Winmark (WINA) 10-Q 18 Oct 16 2016 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 24, 2016	Oct. 07, 2016
Document and Entity Information
Entity Registrant Name	WINMARK CORP
Entity Central Index Key	908,315
Document Type	10-Q
Document Period End Date	Sep. 24, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		4,122,037
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q3

CONSOLIDATED CONDENSED BALANCE

CONSOLIDATED CONDENSED BALANCE SHEETS - USD ($)	Sep. 24, 2016	Dec. 26, 2015
Current Assets:
Cash and cash equivalents	$ 1,120,900	$ 1,006,700
Marketable securities	204,100	227,800
Receivables, less allowance for doubtful accounts of $2,300 and $200	1,555,300	1,416,900
Restricted cash	40,000	25,000
Net investment in leases - current	16,264,100	17,741,500
Income tax receivable	769,200	3,290,400
Inventories	95,600	45,200
Prepaid expenses	921,000	677,800
Total current assets	20,970,200	24,431,300
Net investment in leases - long-term	21,070,300	21,246,000
Property and equipment, net	847,700	1,121,500
Goodwill	607,500	607,500
Total assets	43,495,700	47,406,300
Current Liabilities:
Notes payable, net of unamortized debt issuance costs of $10,000 and $10,000	1,990,000	1,990,000
Accounts payable	1,118,900	1,643,300
Accrued liabilities	2,644,500	1,875,700
Discounted lease rentals		38,700
Deferred revenue	1,671,700	1,963,200
Total current liabilities	7,425,100	7,510,900
Long-Term Liabilities:
Line of credit	25,200,000	42,400,000
Notes payable, net of unamortized debt issuance costs of $76,000 and $83,500	20,424,000	21,916,500
Deferred revenue	1,451,200	1,421,600
Other liabilities	1,036,100	1,216,300
Deferred income taxes	3,676,900	3,614,800
Total long-term liabilities	51,788,200	70,569,200
Shareholders' Equity (Deficit):
Common stock, no par value, 10,000,000 shares authorized, 4,122,037 and 4,124,767 shares issued and outstanding	859,200	406,500
Accumulated other comprehensive loss	(7,300)	(32,900)
Retained earnings (accumulated deficit)	(16,569,500)	(31,047,400)
Total shareholders' equity (deficit)	(15,717,600)	(30,673,800)
Total liabilities and shareholders' equity (deficit)	$ 43,495,700	$ 47,406,300

CONSOLIDATED CONDENSED BALANCE3

CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) - USD ($)	Sep. 24, 2016	Dec. 26, 2015
CONSOLIDATED CONDENSED BALANCE SHEETS
Receivables, allowance for doubtful accounts (in dollars)	$ 2,300	$ 200
Unamortized debt issuance costs - Current	10,000	10,000
Unamortized debt issuance costs - Noncurrent	$ 76,000	$ 83,500
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	4,122,037	4,124,767
Common stock, shares outstanding	4,122,037	4,124,767

CONSOLIDATED CONDENSED STATEMEN

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Sep. 24, 2016	Sep. 26, 2015	Sep. 24, 2016	Sep. 26, 2015
REVENUE:
Royalties	$ 11,311,000	$ 11,286,100	$ 32,140,800	$ 31,226,700
Leasing income	4,174,000	3,247,000	12,839,000	16,919,900
Merchandise sales	520,000	762,300	1,882,400	2,182,300
Franchise fees	501,800	483,200	1,367,800	1,253,500
Other	227,500	220,900	984,400	917,900
Total revenue	16,734,300	15,999,500	49,214,400	52,500,300
COST OF MERCHANDISE SOLD	499,100	711,600	1,784,800	2,055,600
LEASING EXPENSE	646,200	173,400	2,010,400	4,941,300
PROVISION FOR CREDIT LOSSES	(29,700)	38,800	(52,000)	(123,400)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	5,180,700	5,733,900	17,671,500	18,226,700
Income from operations	10,438,000	9,341,800	27,799,700	27,400,100
INTEREST EXPENSE	(552,300)	(687,700)	(1,786,800)	(1,142,900)
INTEREST AND OTHER INCOME (EXPENSE)	(6,300)	(12,400)	(7,300)	(61,800)
Income before income taxes	9,879,400	8,641,700	26,005,600	26,195,400
PROVISION FOR INCOME TAXES	(3,785,200)	(3,302,100)	(9,954,200)	(10,050,100)
NET INCOME	$ 6,094,200	$ 5,339,600	$ 16,051,400	$ 16,145,300
EARNINGS PER SHARE - BASIC (in dollars per share)	$ 1.48	$ 1.29	$ 3.90	$ 3.53
EARNINGS PER SHARE - DILUTED (in dollars per share)	$ 1.41	$ 1.23	$ 3.72	$ 3.39
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC (in shares)	4,116,957	4,128,031	4,113,819	4,568,813
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED (in shares)	4,328,168	4,338,230	4,320,284	4,758,158

