WINA 10-Q

Winmark Corp (WINA)

10-Q 2022-10-12 For: 2022-09-24

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Added on April 11, 2026

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Minnesota		41-1622691
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, no par value per share	WINA	Nasdaq Global Market


		PAGE

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	CONSOLIDATED CONDENSED BALANCE SHEETS September 24, 2022 and December 25, 2021	3

	CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS Three Months Ended September 24, 2022 and September 25, 2021 Nine Months Ended September 24, 2022 and September 25, 2021	4

	CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) Three Months Ended September 24, 2022 and September 25, 2021 Nine Months Ended September 24, 2022 and September 25, 2021	5

	CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended September 24, 2022 and September 25, 2021	6

	NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4.	Controls and Procedures	21

PART II.	OTHER INFORMATION	21

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3.	Defaults Upon Senior Securities	22

Item 4.	Mine Safety Disclosures	22

Item 5.	Other Information	22

Item 6.	Exhibits	22

	SIGNATURES	23


	September 24, 2022		December 25, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	16,986,000	$	11,407,000
Restricted cash		55,000		30,000
Receivables, less allowance for doubtful accounts of $700 and $600		1,633,600		1,103,400
Net investment in leases - current		839,900		2,890,600
Income tax receivable		43,400		667,500
Inventories		637,900		325,200
Prepaid expenses		1,006,100		1,008,600
Total current assets		21,201,900		17,432,300
Net investment in leases - long-term		63,600		229,300
Property and equipment, net		1,740,700		1,976,900
Operating lease right of use assets		2,796,300		2,982,000
Intangible assets, net		3,436,700		—
Goodwill		607,500		607,500
Other assets		416,300		418,300
Deferred income taxes		3,467,400		3,252,700
	$	33,730,400	$	26,899,000
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Notes payable, net of unamortized debt issuance costs of $32,100 and $17,400	$	4,217,900	$	4,232,600
Accounts payable		1,909,900		2,099,000
Accrued liabilities		3,870,000		2,001,000
Deferred revenue		1,647,000		1,645,000
Total current liabilities		11,644,800		9,977,600
Long-Term Liabilities:
Line of credit/Term loan		30,000,000		—
Notes payable, net of unamortized debt issuance costs of $128,800 and $61,100		40,121,200		43,376,400
Deferred revenue		7,026,200		6,863,500
Operating lease liabilities		4,432,800		4,810,100
Other liabilities		940,500		954,800
Total long-term liabilities		82,520,700		56,004,800
Shareholders’ Equity (Deficit):
Common stock, no par value, 10,000,000 shares authorized, 3,439,832 and 3,635,806 shares issued and outstanding		382,100		—
Retained earnings (accumulated deficit)		(60,817,200)		(39,083,400)
Total shareholders’ equity (deficit)		(60,435,100)		(39,083,400)
	$	33,730,400	$	26,899,000


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Revenue:
Royalties	$	17,859,000	$	16,375,900	$	49,230,400	$	45,141,200
Leasing income		1,762,100		2,266,200		5,845,800		8,351,800
Merchandise sales		746,000		704,800		2,687,500		1,980,300
Franchise fees		348,100		383,400		1,160,200		1,101,300
Other		449,300		423,100		1,361,200		1,267,300
Total revenue		21,164,500		20,153,400		60,285,100		57,841,900
Cost of merchandise sold		717,600		681,100		2,552,300		1,887,700
Leasing expense		376,300		358,900		891,900		1,410,800
Provision for credit losses		(22,000)		(55,900)		(46,600)		(167,300)
Selling, general and administrative expenses		5,671,500		5,380,100		16,673,100		16,287,600
Income from operations		14,421,100		13,789,200		40,214,400		38,423,100
Interest expense		(820,500)		(323,200)		(2,045,600)		(945,600)
Interest and other income (expense)		21,700		(18,800)		7,000		(7,100)
Income before income taxes		13,622,300		13,447,200		38,175,800		37,470,400
Provision for income taxes		(3,253,700)		(3,364,700)		(8,927,500)		(9,139,500)
Net income	$	10,368,600	$	10,082,500	$	29,248,300	$	28,330,900
Earnings per share - basic	$	3.01	$	2.77	$	8.36	$	7.68
Earnings per share - diluted	$	2.93	$	2.67	$	8.11	$	7.40
Weighted average shares outstanding - basic		3,439,417		3,635,055		3,500,411		3,688,419
Weighted average shares outstanding - diluted		3,540,779		3,782,873		3,605,445		3,829,322


