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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 30, 2004 OR [   ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from  to Commission file number 000-21543 WILSONS THE LEATHER EXPERTS INC.
(Exact name of registrant as specified in its charter) MINNESOTA
    
    41-1839933(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)7401 BOONE AVE. N.BROOKLYN PARK, MN
    
    55428(Address of principal executive offices)
    
    (Zip Code)
 (763) 391-4000
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]          No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X]          No [   ] As of December 2, 2004, there were 38,868,698 shares of the Registrants common
stock, $0.01 par value per share, outstanding.




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WILSONS THE LEATHER EXPERTS INC.
INDEX  
 PagePART I  FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Consolidated Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets as of October 30, 2004 and January 31, 2004
    
    
    3Consolidated Statements of Operations for the three months ended October 30, 2004
and November 1, 2003
    
    
    4Consolidated Statements of Operations for the year-to-date periods ended October 30,
2004 and November 1, 2003
    
    
    5Consolidated Statements of Cash Flows for the year-to-date periods ended October 30,
2004 and November 1, 2003
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20PART II  OTHER INFORMATION
    
    
    20Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 6.
    
    Exhibits
    
    
    20Signature
    
    
    
    
    23Form of Non-Statutory Stock Option AgreementRule 13a-14(a)-15d-14(a) Certification of CEORule 13a-14(a)-15d-14(a) Certification of CFOCertification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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PART I  FINANCIAL INFORMATION 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share amounts)
 October 30,
    
    January 31,2004
    
    2004(1)(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    42,403Accounts receivable, net
    
    
    4,463
    
    
    
    6,122Inventories
    
    
    124,760
    
    
    
    89,298Prepaid expenses and other current assets
    
    
    7,725
    
    
    
    3,719TOTAL CURRENT ASSETS
    
    
    136,948
    
    
    
    141,542Property and equipment, net
    
    
    40,556
    
    
    
    60,047Goodwill and other assets, net
    
    
    2,393
    
    
    
    2,538TOTAL ASSETS
    
    $
    179,897
    
    
    $
    204,127LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    35,144
    
    
    $
    10,198Notes payable
    
    
    21,557
    
    
    
    490Current portion of long-term debt
    
    
    
    
    
    
    30,635Accrued expenses
    
    
    20,948
    
    
    
    26,670Liabilities of discontinued operations
    
    
    296
    
    
    
    406Income taxes payable
    
    
    3,585
    
    
    
    3,214Deferred income taxes
    
    
    8,203
    
    
    
    6,477TOTAL CURRENT LIABILITIES
    
    
    89,733
    
    
    
    78,090Long-term debt
    
    
    25,000
    
    
    
    25,064Other long-term liabilities
    
    
    12,312
    
    
    
    13,893Deferred income taxes
    
    
    
    
    
    
    1,726TOTAL LIABILITIES
    
    
    127,045
    
    
    
    118,773COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:Common stock, $.01 par value; 150,000,000 shares authorized; 38,853,698 and
20,807,706 shares issued and outstanding on October 30, 2004 and January 31,
2004, respectively
    
    
    389
    
    
    
    208Additional paid-in capital
    
    
    133,283
    
    
    
    100,633Accumulated deficit
    
    
    (80,535
    )
    
    
    (14,788
    )Unearned compensation
    
    
    (289
    )
    
    
    (701
    )Accumulated other comprehensive income
    
    
    4
    
    
    
    2TOTAL SHAREHOLDERS EQUITY
    
    
    52,852
    
    
    
    85,354TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    179,897
    
    
    $
    204,127
 The accompanying notes are an integral part of these consolidated financial statements.  3




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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
 (Unaudited)
 For the three months endedOctober 30,
    
    November 1,2004
    
    2003NET SALES
    
    $
    87,923
    
    
    $
    97,880COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    62,846
    
    
    
    75,003Gross margin
    
    
    25,077
    
    
    
    22,877SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    28,851
    
    
    
    35,124DEPRECIATION AND AMORTIZATION
    
    
    3,334
    
    
    
    4,226Operating loss
    
    
    (7,108
    )
    
    
    (16,473
    )INTEREST EXPENSE, net
    
    
    1,385
    
    
    
    2,889Loss before income taxes
    
    
    (8,493
    )
    
    
    (19,362
    )INCOME TAX BENEFIT
    
    
    
    
    
    
    (7,744
    )Net loss
    
    $
    (8,493
    )
    
    $
    (11,618
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (0.22
    )
    
    $
    (0.57
    )Weighted average shares outstanding  basic and diluted
    
    
    38,843
    
    
    
    20,551
 The accompanying notes are an integral part of these consolidated financial statements. 4




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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
 For the year-to-date period endedOctober 30,
    
    November 1,2004
    
    2003NET SALES
    
    $
    241,004
    
    
    $
    252,931COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    187,667
    
    
    
    208,990Gross margin
    
    
    53,337
    
    
    
    43,941SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    90,606
    
    
    
    100,369DEPRECIATION AND AMORTIZATION
    
    
    22,378
    
    
    
    12,532Operating loss
    
    
    (59,647
    )
    
    
    (68,960
    )INTEREST EXPENSE, net
    
    
    6,082
    
    
    
    7,631Loss before income taxes
    
    
    (65,729
    )
    
    
    (76,591
    )INCOME TAX BENEFIT
    
    
    
    
    
    
    (30,636
    )Net loss
    
    $
    (65,729
    )
    
    $
    (45,955
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (2.29
    )
    
    $
    (2.24
    )Weighted average shares outstanding  basic and diluted
    
    
    28,743
    
    
    
    20,488
 The accompanying notes are an integral part of these consolidated financial statements. 5




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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 For the year-to-date period endedOctober 30,
    
    November 1,2004
    
    2003OPERATING ACTIVITIES:Net loss
    
    $
    (65,729
    )
    
    $
    (45,955
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation
    
    
    22,325
    
    
    
    12,469Amortization
    
    
    53
    
    
    
    63Amortization of deferred financing costs
    
    
    1,272
    
    
    
    1,277Loss on disposal of assets
    
    
    1,144
    
    
    
    95Restricted stock compensation expense
    
    
    828
    
    
    
    250Deferred income taxes
    
    
    
    
    
    
    (12,978
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    1,659
    
    
    
    (1,134
    )Inventories
    
    
    (35,462
    )
    
    
    (55,819
    )Prepaid expenses and other current assets
    
    
    (4,006
    )
    
    
    (5,316
    )Refundable income taxes
    
    
    
    
    
    
    3,064Accounts payable and accrued expenses
    
    
    19,224
    
    
    
    27,031Income taxes payable and other liabilities
    
    
    (1,228
    )
    
    
    2,072Net cash used in operating activities
    
    
    (59,920
    )
    
    
    (74,881
    )INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (4,183
    )
    
    
    (6,348
    )Proceeds from the disposition of property and equipment
    
    
    205
    
    
    
    Net cash used in investing activities
    
    
    (3,978
    )
    
    
    (6,348
    )FINANCING ACTIVITIES:Proceeds from issuance of common stock, net
    
    
    32,415
    
    
    
    946Debt acquisition costs
    
    
    (1,180
    )
    
    
    (1,025
    )Repayments of long-term debt
    
    
    (64
    )
    
    
    (30
    )Borrowings under revolving credit facility
    
    
    17,990
    
    
    
    56,770Repurchase and repayment of debt
    
    
    (31,125
    )
    
    
    Checks written in excess of cash balance
    
    
    3,567
    
    
    
    4,863Other
    
    
    2
    
    
    
    5Net cash provided by financing activities
    
    
    21,605
    
    
    
    61,529NET CASH USED IN DISCONTINUED OPERATIONS
    
    
    (110
    )
    
    
    (10,742
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (42,403
    )
    
    
    (30,442
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    42,403
    
    
    
    30,442CASH AND CASH EQUIVALENTS, end of period
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements. 6