CONSOLIDATED CONDENSED STATEME5

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)	3 Months Ended		9 Months Ended
	Sep. 24, 2016	Sep. 26, 2015	Sep. 24, 2016	Sep. 26, 2015
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME	$ 6,094,200	$ 5,339,600	$ 16,051,400	$ 16,145,300
Unrealized net gains (losses) on marketable securities:
Unrealized holding net gains (losses) arising during period	6,800	(30,700)	41,100	8,000
Reclassification adjustment for net gains included in net income				(2,300)
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX	6,800	(30,700)	41,100	5,700
Unrealized net gains/losses on marketable securities:
Unrealized holding net gains/losses arising during period	(2,600)	11,600	(15,500)	(3,200)
Reclassification adjustment for net gains included in net income				900
INCOME TAX (EXPENSE) BENEFIT RELATED TO ITEMS OF OTHER COMPREHENSIVE INCOME	(2,600)	11,600	(15,500)	(2,300)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX	4,200	(19,100)	25,600	3,400
COMPREHENSIVE INCOME	$ 6,098,400	$ 5,320,500	$ 16,077,000	$ 16,148,700

CONSOLIDATED CONDENSED STATEME6

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 24, 2016	Sep. 26, 2015
OPERATING ACTIVITIES:
Net Income	$ 16,051,400	$ 16,145,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	320,600	322,800
Provision for credit losses	(52,000)	(123,400)
Compensation expense related to stock options	1,324,400	1,255,100
Deferred income taxes	62,100	(3,329,900)
Loss on sale of marketable securities	12,600	22,800
Deferred initial direct costs	(421,300)	(332,900)
Amortization of deferred initial direct costs	356,200	491,700
Tax benefits on exercised stock options	(69,700)	(16,600)
Change in operating assets and liabilities:
Receivables	(138,400)	14,000
Restricted cash	(15,000)
Income tax receivable	2,575,400	3,323,200
Inventories	(50,400)	33,900
Prepaid expenses	(243,200)	(290,100)
Other assets		70,000
Accounts payable	(524,400)	(747,100)
Accrued and other liabilities	617,600	1,133,300
Rents received in advance and security deposits	392,300	6,600
Deferred revenue	(261,900)	184,900
Net cash provided by operating activities	19,936,300	18,163,600
INVESTING ACTIVITIES:
Proceeds from sale of marketable securities	52,200	299,000
Purchase of marketable securities		(75,800)
Purchase of property and equipment	(46,800)	(121,300)
Purchase of equipment for lease contracts	(16,432,200)	(18,516,900)
Principal collections on lease receivables	17,749,900	22,047,500
Net cash provided by investing activities	1,323,100	3,632,500
FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit	10,600,000	56,500,000
Payments on line of credit	(27,800,000)	(28,800,000)
Proceeds from borrowings on notes payable		25,000,000
Payments on notes payable	(1,500,000)	(500,000)
Repurchases of common stock	(1,573,900)	(74,261,500)
Proceeds from exercises of stock options	170,900	159,000
Dividends paid	(1,111,900)	(939,200)
Tax benefits on exercised stock options	69,700	16,600
Net cash used for financing activities	(21,145,200)	(22,825,100)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	114,200	(1,029,000)
Cash and cash equivalents, beginning of period	1,006,700	2,089,700
Cash and cash equivalents, end of period	1,120,900	1,060,700
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	1,778,400	830,400
Cash paid for income taxes	$ 7,316,700	$ 10,056,800

Management's Interim Financial

Management's Interim Financial Statement Representation:	9 Months Ended
	Sep. 24, 2016
Management's Interim Financial Statement Representation:
Management's Interim Financial Statement Representation:	1. Management’s Interim Financial Statement Representation: The accompanying consolidated condensed financial statements have been prepared by Winmark Corporation and subsidiaries (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has a 52/53 week year which ends on the last Saturday in December. The information in the consolidated 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. The consolidated condensed financial statements and notes are presented in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q, and therefore do not contain certain information included in the Company’s annual consolidated financial statements and notes. This report should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. Revenues and operating results for the nine months ended September 24, 2016 are not necessarily indicative of the results to be expected for the full year. Reclassifications Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders’ equity (deficit) as previously reported.

Organization and Business_

Organization and Business:	9 Months Ended
	Sep. 24, 2016
Organization and Business:
Organization and Business:	2. Organization and Business: The Company offers licenses to operate franchises using the service marks Plato’s Closet®, Once Upon A Child®, Play It Again Sports®, Style Encore® and Music Go Round®. The Company also operates both middle market and small-ticket equipment leasing businesses under the Winmark Capital® and Wirth Business Credit® marks.

