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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 April 30, 2005 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 June 3, 2005,
there were 38,994,364 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 INFORMATIONItem 1. Consolidated Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets as of April 30, 2005 and January 29, 2005
    
    
    3Consolidated Statements of Operations for the three months ended April 30, 2005 and May 1, 2004
    
    
    4Consolidated Statements of Cash Flows for the three months ended April 30, 2005 and May 1, 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 6. Exhibits
    
    
    20Signature
    
    
    22Rule 13a-14(a)/15-d-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)
 April 30,
    
    
    January 29,2005
    
    
    2005(1)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    43,006
    
    
    $
    48,821Accounts receivable, net
    
    
    3,480
    
    
    
    3,643Inventories
    
    
    69,620
    
    
    
    86,059Prepaid expenses
    
    
    6,396
    
    
    
    3,246TOTAL CURRENT ASSETS
    
    
    122,502
    
    
    
    141,769Property and equipment, net
    
    
    43,005
    
    
    
    44,606Other assets, net
    
    
    2,048
    
    
    
    2,205TOTAL ASSETS
    
    $
    167,555
    
    
    $
    188,580LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    10,843
    
    
    $
    17,697Current portion of long-term debt
    
    
    
    
    
    
    5,000Accrued expenses
    
    
    17,287
    
    
    
    22,959Income taxes payable
    
    
    4,294
    
    
    
    4,307Deferred income taxes
    
    
    5,585
    
    
    
    5,585TOTAL CURRENT LIABILITIES
    
    
    38,009
    
    
    
    55,548Long-term debt
    
    
    20,000
    
    
    
    20,000Other long-term liabilities
    
    
    17,860
    
    
    
    17,925TOTAL LIABILITIES
    
    
    75,869
    
    
    
    93,473COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:Common stock, $.01 par value; 150,000,000 shares authorized; 38,982,364 and
38,884,072
shares issued and outstanding on April 30, 2005 and January 29, 2005, respectively
    
    
    390
    
    
    
    389Additional paid-in capital
    
    
    133,474
    
    
    
    133,103Accumulated deficit
    
    
    (42,182
    )
    
    
    (38,389
    )Accumulated other comprehensive income
    
    
    4
    
    
    
    4TOTAL SHAREHOLDERS EQUITY
    
    
    91,686
    
    
    
    95,107TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    167,555
    
    
    $
    188,580
 The accompanying notes are an integral part of these consolidated financial statements.   (1)
    
    Derived from audited 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 endedApril 30,
    
    May 1,2005
    
    
    
    2004NET SALES
    
    $
    84,329
    
    
    $
    97,751COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    58,944
    
    
    
    75,818Gross margin
    
    
    25,385
    
    
    
    21,933SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    24,804
    
    
    
    28,109DEPRECIATION AND AMORTIZATION
    
    
    3,711
    
    
    
    17,872Operating loss
    
    
    (3,130
    )
    
    
    (24,048
    )INTEREST EXPENSE, net
    
    
    663
    
    
    
    2,744Loss before income taxes
    
    
    (3,793
    )
    
    
    (26,792
    )INCOME TAX BENEFIT
    
    
    
    
    
    
    Net loss
    
    $
    (3,793
    )
    
    $
    (26,792
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (0.10
    )
    
    $
    (1.30
    )Weighted average shares outstanding  basic and diluted
    
    
    38,901
    
    
    
    20,687
 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 CASH FLOWS
 (In thousands)
(Unaudited)
 For the three months endedApril 30,
    
    
    May 1,2005
    
    
    2004OPERATING ACTIVITIES:Net loss
    
    $
    (3,793
    )
    
    $
    (26,792
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation
    
    
    3,711
    
    
    
    17,830Amortization
    
    
    
    
    
    
    42Amortization of deferred financing costs
    
    
    157
    
    
    
    912Loss on disposal of assets
    
    
    (163
    )
    
    
    (120
    )Restricted stock compensation expense
    
    
    
    
    
    
    101Changes in operating assets and liabilities:Accounts receivable, net
    
    
    163
    
    
    
    3,196Inventories
    
    
    16,439
    
    
    
    24,956Prepaid expenses and other current assets
    
    
    (3,150
    )
    
    
    (5,363
    )Accounts payable and accrued expenses
    
    
    (12,526
    )
    
    
    (7,082
    )Income taxes payable and other liabilities
    
    
    (107
    )
    
    
    (3,017
    )Net cash provided by operating activities
    
    
    731
    
    
    
    4,663INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (2,081
    )
    
    
    (624
    )Proceeds from the disposition of property and equipment
    
    
    163
    
    
    
    122Net cash used in investing activities
    
    
    (1,918
    )
    
    
    (502
    )FINANCING ACTIVITIES:Proceeds from issuance of common stock, net
    
    
    372
    
    
    
    60Debt acquisition costs
    
    
    
    
    
    
    (1,151
    )Repayments of long-term debt
    
    
    (5,000
    )
    
    
    (11
    )Net cash used in financing activities
    
    
    (4,628
    )
    
    
    (1,102
    )NET CASH USED IN DISCONTINUED OPERATIONS
    
    
    
    
    
    
    (40
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (5,815
    )
    
    
    3,019CASH AND CASH EQUIVALENTS, beginning of period
    
    
    48,821
    
    
    
    42,403CASH AND CASH EQUIVALENTS, end of period
    
    $
    43,006
    
    
    $
    45,422
 The accompanying notes are an integral part of these consolidated financial statements. 5




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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 April 30, 2005, Wilsons Leather operated 429 permanent retail
stores located in 45 states, including 307 mall stores, 107 outlet stores and 15 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 April 30, 2005, 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. 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 U. S. generally accepted
accounting principles (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 2004 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 28, 2006. Fiscal year The
Companys fiscal year ends on the Saturday closest to January 31. The periods that
will end or have ended January 28, 2006, and January 29, 2005, are referred to herein as 2005 and
2004, 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. Cash and cash equivalents Cash equivalents consist principally of short-term investments with original maturities of
three months or less and are recorded at cost, which approximates fair value. The short-term
investments consist primarily of commercial paper and money market funds. 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 April 30,
2005, and January 29, 2005, the LIFO cost of inventories approximated the first-in, first-out cost
of 6




