, the LIFO cost of inventories approximated
the first-in, first-out (FIFO) cost of inventories. The
inventory cost includes the cost of merchandise and freight. A
periodic review of inventory quantities on hand is performed in
order to determine if inventory is properly stated at the lower
of cost or market. Factors related to current inventories such
as future consumer demand and fashion trends, current aging,
current and anticipated retail markdowns, and class or type of
inventory are analyzed to determine estimated net realizable
values. A provision is recorded to reduce the cost of
inventories to the estimated net realizable values, if required.
Any significant unanticipated changes in the factors noted above
could have a significant impact on the value of our inventories
and our reported operating results.

Inventories consisted of the following (in
thousands):

|               |  |             |         |             |  |   |        | 
|-------------- |  | ----------- | ------- | ----------- |  | - | ------ | 
|               |  |             |         | February 2,
|               |  | February 1, |         | 2002       
|               |  | 2003        |         | (Restated) 
|               |  |             |         |            
|Raw materials  |  | $           | 2,872   |             |  | $ | 3,624  | 
|Finished goods |  |             | 115,829 |             |  |   | 89,316 | 
|               |  |             |         |             |  |   |        | 
|               |  | $           | 118,701 |             |  | $ | 92,940 | 
|               |  |             |         |             |  |   |        | 



| |                       
| | ----------------------
| | Property and equipment

Our property and equipment consists principally
of store leasehold improvements and are included in the
Property and Equipment line item in our consolidated
balance sheets included in this report. These long-

F-8



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

lived assets are recorded at cost and are
amortized using the straight-line method over the lesser of the
applicable store lease term or the estimated useful life of the
leasehold improvements. The typical initial lease term for our
stores is ten years and the estimated useful lives of the assets
range from five to 40 years. Property and equipment retired
or disposed of are removed from cost and related accumulated
depreciation accounts. Maintenance and repairs are charged
directly to expense as incurred. Major renewals or replacements
are capitalized after making the necessary adjustment to the
asset and accumulated depreciation accounts for the items
renewed or replaced.



| |                                                      
| | -----------------------------------------------------
| | Store Closing and Impairment of Long-Lived
    Assets

We continually review our stores operating
performance and assess plans for certain store closures. In
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, losses related
to the impairment of long-lived assets are recognized when
expected future cash flows are less than the assets
carrying value. At the time a store is closed or because of
changes in circumstances that indicate the carrying value of an
asset may not be recoverable, we evaluate the carrying value of
the asset in relation to its expected future cash flows. If the
carrying value is greater than the future cash flows, a
provision is made for the impairment of the asset to write the
asset down to estimated fair value. Fair value is determined by
estimating net future cash flows, discounted using a
risk-adjusted rate of return. These impairment charges are
recorded as a component of selling, general and administrative
expense and are disclosed in Note 7.

For stores to be closed that are under long-term
leases, we record a liability for the future minimum lease
payments and related ancillary costs, from the date of closure
to the end of the remaining lease term, net of estimated cost
recoveries that may be achieved through subletting properties or
through favorable lease terminations, discounted using a
risk-adjusted rate of interest. This liability is recorded at
the time the store is closed. At February 1, 2003, and
February 2, 2002, we had $0.4 and $1.1 million,
respectively, accrued for store lease terminations.

Prior to the adoption of SFAS No. 144, the
Company accounted for long-lived assets in accordance with SFAS
No. 121, Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of.



| |         
| | --------
| | Goodwill

Goodwill represents the excess of costs over fair
value of assets of businesses acquired. The Company adopted the
provisions of SFAS No. 142, Goodwill and Other
Intangible Assets, as of February 3, 2002. Goodwill and
intangible assets acquired in a purchase business combination
and determined to have an indefinite useful life are not
amortized, but instead tested for impairment at least annually
in accordance with the provisions of SFAS No. 142. SFAS
No. 142 also requires that intangible assets with estimable
useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144, Accounting
for Impairment or Disposal of Long-Lived Assets.

Under the transitional provisions of SFAS
No. 142, the Companys goodwill related to the Travel
Subsidiaries was tested for impairment during the second quarter
of 2002 using a February 2, 2002, measurement date. Each of
the Companys reporting units was tested for impairment by
comparing the fair value of each reporting unit with its
carrying value. A reporting unit is the same as, or one level
below an operating segment. For purposes of our company, we
defined reporting units as Wilsons and Travel at the measurement
date. Fair value was determined based on a valuation study
performed by an independent third party which primarily
considered the discounted cash flow method, guideline
company (comparable companies) and similar transaction
methods. As a result of the Companys impairment test, the
Company recorded a pretax impairment loss to reduce the carrying
value of goodwill of the Travel Subsidiaries by
$26.3 million to its implied fair value. Impairment was due
to a combination of factors including acquisition price,
post-acquisition capital expenditures and operating performance.
In accordance with SFAS No. 142,

F-9



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

the cumulative effect of this accounting change
was reported in the Companys statement of operations net
of a $1.7 million tax benefit.

Prior to the adoption of SFAS No. 142,
goodwill was amortized on a straight-line basis over the
expected periods to be benefited, generally 20 years, and
assessed for recoverability by determining whether the
amortization of the goodwill balance over its remaining life
could be recovered through undiscounted future operating cash
flows of the acquired operation. All other intangible assets
were amortized on a straight-line basis from five to
15 years. The amount of goodwill and other intangible asset
impairment, if any, was measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Companys average cost of funds.



| |                    
| | -------------------
| | Debt issuance costs

Debt issuance costs are amortized over the life
of the related debt. Accumulated amortization amounted to
approximately $2.9 million and $1.8 million at
February 1, 2003, and February 2, 2002, respectively.
Amortization expense is included in interest expense in the
accompanying consolidated statements of operations.



| |                    
| | -------------------
| | Revenue recognition

We recognize sales upon customer receipt of the
merchandise generally at the point of sale. Shipping and
handling revenues are excluded from net sales as a
contra-expense and the related costs are included in costs of
goods sold, buying and occupancy costs. Revenue for gift
certificate sales and store credits is recognized at redemption.
A reserve is provided at the time of sale for projected
merchandise returns based upon historical experience. We
recognize revenue for on-line sales at the time goods are
received by the customer. An allowance for on-line sales is
recorded to cover in-transit shipments, as product is shipped to
these customers Free on Board (FOB) destination.



| |                    
| | -------------------
| | Store opening costs

Non-capital expenditures, such as advertising and
payroll costs related to new store openings are charged to
expense as incurred.



| |                  
| | -----------------
| | Advertising costs

Advertising costs included in selling, general
and administrative expenses, are expensed when incurred.
Advertising costs amounted to $12.6, $13.3, and
$12.9 million in 2002, 2001, and 2000, respectively.



| |             
| | ------------
| | Income taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.



| |                             
| | ----------------------------
| | Foreign currency translation

The functional currency for the Companys
foreign store operations in Canada is the applicable local
currency. The translation from the applicable foreign currency
to U.S. dollars is performed for balance sheet accounts using
the current exchange rate in effect at the balance sheet date
and for revenue and expense

F-10



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

accounts using a weighted average exchange rate
during the period. The gains or losses resulting from such
translation are included in shareholders equity as other
comprehensive income (loss). Transaction gains and losses are
reflected in income. The Company did not enter into any hedging
transactions during 2002.



| |                          
| | -------------------------
| | Earnings (loss) per share

Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of
common shares outstanding during the year. Diluted earnings
(loss) per share is computed by dividing net income (loss) by
the sum of the weighted average number of common shares
outstanding plus all additional common shares that would have
been outstanding if potentially dilutive common shares related
to stock options had been issued. The following table reconciles
the number of shares utilized in the earnings (loss) per share
calculations (in thousands):

|                                                        |  |                     |        |             |  |             |        |  |  |  |        | 
|------------------------------------------------------- |  | ------------------- | ------ | ----------- |  | ----------- | ------ |  |  |  | ------ | 
|                                                        |  |                    
|                                                        |  | For the years ended
|                                                        |  |                    
|                                                        |  | February 1,         |        | February 2, |  | February 3,
|                                                        |  | 2003                |        | 2002        |  | 2001       
|                                                        |  |                     |        |             |  |            
|Weighted average common shares outstanding
    basic   |  |                     | 20,053 |             |  |             | 17,172 |  |  |  | 16,732 | 
|Effect of dilutive securities: stock options            |  |                     |       |             |  |             |       |  |  |  | 610    | 
|                                                        |  |                     |        |             |  |             |        |  |  |  |        | 
|Weighted average common shares outstanding
    diluted |  |                     | 20,053 |             |  |             | 17,172 |  |  |  | 17,342 | 
|                                                        |  |                     |        |             |  |             |        |  |  |  |        | 



| |                         
| | ------------------------
| | Stock-based compensation

We used the intrinsic-value method for employee
stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees, under which no compensation cost has been
recognized. We adopted the disclosure provisions for employee
stock-based compensation and the fair-value method for
non-employee stock-based compensation of SFAS No. 123. Had
compensation cost for the stock option plans been determined
consistent with SFAS No. 123, Accounting for
Stock-Based

F-11



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

Compensation, our
net income (loss) and basic and diluted earnings (loss) per
share would have been reduced to the following pro forma amounts
(in thousands, except per share amounts):

|                                   |                                                |                     |   |             |   |             |   |         |   |  |   |        |  
|---------------------------------- | ---------------------------------------------- | ------------------- | - | ----------- | - | ----------- | - | ------- | - |  | - | ------ | -
|                                   |                                                |                    
|                                   |                                                | For the years ended
|                                   |                                                |                    
|                                   |                                                |                     |   | February 2, |   | February 3,
|                                   |                                                | February 1,         |   | 2002        |   | 2001       
|                                   |                                                | 2003                |   | (Restated)  |   | (Restated) 
|                                   |                                                |                     |   |             |   |            
|Net income (loss):                 |                                                |                     |   |             |   |             |   |         |   |  |   |       
|                                   | As reported                                    |                     | $ | (80,894     | ) |             | $ | (14,337 | ) |  | $ | 40,435 |  
|                                   | Stock option and purchase plans                |                     |   | (1,700      | ) |             |   | (1,412  | ) |  |   | (1,278 | )
|                                   |                                                |                     |   |             |   |             |   |         |   |  |   |       
|                                   | Pro forma income (loss)                        |                     | $ | (82,594     | ) |             | $ | (15,749 | ) |  | $ | 39,157 |  
|                                   |                                                |                     |   |             |   |             |   |         |   |  |   |       
|Basic earnings (loss) per share:   |                                                |                     |   |             |   |             |   |         |   |  |   |       
|                                   | As reported                                    |                     | $ | (4.03       | ) |             | $ | (0.83   | ) |  | $ | 2.41   |  
|                                   | Stock option and purchase plans                |                     |   | (0.09       | ) |             |   | (0.08   | ) |  |   | (0.07  | )
|                                   |                                                |                     |   |             |   |             |   |         |   |  |   |       
|                                   | Pro forma income (loss)                        |                     | $ | (4.12       | ) |             | $ | (0.91   | ) |  | $ | 2.34   |  
|                                   |                                                |                     |   |             |   |             |   |         |   |  |   |       
|Diluted earnings (loss) per share: |                                                |                     |   |             |   |             |   |         |   |  |   |       
|                                   | As reported                                    |                     | $ | (4.03       | ) |             | $ | (0.83   | ) |  | $ | 2.33   |  
|                                   | Stock option and purchase plans                |                     |   | (0.09       | ) |             |   | (0.08   | ) |  |   | (0.07  | )
|                                   |                                                |                     |   |             |   |             |   |         |   |  |   |       
|                                   | Pro forma income (loss)                        |                     | $ | (4.12       | ) |             | $ | (0.91   | ) |  | $ | 2.26   |  
|                                   |                                                |                     |   |             |   |             |   |         |   |  |   |       
|                                   | Weighted average fair value of options granted |                     | $ | 6.60        |   |             | $ | 7.22    |   |  | $ | 9.26   |  

The proforma amounts shown above may not be
indicative of the effects on reported net income (loss).

