##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark one)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   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
  þ o
  þ o
  o þ




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WILSONS THE LEATHER EXPERTS INC.
 INDEX
 PagePART I  FINANCIAL INFORMATION
    
    
    3Item 1. Consolidated Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets as of October 29, 2005 and January 29, 2005
    
    
3Consolidated Statements of Operations for the three months ended October 29, 2005 and October 30, 2004
    
    
    4Consolidated Statements of Operations for the year-to-date periods ended October 29, 2005 and October 30, 2004
    
    
    5Consolidated Statements of Cash Flows for the year-to-date periods ended October 29, 2005 and October 30, 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
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II  OTHER INFORMATION
    
    
    23Item 1. Legal Proceedings
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 6. Exhibits
    
    
    24Signature
    
    
    26Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  2




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 October 29,
    
    
    January 29,2005
    
    
    2005(1)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    -
    
    
    $
    48,821Accounts receivable, net
    
    
    6,409
    
    
    
    3,643Inventories
    
    
    122,988
    
    
    
    86,059Prepaid expenses
    
    
    5,091
    
    
    
    3,246TOTAL CURRENT ASSETS
    
    
    134,488
    
    
    
    141,769Property and equipment, net
    
    
    42,733
    
    
    
    44,606Other assets, net
    
    
    1,733
    
    
    
    2,205TOTAL ASSETS
    
    $
    178,954
    
    
    $
    188,580LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    34,260
    
    
    $
    17,697Notes payable
    
    
    13,642
    
    
    
    -Current portion of long-term debt
    
    
    -
    
    
    
    5,000Accrued expenses
    
    
    18,967
    
    
    
    22,959Income taxes payable
    
    
    2,504
    
    
    
    4,307Deferred income taxes
    
    
    5,585
    
    
    
    5,585TOTAL CURRENT LIABILITIES
    
    
    74,958
    
    
    
    55,548Long-term debt
    
    
    20,000
    
    
    
    20,000Other long-term liabilities
    
    
    17,774
    
    
    
    17,925TOTAL LIABILITIES
    
    
    112,732
    
    
    
    93,473COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:Common stock, $.01 par value; 150,000,000
shares authorized; 39,047,734 and
38,884,072 shares issued
and outstanding on October 29, 2005 and
January 29, 2005, respectively
    
    
    390
    
    
    
    389Additional paid-in capital
    
    
    133,735
    
    
    
    133,103Accumulated deficit
    
    
    (67,914
    )
    
    
    (38,389
    )Accumulated other comprehensive income
    
    
    11
    
    
    
    4TOTAL SHAREHOLDERS EQUITY
    
    
    66,222
    
    
    
    95,107TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    178,954
    
    
    $
    188,580
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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 For the three months endedOctober 29,
    
    
    October 30,2005
    
    
    2004NET SALES
    
    $
    76,389
    
    
    $
    87,923COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    56,232
    
    
    
    62,356Gross margin
    
    
    20,157
    
    
    
    25,567SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    27,226
    
    
    
    28,851DEPRECIATION AND AMORTIZATION
    
    
    3,275
    
    
    
    3,824Operating loss
    
    
    (10,344
    )
    
    
    (7,108
    )INTEREST EXPENSE, net
    
    
    949
    
    
    
    1,385Loss before income taxes
    
    
    (11,293
    )
    
    
    (8,493
    )INCOME TAX PROVISION
    
    
    423
    
    
    
    -Net loss
    
    $
    (11,716
    )
    
    $
    (8,493
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (0.30
    )
    
    $
    (0.22
    )Weighted
average shares outstanding - basic and diluted
    
    
    39,021
    
    
    
    38,843
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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 endedOctober 29,
    
    
    October 30,2005
    
    
    2004NET SALES
    
    $
    219,135
    
    
    $
    241,004COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    160,165
    
    
    
    183,810Gross margin
    
    
    58,970
    
    
    
    57,194SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    76,598
    
    
    
