##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark one)
 R
   £
   WILSONS THE LEATHER EXPERTS INC.
(Exact name of registrant as specified in its charter)
 MINNESOTA
(State or other jurisdiction of
incorporation or organization)
    
    41-1839933
(I.R.S. Employer
Identification No.)
 7401 BOONE AVE. N.BROOKLYN PARK, MN 
(Address of principal executive offices)
    
    55428
(Zip Code)
 (763) 391-4000
  R £
  R £
  £ R




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WILSONS THE LEATHER EXPERTS INC.
INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements (Unaudited)Consolidated Balance Sheets as of July 30, 2005 and January 29, 2005
    
    
    3Consolidated Statements of Operations for the three months ended July 30, 2005 and July 31, 2004
    
    
    4Consolidated Statements of Operations for the year-to-date periods ended July 30, 2005 and July 31, 2004
    
    
    5Consolidated Statements of Cash Flows for the year-to-date periods ended July 30, 2005 and July 31, 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 6. Exhibits
    
    
    23Signature
    
    
    25Rule 13a-14(a)/15d-14(a) Certification of CEORule 13a-14(a)/15d-14(a) Certification of CFOCertification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906Risk Factors
  2




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 July 30,
    
    
    January 29,2005
    
    
    2005(1)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    28,263
    
    
    $
    48,821Accounts receivable, net
    
    
    2,829
    
    
    
    3,643Inventories
    
    
    79,866
    
    
    
    86,059Prepaid expenses
    
    
    6,106
    
    
    
    3,246TOTAL CURRENT ASSETS
    
    
    117,064
    
    
    
    141,769Property and equipment, net
    
    
    42,338
    
    
    
    44,606Other assets, net
    
    
    1,891
    
    
    
    2,205TOTAL ASSETS
    
    $
    161,293
    
    
    $
    188,580LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    19,240
    
    
    $
    17,697Current portion of long-term debt
    
    
    
    
    
    
    5,000Accrued expenses
    
    
    18,005
    
    
    
    22,959Income taxes payable
    
    
    2,839
    
    
    
    4,307Deferred income taxes
    
    
    5,585
    
    
    
    5,585TOTAL CURRENT LIABILITIES
    
    
    45,669
    
    
    
    55,548Long-term debt
    
    
    20,000
    
    
    
    20,000Other long-term liabilities
    
    
    17,861
    
    
    
    17,925TOTAL LIABILITIES
    
    
    83,530
    
    
    
    93,473COMMITMENTS
AND CONTINGENCIESSHAREHOLDERS EQUITY:Common stock, $.01 par value; 150,000,000 shares
authorized; 39,010,582 and 38,884,072 shares issued and
outstanding on July 30, 2005 and January 29, 2005,
respectively
    
    
    390
    
    
    
    389Additional paid-in capital
    
    
    133,584
    
    
    
    133,103Accumulated deficit
    
    
    (56,227
    )
    
    
    (38,389
    )Accumulated other comprehensive income
    
    
    16
    
    
    
    4TOTAL SHAREHOLDERS EQUITY
    
    
    77,763
    
    
    
    95,107TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    161,293
    
    
    $
    188,580
   3




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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 For the three months endedJuly 30,
    
    
    July 31,2005
    
    
    2004NET SALES
    
    $
    58,417
    
    
    $
    55,330COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    44,989
    
    
    
    45,636Gross margin
    
    
    13,428
    
    
    
    9,694SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    24,568
    
    
    
    33,646DEPRECIATION AND AMORTIZATION
    
    
    3,581
    
    
    
    4,539Operating loss
    
    
    (14,721
    )
    
    
    (28,491
    )INTEREST EXPENSE, net
    
    
    683
    
    
    
    1,953Loss before income taxes
    
    
    (15,404
    )
    
    
    (30,444
    )INCOME TAX BENEFIT
    
    
    (1,411
    )
    
    
    Net loss
    
    $
    (13,993
    )
    
    $
    (30,444
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (0.36
    )
    
    $
    (1.14
    )Weighted average shares outstanding  basic and diluted
    
    
    38,996
    
    
    
    26,698
  4




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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 For the year-to-date period endedJuly 30,
    
    
    July 31,2005
    
    
    2004NET SALES
    
    $
    142,746
    
    
    $
    153,081COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    103,933
    
    
    
