Winmark - 10-Q quarterly report FY

 

 

 

 

 

 

 

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 28, 2002

 

Commission File Number 000-22012

 

 

(Exact Name of Registrant as Specified in Its Charter)

 

Minnesota		41-1622691
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

 

4200 Dahlberg Drive, Suite 100

Golden Valley, MN 55422-4837

(Address of Principal Executive Offices, Zip Code)

 

Registrant’s Telephone Number, Including Area Code 763-520-8500

 

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, and (2) has been

subject to such filing requirements for the past 90 days.

 

Yes:    X

No:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common stock, no par value, 5,717,197 shares outstanding as of October 31, 2002

 

 

 

PART I.		FINANCIAL INFORMATION		PAGE
Item 1.		Financial Statements (Unaudited)
		CONDENSED BALANCE SHEETS: September 28, 2002 and December 29, 2001		3
		CONDENSED STATEMENTS OF OPERATIONS: Three Months Ended September 28, 2002 and September 29, 2001 Nine Months Ended September 28, 2002 and September 29, 2001		4
		CONDENSED STATEMENTS OF CASH FLOWS: Nine Months Ended September 28, 2002 and September 29, 2001		5
		NOTES TO CONDENSED FINANCIAL STATEMENTS		6–8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		8–15
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		15
PART II.		OTHER INFORMATION		PAGE
		Items 1 through 5 have been omitted since all items are inapplicable or answers negative.
Item 6.		Exhibits and Reports on Form 8-K		16
(a.)   Exhibits
		99.1    Certification of Chief Executive Officer
		99.2    Certification of Vice President of Financial Services and principal financial and accounting officer
(b.)   On August 2, 2002, the Company filed an 8-K related to the investment in the “Archiver’s” retail chain.

 

2

 

 

 

		September 28, 2002				December 29, 2001
ASSETS
Current Assets:
Cash and cash equivalents		$	375,500			$	1,053,000
Short-term investments			6,225,000				2,934,500
Receivables, less allowance for doubtful accounts of $509,700 and $576,000			2,879,200				3,308,800
Inventories			897,300				1,084,100
Prepaid expenses and other			652,400				667,800
Deferred income taxes			1,598,000				1,598,000
Total current assets			12,627,400				10,646,200
Long-term investment			2,000,000				—
Long-term receivables, net			151,400				124,100
Property and equipment, net			394,200				738,100
Other assets, net			707,000				780,600
		$	15,880,000			$	12,289,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	1,898,300			$	1,794,700
Accrued liabilities			2,829,200				2,885,500
Current maturities of long-term debt			—				41,500
Current deferred revenue			583,200				515,600
Total current liabilities			5,310,700				5,237,300
Long-term debt, less current maturities			—				158,000
Deferred gain on sale of building			135,900				273,300
Shareholders’ Equity:
Common stock, no par, 10,000,000 shares authorized, 5,717,197 and 5,383,354 shares issued and outstanding			3,238,300				1,376,000
Common stock warrants			—				822,000
Other comprehensive income (loss)			(85,900	)			—
Retained earnings			7,281,000				4,422,400
Total shareholders’ equity			10,433,400				6,620,400
		$	15,880,000			$	12,289,000

 

The accompanying notes are an integral part of these financial statements

3

 

 

		Three Months Ended								Nine Months Ended
		September 28, 2002				September 29, 2001				September 28, 2002				September 29, 2001
REVENUE:
Merchandise sales		$	3,689,200			$	4,805,700			$	12,106,800			$	14,625,900
Royalties			3,950,900				3,906,300				12,422,000				11,801,300
Franchise fees			337,500				210,500				595,000				518,000
Other			207,700				211,800				607,500				583,400
Total revenue			8,185,300				9,134,300				25,731,300				27,528,600
COST OF MERCHANDISE SOLD			2,859,300				3,948,400				9,776,100				12,210,300
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			3,617,700				3,564,800				11,366,100				11,397,400
GAIN ON SALE OF COMPUTER RENAISSANCE			—				879,000				—				1,112,300
Income from operations			1,708,300				2,500,100				4,589,100				5,033,200
INTEREST INCOME			69,900				68,400				202,700				241,000
INTEREST EXPENSE			(13,700	)			(511,400	)			(40,600	)			(988,800	)
Income before income taxes			1,764,500				2,057,100				4,751,200				4,285,400
PROVISION FOR INCOME TAXES			(705,800	)			(806,400	)			(1,892,600	)			(1,679,900	)
NET INCOME		$	1,058,700			$	1,250,700			$	2,858,600			$	2,605,500
NET INCOME PER COMMON SHARE – BASIC		$	.19			$	.23			$	.52			$	.48
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC			5,664,647				5,392,254				5,517,103				5,390,314
NET INCOME PER COMMON SHARE – DILUTED		$	.17			$	.21			$	.47			$	.46
WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED			6,178,645				5,859,162				6,046,884				5,654,659