    90,606DEPRECIATION AND AMORTIZATION
    
    
    10,567
    
    
    
    26,235Operating loss
    
    
    (28,195
    )
    
    
    (59,647
    )INTEREST EXPENSE, net
    
    
    2,295
    
    
    
    6,082Loss before income taxes
    
    
    (30,490
    )
    
    
    (65,729
    )INCOME TAX BENEFIT
    
    
    (988
    )
    
    
    -Net loss
    
    $
    (29,502
    )
    
    $
    (65,729
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (0.76
    )
    
    $
    (2.29
    )Weighted
average shares outstanding - basic and diluted
    
    
    38,973
    
    
    
    28,743
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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 For the year-to-date period endedOctober 29,
    
    
    October 30,2005
    
    
    2004OPERATING ACTIVITIES:Net loss
    
    $
    (29,502
    )
    
    $
    (65,729
    )Adjustments to reconcile loss from operations to net cash used in
operating activities:Depreciation
    
    
    10,566
    
    
    
    26,182Amortization
    
    
    1
    
    
    
    53Amortization of deferred financing costs
    
    
    471
    
    
    
    1,272Loss (gain) on disposal of assets
    
    
    (162
    )
    
    
    1,144Restricted stock compensation expense
    
    
    -
    
    
    
    828Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (2,766
    )
    
    
    1,659Inventories
    
    
    (36,929
    )
    
    
    (35,462
    )Prepaid expenses and other current assets
    
    
    (1,845
    )
    
    
    (4,006
    )Accounts payable and accrued expenses
    
    
    12,571
    
    
    
    19,224Income taxes payable and other liabilities
    
    
    (2,084
    )
    
    
    (4,980
    )Net cash used in operating activities
    
    
    (49,679
    )
    
    
    (59,815
    )INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (8,729
    )
    
    
    (4,288
    )Proceeds from the disposition of property and equipment
    
    
    305
    
    
    
    205Net cash used in investing activities
    
    
    (8,424
    )
    
    
    (4,083
    )FINANCING ACTIVITIES:Proceeds from issuance of common stock, net
    
    
    633
    
    
    
    32,415Debt acquisition costs
    
    
    -
    
    
    
    (1,180
    )Repayments of long-term debt
    
    
    (5,000
    )
    
    
    (64
    )Borrowings under revolving credit facility
    
    
    12,978
    
    
    
    17,990Repurchase of debt
    
    
    -
    
    
    
    (31,125
    )Checks written in excess of cash balance
    
    
    664
    
    
    
    3,567Other financing
    
    
    7
    
    
    
    2Net cash provided by financing activities
    
    
    9,282
    
    
    
    21,605NET CASH USED IN DISCONTINUED OPERATIONS
    
    
    -
    
    
    
    (110
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (48,821
    )
    
    
    (42,403
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    48,821
    
    
    
    42,403CASH AND CASH EQUIVALENTS, end of period
    
    $
    -
    
    
    $
    -
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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
  7




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Inventories
  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 endedOctober 29,
    
    
    October 30,
    
    
    October 29,
    
    
    October 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted
average common shares outstanding - basic
    
    
    39,021
    
    
    
    38,843
    
    
    
    38,973
    
    
    
    28,743Effect of dilutive securities: stock options
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Effect of dilutive securities: warrants
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Weighted average common shares outstanding - diluted
    
    
    39,021
    
    
    
    38,843
    
    
    
    38,973
    
    
    
    28,743
  9




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Stock-based compensation
 Share-Based Payment. Accounting for Stock-Based Compensation , Accounting for Stock Issued to
Employees,
 For the three months ended
    
    
    For the year-to-date period endedOctober 29,
    
    
    October 30,
    
    
    October 29,
    
    
    October 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Loss:As reported
    
    $
    (11,716
    )
    
    $
    (8,493
    )
    
    $
    (29,502
    )
    
    $
    (65,729
    )Stock based employee compensation expense
included in net loss
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    828Stock based employee compensation determined
under fair value based method for all awards*
    
