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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 SECURITIESEXCHANGE ACT OF 1934 
|     
|      |  | For the quarterly period ended August 2, 2003                                          
|     
|      |  | OR                                                                                     
|     
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
|     
|      |  | For the transition period from           to                                            

Commission file number 000-21543

WILSONS THE LEATHER EXPERTS INC.




(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|MINNESOTA                                                      |  | 41-1839933                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|7401 BOONE AVE. N.
BROOKLYN PARK, MN                           |  | 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 September 2, 2003, there were 20,658,936 shares of common stock, $0.01
par value per share, outstanding.





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|                                            |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                            | CONSOLIDATED BALANCE SHEETS                                                                  
|                                            | CONSOLIDATED STATEMENTS OF OPERATIONS                                                        
|                                            | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        
|                                            | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|                                            | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                            | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            
|                                            | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II  OTHER INFORMATION                
|                                            | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                                            | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                            | ITEM 6. EXHIBITS AND REPORT ON FORM 8-K                                                      
|                                            | SIGNATURE                                                                                    
|EX-31.1 Rule 13a-14(a) Certification of CEO
|EX-31.2 Rule 13a-14(a) Certification of CFO
|EX-32 Section 1350 Certifications          



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WILSONS THE LEATHER EXPERTS
INC.INDEX

|                               |           |                                                                                                           |  |      |    | 
|------------------------------ | --------- | --------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                               |           |                                                                                                           |  | Page
|                               |           |                                                                                                           |  |     
|PART I  FINANCIAL INFORMATION
|                               | Item 1.   | Consolidated Financial Statements (Unaudited)                                                             |  |      |    | 
|                               |           | Consolidated Balance Sheets as of August 2, 2003 and February 1, 2003                                     |  |      | 3  | 
|                               |           | Consolidated Statements of Operations for the three months ended August 2, 2003 and August 3, 2002        |  |      | 4  | 
|                               |           | Consolidated Statements of Operations for the year to date period ended August 2, 2003 and August 3, 2002 |  |      | 5  | 
|                               |           | Consolidated Statements of Cash Flows for the year to date period ended August 2, 2003 and August 3, 2002 |  |      | 6  | 
|                               |           | Notes to Consolidated Financial Statements                                                                |  |      | 7  | 
|                               | Item 2.   | Managements Discussion and Analysis of Financial Condition and Results of Operations                     |  |      | 13 | 
|                               | Item 3.   | Quantitative and Qualitative Disclosures About Market Risk                                                |  |      | 22 | 
|                               | Item 4.   | Controls and Procedures                                                                                   |  |      | 22 | 
|PART II  OTHER INFORMATION    |           |                                                                                                           |  |     
|                               | Item 2.   | Changes in Securities and Use of Proceeds                                                                 |  |      | 23 | 
|                               | Item 4.   | Submission of Matters to a Vote of Security Holders                                                       |  |      | 23 | 
|                               | Item 6.   | Exhibits and Report on Form 8-K                                                                           |  |      | 24 | 
|                               | Signature |                                                                                                           |  | 26   |   

2



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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |         |  |  | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------ | ------- | ------- | ------- | ----------- | ------ | ----------- | ------- |  |  | 
|                                                                                                                                                                           |                                        |                                            |         |         |         | August 2,   |        | February 1,
|                                                                                                                                                                           |                                        |                                            |         |         |         | 2003        |        | 2003(1)    
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |            
|                                                                                                                                                                           |                                        |                                            |         |         |         | (Unaudited) |        |             |         | 
|ASSETS                                                                                                                                                                    
|CURRENT ASSETS:                                                                                                                                                            |                                        |                                            |         |         |         |             |        |            
|                                                                                                                                                                           | Cash and cash equivalents              |                                            | $       |        |         |             | $      | 30,442      |        
|                                                                                                                                                                           | Accounts receivable, net               |                                            |         | 5,994   |         |             |        | 5,162       |        
|                                                                                                                                                                           | Inventories                            |                                            |         | 106,136 |         |             |        | 118,701     |        
|                                                                                                                                                                           | Prepaid expenses                       |                                            |         | 11,268  |         |             |        | 3,812       |        
|                                                                                                                                                                           | Assets of discontinued operations      |                                            |         | 72      |         |             |        | 3,379       |        
|                                                                                                                                                                           | Deferred income taxes                  |                                            |         |        |         |             |        | 3,777       |        
|                                                                                                                                                                           | Refundable income taxes                |                                            |         | 6,496   |         |             |        | 3,064       |        
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        
|                                                                                                                                                                           |                                        | TOTAL CURRENT ASSETS                       |         |         | 129,966 |             |        |             | 168,337 | 
|Property and equipment, net                                                                                                                                                |                                        |                                            | 70,003  |         |         |             | 73,974 |            
|Goodwill and other assets, net                                                                                                                                             |                                        |                                            | 3,458   |         |         |             | 3,315  |            
|Deferred income taxes                                                                                                                                                      |                                        |                                            | 16,655  |         |         |             | 865    |            
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        
|                                                                                                                                                                           |                                        | TOTAL ASSETS                               |         | $       | 220,082 |             |        | $           | 246,491 | 
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                      
|CURRENT LIABILITIES:                                                                                                                                                       |                                        |                                            |         |         |         |             |        |            
|                                                                                                                                                                           | Accounts payable                       |                                            | $       | 20,024  |         |             | $      | 19,492      |        
|                                                                                                                                                                           | Notes payable                          |                                            |         | 23,638  |         |             |        |            |        
|                                                                                                                                                                           | Accrued expenses                       |                                            |         | 19,747  |         |             |        | 25,219      |        
|                                                                                                                                                                           | Liabilities of discontinued operations |                                            |         | 1,081   |         |             |        | 15,075      |        
|                                                                                                                                                                           | Deferred income taxes                  |                                            |         | 2,545   |         |             |        |            |        
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        
|                                                                                                                                                                           |                                        | TOTAL CURRENT LIABILITIES                  |         |         | 67,035  |             |        |             | 59,786  | 
|Long-term debt                                                                                                                                                             |                                        |                                            | 55,673  |         |         |             | 55,695 |            
|Other long-term liabilities                                                                                                                                                |                                        |                                            | 13,943  |         |         |             | 13,782 |            
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        
|                                                                                                                                                                           |                                        | TOTAL LIABILITIES                          |         |         | 136,651 |             |        |             | 129,263 | 
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        
|COMMITMENTS AND CONTINGENCIES                                                                                                                                              |                                        |                                            |         |         |         |             |        |            
|                                                                                                                                                                          
|SHAREHOLDERS EQUITY:                                                                                                                                                      |                                        |                                            |         |         |         |             |        |            
|Common stock, $.01 par value; 150,000,000 shares authorized; 20,658,936 and 20,473,033
shares issued and outstanding on August 2, 2003, and February 1, 2003, respectively |                                        |                                            | 207     |         |         |             | 205    |            
|Additional paid-in capital                                                                                                                                                 |                                        |                                            | 99,702  |         |         |             | 99,010 |            
|Retained earnings (accumulated deficit)                                                                                                                                    |                                        |                                            | (15,578 | )       |         |             | 18,707 |            
|Unearned compensation                                                                                                                                                      |                                        |                                            | (901    | )       |         |             | (691   | )          
|Accumulated other comprehensive income (loss)                                                                                                                              |                                        |                                            | 1       |         |         |             | (3     | )          
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        
|                                                                                                                                                                           |                                        | TOTAL SHAREHOLDERS EQUITY                 |         |         | 83,431  |             |        |             | 117,228 | 
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        
|                                                                                                                                                                           |                                        | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |         | $       | 220,082 |             |        | $           | 246,491 | 
|                                                                                                                                                                           |                                        |                                            |         |         |         |             |        |             |        

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

(1)-Derived from audited consolidated financial statements.


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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

|                                                        |                                   |                                                     |         |                    |         |           |         |       |         |  
|------------------------------------------------------- | --------------------------------- | --------------------------------------------------- | ------- | ------------------ | ------- | --------- | ------- | ----- | ------- | -
|                                                        |                                   |                                                     |         | Three months ended
|                                                        |                                   |                                                     |         |                   
|                                                        |                                   |                                                     |         | August 2,          |         | August 3,
|                                                        |                                   |                                                     |         | 2003               |         | 2002     
|                                                        |                                   |                                                     |         |                    |         |          
|NET SALES                                               |                                   | $                                                   | 59,750  |                    |         | $         | 63,195  |      
|COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS          |                                   |                                                     | 56,775  |                    |         |           | 59,442  |      
|                                                        |                                   |                                                     |         |                    |         |           |         |      
|                                                        |                                   | Gross margin                                        |         |                    | 2,975   |           |         |       | 3,753   |  
|                                                       
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES            |                                   |                                                     | 32,475  |                    |         |           | 32,413  |      
|DEPRECIATION AND AMORTIZATION                           |                                   |                                                     | 4,027   |                    |         |           | 3,766   |      
|                                                        |                                   |                                                     |         |                    |         |           |         |      
|                                                        |                                   | Operating loss                                      |         |                    | (33,527 | )         |         |       | (32,426 | )
|INTEREST EXPENSE, net                                   |                                   |                                                     | 2,474   |                    |         |           | 2,378   |      
|                                                        |                                   |                                                     |         |                    |         |           |         |      
|                                                        |                                   | Loss from continuing operations before income taxes |         |                    | (36,001 | )         |         |       | (34,804 | )
|INCOME TAX BENEFIT                                      |                                   |                                                     | (14,401 | )                  |         |           | (13,934 | )    
|                                                        |                                   |                                                     |         |                    |         |           |         |      
|                                                        |                                   | Loss from continuing operations                     |         |                    | (21,600 | )         |         |       | (20,870 | )
|                                                       
|LOSS FROM DISCONTINUED OPERATIONS, net of tax           |                                   |                                                     |        |                    |         |           | (6,168  | )    
|                                                        |                                   |                                                     |         |                    |         |           |         |      
|                                                        |                                   | Net loss                                            |         | $                  | (21,600 | )         |         | $     | (27,038 | )
|                                                        |                                   |                                                     |         |                    |         |           |         |      
|BASIC AND DILUTED LOSS PER SHARE:                       |                                   |                                                     |         |                    |         |           |         |      
|                                                        | Loss from continuing operations   |                                                     | $       | (1.05              | )       |           | $       | (1.03 | )      
|                                                        | Loss from discontinued operations |                                                     |         |                   |         |           |         | (0.30 | )      
|                                                        |                                   |                                                     |         |                    |         |           |         |      
|                                                        |                                   | Basic and diluted loss per share                    |         | $                  | (1.05   | )         |         | $     | (1.33   | )
|                                                        |                                   |                                                     |         |                    |         |           |         |      
|Weighted average shares outstanding  basic and diluted |                                   |                                                     | 20,480  |                    |         |           | 20,267  |      
|                                                        |                                   |                                                     |         |                    |         |           |         |      