 

The accompanying notes are an integral part of these financial statements

4

 

 

		Nine Months Ended
		September 28, 2002				September 29, 2001
OPERATING ACTIVITIES:
Net income		$	2,858,600			$	2,605,500
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			447,400				724,100
Deferred gain on building sale			(137,400	)			(137,400	)
Deferred financing cost			34,400				505,700
Change in operating assets and liabilities:
Receivables			402,300				2,489,000
Inventories			186,800				212,400
Prepaid expenses and other			72,700				(49,100	)
Accounts payable			103,600				(434,200	)
Accrued liabilities			(56,300	)			1,015,400
Deferred franchise fee revenue			67,600				(64,900	)
Net cash provided by operating activities			3,979,700				6,866,500
INVESTING ACTIVITIES:
Purchase of investments			(5,433,700	)			—
Purchase of property and equipment			(64,300	)			(46,800	)
Net cash used for investing activities			(5,498,000	)			(46,800	)
FINANCING ACTIVITIES:
Payments on long-term debt			(199,500	)			(5,281,900	)
Proceeds from stock option/warrant exercises			1,040,300				22,900
Net cash provided by (used for) financing activities			840,800				(5,259,000	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(677,500	)			1,560,700
Cash and cash equivalents, beginning of period			1,053,000				2,005,100
Cash and cash equivalents, end of period		$	375,500			$	3,565,800
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest		$	20,500			$	513,700
Cash paid for income taxes		$	1,297,300			$	1,073,500

 

The accompanying notes are an integral part of these financial statements

5

 

 

 

The accompanying condensed financial statements have been prepared by Winmark Corporation (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information in the condensed financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K.

 

Revenues and operating results for the three month period and nine month period ended September 28, 2002 are not necessarily indicative of the results to be expected for the full year.

 

 

On July 30, 2002, the Company executed a subscription agreement with Tomsten, Inc., the parent company of the “Archiver’s” retail chain. The agreement requires the Company to invest a total of $6 million in the purchase of common stock of Tomsten, Inc. The initial $2 million was paid on July 30, 2002, with additional $2 million increments due on February 1, 2003 and August 1, 2003. The investment is accounted for by the cost method.

 

 

The Company reports comprehensive income (loss) in accordance with Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS No. 130”). SFAS No. 130 establishes standards for reporting in the financial statements all changes in equity during a period. For the company, comprehensive loss consists of unrealized holding gains and losses from investments classified as “available for sale.”

 

 

 

 

The Company calculates net income per share in accordance with SFAS No. 128 by dividing net income by the weighted average number of shares of common stock outstanding to arrive at the Net Income Per Common Share—Basic. The Company calculates Net Income Per Share—Dilutive by dividing net income by the weighted average number of shares of common stock and dilutive stock equivalents from the exercise of stock options and warrants using the treasury stock method. The weighted average diluted outstanding shares is computed by adding the weighted average basic shares outstanding with the dilutive effect of 513,998 and 466,908 stock options and warrants for the quarters ended and 529,781 and 264,345 for the nine months ended September 28, 2002 and September 29, 2001, respectively.

6

 

 

On June 29, 2001, the FASB approved for issuance, SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Intangible Assets.” Major provisions of these Statements are as follows: all business combinations initiated after June 30, 2001 must use the purchase method of accounting; the pooling of interest method of accounting is prohibited except for transactions initiated before July 1 2001; intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized but tested for impairment annually, except in certain circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting; effective January 1, 2002, goodwill is no longer subject to amortization.