    
    (782
    )
    
    
    (82
    )
    
    
    (1,471
    )
    
    
    (2,869
    )Pro forma loss
    
    $
    (12,498
    )
    
    $
    (8,575
    )
    
    $
    (30,973
    )
    
    $
    (67,770
    )Basic and diluted loss per share:As reported
    
    $
    (0.30
    )
    
    $
    (0.22
    )
    
    $
    (0.76
    )
    
    $
    (2.29
    )Stock based employee compensation expense
included in net loss
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    0.03Stock based employee compensation determined
under fair value based method for all awards*
    
    
    (0.02
    )
    
    
    -
    
    
    
    (0.03
    )
    
    
    (0.10
    )Pro forma loss
    
    $
    (0.32
    )
    
    $
    (0.22
    )
    
    $
    (0.79
    )
    
    $
    (2.36
    )Weighted average fair value of options granted
    
    $
    3.54
    
    
    $
    3.38
    
    
    $
    3.43
    
    
    $
    2.33
 *
    
    For the year-to-date period ended October 30, 2004, $1,105 of pro-forma expense is due to
stock option acceleration from the private placement equity transaction that occurred in July
2004, which resulted in a change in control under the Companys stock incentive plans. See
Note 9, Additional financing.
  Weighted average
    
    Dividend
    
    Expected
    
    Expectedrisk free rate
    
    yield
    
    lives
    
    volatility2005
    
    
    3.9
    %
    
    
    0.0
    %
    
    
    4.5
    
    
    
    69.5
    %2004
    
    
    3.5
    %
    
    
    0.0
    %
    
    
    4.8
    
    
    
    66.8
    %
 New accounting pronouncements
 Accounting for Rental Costs Incurred during a
Construction Period
  Inventory Costs.
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3. Reclassification of financial statements
  Issues Relating to Accounting for Leases
 Accounting for Operating
Leases with Scheduled Rent Increases
  Consolidated Statement of OperationsAs PreviouslyReported
    
    
    Adjustments
    
    
    ReclassifiedTHREE MONTHS ENDED OCTOBER 30, 2004:Cost of goods sold, buying and occupancy costs
    
    $
    62,846
    
    
    $
    (490
    )
    
    $
    62,356Gross margin
    
    
    25,077
    
    
    
    490
    
    
    
    25,567Depreciation and amortization
    
    
    3,334
    
    
    
    490
    
    
    
    3,824FOR THE YEAR-TO-DATE PERIOD ENDED OCTOBER 30, 2004:Cost of goods sold, buying and occupancy costs
    
    $
    187,667
    
    
    $
    (3,857
    )
    
    $
    183,810Gross margin
    
    
    53,337
    
    
    
    3,857
    
    
    
    57,194Depreciation and amortization
    
    
    22,378
    
    
    
    3,857
    
    
    
    26,235
 Consolidated Statement of Cash FlowsAs PreviouslyReported
    
    
    Adjustments
    
    
    ReclassifiedFOR THE YEAR-TO-DATE PERIOD ENDED OCTOBER 30, 2004:Depreciation
    
    $
    22,325
    
    
    $
    3,857
    
    
    $
    26,182Income taxes payable and other liabilities
    
    
    (1,228
    )
    
    
    (3,752
    )
    
    
    (4,980
    )Net cash used in operating activities
    
    
    (59,920
    )
    
    
    105
    
    
    
    (59,815
    )Additions to property, equipment and other assets
    
    
    (4,183
    )
    
    
    (105
    )
    
    
    (4,288
    )Net cash used in investing activities
    
    
    (3,978
    )
    
    
    (105
    )
    
    
    (4,083
    )
 4. Reorganization and partial store liquidation
   11




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5. Other comprehensive income
  6. Long-term debt
  October 29,
    
    
    January 29,2005
    
    
    2005Term B promissory note
    
    $
    20,000
    
    
    $
    25,000Senior credit facility
    
    
    12,978
    
    
    