The fair value of each option granted is
estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in
2002, 2001, and 2000:

|     |  |              |     |          |  |          |     |            |  |  |     |  |  |  |      |  
|---- |  | ------------ | --- | -------- |  | -------- | --- | ---------- |  |  | --- |  |  |  | ---- | -
|     |  | Weighted     |     |          |  |          |     |           
|     |  | Average Risk |     | Dividend |  | Expected |     | Expected  
|     |  | Free Rate    |     | Yield    |  | Lives    |     | Volatility
|     |  |              |     |          |  |          |     |           
|2002 |  |              | 2.0 | %        |  |          | 0.0 | %          |  |  | 6.5 |  |  |  | 52.6 | %
|2001 |  |              | 3.5 | %        |  |          | 0.0 | %          |  |  | 6.9 |  |  |  | 46.3 | %
|2000 |  |              | 6.2 | %        |  |          | 0.0 | %          |  |  | 6.3 |  |  |  | 42.1 | %



| |                              
| | -----------------------------
| | New accounting pronouncements

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations, which
requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs would be capitalized as part
of the carrying amount of the long-lived asset and depreciated
over the life of the asset. The liability is accreted at the end
of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the
liability, a company will recognize a gain or loss on
settlement. The provisions of SFAS No. 143 are effective
for fiscal years beginning after June 15, 2002. The
implementation of SFAS No. 143 is effective for the Company
beginning February 2, 2003, and is not expected to have a
material impact on the Companys consolidated financial
statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002, which is effective for fiscal
years beginning after May 15, 2002. SFAS No. 145
rescinds SFAS No. 4, which required that all gains

F-12



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

result, gains and losses from debt extinguishment
are to be classified as extraordinary only if they meet the
criteria set forth in Accounting Principles Board Opinion
No. 30, Reporting the Results of Operations
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 145 also requires that sale/
leaseback accounting be used for capital lease modifications
with economic effects similar to sale/ leaseback transactions.
Upon implementation of SFAS No. 145 in fiscal 2003 we will
be required to reclassify our extraordinary losses on early
extinguishment of debt in our consolidated statement of
operations for all periods presented.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which supersedes Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to
Exit an Activity. SFAS No. 146 requires that a
liability for a cost associated with an exit activity or
disposal activity be recognized and measured initially at fair
value only when the liability is incurred. EITF Issue
No. 94-3 requires recognition of a liability at the date an
entity commits to an exit plan. All provisions of SFAS
No. 146 were effective for exit or disposal activities that
were initiated after December 31, 2002. The Company adopted
SFAS No. 146 during the fourth quarter of fiscal 2002 with
no material impact on the Companys consolidated financial
statements.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure, an amendment of SFAS
No. 123. The purpose of the amendment is to enable
companies that choose to adopt the fair-value based method of
accounting for stock-based compensation to report the full
effect of employee stock options in their financial statements
immediately upon adoption. We will continue to apply the
disclosure-only provisions of SFAS No. 123. See
Notes 2 and 12 for additional information regarding our
stock options. The transition provisions are effective for
fiscal years ending after December 15, 2002. We adopted the
annual disclosure provision of SFAS No. 148 in fiscal 2002.
The interim disclosure provisions are effective for financial
reports containing condensed financial statements for interim
periods beginning after December 15, 2002, which we will
adopt in the first quarter of fiscal 2003.

In November 2002, the FASB published
interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which we refer to as
FIN 45. FIN 45 expands on the accounting guidance of
statements No. 5, 57 and 107 and incorporates without
change the provisions of FASB interpretation No. 34, which
is being superseded. FIN 45 elaborates on the existing
disclosure requirements for most guarantees, including loan
guarantees such as standby letters of credit. FIN 45 also
clarifies that at the time a company issues a guarantee, the
company must recognize an initial liability for the fair value,
or market value, of the obligations it assumes under that
guarantee and must disclose that information in its interim and
annual financial statements. The initial recognition and initial
measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002,
regardless of the guarantors fiscal year-end. The
disclosure requirements in FIN 45 are effective for
financial statements with respect to interim or annual periods
ending after December 15, 2002. We adopted the provisions
of FIN 45 during the fourth quarter of fiscal 2002. Our
adoption of FIN 45 had no impact on our consolidated
financial statements.

In January 2003, the FASB published
interpretation No. 46, Consolidation of Variable
Interest Entities, which we refer to as FIN 46, to
clarify the conditions under which assets, liabilities and
activities of another entity should be consolidated into the
financial statements of a company. FIN 46 requires the
consolidation of a variable interest entity (including a special
purpose entity such as that utilized in an accounts receivable
securitization transaction) by a company that bears the majority
of the risk of loss from the variable interest entitys
activities or is entitled to receive a majority of the variable
interest entitys residual returns or both. The provisions
of FIN 46 are required to be adopted in fiscal 2003. We do
not believe the adoption of FIN 46 will have a material
impact on our consolidated financial statements.

In January 2003, the FASBs EITF reached a
consensus on Issue 02-16, Accounting by a Customer
(including a Reseller) for Cash Consideration Received from a
Vendor. Issue 02-16 provides guidance on how

F-13



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

a customer should account for cash consideration
received from a vendor. The transition provisions apply
prospectively to arrangements entered into or modified
subsequent to December 31, 2002 and would require all
amounts received from vendors to be accounted for as a reduction
of the cost of the products purchased unless certain criteria
are met to allow presentation as a reduction of advertising
expense. We adopted the provisions of Issue 02-16 during
the fourth quarter of fiscal 2002. The adoption of
Issue 02-16 did not have a material impact on our
consolidated financial statements.



|  |                        
|- | -----------------------
|3 | Discontinued operations

In November 2002, we decided to liquidate the
Travel Subsidiaries, which consisted of 135 stores, due to their
large operating losses. In accordance with SFAS No. 144,
the Travel Subsidiaries are presented as a discontinued
operation effective November 19, 2002, and the consolidated
financial statements were reclassified to segregate the assets,
liabilities and operating results of the Travel Subsidiaries for
all periods presented.

Beginning on November 19, 2002, and
continuing through the fourth quarter of 2002, we liquidated the
inventory and fixed assets of the Travel Subsidiaries. The
Travel Subsidiaries and certain of their affiliates entered into
an Agency Agreement with a joint venture comprised of Hilco
Merchant Resources, LLC and Hilco Real Estate, LLC (collectively
Hilco) to liquidate the inventory in such stores and
exit the store leases. Pursuant to the Agency Agreement, Hilco
paid us a guaranteed amount of 85% of the cost value of the
inventory, subject to certain adjustments. Hilco was responsible
for all expenses related to the sale. In addition, Hilco
assisted in negotiations to exit certain leases.

During 2002, we received net proceeds totaling
$13.9 million as a result of discontinued operations. We
incurred costs of approximately $27.2 million, after tax,
in 2002 related to the exit of the Travel Subsidiaries.

A summary of the components of the Travel
Subsidiaries discontinued operations charges is as follows (in
millions):

|                                           |  |                 |      | 
|------------------------------------------ |  | --------------- | ---- | 
|                                           |  | Charges For the
|                                           |  | Year Ended     
|                                           |  | February 1,    
|                                           |  | 2003           
|                                           |  |                
|Inventory markdowns                        |  | $               | 5.9  | 
|Fixed asset write-downs                    |  |                 | 18.2 | 
|Other selling and administrative expenses  |  |                 | 4.6  | 
|Lease terminations and store closing costs |  |                 | 10.7 | 
|                                           |  |                 |      | 
|                                           |  | $               | 39.4 | 
|                                           |  |                 |      | 
|Loss on disposition, net of tax            |  | $               | 27.2 | 
|                                           |  |                 |      | 

The charges referred to above represent
expenditures for the following major liquidation activities:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | Markdowns on inventories                                                                                      
|
| |  | Write-off of substantially all store fixed assets
    for the 135 store chain                                 
|
| |  | Lease termination fees to exit all store leases                                                               
|
| |  | Miscellaneous employee related termination costs
    and other administrative costs related to the liquidation

F-14



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The following represents the summary operating
results and the loss on disposition of the Travel Subsidiaries
presented as discontinued operations (in thousands):

|                                                          |  |        |         |        |  |        |         |   |  |   |        | 
|--------------------------------------------------------- |  | ------ | ------- | ------ |  | ------ | ------- | - |  | - | ------ | 
|                                                          |  | Fiscal |         | Fiscal |  | Fiscal
|                                                          |  | 2002   |         | 2001   |  | 2000  
|                                                          |  |        |         |        |  |       
|Net sales                                                 |  | $      | 77,570  |        |  | $      | 121,783 |   |  | $ | 17,009 | 
|                                                          |  |        |         |        |  |        |         |   |  |   |        | 
|Income (loss) before income taxes                         |  | $      | (24,613 | )      |  | $      | (32,080 | ) |  | $ | 48     | 
|                                                          |  |        |         |        |  |        |         |   |  |   |        | 
|Net income (loss), net of tax                             |  | $      | (14,767 | )      |  | $      | (22,093 | ) |  | $ | 29     | 
|Loss on disposition, net of tax                           |  |        | (27,247 | )      |  |        |        |   |  |   |       | 
|                                                          |  |        |         |        |  |        |         |   |  |   |        | 
|Income (loss) from discontinued operations                |  | $      | (42,014 | )      |  | $      | (22,093 | ) |  | $ | 29     | 
|                                                          |  |        |         |        |  |        |         |   |  |   |        | 
|Income (loss) before income taxes, per share              |  | $      | (1.23   | )      |  | $      | (1.87   | ) |  | $ |       | 
|                                                          |  |        |         |        |  |        |         |   |  |   |        | 
|Income (loss) per share, net of income taxes              |  | $      | (0.74   | )      |  | $      | (1.28   | ) |  | $ |       | 
|Loss on disposition, per share                            |  |        | (1.36   | )      |  |        |        |   |  |   |       | 
|                                                          |  |        |         |        |  |        |         |   |  |   |        | 
|Income (loss) from discontinued operations, per
    share |  | $      | (2.10   | )      |  | $      | (1.28   | ) |  | $ |       | 
|                                                          |  |        |         |        |  |        |         |   |  |   |        | 

In 2002, the Travel Subsidiaries also recorded an
after-tax loss of $24.6 million for the cumulative effect
of a change in accounting principle due to goodwill impairment.
The charge was effective as of the beginning of 2002 under SFAS
No. 142, Goodwill and Other Intangible Assets.

The current and noncurrent assets and liabilities
of the Travel Subsidiaries as of February 1, 2003, and
February 2, 2002, were as follows (in thousands):

|                                                        |  |             |         |             |  |   |         | 
|------------------------------------------------------- |  | ----------- | ------- | ----------- |  | - | ------- | 
|                                                        |  | February 1, |         | February 2,
|                                                        |  | 2003        |         | 2002       
|                                                        |  |             |         |            
|Cash and cash equivalents                               |  | $           | 882     |             |  | $ | 4,376   | 
|Accounts receivable, net                                |  |             | 104     |             |  |   | 1,378   | 
|Inventories, net                                        |  |             |        |             |  |   | 35,615  | 
|Other current assets                                    |  |             | 2,393   |             |  |   | 5,145   | 
|                                                        |  |             |         |             |  |   |         | 
|Current assets of discontinued operations               |  |             | 3,379   |             |  |   | 46,514  | 
|Property and equipment, net                             |  |             |        |             |  |   | 25,820  | 
|Goodwill, net                                           |  |             |        |             |  |   | 26,294  | 
|Other assets                                            |  |             |        |             |  |   | 4,125   | 
|                                                        |  |             |         |             |  |   |         | 
|Total assets of discontinued operations                 |  | $           | 3,379   |             |  | $ | 102,753 | 
|                                                        |  |             |         |             |  |   |         | 
|Accounts payable                                        |  | $           | 590     |             |  | $ | 23,421  | 
|Accrued expenses                                        |  |             | 14,485  |             |  |   | 8,162   | 
|                                                        |  |             |         |             |  |   |         | 
|Current liabilities of discontinued operations          |  |             | 15,075  |             |  |   | 31,583  | 
|Long-term liabilities of discontinued operations        |  |             |        |             |  |   | 336     | 
|                                                        |  |             |         |             |  |   |         | 
|Total liabilities of discontinued operations            |  |             | 15,075  |             |  |   | 31,919  | 
|                                                        |  |             |         |             |  |   |         | 
|Net assets (liabilities) of discontinued
    operations |  | $           | (11,696 | )           |  | $ | 70,834  | 
|                                                        |  |             |         |             |  |   |         | 



|  |            
|- | -----------
|4 | Restatement

During fiscal 2001, the Company recorded a
pre-tax, net adjustment of $5.4 million to cost of goods
sold that related to $11.1 million of under-absorbed
freight charges offset by reserve reversals of
$5.7 million. Upon

F-15



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

further analysis of this adjustment, and in
consultation with KPMG, we determined that the timing of
recording this adjustment in fiscal 2001 was incorrect and that
$5.3 million of the $5.4 million net adjustment should
have been reflected in our fiscal 2000 consolidated financial
statements. Additionally, $3.2 million and
$1.1 million of the $5.7 million reserve reversals
should have been classified as an adjustment to tax expense and
selling, general and administrative expense, respectively,
rather than cost of goods sold. The 2001 balance sheet also
includes a tax effect of the $1.7 million restatement
related to reserve reversals stated above. Therefore, we have
restated our consolidated financial statements for 2001 and 2000
to reflect this correction of an error and these
misclassifications.

The effect of the correction of this error was to
increase income from continuing operations and diluted earnings
per share from continuing operations in fiscal 2001 by
$3.2 million and $0.19, respectively, and to decrease
income from continuing operations and diluted earnings per share
from continuing operations in fiscal 2000 by $1.5 million
and $0.09, respectively.