 

The Company adopted SFAS No. 142 in the first quarter of its fiscal year ending December 28, 2002. The balance of goodwill, net of accumulated amortization, was $486,200 as of January 1, 2002. The Company’s annual goodwill amortization was approximately $38,100, which ceased effective January 1, 2002 upon adoption of the new rules. The adoption of the impairment provisions of SFAS No. 142, did not have an impact on the consolidated financial position or results of operations of the Company.

 

The following tables set forth pro forma net income and net income per share:

 

		Three Months Ended						Nine Months Ended
		September 28, 2002			September 29, 2001			September 28, 2002			September 29, 2001
Net income as reported		$	1,058,700		$	1,250,700		$	2,858,600		$	2,605,500
Add back: Goodwill amortization (net of tax)			—			5,800			—			17,400
Adjusted net income		$	1,058,700		$	1,256,500		$	2,858,600		$	2,622,900
Basic net income per share:
Reported net income		$	.19		$	.23		$	.52		$	.48
Goodwill amortization			—			—			—			—
Adjusted net income		$	.19		$	.23		$	.52		$	.48
Diluted net income per share:
Reported net income		$	.17		$	.21		$	.47		$	.46
Goodwill amortization			—			—			—			—
Adjusted net income		$	.17		$	.21		$	.47		$	.46

 

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes previous guidance for financial accounting and reporting for the impairment or disposal of long-lived assets and for segments of a business to be disposed of. The adoption of this pronouncement on January 1, 2002 had no effect on the Company’s results of operations or financial position.

7

 

In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value when the liability is incurred. The provisions of the standard are effective for exit or disposal activities initiated after December 31, 2002. We anticipate that the adoption of SFAS No. 146 will not have a significant effect on our results of operations.

 

 

In addition to the operating lease obligations disclosed in footnote 10 of the Company’s Form 10-K for the year ended December 29, 2001, the Company has remained a guarantor on Company-owned retail stores that have been either sold or closed. As of September 28, 2002, the Company is contingently liable on these leases for up to an additional $51,100. These leases have various expiration dates through 2006. The Company’s believes it has adequate reserves for any future liability, along with the monthly reduction of exposure as leases are paid, expire or are renewed by the current operator of the location.

 

 

 

The Company is a franchise company that franchises retail brands that buy, sell, trade and consign merchandise. Each brand operates in a different industry and provides the consumer with high value retailing by offering high-quality used merchandise at substantial savings from the price of new merchandise and by purchasing customers’ used goods that have been outgrown or are no longer used. The stores also offer new merchandise.

 

Following is a summary of the Company’s franchising and corporate retail store activity for the three months ended September 28, 2002:

 

		TOTAL 6/29/02		OPENED		CLOSED			TOTAL 9/28/02
Play It Again Sports®
Franchised Stores – US and Canada Other		468 24		2 0		(11 (1	) )		459 23
Once Upon A Child®
Franchised Stores – US and Canada Corporate		226 1		2 0		(4 0	)		224 1
Music Go Round®
Franchised Stores – US Corporate		55 6		0 0		(5 0	)		50 6
Plato’s Closet®
Franchised Stores—US Corporate		58 1		14 0		0 0			72 1
Total		839		18		(21	)		836

8

 

Following is a summary of the Company’s franchising and corporate retail store activity for the nine months ended September 28, 2002:

 

		TOTAL 12/29/01		OPENED		CLOSED			TOTAL 9/28/02
Play It Again Sports®
Franchised Stores – US and Canada Other		478 24		4 0		(23 (1	) )		459 23
Once Upon A Child®
Franchised Stores – US and Canada Corporate		229 1		6 0		(11 0	)		224 1
Music Go Round®
Franchised Stores – US Corporate		57 6		0 0		(7 0	)		50 6
Plato’s Closet®
Franchised Stores – US Corporate		45 1		27 0		0 0			72 1
Total		841		37		(42	)		836

 

 

 