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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  1.
    NATURE OF ORGANIZATION Wilsons The Leather Experts Inc. (Wilsons Leather or the Company), a
Minnesota corporation, is the leading specialty retailer of quality leather
outerwear, accessories and apparel in the United States. As of October 30,
2004, Wilsons Leather operated 453 permanent retail stores located in 45 states
and the District of Columbia, including 328 mall stores, 109 outlet stores and
16 airport stores. The Company regularly supplements its permanent mall stores
with seasonal stores during its peak selling season from October through
January.  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
October 30, 2004, 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 4, on January 22, 2004, the Company
announced that it would liquidate up to 100 underperforming mall and outlet
stores (subsequently revised to 111 stores) and eliminate approximately 950
store-related positions. The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) applicable to interim financial information.
Certain information and footnote disclosures, normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles in the United States of America (GAAP), have been condensed or
omitted in these interim statements pursuant to such rules and regulations.
Although management believes that the accompanying disclosures are adequate so
as not to make the information presented misleading, it is recommended that
these interim consolidated financial statements be read in conjunction with the
Companys most recent audited consolidated financial statements and related
notes included in its 2003 Annual Report on Form 10-K. In the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented have been made. The
Companys business is highly seasonal, and accordingly, interim operating
results are not indicative of the results that may be expected for the fiscal
year ending January 29, 2005. FISCAL YEAR Wilsons Leathers fiscal year ends on the Saturday closest to January 31.
The periods that will end or have ended January 29, 2005, and January 31, 2004,
are referred to herein as 2004 and 2003, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with GAAP 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 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. INVENTORIES The Company values its 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 October 30, 2004, and January
31, 2004, the LIFO cost of inventories approximated the first-in, first-out
cost of inventories. The inventory cost includes the cost of merchandise and
freight. A periodic review of inventory quantities on hand is 7




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performed in order to determine if the inventory value is properly stated
at the lower of cost or market. Factors related to current inventories such as
future consumer demand, 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 the Companys inventories and its reported
operating results. STORE CLOSING AND IMPAIRMENT OF LONG-LIVED ASSETS The Company continually reviews its stores operating performance and
assesses plans for store closures. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS No. 144), losses related to the
impairment of long-lived assets are recognized when expected future cash flows
are less than the assets carrying value. When a store is closed or when a
change in circumstances indicates the carrying value of an asset may not be
recoverable, the Company evaluates the carrying value of the asset in relation
to its expected future cash flows. If the carrying value is greater than the
expected 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 expenses. When a store under a long-term lease is to be closed, the Company records
a liability for any lease termination or broker fees at the time an agreement
related to such closing is signed. At October 30, 2004, and January 31, 2004,
the Company had $0.1 million and $0.5 million, respectively, accrued for store
lease terminations. REVENUE RECOGNITION The Company recognizes 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 cost
of goods sold, buying and occupancy costs. Revenue from sales of gift
certificates, gift cards, reward cards and store credits is recognized at
redemption. A reserve is provided at the time of sale for projected
merchandise returns based upon historical experience. The Company recognizes
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 destination. 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 rate is recognized in income in the period that includes the
enactment date. The Companys deferred income tax assets include certain future
tax benefits. The Company records a valuation allowance against any portion of
those deferred income tax assets when it believes it is more likely than not
that some portion or all of the deferred income tax asset will not be realized. LOSS PER SHARE Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the year. Diluted loss per
share is computed by dividing the net 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 and warrants had been issued (calculated using the treasury stock
method). The following table reconciles the number of shares utilized in the
loss per share calculations (in thousands): For the three months ended
    
    For the year-to-date period endedOctober 30,
    
    November 1,
    
    October 30,
    
    November 1,2004
    
    2003
    
    2004
    
    2003Weighted average common shares outstanding - basic
    
    
    38,843
    
    
    
    20,551
    
    
    
    28,743
    
    
    
    20,488Effect of dilutive securities: stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive securities: warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding - diluted
    
    
    38,843
    
    
    
    20,551
    
    
    
    28,743
    
    
    
    20,488
 STOCK-BASED COMPENSATION As permitted by SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123),the Company uses 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. The Company 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 8




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compensation cost for the stock option plans
been determined consistent with SFAS No. 123, the Companys net loss and basic
and diluted loss per share would have been the following pro forma amounts (in
thousands, except per share amounts): For the three months ended
    
    For the year-to-date period endedOctober 30,
    
    November 1,
    
    October 30,
    
    November 1,2004
    
    2003
    
    2004
    
    2003Net Loss:As reported
    
    $
    (8,493
    )
    
    $
    (11,618
    )
    
    $
    (65,729
    )
    
    $
    (45,955
    )Stock based employee compensation expense
included in net loss
    
    
    
    
    
    
    100
    
    
    
    828
    
    
    
    250Stock based employee compensation
determined under fair value based method
for all awards1
    
    
    (82
    )
    
    
    (455
    )
    
    
    (2,869
    )
    
    
    (1,451
    )Pro forma loss
    
    $
    (8,575
    )
    
    $
    (11,973
    )
    
    $
    (67,770
    )
    
    $
    (47,156
    )Basic and diluted loss per share:As reported
    
    $
    (0.22
    )
    
    $
    (0.57
    )
    
    $
    (2.29
    )
    
    $
    (2.24
    )Stock based employee compensation expense
included in net loss
    
    
    
    
    
    
    0.01
    
    
    
    0.03
    
    
    
    0.01Stock based employee compensation
determined under fair value based method
for all awards1
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.10
    )
    
    
    (0.07
    )Pro forma loss
    
    $
    (0.22
    )
    
    $
    (0.58
    )
    
    $
    (2.36
    )
    
    $
    (2.30
    )Weighted average fair value of options granted
    
    $
    3.38
    
    
    N/A
    
    
    $
    2.33
    
    
    $
    2.04
  (1)
    
    For the year-to-date period ended October 30, 2004, $1,105 of pro forma
expense is due to stock option acceleration from the private placement
equity transaction which occurred in July 2004 (see Note 9. Additional
Financing). 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 2004 and 2003: Weighted average
    
    Dividend
    
    Expected
    
    Expectedrisk free rate
    
    yield
    
    lives
    
    volatility2004
    
    
    
    3.5%
    
    
    
    0.0%
    
    
    
    4.8
    
    
    
    66.8%2003
        
    
    3.0%
    
    
    
    0.0%
    
    
    
    5.0
    
    
    
    55.8%
  3.
    DISCONTINUED OPERATIONS In November 2002, the Company liquidated two companies it had previously
acquired, El Portal Group, Inc. and Bentleys Luggage Corp. (collectively the
Travel Subsidiaries), which consisted of 135 stores, due to their large
operating losses. In accordance with SFAS No. 144, the Travel Subsidiaries were
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. The Travel Subsidiaries had current liabilities of $0.3 million and $0.4
million, respectively, as of October 30, 2004, and January 31, 2004. Due to the
insignificance of these liabilities, a separate table is not being provided. In May 2003, the Company sold its Miami, Florida, distribution center for
net proceeds of $2.5 million. This facility was an asset acquired in the
Bentleys Luggage Corp. acquisition. The net proceeds from the sale decreased
cash used by discontinued operations for the year-to-date period ended November
1, 2003. The following summarizes the Travel Subsidiaries disposal reserve
activity during the year-to-date period ended October 30, 2004 (in thousands): Discontinued operations reserves: January 31,
    
    
    
    
    
    
    
    
    
    October 30,2004
    
    Usage
    
    Transfers
    
    2004Store closing1
    
    $
    388
    
    
    
    ($106
    )
    
    
    14
    
    
    $
    296Taxes
    
    
    18
    
    
    
    (4
    )
    
    
    (14
    )
    
    $
    0Total liabilities
of discontinued
operations
    
    $
    406
    
    
    
    ($110
    )
    
    
    
    
    
    $
    296
  (1)
    