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

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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |       |         |  
|----------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------- | ------------------------- | ------- | --------- | ------- | ----- | ------- | -
|                                                                  |                                                                                              |                                                                                                               |         | Year to date period ended
|                                                                  |                                                                                              |                                                                                                               |         |                          
|                                                                  |                                                                                              |                                                                                                               |         | August 2,                 |         | August 3,
|                                                                  |                                                                                              |                                                                                                               |         | 2003                      |         | 2002     
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |          
|NET SALES                                                         |                                                                                              | $                                                                                                             | 155,051 |                           |         | $         | 158,252 |      
|COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS                    |                                                                                              |                                                                                                               | 133,987 |                           |         |           | 132,552 |      
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|                                                                  |                                                                                              | Gross margin                                                                                                  |         |                           | 21,064  |           |         |       | 25,700  |  
|                                                                 
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                      |                                                                                              |                                                                                                               | 65,245  |                           |         |           | 66,273  |      
|DEPRECIATION AND AMORTIZATION                                     |                                                                                              |                                                                                                               | 8,306   |                           |         |           | 7,558   |      
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|                                                                  |                                                                                              | Operating loss                                                                                                |         |                           | (52,487 | )         |         |       | (48,131 | )
|INTEREST EXPENSE, net                                             |                                                                                              |                                                                                                               | 4,742   |                           |         |           | 4,081   |      
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|                                                                  |                                                                                              | Loss from continuing operations before income taxes and
cumulative effect of a change in accounting principle |         |                           | (57,229 | )         |         |       | (52,212 | )
|INCOME TAX BENEFIT                                                |                                                                                              |                                                                                                               | (22,892 | )                         |         |           | (20,897 | )    
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|                                                                  |                                                                                              | Loss from continuing operations before cumulative effect of
a change in accounting principle                  |         |                           | (34,337 | )         |         |       | (31,315 | )
|                                                                 
|LOSS FROM DISCONTINUED OPERATIONS, net of tax                     |                                                                                              |                                                                                                               |        |                           |         |           | (10,400 | )    
|CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, net of tax |                                                                                              |                                                                                                               |        |                           |         |           | (24,567 | )    
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|                                                                  |                                                                                              | Net loss                                                                                                      |         | $                         | (34,337 | )         |         | $     | (66,282 | )
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|BASIC AND DILUTED LOSS PER SHARE:                                 |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|                                                                  | Loss from continuing operations before cumulative effect of
a change in accounting principle |                                                                                                               | $       | (1.68                     | )       |           | $       | (1.59 | )      
|                                                                  | Loss from discontinued operations                                                            |                                                                                                               |         |                          |         |           |         | (0.53 | )      
|                                                                  | Cumulative effect of a change in accounting principle                                        |                                                                                                               |         |                          |         |           |         | (1.24 | )      
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|                                                                  |                                                                                              | Basic and diluted loss per share                                                                              |         | $                         | (1.68   | )         |         | $     | (3.36   | )
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      
|Weighted average shares outstanding  basic and diluted           |                                                                                              |                                                                                                               | 20,459  |                           |         |           | 19,742  |      
|                                                                  |                                                                                              |                                                                                                               |         |                           |         |           |         |      

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

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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |         |         |  
|---------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---------------------------------------------------------------------------- | ------- | ------------------------- | ------- | --------- | ------- | ------- | ------- | -
|                                               |                                                                                                    |                                                                    |                                                                              |         | Year to date period ended
|                                               |                                                                                                    |                                                                    |                                                                              |         |                          
|                                               |                                                                                                    |                                                                    |                                                                              |         | August 2,                 |         | August 3,
|                                               |                                                                                                    |                                                                    |                                                                              |         | 2003                      |         | 2002     
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |          
|OPERATING ACTIVITIES:                          |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |        
|                                               | Net loss                                                                                           |                                                                    | $                                                                            | (34,337 | )                         |         | $         | (66,282 | )      
|                                               |                                                                                                    | Loss from discontinued operations, net of tax                      |                                                                              |         |                          |         |           |         | 10,400  |        
|                                               |                                                                                                    | Cumulative effect of a  change in accounting principle, net of tax |                                                                              |         |                          |         |           |         | 24,567  |        
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|                                               | Loss from continuing operations                                                                    |                                                                    |                                                                              | (34,337 | )                         |         |           | (31,315 | )      
|                                               | Adjustments to reconcile loss from continuing
operations to net cash used in operating activities: |                                                                    |                                                                              |         |                           |         |           |         |        
|                                               |                                                                                                    | Depreciation                                                       |                                                                              |         | 8,250                     |         |           |         | 7,537   |        
|                                               |                                                                                                    | Amortization                                                       |                                                                              |         | 56                        |         |           |         | 21      |        
|                                               |                                                                                                    | Amortization of deferred financing costs                           |                                                                              |         | 827                       |         |           |         | 491     |        
|                                               |                                                                                                    | Loss on disposal of assets                                         |                                                                              |         | 30                        |         |           |         | 122     |        
|                                               |                                                                                                    | Restricted stock compensation expense                              |                                                                              |         | 150                       |         |           |         | 190     |        
|                                               |                                                                                                    | Deferred income taxes                                              |                                                                              |         | (9,468                    | )       |           |         | (5,762  | )      
|                                               | Changes in operating assets and liabilities:                                                       |                                                                    |                                                                              |         |                           |         |           |         |        
|                                               |                                                                                                    | Accounts receivable, net                                           |                                                                              |         | (832                      | )       |           |         | 4,661   |        
|                                               |                                                                                                    | Inventories                                                        |                                                                              |         | 12,565                    |         |           |         | (28,847 | )      
|                                               |                                                                                                    | Prepaid expenses                                                   |                                                                              |         | (7,456                    | )       |           |         | (8,268  | )      
|                                               |                                                                                                    | Refundable income taxes                                            |                                                                              |         | (3,432                    | )       |           |         | (12,217 | )      
|                                               |                                                                                                    | Accounts payable and accrued expenses                              |                                                                              |         | (4,895                    | )       |           |         | 2,835   |        
|                                               |                                                                                                    | Income taxes payable and other liabilities                         |                                                                              |         | 189                       |         |           |         | (9,414  | )      
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|                                               |                                                                                                    |                                                                    | Net cash used in operating activities of continuing operations               |         |                           | (38,353 | )         |         |         | (79,966 | )
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|INVESTING ACTIVITIES:                          |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |        
|                                               | Additions to property and equipment                                                                |                                                                    |                                                                              | (4,489  | )                         |         |           | (4,139  | )      
|                                               | Net proceeds from sale/leaseback                                                                   |                                                                    |                                                                              |        |                           |         |           | 12,546  |        
|                                               | Changes in other assets                                                                            |                                                                    |                                                                              | 52      |                           |         |           | (79     | )      
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|                                               |                                                                                                    |                                                                    | Net cash provided by (used in) investing activities of continuing operations |         |                           | (4,437  | )         |         |         | 8,328   |  
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|FINANCING ACTIVITIES:                          |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |        
|                                               | Proceeds from issuance of common stock, net                                                        |                                                                    |                                                                              | 304     |                           |         |           | 12,656  |        
|                                               | Change in notes payable                                                                            |                                                                    |                                                                              | 17,180  |                           |         |           | 40,000  |        
|                                               | Checks written in excess of cash balance                                                           |                                                                    |                                                                              | 6,413   |                           |         |           | 5,575   |        
|                                               | Debt acquisition costs                                                                             |                                                                    |                                                                              | (1,025  | )                         |         |           | (1,454  | )      
|                                               | Proceeds from issuance of long-term debt                                                           |                                                                    |                                                                              |        |                           |         |           | 150     |        
|                                               | Repayments of long-term debt                                                                       |                                                                    |                                                                              | (22     | )                         |         |           | (4,800  | )      
|                                               | Other financing                                                                                    |                                                                    |                                                                              | 5       |                           |         |           |        |        
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|                                               |                                                                                                    |                                                                    | Net cash provided by financing activities of continuing operations           |         |                           | 22,855  |           |         |         | 52,127  |  
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|NET CASH USED IN DISCONTINUED OPERATIONS       |                                                                                                    |                                                                    | (10,507                                                                      | )       |                           |         | (19,442   | )      
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS      |                                                                                                    |                                                                    | (30,442                                                                      | )       |                           |         | (38,953   | )      
|CASH AND CASH EQUIVALENTS, beginning of period |                                                                                                    |                                                                    | 30,442                                                                       |         |                           |         | 38,953    |        
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        
|CASH AND CASH EQUIVALENTS, end of period       |                                                                                                    | $                                                                  |                                                                             |         |                           | $       |          |        
|                                               |                                                                                                    |                                                                    |                                                                              |         |                           |         |           |         |        

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

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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 August 2, 2003,
Wilsons Leather operated 607 permanent retail stores located in 45 states and
the District of Columbia, including 477 mall stores, 109 outlet stores and 21
airport stores. The Company, which regularly supplements its permanent mall
stores with seasonal stores during its peak selling season from October through
January, operated 284 seasonal stores in 2002 and plans to operate
approximately 225 seasonal stores this fiscal year.