    121,454Gross margin
    
    
    38,813
    
    
    
    31,627SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    49,372
    
    
    
    61,755DEPRECIATION AND AMORTIZATION
    
    
    7,292
    
    
    
    22,411Operating loss
    
    
    (17,851
    )
    
    
    (52,539
    )INTEREST EXPENSE, net
    
    
    1,346
    
    
    
    4,697Loss before income taxes
    
    
    (19,197
    )
    
    
    (57,236
    )INCOME TAX BENEFIT
    
    
    (1,411
    )
    
    
    Net loss
    
    $
    (17,786
    )
    
    $
    (57,236
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (0.46
    )
    
    $
    (2.42
    )Weighted average shares outstanding  basic and diluted
    
    
    38,949
    
    
    
    23,693
  5




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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 For the year-to-date period endedJuly 30,
    
    
    July 31,2005
    
    
    2004OPERATING ACTIVITIES:Net loss
    
    $
    (17,786
    )
    
    $
    (57,236
    )Adjustments to reconcile loss from operations to net cash used in
operating activities:Depreciation
    
    
    7,292
    
    
    
    22,363Amortization
    
    
    
    
    
    
    48Amortization of deferred financing costs
    
    
    314
    
    
    
    1,112Loss (gain) on disposal of assets
    
    
    (161
    )
    
    
    1,323Restricted stock compensation expense
    
    
    
    
    
    
    828Changes in operating assets and liabilities:Accounts receivable, net
    
    
    814
    
    
    
    3,126Inventories
    
    
    6,193
    
    
    
    11,381Prepaid expenses and other current assets
    
    
    (2,860
    )
    
    
    (3,317
    )Accounts payable and accrued expenses
    
    
    (3,411
    )
    
    
    (3,717
    )Income taxes payable and other liabilities
    
    
    (1,686
    )
    
    
    (4,442
    )Net cash used in operating activities
    
    
    (11,291
    )
    
    
    (28,531
    )INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (4,926
    )
    
    
    (2,306
    )Proceeds from the disposition of property and equipment
    
    
    165
    
    
    
    27Net cash used in investing activities
    
    
    (4,761
    )
    
    
    (2,279
    )FINANCING ACTIVITIES:Proceeds from issuance of common stock, net
    
    
    482
    
    
    
    32,426Debt acquisition costs
    
    
    
    
    
    
    (1,151
    )Repayments of long-term debt
    
    
    (5,000
    )
    
    
    (64
    )Repurchase of debt
    
    
    
    
    
    
    (22,010
    )Other financing
    
    
    12
    
    
    
    2Net cash provided by (used in) financing activities
    
    
    (4,506
    )
    
    
    9,203NET CASH USED IN DISCONTINUED OPERATIONS
    
    
    
    
    
    
    (187
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (20,558
    )
    
    
    (21,794
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    48,821
    
    
    
    42,403CASH AND CASH EQUIVALENTS, end of period
    
    $
    28,263
    
    
    $
    20,609
  6




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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Nature of organization
  2. Summary of significant accounting policies
 Basis of presentation
   Fiscal year
  Use of estimates
  Cash and cash equivalents
  Inventories
  7




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Property and equipment
  Store closing and impairment of long-lived assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
  Debt issuance costs
  Operating leases
  8




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Revenue recognition
 Revenue Recognition in Financial Statements
 Income taxes
  Foreign currency translation
  Loss per share
  For the three months ended
    
    
    For the year-to-date period endedJuly 30,
    
    
    July 31,
    
    
    July 30,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted average common shares outstanding  basic
    
    
    38,996
    
    
    
    26,698
    
    
    
    38,949
    
    
    
    23,693Effect of dilutive securities: stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of dilutive securities: warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding  diluted
    
    
    38,996
    
    
    
    26,698
    
    
    
    38,949
    
    
    
    23,693
  Stock-based compensation
 Accounting for Stock-Based Compensation , Accounting for Stock Issued to Employees,
 For the three months ended
    
    
    For the year-to-date period endedJuly 30,
    
    
    July 31,
    
    
    July 30,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Loss:As reported
    
    $
    (13,993
    )
    
    $
    (30,444
    )
    
    $
    (17,786
    )
    
    $
    (57,236
    )Stock based employee compensation expense
included in net loss
    
    
    
    
    
