WINA 10-Q

Winmark Corp (WINA)

10-Q 2023-10-18 For: 2023-09-30

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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 30, 2023 and December 31, 2022	3

	CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS Three Months Ended September 30, 2023 and September 24, 2022 Nine Months Ended September 30, 2023 and September 24, 2022	4

	CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) Three Months Ended September 30, 2023 and September 24, 2022 Nine Months Ended September 30, 2023 and September 24, 2022	5

	CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2023 and September 24, 2022	6

	NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	18

PART II.	OTHER INFORMATION	18

Item 1.	Legal Proceedings	18

Item 1A.	Risk Factors	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Mine Safety Disclosures	19

Item 5.	Other Information	19

Item 6.	Exhibits	19

	SIGNATURES	20


	September 30, 2023		December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	40,556,100	$	13,615,600
Restricted cash		40,000		65,000
Receivables, less allowance for doubtful accounts of $500 and $800		1,704,000		1,438,600
Net investment in leases - current		124,300		344,900
Income tax receivable		1,200		558,700
Inventories		290,900		770,600
Prepaid expenses		1,095,100		1,310,400
Total current assets		43,811,600		18,103,800
Net investment in leases — long-term		—		5,400
Property and equipment, net		1,675,900		1,704,600
Operating lease right of use asset		2,510,000		2,716,000
Intangible assets, net		3,082,800		3,348,300
Goodwill		607,500		607,500
Other assets		467,700		429,700
Deferred income taxes		3,392,000		3,540,400
	$	55,547,500	$	30,455,700

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable, net of unamortized debt issuance costs of $32,100 and $32,100	$	4,217,900	$	4,217,900
Accounts payable		1,694,900		2,122,000
Accrued liabilities		4,038,900		2,611,700
Deferred revenue		1,680,700		1,643,900
Total current liabilities		11,632,400		10,595,500
Long-term Liabilities:
Line of credit/Term loan		30,000,000		30,000,000
Notes payable, net of unamortized debt issuance costs of $96,700 and $120,800		35,903,300		39,066,700
Deferred revenue		7,553,600		6,974,200
Operating lease liabilities		3,871,600		4,287,000
Other liabilities		1,150,100		1,164,400
Total long-term liabilities		78,478,600		81,492,300
Shareholders’ Equity (Deficit):
Common stock, no par value, 10,000,000 shares authorized, 3,486,869 and 3,459,673 shares issued and outstanding		6,411,900		1,806,700
Retained earnings (accumulated deficit)		(40,975,400)		(63,438,800)
Total shareholders' equity (deficit)		(34,563,500)		(61,632,100)
	$	55,547,500	$	30,455,700


	Three Months Ended				Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Revenue:
Royalties	$	19,210,000	$	17,859,000	$	53,063,400	$	49,230,400
Leasing income		1,291,900		1,762,100		3,948,700		5,845,800
Merchandise sales		997,800		746,000		3,601,900		2,687,500
Franchise fees		334,400		348,100		1,133,400		1,160,200
Other		483,700		449,300		1,456,200		1,361,200
Total revenue		22,317,800		21,164,500		63,203,600		60,285,100
Cost of merchandise sold		935,400		717,600		3,370,500		2,552,300
Leasing expense		11,000		376,300		381,700		891,900
Provision for credit losses		700		(22,000)		(4,600)		(46,600)
Selling, general and administrative expenses		6,248,200		5,671,500		18,694,300		16,673,100
Income from operations		15,122,500		14,421,100		40,761,700		40,214,400
Interest expense		(763,100)		(820,500)		(2,339,800)		(2,045,600)
Interest and other income		385,400		21,700		803,400		7,000
Income before income taxes		14,744,800		13,622,300		39,225,300		38,175,800
Provision for income taxes		(3,595,000)		(3,253,700)		(8,764,000)		(8,927,500)
Net income	$	11,149,800	$	10,368,600	$	30,461,300	$	29,248,300
Earnings per share - basic	$	3.20	$	3.01	$	8.77	$	8.36
Earnings per share - diluted	$	3.05	$	2.93	$	8.40	$	8.11
Weighted average shares outstanding - basic		3,485,852		3,439,417		3,475,066		3,500,411
Weighted average shares outstanding - diluted		3,653,730		3,540,779		3,627,550		3,605,445


				Retained
				Earnings
	Common Stock			(Accumulated
	Shares	Amount		Deficit)		Total
BALANCE, December 31, 2022	3,459,673	$	1,806,700	$	(63,438,800)	$	(61,632,100)
Stock options exercised	3,518		590,400		—		590,400
Compensation expense relating to stock options	—		475,900		—		475,900
Cash dividends ($0.70 per share)	—		—		(2,421,900)		(2,421,900)
Comprehensive income (Net income)	—		—		8,942,700		8,942,700
BALANCE, April 1, 2023	3,463,191		2,873,000		(56,918,000)		(54,045,000)
Stock options exercised	21,845		2,384,500		—		2,384,500
Compensation expense relating to stock options	—		466,100		—		466,100
Cash dividends ($0.80 per share)	—		—		(2,787,500)		(2,787,500)
Comprehensive income (Net income)	—		—		10,368,800		10,368,800
BALANCE, July 1, 2023	3,485,036		5,723,600		(49,336,700)		(43,613,100)
Stock options exercised	1,833		179,300		—		179,300
Compensation expense relating to stock options	—		509,000		—		509,000
Cash dividends ($0.80 per share)	—		—		(2,788,500)		(2,788,500)
Comprehensive income (Net income)	—		—		11,149,800		11,149,800
BALANCE, September 30, 2023	3,486,869	$	6,411,900	$	(40,975,400)	$	(34,563,500)