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inventories. The inventory cost includes the cost of merchandise, freight, duty,
sourcing overhead, and other merchandise-specific charges. A periodic review of inventory
quantities on hand is 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. Property and equipment The Companys property and equipment consists principally of store leasehold improvements and
store fixtures and are included in the Property and equipment line item in its consolidated
balance sheets included in this report. Leasehold improvements include the cost of improvements
funded by landlord incentives and lease costs during the build-out period. These long-lived assets
are recorded at cost and are amortized using the straight-line method over the lesser of the
applicable store lease term or the estimated useful life of the leasehold improvements. The
typical initial lease term for the Companys stores is ten years and the estimated useful lives of
the assets range from five to 10 years. Capital additions
required for lease extensions subsequent to initial lease term
are amortized over the term of the lease extension. Computer hardware
and software and distribution center equipment are amortized over three to five years and 10 years,
respectively. Property and equipment retired or disposed of are removed from cost and related
accumulated depreciation accounts. Maintenance and repairs are charged directly to expense as
incurred. Major renewals or replacements are capitalized after making the necessary adjustment to
the asset and accumulated depreciation accounts for the items renewed or replaced. Store closing and impairment of long-lived assets 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 executed. At
April 30, 2005, and January 29, 2005, there were no amounts accrued for store lease terminations. Debt issuance costs Debt issuance costs are amortized on a straight-line basis over the life of the related debt.
Amortization expense is included in interest expense in the accompanying consolidated statements of
operations. Operating leases The Company has 431 noncancelable operating leases, primarily for retail stores, which expire
at various times through 2017. These leases generally require the Company to pay costs, such as
real estate taxes, common area maintenance costs and contingent rentals based on sales. In
addition, these leases generally include scheduled rent increases and may include rent holidays.
The Company accounts for these scheduled rent increases and rent holidays on a straight-line basis
over the initial terms of the leases, including any rent holiday periods, commencing on the date
the Company can take possession of the leased facility. Resulting liabilities are recorded as
short-term or long-term deferred rent liabilities as appropriate. Rent expense for lease
extensions subsequent to the initial lease terms are also calculated
using a straight-line basis to
the extent that they include scheduled rent increases or rent holidays. In addition, leasehold
improvements funded by landlord incentives are recorded as short-term or long-term deferred rent
liabilities as appropriate. These liabilities are then amortized as a reduction of rent expense on
a straight-line basis over the life of the related lease. As is more fully discussed below in Note
3, Reclassification of Financial Statements, the Company changed its accounting
method for
leasehold improvements funded by landlord incentives and adopted an accounting policy for rent
costs during construction build-out periods. Accordingly, certain amounts presented in the prior
period were reclassified. 7




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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. Per Staff Accounting
Bulletin No. 104, Revenue Recognition in Financial Statements, the Company recognizes layaway sales
in full upon final payment and delivery of the merchandise to the customer. All customer payments
prior to the final payment are recorded as customer deposits and are included in accrued expenses
in the accompanying balance sheet. Revenue for gift certificate or gift card sales and store
credits is recognized at redemption. A reserve is provided at the time of sale for projected
merchandise returns based upon historical experience. 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. In light of cumulative losses over the past three fiscal years, the Company
believes it is more likely than not that the Companys deferred tax asset will not be realized.
Accordingly, a valuation allowance has been established against the net deferred tax assets
exclusive of the LIFO reserve. Foreign currency translation The functional currency for the Companys foreign operations is the applicable foreign
currency. The translation from the applicable foreign currency to U. S. dollars is performed for
balance sheet accounts using the current exchange rate in effect at the balance sheet date and for
revenue and expense accounts using a weighted average exchange rate during the period. The gains
or losses resulting from such translation are included in shareholders equity as other
comprehensive loss. Transaction gains and losses are reflected in income. 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 endedApril 30,
    
    
    May 1,2005
    
    
    2004Weighted average common shares outstanding  basic
    
    
    38,901
    
    
    
    20,687Effect of dilutive securities: stock options
    
    
    
    
    
    
    Effect of dilutive securities: warrants
    
    
    
    
    
    
    Weighted average common shares outstanding  diluted
    
    
    38,901
    
    
    
    20,687
 The total dilutive potential common shares excluded from the above calculations were 1,199,401
and 98,621, respectively, for the three months ended April 30, 2005, and May 1, 2004. 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 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 endedApril 30,
    
    
    May 1,2005
    
    
    2004Net loss:As reported
    
    $
    (3,793
    )
    
    $
    (26,792
    )Stock based employee compensation expense
included in net loss
    
    
    
    
    
    
    101Stock based employee compensation determined
under fair value based method for all awards
    
    
    (148
    )
    
    
    (541
    )Pro forma loss
    
    $
    (3,941
    )
    
    $
    (27,232
    )Basic and diluted loss per share:As reported
    
    $
    (0.10
    )
    
    $
    (1.30
    )Stock based employee compensation expense
included in net loss
    
    
    
    
    
    
    0.01Stock based employee compensation determined
under fair value based method for all awards
    
    
    
    
    
    
    (0.03
    )Pro forma loss
    
    $
    (0.10
    )
    
    $
    (1.32
    )Weighted average fair value of options granted
    
    
    N/A
    
    
    $
    1.64
 8




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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 (there
have been no options granted through April 30 of fiscal 2005): Weighted average
    