    
    727
    
    
    
    
    
    
    
    828Stock based employee compensation
determined under fair value based method
for all awards*
    
    
    (542
    )
    
    
    (2,246
    )
    
    
    (690
    )
    
    
    (2,787
    )Pro forma loss
    
    $
    (14,535
    )
    
    $
    (31,963
    )
    
    $
    (18,476
    )
    
    $
    (59,195
    )Basic and diluted loss per share:As reported
    
    $
    (0.36
    )
    
    $
    (1.14
    )
    
    $
    (0.46
    )
    
    $
    (2.42
    )Stock based employee compensation expense
included in net loss
    
    
    
    
    
    
    0.03
    
    
    
    
    
    
    
    0.04Stock based employee compensation
determined under fair value based method
for all awards*
    
    
    (0.01
    )
    
    
    (0.09
    )
    
    
    (0.01
    )
    
    
    (0.12
    )Pro forma loss
    
    $
    (0.37
    )
    
    $
    (1.20
    )
    
    $
    (0.47
    )
    
    $
    (2.50
    )Weighted average fair value of options granted
    
    $
    3.43
    
    
    $
    2.81
    
    
    $
    3.43
    
    
    $
    2.28
 *

For the three months ended July 31, 2004 and the year-to-date period ended July 31, 2004, $1,105 of pro-forma expense
is due to stock option acceleration from the private placement equity transaction that occurred in July 2004 which
resulted in a change in control under the Companys stock
incentive plans (see Note 9  Additional financing). 9




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Weighted average
    
    
    Dividend
    
    
    Expected
    
    
    Expectedrisk free rate
    
    
    yield
    
    
    lives
    
    
    volatility2005
    
    
    3.9%
    
    
    
    0.0%
    
    
    
    4.5
    
    
    
    69.7%2004
    
    
    3.9%
    
    
    
    0.0%
    
    
    
    4.8
    
    
    
    67.1%


New accounting pronouncements


Share-Based Payment. Accounting for Stock-Based Compensation


Inventory Costs, .


3. Reclassification of financial statements




Issues Relating to Accounting for Leases


10




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Accounting for Operating
Leases with Scheduled Rent Increases
  Consolidated Statement of OperationsAs PreviouslyReported
    
    
    Adjustments
    
    
    ReclassifiedTHREE MONTHS ENDED JULY 31, 2004:Cost of goods sold, buying and occupancy costs
    
    $
    46,488
    
    
    $
    (852
    )
    
    $
    45,636Gross margin
    
    
    8,842
    
    
    
    852
    
    
    
    9,694Depreciation and amortization
    
    
    3,687
    
    
    
    852
    
    
    
    4,539FOR THE YEAR-TO-DATE PERIOD ENDED JULY 31, 2004:Cost of goods sold, buying and occupancy costs
    
    $
    124,821
    
    
    $
    (3,367
    )
    
    $
    121,454Gross margin
    
    
    28,260
    
    
    
    3,367
    
    
    
    31,627Depreciation and amortization
    
    
    19,044
    
    
    
    3,367
    
    
    
    22,411
 Consolidated Statement of Cash FlowsAs PreviouslyReported
    
    
    Adjustments
    
    
    ReclassifiedFOR THE YEAR-TO-DATE PERIOD ENDED JULY 31, 2004:Depreciation
    
    $
    18,996
    
    
    $
    3,367
    
    
    $
    22,363Income taxes payable and other liabilities
    
    
    (1,086
    )
    
    
    (3,356
    )
    
    
    (4,442
    )Net cash provided by operating activities of continuing operations
    
    
    (28,542
    )
    
    
    11
    
    
    
    (28,531
    )Additions to property, equipment and other assets
    
    
    (2,295
    )
    
    
    (11
    )
    
    
    (2,306
    )Net cash used in investing activities of continuing operations
    
    
    (2,268
    )
    
    
    (11
    )
    
    
    (2,279
    )
 4. Reorganization and partial store liquidation
   5. Other comprehensive income
  6. Long-term debt
  July 30,
    
    
    January 29,2005
    
    
    2005Term B promissory note
    
    $
    20,000
    
    
    $
    25,000Total debt
    
    $
    20,000
    
    
    $
    25,000Less: current portion
    
    
    
    
    