Fair Value Measurements_

Fair Value Measurements:	9 Months Ended
	Sep. 24, 2016
Fair Value Measurements:
Fair Value Measurements:	3. Fair Value Measurements: The Company defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses three levels of inputs to measure fair value: · Level 1 – quoted prices in active markets for identical assets and liabilities. · Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities. · Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions. The Company’s marketable securities were valued based on Level 1 inputs using quoted prices. Due to their nature, the carrying value of cash equivalents, receivables, payables and debt obligations approximates fair value.

Investments_

Investments:	9 Months Ended
	Sep. 24, 2016
Investments:
Investments:	4. Investments: Marketable Securities The following is a summary of marketable securities classified as available-for-sale securities: September 24, 2016 December 26, 2015 Cost Fair Value Cost Fair Value Equity securities $ $ $ $ The Company’s unrealized gains and losses for marketable securities classified as available-for-sale securities in accumulated other comprehensive loss are as follows: September 24, 2016 December 26, 2015 Unrealized gains $ — $ — Unrealized losses Net unrealized losses $ $ The Company’s realized gains and losses recognized on sales of available-for-sale marketable securities are as follows: Three Months Ended Nine Months Ended September 24, 2016 September 26, 2015 September 24, 2016 September 26, 2015 Realized gains $ — $ — $ — $ Realized losses — — Net realized losses $ — $ — $ $ Amounts reclassified out of accumulated other comprehensive loss into earnings is determined by using the average cost of the security when sold. Gross realized gains (losses) reclassified out of accumulated other comprehensive loss into earnings are included in Interest and Other Income (Expense) and the related tax benefits (expenses) are included in the Provision for Income Taxes lines of the Consolidated Condensed Statements of Operations.

Investment in Leasing Operation

Investment in Leasing Operations:	9 Months Ended
	Sep. 24, 2016
Investment in Leasing Operations:
Investment in Leasing Operations:	5. Investment in Leasing Operations: Investment in leasing operations consists of the following: September 24, 2016 December 26, 2015 Direct financing and sales-type leases: Minimum lease payments receivable $ $ Estimated residual value of equipment Unearned lease income net of initial direct costs deferred Security deposits Equipment installed on leases not yet commenced Total investment in direct financing and sales-type leases Allowance for credit losses Net investment in direct financing and sales-type leases Operating leases: Operating lease assets Less accumulated depreciation and amortization Net investment in operating leases Total net investment in leasing operations $ $ As of September 24, 2016, the $37.3 million total net investment in leases consists of $16.2 million classified as current and $21.1 million classified as long-term. As of December 26, 2015, the $39.0 million total net investment in leases consists of $17.7 million classified as current and $21.3 million classified as long-term. As of September 24, 2016, leased assets with two customers approximated 18% and 15%, respectively, of the Company’s total assets. Future minimum lease payments receivable under lease contracts and the amortization of unearned lease income, net of initial direct costs deferred, is as follows for the remainder of fiscal 2016 and the full fiscal years thereafter as of September 24, 2016: Direct Financing and Sales-Type Leases Operating Leases Minimum Lease Income Minimum Lease Fiscal Year Payments Receivable Amortization Payments Receivable 2016 $ $ $ 2017 2018 — 2019 — 2020 — Thereafter — $ $ $ The activity in the allowance for credit losses for leasing operations during the first nine months of 2016 and 2015, respectively, is as follows: September 24, 2016 September 26, 2015 Balance at beginning of period $ $ Provisions charged to expense Recoveries Deductions for amounts written-off Balance at end of period $ $ The Company’s investment in direct financing and sales-type leases (“Investment In Leases”) and allowance for credit losses by loss evaluation methodology are as follows: September 24, 2016 December 26, 2015 Investment Allowance for Investment Allowance for In Leases Credit Losses In Leases Credit Losses Collectively evaluated for loss potential $ $ $ $ Individually evaluated for loss potential — — — — Total $ $ $ $ The Company’s key credit quality indicator for its investment in direct financing and sales-type leases is the status of the lease, defined as accruing or non-accrual. Leases that are accruing income are considered to have a lower risk of loss. Non-accrual leases are those that the Company believes have a higher risk of loss. The following table sets forth information regarding the Company’s accruing and non-accrual leases. Delinquent balances are determined based on the contractual terms of the lease. September 24, 2016 0-60 Days 61-90 Days Over 90 Days Delinquent Delinquent Delinquent and and Accruing and Accruing Accruing Non-Accrual Total Middle-Market $ $ — $ — $ — $ Small-Ticket — — — Total Investment in Leases $ $ — $ — $ — $ December 26, 2015 0-60 Days 61-90 Days Over 90 Days Delinquent Delinquent Delinquent and and Accruing and Accruing Accruing Non-Accrual Total Middle-Market $ $ — $ — $ — $ Small-Ticket — — Total Investment in Leases $ $ $ — $ — $