Presented below are the financial statement line
items that have been impacted by both the correction of an error
and misclassifications described above, in addition to
reclassifications to present discontinued operations of the
Travel Subsidiaries:

Balance Sheet Data (in thousands):

|                                           |  |                  |         |                  |  |              |        |          |  |            |         |            |  |              |         |          |  |   |         |  |  |   |         |   |  |   |         |   |  |   |         | 
|------------------------------------------ |  | ---------------- | ------- | ---------------- |  | ------------ | ------ | -------- |  | ---------- | ------- | ---------- |  | ------------ | ------- | -------- |  | - | ------- |  |  | - | ------- | - |  | - | ------- | - |  | - | ------- | 
|                                           |  |                  |         |                 
|                                           |  | February 2, 2002 |         | February 3, 2001
|                                           |  |                  |         |                 
|                                           |  | As               |         |                  |  | As           |        |         
|                                           |  | Previously       |         | Correction       |  | Discontinued |        |          |  | Previously |         | Correction |  | Discontinued |         |         
|                                           |  | Reported         |         | of Error         |  | Operations   |        | Restated |  | Reported   |         | of Error   |  | Operations   |         | Restated
|                                           |  |                  |         |                  |  |              |        |          |  |            |         |            |  |              |         |         
|Inventories                                |  | $                | 128,555 |                  |  | $            |       |          |  | $          | (35,615 | )          |  | $            | 92,940  |          |  | $ | 129,412 |  |  | $ | (10,667 | ) |  | $ | (12,581 | ) |  | $ | 106,164 | 
|Total current assets                       |  |                  | 186,589 |                  |  |              |       |          |  |            | 3,633   |            |  |              | 190,222 |          |  |   | 202,738 |  |  |   | (10,667 | ) |  |   | 2,878   |   |  |   | 194,949 | 
|Total assets                               |  |                  | 328,772 |                  |  |              |       |          |  |            | 4,174   |            |  |              | 332,946 |          |  |   | 311,926 |  |  |   | (10,667 | ) |  |   | 4,733   |   |  |   | 305,992 | 
|Accrued expenses                           |  |                  | 33,572  |                  |  |              |       |          |  |            | (8,162  | )          |  |              | 25,410  |          |  |   | 45,999  |  |  |   | (2,150  | ) |  |   | (7,036  | ) |  |   | 36,813  | 
|Income taxes payable                       |  |                  | 11,824  |                  |  |              | (1,728 | )        |  |            |        |            |  |              | 10,096  |          |  |   | 38,025  |  |  |   | (7,044  | ) |  |   | 3,186   |   |  |   | 34,167  | 
|Total current liabilities                  |  |                  | 86,055  |                  |  |              | (1,728 | )        |  |            | 3,633   |            |  |              | 87,960  |          |  |   | 102,074 |  |  |   | (9,194  | ) |  |   | 2,878   |   |  |   | 95,758  | 
|Total liabilities                          |  |                  | 146,005 |                  |  |              | (1,728 | )        |  |            | 4,174   |            |  |              | 148,451 |          |  |   | 135,743 |  |  |   | (9,194  | ) |  |   | 4,733   |   |  |   | 131,282 | 
|Total shareholders equity                 |  |                  | 182,767 |                  |  |              | 1,728  |          |  |            |        |            |  |              | 184,495 |          |  |   | 176,183 |  |  |   | (1,473  | ) |  |   |        |   |  |   | 174,710 | 
|Total liabilities and shareholders equity |  | $                | 328,772 |                  |  | $            |       |          |  | $          | 4,174   |            |  | $            | 332,946 |          |  | $ | 311,926 |  |  | $ | (10,667 | ) |  | $ | 4,733   |   |  | $ | 305,992 | 

F-16



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

Statements of Operations Data (in thousands,
except per share amounts):

|                                                                                                                                                   |  |                     |         |                  |  |              |        |          |  |            |          |            |  |              |         |          |  |   |         |  |  |   |        |   |  |   |         |   |  |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ---------------- |  | ------------ | ------ | -------- |  | ---------- | -------- | ---------- |  | ------------ | ------- | -------- |  | - | ------- |  |  | - | ------ | - |  | - | ------- | - |  | - | ------- | 
|                                                                                                                                                   |  |                    
|                                                                                                                                                   |  | For the years ended
|                                                                                                                                                   |  |                    
|                                                                                                                                                   |  |                     |         |                 
|                                                                                                                                                   |  | February 2, 2002    |         | February 3, 2001
|                                                                                                                                                   |  |                     |         |                 
|                                                                                                                                                   |  | As                  |         |                  |  | As           |        |         
|                                                                                                                                                   |  | Previously          |         | Correction       |  | Discontinued |        |          |  | Previously |          | Correction |  | Discontinued |         |         
|                                                                                                                                                   |  | Reported            |         | of Error         |  | Operations   |        | Restated |  | Reported   |          | of Error   |  | Operations   |         | Restated
|                                                                                                                                                   |  |                     |         |                  |  |              |        |          |  |            |          |            |  |              |         |         
|Cost of goods sold, buying and occupancy costs                                                                                                     |  | $                   | 509,871 |                  |  | $            | (5,335 | )        |  | $          | (101,201 | )          |  | $            | 403,335 |          |  | $ | 389,324 |  |  | $ | 9,655  |   |  | $ | (11,578 | ) |  | $ | 387,401 | 
|Gross margin                                                                                                                                       |  |                     | 210,211 |                  |  |              | 5,335  |          |  |            | (20,582  | )          |  |              | 194,964 |          |  |   | 247,617 |  |  |   | (9,655 | ) |  |   | (5,431  | ) |  |   | 232,531 | 
|Selling, general and administrative expenses                                                                                                       |  |                     | 204,300 |                  |  |              |       |          |  |            | (45,789  | )          |  |              | 158,511 |          |  |   | 161,363 |  |  |   | (1,138 | ) |  |   | (4,424  | ) |  |   | 155,801 | 
|Operating income (loss)                                                                                                                            |  |                     | (14,907 | )                |  |              | 5,335  |          |  |            | 32,083   |            |  |              | 22,511  |          |  |   | 75,088  |  |  |   | (8,517 | ) |  |   | (48     | ) |  |   | 66,523  | 
|Income (loss) from continuing operations before
    income taxes, extraordinary item and cumulative effect of a
    change in accounting principle |  |                     | (24,488 | )                |  |              | 5,335  |          |  |            | 32,080   |            |  |              | 12,927  |          |  |   | 70,883  |  |  |   | (8,517 | ) |  |   | (48     | ) |  |   | 62,318  | 
|Income tax provision (benefit)                                                                                                                     |  |                     | (6,950  | )                |  |              | 2,134  |          |  |            | 9,987    |            |  |              | 5,171   |          |  |   | 28,352  |  |  |   | (7,044 | ) |  |   | (19     | ) |  |   | 21,289  | 
|Income (loss) from continuing operations
    before extraordinary item and cumulative effect of a change in
    accounting principle               |  |                     | (17,538 | )                |  |              | 3,201  |          |  |            | 22,093   |            |  |              | 7,756   |          |  |   | 42,531  |  |  |   | (1,473 | ) |  |   | (29     | ) |  |   | 41,029  | 
|Net income (loss)                                                                                                                                  |  | $                   | (17,538 | )                |  | $            | 3,201  |          |  | $          |         |            |  | $            | (14,337 | )        |  | $ | 41,908  |  |  | $ | (1,473 | ) |  | $ |        |   |  | $ | 40,435  | 
|BASIC EARNINGS (LOSS) PER SHARE:                                                                                                                   |  |                     |         |                  |  |              |        |          |  |            |          |            |  |              |         |          |  |   |         |  |  |   |        |   |  |   |         |   |  |   |         | 
|Income (loss) from continuing operations
    before extraordinary item and cumulative effect of a change in
    accounting principle               |  | $                   | (1.02   | )                |  | $            | 0.19   |          |  | $          | 1.28     |            |  | $            | 0.45    |          |  | $ | 2.54    |  |  | $ | (0.09  | ) |  | $ |        |   |  | $ | 2.45    | 
|Basic earnings (loss) per share                                                                                                                    |  | $                   | (1.02   | )                |  | $            | 0.19   |          |  | $          |         |            |  | $            | (0.83   | )        |  | $ | 2.50    |  |  | $ | (0.09  | ) |  | $ |        |   |  | $ | 2.41    | 
|DILUTED EARNINGS (LOSS) PER SHARE:                                                                                                                 |  |                     |         |                  |  |              |        |          |  |            |          |            |  |              |         |          |  |   |         |  |  |   |        |   |  |   |         |   |  |   |         | 
|Income (loss) from continuing operations
    before extraordinary item and cumulative effect of a change in
    accounting principle               |  | $                   | (1.02   | )                |  | $            | 0.19   |          |  | $          | 1.28     |            |  | $            | 0.45    |          |  | $ | 2.45    |  |  | $ | (0.09  | ) |  | $ |        |   |  | $ | 2.36    | 
|Diluted earnings (loss) per share                                                                                                                  |  | $                   | (1.02   | )                |  | $            | 0.19   |          |  | $          |         |            |  | $            | (0.83   | )        |  | $ | 2.42    |  |  | $ | (0.09  | ) |  | $ |        |   |  | $ | 2.33    | 

Cash Flow Data (in thousands):

|                                           |  |                     |         |                  |  |              |         |          |  |            |        |            |  |              |         |          |  |   |         |   |  |   |        |   |  |   |       |   |  |   |         |  
|------------------------------------------ |  | ------------------- | ------- | ---------------- |  | ------------ | ------- | -------- |  | ---------- | ------ | ---------- |  | ------------ | ------- | -------- |  | - | ------- | - |  | - | ------ | - |  | - | ----- | - |  | - | ------- | -
|                                           |  |                    
|                                           |  | For the years ended
|                                           |  |                    
|                                           |  |                     |         |                 
|                                           |  | February 2, 2002    |         | February 3, 2001
|                                           |  |                     |         |                 
|                                           |  | As                  |         |                  |  | As           |         |         
|                                           |  | Previously          |         | Correction       |  | Discontinued |         |          |  | Previously |        | Correction |  | Discontinued |         |         
|                                           |  | Reported            |         | of Error         |  | Operations   |         | Restated |  | Reported   |        | of Error   |  | Operations   |         | Restated
|                                           |  |                     |         |                  |  |              |         |          |  |            |        |            |  |              |         |         
|Net income (loss)                          |  | $                   | (17,538 | )                |  | $            | 3,201   |          |  | $          |       |            |  | $            | (14,337 | )        |  | $ | 41,908  |   |  | $ | (1,473 | ) |  | $ |      |   |  | $ | 40,435  |  
|Income (loss) from continuing operations   |  |                     | (17,538 | )                |  |              | 3,201   |          |  |            | 22,093 |            |  |              | 7,756   |          |  |   | 42,531  |   |  |   | (1,473 | ) |  |   | (29   | ) |  |   | 41,029  |  
|Inventories                                |  |                     | 20,481  |                  |  |              | (10,667 | )        |  |            | 3,410  |            |  |              | 13,224  |          |  |   | (36,973 | ) |  |   | 10,667 |   |  |   | (636  | ) |  |   | (26,942 | )
|Accounts payable and accrued expenses      |  |                     | (7,658  | )                |  |              | 2,150   |          |  |            | (1,517 | )          |  |              | (7,025  | )        |  |   | (12,829 | ) |  |   | (2,150 | ) |  |   | 4,044 |   |  |   | (10,935 | )
|Income taxes payable and other liabilities |  | $                   | (21,992 | )                |  | $            | 5,316   |          |  | $          | (4,650 | )          |  | $            | (21,326 | )        |  | $ | 1,354   |   |  | $ | (7,044 | ) |  | $ | 6,501 |   |  | $ | 811     |  

5       Goodwill
and other assets

Goodwill and other assets consisted of the
following (in thousands):

|                             |  |                  |       |                  |  |   |       | 
|---------------------------- |  | ---------------- | ----- | ---------------- |  | - | ----- | 
|                             |  |                  |       | February 2, 2002
|                             |  | February 1, 2003 |       | (Restated)      
|                             |  |                  |       |                 
|Goodwill, net                |  | $                | 54    |                  |  | $ | 179   | 
|Debt issuance costs, net     |  |                  | 3,098 |                  |  |   | 2,094 | 
|Other intangible assets, net |  |                  | 163   |                  |  |   | 205   | 
|                             |  |                  |       |                  |  |   |       | 
|                             |  | $                | 3,315 |                  |  | $ | 2,478 | 
|                             |  |                  |       |                  |  |   |       | 

F-17



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

Other intangible assets include trademarks and
organization costs, which are being amortized over periods of
five to 15 years. Amortization expense related to other
intangible assets for the year ended February 1, 2003, was
$42,000.

Estimated amortization expense for each of the
five succeeding fiscal years, based on the intangible assets as
of February 1, 2003, is as follows (in thousands):

|            |  |                   |    | 
|----------- |  | ----------------- | -- | 
|Fiscal Year |  | Estimated Expense
|            |  |                  
|2003        |  | $                 | 34 | 
|2004        |  | $                 | 32 | 
|2005        |  | $                 | 19 | 
|2006        |  | $                 | 19 | 
|2007        |  | $                 | 19 | 

The Companys goodwill at February 1,
2003, relates to remaining Wallet Works stores operated by the
Company. The decrease of $0.1 million in goodwill from 2001
to 2002 relates to goodwill write-off associated with
contractually committed closings for Wallet Works stores during
2002.

Wilsons Leathers adoption of SFAS
No. 142 eliminates the amortization of goodwill beginning
in the first quarter of 2002. The following table adjusts net
income (loss) and net earnings (loss) per share for
fiscal years 2001 and 2000 to exclude amortization of goodwill
that is no longer required under SFAS No. 142 (in
thousands):

|                           |           |                            |         |             |         |   |        |   |        | 
|-------------------------- | --------- | -------------------------- | ------- | ----------- | ------- | - | ------ | - | ------ | 
|                           |           |                           
|                           |           | For the years ended       
|                           |           |                           
|                           |           | February 2,                |         | February 3,
|                           |           | 2002                       |         | 2001       
|                           |           | (Restated)                 |         | (Restated) 
|                           |           |                            |         |            
|Reported net income (loss) |           | $                          | (14,337 | )           |         | $ | 40,435 |  
|                           | Add back: |                            |         |             |         |   |        |   |       
|                           |           | Goodwill amortization      |         |             | 20      |   |        |   | 20     | 
|                           |           |                            |         |             |         |   |        |  
|                           |           | Adjusted net income (loss) |         | $           | (14,317 | ) |        | $ | 40,455 | 
|                           |           |                            |         |             |         |   |        |  

Due to the insignificant amount of goodwill
amortization that was recorded in fiscal years 2001 and 2000,
the impact on previously reported earnings per share
(loss) is zero and, therefore, has not been separately
disclosed.