    
    (5,000
    )Total long-term debt
    
    $
    20,000
    
    
    $
    20,000
 Senior notes
 1/4 1/4
 11




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Term B promissory note and senior credit facility
 1/4
     7. Legal proceedings
  8. Supplemental balance sheet information
 July 30,
    
    
    January 29,(In thousands)
    

2005
    
    
    2005Accounts receivable, net:Trade receivables
    
    $
    2,261
    
    
    $
    3,454Other receivables
    
    
    630
    
    
    
    305Total
    
    
    2,891
    
    
    
    3,759Less  Allowance for doubtful accounts
    
    
    (27
    )
    
    
    (76
    )Less  Deferred sales
    
    
    (35
    )
    
    
    (40
    )Total accounts receivable, net
    
    $
    2,829
    
    
    $
    3,643Inventories:Raw materials
    
    $
    4,655
    
    
    $
    2,155Finished goods
    
    
    75,211
    
    
    
    83,904Total inventories
    
    $
    79,866
    
    
    $
    86,059Property and equipment, net:Equipment and furniture
    
    $
    75,638
    
    
    $
    75,130Leasehold improvements
    
    
    38,424
    
    
    
    37,621Total
    
    
    114,062
    
    
    
    112,751Less  Accumulated depreciation
    
    
    (71,724
    )
    
    
    (68,145
    )Total property and equipment, net
    
    $
    42,338
    
    
    $
    44,606Other assets, net:Debt issuance costs
    
    $
    5,384
    
    
    $
    5,384Other intangible assets
    
    
    82
    
    
    
    82Total
    
    
    5,466
    
    
    
    5,466Less  Accumulated amortization
    
    
    (3,575
    )
    
    
    (3,261
    )Total other assets, net
    
    $
    1,891
    
    
    $
    2,205
 9. Additional financing
 1/4
 12




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1/4







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






Overview






Wilsons Leather www.wilsonsleather.com Wilsons Leather




Reconciliation of GAAP Consolidated Statement of Operations to
Adjusted Statement of Operations
(In thousands, except per share amounts)
(Unaudited)


For the three months ended July 31, 2004Restructuringand otherAs reported(1)
    
    
    charges(1) (2)
    
    
    As adjustedNET SALES
    
    $
    55,330
    
    
    $
    
    
    
    $
    55,330COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    45,636
    
    
    
    (1,256
    )
    
    
    46,892Gross margin
    
    
    9,694
    
    
    
    1,256
    
    
    
    8,438SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    33,646
    
    
    
    9,052
    
    
    
    24,594DEPRECIATION AND AMORTIZATION
    
    
    4,539
    
    
    
    423
    
    
    
    4,116Operating loss
    
    
    (28,491
    )
    
    
    (8,219
    )
    
    
    (20,272
    )INTEREST EXPENSE, net
    
    
    1,953
    
    
    
    
    
    
    
    1,953Loss before income taxes
    
    
    (30,444
    )
    
    
    (8,219
    )
    
    
    (22,225
    )INCOME TAX PROVISION
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (30,444
    )
    
    $
    (8,219
    )
    
    $
    (22,225
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (1.14
    )
    
    $
    (0.31
    )
    
    $
    (0.83
    )Weighted average shares outstanding  basic and diluted
    
    
    26,698
    
    
    
    
    
    
    
    26,698


(1)
    
    Reclassified for the presentation of certain lease accounting issues clarified by the Office
of the Chief Accountant of the Securities and Exchange Commission in a letter to the American
Institute of Certified Public Accountants on February 7, 2005. See Note 3, Reclassification
of financial statements.(2)
    
    Includes $8.2 million related primarily to lease termination costs and asset write-offs
related to store closings and other restructuring costs. See Note 4, Reorganization and
partial store liquidation. 13




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Reconciliation of GAAP Consolidated Statement of Operations to
Adjusted Statement of Operations
(In thousands, except per share amounts)
(Unaudited)


For the year-to-date period ended July 31, 2004Restructuringand otherAs reported(1)
    
    
    charges(1) (2)
    
    
    As adjustedNET SALES
    
    $
    153,081
    
    
    $
    20,778
    
    
    $
    132,303COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    121,454
    
    
    
    17,226
    
    
    
    104,228Gross margin
    
    
    31,627
    
    
    
    3,552
    
    
    
    28,075SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    61,755
    
    
    
    12,306
    
    
    