    Primarily includes vendor chargebacks and other miscellaneous liabilities
associated with the liquidation of the Travel Subsidiaries.  4.
    RESTRUCTURING AND PARTIAL STORE LIQUIDATION On January 22, 2004, the Company announced that it would liquidate up to
100 underperforming mall and outlet stores (subsequently revised to 111 stores
 the liquidation stores) and eliminate approximately 950 store-related
positions. The Company entered into an Agency Agreement with a joint venture
comprised of Hilco Merchant Resources, LLC, Gordon Brothers Retail Partners,
LLC and Hilco Real Estate, LLC (the Hilco/Gordon Brothers Joint Venture) to
liquidate the inventory in the liquidation stores and assist in the discussions
with landlords regarding lease terminations in approximately 94 of these
stores. Pursuant to the Agency Agreement, the Hilco/Gordon Brothers Joint
Venture was required to pay the Company a guaranteed amount of 84.0% of the
cost value of the inventory, subject to certain adjustments. The Hilco/Gordon
Brothers Joint Venture was responsible for all expenses related to the sale.
The liquidation stores were selected based on strategic criteria, including
negative sales and earnings trends, projected real estate costs, location and
financial conditions within the market. In addition, the Company announced that
it would eliminate approximately 70 positions at its corporate headquarters in
Brooklyn Park, Minnesota and its distribution center in Las Vegas, Nevada,
close its distribution center in Las Vegas, Nevada, and write-off essentially
all remaining assets located at its distribution centers in Maple Grove,
Minnesota and Las Vegas, Nevada. The Company recorded expenses related to the restructuring and partial
store liquidation of $25.1 million in the year-to-date period ended October 30,
2004, primarily related to the transfer of inventory to an independent
liquidator in conjunction with the closing of the liquidation stores, lease
termination costs, accelerated depreciation, asset write-offs related to store
closings, severance, including payments under the Companys agreements with
David L. Rogers and Joel N. Waller, and other restructuring costs. A total of
$15.1 million and $11.3 million of these charges were recorded in selling,
general and administrative expenses and depreciation and 9




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amortization, respectively, as partially offset by $1.3 million of gross margin earned on the
liquidation sales. The liquidation sales were completed in April 2004, and as
of May 1, 2004, all the liquidation stores had been closed. As of October 30,
2004, the Company had successfully negotiated all of its lease terminations.
The overall net cash outlay for the restructuring costs is anticipated to be
zero to slightly negative. On October 28, 2004, the Company announced that its Chief Executive
Officer, Joel N. Waller, intended to resign his position with the Company by
January 31, 2005. The Company has entered into an agreement with Mr. Waller
that provides for severance payments and stock option modifications related to
certain performance and time-based criteria. An aggregate of 711,500 options
with exercise prices ranging from $4.00 to $20.69 are subject to mark-to-market
accounting using the intrinsic value method as a result of the option
modifications. The Company has recorded a $0.3 million increase to additional
paid-in-capital and deferred compensation for the in-the-money value of
modified stock options at October 29, 2004. This amount will be amortized as
compensation expense during the fourth quarter of 2004.  5.
    OTHER COMPREHENSIVE INCOME The Company reports accumulated other comprehensive income as a separate
item in the shareholders equity section of the consolidated balance sheet.
Other comprehensive income consists of foreign currency translation
adjustments. For the quarters and year-to-date periods ending October 30, 2004,
and November 1, 2003, the amounts were not significant.  6.
    LONG-TERM AND SHORT-TERM DEBT Long-term debt at October 30, 2004, and January 31, 2004, consisted of the
following (in thousands): October 30,
    
    January 31,2004
    
    2004Senior notes
    
    $
    
    
    
    $
    30,590Term B promissory note
    
    
    25,000
    
    
    
    25,000Senior credit facility
    
    
    17,990
    
    
    
    Checks written in excess of cash balances
    
    
    3,567
    
    
    
    Note payable
    
    
    
    
    
    
    490Other loans
    
    
    
    
    
    
    109Total debt
    
    $
    46,557
    
    
    $
    56,189Less: current portion
    
    
    (21,557
    )
    
    
    (31,125
    )Total long-term debt
    
    $
    25,000
    
    
    $
    25,064
 SENIOR NOTES The Company issued $75.0 million of 111⁄4% Senior Notes due August 15,
2004 (the 111⁄4% Senior Notes). Interest on the 111⁄4% Senior Notes was
payable semiannually in arrears on February 15 and August 15 of each year. At
January 31, 2004, the 111⁄4% Senior Notes had a balance of $30.6 million and
were classified as a current liability. The Company repurchased an aggregate
of $44.4 million of the 111⁄4% Senior Notes in fiscal 1998, 1999 and 2000. In
addition, during July 2004, the Company repurchased an additional $22.0 million
of the 111⁄4% Senior Notes. The Company repaid the remaining $8.6 million
principal balance on the 111⁄4% Senior Notes at maturity. REVOLVING CREDIT AGREEMENT AND TERM B PROMISSORY NOTE General Electric Capital Corporation and a syndicate of banks have
provided the Company with a senior credit facility, which was amended on
November 1, 2002, January 31, 2003, April 11, 2003, January 21, 2004, April 15,
2004, and April 27, 2004, that provides for borrowings of up to $150.0 million
in aggregate principal amount, including a $25.0 million Term B promissory note
and a $75.0 million letter of credit subfacility. With the completion of the
sale of capital stock (described below in Note 9. Additional Financing), and
the subsequent repayment of the 111⁄4% Senior Notes in full at maturity, the
senior credit facility expiration date was extended to June 28, 2008, at which
time all borrowings, including the Term B promissory note, will become due and
payable. The senior credit facility contains certain restrictions and covenants,
which, among other things, restrict the Companys ability to make capital
expenditures; acquire or merge with another entity; make investments, loans or
guarantees; incur additional indebtedness; create liens or other encumbrances;
or pay cash dividends or make other distributions. At October 30, 2004, the
Company was in compliance with all covenants related to the senior credit
facility. At October 30, 2004, and January 31, 2004, there were $18.0 million and no
borrowings, respectively, under the revolving portion of the credit facility.
At October 30, 2004, and January 31, 2004, there were $24.5 million and $6.7
million, respectively, in letters of credit outstanding. The Term B promissory
note had a balance of $25.0 million on October 30, 2004, and January 31, 2004.  7.
    LEGAL PROCEEDINGS In January 2003, a class action was brought on behalf of current and
former store managers of the Company in California regarding their
classification as exempt from overtime pay. In July 2003, the Company reached a
confidential settlement of the class action through mediation. A charge of $1.9
million related to this settlement was taken during the second quarter of 2003.
The court granted final approval of the settlement on January 30, 2004. The
Company paid the entire settlement during the first quarter of 2004. 10




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The Company is involved in various other 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 the
Companys consolidated financial position and results of operations.  8.
    SUPPLEMENTAL BALANCE SHEET INFORMATION October 30,
    
    January 31,(in thousands)
    
    2004
    
    2004Accounts receivable, net:Trade receivables
    
    $
    3,855
    
    
    $
    5,290Other receivables
    
    
    702
    
    
    
    964Total
    
    
    4,557
    
    
    
    6,254Less - Allowance for doubtful accounts
    
    
    (38
    )
    
    
    (88
    )Less - Deferred sales
    
    
    (56
    )
    
    
    (44
    )Total accounts receivable, net
    
    $
    4,463
    
    
    $
    6,122Inventories:Raw materials
    
    $
    1,906
    
    
    $
    3,189Finished goods
    
    
    122,854
    
    
    
    86,109Total inventories
    
    $
    124,760
    
    
    $
    89,298Property and equipment, net:Equipment and furniture
    
    $
    78,069
    
    
    $
    91,555Leasehold improvements
    
    
    24,787
    
    
    
    32,267Total
    
    
    102,856
    
    
    
    123,822Less - Accumulated depreciation
    
    
    (62,300
    )
    
    
    (63,775
    )Total property and equipment, net
    
    $
    40,556
    
    
    $
    60,047Goodwill and other assets, net:Goodwill
    
    $
    72
    
    
    $
    72Debt issuance costs
    
    
    5,384
    
    
    
    7,001Other assets
    
    
    122
    
    
    
    186Total
    
    
    5,578
    
    
    
    7,259Less - Accumulated amortization
    
    
    (3,185
    )
    