6       Accounts
receivable

Accounts receivable consisted of the following
(in thousands):

|                                     |       |             |       |             |  |   |       |       | 
|------------------------------------ | ----- | ----------- | ----- | ----------- |  | - | ----- | ----- | 
|                                     |       |             |       | February 2,
|                                     |       | February 1, |       | 2002       
|                                     |       | 2003        |       | (Restated) 
|                                     |       |             |       |            
|Trade receivables                    |       | $           | 3,851 |             |  | $ | 3,674 |      
|Other receivables                    |       |             | 1,524 |             |  |   | 5,554 |      
|                                     |       |             |       |             |  |   |       |      
|                                     | Total |             |       | 5,375       |  |   |       | 9,228 | 
|LessAllowance for doubtful accounts |       |             | (145  | )           |  |   | (351  | )    
|LessDeferred sales(1)               |       |             | (68   | )           |  |   |      |      
|                                     |       |             |       |             |  |   |       |      
|                                     | Total |             | $     | 5,162       |  |   | $     | 8,877 | 
|                                     |       |             |       |             |  |   |       |      



---

|    |                                     
|--- | ------------------------------------
|(1) | Deferred in-transit e-commerce sales

F-18



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

7       Property
and equipment

Property and equipment consisted of the following
(in thousands):

|                                                   |                            |             |         |             |  |   |         |         | 
|-------------------------------------------------- | -------------------------- | ----------- | ------- | ----------- |  | - | ------- | ------- | 
|                                                   |                            |             |         | February 2,
|                                                   |                            | February 1, |         | 2002       
|                                                   |                            | 2003        |         | (Restated) 
|                                                   |                            |             |         |            
|Land                                               |                            | $           | 200     |             |  | $ | 1,340   |        
|Buildings and improvements                         |                            |             |        |             |  |   | 2,101   |        
|Equipment and furniture                            |                            |             | 90,111  |             |  |   | 84,197  |        
|Leasehold improvements                             |                            |             | 32,934  |             |  |   | 30,791  |        
|                                                   |                            |             |         |             |  |   |         |        
|                                                   | Total                      |             |         | 123,245     |  |   |         | 118,429 | 
|LessAccumulated depreciation and
    amortization |                            |             | (49,271 | )           |  |   | (34,422 | )      
|                                                   |                            |             |         |             |  |   |         |        
|                                                   | Net property and equipment |             | $       | 73,974      |  |   | $       | 84,007  | 
|                                                   |                            |             |         |             |  |   |         |        

In 2002, we adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. In the fourth quarter of 2002, we determined, based
on our most recent sales projections for various markets in
which Wilsons Leather has stores, that the current estimate of
the future undiscounted cash flows in certain of these markets
would not be sufficient to recover the carrying value of those
stores fixed assets. Accordingly, we recorded an
impairment loss of $1.0 million in the fourth quarter of
2002 related to those store assets. Such assets were written
down to fair-value less the expected disposal value, if any, of
such furniture, fixtures and equipment. Prior to the adoption of
SFAS No. 144, the Company accounted for long-lived
assets in accordance with SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. In the fourth quarter of 2001 under
SFAS No. 121, the Company recorded impairment losses
on store closings of $5.4 million.

8       Accrued
expenses

Accrued expenses consisted of the following (in
thousands):

|                              |       |             |       |             |  |   |       |        | 
|----------------------------- | ----- | ----------- | ----- | ----------- |  | - | ----- | ------ | 
|                              |       |             |       | February 2,
|                              |       | February 1, |       | 2002       
|                              |       | 2003        |       | (Restated) 
|                              |       |             |       |            
|Compensation and benefits     |       | $           | 9,840 |             |  | $ | 9,625 |       
|Taxes other than income taxes |       |             | 2,918 |             |  |   | 3,189 |       
|Rent                          |       |             | 2,474 |             |  |   | 2,441 |       
|Interest                      |       |             | 1,988 |             |  |   | 1,953 |       
|Other                         |       |             | 7,999 |             |  |   | 8,202 |       
|                              |       |             |       |             |  |   |       |       
|                              | Total |             | $     | 25,219      |  |   | $     | 25,410 | 
|                              |       |             |       |             |  |   |       |       

F-19



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

9       Long-term
debt

Long-term debt at February 1, 2003, and
February 2, 2002, consists of the following (in thousands):

|                       |  |      |        |      |  |   |        | 
|---------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                       |  | 2002 |        | 2001
|                       |  |      |        |     
|Senior notes           |  | $    | 30,590 |      |  | $ | 30,590 | 
|Term B promissory note |  |      | 25,000 |      |  |   | 25,000 | 
|Note payable           |  |      | 150    |      |  |   |       | 
|                       |  |      |        |      |  |   |        | 
|Total debt             |  |      | 55,740 |      |  |   | 55,590 | 
|Less: current portion  |  |      | (45    | )    |  |   |       | 
|                       |  |      |        |      |  |   |        | 
|Total long-term debt   |  | $    | 55,695 |      |  | $ | 55,590 | 
|                       |  |      |        |      |  |   |        | 

Senior
Notes

On August 18, 1997, the Company issued
$75.0 million of 11 1/4% Senior Notes due
August 15, 2004, (the Senior Notes). Interest on the Senior
Notes is payable semiannually in arrears on February 15 and
August 15 of each year. The Company repurchased
$44.4 million of the Senior Notes in the years 1998 through
2000. As of February 1, 2003, the outstanding balance on
the Senior Notes was $30.6 million.

The Senior Notes are general unsecured
obligations that rank senior in right of payment to all existing
and future subordinated indebtedness and rank on equal terms in
right of payment with all other current and future
unsubordinated indebtedness. The indenture governing the Senior
Notes contains numerous operating covenants that limit the
discretion of management with respect to certain business
matters and that place significant restrictions on, among other
things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to declare
or pay any dividend, to make certain payments or investments,
loans and guarantees, and to sell or otherwise dispose of assets
and merge or consolidate with another entity. At
February 1, 2003, the Company was in compliance with or had
received waivers for all covenants of the Senior Notes.

Term B
Promissory Note and Revolving Credit Agreement

A syndicate of banks provides the Company with a
revolving credit facility (the Senior Credit Facility). On
April 23, 2002, the Senior Credit Facility was amended to
decrease the available borrowings to $205 million in
aggregate principal amount, including a $25 million
Term B promissory note and a $75 million letter of
credit subfacility. The aggregate principal amount available for
borrowing at any one time is based on defined levels of
inventory and receivables reduced by outstanding and undrawn
trade letters of credit and $10 million ($5 million
during the months of August, September and October and, solely
for 2002, November and the first half of December) as specified
in the agreement. The aggregate principal amount available for
borrowing at any one time is also subject to limitations based
on credit card receivables and the value of inventories as if
sold on a going-out-of-business basis, as specified in the
agreement.

On November 1, 2002, the Company executed
the First Amendment to Fourth Amended and Restated Credit
Agreement (the Amendment) with General Electric Capital
Corporation and the syndicate. The Amendment allows no revolving
credit balances during the period from January 3, 2003, to
February 2, 2003, and outstanding letters of credit must be
less than or equal to $25 million at all times during this
period. The amendment also allowed the Company to reborrow
$4.8 million of the Term B promissory note that was repaid
on June 24, 2002. In addition, the Amendment included a
covenant that the Company must achieve a minimum EBITDA for each
of the three months in the period from October 6, 2002 to
January 4, 2003. Through February 1, 2003, the Company
was in compliance or had obtained waivers for this covenant.

F-20



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The Term B promissory note is collateralized
by the Companys inventory and owned buildings and is due
in June 2005. The remainder of the Senior Credit Facility is
collateralized by the Companys inventory, equipment and
credit card receivables and expires in June 2005. Interest on
cash borrowings under the Senior Credit Facility is at LIBOR
plus 2.75%, the commercial paper rate plus 2.75%, or the prime
rate plus 1.50%. With respect to the Term B promissory note, the
interest rate is the prime rate plus 4%, plus an additional 5%
pursuant to a separate letter agreement with General Electric
Capital Corporation. The Company pays monthly fees on the unused
portion of the Senior Credit Facility and on the average daily
amount of letters of credit outstanding during each month.

The Senior Credit Facility contains a requirement
that the Company either amend, refund, renew, extend or
refinance the outstanding 11 1/4% Senior Notes on or before
June 15, 2004, so that no principal payment with respect to
any such amended, refunded, renewed, extended or refinanced
notes is due on or before September 1, 2005.

The senior credit facility contains certain
restrictions and covenants which, among other things, restrict
our ability to make capital expenditures; acquire or merge with
another entity; make investments, loans or guarantees; incur
additional indebtedness; prepay, repurchase or pay any principal
on any 11 1/4% senior notes, except pursuant to a permitted
refinancing; create liens or other encumbrances; or pay cash
dividends or make other distributions. We are currently in
compliance with or have obtained waivers for all covenants under
the senior credit facility.

At February 1, 2003, and February 2,
2002, there were no borrowings under the revolver, and there
were $15.2 and $10.4 million in letters of credit
outstanding, respectively. The Term B promissory note had a
balance of $25.0 million on February 1, 2003, and
February 2, 2002. See Subsequent events (Note 17) for
a discussion of our recently amended credit agreement.

As of February 1, 2003, annual debt
maturities were as follows (in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 45     | 
|2004 |  |   | 30,590 | 
|2005 |  |   | 25,000 | 
|2006 |  |   | 105    | 
|     |  |   |        | 
|     |  | $ | 55,740 | 
|     |  |   |        | 

10       Income
taxes

The income tax provision (benefit) is
comprised of the following (in thousands):

|        |          |                     |   |             |        |             |   |       |       |  |   |        |        | 
|------- | -------- | ------------------- | - | ----------- | ------ | ----------- | - | ----- | ----- |  | - | ------ | ------ | 
|        |          |                    
|        |          | For the years ended
|        |          |                    
|        |          |                     |   | February 2, |        | February 3,
|        |          | February 1,         |   | 2002        |        | 2001       
|        |          | 2003                |   | (Restated)  |        | (Restated) 
|        |          |                     |   |             |        |            
|Current |          |                     |   |             |        |             |   |       |       |  |   |       
|        | Federal  |                     | $ | (6,322      | )      |             | $ | 3,210 |       |  | $ | 15,315 |       
|        | State    |                     |   | 874         |        |             |   | 361   |       |  |   | 2,108  |       
|        | Deferred |                     |   | (4,095      | )      |             |   | 1,600 |       |  |   | 3,866  |       
|        |          |                     |   |             |        |             |   |       |       |  |   |       
|        |          | Total               |   | $           | (9,543 | )           |   | $     | 5,171 |  |   | $      | 21,289 | 
|        |          |                     |   |             |        |             |   |       |       |  |   |       

F-21



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

Reconciliations of the U.S. federal
statutory income tax rate to the effective tax rate are as
follows (in thousands):

|                   |  |                     |        |             |  |             |       |  |  |   |        |  
|------------------ |  | ------------------- | ------ | ----------- |  | ----------- | ----- |  |  | - | ------ | -
|                   |  |                    
|                   |  | For the years ended
|                   |  |                    
|                   |  |                     |        | February 2, |  | February 3,
|                   |  | February 1,         |        | 2002        |  | 2001       
|                   |  | 2003                |        | (Restated)  |  | (Restated) 
|                   |  |                     |        |             |  |            
|Statutory rate     |  | $                   | (8,350 | )           |  | $           | 4,524 |  |  | $ | 21,811 |  
|State income taxes |  |                     | (943   | )           |  |             | 435   |  |  |   | 2,493  |  
|Change in reserves |  |                     |       |             |  |             |      |  |  |   | (3,182 | )
|Other              |  |                     | (250   | )           |  |             | 212   |  |  |   | 167    |  
|                   |  |                     |        |             |  |             |       |  |  |   |        |  
|                   |  | $                   | (9,543 | )           |  | $           | 5,171 |  |  | $ | 21,289 |  
|                   |  |                     |        |             |  |             |       |  |  |   |        |  

|                   |  |                     |      |             |  |             |      |   |  |  |      |   
|------------------ |  | ------------------- | ---- | ----------- |  | ----------- | ---- | - |  |  | ---- | --
|                   |  |                    
|                   |  | For the years ended
|                   |  |                    
|                   |  |                     |      | February 2, |  | February 3,
|                   |  | February 1,         |      | 2002        |  | 2001       
|                   |  | 2003                |      | (Restated)  |  | (Restated) 
|                   |  |                     |      |             |  |            
|Statutory rate     |  |                     | 35.0 | %           |  |             | 35.0 | % |  |  | 35.0 | % 
|State income taxes |  |                     | 4.0  | %           |  |             | 3.4  | % |  |  | 4.0  | % 
|Change in reserves |  |                     | 0.0  | %           |  |             | 0.0  | % |  |  | (5.1 | )%
|Other              |  |                     | 1.0  | %           |  |             | 1.6  | % |  |  | 0.3  | % 
|                   |  |                     |      |             |  |             |      |   |  |  |      |   
|                   |  |                     | 40.0 | %           |  |             | 40.0 | % |  |  | 34.2 | % 
|                   |  |                     |      |             |  |             |      |   |  |  |      |   