    49,449DEPRECIATION AND AMORTIZATION
    
    
    22,411
    
    
    
    13,643
    
    
    
    8,768Operating loss
    
    
    (52,539
    )
    
    
    (22,397
    )
    
    
    (30,142
    )INTEREST EXPENSE, net
    
    
    4,697
    
    
    
    
    
    
    
    4,697Loss before income taxes
    
    
    (57,236
    )
    
    
    (22,397
    )
    
    
    (34,839
    )INCOME TAX PROVISION
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (57,236
    )
    
    $
    (22,397
    )
    
    $
    (34,839
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (2.42
    )
    
    $
    (0.95
    )
    
    $
    (1.47
    )Weighted average shares outstanding  basic and diluted
    
    
    23,693
    
    
    
    
    
    
    
    23,693


(1)
    
    Reclassified for the presentation of certain lease accounting issues clarified by the Office
of the Chief Accountant of the Securities and Exchange Commission in a letter to the American
Institute of Certified Public Accountants on February 7, 2005. See Note 3, Reclassification
of financial statements.


(2)
    
    Includes $22.4 million related primarily to the transfer of inventory to an independent
liquidator in conjunction with the closing of approximately 111 stores, lease termination
costs, accelerated depreciation, and asset write-offs related to store closings, and other
restructuring costs. See Note 4, Reorganization and partial store liquidation.














Reclassification of financial statements


14




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##### Table of Contents



Issues Relating to Accounting for Leases
 Accounting for Operating Leases with
Scheduled Rent Increases
  Critical accounting policies
  RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 30, 2005,  COMPARED TO THE THREE MONTHS ENDED JULY 31, 2004
 Net Sales.
  Cost of Goods Sold, Buying and Occupancy Costs.
 15




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Selling, General and Administrative Expenses.
  Depreciation and Amortization.
 Operating Loss.
 Interest Expense. 1/4 1/4
 Income Tax Benefit.
 Net Loss.
 16




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RESULTS OF OPERATIONS FOR THE YEAR-TO-DATE PERIOD ENDED JULY 30, 2005,  COMPARED TO THE YEAR-TO-DATE PERIOD ENDED JULY 31, 2004
 Net Sales.
  Cost of Goods Sold, Buying and Occupancy Costs.
  Selling, General and Administrative Expenses.
  Depreciation and Amortization.
 17




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Operating Loss.
 Interest Expense. 1/4
 Income Tax Benefit.
 Net Loss.
 Liquidity and capital resources
     18




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
    
    85% of net inventories, provided that such percentage at no time may exceed 85%
of the then applicable discount rate applied in appraising such inventories to reflect their
value as if sold in an orderly liquidation, except that the discount rate is gradually
increased from August 17 to October 1 of each year and gradually decreased from December 17
to February 1 of each year, and except that such amount is reduced by the amount of certain
in-transit inventory to the extent such in-transit inventory reflects a disproportionate
amount of our total inventory;
    
    plus 85% of outstanding and undrawn trade letters of credit, provided that such
percentage at no time may exceed 85% of the discount rate applied in appraising the future
inventories related to such letters of credit to reflect their value as if sold in an
orderly liquidation;
    
    plus 85% of credit card receivables; and
    
    minus a $10.0 million reserve.
  
    
    the revolving credit portion of such borrowings cannot exceed the sum of 85% of
credit card receivables, plus 85% of the appraised value of inventory (including inventory
subject to trade letters of credit) as if sold on a going-out-of-business basis;
    
    the total borrowings (i.e. the revolving credit portion of the facility and the
Term B promissory note) cannot exceed the sum of 85.0% of the book value of credit card
receivables, plus 92.5% of the appraised value of inventory (including inventory subject to
trade letters of credit) as if sold on a going-out-of-business basis; and
    
    from December 31 of each year, through March 31 of the following year, we must
have no borrowings under the revolving credit portion of the facility and outstanding
letters of credit must be no greater than $20.0 million.
  1/4
   19




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1/4
 Cash flow analysis
 Operating Activities.
     Investing Activities.
  Financing Activities.
 1/4
 Off-balance sheet arrangements
  20




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Contractual obligations and commercial commitments
 1/4
 Seasonality and inflation
   Recently issued accounting pronouncements
  Forward-looking statements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  21




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ITEM 4. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (a)
    