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
August 2, 2003, Wilsons Leather operated in one segment: selling leather
outerwear, accessories and apparel. The Companys chief operating
decision-maker evaluates revenue and profitability performance on an enterprise
basis to make operating and strategic decisions.

As more fully described in Note 3 to the Companys Consolidated Financial
Statements in its 2002 Annual Report on Form 10-K, El Portal Group, Inc.,
Bentleys Luggage Corp. and Florida Luggage Corp. (the Travel Subsidiaries)
were liquidated during 2002 and were presented as discontinued operations
effective November 19, 2002. The consolidated financial statements have been
reclassified to segregate the net investment in, and the liabilities and
operating results of, the Travel Subsidiaries for all prior periods presented.
Prior to the liquidation, the Travel Subsidiaries were reported as a separate
operating segment. See also Note 3 to the Consolidated Financial Statements
(Unaudited) contained herein.

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 accounting principles
generally accepted in the United States of America, have been condensed or
omitted in these interim statements pursuant to such rules and regulations.
Although management believes that the accompanying disclosures are adequate to
make the information presented not 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 2002 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 necessarily indicative of the results that may be expected for
the fiscal year ending January 31, 2004.

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CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

On February 3, 2002, new accounting rules for business combinations and
accounting for goodwill and other intangibles, Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets, became effective for the Company. As a
result and from that day forward, goodwill is no longer amortized against
earnings and goodwill balances are subject to impairment review on at least an
annual basis.

Under the transitional provisions of SFAS No. 142, the Companys goodwill
related to the Travel Subsidiaries was tested for impairment during the second
quarter of 2002 using a February 2, 2002 measurement date. Each of the
Companys reporting units was tested for impairment by comparing the fair value
of each reporting unit with its carrying value. A reporting unit is the same
as, or one level below, an operating segment. For purposes of the Company,
reporting units were defined as Wilsons and the Travel Subsidiaries. Fair
value was determined based on a valuation study performed by an independent
third party which primarily considered the discounted cash flow method,
guideline company (comparable companies) and similar transaction methods. As
a result of the Companys impairment test, the Company recorded a pretax
impairment loss to reduce the carrying value of goodwill of the Travel
Subsidiaries by $26.3 million to its implied fair value. Impairment was due to
a combination of factors including acquisition price, post-acquisition capital
expenditures and operating performance. The cumulative effect of this
accounting change, net of a $1.7 million tax benefit, was originally reported
in the Companys Statement of Operations for the year to date period ended
August 3, 2002.

FISCAL YEAR

Wilsons Leathers fiscal year ends on the Saturday closest to January 31.
The periods ended January 31, 2004, February 1, 2003, and February 2, 2002, are
referred to herein as fiscal years 2003, 2002 and 2001, respectively.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Matters of significance in which
management relies on these estimates relate primarily to the realizability of
assets such as accounts receivable, property and equipment, and inventories,
and the adequacy of certain accrued liabilities and reserves. Ultimate results
could differ from those estimates.

INVENTORIES

The Company values its inventories, which consist primarily of finished
goods held for sale that have been purchased from domestic and foreign vendors,
at the lower of cost or market value, determined by the retail inventory method
on the last-in, first-out (LIFO) basis. As of August 2, 2003, and February
1, 2003, the LIFO cost of inventories approximated the first-in, first-out cost
of inventories. The inventory cost includes the cost of merchandise and
freight. A periodic review of inventory quantities on hand is 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 and fashion trends, current aging, current and anticipated retail
markdowns and class or

8



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##### Table of Contents



type of inventory are analyzed to determine estimated net realizable values. A
provision is recorded to reduce the cost of inventories to the estimated net
realizable values, if required. Any significant unanticipated changes in the
factors noted above could have a significant impact on the value of the
Companys inventories and its reported operating results.

STORE CLOSING AND IMPAIRMENT OF LONG-LIVED ASSETS

The Company continually reviews its stores operating performance and
assesses plans for store closures. In accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets,losses related to the
impairment of long-lived assets are recognized when expected future cash flows
are less than the assets carrying value. 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.

For stores to be closed that are under long-term leases, the Company
records a liability for the future minimum lease payments and related ancillary
costs, from the date of closure to the end of the remaining lease term, net of
estimated cost recoveries that may be achieved through subletting properties or
through favorable lease terminations, discounted using a risk-adjusted rate of
interest. This liability is recorded at the time the store is closed. At
August 2, 2003, and February 1, 2003, the Company had $0.3 and $0.4 million,
respectively, accrued for store lease terminations.

REVENUE RECOGNITION

The Company recognizes sales upon customer receipt of the merchandise
generally at the point of sale. Shipping and handling revenues are excluded
from net sales as a contra-expense and the related costs are included in costs
of goods sold, buying and occupancy costs. Revenue for gift certificate sales
and store credits is recognized at redemption. A reserve is provided at the
time of sale for projected merchandise returns based upon historical
experience. 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 (FOB) 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
rates is recognized in income in the period that includes the enactment date.

9



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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 had been issued (calculated using the treasury stock method).
The following table reconciles the number of shares utilized in the loss per
share calculations (in thousands):

|                                                     |  |                            |        |                                   |  |                |        |                |  |  |        |  |  |  |        | 
|---------------------------------------------------- |  | -------------------------- | ------ | --------------------------------- |  | -------------- | ------ | -------------- |  |  | ------ |  |  |  | ------ | 
|                                                     |  | For the three months ended |        | For the year to date period ended
|                                                     |  |                            |        |                                  
|                                                     |  | August 2, 2003             |        | August 3, 2002                    |  | August 2, 2003 |        | August 3, 2002
|                                                     |  |                            |        |                                   |  |                |        |               
|Weighted average common shares outstanding  basic   |  |                            | 20,480 |                                   |  |                | 20,267 |                |  |  | 20,459 |  |  |  | 19,742 | 
|Effect of dilutive securities: stock options         |  |                            |       |                                   |  |                |       |                |  |  |       |  |  |  |       | 
|                                                     |  |                            |        |                                   |  |                |        |                |  |  |        |  |  |  |        | 
|Weighted average common shares outstanding  diluted |  |                            | 20,480 |                                   |  |                | 20,267 |                |  |  | 20,459 |  |  |  | 19,742 | 
|                                                     |  |                            |        |                                   |  |                |        |                |  |  |        |  |  |  |        | 

STOCK-BASED COMPENSATION

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation,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 ended |         | For the year to date period ended
|                                               |                                            |   |                            |         |                                  
|                                               |                                            |   | August 2, 2003             |         | August 3, 2002                    |   | August 2, 2003 |         | August 3, 2002
|                                               |                                            |   |                            |         |                                   |   |                |         |               
|Net Loss:                                      |                                            |   |                            |         |                                   |   |                |         |                |   |      |         |   |   |      |        
|                                               | As reported                                |   | $                          | (21,600 | )                                 |   | $              | (27,038 | )              |   | $    | (34,337 | ) |   | $    | (66,282 | )
|                                               | Stock option and purchase plans            |   |                            | (446    | )                                 |   |                | (435    | )              |   |      | (846    | ) |   |      | (823    | )
|                                               |                                            |   |                            |         |                                   |   |                |         |                |   |      |         |   |   |      |         |  
|                                               | Pro forma loss                             |   | $                          | (22,046 | )                                 |   | $              | (27,473 | )              |   | $    | (35,183 | ) |   | $    | (67,105 | )
|                                               |                                            |   |                            |         |                                   |   |                |         |                |   |      |         |   |   |      |         |  
|Basic and diluted loss per share:              |                                            |   |                            |         |                                   |   |                |         |                |   |      |         |   |   |      |        
|                                               | As reported                                |   | $                          | (1.05   | )                                 |   | $              | (1.33   | )              |   | $    | (1.68   | ) |   | $    | (3.36   | )
|                                               | Stock option and purchase plans            |   |                            | (0.03   | )                                 |   |                | (0.03   | )              |   |      | (0.04   | ) |   |      | (0.04   | )
|                                               |                                            |   |                            |         |                                   |   |                |         |                |   |      |         |   |   |      |         |  
|                                               | Pro forma basic and diluted loss per share |   | $                          | (1.08   | )                                 |   | $              | (1.36   | )              |   | $    | (1.72   | ) |   | $    | (3.40   | )
|                                               |                                            |   |                            |         |                                   |   |                |         |                |   |      |         |   |   |      |         |  
|Weighted average fair value of options granted |                                            | $ | 3.16                       |         |                                   | $ | 6.71           |         |                | $ | 2.04 |         |   | $ | 6.67 |        

The pro forma amounts shown above may not be indicative of the effects on
reported net loss. The fair value of each option granted is estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 2003 and 2002:

|     |  |                  |     |          |  |          |     |            |  |  |     |  |  |  |      |  
|---- |  | ---------------- | --- | -------- |  | -------- | --- | ---------- |  |  | --- |  |  |  | ---- | -
|     |  | Weighted average |     | Dividend |  | Expected |     | Expected  
|     |  | risk free rate   |     | yield    |  | lives    |     | volatility
|     |  |                  |     |          |  |          |     |           
|2003 |  |                  | 3.0 | %        |  |          | 0.0 | %          |  |  | 5.0 |  |  |  | 55.8 | %
|2002 |  |                  | 2.0 | %        |  |          | 0.0 | %          |  |  | 6.5 |  |  |  | 52.6 | %

NEW ACCOUNTING PRONOUNCEMENTS

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

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or asset in some circumstances). Many of
those instruments were previously classified as equity. The statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not currently expect that this
statement will have a material impact on its consolidated financial statements.

