<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 000-21543
WILSONS THE LEATHER EXPERTS INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1839933
- ---------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7401 BOONE AVE. N., BROOKLYN PARK, MN 55428
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 391-4000
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 [ ]
The number of shares outstanding of the Registrant's common stock as of August
19, 1998, was 10,825,017 shares.
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WILSONS THE LEATHER EXPERTS INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets as of August 1, 1998
and January 31, 1998 3
Consolidated Statements of Operations for the quarters and
six months ended August 1, 1998 and August 2, 1997 4
Condensed Consolidated Statements of Cash Flows for the
six months ended August 1, 1998 and August 2, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Index to Exhibits 18
2
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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AUGUST 1, JANUARY 31,
ASSETS 1998 1998
------ --------- ----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 42,287 $ 112,975
Accounts receivable, net 8,982 7,010
Inventories 101,495 77,911
Prepaid expenses 1,567 835
--------- ---------
Total current assets 154,331 198,731
Property and equipment, net 31,501 25,182
Other assets, net 4,168 3,759
--------- ---------
Total assets $ 190,000 $ 227,672
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 13,001 $ 11,598
Accrued expenses 29,399 39,740
Income taxes payable 1,287 22,418
Deferred income taxes 5,462 4,770
--------- ---------
Total current liabilities 49,149 78,526
Long-term debt 75,000 75,000
Other long-term liabilities 2,318 1,494
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000,000 shares authorized,
10,825,017 and 9,532,083 shares issued and outstanding on
August 1, 1998 and January 31, 1998, respectively 108 95
Additional paid-in capital 55,135 37,850
Retained earnings 8,339 34,744
Cumulative translation adjustment (49) (37)
--------- ---------
Total shareholders' equity 63,533 72,652
--------- ---------
Total liabilities and shareholders' equity $ 190,000 $ 227,672
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
3
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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
QUARTER ENDED
--------------------
AUGUST 1, AUGUST 2,
1998 1997
-------- --------
NET SALES $ 45,724 $ 36,471
COSTS AND EXPENSES:
Cost of goods sold, buying and occupancy costs 41,304 36,957
Selling, general and administrative expenses 20,906 17,293
Depreciation and amortization 969 505
Restricted stock compensation expense -- 450
-------- --------
Loss from operations (17,455) (18,734)
INTEREST EXPENSE, NET 1,821 1,248
-------- --------
Loss before income taxes (19,276) (19,982)
INCOME TAX BENEFIT (7,398) (7,401)
-------- --------
Net loss $(11,878) $(12,581)
======== ========
BASIC NET LOSS PER COMMON SHARE $ (1.16) $ (1.41)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 10,240 8,928
======== ========
DILUTED NET LOSS PER COMMON SHARE $ (1.16) $ (1.41)
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - ASSUMING DILUTION 10,240 8,928
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIX MONTHS ENDED
------------------------
AUGUST 1, AUGUST 2,
1998 1997
--------- ---------
NET SALES $ 113,735 $ 93,422
COSTS AND EXPENSES:
Cost of goods sold, buying and occupancy costs 92,745 84,222
Selling, general and administrative expenses 42,852 36,491
Depreciation and amortization 1,722 942
Restricted stock compensation expense -- 900
--------- ---------
Loss from operations (23,584) (29,133)
INTEREST EXPENSE, NET 2,972 1,919
--------- ---------
Loss before income taxes (26,556) (31,052)
INCOME TAX BENEFIT (10,141) (11,208)
--------- ---------
Net loss $ (16,415) $ (19,844)
========= =========
BASIC NET LOSS PER COMMON SHARE $ (1.66) $ (2.39)
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,886 8,289
========= =========
DILUTED NET LOSS PER COMMON SHARE $ (1.66) $ (2.39)
========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - ASSUMING DILUTION 9,886 8,289
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
AUGUST 1, AUGUST 2,
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (16,415) $ (19,844)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 1,722 942
Amortization of deferred financing costs 569 333
Restricted stock compensation expense -- 900
Loss on disposal of assets 168 --
Deferred income taxes 1,238 1,688
Changes in operating assets and liabilities, net of
assets and liabilities acquired:
Accounts receivable, net (1,972) (2,640)
Inventories (20,484) (22,258)
Prepaid expenses (884) 612
Accounts payable and accrued expenses (8,838) (4,197)
Income taxes payable and other liabilities (20,722) (17,015)
--------- ---------
Net cash used in operating activities (65,618) (61,479)
--------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment (7,215) (2,562)
Acquisition, net of cash acquired (5,128) --
--------- ---------
Net cash used in investing activities (12,343) (2,562)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from sale of common stock and exercise
of redeemable warrants 17,166 9,452
Repurchase of CVS warrant (9,990) --
Change in book overdrafts 97 (2,873)
--------- ---------
Net cash provided by financing activities 7,273 6,579
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (70,688) (57,462)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 112,975 81,553
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,287 $ 24,091
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
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WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF ORGANIZATION:
Wilsons, incorporated in Minnesota in 1996, is the leading specialty
retailer of men's and women's leather outerwear, apparel and accessories in the
United States. As of August 1, 1998, the Company operated 503 retail stores
located in 44 states, Canada and England, including 438 mall-based stores, 25
airport locations and 40 factory outlet stores. The Company's mall-based stores
offer a full range of its leather merchandise while the less seasonal airport
and factory outlet stores offer primarily accessories. The Company regularly
supplements its mall-based operations with seasonal holiday stores during its
peak selling period from October through December and operated 197 of these
stores in 1997.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION:
The consolidated financial statements of the Company include all accounts
of Wilsons The Leather Experts Inc. and its wholly owned subsidiaries. All
intercompany balances and transactions between the entities have been eliminated
in consolidation.
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted 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 financial statements be read in conjunction with the
Company's most recent audited financial statements and related notes included in
its 1997 Annual Report on Form 10-K. In the opinion of management, all
adjustments (which include only 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 30, 1999.