    
    (4,721
    )Total goodwill and other assets, net
    
    $
    2,393
    
    
    $
    2,538
  9.
    ADDITIONAL FINANCING On April 25, 2004, the Company entered into an agreement to issue
17,948,718 shares of the Companys common stock (the Equity Financing) to
three institutional investors at a price of $1.95 per share. The transaction
closed on July 2, 2004, with gross proceeds before offering expenses of $35.0
million. As additional consideration for the investors commitment, on April
25, 2004, the Company issued two million warrants exercisable for five years to
the investors upon signing the Equity Financing agreement, and at closing,
issued an additional two million warrants exercisable for five years, each at
an exercise price of $3.00 per share of common stock. On July 9, 2004, the
Company repurchased $22.0 million of the 111⁄4% Senior Notes with proceeds
from the Equity Financing. The Company used $8.6 million of the proceeds from
the Equity Financing to repay the balance of the 111⁄4% Senior Notes at
maturity. The balance of the proceeds have been used for general working
capital purposes. The relative fair value of the warrants and common stock sold, determined
using the Black-Scholes model, was allocated within additional paid-in capital
at closing. The Equity Financing qualified as a change in control pursuant
to the Companys equity compensation plans. As such, vesting was accelerated
on all outstanding unvested stock options and restricted stock as of July 2,
2004. 11




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of
operations of Wilsons The Leather Experts Inc. and wholly owned subsidiaries
should be read in conjunction with our most recent audited consolidated
financial statements and related notes included in our 2003 Annual Report on
Form 10-K. When we refer to we, our, us or Wilsons Leather, we mean
Wilsons The Leather Experts Inc. and its subsidiaries, including its
predecessor companies. OVERVIEW We are the leading specialty retailer of quality leather outerwear,
accessories and apparel in the United States. Our multiple store formats 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 quality,
fashionable merchandise at attractive prices. Our business structure results in
shorter lead times than our competition, 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 October 30, 2004, we operated a total of 453 permanent retail stores
located in 45 states and the District of Columbia, including 328 mall stores,
109 outlet stores and 16 airport stores. Each year we supplement our permanent
stores with seasonal stores during our peak selling season. During 2004, we
plan to operate 102 seasonal stores compared to 229 in the prior year. Our mall stores average approximately 2,600 total leased square feet and
feature a large assortment of both classic and contemporary leather outerwear,
accessories and apparel. Our outlet stores are operated primarily under the
Wilsons Leather Outlet name, average approximately 4,000 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 worlds busiest airports. 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 merchandise more accessible to our customers and facilitate
cross-marketing with our stores. Our proprietary labels, including M.
Julian®,
Maxima®, Pelle Studio® and Wilsons Leather, are positioned to appeal to
identified customer lifestyle segments. In evaluating our financial performance and operating trends, management
considers information concerning our operating loss, net loss, basic and
diluted loss per share and certain other information before liquidation and
restructuring costs that are not calculated in accordance with generally
accepted accounting principles in the United States of America (GAAP). See
Note 4. Restructuring and Partial Store Liquidation. A reconciliation of
these non-GAAP financial measures to GAAP numbers for the three month and
year-to-date periods ending October 30, 2004, is included in the tables below.
We believe that the non-GAAP numbers calculated before liquidation and
restructuring costs provide a useful analysis of our ongoing operating trends
and in comparing operating performance period to period. We evaluate these
non-GAAP numbers calculated before liquidation and restructuring costs on a
quarterly basis in order to measure and understand our ongoing operating
trends. Reconciliation of GAAP Consolidated Statement of Operations to
Adjusted Statement of Operations for the three months ended October 30, 2004:
(In thousands, except per share amounts)
(Unaudited) For the three months ended
    
    Restructuring
    
    For the three months endedOctober 30, 2004
    
    and other
    
    October 30, 2004As reported
    
    charges (1)


    AdjustedNET SALES
    
    $
    87,923
    
    
    $
    
    
    
    $
    87,923COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    62,846
    
    
    
    (90
    )
    
    
    62,936Gross margin
    
    
    25,077
    
    
    
    90
    
    
    
    24,987SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    28,851
    
    
    
    2,821
    
    
    
    26,030DEPRECIATION AND AMORTIZATION
    
    
    3,334
    
    
    
    
    
    
    
    3,334Operating loss
    
    
    (7,108
    )
    
    
    (2,731
    )
    
    
    (4,377
    )INTEREST EXPENSE, net
    
    
    1,385
    
    
    
    
    
    
    
    1,385Loss before income taxes
    
    
    (8,493
    )
    
    
    (2,731
    )
    
    
    (5,762
    )INCOME TAX BENEFIT
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (8,493
    )
    
    $
    (2,731
    )
    
    $
    (5,762
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (0.22
    )
    
    $
    (0.07
    )
    
    $
    (0.15
    )Weighted
average shares outstanding - basic and diluted
    
    
    38,843
    
    
    
    
    
    
    
    38,843
  (1)
    
    Includes $2.7 million related to lease termination costs, severance and
other restructuring charges. Reconciliation of GAAP Consolidated Statement of Operations to
Adjusted Statement of Operations for the year-to-date period ended October 30, 2004
(In thousands, except per share amounts)
(Unaudited) For the year-to-date
    
    
    
    
    
    For the year-to-dateperiod ended
    
    Restructuring
    
    period endedOctober 30, 2004
    
    and other
    
    October 30, 2004As reported
    
    charges (1)
    
    AdjustedNET SALES
    
    $
    241,004
    
    
    $
    20,778
    
    
    $
    220,226COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    187,667
    
    
    
    19,494
    
    
    
    168,173Gross margin
    
    
    53,337
    
    
    
    1,284
    
    
    
    52,053SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    90,606
    
    
    
    15,127
    
    
    
    75,479DEPRECIATION AND AMORTIZATION
    
    
    22,378
    
    
    
    11,285
    
    
    
    11,093Operating loss
    
    
    (59,647
    )
    
    
    (25,128
    )
    
    
    (34,519
    )INTEREST EXPENSE, net
    
    
    6,082
    
    
    
    
    
    
    
    6,082Loss before income taxes
    
    
    (65,729
    )
    
    
    (25,128
    )
    
    
    (40,601
    )INCOME TAX BENEFIT
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (65,729
    )
    
    $
    (25,128
    )
    
    $
    (40,601
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (2.29
    )
    
    $
    (0.88
    )
    
    $
    (1.41
    )Weighted
average shares outstanding - basic and diluted
    
    
    28,743
    
    
    
    
    
    
    
    28,743
  (1)
    
    Includes $25.1 million related to the transfer of inventory to
an independent liquidator in conjunction with the closing of
approximately 111 stores, lease termination costs, accelerated
depreciation, asset write-offs related to store closings,
severance and other restructuring charges. 12




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We measure performance using key operating statistics such as comparable
store sales, sales per square foot, gross margin percentage and store operating
expenses, with a focus on labor, as a percentage of sales. These results
translate into store operating contribution and store cash flow, which we use
to evaluate overall performance on an individual store basis. Store operating
contribution is calculated by deducting a stores operating expenses from its
gross margin and is measured as a percentage of sales. Store operating
contribution gives us an overall measure as to whether or not individual
locations and markets are meeting our financial objectives. In addition, general and administrative expenses are monitored in absolute
amounts, as well as on a percentage of sales basis. We continue to monitor
product costs and promotional activity, which allows us to generally maintain
acceptable margin levels. Our gross margins are influenced by the mix of
merchandise between outerwear and accessories in our total sales. We also measure and evaluate investments in our retail locations,
including inventory and property and equipment. Inventory performance is
primarily measured by inventory turns, or the number of times store inventory
turns over in a given period, and amounts of owned inventory at various times
based on payment terms from our vendors. The most significant investments in
property and equipment are made at the time we open a store. Comparable store sales increased 7.2% in the three months ended October
30, 2004, and increased 4.7% in the year-to-date period ended October 30, 2004,
compared to a 9.0% decrease and a 4.9% decrease in comparable store sales in
the same periods of the prior year, 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 liquidation stores are not included in the
comparable store sales calculation. 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 same period in the prior year. On April 25, 2004, we entered into an agreement to issue 17,948,718 shares
of our common stock (the Equity Financing) to three institutional investors
at a price of $1.95 per share. The transaction closed on July 2, 2004, with
gross proceeds before offering expenses of $35.0 million. As additional
consideration for the investors commitment, on April 25, 2004, we issued two
million warrants exercisable for five years to the investors upon signing the
Equity Financing agreement, and at closing, issued an additional two million
warrants exercisable for five years, each at an exercise price of $3.00 per
share of common stock. On July 9, 2004, we repurchased $22.0 million of our
111⁄4% Senior Notes due August 15, 2004 (the 111⁄4% Senior Notes) with
proceeds from the Equity Financing. We repaid the remaining $8.6 million of
the 111⁄4% Senior Notes at maturity with proceeds from the Equity Financing
and have used the balance of these proceeds for general working capital
purposes. CRITICAL ACCOUNTING POLICIES We consider our critical accounting policies to be those related to
inventories and property and equipment impairment as discussed in the section
with this title in Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations that begins on page 24 of our 2003 Annual
Report on Form 10-K. No material changes occurred to these policies in the
periods covered by this quarterly report. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 30, 2004,
COMPARED TO THE THREE MONTHS ENDED NOVEMBER 1, 2003 Net Sales.Net sales decreased 10.2% to $87.9 million in the three months
ended October 30, 2004, from $97.9 million in the comparable period last year.
The sales decrease during the quarter is the result of having, on average, 154
fewer stores as a result of the liquidation and natural lease terminations, for
an approximate decrease in the number of stores of 25.4% for the three months
ended October 30, 2004. The effect of the decreased store count was partially
offset by an improvement in comparable store sales. Comparable store sales for
the three months ended October 30, 2004, increased 7.2% compared to a decrease
of 9.0% in comparable store sales for the same period last year. This
comparable store sales increase was primarily driven by special accessory
promotions in the third quarter, the wear now assortment of value-priced
product and improved marketing efforts to drive customers into our stores in
2004. Comparable store sales for 2004 do not include sales for the liquidation
stores. We opened one store and closed one store in the three months ended October
30, 2004, compared to opening eight stores and closing eight stores in the
comparable period last year. As of October 30, 2004, we operated 453 stores
compared to 607 stores (including the liquidation stores closed in 2004) at
November 1, 2003. We regularly supplement our permanent mall stores with
seasonal stores during our peak selling season from October to January. 13