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In December 2002, the Emerging Issues Task Force (EITF) issued EITF
00-21, Revenue Arrangements with Multiple Deliverables.This issue addresses
certain aspects of the accounting for arrangements under which a company will
perform multiple revenue generating activities. In some arrangements, the
different revenue generating activities (deliverables) are sufficiently
separable, and there exists sufficient evidence of their fair values to
separately account for some or all of the deliverables (that is, there are
separate units of accounting). In other arrangements, some or all of the
deliverables are not independently functional, or there is not sufficient
evidence of their fair values to account for them separately. This issue
addresses when and, if so, how an arrangement involving multiple deliverables
should be divided into separate units of accounting. This issue does not
change otherwise applicable revenue recognition criteria. The
provisions of EITF 00-21 are effective beginning in the third quarter of 2003. The Company does not expect the adoption of
EITF 00-21 to have a material impact on current revenue recognition.

3. DISCONTINUED OPERATIONS

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

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

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

|                                             |  |                            |   |                                   |  |                |         |                |  |   |   |  |  |   |         |  
|-------------------------------------------- |  | -------------------------- | - | --------------------------------- |  | -------------- | ------- | -------------- |  | - | - |  |  | - | ------- | -
|                                             |  | For the three months ended |   | For the year to date period ended
|                                             |  |                            |   |                                  
|                                             |  | August 2, 2003             |   | August 3, 2002                    |  | August 2, 2003 |         | August 3, 2002
|                                             |  |                            |   |                                   |  |                |         |               
|Net sales                                    |  | $                          |  |                                   |  | $              | 26,187  |                |  | $ |  |  |  | $ | 50,391  |  
|                                             |  |                            |   |                                   |  |                |         |                |  |   |   |  |  |   |         |  
|Loss before income taxes                     |  |                            |  |                                   |  |                | (10,259 | )              |  |   |  |  |  |   | (17,312 | )
|                                             |  |                            |   |                                   |  |                |         |                |  |   |   |  |  |   |         |  
|Loss from discontinued operations            |  | $                          |  |                                   |  | $              | (6,168  | )              |  | $ |  |  |  | $ | (10,400 | )
|                                             |  |                            |   |                                   |  |                |         |                |  |   |   |  |  |   |         |  
|Loss before income taxes, per share          |  | $                          |  |                                   |  | $              | (0.51   | )              |  | $ |  |  |  | $ | (0.88   | )
|                                             |  |                            |   |                                   |  |                |         |                |  |   |   |  |  |   |         |  
|Loss from discontinued operations, per share |  | $                          |  |                                   |  | $              | (0.30   | )              |  | $ |  |  |  | $ | (0.53   | )
|                                             |  |                            |   |                                   |  |                |         |                |  |   |   |  |  |   |         |  

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

|                                               |  |                |        |                  |  |   |         |  
|---------------------------------------------- |  | -------------- | ------ | ---------------- |  | - | ------- | -
|                                               |  | August 2, 2003 |        | February 1, 2003
|                                               |  |                |        |                 
|Cash and cash equivalents                      |  | $              | 15     |                  |  | $ | 882     |  
|Accounts receivable, net                       |  |                | 57     |                  |  |   | 104     |  
|Other current assets                           |  |                |       |                  |  |   | 2,393   |  
|                                               |  |                |        |                  |  |   |         |  
|Current assets of discontinued operations      |  | $              | 72     |                  |  | $ | 3,379   |  
|                                               |  |                |        |                  |  |   |         |  
|Total assets of discontinued operations        |  | $              | 72     |                  |  | $ | 3,379   |  
|                                               |  |                |        |                  |  |   |         |  
|Accounts payable                               |  | $              |       |                  |  | $ | 590     |  
|Accrued expenses                               |  |                | 1,081  |                  |  |   | 14,485  |  
|                                               |  |                |        |                  |  |   |         |  
|Current liabilities of discontinued operations |  | $              | 1,081  |                  |  | $ | 15,075  |  
|                                               |  |                |        |                  |  |   |         |  
|Total liabilities of discontinued operations   |  | $              | 1,081  |                  |  | $ | 15,075  |  
|                                               |  |                |        |                  |  |   |         |  
|Net liabilities of discontinued operations     |  | $              | (1,009 | )                |  | $ | (11,696 | )
|                                               |  |                |        |                  |  |   |         |  

In May 2003, the Company sold its Miami, Florida distribution center for
net proceeds of $2.5 million. This facility was an asset acquired in the
Bentleys Luggage Corp. acquisition. The $2.4 million in net assets held for
sale was reported as Current assets of discontinued operations at February 1,
2003. The net proceeds from the sale decreased cash used by discontinued
operations for the period.

The following summarizes the Travel Subsidiaries disposal reserve
activity during the year to date period ended August 2, 2003, (in thousands):

Discontinued operations reserves

|                                             |  |                  |        |       |  |           |          |                |  |   |      |   |  |   |       | 
|-------------------------------------------- |  | ---------------- | ------ | ----- |  | --------- | -------- | -------------- |  | - | ---- | - |  | - | ----- | 
|                                             |  | February 1, 2003 |        | Usage |  | Transfers |          | August 2, 2003
|                                             |  |                  |        |       |  |           |          |               
|Store closing*                               |  | $                | 12,653 |       |  |           | ($12,058 | )              |  | $ | 286  |   |  | $ | 881   | 
|Taxes                                        |  |                  | 720    |       |  |           | (520     | )              |  |   |     |   |  |   | 200   | 
|Severance                                    |  |                  | 600    |       |  |           | (590     | )              |  |   | (10  | ) |  |   |      | 
|Miscellaneous                                |  |                  | 512    |       |  |           | (374     | )              |  |   | (138 | ) |  |   |      | 
|Accounts payable                             |  |                  | 590    |       |  |           | (452     | )              |  |   | (138 | ) |  |   |      | 
|                                             |  |                  |        |       |  |           |          |                |  |   |      |   |  |   |       | 
|Total liabilities of discontinued operations |  | $                | 15,075 |       |  |           | ($13,994 | )              |  | $ | 0    |   |  | $ | 1,081 | 
|                                             |  |                  |        |       |  |           |          |                |  |   |      |   |  |   |       | 



---

|* |  | Includes primarily lease termination costs and legal fees associated with the liquidation of the Travel
Subsidiaries.
|- |  | ---------------------------------------------------------------------------------------------------------------------

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4. OTHER COMPREHENSIVE LOSS

The Company reports accumulated other comprehensive income (loss) as a
separate item in the shareholders equity section of the consolidated balance
sheet. Other comprehensive income (loss) consists of foreign currency
translation adjustments. For the quarters ending August 2, 2003, and August 3,
2002, the amounts were de minimis.

5. LONG-TERM DEBT

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

|                                          |  |                |         |                  |  |   |        |  
|----------------------------------------- |  | -------------- | ------- | ---------------- |  | - | ------ | -
|                                          |  | August 2, 2003 |         | February 1, 2003
|                                          |  |                |         |                 
|Senior notes                              |  | $              | 30,590  |                  |  | $ | 30,590 |  
|Term B promissory note                    |  |                | 25,000  |                  |  |   | 25,000 |  
|Senior credit facility                    |  |                | 17,180  |                  |  |   |       |  
|Checks written in excess of cash balances |  |                | 6,413   |                  |  |   |       |  
|Note payable                              |  |                | 128     |                  |  |   | 150    |  
|                                          |  |                |         |                  |  |   |        |  
|Total debt                                |  | $              | 79,311  |                  |  | $ | 55,740 |  
|Less: current portion                     |  |                | (23,638 | )                |  |   | (45    | )
|                                          |  |                |         |                  |  |   |        |  
|Total long-term debt                      |  | $              | 55,673  |                  |  | $ | 55,695 |  
|                                          |  |                |         |                  |  |   |        |  

SENIOR NOTES

On August 18, 1997, the Company issued $75.0 million of 11 1/4% senior
notes due August 15, 2004, (the 11 1/4% Senior Notes). Interest on the
11 1/4% Senior Notes is payable semiannually in arrears on February 15 and
August 15 of each year. The Company repurchased $44.4 million of the 11 1/4%
Senior Notes in the years 1998 through 2000. As of February 1, 2003, and August 2, 2003, the outstanding balance on the 11 1/4% Senior Notes was $30.6
million. The terms and conditions for these notes are more fully discussed in
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations contained in this Form 10-Q filing.