3. INVENTORIES:
Inventories, principally finished goods, consist of merchandise purchased
from domestic and foreign vendors and are carried at the lower of cost or market
value, determined by the retail inventory method on the last-in, first-out
(LIFO) basis. Quarterly inventory determinations under LIFO are partially based
on assumptions as to inventory levels at the end of the fiscal year, sales
7
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and the projected rate of inflation for the year. If the first in, first out
(FIFO) method of accounting had been used by the Company, inventories at
August 1, 1998, would have been $0.6 million higher than reported. The LIFO
provision included in inventory was zero at August 2, 1997.
4. NET LOSS PER COMMON SHARE:
In the fiscal year ended January 31, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share," which
requires disclosure of basic earnings per share (EPS) and diluted EPS, which
replaced primary EPS and fully diluted EPS, as defined by Accounting Principles
Board (APB) Opinion No. 15. Basic EPS is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS is computed similarly to EPS as previously reported under APB No. 15
provided that, when applying the treasury stock method to common equivalent
shares, the Company must use its average share price for the period rather than
the more dilutive greater of the average share price or end-of-period share
price. In addition, under SFAS No. 128, common stock equivalents are excluded
from weighted average common shares outstanding, when computing diluted EPS, if
the effect is antidilutive. In accordance with SFAS No. 128, EPS for the quarter
and six months ended August 2, 1997 have been restated.
5. ACQUISITION OF WALLET WORKS:
On May 13, 1998, the Company acquired certain assets of 40 Wallet Works,
Inc. stores for $5.1 million. The transaction was accounted for under the
purchase method of accounting.
6. REDEMPTION OF COMMON STOCK PURCHASE WARRANTS:
On June 16, 1998, the Company completed the redemption of its outstanding
redeemable common stock purchase warrants that were issued in the Company's
initial public offering. The net proceeds received by the Company from warrant
exercises prompted by such redemption, after deducting costs and expenses, were
$17.0 million.
7. NEW ACCOUNTING PRONOUNCEMENT:
SFAS No. 130, "Reporting Comprehensive Income" effective beginning in
1998, establishes standards of disclosure and financial statement display for
reporting total comprehensive income and the individual components thereof. The
Company adopted SFAS No. 130 during 1998. Comprehensive income is not materially
different than net income as reported.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of Wilsons The Leather Experts Inc. and its wholly owned subsidiaries
(Wilsons or the Company) should be read in conjunction with the Company's most
recent audited financial statements and related notes included in its 1997
Annual Report on Form 10-K.
OVERVIEW
Wilsons The Leather Experts is the leading specialty retailer of men's and
women's leather outerwear, apparel and accessories in the United States. The
Company operates 503 retail stores in 44 states, Canada and England, including
438 mall-based stores, 25 airport locations and 40 factory outlet stores. The
Company also operates holiday stores, numbering 197 in 1997, to better
capitalize on its peak selling season. Wilsons' mall-based stores average
approximately 2,000 square feet in size and feature merchandise tailored to the
demographics and buying patterns of each store's local customer base.
The Company's business is highly seasonal and, accordingly, operating
results for the interim periods described below are not necessarily indicative
of the results that may be expected for a full fiscal year. A majority of the
Company's net sales and operating profit is generated in the peak selling season
from October through December, which includes the holiday selling season.
Wilsons recorded 58.5% of its sales for the fiscal year ended January 31, 1998
during the peak-selling season. As a result, the Company's annual operating
results have been, and will continue to be, heavily dependent on the results of
its peak selling season. Net sales are generally lowest during the period from
April through July, and the Company historically has not become profitable, if
at all, until the fourth quarter of a given fiscal year.
The Company does not believe that inflation has had a material adverse
effect on the results of operations for the periods presented; however, there
can be no assurance that the Company's business will not be affected by
inflation in the future.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED AUGUST 1, 1998 COMPARED TO THE
QUARTER ENDED AUGUST 2, 1997
Wilsons acquired 40 stores and opened 12 stores in the quarter ended
August 1, 1998 compared to one store opening during the same quarter last year.
On May 13, 1998, Wilsons acquired 40 Wallet Works, Inc. stores (see Note 5 in
the Notes to the Condensed Consolidated Financial Statements). Included in the
12 stores opened in the second quarter of 1998 are two stores located in the
Lester B. Pearson airport in Toronto, Canada and one store located in Heathrow
airport in London, England. As of August 1, 1998, Wilsons operated 503 stores
compared to 452 stores at August 2, 1997.
9
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Sales for the quarter ended August 1, 1998, were $45.7 million, an increase
of $9.2 million or 25.2% from $36.5 million one year ago. Comparable store sales
increased 9.3% for the quarter. The men's division had a strong pre-season
special order promotion while accessories had successful Mother's Day and
Father's Day events. Wallet Works, purchased by the Company on May 13, 1998,
generated sales of $3.5 million for the quarter.
Cost of goods sold, buying and occupancy costs for the second quarter of
1998 were $41.3 million, or 90.3% of sales, compared to $37.0 million, or 101.3%
of sales, for the same period a year ago. Gross profit net of occupancy costs
increased 4.2 points for the quarter as a percent of sales as compared to last
year due primarily to year-to-date comparable store sales which reduced the need
for markdowns to drive merchandise sales. Occupancy costs decreased 6.8 points
as a percent of sales, as comparable store sales increased 9.3% while occupancy
expenses were flat compared to last year. The Company's inventories are valued
under the retail inventory method on the last-in, first-out (LIFO) basis. The
LIFO provision, included in cost of sales, was $0.2 million for the quarter
ended August 1, 1998, while a LIFO provision was not required for the second
quarter of 1997 (see Note 3 in the Notes to the Condensed Consolidated
Financial Statements).
Selling, general and administrative expenses for the second quarter of 1998
were $20.9 million, or 45.7% of sales, compared to $17.3 million, or 47.4% of
sales, for the same period last year. The 1.7 points as a percent of sales
improvement in the selling, general and administrative expense rate is largely
due to increased store productivity, as the increase in sales more than offset
the related increase in store expenses.