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##### Table of Contents



Cost of Goods Sold, Buying and Occupancy Costs.Cost of goods sold, buying
and occupancy costs decreased $12.2 million, or 16.2%, in the three months
ended October 30, 2004, compared to the comparable period last year. This
resulted in a $2.2 million increase in gross margin in the three months ended
October 30, 2004, compared to the corresponding period in 2003. The gross
margin percentage increased to 28.5% in the three months ended October 30,
2004, compared to 23.4% in the comparable period last year. The increase in
gross margin was largely due to an improvement in buying and occupancy costs of
$6.7 million driven by: (1) an improvement of $6.2 million in occupancy costs
due to fewer stores open in 2004 compared to 2003, (2) a $0.3 million decrease
in distribution center costs due to the closure of the Las Vegas, Nevada
distribution center in January 2004, and (3) $0.2 million in cost savings in
our merchandise department. This gross margin improvement was also driven by
the favorable leverage of the 7.2% third quarter comparable store sales
increase, which contributed to increased product margins compared to the prior
year. The restructuring activities did not have a material impact on our cost
of goods sold, buying and occupancy costs or on our gross margin in the three
months ended October 30, 2004. Selling, General and Administrative Expenses.Selling, general and
administrative (SG&A) expenses decreased to $28.9 million in 2004 from $35.1
million in 2003, and decreased as a percentage of net sales to 32.8% from
35.9%. The $6.3 million decrease was primarily due to: (1) a $4.2 million
decrease in store selling expenses primarily due to a 25.4% reduction in store
count for the three months ended October 30, 2004 and tighter cost control, (2)
a $1.5 million decrease in sales promotion expenses due to less direct
advertising as compared to the prior year, (3) a $1.6 million decrease in other
store and field sales management expenses also due to a lower average store
count, (4) a $0.8 million decrease over the prior year for general
administrative expenses, (5) a $0.2 million lower loss on asset disposal
compared to the prior year, and (6) a $0.8 million reduction in various other
departmental expenses due to a reduced head count and tighter expense control.
These expenses were largely offset by a $2.8 million increase over the prior
year for restructuring costs primarily related to lease termination costs,
severance and other restructuring charges. SG&A expenses as a percentage of net sales, excluding restructuring costs
(which totaled $2.8 million in 2004), decreased to 29.6% compared to 35.9% for
the third quarter of last year. This reduction is a result of continued
improvement in controlling store-related expenses, the closing of 25.4% of the
store base and the overhead reductions implemented in January 2004, all
discussed above. Depreciation and Amortization.Depreciation and amortization decreased to
$3.3 million in the three months ended October 30, 2004, from $4.2 million in
the comparable period last year, and decreased as a percentage of net sales to
3.8% from 4.3%. The decrease of $0.9 million was primarily the result of $0.3
million in decreased administrative depreciation as a result of headcount and
related asset reductions at our headquarters and closures of two distribution
centers in the fourth quarter of 2003 and $0.6 million in lower store
depreciation due to 25.4% fewer stores for the three months ended October 30,
2004 compared to 2003. Operating Loss.As a result of the above, the operating loss was $7.1
million in the three months ended October 30, 2004, compared to a $16.5 million
loss for the comparable period last year, or 8.1% of net sales in 2004 as
compared to 16.8% of net sales in 2003. This improvement was largely due to
restructuring costs of $2.7 million in 2004, offset by: (1) $9.1 million in
lower SG&A expenses in 2004 compared to 2003, (2) $2.1 million in improved
gross margin as compared to the prior year, and (3) $0.9 million in favorable
depreciation expense in 2004 due to a lower asset base. Excluding the restructuring charges, the operating loss for the quarter
was $4.4 million, a 73.4% improvement over the $16.5 million operating loss in
the comparable period of 2003. This improvement reflects the results of the
restructuring and store closing initiatives, as well as the impact of improved
product margins and increases in comparable store sales. Interest Expense.Net interest expense decreased to $1.4 million in 2004
from $2.9 million in 2003, primarily due to the early repurchase of $22.0
million of the 111⁄4% Senior Notes in the second quarter of 2004, the
repayment of $8.6 million of the 111⁄4% Senior Notes in the third quarter of
2004, reduced levels of revolver borrowings and reduced amortization of debt
issuance costs. The restructuring activities did not impact interest expense. Income Tax Benefit.There was no income tax benefit in 2004 compared to
$7.7 million in 2003 due to sustained losses, which currently require the
recording of a valuation allowance in 2004 against potentially unrealizable net
operating losses in future periods. As a result, the effective rate was reduced
from 40.0% in 2003 to 0.0% in 2004. The ability to utilize net operating loss
carryforwards may be limited under various provisions of the Internal Revenue
Code. We performed a preliminary calculation to determine if such limitations
are applicable and will complete the study by fiscal year end. 14