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the net
deferred tax asset and liability were as follows (in thousands):

|                                             |                                        |                                                      |       |             |       |   |        |        |        |  
|-------------------------------------------- | -------------------------------------- | ---------------------------------------------------- | ----- | ----------- | ----- | - | ------ | ------ | ------ | -
|                                             |                                        |                                                     
|                                             |                                        | For the years ended                                 
|                                             |                                        |                                                     
|                                             |                                        |                                                      |       | February 2,
|                                             |                                        | February 1,                                          |       | 2002       
|                                             |                                        | 2003                                                 |       | (Restated) 
|                                             |                                        |                                                      |       |            
|Net deferred tax asset (liability)long-term |                                        |                                                      |       |             |       |   |        |       
|                                             | Accrued liabilities                    |                                                      | $     | 5,299       |       |   | $      | 1,861  |       
|                                             | State net operating loss carryforwards |                                                      |       | 3,044       |       |   |        |       |       
|                                             | Property and equipment                 |                                                      |       | (7,478      | )     |   |        | (2,402 | )     
|                                             |                                        |                                                      |       |             |       |   |        |       
|                                             |                                        | Total deferred tax asset (liability) 
    long-term |       | $           | 865   |   |        | $      | (541   | )
|                                             |                                        |                                                      |       |             |       |   |        |       
|Net deferred tax asset (liability)current   |                                        |                                                      |       |             |       |   |        |       
|                                             | Accrued liabilities                    |                                                      | $     | 5,154       |       |   | $      | 2,650  |       
|                                             | State net operating loss carryforwards |                                                      |       | 494         |       |   |        |       |       
|                                             | Allowances                             |                                                      |       | 57          |       |   |        | 137    |       
|                                             | Inventories                            |                                                      |       | (4,801      | )     |   |        | (7,344 | )     
|                                             | Intangibles                            |                                                      |       | (1,092      | )     |   |        | (1,016 | )     
|                                             | Other                                  |                                                      |       | 3,965       |       |   |        | (34    | )     
|                                             |                                        |                                                      |       |             |       |   |        |       
|                                             |                                        | Total deferred tax asset (liability)current         |       | $           | 3,777 |   |        | $      | (5,607 | )
|                                             |                                        |                                                      |       |             |       |   |        |       
|Net deferred tax asset (liability)           |                                        | $                                                    | 4,642 |             |       | $ | (6,148 | )     
|                                             |                                        |                                                      |       |             |       |   |        |       

F-22



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

Included in the net deferred tax asset at
February 1, 2003, is $6.7 million relating to
discontinued operations. This deferred tax asset relates
primarily to accrued discontinued operations expenses including
severance payable, store closing reserve, lease termination
costs and state net operating loss carryforwards. We have
determined that establishing a valuation allowance for the
deferred tax assets is not required since it is more likely than
not that the assets will be realized.

At February 1, 2003, we had net operating
loss (NOL) carryforwards of $57.4 million for state income
tax purposes that expire in years 2007 through 2022. No federal
net operating loss carryforward exists.

As discussed in Note 3, we announced on
November 19, 2002, that we would exit the Travel
Subsidiaries business by the end of the fourth quarter of
fiscal 2002. A summary of the discontinued operations and the
related tax impacts is as follows (in thousands):

|                         |                                                                                |                                                                |   |             |         |             |   |         |         |   |   |     |    | 
|------------------------ | ------------------------------------------------------------------------------ | -------------------------------------------------------------- | - | ----------- | ------- | ----------- | - | ------- | ------- | - | - | --- | -- | 
|                         |                                                                                |                                                               
|                         |                                                                                | For the years ended                                           
|                         |                                                                                |                                                               
|                         |                                                                                |                                                                |   | February 2, |         | February 3,
|                         |                                                                                | February 1,                                                    |   | 2002        |         | 2001       
|                         |                                                                                | 2003                                                           |   | (Restated)  |         | (Restated) 
|                         |                                                                                |                                                                |   |             |         |            
|Discontinued Operations: |                                                                                |                                                                |   |             |         |             |   |         |         |   |   |    
|                         | Income (loss) from discontinued operations                                     |                                                                | $ | (24,613     | )       |             | $ | (32,080 | )       |   | $ | 48  |   
|                         | Income tax (expense) benefit of income (loss)
    from discontinued operations |                                                                |   | 9,846       |         |             |   | 9,987   |         |   |   | (19 | ) 
|                         | Loss on disposition                                                            |                                                                |   | (39,429     | )       |             |   |        |         |   |   |    |   
|                         | Income tax benefit of loss on disposition                                      |                                                                |   | 12,182      |         |             |   |        |         |   |   |    |   
|                         |                                                                                |                                                                |   |             |         |             |   |         |         |   |   |    
|                         |                                                                                | Net income (loss) from discontinued operations,
    net of tax |   | $           | (42,014 | )           |   | $       | (22,093 | ) |   | $   | 29 | 
|                         |                                                                                |                                                                |   |             |         |             |   |         |         |   |   |    

11       Capital
stock



| |            
| | -----------
| | Stock split

On February 15, 2000, the board of directors
declared a 3 for 2 stock split. The stock split became
effective March 15, 2000, to shareholders of record on
February 29, 2000. The common stock share and per share
information in the accompanying consolidated financial
statements and notes, for all periods presented, reflects the
effect of the stock split.



| |                           
| | --------------------------
| | Private Placement Offering

In January 2002, we sold 1,900,000 shares of
common stock in a private placement (the Placement) at $11.00
per share for total proceeds, net of offering costs, of
$20.0 million.

On April 8, 2002, affiliates of the
purchasers in the Placement exercised the option under the stock
purchase agreement relating to the Placement, to purchase an
additional 100,000 shares (the Additional Shares)
for an aggregate purchase price of $1.1 million, which sale
was completed on April 12, 2002, for net proceeds of
approximately $1.0 million.

On April 30, 2002, we sold 900,000 shares of
our common stock in a private placement at a purchase price of
$11.00 per share, for net proceeds of approximately
$9.9 million. On June 10, 2002, the purchasers in the
April private placement exercised the option to purchase an
additional 100,000 shares of common stock at a purchase price of
$11.00 per share. The sale was completed on June 13, 2000,
for net proceeds of approximately $1.1 million.

F-23



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

12       Stock
options

We have adopted the amended 1996 stock option
plan, the 1998 stock option plan and the 2000 long-term
incentive plan (collectively referred to as the Plans), pursuant
to which options to acquire an aggregate of
3,500,000 shares of our common stock may be granted.

The compensation committee of the board of
directors is responsible for administering our Plans and
approves grants in connection therewith. All outstanding stock
options granted since we became a publicly held corporation have
been granted at an option price equal to the fair market value
of the common stock on the date of grant and generally vest,
cumulatively, on a prorated basis on the first, second and third
anniversaries from the date of the grant.

The following is a summary of stock option
information and weighted average exercise prices for our stock
option plans:

|                                 |           |                               |           |                  |   |                  |       |          |  |        |           |          |   |   |       |       |  |  |           |          |   |   |      |       | 
|-------------------------------- | --------- | ----------------------------- | --------- | ---------------- | - | ---------------- | ----- | -------- |  | ------ | --------- | -------- | - | - | ----- | ----- |  |  | --------- | -------- | - | - | ---- | ----- | 
|                                 |           |                              
|                                 |           | As of and for the years ended
|                                 |           |                              
|                                 |           |                               |           |                  |   |                 
|                                 |           | February 1, 2003              |           | February 2, 2002 |   | February 3, 2001
|                                 |           |                               |           |                  |   |                 
|                                 |           |                               |           | Weighted         |   |                  |       | Weighted |  |        |           | Weighted
|                                 |           |                               |           | Average          |   |                  |       | Average  |  |        |           | Average 
|                                 |           |                               |           | Exercise         |   |                  |       | Exercise |  |        |           | Exercise
|                                 |           | Shares                        |           | Price            |   | Shares           |       | Price    |  | Shares |           | Price   
|                                 |           |                               |           |                  |   |                  |       |          |  |        |           |         
|Outstanding, beginning of year   |           |                               | 1,982,982 |                  |   | $                | 10.11 |          |  |        | 1,742,117 |          |   | $ | 8.45  |       |  |  | 1,848,446 |          |   | $ | 6.86 |      
|                                 | Granted   |                               |           | 260,000          |   |                  |       | 12.93    |  |        |           | 562,585  |   |   |       | 13.74 |  |  |           | 269,200  |   |   |      | 17.78 | 
|                                 | Exercised |                               |           | (108,664         | ) |                  |       | 6.64     |  |        |           | (281,921 | ) |   |       | 6.66  |  |  |           | (256,398 | ) |   |      | 5.79  | 
|                                 | Forfeited |                               |           | (133,756         | ) |                  |       | 9.37     |  |        |           | (39,799  | ) |   |       | 13.69 |  |  |           | (119,131 | ) |   |      | 10.42 | 
|                                 |           |                               |           |                  |   |                  |       |          |  |        |           |          |   |   |       |       |  |  |           |          |   |   |      |      
|Outstanding, end of year         |           |                               | 2,000,562 |                  |   | $                | 10.71 |          |  |        | 1,982,982 |          |   | $ | 10.11 |       |  |  | 1,742,117 |          |   | $ | 8.45 |      
|                                 |           |                               |           |                  |   |                  |       |          |  |        |           |          |   |   |       |       |  |  |           |          |   |   |      |      
|Exercisable, end of year         |           |                               | 1,343,307 |                  |   | $                | 9.23  |          |  |        | 1,200,782 |          |   | $ | 7.38  |       |  |  | 1,225,160 |          |   | $ | 6.32 |      
|                                 |           |                               |           |                  |   |                  |       |          |  |        |           |          |   |   |       |       |  |  |           |          |   |   |      |      
|Available for grant, end of year |           |                               | 564,347   |                  |   |                  |       |          |  |        | 678,966   |          |   |   |       |       |  |  | 1,287,029 |          |   |   |      |      

F-24



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The following table summarizes information about
the weighted average remaining contracted life (in years) and
the weighted average exercise prices for stock options
outstanding as of the year ended February 1, 2003:

Options Outstanding and Exercisable by Price
Range

as of February 1, 2003


|                |                 |                     |  |                     |           |          |  |           |     |          |  |   |       |  |  |  |           |  |  |   |       | 
|--------------- | --------------- | ------------------- |  | ------------------- | --------- | -------- |  | --------- | --- | -------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |                 |                     |  |                    
|                |                 | OPTIONS OUTSTANDING |  | OPTIONS EXERCISABLE
|                |                 |                     |  |                    
|                |                 |                     |  | Weighted            |           |          |  | Weighted 
|                |                 |                     |  | Average             |           |          |  | Average  
|Range of        |                 | Number of           |  | Remaining           |           | Exercise |  | Number of |     | Exercise
|Exercise Prices |                 | Options             |  | Life                |           | Price    |  | Options   |     | Price   
|                |                 |                     |  |                     |           |          |  |           |     |         
|                | $ 2.07 - $ 4.14 |                     |  |                     | 32,790    |          |  |           | 3.2 |          |  | $ | 3.00  |  |  |  | 31,590    |  |  | $ | 2.96  | 
|                | $ 4.14 - $ 6.21 |                     |  |                     | 667,510   |          |  |           | 4.4 |          |  | $ | 5.83  |  |  |  | 659,510   |  |  | $ | 5.83  | 
|                | $ 6.21 - $ 8.28 |                     |  |                     | 117,054   |          |  |           | 3.2 |          |  | $ | 6.87  |  |  |  | 112,054   |  |  | $ | 6.84  | 
|                | $ 8.28 - $10.34 |                     |  |                     | 20,416    |          |  |           | 4.2 |          |  | $ | 9.18  |  |  |  | 18,216    |  |  | $ | 9.20  | 
|                | $10.34 - $12.41 |                     |  |                     | 488,112   |          |  |           | 6.5 |          |  | $ | 11.28 |  |  |  | 264,112   |  |  | $ | 11.30 | 
|                | $12.41 - $14.48 |                     |  |                     | 268,151   |          |  |           | 9.1 |          |  | $ | 13.72 |  |  |  | 28,193    |  |  | $ | 13.71 | 
|                | $14.48 - $16.55 |                     |  |                     | 168,054   |          |  |           | 7.3 |          |  | $ | 15.75 |  |  |  | 82,649    |  |  | $ | 15.63 | 
|                | $16.55 - $18.62 |                     |  |                     | 40,325    |          |  |           | 7.2 |          |  | $ | 17.20 |  |  |  | 27,383    |  |  | $ | 17.20 | 
|                | $18.62 - $20.69 |                     |  |                     | 198,150   |          |  |           | 5.8 |          |  | $ | 19.81 |  |  |  | 119,600   |  |  | $ | 19.99 | 
|                |                 |                     |  |                     |           |          |  |           |     |          |  |   |       |  |  |  |           |  |  |   |       | 
|                |                 |                     |  |                     | 2,000,562 |          |  |           | 5.9 |          |  | $ | 10.71 |  |  |  | 1,343,307 |  |  | $ | 9.23  | 
|                |                 |                     |  |                     |           |          |  |           |     |          |  |   |       |  |  |  |           |  |  |   |       | 

The Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and its related interpretations.
Accordingly, no compensation expense has been recognized in the
financial statements for employee stock option awards granted at
fair market value.