Recent Accounting Pronouncement

Recent Accounting Pronouncements:	9 Months Ended
	Sep. 24, 2016
Recent Accounting Pronouncements:
Recent Accounting Pronouncements:	6. Recent Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers , which provides guidance for revenue recognition that supersedes existing revenue recognition guidance (but does not apply to nor supersede accounting guidance for lease contracts). The ASU’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for reporting periods beginning after December 15, 2016, and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. In July 2015, the FASB affirmed its proposal to defer the effective date by one year. The new standard will become effective for the Company beginning with the first quarter of fiscal 2018. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, Financial Statements – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. There will no longer be an available-for-sale classification for equity securities with readily determinable fair values. The new guidance is effective for periods beginning after December 15, 2017, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which provides guidance on accounting for leases that supersedes existing lease accounting guidance. The ASU’s core principle is that a lessee should recognize lease assets and lease liabilities for those leases classified as operating leases under existing lease accounting guidance. The new standard also makes targeted changes to lessor accounting. This guidance is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The provisions of this guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the guidance for all periods presented. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits should be classified. This guidance will be effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments , which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance will be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements.

Earnings Per Share_

Earnings Per Share:	9 Months Ended
	Sep. 24, 2016
Earnings Per Share:
Earnings Per Share:	7. Earnings Per Share: The following table sets forth the presentation of shares outstanding used in the calculation of basic and diluted earnings per share (“EPS”): Three Months Ended Nine Months Ended September 24, 2016 September 26, 2015 September 24, 2016 September 26, 2015 Denominator for basic EPS — weighted average common shares Dilutive shares associated with option plans Denominator for diluted EPS — weighted average common shares and dilutive potential common shares Options excluded from EPS calculation — anti-dilutive

Shareholders' Equity (Deficit)_

Shareholders' Equity (Deficit):	9 Months Ended
	Sep. 24, 2016
Shareholders' Equity (Deficit):
Shareholders' Equity (Deficit):	8. Shareholders’ Equity (Deficit): Dividends On January 27, 2016, the Company’s Board of Directors approved the payment of a $0.07 per share quarterly cash dividend to shareholders of record at the close of business on February 10, 2016, which was paid on March 1, 2016. On April 27, 2016, the Company’s Board of Directors approved the payment of a $0.10 per share quarterly cash dividend to shareholders of record at the close of business on May 11, 2016, which was paid on June 1, 2016. On July 27, 2016, the Company’s Board of Directors approved the payment of a $0.10 per share quarterly cash dividend to shareholders of record at the close of business on August 10, 2016, which was paid on September 1, 2016. Repurchase of Common Stock In the first nine months of 2016 the Company repurchased 17,194 shares of its common stock. Under the Board of Directors’ authorization, as of September 24, 2016, the Company has the ability to repurchase additional 142,988 shares of its common stock. Repurchases may be made from time to time at prevailing prices, subject to certain restrictions on volume, pricing and timing. Stock Option Plans and Stock-Based Compensation The Company had authorized up to 750,000 shares of common stock be reserved for granting either nonqualified or incentive stock options to officers and key employees under the Company’s 2001 Stock Option Plan (the “2001 Plan”). The 2001 Plan expired on February 20, 2011. The Company has authorized up to 500,000 shares of common stock to be reserved for granting either nonqualified or incentive stock options to officers and key employees under the Company’s 2010 Stock Option Plan (the “2010 Plan”). The Company also sponsors a Stock Option Plan for Nonemployee Directors (the “Nonemployee Directors Plan”) and has reserved a total of 350,000 shares for issuance to directors of the Company who are not employees. Stock option activity under the 2001 Plan, 2010 Plan and Nonemployee Directors Plan (collectively, the “Option Plans”) as of September 24, 2016 was as follows: Weighted Average Remaining Number of Weighted Average Contractual Life Shares Exercise Price (years) Intrinsic Value Outstanding, December 26, 2015 $ Granted Exercised Forfeited Outstanding, September 24, 2016 $ $ Exercisable, September 24, 2016 $ $ The fair value of options granted under the Option Plans during the first nine months of 2016 and 2015 were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions and results: Nine Months Ended September 24, 2016 September 26, 2015 Risk free interest rate % % Expected life (years) Expected volatility % % Dividend yield % % Option fair value $ $ During the nine months ended September 24, 2016, options holders surrendered 2,973 shares of previously owned common shares as payment for option shares exercised as provided for by the Option Plans. All unexercised options at September 24, 2016 have an exercise price equal to the fair market value on the date of the grant. Compensation expense of $1,324,400 and $1,255,100 relating to the vested portion of the fair value of stock options granted was expensed to “Selling, General and Administrative Expenses” in the first nine months of 2016 and 2015, respectively. As of September 24, 2016, the Company had $3.5 million of total unrecognized compensation expense related to stock options that is expected to be recognized over the remaining weighted average vesting period of approximately 2.3 years.