					Retained
					Earnings
	Common Stock			(Accumulated
	Shares	Amount		Deficit)		Total
BALANCE, December 25, 2021	3,635,806	$	—	$	(39,083,400)	$	(39,083,400)
Repurchase of common stock	(164,586)		(1,679,900)		(34,911,500)		(36,591,400)
Stock options exercised	9,156		1,258,300		—		1,258,300
Compensation expense relating to stock options	—		421,600		—		421,600
Cash dividends ($0.45 per share)	—		—		(1,625,300)		(1,625,300)
Comprehensive income (Net income)	—		—		9,852,500		9,852,500
BALANCE, March 26, 2022	3,480,376		—		(65,767,700)		(65,767,700)
Repurchase of common stock	(55,694)		(1,645,200)		(9,610,900)		(11,256,100)
Stock options exercised	13,124		1,295,400		—		1,295,400
Compensation expense relating to stock options	—		349,800		—		349,800
Cash dividends ($0.70 per share)	—		—		(2,427,300)		(2,427,300)
Comprehensive income (Net income)	—		—		9,027,200		9,027,200
BALANCE, June 25, 2022	3,437,806		—		(68,778,700)		(68,778,700)
Repurchase of common stock	(2,027)		(433,700)		—		(433,700)
Stock options exercised	4,053		383,400		—		383,400
Compensation expense relating to stock options	—		432,400		—		432,400
Cash dividends ($0.70 per share)	—		—		(2,407,100)		(2,407,100)
Comprehensive income (Net income)	—		—		10,368,600		10,368,600
BALANCE, September 24, 2022	3,439,832	$	382,100	$	(60,817,200)	$	(60,435,100)


	September 24, 2022		September 25, 2021
Balance at beginning of period	$	8,508,500	$	8,708,300
Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period		1,538,100		1,110,600
Fees earned that were included in the balance at the beginning of the period		(1,373,400)		(1,325,400)
Balance at end of period	$	8,673,200	$	8,493,500


Contract Liabilities expected to be recognized in	Amount
2022	$	416,400
2023		1,604,400
2024		1,406,700
2025		1,190,300
2026		985,900
Thereafter		3,069,500
	$	8,673,200


	September 24, 2022		December 25, 2021
Direct financing and sales-type leases:
Minimum lease payments receivable	$	1,059,600	$	3,387,500
Estimated unguaranteed residual value of equipment		528,300		1,316,100
Unearned lease income, net of initial direct costs deferred		(140,400)		(418,100)
Security deposits		(566,200)		(1,122,500)
Total investment in direct financing and sales-type leases		881,300		3,163,000
Allowance for credit losses		(18,400)		(63,600)
Net investment in direct financing and sales-type leases		862,900		3,099,400
Operating leases:
Operating lease assets		687,700		626,200
Less accumulated depreciation and amortization		(647,100)		(605,700)
Net investment in operating leases		40,600		20,500
Total net investment in leasing operations	$	903,500	$	3,119,900


	Direct Financing and Sales-Type Leases
	Minimum Lease		Income
Fiscal Year	Payments Receivable		Amortization
2022	$	519,300	$	85,000
2023		536,800		55,300
2024		3,500		100
	$	1,059,600	$	140,400


	September 24, 2022				December 25, 2021
	Investment		Allowance for		Investment		Allowance for
	In Leases		Credit Losses		In Leases		Credit Losses
Collectively evaluated for loss potential	$	881,300	$	18,400	$	3,163,000	$	63,600
Individually evaluated for loss potential		—		—		—		—
Total	$	881,300	$	18,400	$	3,163,000	$	63,600