		Three Months Ended						Nine Months Ended
		September 28, 2002			September 29, 2001			September 28, 2002			September 29, 2001
Revenue:
Merchandise sales		45.1	%		52.6	%		47.0	%		53.1	%
Royalties		48.3			42.8			48.3			42.9
Franchise fees		4.1			2.3			2.3			1.9
Other		2.5			2.3			2.4			2.1
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of merchandise sold		34.9			43.2			38.0			44.4
Selling, general and administrative expenses		44.2			39.0			44.2			41.4
Gain on sale of Computer Renaissance®		0.0			9.6			0.0			4.1
Income from operations		20.9			27.4			17.8			18.3
Interest and other income, net		0.6			(4.9	)		0.6			(2.7	)
Income before income taxes		21.5			22.5			18.4			15.6
Provision for income taxes		(8.6	)		(8.8	)		(7.3	)		(6.1	)
Net income		12.9	%		13.7	%		11.1	%		9.5	%

9

 

 

 

Revenues for the quarter ended September 28, 2002 totaled $8.2 million compared to $9.1 million for the comparable period in 2001.

 

 

		2002			2001
Buying Group		$	2,222,500		$	3,298,700
Retail Sales			1,466,700			1,507,000
Merchandise Sales		$	3,689,200		$	4,805,700

 

 

 

Franchise fees increased to $337,500 for the third quarter of 2002 compared to $210,500 for the third quarter of 2001. Eighteen franchised stores were opened in the third quarter of 2002 compared to 20 franchised stores opened during the third quarter last year. Two stores were opened in the third quarter of 2002 that were not required to pay a franchise fee compared to nine stores in the third quarter of 2001.

 

Other revenue decreased $4,100, or 1.9%, for the third quarter of 2002 compared to the third quarter of 2001.

 

 

 

		2002			2001
Buying Group		95.6	%		96.1	%
Retail Stores		50.1			51.7

 

The 1.6 percentage point decrease in retail cost of goods sold is primarily due to better inventory management and the Company’s efforts to improve its used inventory purchasing methods at the Company-owned retail stores.

10

 

 

Selling, general and administrative expenses increased $52,900, or 1.5% in the quarter ended September 28, 2002 compared to the third quarter of 2001.

 

 

On August 1, 2001, the Company entered into a Settlement Agreement and Mutual Release with Hollis Technologies, LLC and CompRen, Inc. (“Hollis”) to settle claims Hollis asserted against $1.0 million of escrowed funds. Hollis deposited the $1.0 million in an escrow account pursuant to the sale of the Company’s Computer Renaissance franchise and retail operations to Hollis on August 30, 2000. Pursuant to the Settlement Agreement and Mutual Release, the parties terminated the escrow agreement, released each other of certain claims, and Hollis and the Company received approximately $400,000 and $600,000 of the escrowed funds, respectively. In addition, all accrued interest on the escrowed funds was distributed to the Company. The Company dismissed its lawsuit against Hollis seeking the escrowed funds. On September 25, 2001, the Company received $200,000 for full settlement on the consulting agreement with Hollis.

 

 

During the third quarter of 2002, the Company had net interest income of $56,200 compared to $443,000 of net expense in the third quarter of 2001. This decrease is primarily the result of reduced outstanding debt in the third quarter of 2002 compared to the same period last year.

 

 

The provision for income taxes was calculated at an effective rate of 40.0% and 39.2% for the third quarter of 2002 and 2001, respectively.

 

 

 

Revenues for the nine months ended September 28, 2002 were $25.7 million compared to $27.5 million for the comparable period in 2001.

 

 

		2002			2001
Buying Group		$	8,027,500		$	10,313,200
Retail Sales			4,079,300			4,312,700
Merchandise Sales		$	12,106,800		$	14,625,900

11

 

 

 

Franchise fees increased to $595,000 for the nine months of 2002 compared to $518,000 for the first nine months of 2001. Thirty-seven franchised stores were opened in the first nine months of 2002 compared to 38 franchised stores opened during the first nine months of 2001. Eight stores were opened in the first nine months of 2002 that were not required to pay a franchise fee compared to 16 stores in the first nine months of 2001.

 

Other revenue increased $24,100, or 4.1%, for the first nine months of 2002 compared to the first nine months of 2001.