Debt_

Debt:	9 Months Ended
	Sep. 24, 2016
Debt:
Debt:	9. Debt: Line of Credit As of September 24, 2016, there were $25.2 million in borrowings outstanding under the Company’s Line of Credit with the PrivateBank and Trust Company and BMO Harris Bank N.A., bearing interest ranging from 2.78% to 3.50%, leaving $29.8 million available for additional borrowings. The Line of Credit has been and will continue to be used for general corporate purposes. The Line of Credit is secured by a lien against substantially all of the Company’s assets, contains customary financial conditions and covenants, and requires maintenance of minimum levels of debt service coverage and tangible net worth and maximum levels of leverage (all as defined within the Line of Credit). As of September 24, 2016, the Company was in compliance with all of its financial covenants. Notes Payable As of September 24, 2016, the Company had $22.5 million in principal outstanding from the $25.0 million Note Agreement (the “Note Agreement”) entered into in May 2015 with Prudential Investment Management, Inc., its affiliates and managed accounts (“Prudential”). The final maturity of the notes is 10 years. Interest at a rate of 5.50% per annum on the outstanding principal balance is payable quarterly, along with required prepayments of the principal of $500,000 quarterly for the first five years, and $750,000 quarterly thereafter until the principal is paid in full. The notes may be prepaid, at the option of the Company, in whole or in part (in a minimum amount of $1.0 million), but prepayments require payment of a Yield Maintenance Amount, as defined in the Note Agreement. The Company’s obligations under the Note Agreement are secured by a lien against substantially all of the Company’s assets (as the notes rank pari passu with the Line of Credit), and the Note Agreement contains customary financial conditions and covenants, and requires maintenance of minimum levels of fixed charge coverage and tangible net worth and maximum levels of leverage (all as defined within the Note Agreement). As of September 24, 2016, the Company was in compliance with all of its financial covenants. In connection with the Note Agreement, the Company incurred debt issuance costs, of which unamortized amounts are presented as a direct deduction from the carrying amount of the related liability.

Segment Reporting_

Segment Reporting:	9 Months Ended
	Sep. 24, 2016
Segment Reporting:
Segment Reporting:	10. Segment Reporting: The Company currently has two reportable business segments, franchising and leasing. The franchising segment franchises value-oriented retail store concepts that buy, sell, trade and consign merchandise. The leasing segment includes (i) Winmark Capital Corporation, a middle-market equipment leasing business and (ii) Wirth Business Credit, Inc., a small ticket financing business. Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses. The Company’s internal management reporting is the basis for the information disclosed for its business segments and includes allocation of shared-service costs. Segment assets are those that are directly used in or identified with segment operations, including cash, accounts receivable, prepaid expenses, inventory, property and equipment and investment in leasing operations. Unallocated assets include corporate cash and cash equivalents, marketable securities, current and deferred tax amounts and other corporate assets. Inter-segment balances and transactions have been eliminated. The following tables summarize financial information by segment and provide a reconciliation of segment contribution to operating income: Three Months Ended Nine Months Ended September 24, 2016 September 26, 2015 September 24, 2016 September 26, 2015 Revenue: Franchising $ $ $ $ Leasing Total revenue $ $ $ $ Reconciliation to operating income: Franchising segment contribution $ $ $ $ Leasing segment contribution Total operating income $ $ $ $ Depreciation: Franchising $ $ $ $ Leasing Total depreciation $ $ $ $ As of September 24, 2016 December 26, 2015 Identifiable assets: Franchising $ $ Leasing Unallocated Total $ $

Investments_ (Tables)

Investments: (Tables)	9 Months Ended
	Sep. 24, 2016
Investments:
Summary of marketable securities classified as available-for-sale securities	September 24, 2016 December 26, 2015 Cost Fair Value Cost Fair Value Equity securities $ $ $ $
Schedule of the Company's unrealized gains and losses for marketable securities classified as available-for-sale securities in accumulated other comprehensive loss	September 24, 2016 December 26, 2015 Unrealized gains $ — $ — Unrealized losses Net unrealized losses $ $
Schedule of the Company's realized gains and losses recognized on sales of available-for-sale marketable securities	Three Months Ended Nine Months Ended September 24, 2016 September 26, 2015 September 24, 2016 September 26, 2015 Realized gains $ — $ — $ — $ Realized losses — — Net realized losses $ — $ — $ $