Depreciation and amortization expense for the second quarter of 1998 was
$1.0 million, or 2.1% of sales, compared to $0.5 million, or 1.4% of sales, last
year. The increase in depreciation and amortization resulted from capital
expenditures for the renovation of and improvements to existing stores and
construction of new stores.
Included in cost and expenses in the quarter ended August 2, 1997 was a
$0.5 million charge associated with the vesting of restricted stock (Restricted
Stock) purchased by certain managers of the Company in connection with the
management-led buy-out of the Company (Management Buyout) from CVS New York,
Inc. (CVS). The Company did not incur any restricted stock compensation in the
quarter ended August 1, 1998 as all remaining Restricted Stock vested in the
third quarter of 1997.
Wilsons had a loss from operations of $17.5 million for the quarter ended
August 1, 1998, compared to a loss from operations of $18.7 million for the
quarter ended August 2, 1997.
Net interest expense for the second quarter of 1998 was $1.8 million, or
4.0% of sales, compared to $1.2 million, or 3.4% of sales, for the second
quarter of 1997. The increase in net interest expense is due to an increase in
the average amount of long-term debt outstanding, higher interest rates on the
long-term debt and additional deferred financing cost amortization related to
the issuance of $75 million of 11 1/4% senior notes due 2004 (Senior Notes)
partially offset by an increase in interest income.
10
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Income tax benefit for the second quarter of 1998 was $7.4 million, or
16.2% of sales, compared to a $7.4 million income tax benefit, or 20.3% of
sales, last year. The effective tax rate increased in 1998 to a 38.4% tax rate
from a 37.0% tax rate in 1997 due primarily to the non-deductibility of the $0.5
million restricted stock compensation expense in the second quarter of 1997.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 1, 1998 COMPARED TO THE
SIX MONTHS ENDED AUGUST 2, 1997
Wilsons opened 13 stores, acquired 40 stores and closed 12 stores in the
six months ended August 1, 1998, compared to one store opening and 10 store
closings in the six months ended August 2, 1997. Included in the 13 stores
opened in 1998 are two stores located in Lester B. Pearson airport in Toronto,
Canada and one store located in Heathrow airport in London, England. On May 13,
1998, Wilsons acquired 40 Wallet Works stores. As of August 1, 1998, Wilsons
operated 503 stores compared to 452 stores as of August 2, 1997.
Sales for the six months ended August 1, 1998 were $113.7 million compared
to $93.4 million for the six months ended August 2, 1997, an increase of $20.3
million, or 21.7%. Comparable store sales increased 15.5% driven by strong sales
of men's, juniors and accessory products. Of this $20.3 million increase, $14.0
million was attributable to comparable store sales increases, $3.5 million was
attributable to the inclusion of Wallet Works for a portion of the period and
$2.8 million was attributable to net new store openings, primarily new airport
stores.
Cost of goods sold, buying and occupancy costs for the six months ended
August 1, 1998 were $92.7 million, or 81.5% of sales, compared to $84.2 million,
or 90.2% of sales, for the six months ended August 2, 1997. As a percent of
sales, gross profit net of occupancy costs increased 3.9% for the six months as
compared to the period one year ago due primarily to decreased markdowns
resulting from strong merchandise sales associated with the 15.5% comparable
store sales increase. For the 1998 period, occupancy costs as a percent of sales
decreased 4.8%, as strong sales increases leveraged occupancy expenses that were
flat compared to last year.
Selling, general and administrative expenses for the six months ended
August 1, 1998 were $42.9 million, or 37.7% of sales, compared to $36.5 million,
or 39.1% of sales, for the six months ended August 2, 1997. The reduction in the
selling, general and administrative expenses as a percent of sales was largely
due to increased store productivity and better leveraging of corporate operating
expenses.
Depreciation and amortization expense for the six months ended August 1,
1998 was $1.7 million, or 1.5% of sales, compared to $0.9 million, or 1.0% of
sales, for the six months ended August 2, 1997. The increase in depreciation and
amortization resulted from capital expenditures for the renovation of and
improvements to existing stores and the construction of new stores.
Included in costs and expenses in the 1997 period was a $0.9 million
noncash compensation charge associated with the vesting of the Restricted Stock.
The Company did not incur any restricted stock compensation in the six months
ended August 1, 1998 as all remaining Restricted Stock vested in the third
quarter of 1997.
Wilsons had a loss from operations of $23.6 million for the six months
ended August 1, 1998, compared to a loss from operations of $29.1 million for
the six months ended August 2, 1997.
Net interest expense for the six months ended August 1, 1998 was $3.0
million, or 2.6% of sales, compared to $1.9 million, or 2.1% of sales, for the
six months ended August 2, 1997. The increase in net interest expense was due to
an increase in the average amount of long-term debt outstanding, higher interest
rates on the long-term debt and additional deferred financing cost amortization
related to the issuance of the Senior Notes. This increase was partially offset
by an increase in interest income.
Income tax benefit for the six months ended August 1, 1998 was $10.1
million, or 8.9% of sales, compared to an $11.2 million income tax benefit, or
12.0% of sales, for the six months ended August 2, 1997. The effective tax
benefit rate in 1998 increased to a 38.2% tax rate from a 36.1% tax rate in 1997
due primarily to the nondeductibility of the $0.9 million restricted stock
compensation charge incurred in 1997.
11
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LIQUIDITY AND CAPITAL RESOURCES
Wilsons' capital requirements are primarily driven by the Company's
seasonal working capital needs, and its strategy to open new stores, remodel
existing stores and update information systems. The Company's peak working
capital needs typically occur during the period from August through early
December as inventory levels are increased in advance of the Company's peak
selling season from October through December.