    Dividend
    
    Expected
    
    Expectedrisk free rate
    
    yield
    
    lives
    
    volatility2005
    
    N/A
    
    N/A
    
    N/A
    
    N/A2004
    
    3.5%
    
    0.0%
    
    4.7
    
    67.3%
 New accounting pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Accounting Standards No. 123 (Revised 2004) (SFAS No. 123R or the Statement), Share-Based
Payment.SFAS No. 123R is a revision of FASB Statement No. 123, Accounting for Stock-Based
Compensationand supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employeesand its related implementation guidance. The Statement focuses primarily on
accounting for transactions in which an entity obtains employee services through share-based
payment transactions. SFAS No. 123R requires that a public entity measure the cost of employee
services received in exchange for the award of equity instruments based on the fair value of the
award at the date of grant. The cost will be recognized over the period during which an employee
is required to provide services in exchange for the award. SFAS No. 123R is effective as of the
beginning of the first annual reporting period that begins after June 15, 2005, and,
accordingly, the Company will adopt the standard in fiscal 2006. While the Company cannot
precisely determine the impact on net earnings as a result of the adoption of SFAS No. 123R,
estimated compensation expense related to prior periods can be found above in Stock-based
compensation. The ultimate amount of increased compensation expense will depend on the number of
option shares granted during the year, their timing and vesting period and the method used to
calculate the fair value of the awards, among other factors. As allowed by SFAS No. 123R, the
Company will calculate the fair value of each option granted on the date of grant using the
Black-Scholes option pricing model. In November 2004, the FASB issued SFAS No. 151 (SFAS No. 151 or the Statement), Inventory
Costs.The Statement amends Accounting Research Bulletin No. 43 to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and spoilage. The Statement
also requires the allocation of fixed production overheads to inventory be based on normal
production capacity. SFAS No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005, and, accordingly, the Company will adopt the standard in the first
quarter of fiscal 2006. Adoption of the Statement is not expected to have a significant impact on
the Companys consolidated financial statements. 3. Reclassification of Financial Statements On February 7, 2005, the Office of the Chief Accountant of the SEC issued a letter to the
American Institute of Certified Public Accountants expressing its views regarding certain operating
lease accounting issues and their application under GAAP. In light of this letter, the Company
conducted a review of its lease-related accounting methods and determined that its methods of
accounting for: (1) leasehold improvements funded by landlord incentives, and (2) rent expense
prior to commencement of operations and rent payments, while in line with common industry practice,
were not in accordance with GAAP. However, these misstatements had no impact on the Companys net
income or loss for any period and, as a result, the Company reclassified certain amounts within its
consolidated financial statements filed with its 2004 Annual Report on Form 10-K for each of the
fiscal years ended January 31, 2004, and February 1, 2003, the first three quarters of fiscal 2004
and all four fiscal quarters of 2003. The Company had historically accounted for leasehold improvements funded by landlord
incentives as reductions in the cost of related leasehold improvements reflected in the
consolidated balance sheets and the capital expenditures reflected in investing activities in the
consolidated statements of cash flows. The Company determined that the appropriate interpretation
of FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases, requires these
incentives to be recorded as deferred rent liabilities in the consolidated balance sheets and as a
component of operating activities in the consolidated statements of cash flows. This resulted in a
reclassification of the deferred rent amortization from depreciation and amortization expense to
rent expense, which is included in cost of goods sold, buying and occupancy costs in the
consolidated statements of operations. The Company also reclassified lease incentives to operating
activities, which were previously included as a reduction of the cost component of capital
expenditures in investing activities in the consolidated statements of cash flows. Additionally, the Company had historically recognized rent holiday periods on a straight-line
basis over the lease term commencing on the related retail store opening date. The store opening
date coincides with the commencement of business operations, which is the first intended use of the
property. The Company re-evaluated FASB Technical Bulletin No. 85-3, Accounting for Operating
Leases with Scheduled Rent Increases, and determined that, consistent with the letter issued by
the Office of the Chief Accountant, the lease term should include the pre-opening period of
construction, renovation, fixturing and merchandise placement (the build-out period, typically
one to two months prior to store opening). However, the Company has elected to 9




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capitalize these
construction period rent costs and amortize them over the term of the lease. The Company did not
previously have a policy or practice to expense or capitalize rent costs during the construction
period. In order to properly state the rent costs related to the build-out period for the three
months ended May 1, 2004, the Company is required to record additional deferred rent in other
accrued expenses, as well as reclassifying a portion of the previously reported rent expense to
depreciation. Following is a summary of the effects of these changes on the Companys consolidated statements of
operations and cash flows for the three months ended May 1, 2004, (in thousands): Consolidated Statement of OperationsAs PreviouslyReported
    
    
    Adjustments
    
    
    ReclassifiedTHREE
MONTHS ENDED MAY 1, 2004:Cost of goods sold, buying and occupancy costs
    
    $
    78,333
    
    
    $
    (2,515
    )
    
    $
    75,818Gross margin
    
    
    19,418
    
    
    
    2,515
    
    
    
    21,933Depreciation and amortization
    
    
    15,357
    
    
    
    2,515
    
    
    
    17,872
 Consolidated Statement of Cash FlowsAs PreviouslyReported
    
    
    Adjustments
    
    
    ReclassifiedTHREE
MONTHS ENDED MAY 1, 2004:Depreciation
    
    $
    15,315
    
    
    $
    2,515
    
    
    $
    17,830Income taxes payable and other liabilities
    
    
    (399
    )
    
    
    (2,618
    )
    
    
    (3,017
    )Net cash provided by operating activities of continuing operations
    
    
    4,766
    
    
    
    (103
    )
    
    
    4,663Additions to property, equipment and other assets
    
    
    (727
    )
    
    
    103
    
    
    
    (624
    )Net cash used in investing activities of continuing operations
    
    
    (605
    )
    
    
    103
    
    
    
    (502
    )
 4. 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. As of January 29, 2005,
and April 30, 2005, no assets or liabilities relating to the Travel Subsidiaries remained in the
consolidated balance sheets. The reserve for discontinued operations of $0.3 million was reduced
to zero in the fourth quarter of fiscal 2004, as it was no longer required. 5. Reorganization 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 111 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 guaranteed to pay the Company an amount of 84.0% of the cost
value of the inventory at the liquidation stores, 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 charges related to the restructuring and partial store liquidation of
$14.2 million during the first quarter of 2004, primarily related to the transfer of inventory to
an independent liquidator in conjunction with the closing of the liquidation stores, and lease
termination costs and accelerated depreciation related to store closings. For the three months
ended May 1, 2004, a total of $3.3 million and $13.2 million of these charges were recorded in
selling, general and administrative expenses and depreciation and amortization, respectively, as
partially offset by $2.3 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. 6. Other Comprehensive Income The Company reports accumulated other comprehensive income as a separate item in the
shareholders equity section of the consolidated balance sheets. Other comprehensive income
consists of foreign currency translation adjustments. For the quarters ending April 30, 2005, and
May 1, 2004, the amounts were not significant. 7. Long-Term Debt Long-term debt at April 30, 2005, and January 29, 2005, consisted of the following (in
thousands): April 30,
    
    
    January 29,2005
    
    
    2005Term B promissory note
    
    $
    20,000
    
    
    $
    25,000Total debt
    
    $
    20,000
    
    
    $
    25,000Less: current portion
    
    
    
    
    