The Companys calculations are based on a
valuation approach and forfeitures are recognized as they occur.
Had compensation cost for Wilsons Leathers stock option
plans been determined based on the fair value at the grant date
for awards from 1996 through 2002, consistent with the
provisions of SFAS No. 123, the Companys net income
and earnings per share would have been reduced to the pro forma
amounts disclosed in Note 2.

13       Employee
benefit plans

The 2000 long-term incentive plan provides that
the Compensation Committee may grant incentive stock options,
non-qualified stock options, stock appreciation rights,
restricted stock and performance share awards, and determine the
terms and conditions of each grant. In March 2001, 82,500 shares
of restricted stock were issued under this plan.

These restricted stock awards outstanding vest
ratably over four years from the date of grant. When restricted
shares are issued, deferred compensation is recorded as a
reduction of shareholders equity. Annual compensation is
charged to expense over the vesting period. During 2002 and
2001, $331,000 and $327,000 was charged to expense for vested
restricted shares, respectively.

401(k) Profit
sharing plan

We have a defined contribution 401(k)
profit-sharing plan for eligible employees which is qualified
under Sections 401(a) and 401(k) of the Internal Revenue
Code of 1986. Employees are entitled to make tax

F-25



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

deferred contributions of up to 30% of their
eligible compensation, subject to annual IRS limitations. For
employees who have worked less than three years, we match 25% of
contributions, up to a maximum of 4% of the employees
eligible compensation. For employees who have worked more than
three years, we match 50% of contributions, up to a maximum of
4% of the employees eligible compensation. Company
contributions net of forfeitures were $0.1, $0.4 and
$0.5 million in 2002, 2001, and 2000, respectively. We may
also, at our discretion, make a profit-sharing contribution to
the 401(k) plan for each plan year. Profit sharing contributions
were $0.0, $0.0 and $1.5 million in 2002, 2001, and 2000,
respectively. Our matching contributions vest after three years
of service or upon death of the employee and our profit sharing
vests after five years.

Employee stock
purchase plan

We have an employee stock purchase plan which is
qualified under Section 423 of the Internal Revenue Code of
1986. Employees are entitled to have payroll deductions withheld
that are used to purchase company stock at a 15 percent
discount at defined times during the year. We have allowed for
375,000 shares of common stock to be purchased under this plan.
As of February 1, 2003, 179,979 shares had been issued
under the plan.

14       Commitments
and contingencies



| |       
| | ------
| | Leases

We have noncancelable operating leases, primarily
for retail stores, which expire through 2017. A limited number
of the leases contain renewal options for periods ranging from
six months to five years. These leases generally require us to
pay costs, such as real estate taxes, common area maintenance
costs and contingent rentals based on sales. Net rental expense
for all operating leases was as follows (in thousands):

|                      |  |                     |        |             |  |             |        |  |  |   |        | 
|--------------------- |  | ------------------- | ------ | ----------- |  | ----------- | ------ |  |  | - | ------ | 
|                      |  |                    
|                      |  | For the years ended
|                      |  |                    
|                      |  |                     |        | February 2, |  | February 3,
|                      |  | February 1,         |        | 2002        |  | 2001       
|                      |  | 2003                |        | (Restated)  |  | (Restated) 
|                      |  |                     |        |             |  |            
|Minimum rentals       |  | $                   | 57,492 |             |  | $           | 53,686 |  |  | $ | 46,560 | 
|Contingent rentals    |  |                     | 2,918  |             |  |             | 3,216  |  |  |   | 4,515  | 
|                      |  |                     |        |             |  |             |        |  |  |   |        | 
|                      |  |                     | 60,410 |             |  |             | 56,902 |  |  |   | 51,075 | 
|LessSublease rentals |  |                     |       |             |  |             |       |  |  |   |       | 
|                      |  |                     |        |             |  |             |        |  |  |   |        | 
|Total                 |  | $                   | 60,410 |             |  | $           | 56,902 |  |  | $ | 51,075 | 
|                      |  |                     |        |             |  |             |        |  |  |   |        | 

As of February 1, 2003, the future minimum
rental payments due under operating leases, excluding lease
obligations for closed stores, were as follows (in thousands):

|                     |            |       |   |         |         | 
|-------------------- | ---------- | ----- | - | ------- | ------- | 
|Fiscal years ending: |            |       |   |        
|                     | 2003       |       | $ | 47,012  |        
|                     | 2004       |       |   | 42,389  |        
|                     | 2005       |       |   | 38,823  |        
|                     | 2006       |       |   | 35,453  |        
|                     | 2007       |       |   | 32,450  |        
|                     | Thereafter |       |   | 103,117 |        
|                     |            |       |   |        
|                     |            | Total |   | $       | 299,244 | 
|                     |            |       |   |        

F-26



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

As of February 1, 2003, 101 of our 617
leases continued to be guaranteed by CVS. Leases entered into
subsequent to the Management Buyout are no longer guaranteed by
CVS.



| |           
| | ----------
| | Litigation

We are involved in various legal actions arising
in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on our consolidated financial
position and results of operations. Pursuant to the sale
agreement entered into in connection with the Management Buyout,
CVS has agreed to indemnify us for certain claims. For certain
other claims, CVSs indemnification liability is limited to
claims in the aggregate which exceed $1.2 million, but not
to exceed $12.0 million.



| |           
| | ----------
| | Guarantees

As of February 1, 2003, and February 2,
2002, we had outstanding letters of credit of approximately
$15.2 and $10.4 million, respectively (see Note 9), which
were primarily used to guarantee foreign purchase orders.

15       Sale
Leaseback of Headquarters Facility

During June 2002, the Company entered into an
agreement for the sale and leaseback of the Companys
corporate headquarters and distribution center in Brooklyn Park,
Minnesota, for net proceeds of $12.5 million. The initial
term of the lease is 15 years, with an option to renew for
an additional five-year period. The agreement includes an option
for the Company to buy out the lease at the end of the tenth
(10th) year for a price of $500,000. The lease is classified as
an operating lease in accordance with SFAS No. 13,
Accounting for Leases.

The net book value of the building approximated
$3.1 million and has been removed from the accounts. The
$9.4 million gain on the sale has been deferred and the
appropriate amounts properly classified under short and
long-term liabilities. The short-term portion is included in
accrued expenses and the long-term portion is
included in other long-term liabilities on the
balance sheet. The deferred gain will be credited to income as
an offset to rent expense over the 15-year term of the lease.
Payments under the lease approximate $1.37 million for the
first year, with an annual increase of 2.5 percent each year
thereafter.

16       Related-party
transactions

We regularly conduct business with G-III Apparel
Group, Ltd. (G-III), of which the chairman and chief executive
officer served during part of 2002 on Wilsons Leathers
board of directors. Purchases from G-III totaled
$4.6 million, $2.3 million, and $4.9 million for
2002, 2001, and 2000, respectively. We believe that transactions
with G-III are on terms no less favorable to us than those
obtainable in arms-length transactions with unaffiliated
third parties.

We conduct business with Tsutani Leather Expert
Co., Ltd. (Tsutani), of which an executive of Wilsons Leather is
a director. Purchases from Tsutani totaled $0.2 million
$0.0 million, and $0.0 million in 2002, 2001, and
2000, respectively. We believe that transactions with Tsutani
are on terms no less favorable to us than those obtainable in
arms-length transactions with unaffiliated third parties.

During 2002, Richard Liu, Chairman of one of our
major suppliers (Superior Holdings International, Ltd.), became
a greater than 5% shareholder of our common stock. Superior
Holdings International, Ltd. sold $22.7 million of products
to us during 2002. We believe that transactions with Superior
Holdings International, Ltd. are on terms no less favorable to
us than those obtainable in arms-length transactions with
unaffiliated third parties.

F-27



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

17     Subsequent
events

On March 19, 2003, we issued 120,000 shares
of restricted stock to executives pursuant to the 2000 long-term
incentive plan. These restricted stock amounts vest ratably over
four years from the date of grant. Deferred compensation of
$0.5 million was recorded for this transaction in 2003.

General Electric Capital Corporation and a
syndicate of banks have provided us with a senior credit
facility, which was amended on April 11, 2003, that
provides for borrowings of up to $205 million in aggregate
principal amount, including a $25 million Term B promissory
note and a $75 million letter of credit subfacility. The
maximum amount available under the revolving credit portion of
the senior credit facility is limited to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 85% of net inventories, provided that such
    percentage at no time may exceed 85% of the then applicable
    discount rate applied in appraising such inventories to reflect
    their value as if sold in an orderly liquidation, except that
    the discount rate is gradually increased from August 17 to
    October 1 of each year and gradually decreased from
    December 17 to February 1 of each year;                                                                                                                                                                                                   
|
| |  | plus 85% of outstanding and undrawn trade letters
    of credit, provided that such percentage at no time may exceed
    85% of the discount rate applied in appraising the future
    inventories related to such letters of credit to reflect their
    value as if sold in an orderly liquidation;                                                                                                                                                                                                                                                                                                                 
|
| |  | plus 85% of credit card receivables;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | plus, during the months of September, October and
    November and the first fifteen days of December, 2003 (or until
    we receive our anticipated tax refund, whichever is earlier),
    85% of the amount we expect to receive as a tax refund, provided
    that prior to the filing of our tax return, such amount cannot
    exceed $2 million during the first week of September,
    $4 million during the second week of September or
    $6 million at any time after the second week of September;
    and provided further that after we file our tax return such
    amount cannot exceed $15.0 million;
|
| |  | minus $10 million ($5 million from July
    2003 through December 15, 2003, and during the months of
    August, September, October and November of 2004 and 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                   

In addition, borrowings under the senior credit
facility are subject to the further limitations that:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the revolving credit portion of such borrowings
    cannot exceed the sum of 85% of credit card receivables, plus
    85% of the appraised value of inventory (including inventory
    subject to trade letters of credit) as if sold on a going-out-of
    business basis; and                                                                                                                          
|
| |  | the total borrowings (i.e. the revolving
    credit portion of the facility and the Term B promissory note)
    cannot exceed the sum of 85% of the book value of credit card
    receivables, plus 95% (100% during August, September and
    October) of the appraised value of inventory (including
    inventory subject to trade letters of credit) as if sold on a
    going-out-of business basis;
|
| |  | from December 31, 2003, through
    March 31, 2004, we must have no borrowings under the
    revolving credit portion of the facility and outstanding letters
    of credit must be no greater than $20 million;                                                                                                                                                                                         
|
| |  | from April 1, 2004, through May 15,
    2004, borrowings under the revolving credit portion of the
    facility must be no greater than $15 million, and
    outstanding letters of credit must be no greater than
    $20 million; and                                                                                                                                                                  
|
| |  | from December 31, 2004, through
    March 31, 2005, we must have no borrowings under the
    revolving credit portion of the facility and outstanding letters
    of credit must be no greater than $40 million.                                                                                                                                                                                         

Interest is payable on revolving credit
borrowings at variable rates determined by LIBOR plus 3.25%,
except as noted in the next sentence, or the prime
rate plus 2.0% (commercial paper rate plus 3.25% if the loan is
made under the swing line portion of the revolver).
Borrowings in an amount that is available to us

F-28



---



##### 



WILSONS THE LEATHER EXPERTS INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

only because we have included our anticipated tax
refund in determining availability will bear interest at the
prime rate plus 5%. Interest is payable on the $25 million
Term B promissory note at a variable rate equal to the
prime rate plus 4%, plus an additional 5% payable
pursuant to a separate letter agreement with General Electric
Capital Corporation. We pay monthly fees on the unused portion
of the senior credit facility and on the average daily amount of
letters of credit outstanding during each month. If we have any
borrowings that are only available to us because we have
included our anticipated tax refund in determining availability,
we will pay a fee of $150,000. The senior credit facility
expires in June 2005, at which time all borrowings, including
the Term B promissory note, become due and payable.
Prepayment of the Term B promissory note is subject to a 2%
prepayment fee if prepaid on or after July 1, 2002, but on
or prior to November 30, 2003, and a 1% prepayment fee
thereafter. The revolving credit portion of the facility is
subject to a 1% prepayment fee under most circumstances. The
Term B promissory note is prepayable on or after
July 1, 2002, only with the consent of the senior lenders
under the senior credit facility.