TERM B PROMISSORY NOTE AND REVOLVING CREDIT AGREEMENT

General Electric Capital Corporation and a syndicate of banks have
provided the Company with a senior credit facility, which was amended on April 11, 2003,
that provides for borrowings of up to $205 million in aggregate principal amount, including a $25 million Term B
promissory note and a $75 million letter of credit subfacility. The terms and
conditions of this facility and the Term B promissory note are more fully
discussed in Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in this Form 10-Q filing.

At August 2, 2003, there were $17.2 million in borrowings under the
revolver and at February 1, 2003, there were no borrowings under the revolver.
At August 2, 2003, and February 1, 2003, there were $15.6 and $15.2 million in
letters of credit outstanding, respectively. The Term B promissory note had a
balance of $25.0 million on August 2, 2003, and February 1, 2003.

6. LEGAL PROCEEDINGS

In January 2003, a class action was brought on behalf of current and
former store managers of Wilsons Leather in California regarding their
classification as exempt from overtime pay. In July 2003, the Company reached
a confidential settlement of the class action through mediation, and court
approval of the settlement is pending. A charge of $1.9
million related to this settlement was taken during the second quarter.

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7. SUPPLEMENTAL BALANCE SHEET INFORMATION

|                                |                                        |                                      |   |           |         |             |   |         |         | 
|------------------------------- | -------------------------------------- | ------------------------------------ | - | --------- | ------- | ----------- | - | ------- | ------- | 
|                                |                                        |                                      |   | August 2, |         | February 1,
|(in thousands)                  |                                        | 2003                                 |   | 2003     
|                                |                                        |                                      |   |          
|Accounts receivable, net:       |                                        |                                      |   |           |         |             |   |        
|                                | Trade receivables                      |                                      | $ | 4,704     |         |             | $ | 3,851   |        
|                                | Other receivables                      |                                      |   | 1,403     |         |             |   | 1,524   |        
|                                |                                        |                                      |   |           |         |             |   |         |        
|                                |                                        | Total                                |   |           | 6,107   |             |   |         | 5,375   | 
|                                | Less  Allowance for doubtful accounts |                                      |   | (101      | )       |             |   | (145    | )      
|                                | Less  Deferred sales                  |                                      |   | (12       | )       |             |   | (68     | )      
|                                |                                        |                                      |   |           |         |             |   |         |        
|                                |                                        | Total accounts receivable, net       |   | $         | 5,994   |             |   | $       | 5,162   | 
|                                |                                        |                                      |   |           |         |             |   |         |        
|Inventories:                    |                                        |                                      |   |           |         |             |   |        
|                                | Raw materials                          |                                      | $ | 2,166     |         |             | $ | 2,872   |        
|                                | Finished goods                         |                                      |   | 103,970   |         |             |   | 115,829 |        
|                                |                                        |                                      |   |           |         |             |   |         |        
|                                |                                        | Total inventories                    |   | $         | 106,136 |             |   | $       | 118,701 | 
|                                |                                        |                                      |   |           |         |             |   |         |        
|Property and equipment, net:    |                                        |                                      |   |           |         |             |   |        
|                                | Land                                   |                                      | $ | 200       |         |             | $ | 200     |        
|                                | Equipment and furniture                |                                      |   | 92,000    |         |             |   | 90,111  |        
|                                | Leasehold improvements                 |                                      |   | 33,848    |         |             |   | 32,934  |        
|                                |                                        |                                      |   |           |         |             |   |         |        
|                                |                                        | Total                                |   |           | 126,048 |             |   |         | 123,245 | 
|                                | Less  Accumulated depreciation        |                                      |   | (56,045   | )       |             |   | (49,271 | )      
|                                |                                        |                                      |   |           |         |             |   |         |        
|                                |                                        | Total property and equipment, net    |   | $         | 70,003  |             |   | $       | 73,974  | 
|                                |                                        |                                      |   |           |         |             |   |         |        
|Goodwill and other assets, net: |                                        |                                      |   |           |         |             |   |        
|                                | Goodwill                               |                                      | $ | 72        |         |             | $ | 72      |        
|                                | Debt issuance costs                    |                                      |   | 7,002     |         |             |   | 5,977   |        
|                                | Other assets                           |                                      |   | 186       |         |             |   | 245     |        
|                                |                                        |                                      |   |           |         |             |   |         |        
|                                |                                        | Total                                |   |           | 7,260   |             |   |         | 6,294   | 
|                                | Less  Accumulated amortization        |                                      |   | (3,802    | )       |             |   | (2,979  | )      
|                                |                                        |                                      |   |           |         |             |   |         |        
|                                |                                        | Total goodwill and other assets, net |   | $         | 3,458   |             |   | $       | 3,315   | 
|                                |                                        |                                      |   |           |         |             |   |         |        




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of Wilsons The Leather Experts Inc. and wholly owned subsidiaries
should be read in conjunction with our most recent audited consolidated
financial statements and related notes included in our 2002 Annual Report on
Form 10-K.

The consolidated financial statements for all periods present the Travel
Subsidiaries segment as discontinued operations. See Note 3 to the
Consolidated Financial Statements (Unaudited) contained herein. Unless
otherwise indicated, the following discussion relates only to the continuing
operations of Wilsons Leather.

OVERVIEW

We are the leading specialty retailer of quality leather outerwear,
accessories and apparel in the United States. Our multiple store formats are
designed to reach a broad customer base with a superior level of customer
service. Utilizing our integrated worldwide leather sourcing network and
in-house design capabilities, we are consistently able to provide our customers
high-quality, fashionable merchandise at attractive prices and minimize fashion
risk by reacting quickly to popular and emerging fashion trends and customer
preferences and rapidly replenishing fast-selling merchandise.

We recently kicked off a creative marketing campaign called Discover,
which is a platform to communicate the quality, value, and features of our
products. This campaign, which has a four-pronged approach to build brand
awareness and to communicate merchandise attributes, will reach our customers
through store signage and product tags, external media such as newspaper
inserts, and direct mail.

As of August 2, 2003, we operated a total of 607 permanent retail stores
located in 45 states and the District of Columbia, including 477 mall stores,
109 outlet stores and 21 airport stores. Each year we supplement our permanent
stores with seasonal stores during our peak selling season, which totaled 284
in 2002. We plan to open approximately 225 seasonal stores in 2003.

Our Wilsons Leather mall stores average approximately 2,600 total leased
square feet and feature a large assortment of both classic and fashion-forward
leather outerwear, accessories and apparel. Our outlet stores are operated
primarily under the Wilsons Leather Outlet name, average approximately 3,900
total leased square feet, and offer a combination of clearance-priced
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 products as well as leather accessories, and
provide us the opportunity to showcase our products and the Wilsons Leather
brand to millions of potential customers each year in some of the worlds
busiest airports. Our proprietary labels, including M. Julian®, Maxima®, Pelle
Studio® and Wilsons Leather, are positioned to appeal to identified customer
lifestyle segments.

Comparable store sales decreased 5.6% in the three months ended August 2,
2003, compared to an increase of 1.9% in the same period of the prior year.
Comparable store sales

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decreased 2.2% in the year to date period ended August 2, 2003, compared to a
4.5% decrease 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 percentage change is computed by comparing total
net sales for comparable stores as thus defined at the end of the applicable
reporting period with total net sales from comparable stores for the comparable
period in the prior year.



| |  | 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 appears on page 22 of our Annual
Report on Form 10-K for the year ended February 1, 2003. No material changes
occurred to these policies in the periods covered by this report.



| |  | RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 2, 2003, COMPARED TO
THE THREE MONTHS ENDED AUGUST 3, 2002
| |  | ------------------------------------------------------------------------------------------------------------------

Net sales decreased 5.5% to $59.8 million in the three months ended August
2, 2003, from $63.2 million in the comparable period last year. The $3.4
million sales decrease was due to reduced sales volumes, a decline in
comparable store sales and the general state of the economy.

We opened 3 stores and closed 8 stores in the three months ended August 2,
2003, compared to opening 4 stores and closing 7 stores in the comparable
period last year. As of August 2, 2003, we operated 607 stores compared to 617
stores at August 3, 2002.

Cost of goods sold, buying and occupancy costs increased to 95.0% as a
percentage of net sales in 2003, from 94.1% of net sales in 2002, primarily due
to a decrease in sales volume. The 0.9% increase in cost of goods sold, buying
and occupancy costs as a percentage of sales represented a $2.7 million
decrease in total cost as compared to 2002. This $2.7 million decrease from
2002 was due to: (1) $2.4 million in lower cost of goods sold due to both the
lower sales volume and higher margin goods being sold in 2003 as compared to
2002, and (2) a $0.3 million decrease in markdowns, freight and handling costs.

Selling, general and administrative expenses increased to $32.5 million in
2003 from $32.4 million in 2002, and increased as a percentage of net sales to
54.4% from 51.3% primarily due to a year over year sales decrease. The $0.1
million increase was primarily due to: (1) a $1.9 million charge related to the
settlement of a class action, offset by (2) $1.8 million in cost
savings realized due to reduced staff levels at our headquarters and continued
expense control at the store level.

Depreciation and amortization increased to $4.0 million in 2003 from $3.8
million in 2002, and increased as a percentage of net sales to 6.7% from 6.0%.
The increase resulted from depreciation on a higher base of assets resulting
from recent additions and from accelerated depreciation of $0.1 million of
assets related to stores we plan to close later in 2003.