    -Checks written in excess of cash balances
    
    
    664
    
    
    
    -Total debt
    
    $
    33,642
    
    
    $
    25,000Less: current portion
    
    
    (13,642
    )
    
    
    (5,000
    )Total long-term debt
    
    $
    20,000
    
    
    $
    20,000
 Senior notes
 1/4 1/4
 Term B promissory note and senior credit facility
 1/4
    12




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7. Legal proceedings
     8. Supplemental balance sheet information
 October 29,
    
    
    January 29,(In thousands)
    
    2005
    
    
    2005Accounts receivable, net:Trade receivables
    
    $
    5,442
    
    
    $
    3,454Other receivables
    
    
    1,080
    
    
    
    305Total
    
    
    6,522
    
    
    
    3,759Less - Allowance for doubtful accounts
    
    
    (30
    )
    
    
    (76
    )Less - Deferred sales
    
    
    (83
    )
    
    
    (40
    )Total accounts receivable, net
    
    $
    6,409
    
    
    $
    3,643Inventories:Raw materials
    
    $
    1,135
    
    
    $
    2,155Finished goods
    
    
    121,853
    
    
    
    83,904Total inventories
    
    $
    122,988
    
    
    $
    86,059Property and equipment, net:Equipment and furniture
    
    $
    77,956
    
    
    $
    75,130Leasehold improvements
    
    
    39,153
    
    
    
    37,621Total
    
    
    117,109
    
    
    
    112,751Less - Accumulated depreciation
    
    
    (74,376
    )
    
    
    (68,145
    )Total property and equipment, net
    
    $
    42,733
    
    
    $
    44,606Other assets, net:Debt issuance costs
    
    $
    5,384
    
    
    $
    5,384Other intangible assets
    
    
    82
    
    
    
    82Total
    
    
    5,466
    
    
    
    5,466Less - Accumulated amortization
    
    
    (3,733
    )
    
    
    (3,261
    )Total other assets, net
    
    $
    1,733
    
    
    $
    2,205
 9. Additional financing
 1/4 1/4
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  13




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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 October 30, 2004Restructuringand otherAs reported(1)
    
    
    charges(1) (2)
    
    
    As adjustedNET SALES
    
    $
    87,923
    
    
    $
    -
    
    
    $
    87,923COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    62,356
    
    
    
    (128
    )
    
    
    62,484Gross margin
    
    
    25,567
    
    
    
    128
    
    
    
    25,439SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    28,851
    
    
    
    2,821
    
    
    
    26,030DEPRECIATION AND AMORTIZATION
    
    
    3,824
    
    
    
    38
    
    
    
    3,786Operating loss
    
    
    (7,108
    )
    
    
    (2,731
    )
    
    
    (4,377
    )INTEREST EXPENSE, net
    
    
    1,385
    
    
    
    -
    
    
    
    1,385Loss before income taxes
    
    
    (8,493
    )
    
    
    (2,731
    )
    
    
    (5,762
    )INCOME TAX PROVISION
    
    
    -
    
    
    
    -
    
    
    
    -Net loss
    
    $
    (8,493
    )
    
    $
    (2,731
    )
    
    $
    (5,762
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (0.22
    )
    
    $
    (0.07
    )
    
    $
    (0.15
    )Weighted average shares outstanding - basic and diluted
    
    
    38,843
    
    
    
    -
    
    
    
    38,843
 (1)
    
    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 to Consolidated
Financial Statements, Reclassification of financial statements.(2)
    
    Includes $2.7 million related to lease termination costs, severance, and other restructuring
charges. See Note 4 to Consolidated Financial Statements, Reorganization and partial store
liquidation.
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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 October 30, 2004Restructuringand otherAs reported(1)
    
    
    charges(1) (2)
    
    
    As adjustedNET SALES
    
    $
    241,004
    
    
    $
    20,778
    
    
    $
    220,226COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
    
    
    183,810
    
    
    