General Electric Capital Corporation and a syndicate of banks have
provided the Company with a senior credit facility that expires in May 1999
(Senior Credit Facility). The Senior Credit Facility provides for borrowings of
up to $150.0 million in aggregate principal amount, which amount includes a
letter of credit subfacility of up to $90.0 million. The maximum amount
available under the Senior Credit Facility, however, is further subject to a
borrowing base limitation (less certain reserves) of 65.0% of eligible
inventory. The Company's borrowing availability is also reduced by outstanding
letters of credit. Interest is payable on borrowings at one or more variable
rates determined by reference to the "prime" rate plus 0.25% ("prime" plus 0.0%
for the first $10.0 million of borrowings) or LIBOR plus 1.75%. The spreads are
subject to possible changes based upon the Company's financial results. As of
August 1, 1998, the Company had no borrowings under the Senior Credit Facility
and $43.0 million of outstanding letters of credit. The Company pays a monthly
fee equal to 0.375% per annum on the unused amount of the Senior Credit Facility
and on that portion of the first $10.0 million in borrowings that bears interest
at prime plus a spread. For letters of credit, the Company pays a monthly fee in
an amount equal to 1.25% per annum times the daily average of the amount of
letters of credit outstanding during each month, which percentage is subject to
possible changes based on the Company's financial results. The Senior Credit
Facility contains certain covenants limiting, among other things, the Company's
ability to make capital expenditures, pay cash dividends or make other
distributions. The Company plans to use the Senior Credit Facility for its
immediate and future working capital needs, including capital expenditures. For
1997, the peak borrowings and letters of credit outstanding under the Senior
Credit Facility were $30.8 million and $51.9 million, respectively. For 1997,
the average amounts of borrowings and the average amounts covered by outstanding
letters of credit were $3.6 million and $28.1 million, respectively. The Company
is dependent on the Senior Credit Facility to fund working capital and letter of
credit needs, and management believes that borrowing capacity under the Senior
Credit Facility, together with current and anticipated cash flow
12
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from operations, the remaining net proceeds from the exercise of the Company's
redeemable common stock purchase warrants and proceeds from the Offering
(defined below) should be adequate to meet the Company's anticipated working
capital and capital expenditure requirements until the Senior Credit Facility
expires in 1999, when the Company expects to extend or replace such facility.
On March 27, 1998, Wilsons repurchased and simultaneously cancelled a
warrant (CVS Warrant) previously issued to CVS for $10.0 million in cash. The
CVS Warrant had been issued to CVS in connection with the Management Buyout and
gave CVS the right to purchase a total of 1,350,000 shares of the Company's
Common Stock.
On May 13, 1998, the Company acquired certain assets of Wallet Works, Inc.
for a purchase price of $5.1 million. The purchase will enable the Company to
expand its leather accessories business into factory outlet malls, a new
distribution channel for the Company. (See Note 5 of Notes to Condensed
Consolidated Financial Statements).
On June 16, 1998, the Company completed the redemption of its outstanding
redeemable common stock purchase warrants that were issued in the Company's
initial public offering on May 27, 1997 (Initial Public Offering). The net
proceeds received by the Company from the exercise of such warrants prompted by
such warrant redemption, after deducting costs and expenses, were approximately
$17.0 million.
On August 20, 1998, the Company filed a registration statement with the
Securities and Exchange Commission for a public offering of 2,000,000 shares of
Common Stock by the Company (Offering). The underwriters of the Offering have
been granted a 30-day option to purchase up to an additional 300,000 shares of
Common Stock from selling shareholders for the purpose of covering over-
allotments. The Company plans to use approximately $20.9 million, a majority of
the net proceeds from the Offering, to redeem a portion of the principal amount
of the Senior Notes and to pay the redemption premium thereon. The remaining net
proceeds will be used for general corporate purposes, including seasonal working
capital needs.
CASH FLOW ANALYSIS
Operating activities for the six months ended August 1, 1998 resulted in
cash used of $65.6 million. The cash used was primarily the result of the net
loss of $16.4 million, the $29.6 million seasonal decrease in accounts payable,
accrued expenses, income taxes payable and other liabilities and the $22.5
million seasonal increase in inventories and accounts receivable. The Company
used $61.5 million for the six months ended August 2, 1997. The cash used in
1997 was primarily the result of the net loss of $19.8 million, the $21.2
million seasonal decrease in accounts payable, accrued expenses, income taxes
payable and other liabilities and the $24.9 million seasonal increase in
inventories and accounts receivable.
13
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Changes in certain balance sheet accounts between January 31, 1998 and
August 1, 1998 reflect normal seasonal variations within the retail industry.
The level of cash and cash equivalents, inventories, accounts receivable,
accounts payable and certain accrued liabilities fluctuate due to the seasonal
nature of the working capital needs of the Company.
Investing activity for the six months ended August 1, 1998 totaled $12.3
million, comprised of capital expenditures of $7.2 million and the purchase of
Wallet Works for $5.1 million. The capital expenditures were primarily for the
renovation of and improvements to existing stores and the construction of new
stores. Capital expenditures for the same period last year were $2.6 million.
Cash provided by financing activities for the six months ended August 1,
1998 was $7.3 million. The $7.3 million provided by financing activities was
primarily the result of the $17.0 million net proceeds received by the Company
from the exercise of the common stock redeemable purchase warrants offset by
the $10.0 million used to repurchase the warrant issued to CVS. Financing
activities for the first six months of 1997 provided $6.6 million of cash,
including $9.5 million of proceeds from the Company's Initial Public Offering
offset by a $2.9 million decrease in book overdrafts which occur as outstanding
checks exceed funds on deposit in noninvestment accounts.
Except for historical information, matters discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements that 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: changing fashion trends and
consumer preferences; adverse economic conditions and consumer shopping
patterns; seasonality of business; risks of foreign sourcing and international
business; effect of year 2000 on information systems; risks associated with
future growth; loss of key personnel; high levels of Company debt and
restrictions imposed by lenders and indenture; competition in the retail
industry; price and availability of raw material; availability of personnel;
and possible volatility of stock price.
14
<PAGE>
EFFECT OF YEAR 2000 ON INFORMATION SYSTEMS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming century change in the year 2000. Moreover, these
programs often are highly dependent upon historical or dynamic financial and
other data that, based on the programs' inability to distinguish between the
year 2000 and other century-end years, could be misreported or misinterpreted
and cause significant resulting errors. If not corrected, many computer
applications could fail when processing year 2000 data.