F-29



---



##### 



Schedule II

|                                                                      |  |            |       |            |  |          |       |            |  |        |   |  |  |  |        |   |  |  |     | 
|--------------------------------------------------------------------- |  | ---------- | ----- | ---------- |  | -------- | ----- | ---------- |  | ------ | - |  |  |  | ------ | - |  |  | --- | 
|                                                                      |  |            |       |            |  |          |       |           
|Valuation and Qualifying Accounts                                     |  |            |       | Additions  |  |          |       |           
|(in thousands)                                                        |  |            |       |            |  |          |       | Balance   
|                                                                      |  | Balance at |       | Charged to |  | Charged  |       |            |  | at End
|                                                                      |  | Beginning  |       | Costs and  |  | to Other |       |            |  | of    
|                                                                      |  | of Period  |       | Expenses   |  | Accounts |       | Deductions |  | Period
|                                                                      |  |            |       |            |  |          |       |            |  |       
|Year ended February 3, 2001:                                          |  |            |       |            |  |          |       |            |  |        |   |  |  |  |        |   |  |  |     | 
|Allowance for doubtful accounts deducted from
    accounts receivable |  |            | 1,123 |            |  |          | 879   |            |  |        |  |  |  |  | (1,199 | ) |  |  | 803 | 
|Year ended February 2, 2002:                                          |  |            |       |            |  |          |       |            |  |        |   |  |  |  |        |   |  |  |     | 
|Allowance for doubtful accounts deducted from
    accounts receivable |  |            | 803   |            |  |          | 897   |            |  |        |  |  |  |  | (1,349 | ) |  |  | 351 | 
|Year ended February 1, 2003:                                          |  |            |       |            |  |          |       |            |  |        |   |  |  |  |        |   |  |  |     | 
|Allowance for doubtful accounts deducted from
    accounts receivable |  |            | 351   |            |  |          | 1,327 |            |  |        |  |  |  |  | (1,533 | ) |  |  | 145 | 

F-30



---



##### 



SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) 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 on
May 2, 2003:



| |                                 
| | --------------------------------
| | WILSONS THE LEATHER EXPERTS INC.
| | (registrant)                    



| |     |                   
| | --- | ------------------
| | By: | /s/ JOEL N. WALLER

| |                                     
| | ------------------------------------
| |                                     
| | Joel N. Waller,                     
| | Chairman and Chief Executive Officer
| | (principal executive officer)       



| |     |                         
| | --- | ------------------------
| | By: | /s/ PETER G. MICHIELUTTI

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Peter G. Michielutti,                           
| | Executive Vice President                        
| | and Chief Financial Officer                     
| | (principal financial and accounting
    officer)

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below on
May 2, 2003 by the following persons on behalf of the
registrant and in the capacities indicated:

|                                          |  |          |  | 
|----------------------------------------- |  | -------- |  | 
|/s/ JOEL N. WALLER JOEL N. WALLER         |  | Director |  | 
|                                         
|/s/ DAVID L. ROGERS DAVID L. ROGERS       |  | Director |  | 
|                                         
|/s/ LYLE BERMAN LYLE BERMAN               |  | Director |  | 
|                                         
|/s/ THOMAS J. BROSIG THOMAS J. BROSIG     |  | Director |  | 
|                                         
|/s/ MICHAEL T. COWHIG MICHAEL T. COWHIG   |  | Director |  | 
|                                         
|/s/ BRADLEY K. JOHNSON BRADLEY K. JOHNSON |  | Director |  | 
|                                         
|/s/ WILLIAM F. FARLEY WILLIAM F. FARLEY   |  | Director |  | 
|                                         
|/s/ CHERYL L. VITALI CHERYL L. VITALI     |  | Director |  | 

F-31



---



##### 





CERTIFICATIONS


I, Joel N. Waller, certify that:

1. I have reviewed this annual report on
Form 10-K of Wilsons The Leather Experts Inc.;

2. Based on my knowledge, this annual 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 of this annual
    report (the Evaluation Date); and                                                                                                             
|
| | c) presented in this annual 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 the 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/ JOEL N. WALLER           
| | Joel N. Waller, Chairman     
| | and Chief Executive Officer  
| | (principal executive officer)

Date: May 2, 2003



---



##### 



I, Peter G. Michielutti, certify that:

1. I have reviewed this annual report on
Form 10-K of Wilsons The Leather Experts Inc.;

2. Based on my knowledge, this annual 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 of this annual
    report (the Evaluation Date); and                                                                                                             
|
| | c) presented in this annual 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 the 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/ PETER G. MICHIELUTTI                      
| | Peter G. Michielutti, Executive Vice President
| | and Chief Financial Officer                   
| | (principal financial and accounting officer)  

Date: May 2, 2003



---



##### 



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|No.     |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Method of Filing         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|2.1     |  | Sale Agreement dated as of May 24, 1996 by and
among CVS New York, Inc. (formerly known as
Melville Corporation), Wilsons Center Inc. and
Wilsons The Leather Experts Inc. (1)                                                                                                                                                                                                                                              |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|3.1     |  | Amended and Restated Articles of Incorporation of
Wilsons The Leather Experts Inc. adopted June 16,
1998, as amended by the Articles of Amendment
dated February 17, 2000, and the Articles of
Amendment dated May 23, 2002. (2)                                                                                                                                                                                            |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|3.2     |  | Restated Bylaws of Wilsons The Leather Experts
Inc. as amended June 16, 1998, January 25, 2000,
and May 23, 2002. (2)                                                                                                                                                                                                                                                                                                       |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|4.1     |  | Specimen of common stock certificate. (3)                                                                                                                                                                                                                                                                                                                                                                                   |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|4.2     |  | Indenture dated as of August 18, 1997, by and
among Wilsons The Leather Experts Inc., the other
corporations listed on the signature pages
thereof, and Wells Fargo Bank Minnesota, National
Association (formerly known as Norwest Bank
Minnesota, National Association), including
specimen Certificate of 11-1/4% Series A Senior
Notes due 2004 and specimen Certificate of
11-1/4% Series B Senior Notes due 2004. (4) |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|4.3     |  | Registration Rights Agreement dated as of May 25,
1996, by and among CVS New York, Inc. (formerly
known as Melville Corporation), Wilsons The
Leather Experts Inc., the Managers listed on the
signature pages thereto, Leather Investors Limited
Partnership I and the Partners listed on the
signature pages thereto. (5)                                                                                                 |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|4.4     |  | Amendment to Registration Rights Agreement dated
as of August 12, 1999, by and among Wilsons The
Leather Experts Inc. and the Shareholders listed
on the attachments thereto. (6)                                                                                                                                                                                                                                           |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                          
|4.5     |  | Registration Rights Agreement dated as of January
10, 2002, by and among Wilsons The Leather Experts
Inc. and the Investors signatory thereto. (7)                                                                                                                                                                                                                                                                          |  | Incorporated by Reference





---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|No.     |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Method of Filing         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|4.6     |  | Letter Amendment to the Common Stock Purchase
Agreement and the Registration Rights Agreement
dated January 14, 2002, by and between Wilsons The
Leather Experts Inc. and Bricoleur Capital
Management LLC. (8)                                                                                                                                                                                                                                                                            |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|4.7     |  | Registration Rights Agreement dated as of April
24, 2002, by and among Wilsons The Leather Experts
Inc. and the Investors signatory thereto. (9)                                                                                                                                                                                                                                                                                                                                           |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|10.1    |  | Parent Guaranty dated as of May 25, 1996, by
Wilsons The Leather Experts Inc., Wilsons Center,
Inc., Rosedale Wilsons, Inc. and River Hills
Wilsons, Inc. in favor of General Electric Capital
Corporation. (10)                                                                                                                                                                                                                                                                           |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|*10.2   |  | Wilsons The Leather Experts Inc. Amended Executive
and Key Management Incentive Plan. (11)                                                                                                                                                                                                                                                                                                                                                                                                 |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|*10.3   |  | Wilsons The Leather Experts Inc. 401(k) Plan. (12)                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|*10.4   |  | Employment Agreement dated as of May 25, 1996,
between Wilsons The Leather Experts Inc. and Joel Waller. (1)                                                                                                                                                                                                                                                                                                                                                                               |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|*10.5   |  | Employment Agreement dated as of May 25, 1996,
between Wilsons The Leather Experts Inc. and David
Rogers. (1)                                                                                                                                                                                                                                                                                                                                                                              |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|10.6    |  | Fourth Amended and Restated Credit Agreement dated
as of April 23, 2002, among Wilsons Leather
Holdings Inc., as Borrower, the Lenders signatory
thereto from time to time, as Lenders, and General
Electric Capital Corporation, as Agent, Lender,
Term Lender and Swing Line Lender, GECC Capital
Markets Corp., Inc. as Lead Arranger, the CIT
Group/Business Credit, Inc., as Lender and
Documentation Agent and Wells Fargo Retail Finance
LLC, as Lender and Syndication Agent. (13) |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|10.7    |  | Store Guarantors Guaranty dated as of May 25,
1996, by Bermans The Leather Experts, Inc.,
Wilsons House of Suede, Inc., Wilsons Tannery
West, Inc., the Georgetown Subsidiaries that are
signatories thereto and the Individual Store
Subsidiaries that are signatories thereto, in
favor of General Electric Capital Corporation.
(14)                                                                                                                                                   |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|*10.8   |  | Wilsons The Leather Experts Inc. Amended 1996
Stock Option Plan. (3)                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Incorporated by Reference





---



##### 



|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                        |  |                          
|No.     |  | Description                                                                                                                                                                                                                                                                            |  | Method of Filing         
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.9    |  | Joinder Agreement dated as of May 24, 1999, by and
between the Store Guarantors that are signatories
thereto and General Electric Capital Corporation.
(15)                                                                                                                            |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.10   |  | Pledge Agreement dated as of May 24, 1999, by and
between Wilsons Leather of Delaware Inc. and
General Electric Capital Corporation, individually
and as agent for the lenders signatory to the
Credit Agreement. (16)                                                                 |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.11   |  | Pledge Agreement dated as of May 24, 1999, between
Wilsons International, Inc. and General Electric
Capital Corporation, individually and as agent for
the lenders signatory to the Credit Agreement.
(17)                                                                             |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.12   |  | Pledge Agreement dated as of May 25, 1996, between
Wilsons The Leather Experts Inc. and General
Electric Capital Corporation, individually and as
agent for the lenders signatory to the Credit
Agreement. (18)                                                                        |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.13   |  | Pledge Agreement dated as of May 25, 1996, between
Wilsons Center, Inc. and General Electric Capital
Corporation, individually and as agent for the
lenders signatory to the Credit Agreement. (19)                                                                                    |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.14   |  | Pledge Agreement dated as of May 25, 1996, between
Rosedale Wilsons, Inc. and General Electric
Capital Corporation, individually and as agent for
the lenders signatory to the Credit Agreement.
(20)                                                                                  |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.15   |  | Pledge Agreement dated as of May 25, 1996, between
River Hills Wilsons, Inc. and General Electric
Capital Corporation, individually and as agent for
the lenders signatory to the Credit Agreement.
(21)                                                                               |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.16   |  | Reaffirmation of Guaranty dated as of May 24,
1999, by Wilsons The Leather Experts Inc., Wilsons
Center, Inc., Rosedale Wilsons, Inc., River Hills
Wilsons, Inc. and the Store Guarantors listed on
the signature pages thereto in favor of General
Electric Capital Corporation. (22) |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.17   |  | Amendment No. 2 to Pledge Agreement dated as of
July 31, 1997, between River Hills Wilsons, Inc.
and General Electric Capital Corporation. (23)                                                                                                                                        |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                        |  |                          
|10.18   |  | Joinder Agreement dated as of July 31, 1997, by
and between Wilsons International Inc. and General
Electric Capital Corporation. (24)                                                                                                                                                  |  | Incorporated by Reference





---



##### 



|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                            |  |                          
|No.     |  | Description                                                                                                                                                                                                                                                                                |  | Method of Filing         
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|10.19   |  | Reaffirmation of Guaranty dated as of July 31,
1997, by Wilsons The Leather Experts Inc., Wilsons
Center, Inc., Rosedale Wilsons, Inc. and River
Hills Wilsons, Inc., in favor of General Electric
Capital Corporation. (25)                                                               |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|10.20   |  | Wilsons The Leather Experts Inc. 1998 Stock Option
Plan. (26)                                                                                                                                                                                                                              |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|10.21   |  | Reaffirmation of Guaranty dated September 24,
1999, by Wilsons The Leather Experts Inc., Wilsons
Center, Inc., Rosedale Wilsons, Inc. and River
Hills Wilsons, Inc.
(27)                                                                                                                   |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|*10.22  |  | First Amendment to Employment Agreement dated as
of April 3, 2000, between Wilsons The Leather
Experts Inc. and Joel N. Waller. (28)                                                                                                                                                       |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|*10.23  |  | First Amendment to Employment Agreement as of
March 23, 2000, between Wilsons The Leather
Experts Inc. and David L. Rogers. (29)                                                                                                                                                           |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|10.24   |  | Amended and Restated Security Agreement dated as
of June 19, 2001, by and among Wilsons Leather
Holdings Inc. and the other Grantors listed on the
signature pages thereto, in favor of General
Electric Capital Corporation, in its capacity as
Agent for Lenders. (30)                   |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|10.25   |  | Joinder Agreement dated as of October 31, 2000, by
and between the Store Guarantors that are
signatories thereto and General Electric Capital
Corporation. (31)                                                                                                                            |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|10.26   |  | Pledge Amendment dated as of October 31, 2000, by
River Hills Wilsons, Inc. (32)                                                                                                                                                                                                           |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|10.27   |  | Pledge Agreement dated as of October 31, 2000, by
and between WWT, Inc. and General Electric Capital
Corporation, individually and as agent for the
lenders signatory to the Credit Agreement. (33)                                                                                        |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                            |  |                          
|10.28   |  | Reaffirmation of Guaranty dated as of October 31,
2000, by Wilsons The Leather Experts Inc., Wilsons
Center, Inc., Rosedale Wilsons, Inc., River Hills
Wilsons, Inc. and the Store Guarantors listed on
the signature pages thereto in favor of General
Electric Capital Corporation. (34) |  | Incorporated by Reference