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##### Table of Contents



Net Loss.As a result of the above, the net loss for the three months
ended October 30, 2004, was $8.5 million compared to a net loss of $11.6
million in the comparable period last year. The $3.1 million decrease in net
loss over the prior year is primarily due to the $5.8 million decrease in net
loss (including a $7.7 million tax benefit recorded in the third quarter of
2003 and no tax benefit recorded in the third quarter of 2004), offset by the
$2.7 million of charges related to restructuring activities. Excluding the
restructuring charges, the net loss for the third quarter of 2004 was $5.8
million compared to $11.6 million in the comparable period of 2003. RESULTS OF OPERATIONS FOR THE YEAR-TO-DATE PERIOD ENDED OCTOBER 30, 2004,
COMPARED TO THE YEAR-TO-DATE PERIOD ENDED NOVEMBER 1, 2003 Net Sales.Net sales decreased 4.7% to $241.0 million in the year-to-date
period ended October 30, 2004, from $252.9 million in the comparable period
last year. Included in 2004 sales was approximately $20.8 million in
liquidation sales resulting from the liquidation of 111 stores that began in
the fourth quarter of 2003 and ended in April of 2004. See Note 4.
Restructuring and Partial Store Liquidation. Comparable store sales for the year-to-date period ended October 30, 2004,
increased 4.7% compared to a 4.9% decrease in comparable store sales for the
same period last year. This comparable store sales increase was primarily
driven by special clearance and promotional sales in the second and third
quarters, offset by competition from the liquidation stores in the first
quarter. Comparable store sales for 2004 do not include sales for the
liquidation stores. Excluding the $20.8 million in liquidation sales, net sales
decreased 12.9% to $220.2 million, reflecting the 25.3% average store count
decline for the year-to-date period ended October 30, 2004 as partially offset
by the improvement in comparable store sales. We opened five stores and closed 12 stores in the year-to-date period
ended October 30, 2004 (excluding the liquidation stores), compared to opening
16 stores and closing 27 stores in the comparable period last year. As of
October 30, 2004, we operated 453 stores compared to 607 stores (including the
liquidation stores closed in 2004) at November 1, 2003. We regularly supplement
our permanent mall stores with seasonal stores during our peak selling season
from October to January. Cost of Goods Sold, Buying and Occupancy Costs.Cost of goods sold, buying
and occupancy costs decreased $21.3 million, or 10.2%, in the year-to-date
period ended October 30, 2004, compared to the comparable period last year.
This resulted in a $9.4 million increase in gross margin in the current period
compared to the corresponding period in 2003. The gross margin percentage also
increased to 22.1% in the year-to-date period ended October 30, 2004, compared
to 17.4% in the comparable period last year. The increased gross margin was due
primarily to $20.1 million in decreased buying and occupancy costs. The
improvement in buying and occupancy costs was largely driven by: (1) an
improvement of $18.6 million in occupancy costs as a result of an average of
25.3% fewer stores open in the year-to-date period ended October 30, 2004
compared to 2003, (2) a $1.1 million decrease in distribution center costs due
to the closure of the Las Vegas, Nevada distribution center in late January
2004, and (3) a $0.4 million decrease in other merchandising costs. This
improvement was also driven by reduced delivery costs of $0.7 million due to
fewer stores open, and a lower level of clearance goods as a result of the
liquidation process as well as positive sell-through of new receipts. Gross
margin as a percentage of net
sales, excluding liquidation and restructuring charges (which totaled
$1.3
million in 2004, or 6.2% of net liquidation sales) increased to 23.6% in 2004
compared to 17.4% in the prior year. This increase is primarily a result of improvements
in buying and occupancy costs as described above. Selling, General and Administrative Expenses.SG&A expenses decreased to
$90.6 million in 2004 from $100.4 million in 2003, and decreased as a
percentage of net sales to 37.6% from 39.7%. The $9.8 million decrease was
primarily due to: (1) a $13.1 million decrease in store selling expenses
primarily due to tighter cost control and a 25.3% reduction in store count, (2)
a $3.9 million decrease in other store and field sales management expenses also
due to a lower average store count, (3) a $0.9 million decrease in e-commerce
expenses due to fewer functionality improvements over the prior year and lower
sales promotion expenses due to the preparation for outsourcing e-commerce
operations in the third quarter of 2004, (4) a $2.0 million decrease in legal
expenses related to a charge of $1.9 million taken in the second quarter of
2003 in connection with a class action lawsuit, (5) a $2.1 million decrease in
other administration costs related to a reduced store count and cost-saving
initiatives, and (6) a $2.9 million decrease in sales promotion expense due to
deferral of spending until the fourth quarter of 2004 and less spending on
direct advertising as compared to the prior year. These expense reductions were
offset by a $15.1 million increase over the prior year for liquidation and
restructuring costs related primarily to lease termination costs, asset
write-offs related to store closings, severance, and other restructuring
charges. SG&A expenses as a percentage of net sales, excluding liquidation and
restructuring charges (which totaled $15.1 million in 2004, or 72.8% of net
liquidation sales) decreased to 34.3% compared to 39.7% for the first three
quarters of last year. This reduction is a result of continued improvement in controlling store-related expenses, the
closing of underperforming stores and the overhead reductions implemented in
January 2004, all discussed above. 15




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Depreciation and Amortization.Depreciation and amortization increased to
$22.4 million in the year-to-date period ended October 30, 2004, from $12.5
million in the comparable period last year, and increased as a percentage of
net sales to 9.3% from 5.0%. The increase of $9.8 million was primarily the
result of $11.3 million in accelerated depreciation recorded in 2004 for the
liquidation stores, offset by $1.4 million in decreased administrative and
store depreciation as a result of headcount and related asset reductions at our
headquarters and closures of two distribution centers in the fourth quarter of
2003 and a lower level of store assets related to a reduced store count. Depreciation and amortization, excluding liquidation and restructuring
effects (which totaled $11.3 million in 2004, or 54.3% of net liquidation
sales), decreased to $11.1 million, or 5.0% of net sales, compared to $12.5
million, or 5.0% of net sales, in the first three quarters of last year. This
decrease is due to a lower level of administrative and store assets. Operating Loss.As a result of the above, the operating loss was $59.6
million in the year-to-date period ended October 30, 2004, compared to a $69.0
million operating loss for the comparable period last year, or 24.7% of net
sales in 2004 as compared to 27.3% of net sales in 2003. This was largely due
to liquidation and restructuring costs of $25.1 million in 2004, offset by: (1)
$24.9 million in lower SG&A expenses in 2004 compared to 2003, (2) $8.1 million
in improved gross margin as compared to the prior year, and (3) $1.4 million in
favorable depreciation expense in 2004 due to a lower asset base. Excluding the liquidation and restructuring charges, the operating loss
for the first three quarters was $34.5 million, a 49.9% improvement over the
$69.0 million operating loss in the first three quarters of 2003. This
improvement reflects the restructuring and store closing initiatives as well as
the impact of improved product margins. Interest Expense.Year-to-date net interest expense decreased to $6.1
million in 2004 compared to $7.6 million in the corresponding period of 2003.
This improvement was primarily due to a $0.5 million write-off of debt issuance
costs related to the amended senior credit facility, which reduced our
revolving line of credit borrowing capacity from $180.0 million to $125.0
million, offset by: (1) interest savings from the repurchase of $22.0 million
of the 111⁄4% Senior Notes in the second quarter of 2004 and repayment of
$8.6 million of the 111⁄4% Senior Notes in the third quarter of 2004, (2)
reduced levels of revolver borrowings and (3) reduced amortization of debt
issuance costs. The liquidation and restructuring activities did not impact
interest expense. Income Tax Benefit.There was no income tax benefit in 2004 compared to
$30.6 million in 2003 due to sustained losses, which currently require the
recording of a valuation allowance in 2004 against potentially unrealizable net
operating losses in future periods. As a result, the effective rate was reduced
from 40.0% in 2003 to 0.0% in 2004. The ability to utilize net operating loss
carryforwards may be limited under various provisions of the Internal Revenue
Code. We performed a preliminary calculation to determine if such limitations
are applicable and will complete the study by fiscal year end. Net Loss.As a result of the above, the net loss for the year-to-date
period ended October 30, 2004, was $65.7 million compared to a net loss of
$46.0 million in the comparable period last year. The $19.8 million increase in
net loss over the prior year is primarily due to the $25.1 million of charges
related to liquidation and restructuring activities (offset by the improved
gross margin and reduced costs excluding liquidation and restructuring costs
discussed above), a $30.6 million prior-year tax benefit and no tax benefit
recorded during the year-to-date period ended October 30, 2004. Excluding the
liquidation and restructuring charges, the net loss for the year-to-date period
ended October 30, 2004 was $40.6 million. 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 center. 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. 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, acts of
terrorism or the threat of either, other significant national and international
events, taxation and consumer confidence in future economic conditions.
Consumer purchases of discretionary items, such as our leather products, tend
to decline during recessionary periods when disposable income is lower. The
uncertain outlook in the United States economy has shifted consumer spending
habits toward large discount retailers, which has decreased mall traffic,
resulting in lower net sales on a quarterly and annual basis. 16




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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 our
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. General Electric Capital Corporation and a syndicate of banks have
provided us with a senior credit facility, which was amended on April 15, 2004,
and April 27, 2004 (the senior credit facility or the credit agreement),
that provides for borrowings of up to $150.0 million in aggregate principal
amount, including a $25.0 million Term B promissory note and a $75.0 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, and except that such amount is reduced by the
amount of certain in-transit inventory to the extent such in-transit
inventory reflects a disproportionate amount of our total inventory;
    
    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; and
    
    minus a $10.0 million reserve. 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;
    