The Company is assessing the impact of the year 2000 issue and has or
intends to modify or replace portions of its hardware and software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company has also had discussions with its significant
suppliers to determine the readiness of those suppliers to correct year 2000
issues where their systems and products interface with the Company's systems
or otherwise impact its operations. The Company is assessing the extent to
which its operations are vulnerable should those suppliers fail to properly
remedy their computer systems. The Company believes that its actions with key
suppliers will minimize these risks. The scope of the year 2000 readiness
effort includes (i) information technology such as software and hardware, (ii)
non-information systems or embedded technology such as microcontrollers
contained in various equipment, safety systems, facilities and utilities and
(iii) readiness of key third-party suppliers. If needed modifications and
conversions are not made on a timely basis, the year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The cost to the Company to identify and correct year 2000 issues is
estimated to be $1.5 million, although there can be no assurance that the
expenditures will not be significantly higher. As of August 1, 1998, the
Company had expensed incremental costs of $0.1 million related to the year
2000 issue. The total remaining incremental costs are estimated to be $1.4
million. The Company is expensing as incurred all costs related to the
assessment and correction of the year 2000 issue. These costs are being funded
through operating cash flows. The Company's total cost for the year 2000 issue
includes estimated costs of and time associated with interfacing with third
parties. The Company's current estimates of the amount of time and costs
necessary to modify and test its computer systems are based upon assumptions
regarding future events, including the continued availability of certain
resources, year 2000 modification plans and other factors. New developments
may occur that could affect the Company's estimates of the amount of time and
costs necessary to modify and test its systems for year 2000 compliance. These
developments include, but are not limited to (i) the availability and cost of
personnel trained in this area, (ii) the ability to locate and correct all
relevant computer codes and equipment and (iii) the year 2000 compliance
success that key suppliers attain.
While the Company believes its planning efforts are adequate to address its
year 2000 concerns, the year 2000 readiness of the Company's suppliers and
business partners may lag behind the Company's efforts. Although the Company
does not believe that the year 2000 matters discussed above will have a
material impact on its business, financial condition and results of
operations, it is uncertain as to what extent the Company may be affected by
such matters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" in Part I.,
Item 2., of the document for a description of limitations upon the
payment of dividends.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1998 Annual Meeting of Shareholders held on June 16, 1998,
the shareholders approved the following:
(a) The election of directors. Each nominated director was elected as follows:
Director-Nominee Votes For Votes Withheld
- ---------------- ----------- --------------
Lyle Berman 8,896,127.9 5,300
Thomas J. Brosig 8,896,127.9 5,300
Morris Goldfarb 8,896,127.9 5,300
David L. Rogers 8,896,127.9 5,300
Joel N. Waller 8,896,127.9 5,300
(b) Approval and adoption of the Amended and Restated Articles of
Incorporation of the Company.
The proposal received 8,327,239.9 votes for and 47,700 votes against.
There were no abstentions and 526,488 broker non-votes.
(c) Ratification of the appointment of Arthur Andersen LLP as the Independent
Public Accountants of the Company for the fiscal year ending January 30,
1999.
The proposal received 8,897,527.9 votes for and 200 votes against. There
were 3,700 abstentions and 0 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit Description
------- -----------
3.1 Amended and Restated Articles of Incorporation of the
Company adopted June 16, 1998.(1)
3.2 Restated By-laws of the Company as amended June 16,
1998.(1)
10.1 Consent to Credit Agreement dated March 27, 1998.
10.2 Consent and Amendment to Credit Agreement dated
May 6, 1998.
11.1 Computation of per share loss.
21.1 Subsidiaries of the Company.(1)
27.1 Financial Data Schedule.(1)
27.2 Restated Financial Data Schedule for
the Quarter Ended August 2, 1997.(1)
-------------
(1) Incorporated by reference to the same-numbered exhibit to the
Company's Registration Statement on Form S-3 (333-61915) filed
with the Commission on August 20, 1998.
B. Exhibits and Reports on Form 8-K: The Company did not file
any reports on Form 8-K during the second quarter ended
August 1, 1998.
16
<PAGE>
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/ Douglas J. Treff
---------------------------------
Douglas J. Treff
Vice President, Finance,
Chief Financial Officer, and
Assistant Secretary
Date: August 20, 1998
---------------------------------
17
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
3.1 Amended and Restated Articles of
Incorporation of the Company adopted
June 16, 1998 (1) ........................Incorporated by reference
3.2 Restated By-laws of the Company
as amended June 16, 1998 (1) .............Incorporated by reference
10.1 Consent to Credit Agreement dated
March 27, 1998 ...........................Electronic Transmission
10.2 Consent and Amendment to Credit
Agreement dated May 6, 1998 ..............Electronic Transmission
11.1 Computation of per share loss ............Electronic Transmission
21.1 Subsidiaries of the Company (1) ..........Incorporated by reference
27.1 Financial Data Schedule (1) ..............Incorporated by reference
27.2 Restated Financial Data Schedule for
the Quarter Ended August 2, 1997 (1) .....Incorporated by reference
- ----------
(1) Incorporated by reference to the same-numbered exhibit to the Company's
Registration Statement on Form S-3 (333-61915) filed with the Commission
on August 20, 1998.
18
<PAGE>
Exhibit 10.1
CONSENT TO CREDIT AGREEMENT
This CONSENT TO CREDIT AGREEMENT is entered into as of this 27th day of
March, 1998 (this "Consent") by and between WILSONS LEATHER HOLDINGS INC., a
Minnesota corporation ("Borrower"), the other Loan Parties signatory hereto,
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual
capacity, "GE Capital"), for itself, as Lender, as Swing Line Lender and as
Agent for Lenders, and the other Lenders signatory hereto. Unless otherwise
specified herein, all capitalized terms used in this Consent shall have the
meaning ascribed to them in the Credit Agreement (as hereinafter defined).