 

 

 

		2002			2001
Buying Group		95.9	%		95.9	%
Retail Stores		51.0			53.7

 

The 2.7 percentage point decrease in retail cost of goods sold is primarily due to better inventory management and the Company’s efforts to improve its used inventory purchasing methods at the Company-owned retail stores.

 

 

Selling, general and administrative expenses decreased $31,300, or 0.3% in the nine months ended September 28, 2002 compared to the same period last year.

 

 

On August 1, 2001, the Company entered into a Settlement Agreement and Mutual Release with Hollis Technologies, LLC and CompRen, Inc. (“Hollis”) to settle claims Hollis asserted against $1.0 million of escrowed funds. Hollis deposited the $1.0 million in an escrow account pursuant to the sale of the Company’s Computer Renaissance franchise and retail operations to Hollis on August 30, 2000.

12

 

Pursuant to the Settlement Agreement and Mutual Release, the parties terminated the escrow agreement, released each other of certain claims, and Hollis and the Company received approximately $400,000 and $600,000 of the escrowed funds, respectively. In addition, all accrued interest on the escrowed funds was distributed to the Company. The Company dismissed its lawsuit against Hollis seeking the escrowed funds. On September 25, 2001, the Company received $200,000 for full settlement on the consulting agreement with Hollis.

 

 

 

 

The provision for income taxes was calculated at an effective rate of 39.8% and 39.2% for the first nine months of 2002 and 2001, respectively.

 

 

The Company’s primary sources of liquidity have historically been cash flow from operations and bank borrowings. The Company ended the third quarter of 2002 with $6.6 million in cash and short-term investments and a current ratio of 2.38 to 1.0 compared to $3.6 million in cash and a current ratio of 1.69 to 1.0 at the end of the third quarter of 2001.

 

Ongoing operating activities provided cash of $4.0 million for the first nine months of 2002 compared to $6.9 million for the same period last year. The higher level of cash provided in 2001 compared to 2002 was primarily due to increased efforts of collecting accounts receivable in 2001 partially offset by an increase in net income of $253,100 in the first nine months of 2002. For the first nine months of 2002, components of the cash provided by operating assets and liabilities include a $402,300 decrease in accounts receivable as a result of improved collection performance and a reduction in buying group activity. Deferred franchise fee revenue provided cash of $67,600 due to increased deposits on future store openings. Inventory provided cash of $186,800 due to reduced inventory levels at the Company-owned stores. Accounts payable provided cash of $103,600 due to reduction in buying group activity. Components of cash utilized by operating assets and liabilities include a $56,300 decrease in accrued liabilities.

 

Investing activities used $5.5 million of cash during the first nine months of 2002 primarily related to the purchase of investments.

 

Financing activities provided $840,800 of cash during the first nine months of 2002 principally from cash received on the exercise of options and warrants offset by payments on long-term debt. The payments on long-term debt includes $82,800 to Tool Traders, Inc. as part of a full and final settlement and $116,700 on other notes.

13

 

On July 31, 2000, the Company entered into a credit agreement with Rush River Group, LLC, an affiliate of the Company, to provide a credit facility of up to $7.5 million dollars (“Rush River Facility”). The credit agreement allows such amount to be drawn upon by the Company in one or more term loans. The initial term loan was $5.0 million dollars to be repaid by the Company over a seven-year period. Each term loan was accruing interest at 14% per year. New term loans will accrue interest at 8% per year. Once repaid, amounts may not be reborrowed. As of September 28, 2002, there was no outstanding balance on the Rush River Facility. The Rush River Facility is secured by a lien against substantially all of the Company’s assets. Rush River Group, LLC has agreed to subordinate its lien to any lien of a financial institution relating to financing not to exceed $2.5 million dollars. As of September 28, 2002, the Company had remaining borrowing availability of $2.5 million under the Rush River Facility.

 

Among other requirements, the Rush River Facility currently requires that the Company maintain shareholder equity of at least $1,922,000. In addition, if there is a change of control as defined in the credit agreement governing the Rush River Facility, such change of control is an event of default, and Rush River Group, LLC may declare all amounts outstanding under such term notes immediately due and payable. The Rush River Facility also contains an agreement allowing the Company to prepay any and all amounts outstanding under the Rush River Facility without premium or penalty. In connection with the Rush River Facility, the Company has issued to Rush River Group, LLC a warrant to purchase 200,000 shares of the Company’s common stock at an exercise price of $2.00 per share. The warrant was exercised on May 21, 2002.