    17,098
    
    
    
    166,712Gross margin
    
    
    57,194
    
    
    
    3,680
    
    
    
    53,514SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    90,606
    
    
    
    15,127
    
    
    
    75,479DEPRECIATION AND AMORTIZATION
    
    
    26,235
    
    
    
    13,681
    
    
    
    12,554Operating loss
    
    
    (59,647
    )
    
    
    (25,128
    )
    
    
    (34,519
    )INTEREST EXPENSE, net
    
    
    6,082
    
    
    
    -
    
    
    
    6,082Loss before income taxes
    
    
    (65,729
    )
    
    
    (25,128
    )
    
    
    (40,601
    )INCOME TAX PROVISION
    
    
    -
    
    
    
    -
    
    
    
    -Net loss
    
    $
    (65,729
    )
    
    $
    (25,128
    )
    
    $
    (40,601
    )BASIC AND DILUTED LOSS PER SHARE:Basic and diluted loss per share
    
    $
    (2.29
    )
    
    $
    (0.88
    )
    
    $
    (1.41
    )Weighted average shares outstanding - basic and diluted
    
    
    28,743
    
    
    
    -
    
    
    
    28,743
 (1)
    
    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, to Consolidated
Financial Statements, Reclassification of financial statements.(2)
    
    Includes $25.1 million related to the transfer of inventory to an independent liquidator in
conjunction with the closing of approximately 111 stores, lease termination costs, accelerated
depreciation, asset write-offs related to store closings, severance, and other restructuring
charges. See Note 4 to Consolidated Financial Statements, Reorganization and partial store
liquidation.
       Reclassification of financial statements
  Issues Relating to Accounting for Leases
 15




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Accounting for Operating Leases with
Scheduled
Rent Increases
  Critical accounting policies
  RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 29, 2005,  COMPARED TO THE THREE MONTHS ENDED OCTOBER 30, 2004
 Net Sales.
  Cost of Goods Sold, Buying and Occupancy Costs.
  16




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Selling, General and Administrative Expenses.
  Depreciation and Amortization.
 Operating Loss.
 Interest Expense. 1/4
 Income Tax Benefit.
 Net Loss.
 17




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RESULTS OF OPERATIONS FOR THE YEAR-TO-DATE PERIOD ENDED OCTOBER 29, 2005,  COMPARED TO THE YEAR-TO-DATE PERIOD ENDED OCTOBER 30, 2004
 Net Sales.
  Cost of Goods Sold, Buying and Occupancy Costs.
  Selling, General and Administrative Expenses.
  Depreciation and Amortization.
 18




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Operating Loss.
 Interest Expense. 1/4
 Income Tax Benefit.
 Net Loss.
 Liquidity and capital resources
     19




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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
   20




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1/4
 Cash flow analysis
 Operating Activities.
     Investing Activities.
  Financing Activities.
  21




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1/4
 Off-balance sheet arrangements
  Contractual obligations and commercial commitments
 1/4
 Seasonality and inflation
   Recently issued accounting pronouncements
  Forward-looking statements
  22




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
     
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  23




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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
    
    Corporate Leadership Team Incentive Plan (as updated September 13, 2005). (9)
    
    Incorporated by Reference10.2
    
    Amendment to Employment Agreement dated as of September 14, 2005 by and
between Michael M. Searles and Wilsons The Leather Experts 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 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). 24




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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 September 19, 2005. 25




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SIGNATURE
   By:
    
    /s/ Peter G. MichieluttiPeter G. MichieluttiExecutive Vice President, Chief Financial Officer and Chief Operating Officer  26




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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
    
    Corporate Leadership Team Incentive Plan (as updated September
13, 2005). (9)
    
    Incorporated by Reference10.2
    
    Amendment to Employment Agreement dated September 14, 2005 by and
between Michael M. Searles and Wilsons The Leather Experts 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 Transmission
 27




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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 September 19, 2005. 28