    The election of two directors for a three-year term. Each nominated director
was elected as follows:
 Director-Nominee
    
    Votes For
    
    
    Votes WithheldBradley K. Johnson
    
    
    36,668,398
    
    
    
    1,707,665Michael M. Searles
    
    
    36,893,653
    
    
    
    1,482,410
 (b)
    
    Approval of the amendment and restatement of the 2000 Long Term Incentive
Plan.
 The proposal received 27,940,438 votes for and 3,528,756 votes against. There were 962,038
abstentions and 5,944,831 broker non-votes.
 (c)
    
    Ratification of the appointment of KPMG LLP as our independent registered
public accounting firm for the fiscal year ending January 28, 2006.
 The proposal received 38,329,840 votes for and 21,121 votes against. There were 25,102
abstentions and no broker non-votes.
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##### Table of Contents



ITEM 6. EXHIBITS
 ExhibitNo
    
    Description
    
    Method of Filing3.1
    
    
    Amended and Restated Articles of Incorporation of Wilsons The
Leather Experts Inc. adopted June 16, 1998, as amended by the
Articles of Amendment dated February 17, 2000, and the Articles
of Amendment dated May 23, 2002. (1)
    
    Incorporated by Reference3.2
    
    
    Restated Bylaws of Wilsons The Leather Experts Inc. as amended
June 16, 1998, January 25, 2000, May 23, 2002, and February 5,
2004. (2)
    
    Incorporated by Reference4.1
    
    
    Specimen of common stock certificate. (3)
    
    Incorporated by Reference4.2
    
    
    Registration Rights Agreement dated as of May 25, 1996, by and
among CVS New York, Inc. (formerly known as Melville
Corporation), Wilsons The Leather Experts Inc., the Managers
listed on the signature pages thereto, Leather Investors Limited
Partnership I and the Partners listed on the signature pages
thereto. (4)
    
    Incorporated by Reference4.3
    
    
    Amendment to Registration Rights Agreement dated as of August 12,
1999, by and among Wilsons The Leather Experts Inc. and the
Shareholders listed on the attachments thereto. (5)
    
    Incorporated by Reference4.4
    
    
    Common Stock and Warrant Purchase Agreement, dated as of April
25, 2004, by and among Wilsons The Leather Experts Inc. and the
Purchasers identified on the signatory pages thereto (the
Purchase Agreement). (6)
    
    Incorporated by Reference4.5
    
    
    Registration Rights Agreement, dated as of April 25, 2004, by and
among Wilsons The Leather Experts Inc. and the Investors
identified therein. (7)
    
    Incorporated by Reference4.6
    
    
    Form of Warrant issued to the Purchasers named in the Purchase
Agreement on April 25, 2004. (8)
    
    Incorporated by Reference10.1
    
    
    Unqualified Release Agreement dated as of August 15, 2005, by and
between Arthur J. Padovese and River Hills Wilsons, Inc. (9)
    
    Incorporated by Reference31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
    
    Electronic Transmission31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
    
    Electronic Transmission32.1
    
    
    Certification of Chief Executive Officer pursuant to Section
1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Electronic Transmission32.2
    
    
    Certification of Chief Financial Officer pursuant to Section
1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Electronic Transmission99.1
    
    
    Risk Factors Relating to Forward-Looking Statements
    
    Electronic Transmission
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##### Table of Contents



1.
    
    Incorporated by reference to the same numbered exhibit to the Companys Report on Form 10-Q
for the quarter ended May 4, 2002 (File No. 000-21543).2.
    
    Incorporated by reference to the same numbered exhibit to the Companys Report on Form 10-K
for the year ended January 31, 2004 (File No. 000-21543).3.
    
    Incorporated by reference to the same numbered exhibit to Amendment No. 1 to the Companys
Registration Statement on Form S-l (333-13967) filed with the Commission on December 24, 1996.4.
    
    Incorporated by reference to Exhibit 4.8 to the Companys Registration Statement on Form S-l
(333-13967) filed with the Commission on October 11, 1996.5.
    
    Incorporated by reference to Exhibit 4.5 to the Companys Report on Form 10-K for the fiscal
year ended January 29, 2000, filed with the Commission (File No. 000-21543).6.
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on Form 8-K filed with the
Commission on April 27, 2004.7.
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K filed with the
Commission on April 27, 2004.8.
    