As a result of the above, the operating loss increased to a net loss of
$33.5 million, or 56.1% of net sales, in 2003 from a loss of $32.4 million, or
51.3% of net sales, in 2002.

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Net interest expense increased to $2.5 million in 2003 from $2.4 million
in 2002 due to higher interest rates on long-term debt and higher debt
acquisition costs from refinancing, partially offset by reduced short-term
borrowings.

The income tax benefit was $14.4 million in 2003 compared to $13.9 million
in 2002. The effective rate of 40% remained constant from 2002 to 2003.

Net loss from continuing operations for 2003 was $21.6 million compared to
$20.9 million in 2002.

Loss from discontinued operations was $0.0 million in 2003 compared to
$6.2 million in 2002.



| |  | RESULTS OF OPERATIONS FOR THE
YEAR TO DATE PERIOD ENDED AUGUST 2, 2003, COMPARED TO THE YEAR TO DATE PERIOD ENDED AUGUST 3, 2002
| |  | --------------------------------------------------------------------------------------------------------------------------------

Net sales decreased 2.0% to $155.1 million in the year to date period
ended August 2, 2003, from $158.3 million in the comparable period last year.
The $3.2 million sales decrease was due to reduced sales volumes, a decline in
comparable store sales and the general state of the economy.

We opened 8 stores and closed 19 stores in the year to date period ended
August 2, 2003, compared to opening 15 stores and closing 17 stores in the
comparable period last year.

Cost of goods sold, buying and occupancy costs increased to 86.4% as a
percentage of net sales in 2003, from 83.8% of net sales in 2002, primarily due
to an increase in markdowns representing 2.9% of sales. The 2.6% increase in
cost of goods sold, buying and occupancy costs as a percentage of sales
represented a $1.4 million increase in total cost as compared to 2002. This
$1.4 million increase from 2002 was due to: (1) $4.2 million in higher
markdowns to clear fall 2002 merchandise, (2) $0.4 million in higher buying and
occupancy costs, resulting primarily from the sale/leaseback of the Brooklyn
Park, Minnesota distribution center, which did not occur until the second
quarter of 2002, (3) a $0.3 million increase in freight and handling costs,
primarily due to the reallocation of clearance inventory, partially offset by
(4) $3.5 million in lower cost of goods sold due to both the lower sales
volume and higher margin goods being sold in 2003 as compared to 2002.

Selling, general and administrative expenses decreased to $65.2 million in
2003 from $66.3 million in 2002, but increased as a percentage of net sales to
42.1% from 41.9%, primarily due to a year over year sales decrease. The $1.1
million decrease was primarily due to: (1) a $2.4 million decrease in store
selling expenses, including but not limited to payroll expense, and (2) $1.9
million in cost savings realized due to reduced staff levels at our
headquarters and continued expense control at the store level, partially offset
by (3) a $1.9 million charge related to the settlement of a
class action, (4) a $0.6 million increase in employee benefit costs, and (5) a $0.7
million increase in professional service fees.

Depreciation and amortization increased to $8.3 million in 2003 from $7.6
million in 2002, and increased as a percentage of net sales to 5.4% from 4.8%.
The increase resulted from depreciation on a higher base of assets resulting
from recent additions and from accelerated depreciation of $0.4 million of
assets related to stores we plan to close later in 2003.

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As a result of the above, the operating loss increased to a net loss of
$52.5 million, or 33.9% of net sales, in 2003 from a loss of $48.1 million, or
30.4% of net sales, in 2002.

Net interest expense increased to $4.7 million in 2003 from $4.1 million
in 2002 due to higher interest rates on long-term debt and higher debt
acquisition costs, partially offset by decreased short-term borrowings.

The income tax benefit was $22.9 million in 2003 compared to $20.9 million
in 2002. The effective rate of 40% remained constant from 2002 to 2003.

Net loss from continuing operations for 2003 was $34.3 million compared to
$31.3 million in 2002.

Loss from discontinued operations was $0.0 million in 2003 compared to
$10.4 million in 2002.

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

On February 3, 2002, new accounting rules for business combinations and
accounting for goodwill and other intangibles, SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, became
effective. As a result and from that day forward, goodwill is no longer
amortized against earnings and goodwill balances are subject to impairment
review on at least an annual basis.

Under the transitional provisions of SFAS No. 142, our goodwill related to
the Travel Subsidiaries was tested for impairment during the second quarter of
2002 using a February 2, 2002 measurement date. Each of our reporting units
was tested for impairment by comparing the fair value of each reporting unit
with its carrying value. A reporting unit is the same as, or one level below,
an operating segment. For purposes of our company, reporting units were
defined as Wilsons and the Travel Subsidiaries. Fair value was determined
based on a valuation study performed by an independent third party which
primarily considered the discounted cash flow method, guideline company
(comparable companies) and similar transaction methods. As a result of the
impairment test, we recorded a pretax impairment loss to reduce the carrying
value of goodwill of the Travel Subsidiaries by $26.3 million to its implied
fair value. Impairment was due to a combination of factors including
acquisition price, post-acquisition capital expenditures and operating
performance. The cumulative effect of this accounting change, net of a $1.7
million tax benefit, was originally reported in our Statement of Operations for
the year to date period ended August 3, 2002.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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discretionary items, such as our leather products, tend to decline during
recessionary periods when disposable income is lower. The general slowdown in
the United States economy and the uncertain economic outlook have adversely
affected consumer spending habits and mall traffic, 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 existing
debt or to obtain additional financing. There can be no assurance that any
such refinancing or additional financing would be possible or could be obtained
on terms that are favorable to us.

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

     85% of net inventories, provided that such percentage at no time may
exceed 85% of the then applicable discount rate applied in appraising such
inventories to reflect their value as if sold in an orderly liquidation, except
that the discount rate is gradually increased from August 17 to October 1 of
each year and gradually decreased from December 17 to February 1 of each year;

     plus 85% of outstanding and undrawn trade letters of credit, provided
that such percentage at no time may exceed 85% of the discount rate applied in
appraising the future inventories related to such letters of credit to reflect
their value as if sold in an orderly liquidation;

     plus 85% of credit card receivables;

     plus, during the months of September, October and November and the first
fifteen days of December, 2003 (or until we receive our anticipated tax refund,
whichever is earlier), 85% of the amount we expect to receive as a tax refund,
provided that prior to the filing of our tax return, such amount cannot exceed
$2 million during the first week of September, $4 million during the second
week of September or $6 million at any time after the second week of September;
and provided further that after we file our tax return such amount cannot
exceed $15.0 million;

     minus $10 million ($5 million from July 2003 through December 15, 2003,
and during the months of August, September, October and November of 2004 and
2005).

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

     the revolving credit portion of such borrowings cannot exceed the sum of
85% of credit card receivables, plus 85% of the appraised value of inventory
(including inventory subject to trade letters of credit) as if sold on a
going-out-of business basis; and

     the total borrowings (i.e. the revolving credit portion of the facility
and the Term B promissory note) cannot exceed the sum of 85% of the book value
of credit card receivables, plus 95% (100% during August, September and
October) of the appraised value of inventory (including inventory subject to
trade letters of credit) as if sold on a going-out-of business basis;
17Table of Contents
    
    from December 31, 2003, through March 31, 2004, we must have no
borrowings under the revolving credit portion of the facility and
outstanding letters of credit must be no greater than $20 million;
    
    from April 1, 2004, through May 15, 2004, borrowings under the
revolving credit portion of the facility must be no greater than $15
million, and outstanding letters of credit must be no greater than $20
million; and
    