 

On July 30, 2002 the Company executed a subscription agreement with Tomsten, Inc., the parent company of the “Archiver’s” retail chain. The agreement requires the Company to invest a total of $6 million in the purchase of common stock of Tomsten, Inc. The initial $2 million was paid on July 30, 2002, with additional $2 million increments due on February 1, 2003 and August 1, 2003.

 

The Company believes that the Rush River Facility, along with cash generated from future operations and cash and investments on hand, will be adequate to meet the Company’s current obligations, including the investment in “Archiver’s”, and operating needs.

 

 

On June 29, 2001, the FASB approved for issuance, SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Intangible Assets.” Major provisions of these Statements are as follows: all business combinations initiated after June 30, 2001 must use the purchase method of accounting; the pooling of interest method of accounting is prohibited except for transactions initiated before July 1 2001; intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized but tested for impairment annually, except in certain circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting; effective January 1, 2002, goodwill is no longer subject to amortization.

 

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes previous guidance for financial accounting and reporting for the impairment or disposal of long-lived assets and for segments of a business to be disposed of. The adoption of this pronouncement on January 1, 2002 had no effect on the Company’s results of operations or financial position.

14

 

In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value when the liability is incurred. The provisions of the standard are effective for exit or disposal activities initiated after December 31, 2002. We anticipate that the adoption of SFAS No. 146 will not have a significant effect on our results of operations.

 

 

The statements contained in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not strictly historical fact, including without limitation, our statement that the Rush River Facility, along with cash generated from future operations and cash and investments on hand will be adequate to meet our current obligations and operating needs are forward looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act. Such statements are based on management’s current expectations as of the date of this Report, but involve risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by such forward looking statements.

 

 

The Company incurs financial markets risk in the form of interest rate risk. Management deals with such risk by negotiating fixed rate loan agreements. Accordingly, the Company is not exposed to cash flow risks related to interest rate changes. A one percent change in interest rates would not have a significant impact on the Company’s fixed rate debt.

 

Approximately $3.2 million of our short-term investments at September 28, 2002 was invested in fixed income securities and $2.7 million in money market mutual funds, which are subject to the effects of market fluctuations in interest rates. A one percent change in interest rates would not have a significant impact on the fair value of these investments.

 

 

Evaluation of Disclosure Controls and Procedures – Based on their evaluation, as of a date within 90 days prior to the date of the filing of this Form 10-Q, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), the principal executive officer and the principal financial officer of the Company have each concluded that such disclosure controls and procedures are effective and sufficient to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

 

Changes in Internal Controls – Subsequent to the date of their evaluation, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses.

15

 

 

 

Not applicable.

 

 

 

 

 

On August 2, 2002, the Company filed an 8-K related to the investment in the “Archiver’s” retail chain.

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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.

 

		WINMARK CORPORATION
Date:  November 1, 2002		By:		/s/    JOHN L. MORGAN John L. Morgan Chairman of the Board and Chief Executive Officer
Date:  November 1, 2002		By:		/s/    PAUL F. KELLY Paul F. Kelly Vice President of Financial Services and principal financial and accounting officer

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I, John L. Morgan, Chief Executive Officer, certify that:

 

 

 

 

 

 

 

 

 

 

 

 

Dated: November 1, 2002		Signature:		/s/    JOHN L. MORGAN Chief Executive Officer

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I, Paul F. Kelly, Vice President of Financial Services and principal financial and accounting officer, certify that:

 

 

 

 

 

 

 

 

 

 

 

 

Dated: November 1, 2002		Signature:		/s/    PAUL F. KELLY Vice President of Financial Services (principal financial and accounting officer)

 

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EXHIBIT INDEX

WINMARK CORPORATION

FORM 10-Q FOR QUARTER ENDED SEPTEMBER 28, 2002

 

Exhibit No.		Description
99.1		Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act Of 2002
99.2		Certification of Vice President of Financial Services and principal financial and accounting officer under Section 906 of the Sarbanes-Oxley Act Of 2002

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