    
    (5,000
    )Total long-term debt
    
    $
    20,000
    
    
    $
    20,000
 10




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##### Table of Contents



Senior
notes The
Company retired the remaining $30.6 million of 11 1/4% Senior Notes due August 15, 2004
(the 11 1/4% Senior Notes) in 2004. Term B promissory note and senior credit facility 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, April 27, 2004, March 2, 2005, and April 4, 2005, 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 Equity Financing (described below in Note 10, Additional Financing), and the subsequent
repayment of the 11 1/4% 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 Term B promissory note is collateralized by the Companys inventory. The remainder of the
senior credit facility is collateralized by the Companys inventory, equipment and credit card
receivables. Through the third quarter of 2005 interest on cash borrowings under the senior credit
facility is at LIBOR plus 1.50%, the commercial paper rate plus 1.50% or the prime rate plus 0.25%.
Commencing with the fourth quarter of 2005, interest will be payable on revolving credit
borrowings at variable rates determined by LIBOR plus 1.25% - 1.75%, or the prime rate plus 0.0%
- 0.5% (commercial paper rate plus 1.25% - 1.75% if the loan is made under the swing line portion
of the revolver). The applicable rate will be adjusted quarterly on a prospective basis based on
achievement of defined quarterly EBITDA targets. With respect to the Term B promissory note, the
interest rate is the prime rate plus 4.0%, plus an additional 2.75% pursuant to a separate letter
agreement with General Electric Capital Corporation. The Company pays monthly fees of 0.375% per
annum on the unused portion of the senior credit facility, as defined, and 3.25% per annum on the
average daily amount of letters of credit outstanding during each month. With the completion of
the Equity Financing in 2004 and subsequent repurchase and repayment of the 11 1/4% Senior Notes,
the senior credit facility expiration date was extended to June 28, 2008, at which time all
borrowings, including the Term B promissory note, become due and payable. The Company is allowed
to prepay up to $10.0 million on the Term B promissory note portion of the senior credit facility
on or before February 28, 2006, without penalty, subject to certain conditions. A total of $5.0
million was prepaid on March 3, 2005. Prepayment of the Term B promissory note (other than the
potential prepayment of an additional $5.0 million on or prior to February 28, 2006) is subject to
a 0.5% prepayment fee if prepayment is made on or prior to January 31, 2006. The revolving credit
portion of the senior credit facility is subject to a 1.0% prepayment fee under most circumstances.
The remaining $15.0 million of the Term B promissory note is prepayable only with the consent of
the senior lenders under the senior credit facility. As of April 30, 2005, the Company had not
determined if it would repay the additional $5.0 million by February 28, 2006. 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 April 30, 2005, the Company
was in compliance with all covenants related to the senior credit facility. At April 30, 2005, and January 29, 2005, there were no borrowings under the revolving portion
of the credit facility. At April 30, 2005, and January 29, 2005, there were $4.7 million and $8.0
million, respectively, in letters of credit outstanding. The Term B promissory note had a balance
of $20.0 million and $25.0 million on April 30, 2005, and January 29, 2005, respectively. As of
January 29, 2005, $5.0 million of the Term B promissory note was classified as current. 8. Legal Proceedings The Company is involved in various legal actions arising in the ordinary course of business.
In the opinion of management, the ultimate disposition of these matters will not have a material
adverse effect on the Companys consolidated financial position and results of operations. 9. Supplemental Balance Sheet Information April 30,
    
    
    January 29,(In thousands)
    
    2005
    
    
    2005Accounts receivable, net:Trade receivables
    
    $
    3,197
    
    
    $
    3,454Other receivables
    
    
    362
    
    
    
    305Total
    
    
    3,559
    
    
    
    3,759Less - Allowance for doubtful accounts
    
    
    (38
    )
    
    
    (76
    )Less - Deferred sales
    
    
    (41
    )
    
    
    (40
    )Total accounts receivable, net
    
    $
    3,480
    
    
    $
    3,643Inventories:Raw materials
    
    $
    4,939
    
    
    $
    2,155Finished goods
    
    
    64,681
    
    
    
    83,904Total inventories
    
    $
    69,620
    
    
    $
    86,059Property and equipment, net:Equipment and furniture
    
    $
    75,684
    
    
    $
    75,130Leasehold improvements
    
    
    38,023
    
    
    
    37,621Total
    
    
    113,707
    
    
    
    112,751Less - Accumulated depreciation
    
    
    (70,702
    )
    
    
    (68,145
    )Total property and equipment, net
    
    $
    43,005
    
    
    $
    44,606Other assets, net:Debt issuance costs
    
    $
    5,384
    
    
    $
    5,384Goodwill
    
    
    72
    
    
    
    72Other assets
    
    
    10
    
    
    
    10Total
    
    
    5,466
    
    
    
    5,466Less - Accumulated amortization
    
    
    (3,418
    )
    
    
    (3,261
    )Other assets, net
    
    $
    2,048
    
    
    $
    2,205
 11




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##### Table of Contents



10. 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, all at an exercise price of $3.00 per share of common stock. All four
million of the warrants issued contain certain weighted average anti-dilution rights as defined in
the Common Stock and Warrant Purchase Agreement. On July 9, 2004, the Company repurchased $22.0
million of the 11 1/4% 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 11 1/4% 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. Subsequent Event On June 2, 2005, in connection with the Annual Meeting of Shareholders of the Company, the
Companys shareholders approved the amendment and restatement of the 2000 Long Term Incentive Plan
(the Plan). Among other things, the amendment and restatement of such plan increased the
aggregate number of shares of common stock authorized for issuance under the Plan by 2,200,000
shares to 4,200,000 shares. On June 2, 2005, the Company granted
employees and non-employee directors options to purchase 2,137,000
shares of common stock at an exercise price of $5.88 per share. These
options vest ratably over three years and had an estimated aggregate
Black-Scholes fair value of
$7.2 million. 
 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 its wholly owned subsidiaries should be read in conjunction with our most
recent audited consolidated financial statements and related notes included in our 2004 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 multi-channel store locations are designed to target a broad customer base
with a superior level of customer service. Through our worldwide leather sourcing network and
in-house design capabilities, we are able to consistently provide our customers with quality,
fashionable merchandise at attractive prices. Our business structure results in shorter lead
times, allowing us to react quickly to popular and emerging fashion trends and customer
preferences, rapidly replenish fast-selling merchandise and minimize fashion risk. As of April 30, 2005, we operated a total of 429 permanent retail stores located in 45 states,
including 307 mall stores, 107 outlet stores and 15 airport stores. Each year we supplement our
permanent stores with temporary seasonal stores during our peak selling season, which totaled 102
in 2004. Our mall stores average approximately 2,600 total leased square feet and feature a large
assortment of classic and contemporary leather outerwear, accessories and apparel. Our outlet
stores operate 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 busiest airports in the United States. 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. The name and
reputation of the Wilsons Leatherbrand assures customers they are purchasing quality and
fashionable merchandise. 12