Investment in Leasing Operati18

Investment in Leasing Operations: (Tables)	9 Months Ended
	Sep. 24, 2016
Investment in Leasing Operations:
Schedule of investment in leasing operations	September 24, 2016 December 26, 2015 Direct financing and sales-type leases: Minimum lease payments receivable $ $ Estimated residual value of equipment Unearned lease income net of initial direct costs deferred Security deposits Equipment installed on leases not yet commenced Total investment in direct financing and sales-type leases Allowance for credit losses Net investment in direct financing and sales-type leases Operating leases: Operating lease assets Less accumulated depreciation and amortization Net investment in operating leases Total net investment in leasing operations $ $
Schedule of future minimum lease payments receivable under lease contracts and the amortization of unearned lease income, net of initial direct costs deferred	Direct Financing and Sales-Type Leases Operating Leases Minimum Lease Income Minimum Lease Fiscal Year Payments Receivable Amortization Payments Receivable 2016 $ $ $ 2017 2018 — 2019 — 2020 — Thereafter — $ $ $
Schedule of activity in the allowance for credit losses for leasing operations	September 24, 2016 September 26, 2015 Balance at beginning of period $ $ Provisions charged to expense Recoveries Deductions for amounts written-off Balance at end of period $ $
Schedule of investment in direct financing and sales-type leases (investment in leases) and allowance for credit losses by loss evaluation methodology	September 24, 2016 December 26, 2015 Investment Allowance for Investment Allowance for In Leases Credit Losses In Leases Credit Losses Collectively evaluated for loss potential $ $ $ $ Individually evaluated for loss potential — — — — Total $ $ $ $
Schedule of information regarding accruing and non-accrual leases	September 24, 2016 0-60 Days 61-90 Days Over 90 Days Delinquent Delinquent Delinquent and and Accruing and Accruing Accruing Non-Accrual Total Middle-Market $ $ — $ — $ — $ Small-Ticket — — — Total Investment in Leases $ $ — $ — $ — $ December 26, 2015 0-60 Days 61-90 Days Over 90 Days Delinquent Delinquent Delinquent and and Accruing and Accruing Accruing Non-Accrual Total Middle-Market $ $ — $ — $ — $ Small-Ticket — — Total Investment in Leases $ $ $ — $ — $

Earnings Per Share_ (Tables)

Earnings Per Share: (Tables)	9 Months Ended
	Sep. 24, 2016
Earnings Per Share:
Schedule of shares outstanding used in the calculation of basic and diluted earnings per share	Three Months Ended Nine Months Ended September 24, 2016 September 26, 2015 September 24, 2016 September 26, 2015 Denominator for basic EPS — weighted average common shares Dilutive shares associated with option plans Denominator for diluted EPS — weighted average common shares and dilutive potential common shares Options excluded from EPS calculation — anti-dilutive

Shareholders' Equity (Deficit20

Shareholders' Equity (Deficit): (Tables)	9 Months Ended
	Sep. 24, 2016
Shareholders' Equity (Deficit):
Schedule of stock option activity
Schedule of weighted average assumptions used in estimation of fair value of options granted	Nine Months Ended September 24, 2016 September 26, 2015 Risk free interest rate % % Expected life (years) Expected volatility % % Dividend yield % % Option fair value $ $
Schedule of options outstanding and options exercisable	Weighted Average Remaining Number of Weighted Average Contractual Life Shares Exercise Price (years) Intrinsic Value Outstanding, December 26, 2015 $ Granted Exercised Forfeited Outstanding, September 24, 2016 $ $ Exercisable, September 24, 2016 $ $

Segment Reporting_ (Tables)

Segment Reporting: (Tables)	9 Months Ended
	Sep. 24, 2016
Segment Reporting:
Schedule of financial information by segment and reconciliation of segment contribution to operating income	Three Months Ended Nine Months Ended September 24, 2016 September 26, 2015 September 24, 2016 September 26, 2015 Revenue: Franchising $ $ $ $ Leasing Total revenue $ $ $ $ Reconciliation to operating income: Franchising segment contribution $ $ $ $ Leasing segment contribution Total operating income $ $ $ $ Depreciation: Franchising $ $ $ $ Leasing Total depreciation $ $ $ $ As of September 24, 2016 December 26, 2015 Identifiable assets: Franchising $ $ Leasing Unallocated Total $ $

Management's Interim Financia22

Management's Interim Financial Statement Representation: (Details)	9 Months Ended
	Sep. 24, 2016item
Minimum
Number of Weeks in Fiscal Year	52
Maximum
Number of Weeks in Fiscal Year	53

Investments_ (Details)

Investments: (Details) - USD ($)	9 Months Ended
	Sep. 24, 2016	Sep. 26, 2015	Dec. 26, 2015
Summary of marketable securities classified as available-for-sale securities
Equity securities, Cost	$ 215,800		$ 280,600
Equity securities, Fair Value	204,100		227,800
Unrealized gains and losses for marketable securities classified as available-for-sale securities in accumulated other comprehensive loss
Unrealized losses	(11,700)		(52,800)
Net unrealized losses	(11,700)		$ (52,800)
Realized gains and losses recognized on sales of available-for-sale marketable securities
Realized gains		$ 13,400
Realized losses	(12,600)	(36,200)
Net realized losses	$ (12,600)	$ (22,800)