    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; and
    
    from December 31 of each year through March 31 of the following year,
we must have no borrowings under the revolving credit portion of the
facility and outstanding letters of credit must be no greater than $20.0
million. Peak borrowings typically occur from October through December and
outstanding letters of credit typically peak from August through September. As
of October 30, 2004, we had $18.0 million outstanding under the revolving
portion of the credit facility, $25.0 million under the Term B promissory note
and $24.5 million in outstanding letters of credit. Except as noted in the next sentence, interest is payable on revolving
credit borrowings at variable rates determined by LIBOR plus 3.25%, 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). If we meet certain financial
tests for our fiscal year ending January 29, 2005, these rates will be reduced
by 0.50% per annum thereafter. Interest is payable on the $25.0 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. With the completion of the sale of capital stock
(described above under Note 9. Additional Financing) and subsequent
repurchase and repayment of the 111⁄4% Senior Notes, the senior credit
facility will expire on June 28, 2008, 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 1% prepayment fee. The revolving credit portion
of the facility is subject to a 1% prepayment fee under most circumstances. The
Term B promissory note is prepayable 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; create liens or other encumbrances; or pay cash
dividends or make other distributions. 17




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We plan to use the senior credit facility for our immediate and future
working capital needs. 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 cash on hand, current and
anticipated cash flow from operations, cost reductions associated with the
lower store count from the liquidation stores and natural lease terminations
and the proceeds from the Equity Financing discussed below, will be adequate to
meet our working capital and capital expenditure requirements through the next
twelve months. On August 18, 1997, we completed a private offering of $75.0 million of
our 111⁄4% Senior Notes to certain institutional buyers. The 111⁄4% Senior
Notes matured on August 15, 2004. During fiscal 2000 and fiscal 1999, we
repurchased $13.3 million and $26.1 million, respectively, of our 111⁄4%
Senior Notes. On July 9, 2004, the Company repurchased $22.0 million of the
111⁄4% Senior Notes with proceeds from the Equity Financing. We repaid the
remaining $8.6 million balance of the 111⁄4% Senior Notes at maturity. On April 25, 2004, we entered into an agreement to issue 17,948,718 shares
of our common stock to three institutional investors at a price of $1.95 per
share. The Equity Financing closed on July 2, 2004, with gross proceeds of
$35.0 million before offering costs. As additional consideration for the
investors commitment, on April 25, 2004, we issued two million warrants
exercisable for five years to the investors upon signing the Equity Financing
agreement, and at closing issued an additional two million warrants exercisable
for five years, each at an exercise price of $3.00 per share of common stock.
The proceeds of the offering were used to repay the 111⁄4% Senior Notes
described above. The remaining balance of these funds was used for general
working capital purposes. CASH FLOW ANALYSIS Operating Activities.Operating activities for the year-to-date period
ended October 30, 2004, resulted in cash used of $59.9 million compared to cash
used of $74.9 million in the corresponding period of 2003. The $59.9 million of cash used by operating activities in 2004 was
comprised of sources of cash including: (1) a $19.2 million increase in
accounts payable and accrued expenses due to an increase in accounts payable of
$24.9 million due to the volume of merchandise purchased in preparation for the
holiday selling season as offset by a $5.7 million decrease in accrued expenses
due primarily to lower headcount as a result of our restructuring activities,
(2) $25.6 million in non-cash adjustments for depreciation, amortization, asset
write-offs, and restricted stock compensation expense, of which $13.2 million
was related to the liquidation stores and restructuring activities, and (3) a
$1.7 million decrease in accounts receivable primarily due to lower credit card
receivables as a result of a lower store count. These sources of cash were offset by: (1) a net loss from operations of
$65.7 million (of which $25.1 million related to charges for the liquidation
and restructuring activities), (2) a $35.5 million increase in inventories in
preparation for the holiday selling season, (3) a $4.0 million increase in
prepaid expenses due primarily to $3.9 million in higher prepaid rent due to
the timing of rent payments, and (4) a $1.2 million decrease in income taxes
payable and other liabilities primarily due to $1.6 million in reductions in
straight-line rent due to the store liquidation event and amortization of
deferred gain on the sale/leaseback of our headquarters facility, offset by a
$0.4 million increase in miscellaneous income tax liability accounts. The $74.9 million of cash used by operating activities in 2003 was
comprised of: (1) a $27.0 million increase in accounts payable and accrued
expenses, (2) a $14.1 million non-cash adjustment for depreciation,
amortization, asset write-offs, and restricted stock compensation expense, (3)
a $3.1 million decrease in refundable income taxes and (4) a $2.1 million
increase in income taxes payable and other liabilities. These sources of cash in 2003 were primarily offset by: (1) a $46.0
million net loss from operations, (2) a $55.8 million increase in inventories,
(3) a $5.3 million increase in prepaids due to timing of rent payments, (4) a
$1.1 million increase in accounts receivable, and (5) a $13.0 million increase
in net deferred income tax assets and liabilities. Investing Activities.Investing activities for the year-to-date period
ended October 30, 2004, were comprised of $4.2 million in capital expenditures
primarily for the renovation of and improvements to existing stores, offset by
$0.2 million in proceeds on the sale of property and equipment. For 2004,
capital expenditures are capped by the senior credit facility at $6.0 million. 18




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Investing activities for the year-to-date period ended November 1, 2003,
were comprised primarily of $6.3 million in capital expenditures used primarily
for the construction of new stores and the renovation of and improvements to
existing stores. Financing Activities.Cash provided by financing activities for the
year-to-date period ended October 30, 2004, was $21.6 million and was comprised
primarily of: (1) $32.4 million in net proceeds from the Equity Financing, (2)
$18.0 million in revolver borrowings, and (3) $3.6 million provided by checks
written in excess of cash balance, offset by (4) $30.6 million used for payment
of the 111⁄4% Senior Notes, (5) $0.6 million in reduced other borrowings, and
(6) $1.2 million used for debt acquisition costs related to amendments to our
senior credit facility in April 2004. Cash provided by financing activities for the year-to-date period ended
November 1, 2003, was $61.5 million, which was comprised primarily of $56.8
million provided by revolver financing and $4.8 million provided by checks
written in excess of cash balances, and $0.9 million from the issuance of
common stock and exercise of stock options, partially offset by $1.0 million
used for debt acquisition costs. 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 are material to
investors. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS We have standby and documentary letters of credit outstanding at October
30, 2004, amounting to $24.5 million. We also have a Term B Promissory Note
for $25.0 million and $18.0 million outstanding on the revolving portion of our
credit facility at October 30, 2004. These commitments are further discussed
in the Liquidity and Capital Resources section of this Form 10-Q. We repaid
the remaining balance of $8.6 million of the 111⁄4% Senior Notes at maturity
in the third quarter of 2004. Otherwise, there are no known material
commitments, other than store operating leases that we have committed to in the
ordinary course of business. 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. FORWARD-LOOKING STATEMENTS Except for historical information, matters discussed in Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements involve risks and
uncertainties, and actual results may be materially different. Because actual
results may differ, readers are cautioned not to place undue reliance on
forward-looking statements. Such statements are based on information
available to management as of the time of such statements, and relate to, among
other things, our results of operations, expected restructuring charges and
expected demand for our products. Factors that could cause actual results to
differ include: changes in customer shopping patterns; competition in our
markets; economic uncertainty; change in consumer preferences and fashion
trends away from leather; failure of results of operations to meet expectations
of research analysts; reductions in our comparable store sales and operating
results over the past three years; risks associated with our debt covenant
compliance; our inability to grow the business as planned; decreased
availability and increased cost of leather; risks associated with foreign
sourcing and international business; risks associated with estimates made in
our critical accounting policies; 19




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seasonality of the business; loss of key members of our management team;
reliance on third parties for maintaining our management information systems;
concentration of our common stock; volatility of the price of our common stock;
war, acts of terrorism or the threat of either; interruption in the operation
of corporate offices and distribution centers; and public sale of common stock
by existing shareholders. For a further description of our risk factors,
please see our Form 10-Q filing for our second fiscal quarter ended July 31,
2004, Exhibit 99.1 Risk Factors Related to Forward Looking Statements. 
  ITEM 3.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 senior credit
facility, interest expense would increase or decrease accordingly. As of
October 30, 2004, we had $18.0 million outstanding under the revolving portion
of the credit facility, $25.0 million under the Term B promissory note, and
$24.5 million in outstanding letters of credit. 
  ITEM 4.
    CONTROLS AND PROCEDURES As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act)). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective to ensure
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. There was no change in our internal control over financial reporting
during our most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting. 
 PART II  OTHER INFORMATION 
  ITEM 2.
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS See Part I. Item 2. Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital Resources contained
herein for a description of working capital restrictions and limitations upon
the payment of dividends. We did not repurchase any shares of our common stock
during the third quarter of 2004. 
  ITEM 6.
    EXHIBITS ExhibitNo.
    