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##### Table of Contents



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
GAAP. See Note 5, Reorganization and Partial Store Liquidation. A reconciliation of these
non-GAAP financial measures to GAAP numbers for the three months
ended May 1, 2004, is included
in the table 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. In fiscal 2004, our management incentive bonuses were based on an
earnings before tax measure calculated before liquidation and restructuring costs. Reconciliation of GAAP Consolidated Statement of Operations to
Adjusted Statement of Operations for the three months ended May 1, 2004:
(In thousands, except per share amounts)
(Unaudited) For the three months ended
    
    
    Restructuring
    
    
    For the three months endedMay 1, 2004
    
    
    and other
    
    
    May 1, 2004As reported(1)
    
    

charges(1)(2)
    
    
    AdjustedNET SALES
    
    $
    97,751
    
    
    $
    20,778
    
    
    $
    76,973COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    75,818
    
    
    
    18,482
    
    
    
    57,336Gross margin
    
    
    21,933
    
    
    
    2,296
    
    
    
    19,637SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    28,109
    
    
    
    3,254
    
    
    
    24,855DEPRECIATION AND AMORTIZATION
    
    
    17,872
    
    
    
    13,220
    
    
    
    4,652Operating loss
    
    
    (24,048
    )
    
    
    (14,178
    )
    
    
    (9,870
    )INTEREST EXPENSE, net
    
    
    2,744
    
    
    
    
    
    
    
    2,744Loss before income taxes
    
    
    (26,792
    )
    
    
    (14,178
    )
    
    
    (12,614
    )INCOME TAX BENEFIT
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (26,792
    )
    
    $
    (14,178
    )
    
    $
    (12,614
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (1.30
    )
    
    $
    (0.69
    )
    
    $
    (0.61
    )Weighted
average shares outstanding - basic and diluted
    
    
    20,687
    
    
    
    
    
    
    
    20,687
   (1)
    
    Reclassified for the presentation of certain lease accounting issues clarified by the
Office of the Chief Accountant of the Securities and Exchange Commission in a letter to the
American Institute of Certified Public Accountants on February 7, 2005.(2)
    
    Includes $14.2 million related primarily to the transfer of inventory to an independent
liquidator in conjunction with the closing of approximately 111 stores, and lease
termination costs and accelerated depreciation related to store closings. We measure performance using such key operating statistics 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 amount, as well as
on a percentage of sales basis. We continue to monitor product costing 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. During the last three years, in support of our overall financial strategy, the following three
major actions were taken: 1) we discontinued operations for the Travel Subsidiaries, 2) we
conducted a reorganization and partial store liquidation, and 3) we obtained additional financing.
These actions were described in greater detail above in the Notes to Consolidated Financial
Statements. We generate a significant portion of our sales from October through January, which includes
the holiday selling season. We generated 54.0% of our annual sales in that time period in 2004,
and 27.0% in December alone. As part of our strategy to improve operating margins and maximize
revenue and profitability during non-peak selling seasons, we have increased the number of outlet
locations since 2000, which are less seasonal, and modified our product mix to emphasize
accessories. Accessory sales grew as a percentage of sales to 35.6% in 2004 from 33.6% in 2003 and
31.6% in 2002, largely as a result of fresh, new styles designed to match our customers lifestyle
needs. Comparable store sales increased 15.8% in the three months ended April 30, 2005, compared to a
2.0% decrease in comparable store sales in the same period of the prior year. 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. Reclassification of financial statements On February 7, 2005, the Office of the Chief Accountant of the SEC issued a letter to the
American Institute of Certified Public Accountants expressing its views regarding certain operating
lease accounting issues and their application under GAAP. In light of this letter, we conducted a
review of our lease-related accounting methods and determined that our methods of accounting for:
(1) leasehold improvements funded by landlord incentives, and (2) rent expense prior to
commencement of operations and rent payments, 13




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##### Table of Contents



while in line with common industry practice, were not
in accordance with GAAP. However, these misstatements had no impact on our net income or loss for
any period and, as a result, we reclassified certain amounts within our consolidated financial
statements filed with our 2004 Annual Report on Form 10-K for each of the fiscal years ended
January 31, 2004, and February 1, 2003, the first three quarters of fiscal 2004 and all four fiscal
quarters of 2003. We had historically accounted for leasehold improvements funded by landlord incentives as
reductions in the cost of related leasehold improvements reflected in the consolidated balance
sheets and the capital expenditures reflected in investing activities in the consolidated
statements of cash flows. We determined that the appropriate interpretation of FASB Technical
Bulletin No. 88-1 requires these incentives to be recorded as deferred rent liabilities in the
consolidated balance sheets and as a component of operating activities in the consolidated
statements of cash flows. This resulted in a reclassification of the deferred rent amortization
from depreciation and amortization expense to rent expense, which is included in cost of goods
sold, buying and occupancy costs in the consolidated statements of operations. We also
reclassified lease incentives to operating activities, which were previously included as a
reduction of the cost component of capital expenditures in investing activities in the consolidated
statements of cash flows. Additionally, we had historically recognized rent holiday periods on a straight-line basis
over the lease term commencing on the related retail store opening date. The store opening date
coincides with the commencement of business operations, which is the first intended use of the
property. We re-evaluated FASB Technical Bulletin No. 85-3 and determined that, consistent with
the letter issued by the Office of the Chief Accountant, the lease term should include the
pre-opening period of construction, renovation, fixturing and merchandise placement (the build-out
period, typically one to two months prior to store opening). However, we have elected to
capitalize these construction period rent costs and amortize them over the term of the lease. We
did not previously have a policy or practice to expense or capitalize rent costs during the
construction period. See Note 3, Reclassification of Financial Statements, above, for a more detailed description of
applicable reclassifications. The accompanying discussion in Managements Discussion and Analysis
of Financial Condition and Results of Operations gives effect to these corrections. 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 25 of
our 2004 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 APRIL 30, 2005,COMPARED TO THE THREE MONTHS ENDED MAY 1, 2004 Net Sales.Net sales decreased 13.7% to $84.3 million in the three months ended April 30,
2005, from $97.8 million in the comparable period last year. This decrease in sales is primarily
due to the fact that sales for the first quarter of 2004 included approximately $20.8 million in
liquidation sales resulting from the liquidation of 111 stores begun in the fourth quarter of 2003.
See Note 5, Reorganization and Partial Store Liquidation. When adjusted to remove the
liquidation sales, net sales increased 9.6% from
$77.0 million in the first quarter of 2004. The increased sales are reflective of a
comparable store sales increase of 15.8% for the three months ended April 30, 2005, compared to a
decrease of 2.0% in comparable store sales in the same period last year. This improvement was
driven primarily by strong sales of our NASCAR merchandise, unseasonably cool weather in most of
our markets, increased levels of inventory, and stronger promotions. We did not open any stores and closed seven stores in the three months ended April 30, 2005,
compared to opening three stores and closing five stores (excluding the 111 liquidation stores) in
the comparable period last year. As of April 30, 2005, we operated 429 stores compared to 458
stores at May 1, 2004. 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 $16.9 million, or 22.3%, in the three months ended April 30, 2005, compared to the
comparable period last year. This decrease was primarily driven by the lower sales volume due to
the $20.8 million of liquidation sales in the first quarter of 2004. When adjusted to remove the
liquidation sales and related charges, costs of goods sold, buying and occupancy costs increased
$1.6 million or 2.8% from $57.3 million as a result of the increased sales volume, as partially
offset by a $0.6 million decrease in buying and occupancy costs. The decreased buying and
occupancy costs are reflective of a 5.9% decrease in average store count. 14