Investment in Leasing Operati24

Investment in Leasing Operations: Summary of Leasing Operations (Details) - USD ($)	Sep. 24, 2016	Dec. 26, 2015
Direct financing and sales-type leases:
Minimum lease payments receivable	$ 35,780,200	$ 37,181,600
Estimated residual value of equipment	4,442,900	4,511,000
Unearned lease income net of initial direct costs deferred	(5,351,700)	(4,999,700)
Security deposits	(4,054,300)	(3,640,500)
Equipment installed on leases not yet commenced	7,312,600	6,754,200
Total investment in direct financing and sales-type leases	38,129,700	39,806,600
Allowance for credit losses	(817,700)	(859,100)
Net investment in direct financing and sales-type leases	37,312,000	38,947,500
Operating leases:
Operating lease assets	1,001,700	1,083,300
Less accumulated depreciation and amortization	(979,300)	(1,043,300)
Net investment in operating leases	22,400	40,000
Total net investment in leasing operations	37,334,400	38,987,500
Net investment in leases - current	16,264,100	17,741,500
Net investment in leases - long-term	$ 21,070,300	$ 21,246,000

Investment in Leasing Operati25

Investment in Leasing Operations: Risk Concentration (Details) - Total assets	9 Months Ended
	Sep. 24, 2016customer
Investment in leasing operations
Number of customers	2
Customer One Concentration Risk
Investment in leasing operations
Percentage of concentration risk	18.00%
Customer Three Concentration Risk Member
Investment in leasing operations
Percentage of concentration risk	15.00%

Investment in Leasing Operati26

Investment in Leasing Operations: Minimum Lease Payments Receivable (Details) - USD ($)	Sep. 24, 2016	Dec. 26, 2015
Direct Financing and Sales-Type Leases, Minimum Lease Payments Receivable
2,016	$ 6,594,500
2,017	19,031,000
2,018	8,444,600
2,019	1,682,100
2,020	8,400
Thereafter	19,600
Total	35,780,200	$ 37,181,600
Direct Financing and Sales-Type Leases, Income Amortization
2,016	1,297,400
2,017	3,152,900
2,018	843,600
2,019	54,800
2,020	1,500
Thereafter	1,500
Total	5,351,700
Operating Leases, Minimum Lease Payments Receivable
2,016	14,200
2,017	18,000
Total	$ 32,200

Investment in Leasing Operati27

Investment in Leasing Operations: Credit Losses (Details) - USD ($)	9 Months Ended
	Sep. 24, 2016	Sep. 26, 2015	Dec. 26, 2015
Investment In Leases
Total investment in direct financing and sales-type leases	$ 38,129,700		$ 39,806,600
Allowance for Credit Losses
Collectively evaluated for loss potential	817,700		859,100
Total	817,700		859,100
Investment in leases
Activity in the allowance for credit losses for leasing operations
Balance at beginning of period	859,100	$ 386,000
Provisions charged to expense	(52,000)	(123,400)
Recoveries	39,800	628,700
Deductions for amounts written-off	(29,200)	(9,300)
Balance at end of period	817,700	$ 882,000
Investment In Leases
Collectively evaluated for loss potential	38,129,700		39,806,600
Total investment in direct financing and sales-type leases	$ 38,129,700		$ 39,806,600

Investment in Leasing Operati28

Investment in Leasing Operations: Investment Aging (Details) - USD ($)	Sep. 24, 2016	Dec. 26, 2015
Investment in leasing operations
0-60 Days Delinquent and Accruing	$ 38,129,700	$ 39,802,400
61-90 Days Delinquent and Accruing		4,200
Total investment in direct financing and sales-type leases	38,129,700	39,806,600
Middle-Market
Investment in leasing operations
0-60 Days Delinquent and Accruing	37,052,300	38,616,600
Total investment in direct financing and sales-type leases	37,052,300	38,616,600
Small-Ticket
Investment in leasing operations
0-60 Days Delinquent and Accruing	1,077,400	1,185,800
61-90 Days Delinquent and Accruing		4,200
Total investment in direct financing and sales-type leases	$ 1,077,400	$ 1,190,000

Earnings Per Share_ (Details)

Earnings Per Share: (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 24, 2016	Sep. 26, 2015	Sep. 24, 2016	Sep. 26, 2015
Earnings Per Share:
Denominator for basic EPS - weighted average common shares	4,116,957	4,128,031	4,113,819	4,568,813
Dilutive shares associated with option plans	211,211	210,199	206,465	189,345
Denominator for diluted EPS - weighted average common shares and dilutive potential common shares	4,328,168	4,338,230	4,320,284	4,758,158
Options excluded from EPS calculation - anti-dilutive (in shares)	12,868	5,309	18,348	16,961

Shareholders' Equity (Deficit30

Shareholders' Equity (Deficit): Dividends and Repurchase of Common Stock (Details) - $ / shares	Jul. 27, 2016	Apr. 27, 2016	Jan. 27, 2016	Sep. 24, 2016
Dividends
Cash dividends declared and paid (in dollars per share)	$ 0.10	$ 0.10	$ 0.07
Common Stock Repurchase Program
Repurchase of Common Stock
Number of shares repurchased				17,194
Number of additional shares that can be repurchased				142,988