	September 30, 2023		September 24, 2022
Balance at beginning of period	$	8,618,100	$	8,508,500
Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period		1,957,300		1,538,100
Fees earned that were included in the balance at the beginning of the period		(1,341,100)		(1,373,400)
Balance at end of period	$	9,234,300	$	8,673,200


Contract Liabilities expected to be recognized in	Amount
2023	$	421,100
2024		1,624,000
2025		1,407,600
2026		1,203,200
2027		1,028,500
Thereafter		3,549,900
	$	9,234,300


Amortization expected to be expensed in	Amount
2023	$	88,500
2024		354,000
2025		354,000
2026		354,000
2027		354,000
Thereafter		1,578,300
	$	3,082,800


				Weighted Average
				Remaining
	Number of	Weighted Average		Contractual Life
	Shares	Exercise Price		(years)		Intrinsic Value
Outstanding, December 31, 2022	361,628	$	164.70	6.40	$	26,688,183
Granted	19,540		317.93
Exercised	(27,196)		115.98
Forfeited	(3,752)		204.26
Outstanding, September 30, 2023	350,220	$	176.61	6.06	$	68,825,900
Exercisable, September 30, 2023	215,375	$	142.02	4.60	$	49,774,400


Operating Lease Liabilities expected to be recognized in	Amount
2023	$	194,300
2024		784,400
2025		806,000
2026		828,200
2027		851,100
Thereafter		1,773,200
Total lease payments		5,237,200
Less imputed interest		(869,200)
Present value of lease liabilities	$	4,368,000


					AVAILABLE
	TOTAL			TOTAL	FOR	COMPLETED
	12/31/2022	OPENED	CLOSED	9/30/2023	RENEWAL	RENEWALS	% RENEWED
Plato’s Closet	500	8	(3)	505	48	48	100	%
Once Upon A Child	406	7	(1)	412	34	34	100	%
Play It Again Sports	281	13	(3)	291	26	26	100	%
Style Encore	71	—	(4)	67	12	11	92	%
Music Go Round	37	—	—	37	5	5	100
Total Franchised Stores	1,295	28	(11)	1,312	125	124	99	%


				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

July 2, 2023 to August 5, 2023	—	$	—	—	78,600
August 6, 2023 to September 2, 2023	—	$	—	—	78,600
September 3, 2023 to September 30, 2023	—	$	—	—	78,600

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 30, 2023, 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 30, 2023, formatted in Inline XBRL (contained in Exhibit 101).

		WINMARK CORPORATION


Date: October 18, 2023	By:	/s/ Brett D. Heffes
		Brett D. Heffes Chair of the Board and Chief Executive Officer (principal executive officer)


Date: October 18, 2023	By:	/s/ Anthony D. Ishaug
		Anthony D. Ishaug Executive Vice President Chief Financial Officer and Treasurer (principal financial and accounting officer)


	Nine Months Ended
	September 30, 2023		September 24, 2022
OPERATING ACTIVITIES:
Net income	$	30,461,300	$	29,248,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		578,900		409,500
Provision for credit losses		(4,600)		(46,600)
Compensation expense related to stock options		1,451,000		1,203,800
Deferred income taxes		148,400		(214,700)
Operating lease right of use asset amortization		206,000		185,700
Tax benefits on exercised stock options		839,000		429,500
Change in operating assets and liabilities:
Receivables		(265,400)		(530,200)
Principal collections on lease receivables		485,200		2,819,200
Income tax receivable/payable		(281,500)		194,600
Inventories		479,700		(312,700)
Prepaid expenses		215,300		2,500
Other assets		(38,000)		2,000
Accounts payable		(427,100)		(189,100)
Accrued and other liabilities		1,021,600		1,395,000
Rents received in advance and security deposits		(254,600)		(556,200)
Deferred revenue		616,200		164,700
Net cash provided by operating activities		35,231,400		34,205,300
INVESTING ACTIVITIES:
Purchase of property and equipment		(284,700)		(70,000)
Reacquired franchise rights		—		(3,540,000)
Net cash used for investing activities		(284,700)		(3,610,000)
FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit/term loan		—		33,700,000
Payments on line of credit/term loan		—		(3,700,000)
Payments on notes payable		(3,187,500)		(3,187,500)
Repurchases of common stock		—		(48,281,200)
Proceeds from exercises of stock options		3,154,200		2,937,100
Dividends paid		(7,997,900)		(6,459,700)
Net cash used for financing activities		(8,031,200)		(24,991,300)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		26,915,500		5,604,000
Cash, cash equivalents and restricted cash, beginning of period		13,680,600		11,437,000
Cash, cash equivalents and restricted cash, end of period	$	40,596,100	$	17,041,000
SUPPLEMENTAL DISCLOSURES:


	Nine Months Ended
	September 30, 2023			September 24, 2022
Risk free interest rate		3.86	%		2.70	%
Expected life (years)		6			6
Expected volatility		28.04	%		27.47	%
Dividend yield		3.00	%		4.61	%
Option fair value	$	76.01		$	33.38