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##### Table of Contents



Gross margin as a percentage of sales increased 770 basis points to 30.1% in the first quarter
of 2005 compared to 22.4% in the first quarter of 2004 as a result of improved merchandise margins,
decreased buying and occupancy costs, and the 11.1% margin earned on the liquidation sales in 2004.
When adjusted to remove the liquidation sales and charges, gross margin as a percentage of sales
increased 460 basis points in the first quarter of 2005 from 25.5% in the first quarter of 2004.
This increase is reflective of a 160 basis point improvement in merchandise margins and decreased
buying and occupancy costs discussed above. Selling, General and Administrative Expenses.Selling, general and administrative (SG&A)
expenses decreased to $24.8 million in the first quarter of 2005 from $28.1 million in the first
quarter of 2004, and increased as a percentage of sales to 29.4% from 28.8%. The $3.3 million
decrease was primarily due to: (1) $3.3 million of reorganization and liquidation charges incurred
in the first quarter of 2004 primarily related to lease termination costs, (2) a $0.6 million
decrease in promotional spending, and (3) a $0.7 million decrease in other administrative costs due
to the lower store count and reduced staffing levels. These spending decreases were partially
offset by: (1) $0.9 million of additional benefits spending related to incentive bonuses accrued in
the first quarter of 2005 that were not accrued in 2004, as partially offset by decreased spending
on medical insurance claims in the first quarter of 2005 due to the lower store count and reduced
staffing levels, (2) increased store related expenses of $0.2 million related to the higher
adjusted sales volume, and (3) a $0.1 million increase in spending related to administration of our
e-commerce site. In the first quarter of fiscal 2005, we began accruing for incentive bonuses
quarterly based on our performance in that quarter relative to our annual incentive targets.
Previously, we had not recorded incentive bonuses, if any, until the fourth quarter of any given
year as a result of the significant annual operating losses incurred in fiscal 2002 through fiscal
2004. As a result of our restructuring activities over the past three years, we have concluded
that we have a more predictable business, which allows us to better estimate probable bonus
payments. SG&A expenses as a percentage of net sales, excluding liquidation effects (which totaled $3.3
million, or 15.7% in the first quarter of 2004) decreased to 29.4% compared to 32.3% for the first
quarter of 2004. The improvement in rate as a percentage of sales reflects our continued focus on
effectively managing expenses and the leverage obtained from the comparable store sales increase.
This gain was partially offset by the higher level of accrued incentive related to business
performance discussed above. Depreciation and Amortization.Depreciation and amortization decreased to $3.7 million in the
three months ended April 30, 2005, from $17.9 million in the comparable period last year, and
decreased as a percentage of net sales to 4.4% from 18.3%. The decrease of $14.2 million was
primarily the result of: (1) $13.2 million in accelerated depreciation recorded in the first
quarter of 2004 related to the liquidation stores, (2) a $0.8 million decrease in store
depreciation due to a 5.9% decrease in average store count for the three months ended April 30,
2005 compared to 2004, and (3) $0.2 million of decreased administrative depreciation and
amortization. Depreciation and amortization, excluding liquidation effects (which totaled $13.2
million, or 63.6% of the $20.8 million of liquidation sales) decreased to $3.7 million, or 4.4% of
net sales in the first quarter of 2005 as compared to $4.7 million or 6.0% of net sales in the
first quarter of 2004. Operating Loss.As a result of the above, the operating loss was $3.1 million in the three
months ended April 30, 2005, compared to a $24.0 million loss for the comparable period last year,
or 3.7% of net sales in 2005 as compared to 24.6% of net sales in 2004. This improvement was
largely due to restructuring costs of $14.2 million in 2004, as well as: (1) $5.7 million in
improved gross margin dollars as compared to the prior year, (2) $0.1 million in lower SG&A
expenses in 2005 compared to 2004, and (3) $0.9 million in decreased depreciation expense in 2005
due to a lower asset base. Excluding the liquidation and restructuring charges, an
operating loss of $3.1 million was reported in the first quarter of 2005 as compared to an
operating loss of $9.9 million in the first quarter of 2004. This improvement reflects the
restructuring and store closing initiative, as well as the impact of our improved sales and gross
margin performance. Interest Expense.Net interest expense decreased to $0.7 million in 2005 from $2.7 million in
2004, primarily due to the repayment of our 11 1/4% Senior Notes in the second and third quarters of
2004 and a $5.0 million reduction in the Term B promissory note in March 2005. In addition, during
the first quarter of 2004 we wrote off $0.5 million of debt issuance costs related to the amended
senior credit facility. The liquidation and reorganization did not impact interest expense. Income Tax Benefit.There were no income tax benefits recorded in 2005 and 2004 due to
sustained losses, which currently require the recording of a valuation allowance against
potentially unrealizable net operating losses in future periods. As a result, the effective rate
was 0.0% in 2005 and 2004. The ability to utilize net operating loss carryforwards is limited
under various provisions of the Internal Revenue Code, as disclosed in our 2004 Annual Report on
Form 10-K. Net Loss.As a result of the above, the net loss for the three months ended April 30, 2005,
was $3.8 million compared to a net loss of $26.8 million in the comparable period last year. The
$23.0 million decrease in net loss over the prior year is primarily due to the 15