    from December 31, 2004, through March 31, 2005, we must have no
borrowings under the revolving credit portion of the facility and
outstanding letters of credit must be no greater than $40 million.As of August 2, 2003, we had $17.2 million in borrowings under the
revolving credit facility and no other borrowings under the senior credit
facility, except for the Term B promissory note, and we had $15.6 million in
outstanding letters of credit.Interest is payable on revolving credit borrowings at variable rates
determined by LIBOR plus 3.25%, except as noted in the next sentence, or the
prime rate plus 2.0% (commercial paper rate plus 3.25% if the loan is made
under the swing line portion of the revolver). Borrowings in an amount that
is available to us only because we have included our anticipated tax refund in
determining availability will bear interest at the prime rate plus 5%.
Interest is payable on the $25 million Term B promissory note at a variable
rate equal to the prime rate plus 4%, plus an additional 5% payable pursuant
to a separate letter agreement with General Electric Capital Corporation. We
pay monthly fees on the unused portion of the senior credit facility and on the
average daily amount of letters of credit outstanding during each month. If we
have any borrowings that are only available to us because we have included our
anticipated tax refund in determining availability, we will pay a fee of
$150,000. The senior credit facility expires in June 2005, at which time all
borrowings, including the Term B promissory note, become due and payable.
Prepayment of the Term B promissory note is subject to a 2% prepayment fee if
prepaid on or after July 1, 2002, but on or prior to November 30, 2003, and a
1% prepayment fee thereafter. The revolving credit portion of the facility is
subject to a 1% prepayment fee under most circumstances. The Term B promissory
note is prepayable only with the consent of the senior lenders under the senior
credit facility.The senior credit facility contains certain restrictions and covenants
which, among other things, restrict our ability to make capital expenditures;
acquire or merge with another entity; make investments, loans or guarantees;
incur additional indebtedness; prepay, repurchase or pay any principal on any
11 1/4% Senior Notes, referred to below, except pursuant to a permitted
refinancing; create liens or other encumbrances; or pay cash dividends or make
other distributions. We are currently in compliance with all covenants under
the senior credit facility.The senior credit facility also contains a requirement that we either
amend, refund, renew, extend or refinance the outstanding 11 1/4% Senior Notes
on or before June 15, 2004, so that no principal payment with respect to any
such amended, refunded, renewed, extended or refinanced notes is due on or
before September 1, 2005. We are required to provide our lenders a plan for
achieving such amendment, refunding, renewal, extension or refinancing by April
30, 2004. The terms of any refunded, renewed, extended or refinanced notes
cannot be more burdensome than the terms of the 11 1/4% Senior Notes and the
rate of interest with respect to any such notes cannot exceed the sum of the
rate of interest on United States treasury obligations of like tenor at the
time of such refunding, renewal, refinancing or extension plus 7% per annum.18Table of ContentsWe plan to use the senior credit facility for our immediate and future
working capital needs. Peak borrowings typically occur from October through
December and outstanding letters of credit typically peak from August through
September. We are dependent on the senior credit facility to fund working
capital and letter of credit needs. We believe that borrowing capacity under
the senior credit facility, together with current and anticipated cash flow
from operations, will be adequate to meet our working capital and capital
expenditure requirements during the term of the senior credit facility,
provided that we either amend, refund, renew, extend or refinance the
outstanding 11 1/4% Senior Notes on or before June 15, 2004, so that no
principal payment with respect to any such amended, refunded, renewed, extended
or refinanced notes is due on or before September 1, 2005.On August 18, 1997, we completed a private offering of $75 million of
11 1/4% Senior Notes to certain institutional buyers. Interest on the
11 1/4% Senior Notes is payable semi-annually in arrears on February 15 and
August 15 of each year. The 11 1/4% Senior Notes mature on August 15, 2004,
and are callable after August 15, 2001, at a defined premium. The 11 1/4%
Senior Notes are our general unsecured obligations and rank senior in right of
payment to all of our existing and future subordinated indebtedness and rank on
equal terms in right of payment with all of our other current and future
unsubordinated indebtedness. During 2000 and 1999, we repurchased $13.3 million
and $26.1 million, respectively, of our 11 1/4% Senior Notes. As of August 2,
2003, we had $30.6 million of our 11 1/4% Senior Notes outstanding.In January 2002, we sold 1,900,000 shares of common stock to an
institutional investor in a private placement for a price of $11.00 per share
for net proceeds of approximately $20.0 million. In April 2002, affiliates of
the institutional investor exercised the option to purchase 100,000 shares of
our common stock at a purchase price of $11.00 per share. The sale was
completed on April 12, 2002, for net proceeds of approximately $1.0 million.On April 30, 2002, we sold 900,000 shares of our common stock in a private
placement at a purchase price of $11.00 per share, for net proceeds of
approximately $9.9 million. On June 10, 2002, the purchasers in the April
private placement exercised the option to purchase an additional 100,000 shares
of our common stock at a purchase price of $11.00 per share. The sale was
completed on June 13, 2002, for net proceeds of approximately $1.1 million.On June 21, 2002, we completed a sale/leaseback transaction for our
headquarters facility and distribution center in Brooklyn Park, Minnesota, for
net proceeds of $12.5 million. A portion of the net proceeds from the
sale/leaseback, $4.8 million, was used to pay down the Term B promissory note
from $25.0 million to $20.2 million. The remainder of the proceeds was used
for general corporate purposes.On November 4, 2002, pursuant to the First Amendment to Fourth Amended and
Restated Credit Agreement with General Electric Capital Corporation and the
syndicate, we reborrowed $4.8 million of the Term B promissory note, which
brought the outstanding balance to $25.0 million.On November 19, 2002, we announced the liquidation of the stores operated
by our Travel Subsidiaries, as described in Note 3 to the Consolidated
Financial Statements on page F-14 of our 2002 Annual Report on Form 10-K. See
also Note 3 of the Consolidated Financial Statements (Unaudited) contained
herein.19Table of ContentsCASH FLOW ANALYSISOperating activities of continuing operations for the year to date period
ended August 2, 2003, resulted in cash used of $38.4 million compared to cash
used of $80.0 million in the corresponding period of 2002.The $38.4 million of cash used in operating activities for the year to
date period ended August 2, 2003, was comprised of: (1) a $9.5 million increase
in deferred income tax, (2) a net loss from continuing operations of $34.3
million, (3) a $7.5 million increase in prepaids due to timing of rent
payments, an increase in prepaid insurance due to a policy renewal during the
second quarter and prepaid raw leather product, (4) a $3.4 million increase in
refundable/payable income taxes and other liabilities primarily due to net
operating losses, including a $9.9 million tax refund, (5) a $4.9 million
decrease in accrued expenses and accounts payable due to the seasonality of the
business, and (6) a $0.8 million increase in accounts receivable, offset by (7)
a $12.6 million decrease in inventories due to clearance sales, (8) a $9.1
million non-cash adjustment for depreciation and amortization expense, and (9) $0.5
million in cash provided by various other operating activities.We had $80.0 million in cash used by operating activities during the same
period last year as a result of: (1) a $28.8 million increase in inventories,
(2) a net loss from continuing operations of $31.3 million, (3) an $8.3 million
increase in prepaid expenses due to the timing of August 2002 rent payments,
and an increase in prepaid insurance due to a policy renewal during the second
quarter, (4) a $21.6 million change in income taxes refundable/payable and
other liabilities due to reduced income, and (5) a $5.8 million change in
deferred taxes, offset by (6) $8.2 million in non-cash adjustments for
depreciation and amortization and loss on disposal of assets, (7) $0.2 million
in cash provided by various other operating activities, (8) a $4.7 million
decrease in accounts receivable, and (9) a $2.8 million increase in accounts
payable and accrued expenses.Investing activities of continuing operations for the year to date period
ended August 2, 2003, were comprised of $4.4 million in capital expenditures
and additions to other assets used primarily for the construction of new stores
and the renovation of and improvements to existing stores. Investing
activities during the same period last year were comprised of $4.2 million in
capital expenditures and additions to other assets used primarily for the
construction of new stores and the renovation of and improvements to existing
stores, offset by $12.5 million in cash provided by a sale/leaseback of the
headquarters facility. For 2003, capital expenditures are capped at $10.0
million.Cash provided by financing activities of continuing operations for the
year to date period ended August 2, 2003, was $22.9 million, which was
primarily $23.6 million provided by revolver financing and checks written in excess of cash balances, and $0.3 million from
the issuance of common stock and exercise of stock options, partially offset by
$1.0 million used for debt acquisition costs. Cash provided by financing
activities during the same period last year was $52.1 million. This included
$45.6 million provided by revolver financing and checks written in excess of cash balances, and $12.7 million from the
issuance of common stock and exercise of stock options, offset by $4.8 million
used for repayment of long-term debt, and $1.4 million used for debt acquisition
costs.OFF-BALANCE-SHEET ARRANGEMENTSWe have no off-balance-sheet 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.20Table of ContentsSEASONALITY AND INFLATIONA 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.RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSIn January 2003, the FASB published Interpretation No. 46, Consolidation
of Variable Interest Entities,which we refer to as FIN 46, to clarify the
conditions under which assets, liabilities and activities of another entity
should be consolidated into the financial statements of a company. FIN 46
requires the consolidation of a variable interest entity (including a special
purpose entity such as that utilized in an accounts receivable securitization
transaction) by a company that bears the majority of the risk of loss from the
variable interest entitys activities or is entitled to receive a majority of
the variable interest entitys residual returns or both. The provisions of FIN
46 are required to be adopted in fiscal 2003. The adoption of FIN 46 has not
had a material impact on our consolidated financial statements.In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or asset in some circumstances). Many of
those instruments were previously classified as equity. The statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. We do not currently expect that this statement
will have a material impact on our consolidated financial statements.In December 2002, the Emerging Issues Task Force (EITF) issued EITF
00-21, Revenue Arrangements with Multiple Deliverables.This issue addresses
certain aspects of the accounting for arrangements under which a company will
perform multiple revenue generating activities. In some arrangements, the
different revenue generating activities (deliverables) are sufficiently
separable, and there exists sufficient evidence of their fair values to
separately account for some or all of the deliverables (that is, there are
separate units of accounting). In other arrangements, some or all of the
deliverables are not independently functional, or there is not sufficient
evidence of their fair values to account for them separately. This issue
addresses when and, if so, how an arrangement involving multiple deliverables
should be divided into separate units of accounting.21Table of ContentsThis issue does not change otherwise applicable revenue recognition
criteria.  The provisions of
 EITF 00-21 are effective beginning in the third quarter of 2003.
We do not expect the adoption of
EITF 00-21 to have a material impact on current revenue recognition.Except for historical information, matters discussed in Managements
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements involve risks and uncertainties, and actual
results may be materially different. Because actual results may differ,
readers are cautioned not to place undue reliance on forward-looking
statements. Factors that could cause actual results to differ include:
economic downturns; failure of results of operations to meet
expectations of research analysts; risks associated with estimates
made in our critical accounting policies; risks associated with
future growth; risks associated with our debt service; changes
in customer shopping patterns; unseasonable weather; change in
consumer preferences and fashion trends away from leather; seasonality
of the business; risks associated with foreign sourcing and
international business; disruptions in product supplies; decreased
availability and increased cost of leather; competition in our
markets; loss of key members of our management team; reliance on
third parties for maintaining our management information systems;
concentration of our common stock; anti-takeover effects of
classified board provisions in our articles of incorporation and
by-laws; volatility of our common stock; war, acts of terrorism or
the threat of either; and interruption in the operation of corporate
offices and distribution centers. Certain of these risk factors are
more fully discussed in the Companys 2002 Annual Report on Form 10-K for the
fiscal year ended February 1, 2003.
ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKOur senior credit facility carries interest rate risk that is generally
related to LIBOR, the commercial paper rate or the prime rate. If any of those
rates were to change while we were borrowing under the facility, interest
expense would increase or decrease accordingly. As of August 2,
2003, we had $17.2 million in borrowings under the revolving credit facility and no
other borrowings under the senior credit facility, other than the Term B
promissory note, and we had $15.6 million in outstanding letters of credit.We have no earnings or cash flow exposure due to market risks on our
long-term debt obligations as a result of the fixed-rate nature of the debt.
However, interest rate changes would affect the fair market value of the debt.
At August 2, 2003, we had long-term fixed rate debt of $30.6 million maturing
in August 2004.
ITEM 4.  CONTROLS AND PROCEDURESAs 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.22Table of Contents