	September 24, 2022
	0-60 Days		61-90 Days		Over 90 Days
	Delinquent		Delinquent		Delinquent and
	and Accruing		and Accruing		Accruing		Non-Accrual		Total

Total investment in leases	$	881,300	$	—	$	—	$	—	$	881,300


Amortization expected to be expensed in	Amount
2022	$	88,500
2023		354,000
2024		354,000
2025		354,000
2026		354,000
Thereafter		1,932,200
	$	3,436,700


				Weighted Average
				Remaining
	Number of	Weighted Average		Contractual Life
	Shares	Exercise Price		(years)		Intrinsic Value
Outstanding, December 25, 2021	355,621	$	146.03	6.32	$	39,320,600
Granted	34,940		198.42
Exercised	(26,333)		111.54
Forfeited	(6,501)		183.28
Outstanding, September 24, 2022	357,727	$	153.00	6.06	$	24,816,800
Exercisable, September 24, 2022	216,443	$	119.96	4.37	$	21,258,300


Operating Lease Liabilities expected to be recognized in	Amount
2022	$	189,100
2023		763,300
2024		784,400
2025		806,000
2026		828,200
Thereafter		2,624,300
Total lease payments		5,995,300
Less imputed interest		(1,048,400)
Present value of lease liabilities	$	4,946,900


	Nine Months Ended
	September 24, 2022			September 25, 2021
Risk free interest rate		2.70	%		0.90	%
Expected life (years)		6			6
Expected volatility		27.47	%		25.07	%
Dividend yield		4.61	%		2.74	%
Option fair value	$	33.38		$	32.70


	As of
	September 24, 2022		December 25, 2021
Identifiable assets:
Franchising	$	7,917,400	$	4,907,800
Leasing		1,253,500		3,600,500
Unallocated		24,559,500		18,390,700
Total	$	33,730,400	$	26,899,000


					AVAILABLE
	TOTAL			TOTAL	FOR	COMPLETED
	12/25/2021	OPENED	CLOSED	9/24/2022	RENEWAL	RENEWALS
Plato’s Closet
Franchises - US and Canada	489	12	(2)	499	42	42
Once Upon A Child
Franchises - US and Canada	401	6	(3)	404	25	25
Play It Again Sports
Franchises - US and Canada	273	13⁽¹⁾	(6)	280	47	47
Style Encore						.
Franchises - US and Canada	71	4	(4)	71	—	—
Music Go Round
Franchises - US	37	—	—	37	—	—
Total Franchised Stores	1,271	35	(15)	1,291	114	114


				Total Number of	Maximum Number
				Shares Purchased as	of Shares that may
	Total Number of	Average Price		Part of a Publicly	yet be Purchased
Period	Shares Purchased	Paid Per Share		Announced Plan(1)	Under the Plan

June 26, 2022 to July 30, 2022	104	$	192.98	104	84,381
July 31, 2022 to August 27, 2022	—	$	—	—	84,381
August 28, 2022 to September 24, 2022	1,923	$	215.08	1,923	82,458

3.1		Articles of Incorporation, as amended (Exhibit 3.1)(1)

3.2		By-laws, as amended and restated to date (Exhibit 3.2)(2)

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101		Interactive Data Files Pursuant to Rule 405 of Regulation S-T: Financial statements from the Quarterly Report on Form 10-Q of Winmark Corporation and Subsidiaries for the quarter ended September 24, 2022, formatted in Inline XBRL: (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statements of Shareholders’ Equity (Deficit), (iv) Consolidated Condensed Statements of Cash Flows, and (v) Notes to Consolidated Condensed Financial Statements.
104		The cover page from the Quarterly Report on Form 10-Q of Winmark Corporation and Subsidiaries for the quarter ended September 24, 2022, formatted in Inline XBRL (contained in Exhibit 101).

		WINMARK CORPORATION


Date: October 12, 2022	By:	/s/ Brett D. Heffes
		Brett D. Heffes Chairman of the Board and Chief Executive Officer (principal executive officer)


Date: October 12, 2022	By:	/s/ Anthony D. Ishaug
		Anthony D. Ishaug Executive Vice President Chief Financial Officer and Treasurer (principal financial and accounting officer)