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$14.2 million
decrease in net loss related to the liquidation and restructuring activities, as well as: (1) $5.7
million in improved gross margin, (2) $0.1 million in lower SG&A expenses, (3) $0.9 million in
decreased depreciation expense, and (4) a $2.1 million decrease in interest expense, all discussed
above. Excluding the liquidation and restructuring charges, the net loss was $3.8 million for the
first quarter of 2005 as compared to a net loss of $12.6 million for the first quarter of 2004. 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 and efficiency 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. 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 November 1, 2002, January 31, 2003, April 11, 2003, January
21, 2004, April 15, 2004, April 27, 2004, March 2, 2005, and April 4, 2005, 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 85.0% of the book value of credit card
receivables, plus 92.5% 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 16




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
    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. As of April 30, 2005, we had no borrowings under the senior credit facility, except for the
Term B promissory note, and we had $4.7 million in outstanding letters of credit. Through the third quarter of 2005, interest is payable on revolving credit borrowings at
variable rates determined by LIBOR plus 1.50%, or the prime rate plus 0.25% (commercial paper
rate plus 1.50% if the loan is made under the swing line portion of the revolver). Commencing
with the fourth quarter of 2005, interest will be payable on revolving credit borrowings at
variable rates determined by LIBOR plus 1.25%-1.75%, or the prime rate plus 0.0%-0.5% (commercial
paper rate plus 1.25%-1.75% if the loan is made under the swing line portion of the revolver).
The applicable rate will be adjusted quarterly on a prospective basis based on achievement of
defined quarterly EBITDA targets. 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 2.75% 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 Equity Financing in 2004 (See Note 10,
Additional Financing) and subsequent repurchase and repayment of the 11 1/4% Senior Notes, the
senior credit facility expiration date was extended to June 28, 2008, at which time all borrowings,
including the Term B promissory note, become due and payable. We are allowed to prepay up to $10.0
million on the Term B promissory note portion of the senior credit facility on or before February
28, 2006, without penalty, subject to certain conditions. A total of $5.0 million was prepaid on
March 3, 2005. Prepayment of the Term B promissory note (other than the potential prepayment of an
additional $5.0 million on or prior to February 28, 2006) is subject to a 0.5% prepayment fee if
prepayment is made on or prior to January 31, 2006. The revolving credit portion of the senior
credit facility is subject to a 1.0% prepayment fee under most circumstances. The remaining $15.0
million of the Term B promissory note is prepayable only with the consent of the senior lenders
under the senior credit facility. As of April 30, 2005, the Company had not determined if it would
repay the additional $5.0 million by February 28, 2006. 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. At April 30, 2005, we were in
compliance with all covenants related to the senior credit facility. 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 the 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 of 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 2005. 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, all at an exercise price of $3.00 per
share of common stock. $30.6 million of the offering proceeds were used to repay the 11 1/4%
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 three months ended April 30, 2005, provided
cash of $0.7 million compared to $4.7 million in the corresponding period of 2004. The $0.7 million of cash provided by operating activities in 2005 was comprised primarily of
the following sources of cash: (1) a $16.4 million decrease in inventories following the holiday
selling season, and (2) $3.7 million in non-cash adjustments for
depreciation, amortization, and property and equipment impairment. These sources of cash were largely offset by: (1) a net loss from operations of $3.8 million,
(2) a $12.5 million decrease in accounts payable and accrued expenses, and (3) a $3.1 million
increase in prepaid expenses and other current assets. 17




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The $4.7 million of cash provided by operating activities in 2004 was comprised of: (1) a
$25.0 million decrease in inventories due to more tightly managed inventory levels and lower store
count than in the prior year due primarily to the 111 store liquidation completed in April 2004,
(2) $18.8 million in non-cash adjustments for depreciation, amortization, property and equipment
impairment, and restricted stock compensation expense, and (3) a $3.2 million decrease in accounts
receivable. These sources of cash were primarily offset by: (1) a net loss from operations of $26.8, (2) a
$7.1 million decrease in accounts payable and accrued expenses, (3) a $5.4 million increase in
prepaid expenses, and (4) a $3.0 million decrease in income taxes payable and other liabilities. Investing Activities.Investing activities of $1.9 million for the three months ended April
30, 2005, were comprised of $2.1 million in capital expenditures primarily for the renovation of
and improvements to existing stores and certain distribution center equipment, offset by $0.2
million in proceeds on the sale of property and equipment. For 2005, capital expenditures are
capped by the senior credit facility at $6.0 million. Investing activities for the three months ended May 1, 2004, were comprised primarily of $0.6
million in capital expenditures used primarily for the construction of new stores and the
renovation of and improvements to existing stores, offset by $0.1 million from proceeds on the sale
of property and equipment. Financing Activities.Cash used for financing activities for the three months ended April 30,
2005, was $4.6 million and was comprised of $5.0 million used for pre-payment of a portion of the
Term B promissory note offset by $0.4 million provided from the issuance of common stock primarily
from the exercise of stock options. Cash provided by financing activities for the three months ended May 1, 2004, was comprised
primarily of $1.2 million used for debt acquisition costs related to amendments to our senior
credit facility in April 2004. 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 had $4.7 million of standby and documentary letters of credit outstanding at April 30,
2005. We also have a Term B Promissory Note with $20.0 million outstanding at April 30, 2005.
These commitments are further discussed in the Liquidity and Capital Resources section of this Form
10-Q. We retired $30.6 million of the 11 1/4% Senior Notes in 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. 18




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Recently issued accounting
pronouncements See
Note 2, Summary of Significant Accounting Polices  New
accounting pronouncements, of the consolidated financial statements
beginning on page 9 of this report for a full description of recently issued accounting
pronouncements, including the respective expected dates of adoption and effects on results of
operations and financial condition. Forward-looking statements Except for historical information, matters discussed in Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations contain certain 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, the Companys results of operations and operating performance, expected demand
for the Companys products, store closings, and debt service obligations. Factors that could cause
actual results to differ include: changes in customer shopping patterns; competition in our
markets; uncertainty in general economic conditions; our inability to effectively respond to
changes in fashion trends and consumer demands; failure of results of operations to meet
expectations of research analysts; our inability to grow the business as planned; decreased
availability and increased cost of leather; risks associated with foreign sourcing and
international business; seasonality of our business; risks associated with our debt service; risks
associated with estimates made by management based on our critical accounting policies; changes to
financial accounting standards that may affect our results of operations; loss of key members of
our senior management team; the sale into the market of the shares issued in our 2004 equity
financing or issuable upon exercise of warrants delivered in connection with our equity financing;
concentration of our common stock; volatility of the market price of our common stock; reliance on
third parties for upgrading and maintaining our management information systems; war, acts of
terrorism or the threat of either; interruption in the operation of our corporate offices and
distribution center; and the sale into the market of our common stock by existing shareholders,
including shares issuable upon exercise of outstanding vested options. For a further description
of our risk factors, please see Risk Factors as detailed in Part I, Item 1. Business that
begins on page 11 of our 2004 Annual Report on Form 10-K. 
 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 April 30, 2005, there were no borrowings under the revolving portion of the
credit facility, $20.0 million under the Term B promissory note, and $4.7 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 1. LEGAL PROCEEDINGS We are involved in various legal actions arising in the ordinary course of business. In the
opinion of our management, the ultimate disposition of these matters will not have a material
adverse effect on our consolidated financial position and results of operations. 
 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 first quarter of 2005. 19