RECITALS
WHEREAS, Borrower, GE Capital, certain Loan Parties and Lenders are parties
to a Credit Agreement dated as of May 25, 1996, as amended by that certain
Amendment No. 1 to Credit Agreement dated as of July 11, 1996, that certain
Amendment No. 2 to Credit Agreement dated as of October 22, 1996, that certain
Amendment No. 3 to Credit Agreement dated as of May 23, 1997, and that certain
Consent and Amendment No. 4 to Credit Agreement dated as of July 31, 1997 (as
further amended, supplemented, restated or otherwise modified from time to time,
the "Credit Agreement"); and
WHEREAS, Borrower requests Requisite Lenders' consent under the Credit
Agreement as herein set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements contained herein, and for good and valuable consideration, the
parties hereto agree as follows:
Section 1. Consent. Agent and Requisite Lenders consent to (i) the payment
of aggregate dividends in the amount of $9,990,000 to Second Intermediate
Parent, from Second Intermediate Parent to First Intermediate Parent, from First
Intermediate Parent to Parent and from Parent to Newco, and (ii) the repurchase
by Newco of a Warrant dated May 25, 1996, held by CVS New York, Inc., a New York
corporation f/k/a Melville Corporation, for 1,500,000 shares of Newco's common
stock (1,350,000 shares after giving effect to a .90 for 1 reverse stock split)
for an aggregate price of $9,990,000.
Section 2. Representations and Warranties of Loan PartieS. The Loan Parties
represent and warrant that:
(a) the execution, delivery and performance by the Loan Parties of
this Consent have been duly authorized by all necessary corporate action
required on their part;
(b) each of the representations and warranties contained in the Credit
Agreement is true and correct in all material respects on and as of the
date hereof as if
<PAGE>
made on the date hereof, except to the extent that such representations and
warranties expressly relate to an earlier date;
(c) neither the execution, delivery and performance of this Consent
nor the consummation of the transactions contemplated hereby does or shall
contravene, result in a breach of, or violate (i) any provision of any Loan
Party's certificates or articles of incorporation or bylaws, (ii) any law
or regulation, or any order or decree of any court or government
instrumentality, or (iii) any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which any Loan Party or any of its
Subsidiaries is a party or by which any Loan Party or any of its
Subsidiaries or any of their property is bound, except in any such case to
the extent such conflict or breach has been waived by a written waiver
document, a copy of which has been delivered to Agent on or before the date
hereof.
Section 3. Condition to Effectiveness. This Consent shall be effective upon
satisfaction of the following conditions precedent:
(a) Execution and delivery of this Consent by the Loan Parties and
Requisite Lenders.
(b) The representations and warranties contained herein shall be true
and correct in all respects.
(c) Agent shall have received a fully executed reaffirmation of
guaranty from the Loan Parties (other than Borrower and the Foreign
Subsidiaries) substantially in the form of Exhibit A hereto.
Section 4. Reference to and Effect Upon the Credit Agreement.
(a) The Credit Agreement and the other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this Consent shall
not operate as a waiver of any right, power or remedy of Agent or any
Lender under the Credit Agreement or any Loan Document, nor constitute a
waiver of any provision of the Credit Agreement or any Loan Document,
except as specifically set forth herein. Upon the effectiveness of this
Consent, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall mean and
be a reference to the Credit Agreement as amended hereby.
Section 5. Costs and Expenses. As provided in Section 11.3 of the Credit
Agreement, Borrower agrees to reimburse Agent for all fees, costs and expenses,
including the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Consent.
2
<PAGE>
Section 6. Governing Law. THIS CONSENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
Section 7. Headings. Section headings in this Consent are included herein
for convenience of reference only and shall not constitute a part of this
Consent for any other purposes.
Section 8. Counterparts. This Consent may be executed in any number of
counterparts, each of which when so executed shall be deemed an original, but
all such counterparts shall constitute one and the same instrument.
(signature page follows)
3
<PAGE>
IN WITNESS WHEREOF, this Consent has been duly executed as of the date
first written above.
WILSONS LEATHER HOLDINGS INC.
By: /s/ Douglas J. Treff
-----------------------------------
Title: Chief Financial Officer
--------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION,
as Agent, Lender and Swing Line Lender
By: /s/ Catharine L. Midkiff
-----------------------------------
Title:
----------------------------------
BANKBOSTON, N.A. (formerly THE
FIRST NATIONAL BANK OF BOSTON)
By: /s/ Ella Tilsta
-----------------------------------
Title: Director
--------------------------------
SANWA BUSINESS CREDIT
CORPORATION, as Lender
By: /s/ Stanley Kaminski
-----------------------------------
Title: Vice President
--------------------------------
SIGNET BANK, as Lender
By:
-------------------------------------
Title:
----------------------------------
4
<PAGE>
THE CIT GROUP/BUSINESS CREDIT,
INC., as Lender
By: /s/ Allison Friedman
-----------------------------------
Title: Assistant Secretary
--------------------------------
TRANSAMERICA BUSINESS CREDIT
CORPORATION, as Lender
By: /s/ Steve Fischer
-----------------------------------
Title: Executive Vice President
--------------------------------
CORESTATES BANK N.A., as Lender
By: /s/ Myron Landau
-----------------------------------
Title: Vice President
--------------------------------
BANKAMERICA BUSINESS
CREDIT, INC.,
By: /s/ Thomas G. Sullivan
-----------------------------------
Title: Vice President
--------------------------------
FIRST BANK NATIONAL
ASSOCIATION, as Lender
By: /s/ Kim Lippaner
-----------------------------------
Title: Assistant Vice President
--------------------------------
5
<PAGE>
Bermans The Leather Experts Inc.
River Hills Wilsons, Inc.
Wilsons The Leather Experts Inc.
Rosedale Wilsons, Inc.
Wilsons House of Suede, Inc.
Wilsons Center, Inc.
By: /s/ Douglas J. Treff
-----------------------------------
Title: Chief Financial Officer
--------------------------------
6
<PAGE>
Exhibit 10.2
CONSENT AND AMENDMENT
TO CREDIT AGREEMENT
This CONSENT AND AMENDMENT TO CREDIT AGREEMENT is entered into as of this
6th day of May, 1998 (this "Consent") by and between WILSONS LEATHER HOLDINGS
INC., a Minnesota corporation ("Borrower"), the other Loan Parties signatory
hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its
individual capacity, "GE Capital"), for itself, as Lender, as Swing Line Lender
and as Agent for Lenders, and the other Lenders signatory hereto. Unless
otherwise specified herein, all capitalized terms used in this Consent shall
have the meaning ascribed to them in the Credit Agreement (as hereinafter
defined).