Shareholders' Equity (Deficit31

Shareholders' Equity (Deficit): Stock Option Plans and Stock-Based Compensation (Details) - Stock options - USD ($)	9 Months Ended		12 Months Ended
	Sep. 24, 2016	Sep. 26, 2015	Dec. 26, 2015	Feb. 20, 2011
Number of Shares
Outstanding at the beginning of the period (in shares)	668,740
Granted (in shares)	34,300
Exercised (in shares)	(17,437)
Forfeited (in shares)	(3,501)
Outstanding at the end of the period (in shares)	682,102		668,740
Exercisable at the end of the period (in shares)	473,817
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 53.73
Granted (in dollars per share)	98.25
Exercised (in dollars per share)	26.84
Forfeited (in dollars per share)	80.31
Outstanding at the end of the period (in dollars per share)	56.52		$ 53.73
Exercisable at the end of the period (in dollars per share)	$ 44.82
Weighted Average Remaining Contractual Life (years)
Outstanding	5 years 11 months 16 days		6 years 4 months 28 days
Exercisable at the end of the period	4 years 11 months 1 day
Intrinsic Value
Outstanding	$ 33,470,500		$ 25,582,300
Exercisable at the end of the period	$ 28,790,800
Weighted average assumptions and results used in estimation of fair value of options granted
Risk free interest rate (as a percent)	1.52%	1.68%
Expected life (years)	6 years	6 years
Expected volatility (as a percent)	27.10%	30.80%
Dividend yield (as a percent)	1.38%	1.34%
Option fair value (in dollars per share)	$ 23.78	$ 25.48
Additional disclosures
Compensation expense	$ 1,324,400	$ 1,255,100
Total unrecognized compensation expense	$ 3,500,000
Weighted average period for recognition of unrecognized compensation expense	2 years 3 months 18 days
2001 Plan and 2010 Plan
Additional disclosures
Shares of previously owned common stock surrendered as payment for option shares exercised	2,973
2001 Plan
Stock Option Plans
Number of shares authorized for issuance				750,000
2010 Plan
Stock Option Plans
Number of shares authorized for issuance	500,000
Nonemployee Directors Plan
Stock Option Plans
Number of shares authorized for issuance	350,000

Debt_ Line of Credit (Details)

Debt: Line of Credit (Details) $ in Millions	Sep. 24, 2016USD ($)
Private Bank, Trust Company and BMO Harris Bank N A
Line of Credit
Borrowings outstanding	$ 25.2
Line of credit available for additional borrowings	$ 29.8
Minimum
Line of Credit
Interest rate (as a percent)	2.78%
Maximum
Line of Credit
Interest rate (as a percent)	3.50%

Debt_ Notes Payable (Details)

Debt: Notes Payable (Details) - Notes Payable, Other Payables - Prudential Investment Management, Inc	9 Months Ended
	Sep. 24, 2016USD ($)
Notes Payable
Notes Payable, Carrying Value	$ 22,500,000
Notes Payable, Face Value	$ 25,000,000
Term of Notes Payable	10 years
Interest	5.50%
Quarterly principal payment, first five year	$ 500,000
Quarterly principal payment, thereafter	750,000
Minimum prepayment	$ 1,000,000

Segment Reporting_ (Details)

Segment Reporting: (Details)	3 Months Ended		9 Months Ended
	Sep. 24, 2016USD ($)	Sep. 26, 2015USD ($)	Sep. 24, 2016USD ($)item	Sep. 26, 2015USD ($)	Dec. 26, 2015USD ($)
Segment Reporting
Number of reportable business segments | item			2
Total revenue	$ 16,734,300	$ 15,999,500	$ 49,214,400	$ 52,500,300
Total operating income	10,438,000	9,341,800	27,799,700	27,400,100
Total depreciation	103,300	108,600	320,600	322,800
Total identifiable assets	43,495,700		43,495,700		$ 47,406,300
Operating | Franchising
Segment Reporting
Total revenue	12,560,300	12,752,500	36,375,400	35,580,400
Total operating income	8,058,800	7,827,500	20,833,600	19,679,000
Total depreciation	79,700	85,900	248,200	255,800
Total identifiable assets	3,538,000		3,538,000		3,100,900
Operating | Leasing
Segment Reporting
Total revenue	4,174,000	3,247,000	12,839,000	16,919,900
Total operating income	2,379,200	1,514,300	6,966,100	7,721,100
Total depreciation	23,600	$ 22,700	72,400	$ 67,000
Total identifiable assets	38,089,000		38,089,000		39,687,400
Unallocated
Segment Reporting
Total identifiable assets	$ 1,868,700		$ 1,868,700		$ 4,618,000