PART II  OTHER INFORMATIONITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDSSee Managements Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and Capital Resources in
Part 1., Item 2. contained herein for a description of working capital restrictions and limitations
upon the payment of dividends.
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSAt our annual meeting held on June 11, 2003, the shareholders approved the following:(a)
    
    The election of three directors for a three-year term. Each nominated
director was elected as follows:

|                  |  |           |            |                |  |  |           | 
|----------------- |  | --------- | ---------- | -------------- |  |  | --------- | 
|Director-Nominee  |  | Votes For |            | Votes Withheld
|                  |  |           |            |               
|Lyle Berman       |  |           | 17,583,708 |                |  |  | 1,026,219 | 
|William F. Farley |  |           | 17,585,649 |                |  |  | 1,024,278 | 
|Michael J. McCoy  |  |           | 17,585,797 |                |  |  | 1,024,130 | 



|(b) |  | Approval of amendment to the Wilsons The Leather Experts Inc. 2000 Long
Term Incentive Plan to increase the aggregate number of shares of common
stock that may be issued under the plan to 2,000,000.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The proposal received 15,278,351 votes for and 2,633,064 votes against. There
were 698,512 abstentions and no broker non-votes.



|(c) |  | Approval of an amendment to the Wilsons The Leather Experts Inc. Employee
Stock Purchase Plan to increase the aggregate number of shares of common
stock that may be issued under the plan to 625,000.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The proposal received 17,761,281 votes for and 150,109 votes against. There
were 698,537 abstentions and no broker non-votes.



|(d) |  | Ratification of the appointment of KPMG LLP as our independent auditors
for the fiscal year ending January 31, 2004.
|--- |  | --------------------------------------------------------------------------------------------------------------------

The proposal received 18,606,060 votes for and 2,794 votes against. There were
1,073 abstentions and no broker non-votes.

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ITEM 6.  EXHIBITS AND REPORT ON FORM 8-K



| | A. |  | Exhibits
| | -- |  | --------

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|No.     |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                |  | Method of Filing         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|3.1     |  | Amended and Restated Articles of Incorporation of Wilsons The Leather Experts Inc. adopted June 16, 1998, as amended by the Articles of Amendment dated February 17, 2000, and the Articles of Amendment dated May 23, 2002.(1)                                                                                                                                                                                            |  | Incorporated by Reference
|3.2     |  | Restated Bylaws of Wilsons The Leather Experts Inc. as amended June 16, 1998, January 25, 2000, and May 23, 2002.(1)                                                                                                                                                                                                                                                                                                       |  | Incorporated by Reference
|4.1     |  | Specimen of common stock certificate.(2)                                                                                                                                                                                                                                                                                                                                                                                   |  | Incorporated by Reference
|4.2     |  | Indenture dated as of August 18, 1997, by and among Wilsons The Leather Experts Inc., the other corporations listed on the signature pages thereof, and Wells Fargo Bank Minnesota, National Association (formerly known
as Norwest Bank Minnesota, National Association), including specimen
Certificate of 11 1/4% Series A Senior Notes due 2004 and specimen Certificate of 11 1/4% Series B Senior Notes due 2004.(3) |  | Incorporated by Reference
|4.3     |  | Registration Rights Agreement dated as of May 25, 1996, by and among CVS New York, Inc. (formerly known as
Melville Corporation), Wilsons The Leather Experts Inc., the Managers listed on the signature pages thereto, Leather Investors Limited Partnership I and the Partners listed on the signature pages
thereto.(4)                                                                                                 |  | Incorporated by Reference
|4.4     |  | Amendment to Registration Rights Agreement dated as of August 12, 1999, by and among Wilsons The Leather
Experts Inc. and the Shareholders listed on the attachments thereto.(5)                                                                                                                                                                                                                                           |  | Incorporated by Reference
|4.5     |  | Registration Rights Agreement dated as of January 10, 2002, by and among Wilsons The Leather Experts Inc.
and the Investors signatory thereto.(6)                                                                                                                                                                                                                                                                          |  | Incorporated by Reference
|4.6     |  | Letter Amendment to the Common Stock Purchase Agreement and the Registration Rights Agreement dated
January 14, 2002, by and between Wilsons The Leather Experts Inc. and Bricoleur Capital Management LLC.(7)                                                                                                                                                                                                             |  | Incorporated by Reference

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|        |  |                                                                                                                                                 |  |                          
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit |  |                                                                                                                                                 |  |                          
|No.     |  | Description                                                                                                                                     |  | Method of Filing         
|        |  |                                                                                                                                                 |  |                          
|4.7     |  | Registration Rights Agreement dated as of April 24, 2002, by and among Wilsons The Leather Experts Inc. and the Investors signatory thereto.(8) |  | Incorporated by Reference
|31.1    |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                               |  | Electronic Transmission  
|31.2    |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                               |  | Electronic Transmission  
|32      |  | Section 1350 Certifications                                                                                                                     |  | Electronic Transmission  

B.      Report on Form 8-K: The Company filed one Report on Form 8-K during the
second quarter ended August 2, 2003: On May 20, 2003, the Company announced its
first quarter earnings for the period ended May 3, 2003.

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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. Michielutti
     Peter G. Michielutti     Executive Vice President and
     Chief Financial Officer |  | 
|                                 |  |                                                                                                                  |  | 
|Date:
September 11, 2003         |  |                                                                                                                 

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INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                          
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                          
|No.     |  | Description                                                                                                                                                                                                                                                                                                                                                                                                               |  | Method of Filing         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                          
|3.1     |  | Amended and Restated Articles of Incorporation of Wilsons The Leather Experts Inc. adopted June 16, 1998, as
amended by the Articles of Amendment dated February 17, 2000, and the Articles of Amendment dated May 23, 2002.(1)                                                                                                                                                                                           |  | Incorporated by Reference
|3.2     |  | Restated Bylaws of Wilsons The Leather Experts Inc. as amended June 16, 1998, January 25, 2000, and May 23, 2002.(1)                                                                                                                                                                                                                                                                                                      |  | Incorporated by Reference
|4.1     |  | Specimen of common stock certificate.(2)                                                                                                                                                                                                                                                                                                                                                                                  |  | Incorporated by Reference
|4.2     |  | Indenture dated as of August 18, 1997, by and among Wilsons The Leather Experts Inc., the other corporations listed on
the signature pages thereof, and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, National Association), including specimen Certificate of 11 1/4% Series A Senior Notes due 2004
and specimen Certificate of11 1/4% Series B Senior Notes due 2004.(3) |  | Incorporated by Reference
|4.3     |  | Registration Rights Agreement dated as of May 25, 1996, by and among CVS New York, Inc. (formerly known as Melville
Corporation), Wilsons The Leather Experts Inc., the Managers listed on the signature pages thereto, LeatherInvestors Limited Partnership I and the Partners listed on the signature pages thereto.(4)                                                                                                 |  | Incorporated by Reference
|4.4     |  | Amendment to Registration Rights Agreement dated as of August 12, 1999, by and among Wilsons The Leather Experts
Inc. and the Shareholders listed on the attachments thereto.(5)                                                                                                                                                                                                                                          |  | Incorporated by Reference
|4.5     |  | Registration Rights Agreement dated as of January 10, 2002, by and among Wilsons The Leather Experts Inc. and the
Investors signatory thereto.(6)                                                                                                                                                                                                                                                                         |  | Incorporated by Reference
|4.6     |  | Letter Amendment to the Common Stock Purchase Agreement and the Registration Rights Agreement dated January 14, 2002,
by and between Wilsons The Leather Experts Inc. and Bricoleur Capital Management LLC.(7)                                                                                                                                                                                                            |  | Incorporated by Reference

27



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|        |  |                                                                                                                                                 |  |                          
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|Exhibit |  |                                                                                                                                                 |  |                          
|No.     |  | Description                                                                                                                                     |  | Method of Filing         
|        |  |                                                                                                                                                 |  |                          
|4.7     |  | Registration Rights Agreement dated as of April 24, 2002, by and among Wilsons The Leather Experts Inc. and the
Investors signatory thereto.(8) |  | Incorporated by Reference
|31.1    |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                               |  | Electronic Transmission  
|31.2    |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                               |  | Electronic Transmission  
|32      |  | Section 1350 Certifications                                                                                                                     |  | Electronic Transmission  



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

28