---



##### 



|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                               |  |                          
|No.     |  | Description                                                                                                                                                                                                                                                                                                   |  | Method of Filing         
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.29   |  | Wilsons The Leather Experts Inc. 2000 Long Term
Incentive Plan, as amended on August 24, 2000, and
March 21, 2002. (35)                                                                                                                                                                                       |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.30   |  | Joinder Agreement dated as of April 13, 2001, by
and between the Store Guarantors that are
signatory thereto and General Electric Capital
Corporation. (36)                                                                                                                                                   |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.31   |  | Pledge Amendment, dated as of April 13, 2001, by
WWT, Inc. (37)                                                                                                                                                                                                                                               |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.32   |  | Pledge Agreement, dated as of April 13, 2001,
between Bentleys Luggage Corp. and General
Electric Capital Corporation, individually and as
agent for the lenders signatory to the Credit
Agreement. (38)                                                                                                     |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.33   |  | Reaffirmation Of Guaranty dated as of April 13,
2001, by Wilsons The Leather Experts Inc., Wilsons
Center, Inc., Rosedale Wilsons, Inc. and River
Hills Wilsons, Inc., in favor of General Electric
Capital Corporation (39)                                                                                  |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.34   |  | Reaffirmation Of Guaranty dated as of June 19,
2001, by Wilsons The Leather Experts Inc., Wilsons
Center, Inc., Rosedale Wilsons, Inc. and River
Hills Wilsons, Inc., in favor of General Electric
Capital Corporation. (40)                                                                                  |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.35   |  | Reaffirmation of Guaranty dated as of April 23,
2002, by Wilsons The Leather Experts Inc., Wilsons
Center, Inc., Rosedale Wilsons, Inc., River Hills
Wilsons, Inc. and the Store Guarantors listed on
the signature pages thereto in favor of General
Electric Capital Corporation as Agent for Lenders.
(41) |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.36   |  | Agreement to Purchase Office/Warehouse Building by
and between Bermans The Leather Experts, Inc., a
Delaware Corporation, as Seller and IRET
Properties, a North Dakota limited partnership, as
Purchaser, Dated as of June 19, 2002. (42)                                                                    |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.37   |  | Lease, IRET Properties Landlord to Bermans The
Leather Experts, Inc. Tenant, dated June 21, 2002.
(43)                                                                                                                                                                                                        |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                               |  |                          
|10.38   |  | First Amendment to Fourth Amended and Restated
Credit Agreement dated as of November 1, 2002, by
and among Wilsons Leather Holdings Inc., General
Electric Capital Corporation, the credit parties
signatory thereto and the lenders signatory
thereto. (44)                                                  |  | Incorporated by Reference





---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|No.     |  | Description                                                                                                                                                                                                                                                                                                                 |  | Method of Filing         
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|10.39   |  | Unqualified Release Agreement dated August 22,
2002, by and between John A. Fowler and Wilsons
Leather Holdings Inc. (45)                                                                                                                                                                                                   |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|10.40   |  | Consulting Agreement dated August 11, 2002, by and
between John A. Fowler and Wilsons Leather
Holdings Inc. (46)                                                                                                                                                                                                            |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|10.41   |  | Limited Waiver and Second Amendment to Fourth
Amended and Restated Credit Agreement dated as of
January 21, 2003, among Wilsons Leather Holdings
Inc., General Electric Capital Corporation, as
Lender, Term Lender, Swing Line Lender and as
Agent, the Credit Parties signatory thereto and
the Lenders signatory thereto |  | Electronic Transmission  
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|10.42   |  | Unqualified Release Agreement dated December 9,
2002, by and between John Serino and River Hills
Wilsons, Inc.                                                                                                                                                                                                              |  | Electronic Transmission  
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|10.43   |  | Limited Waiver and Third Amendment to Fourth
Amended and Restated Credit Agreement dated as of
April 11, 2003, among Wilsons Leather Holdings
Inc., General Electric Capital Corporation, as
Lender, Term Lender, Swing Line Lender and as
Agent, the Credit Parties signatory thereto and
the Lenders signatory thereto    |  | Electronic Transmission  
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|10.44   |  | Reaffirmation of Guaranty dated as of April 11,
2003, by Wilsons The Leather Experts Inc., Wilsons
Center, Inc., Rosedale Wilsons, Inc., River Hills
Wilsons, Inc. and the Store Guarantors listed on
the signature pages thereto in favor of General
Electric Capital Corporation as Agent for Lenders                     |  | Electronic Transmission  
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|*10.45  |  | Wilsons The Leather Experts Inc. Employee Stock
Purchase Plan                                                                                                                                                                                                                                                               |  | Electronic Transmission  
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|16.1    |  | Letter Regarding Arthur Andersen LLP. (47)                                                                                                                                                                                                                                                                                  |  | Incorporated by Reference
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|21.1    |  | Subsidiaries of Wilsons The Leather Experts Inc.                                                                                                                                                                                                                                                                            |  | Electronic Transmission  
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|23.1    |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                         |  | Electronic Transmission  
|        |  |                                                                                                                                                                                                                                                                                                                             |  |                          
|99.1    |  | Certifications of Chief Executive Officer and
Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.                                                                                                                                            |  | Electronic Transmission  



---

|*   |  | Mangement contract or compensation
plan or arrangement required to be filed as an exhibit to this Form
10-K.
|--- |  | ------------------------------------------------------------------------------------------------------------
|(1) |  | Incorporated by reference to the same numbered exhibit to the Companys
Registration Statement              





---



##### 



|     |  | on Form S-1 (333-13967) filed with the Commission on October 11, 1996.                                                                                                                   
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Incorporated by reference to the same numbered exhibit to the Companys
Report on Form 10-Q for the quarter ended May 4, 2002 (File No. 0-21543).                                        
|    
|(3)  |  | Incorporated by reference to the same numbered exhibit to Amendment No. 1
to the Companys Registration Statement on Form S-1 (333-13967) filed with
the Commission on December 24, 1996.
|    
|(4)  |  | Incorporated by reference to Exhibit 10.3 to the Companys Report on Form
10-Q for the quarter ended August 2, 1997, filed with the Commission.                                          
|    
|(5)  |  | Incorporated by reference to Exhibit 4.8 to the Companys Registration
Statement on Form S-1 (333-13967) filed with the Commission on October 11,
1996.                                  
|    
|(6)  |  | Incorporated by reference to the same numbered exhibit to the Companys
Report on Form 10-K for the fiscal year ended January 29, 2000, filed with
the Commission (File No. 0-21543).    
|    
|(7)  |  | Incorporated by reference to Exhibit 4.2 to the Companys Report on Form
8-K filed with the Commission on January 23, 2002.                                                              
|    
|(8)  |  | Incorporated by reference to Exhibit 4.3 to the Companys Report on Form
8-K filed with the Commission on January 23, 2002.                                                              
|    
|(9)  |  | Incorporated by reference to Exhibit 4.2 to the Companys Report on Form
8-K filed with the Commission on May 3, 2002.                                                                   
|    
|(10) |  | Incorporated by reference to Exhibit 10.8 to the Companys Report on Form
10-Q for the quarter ended August 2, 1997, filed with the Commission.                                          
|    
|(11) |  | Incorporated by reference to Exhibit 10.2 to the Companys Report on Form
10-Q for the quarter ended May 4, 2002, filed with the Commission.                                             
|    
|(12) |  | Incorporated by Reference to Exhibit 10.3 to the Companys Report on Form
10-K for the fiscal year ended February 2, 2002, filed with the
Commission.                                    
|    
|(13) |  | Incorporated by reference to Exhibit 10.1 to the Companys Report on Form
10-Q for the quarter ended May 4, 2002 filed, with the Commission.                                             
|    
|(14) |  | Incorporated by reference to Exhibit 10.10 to the Companys Report on
Form 1O-Q for the quarter ended August 2, 1997, filed with the Commission.                                         
|    
|(15) |  | Incorporated by reference to Exhibit 10.3 to the Companys Report on Form
10-Q for the quarter ended May 1, 1999, filed with the Commission.                                             
|    
|(16) |  | Incorporated by reference to Exhibit 10.4 to the Companys Report on Form
10-Q for the quarter ended May 1, 1999, filed with the Commission.                                             
|    
|(17) |  | Incorporated by reference to Exhibit 10.5 to the Companys Report on Form
10-Q for the quarter ended May 1, 1999, filed with the Commission.                                             





---



##### 



|(18) |  | Incorporated by reference to Exhibit 10.21 to Amendment No. 4 to the
Companys Registration Statement on Form S-1 (333-13967) filed with the
Commission on May 27, 1997.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(19) |  | Incorporated by reference to Exhibit 10.22 to Amendment No. 4 to the
Companys Registration Statement on Form S-1 (333-13967) filed with the
Commission on May 27, 1997.
|    
|(20) |  | Incorporated by reference to Exhibit 10.23 to Amendment No. 4 to the
Companys Registration Statement on Form S-1 (333-13967) filed with the
Commission on May 27, 1997.
|    
|(21) |  | Incorporated by reference to Exhibit 10.24 to Amendment No. 4 to the
Companys Registration Statement on Form S-1 (333-13967) filed with the
Commission on May 27, 1997.
|    
|(22) |  | Incorporated by reference to Exhibit 10.6 to the Companys Report on Form
10-Q for the quarter ended May 1, 1999, filed with the Commission.                            
|    
|(23) |  | Incorporated by reference to Exhibit 10.6 to the Companys Report on Form
10-Q for the quarter ended August 2, 1997, filed with the Commission.                         
|    
|(24) |  | Incorporated by reference to Exhibit 10.7 to the Companys Report on Form
10-Q for the quarter ended August 2, 1997, filed with the Commission.                         
|    
|(25) |  | Incorporated by reference to Exhibit 10.9 to the Companys Report on Form
10-Q for the quarter ended August 2, 1997, filed with the Commission.                         
|    
|(26) |  | Incorporated by reference to Exhibit 10.31 to the Companys Report on
Form 10-K for the fiscal year ended January 31, 1998, filed with the
Commission.                  
|    
|(27) |  | Incorporated by reference to Exhibit 10.2 to the Companys Report on Form
10-Q for the quarter ended October 30, 1999, filed with the Commission.                       
|    
|(28) |  | Incorporated by reference to Exhibit 10.27 to the Companys Report on
Form 10-K for the fiscal year ended January 29, 2000, filed with the
Commission.                  
|    
|(29) |  | Incorporated by reference to Exhibit 10.28 to the Companys Report on
Form 10-K for the fiscal year ended January 29, 2000, filed with the
Commission.                  
|    
|(30) |  | Incorporated by reference to Exhibit 10.2 to the Companys Report on Form
8-K filed with the Commission on June 25, 2001.                                               
|    
|(31) |  | Incorporated by reference to Exhibit 10.4 to the Companys Report on Form
10-Q for the quarter ended October 28, 2000, filed with the Commission.                       
|    
|(32) |  | Incorporated by reference to Exhibit 10.5 to the Companys Report on Form
10-Q for the quarter ended October 28, 2000, filed with the Commission.                       
|    
|(33) |  | Incorporated by reference to Exhibit 10.6 to the Companys Report on Form
10-Q for the quarter ended October 28, 2000, filed with the Commission.                       





---



##### 



|(34) |  | Incorporated by reference to Exhibit 10.3 to the Companys Report on Form
10-Q for the quarter ended October 28, 2000, filed with the Commission.     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(35) |  | Incorporated by reference to Exhibit 10.29 to the Companys Report on
Form 10-K for the fiscal year ended February 2, 2002, filed with the
Commission.
|    
|(36) |  | Incorporated by reference to Exhibit 10.1 to the Companys Report on Form
10-Q for the quarter ended May 5, 2001, filed with the Commission.          
|    
|(37) |  | Incorporated by reference to Exhibit 10.2 to the Companys Report on Form
10-Q for the quarter ended May 5, 2001, filed with the Commission.          
|    
|(38) |  | Incorporated by reference to Exhibit 10.3 to the Companys Report on Form
10-Q for the quarter ended May 5, 2001, filed with the Commission.          
|    
|(39) |  | Incorporated by reference to Exhibit 10.4 to the Companys Report on Form
10-Q for the quarter ended May 5, 2001, filed with the Commission.          
|    
|(40) |  | Incorporated by reference to Exhibit 10.3 to the Companys Report on Form
8-K filed with the Commission on June 25, 2001.                             
|    
|(41) |  | Incorporated by reference to Exhibit 10.2 to the Companys Report of Form
10-Q for the quarter ended May 4, 2002, filed with the Commission.          
|    
|(42) |  | Incorporated by reference to Exhibit 10.1 to the Companys Report on Form
10-Q for the quarter ended August 3, 2002, filed with the Commission.       
|    
|(43) |  | Incorporated by reference to Exhibit 10.2 to the Companys Report on Form
10-Q for the quarter ended August 3, 2002, filed with the Commission.       
|    
|(44) |  | Incorporated by reference to Exhibit 10.1 to the Companys Report on Form
10-Q for the quarter ended November 2, 2002, filed with the Commission.     
|    
|(45) |  | Incorporated by reference to Exhibit 10.2 to the Companys Report on Form
10-Q for the quarter ended November 2, 2002, filed with the Commission.     
|    
|(46) |  | Incorporated by reference to Exhibit 10.3 to the Companys Report on Form
10-Q for the quarter ended November 2, 2002, filed with the Commission.     
|    
|(47) |  | Incorporated by reference to Exhibit 16.1 to the Companys Report on Form
8-K filed on May 15, 2002, with the Commission.