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##### Table of Contents



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
    
    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. (4)
    
    Incorporated by Reference4.3
    
    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. (5)
    
    Incorporated by Reference4.4
    
    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). (6)
    
    Incorporated by Reference4.5
    
    Registration Rights Agreement, dated as of April 25, 2004, by and
among Wilsons The Leather Experts Inc. and the Investors
identified therein. (7)
    
    Incorporated by Reference4.6
    
    Form of Warrant issued to the Purchasers named in the Purchase
Agreement on April 25, 2004. (8)
    
    Incorporated by Reference10.1
    
    Seventh Amendment to Fourth Amended and Restated Credit Agreement
dated as of March 2, 2005, among Wilsons Leather Holdings Inc., a
Minnesota corporation, General Electric Capital Corporation, a
Delaware corporation, as Lender, Term Lender, Swing Line Lender
and as Agent, the Credit Parties signatory thereto and the
Lenders signatory thereto. (9)
    
    Incorporated by Reference10.2
    
    Second Amendment, dated as of February 21, 2005, to the Agreement
dated October 28, 2004, between the Company and Joel N. Waller.
(10)
    
    Incorporated by Reference10.3
    
    Waiver and Modification, dated March 2, 2005, under Employment
Agreement dated November 22, 2004, between Michael Searles and
the Company. (11)
    
    Incorporated by Reference10.4
    
    Limited Waiver and Eight Amendment to Fourth Amended and Restated
Credit Agreement, dated as of April 4, 2005, among Wilsons
Leather Holdings Inc., a Minnesota corporation, as Lender, Term
Lender, Swing Line Lender and as Agent, the Credit Parties
signatory thereto and the Lenders signatory thereto. (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 Transmission
 20




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##### Table of Contents



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 4.8 to the Companys Registration Statement on Form S-l (333-13967)
filed with the Commission on October 11, 1996.5.
    
    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).6.
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on Form 8-K filed with the Commission on
April 27, 2004.7.
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K filed with the Commission on
April 27, 2004.8.
    
    Incorporated by reference to Exhibit 4.3 to the Companys Report on Form 8-K filed with the Commission on
April 27, 2004.9.
    
    Incorporated by reference to the same numbered exhibit to the Companys Report on Form 8-K filed with the
Commission on March 8, 2005.10.
    
    Incorporated by reference to Exhibit 10.72 to the Companys Report on Form 10-K for the fiscal year ended
January 29, 2005, filed with the Commission (File No. 000-21543).11.
    
    Incorporated by reference to Exhibit 10.73 to the Companys Report on Form 10-K for the fiscal year ended
January 29, 2005, filed with the Commission (File No. 000-21543).12.
    
    Incorporated by reference to Exhibit 10.74 to the Companys Report on Form 10-K for the fiscal year ended
January 29, 2005, filed with the Commission (File No. 000-21543).
 21




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##### Table of Contents



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:
    
    June 7, 2005
 22




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##### Table of Contents



INDEX TO 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
    
    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. (4)
    
    Incorporated by Reference4.3
    
    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. (5)
    
    Incorporated by Reference4.4
    
    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). (6)
    
    Incorporated by Reference4.5
    
    Registration Rights Agreement, dated as of April 25, 2004, by and
among Wilsons The Leather Experts Inc. and the Investors
identified therein. (7)
    
    Incorporated by Reference4.6
    
    Form of Warrant issued to the Purchasers named in the Purchase
Agreement on April 25, 2004. (8)
    
    Incorporated by Reference10.1
    
    Seventh Amendment to Fourth Amended and Restated Credit Agreement
dated as of March 2, 2005, among Wilsons Leather Holdings Inc., a
Minnesota corporation, General Electric Capital Corporation, a
Delaware corporation, as Lender, Term Lender, Swing Line Lender
and as Agent, the Credit Parties signatory thereto and the
Lenders signatory thereto. (9)
    
    Incorporated by Reference10.2
    
    Second Amendment, dated as of February 21, 2005, to the Agreement
dated October 28, 2004, between the Company and Joel N. Waller.
(10)
    
    Incorporated by Reference10.3
    
    Waiver and Modification, dated March 2, 2005, under Employment
Agreement dated November 22, 2004, between Michael Searles and
the Company. (11)
    
    Incorporated by Reference10.4
    
    Limited Waiver and Eight Amendment to Fourth Amended and Restated
Credit Agreement, dated as of April 4, 2005, among Wilsons
Leather Holdings Inc., a Minnesota corporation, as Lender, Term
Lender, Swing Line Lender and as Agent, the Credit Parties
signatory thereto and the Lenders signatory thereto. (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 Transmission
   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).
 23




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##### Table of Contents



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 4.8 to the Companys Registration
Statement on Form S-l (333-13967) filed with the Commission on
October 11, 1996.5.
    
    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).6.
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on
Form 8-K filed with the Commission on April 27, 2004.7.
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on
Form 8-K filed with the Commission on April 27, 2004.8.
    
    Incorporated by reference to Exhibit 4.3 to the Companys Report on
Form 8-K filed with the Commission on April 27, 2004.9.
    
    Incorporated by reference to the same numbered exhibit to the
Companys Report on Form 8-K filed with the Commission on March 8,
2005.10.
    
    Incorporated by reference to Exhibit 10.72 to the Companys Report on
Form 10-K for the fiscal year ended January 29, 2005, filed with the
Commission (File No. 000-21543).11.
    
    Incorporated by reference to Exhibit 10.73 to the Companys Report on
Form 10-K for the fiscal year ended January 29, 2005, filed with the
Commission (File No. 000-21543).12.
    
    Incorporated by reference to Exhibit 10.74 to the Companys Report on
Form 10-K for the fiscal year ended January 29, 2005, filed with the
Commission (File No. 000-21543).
 24