    Description
    
    Method of Filing3.1
    
    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. (1)
    
    Incorporated by Reference3.2
    
    Restated Bylaws of Wilsons The Leather Experts Inc. as amended
June 16, 1998, January 25, 2000, May 23, 2002, and February 5,
2004. (2)
    
    Incorporated by Reference4.1
    
    Specimen of common stock certificate. (3)
    
    Incorporated by Reference4.2
    
    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 111⁄4% Series A
Senior Notes due 2004 and specimen Certificate of 111⁄4% Series
B Senior Notes due 2004. (4)
    
    Incorporated by Reference4.3
    
    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
 20




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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 Reference4.5
    
    Common Stock and Warrant Purchase Agreement, dated as of April 25,
2004, by and among Wilsons The Leather Experts Inc. and the
Purchasers identified on the signatory pages thereto (the
Purchase Agreement). (7)
    
    Incorporated by Reference4.6
    
    Registration Rights Agreement, dated as of April 25, 2004, by and
among Wilsons The Leather Experts Inc. and the Investors
identified therein. (8)
    
    Incorporated by Reference4.7
    
    Form of Warrant issued to the Purchasers named in the Purchase
Agreement on April 25, 2004. (9)
    
    Incorporated by Reference10.1
    
    Form of Non-Statutory Stock Option Agreement (Associate) pursuant
to the 2000 Long Term Incentive Plan.
    
    Electronic Transmission10.2
    
    Agreement, dated October 28, 2004, between Joel N. Waller and
Wilsons The Leather Experts Inc. (10)
    
    Incorporated by Reference10.3
    
    Employment Agreement, dated as of November 22, 2004, between
Wilsons The Leather Experts Inc. and Michael M. Searles. (11)
    
    Incorporated by Reference10.4
    
    Form of Non-Statutory Stock Option Agreement between Wilsons The
Leather Experts Inc. and Michael M. Searles (12)
    
    Incorporated by Reference31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
    
    Electronic Transmission31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
    
    Electronic Transmission32.1
    
    Certification of Chief Executive Officer pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Electronic Transmission32.2
    
    Certification of Chief Financial Officer pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Electronic Transmission99.1
    
    Risk Factors Relating to Forward-Looking Statements. (13)
    
    Incorporated by Reference
  1.
    
    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.
000-21543).2.
    
    Incorporated by reference to the same numbered exhibit to the Companys
Report on Form 10-K for the year ended January 31, 2004 (File No.
000-21543).3.
    
    Incorporated by reference to the same numbered exhibit to Amendment No. 1
to the Companys Registration Statement on Form S-l (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-l (333-13967) filed with the Commission on October 11,
1996.6.
    
    Incorporated by reference to Exhibit 4.5 to the Companys Report on Form
10-K for the fiscal year ended January 29, 2000, filed with the Commission (File No. 000-21543). 21




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7.
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on Form
8-K filed with the Commission on April 27, 2004.8.
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on Form
8-K filed with the Commission on April 27, 2004.9.
    
    Incorporated by reference to Exhibit 4.3 to the Companys Report on Form
8-K filed with the Commission on April 27, 2004.10.
    
    Incorporated by reference to Exhibit 10.1 to the Companys Report on Form
8-K filed with the Commission on November 3, 2004.11.
    
    Incorporated by reference to Exhibit 10.1 to the Companys Report on Form
8-K filed with the Commission on November 24, 2004.12.
    
    Incorporated by reference to Exhibit 10.2 to the Companys Report on Form
8-K filed with the Commission on November 24, 2004.13.
    
    Incorporated by reference to Exhibit 99.1 to the Companys Report on Form
10-Q for the quarter ended July 31, 2004, filed with the Commission. 22




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SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. WILSONS THE LEATHER EXPERTS INC.By:
    
    /s/ Peter G. MichieluttiPeter G. MichieluttiExecutive Vice President, Chief Financial Officer and Chief Operating OfficerDate:
    
    December 9, 2004
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INDEX TO EXHIBITS Exhibit No.
    
    Description
    
    Method of Filing3.1
    
    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. (1)
    
    Incorporated by Reference3.2
    
    Restated Bylaws of Wilsons The Leather Experts Inc. as amended
June 16, 1998, January 25, 2000, May 23, 2002, and February 5,
2004. (2)
    
    Incorporated by Reference4.1
    
    Specimen of common stock certificate. (3)
    
    Incorporated by Reference4.2
    
    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 111⁄4% Series A
Senior Notes due 2004 and specimen Certificate of 111⁄4% Series
B Senior Notes due 2004. (4)
    
    Incorporated by Reference4.3
    
    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 Reference4.4
    
    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 Reference4.5
    
    Common Stock and Warrant Purchase Agreement, dated as of April 25,
2004, by and among Wilsons The Leather Experts Inc. and the
Purchasers identified on the signatory pages thereto (the
Purchase Agreement). (7)
    
    Incorporated by Reference4.6
    
    Registration Rights Agreement, dated as of April 25, 2004, by and
among Wilsons The Leather Experts Inc. and the Investors
identified therein. (8)
    
    Incorporated by Reference4.7
    
    Form of Warrant issued to the Purchasers named in the Purchase
Agreement on April 25, 2004. (9)
    
    Incorporated by Reference10.1
    
    Form of Non-Statutory Stock Option Agreement (Associate) pursuant
to the 2000 Long Term Incentive Plan.
    
    Electronic Transmission10.2
    
    Agreement, dated October 28, 2004, between Joel N. Waller and
Wilsons The Leather Experts Inc. (10)
    
    Incorporated by Reference10.3
    
    Employment Agreement, dated as of November 22, 2004, between
Wilsons The Leather Experts Inc. and Michael M. Searles. (11)
    
    Incorporated by Reference10.4
    
    Form of Non-Statutory Stock Option Agreement between Wilsons The
Leather Experts Inc. and Michael M. Searles. (12)
    
    Incorporated by Reference31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
    
    Electronic Transmission31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
    
    Electronic Transmission32.1
    
    Certification of Chief Executive Officer pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Electronic Transmission
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32.2
    
    Certification of Chief Financial Officer pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Electronic Transmission99.1
    
    Risk Factors Relating to Forward-Looking Statements. (13)
    
    Incorporated by Reference
  1.
    
    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.
000-21543).2.
    
    Incorporated by reference to the same numbered exhibit to the Companys
Report on Form 10-K for the year ended January 31, 2004 (File No.
000-21543).3.
    
    Incorporated by reference to the same numbered exhibit to Amendment No. 1
to the Companys Registration Statement on Form S-l (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-l (333-13967) filed with the Commission on October 11,
1996.6.
    
    Incorporated by reference to Exhibit 4.5 to the Companys Report on Form
10-K for the fiscal year ended January 29, 2000, filed with the Commission
(File No. 000-21543).7.
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on Form
8-K filed with the Commission on April 27, 2004.8.
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on Form
8-K filed with the Commission on April 27, 2004.9.
    
    Incorporated by reference to Exhibit 4.3 to the Companys Report on Form
8-K filed with the Commission on April 27, 2004.10.
    
    Incorporated by reference to Exhibit 10.1 to the Companys Report on Form
8-K filed with the Commission on November 3, 2004.11.
    
    Incorporated by reference to Exhibit 10.1 to the Companys Report on Form
8-K filed with the Commission on November 24, 2004.12.
    
    Incorporated by reference to Exhibit 10.2 to the Companys Report on Form
8-K filed with the Commission on November 24, 2004.13.
    
    Incorporated by reference to Exhibit 99.1 to the Companys Report on Form
10-Q for the quarter ended July 31, 2004, filed with the Commission. 25