RECITALS
WHEREAS, Borrower, GE Capital, certain Loan Parties and Lenders are parties
to a Credit Agreement dated as of May 25, 1996, as amended by that certain
Amendment No. 1 to Credit Agreement dated as of July 11, 1996, that certain
Amendment No. 2 to Credit Agreement dated as of October 22, 1996, that certain
Amendment No. 3 to Credit Agreement dated as of May 23, 1997, that certain
Consent and Amendment No. 4 to Credit Agreement dated as of July 31, 1997, and
that certain Consent to Credit Agreement dated as of March 27, 1998 (as further
amended, supplemented, restated or otherwise modified from time to time, the
"Credit Agreement"); and
WHEREAS, Borrower requests Requisite Lenders' consent under the Credit
Agreement as herein set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements contained herein, and for good and valuable consideration, the
parties hereto agree as follows:
Section 1. Consent. Subject to the conditions herein set forth and
notwithstanding any provision of the Credit Agreement to the contrary, Agent and
Requisite Lenders consent to:
(a) the purchase by First Intermediate Parent of certain of the assets
of either or both of AR Accessories Group, Inc. ("Accessories") and The
Wallet Works, Inc. ("Wallet") in an auction conducted pursuant to orders of
the Bankruptcy Court in Milwaukee, Wisconsin in case numbers 98-22580 and
98-22750 (the "Purchase"); and
(b) Intercompany dividends to Newco and the redemption of
warrants by Newco in an aggregate amount not to exceed $13,000.
Section 2. Amendment. Notwithstanding any provision of the Credit Agreement
to the contrary, Agent or an Affiliate of Agent may act as the L/C Issuer with
respect to Eligible Trade L/Cs, and (i) so long as those trade letters of credit
meet the criteria for Eligible Trade L/Cs, such trade letters of credit shall
constitute Eligible Trade L/Cs and the obligations
<PAGE>
thereunder shall constitute Eligible Trade L/C Obligations for all purposes
under the Credit Agreement, (ii) inspection certificates with respect to
Eligible In-Transit Inventory may be held by the L/C Issuer or an agent of L/C
Issuer, and (iii) all fees or charges received by Agent or any Affiliate of
Agent in its capacity as L/C Issuer shall be for the separate account of Agent
or such Affiliate.
Section 3. Conditions. The consent to the Purchase is subject to
satisfaction of the following conditions in a manner reasonably satisfactory to
Agent:
(a) The assets to be purchased from Accessories and Wallet (the
"Purchased Assets") shall consist of either (i) all or substantially all of
their Inventory and Intellectual Property (the "Limited Purchase") or (ii)
all or substantially all of their Accounts, Inventory, General Intangibles,
Intellectual Property and Equipment, as well as certain lease rights and
obligations, and Accessories' owned distribution center in West Bend,
Wisconsin (the "AR Distribution Center") (the "Maximum Purchase" and
collectively with the Limited Purchase, the "Purchase").
(b) The purchase price will not in any case exceed $16,000,000 payable
in cash.
(c) The Purchased Assets will be free and clear of all Liens, as
evidenced by an order of the Bankruptcy Court delivered to Agent and
reasonably satisfactory to Agent.
(d) All of the Purchased Assets consisting of Intellectual Property
will be retained by First Intermediate Parent; all of the Purchased Assets
consisting of Inventory will be sold to, or contributed to the capital of,
Borrower. In the event that the Maximum Purchase is consummated, the
Purchased Assets consisting of leaseholds, Accounts, General Intangibles,
Equipment and the AR Distribution Center will be sold or contributed to the
capital of each Store Guarantor (or other Credit Party) doing business in
the jurisdiction in which any such assets are physically located or deemed
to be located (collectively, the "Intercompany Transfers").
(e) Within five (5) Business Days following the date of purchase,
First Intermediate Parent shall execute and deliver to Agent a Trademark
Security Agreement covering all of the purchased Trademarks.
(f) Within five (5) Business Days after the date of any purchase,
Borrower shall deliver to Agent a list of each jurisdiction in which any
Purchased Assets are located or deemed to be located and a corresponding
list of the Credit Parties to which each of the Intercompany Transfers are
to be made.
(g) Within fifteen (15) Business Days after the date of the purchase,
Borrower shall deliver or cause to be delivered to Agent UCC-1s executed by
each appropriate Credit Party for all Collateral located (or deemed to be
located under the
2
<PAGE>
Code) in any jurisdiction (including local filing jurisdictions to the
extent required) as to which Agent has not previously filed UCC-1s in the
name of the applicable Credit Party.
(h) If the Purchased Assets include the AR Distribution Center, within
thirty (30) days after the date of the purchase Borrower shall deliver or
cause Wilsons Leather of Wisconsin Inc. to deliver to Agent (i) an accurate
legal description for the property; (ii) a mortgage; (iii) a Phase 1
environmental audit performed by Dames & Moore or other environmental
engineers acceptable to Agent, all in form and substance satisfactory to
Agent; and (iv) such other documents as Agent may reasonably request.
(i) If the purchased Inventory is stored at one or more locations
leased by Accessories or Wallet (other than leased retail stores) for more
than ten (10) days after the purchase date, First Intermediate Parent shall
obtain and deliver to Agent landlord waivers in form and substance
reasonably satisfactory to Agent. Otherwise, such Inventory will be removed
within that ten (10) day period to Borrower's Distribution Center in
Brooklyn Park, Minnesota.
(j) Agent shall have received a Reaffirmation of Guaranty executed by
the Credit Parties (other than the Borrower and the Foreign Subsidiaries)
in form and substance satisfactory to Agent.