    Incorporated by reference to Exhibit 4.3 to the Companys Report on Form 8-K filed with the
Commission on April 27, 2004.9.
    
    Incorporated by reference to the same numbered exhibit to the Companys Report on Form 8-K
filed with the Commission on August 16, 2005. 24




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##### Table of Contents



SIGNATURE
  WILSONS THE LEATHER EXPERTS INC.By:
    
    /s/ Peter G. MichieluttiPeter G. Michielutti
Executive Vice President, Chief Financial Officer and Chief Operating Officer
  25




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INDEX TO EXHIBITS
 ExhibitNo
    
    Description
    
    Method of Filing3.1
    
    
    Amended and Restated Articles of Incorporation of Wilsons The
Leather Experts Inc. adopted June 16, 1998, as amended by the
Articles of Amendment dated February 17, 2000, and the Articles
of Amendment dated May 23, 2002. (1)
    
    Incorporated by Reference3.2
    
    
    Restated Bylaws of Wilsons The Leather Experts Inc. as amended
June 16, 1998, January 25, 2000, May 23, 2002, and February 5,
2004. (2)
    
    Incorporated by Reference4.1
    
    
    Specimen of common stock certificate. (3)
    
    Incorporated by Reference4.2
    
    
    Registration Rights Agreement dated as of May 25, 1996, by and
among CVS New York, Inc. (formerly known as Melville
Corporation), Wilsons The Leather Experts Inc., the Managers
listed on the signature pages thereto, Leather Investors Limited
Partnership I and the Partners listed on the signature pages
thereto. (4)
    
    Incorporated by Reference4.3
    
    
    Amendment to Registration Rights Agreement dated as of August 12,
1999, by and among Wilsons The Leather Experts Inc. and the
Shareholders listed on the attachments thereto. (5)
    
    Incorporated by Reference4.4
    
    
    Common Stock and Warrant Purchase Agreement, dated as of April
25, 2004, by and among Wilsons The Leather Experts Inc. and the
Purchasers identified on the signatory pages thereto (the
Purchase Agreement). (6)
    
    Incorporated by Reference4.5
    
    
    Registration Rights Agreement, dated as of April 25, 2004, by and
among Wilsons The Leather Experts Inc. and the Investors
identified therein. (7)
    
    Incorporated by Reference4.6
    
    
    Form of Warrant issued to the Purchasers named in the Purchase
Agreement on April 25, 2004. (8)
    
    Incorporated by Reference10.1
    
    
    Unqualified Release Agreement dated as of August 15, 2005, by and
between Arthur J. Padovese and River Hills Wilsons, Inc. (9)
    
    Incorporated by Reference31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
    
    Electronic Transmission31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
    
    Electronic Transmission32.1
    
    
    Certification of Chief Executive Officer pursuant to Section
1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Electronic Transmission32.2
    
    
    Certification of Chief Financial Officer pursuant to Section
1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Electronic Transmission99.1
    
    
    Risk Factors Relating to Forward-Looking Statements
    
    Electronic Transmission
 
 1.
    
    Incorporated by reference to the same numbered exhibit to the Companys Report on Form 10-Q
for the quarter ended May 4, 2002 (File No. 000-21543).2.
    
    Incorporated by reference to the same numbered exhibit to the Companys Report on Form 10-K
for the year ended January 31, 2004 (File No. 000-21543).
 26




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3.
    
    Incorporated by reference to the same numbered exhibit to Amendment No. 1 to the Companys
Registration Statement on Form S-l (333-13967) filed with the Commission on December 24, 1996.4.
    
    Incorporated by reference to Exhibit 4.8 to the Companys Registration Statement on Form S-l
(333-13967) filed with the Commission on October 11, 1996.5.
    
    Incorporated by reference to Exhibit 4.5 to the Companys Report on Form 10-K for the fiscal
year ended January 29, 2000, filed with the Commission (File No. 000-21543).6.
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on Form 8-K filed with the
Commission on April 27, 2004.7.
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K filed with the
Commission on April 27, 2004.8.
    
    Incorporated by reference to Exhibit 4.3 to the Companys Report on Form 8-K filed with the
Commission on April 27, 2004.9.
    
    Incorporated by reference to the same numbered exhibit to the Companys Report on Form 8-K
filed with the Commission on August 16, 2005. 27