(k) Agent shall have received documents evidencing the Purchase and
the Intercompany Transfers, certified resolutions of First Intermediate
Parent and the Credit Parties that are parties to the Intercompany
Transfers, an opinion of counsel for Loan Parties, and such other officers'
certificates and documents as Agent shall reasonably request, all in form
and substance reasonably satisfactory to Agent.
Section 4. Representations and Warranties of Loan Parties. The Loan Parties
represent and warrant that:
(a) the execution, delivery and performance by the Loan Parties of
this Consent have been duly authorized by all necessary corporate action
required on their part;
(b) each of the representations and warranties contained in the Credit
Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;
(c) neither the execution, delivery and performance of this Consent
nor the consummation of the transactions contemplated hereby does or shall
contravene, result in a breach of, or violate (i) any provision of any Loan
Party's certificates or articles of incorporation or bylaws, (ii) any law
or regulation, or any order or decree of any court or government
instrumentality, or (iii) any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which any Loan Party or any of its
Subsidiaries is a party or by which any Loan Party or any of its
Subsidiaries or any of their property is
3
<PAGE>
bound, except in any such case to the extent such conflict or breach has
been waived by a written waiver document, a copy of which has been
delivered to Agent on or before the date hereof.
Section 5. Condition to Effectiveness. This Consent shall be effective upon
satisfaction of the following conditions precedent:
(a) Execution and delivery of this Consent by the Loan Parties and
Requisite Lenders.
(b) The representations and warranties contained herein shall be true
and correct in all respects.
Section 6. Reference to and Effect Upon the Credit Agreement.
(a) The Credit Agreement and the other Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this Consent shall
not operate as a waiver of any right, power or remedy of Agent or any
Lender under the Credit Agreement or any Loan Document, nor constitute a
waiver of any provision of the Credit Agreement or any Loan Document,
except as specifically set forth herein. Upon the effectiveness of this
Consent, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall mean and
be a reference to the Credit Agreement as amended hereby.
Section 7. AR Distribution Center. First Intermediate Parent will not
purchase the AR Distribution Center unless that property is inextricably bundled
with other Purchased Assets by the bankruptcy court so as to preclude a purchase
of the Inventory without also purchasing that property.
Section 8. Costs and Expenses. As provided in Section 11.3 of the Credit
Agreement, Borrower agrees to reimburse Agent for all fees, costs and expenses,
including the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Consent.
Section 9. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
Section 10. Headings. Section headings in this Consent are included herein
for convenience of reference only and shall not constitute a part of this
Consent for any other purposes.
4
<PAGE>
Section 11. Counterparts. This Consent may be executed in any number of
counterparts, each of which when so executed shall be deemed an original, but
all such counterparts shall constitute one and the same instrument.
(signature page follows)
5
<PAGE>
IN WITNESS WHEREOF, this Consent has been duly executed as of the date
first written above.
WILSONS LEATHER HOLDINGS INC.
By: /s/ Douglas J. Treff
----------------------------------
Title: Chief Financial Officer
-------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION,
as Agent, Lender and Swing Line Lender
By: /s/ Paul M. F.
----------------------------------
Title: Duly Authorized Signatory
-------------------------------
BANKBOSTON, N.A. (formerly THE
FIRST NATIONAL BANK OF BOSTON),
as Lender
By: /s/ James J. Ward
----------------------------------
Title: Director
-------------------------------
SANWA BUSINESS CREDIT
CORPORATION, as Lender
By: /s/ Stanley Kaminski
----------------------------------
Title: Vice President
-------------------------------
SIGNET BANK, as Lender
By: /s/ William P. Doer IV (on behalf
of Eric Butler
-----------------------------------
Title: Vice President
-------------------------------
6
<PAGE>
THE CIT GROUP/BUSINESS CREDIT,
INC., as Lender
By: /s/ Allison Friedman
----------------------------------
Title: Assistant Secretary
-------------------------------
TRANSAMERICA BUSINESS CREDIT
CORPORATION, as Lender
By: /s/ R.F.S.
----------------------------------
Title: Senior Vice President
-------------------------------
CORESTATES BANK N.A., as Lender
By: /s/ J.K.
----------------------------------
Title: Assistant Vice President
-------------------------------
BANKAMERICA BUSINESS
CREDIT, INC., as Lender
By: /s/ Daniel L. Cusdez
----------------------------------
Title: Senior Vice President
-------------------------------
FIRST BANK NATIONAL
ASSOCIATION, as Lender
By: /s/ Kim Lippaner
----------------------------------
Title: Assistant Vice President
-------------------------------
7
<PAGE>
Bermans The Leather Experts Inc.
River Hills Wilsons, Inc.
Wilsons The Leather Experts Inc.
Rosedale Wilsons, Inc.
Wilsons House of Suede, Inc.
Wilsons Center, Inc.
By: /s/ Douglas J. Treff
----------------------------------
Title: Chief Financial Officer
-------------------------------
8
<PAGE>
Exhibit 11.1
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NET LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER QUARTER
ENDED ENDED
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
Net Loss $(11,878) $(12,581)
============== ==============
Weighted average common shares outstanding 10,240 8,928
Effect of options granted (1) -- --
Effect of warrant (1) -- --
-------------- --------------
Weighted average common shares outstanding--
assuming dilution 10,240 8,928
============== ==============
Basic net loss per common share $ (1.16) $ (1.41)
============== ==============
Diluted net loss per common share (1) $ (1.16) $ (1.41)
============== ==============
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
Net Loss $(16,415) $(19,844)
============== ==============
Weighted average common shares outstanding 9,886 8,289
Effect of options granted (1) -- --
Effect of warrant (1) -- --
-------------- --------------
Weighted average common shares outstanding--
assuming dilution 9,886 8,289
============== ==============
Basic net loss per common share $ (1.66) $ (2.39)
============== ==============
Diluted net loss per common share (1) $ (1.66) $ (2.39)
============== ==============
Note 1: Under Statement of Financial Accounting Standard No. 128 "Earnings per
Share," common stock equivalents are excluded when computing diluted
net income or loss per common share if the effect is anti-dilutive.
