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Winmark Corporation Announces Third Quarter Results

Winmark Corporation (Nasdaq: WINA) announced today net income for the quarter ended September 24, 2011 of $3,483,500, or $.66 per share diluted, compared to net income of $2,690,000, or $.51 per share diluted, in 2010. For the nine months ended September 24, 2011, net income was $9,910,000, or $1.89 per share diluted, compared to net income of $7,209,800, or $1.39 per share diluted, for the same period last year.

John L. Morgan, Chairman and Chief Executive Officer, stated, “During the quarter, our earnings growth was primarily driven by the continued strong performance of our franchising brands. Additionally, our leasing business continued to show significant increases in both profitability and customer activity. During the quarter, our pre-tax income was reduced by approximately $0.5 million, or $0.10 per share, due to our share of losses from Tomsten, Inc. as well as an impairment charge relating to our investment in BridgeFunds, LLC.”

Winmark Corporation creates, supports and finances business. At September 24, 2011, there were 923 franchises in operation under the brands Play It Again Sports®, Plato's Closet®, Once Upon A Child®, and Music Go Round®. An additional 39 retail franchises have been awarded but are not open. In addition, at September 24, 2011, the Company had loans and leases equal to $31.8 million.

This press release contains forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to future events or the future financial performance of the Company including statements with respect to our ability to finance the growth of our leasing and franchising businesses for the foreseeable future. Such forward-looking statements are only predictions or statements of intention subject to risks and uncertainties and actual events or results could differ materially from those anticipated. Because actual result may differ, shareholders and prospective investors are cautioned not to place undue reliance on such forward-looking statements.

WINMARK CORPORATION

CONDENSED BALANCE SHEETS

(unaudited)
       
September 24, 2011   December 25, 2010
ASSETS
Current Assets:  
Cash and cash equivalents $ 3,896,500 $ 2,257,100
Marketable securities 331,000 161,000
Receivables, net 1,330,300 1,841,300
Net investment in leases - current 13,010,300 13,856,700
Income tax receivable - 294,700
Inventories 68,000 85,900
Prepaid expenses   508,900     382,600
Total current assets 19,145,000 18,879,300
 
Net investment in leases – long-term 17,168,800 16,802,500
Long-term investments, net 4,225,600 3,973,800
Property and equipment, net 1,562,500 1,785,900
Other assets   677,500     680,500
$ 42,779,400   $ 42,122,000
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Line of credit $ - $ 8,800,000
Accounts payable 1,689,200 1,274,200
Income tax payable 2,263,300 -
Accrued liabilities 1,992,400 1,513,600
Discounted lease rentals 74,900 530,400
Rents received in advance 263,800 291,800
Deferred revenue 1,149,000 1,041,700
Deferred income taxes   1,832,500     1,832,500
Total current liabilities 9,265,100 15,284,200
 
Long-Term Liabilities:
Discounted lease rentals 2,400 26,500
Rents received in advance 421,400 696,900
Deferred revenue 830,500 767,600
Other liabilities 1,250,700 1,678,000
Deferred income taxes   655,800     655,800
Total long-term liabilities 3,160,800 3,824,800
 
Shareholders’ Equity:

Common stock, no par, 10,000,000 shares authorized, 4,972,081 and 5,020,739 shares issued and outstanding

-

513,700
Accumulated other comprehensive loss (72,600 ) -
Retained earnings   30,426,100     22,499,300
Total shareholders' equity   30,353,500     23,013,000
$ 42,779,400   $ 42,122,000
 

WINMARK CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)
       
Quarter Ended   Nine Months Ended
September 24, 2011   September 25, 2010   September 24, 2011   September 25, 2010
REVENUE:    
Royalties $ 8,046,400 $ 7,030,000 $ 21,918,500 $ 19,761,800
Leasing income 2,369,300 2,419,600 12,584,500 7,290,300
Merchandise sales 664,300 964,000 1,998,700 2,009,200
Franchise fees 516,200 357,100 836,200 885,600
Other   177,300     236,600     765,300     782,300  
Total revenue 11,773,500 11,007,300 38,103,200 30,729,200
 
COST OF MERCHANDISE SOLD 631,400 920,600 1,908,500 1,911,800
 
LEASING EXPENSE 290,400 387,600 4,149,300 1,374,200
 
PROVISION FOR CREDIT LOSSES (13,100 ) 130,500 8,200 142,400
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES   4,219,100     4,360,200     14,095,400     14,093,300  
 
Income from operations 6,645,700 5,208,400 17,941,800 13,207,500
 
LOSS FROM EQUITY INVESTMENTS (224,700 ) (200,200 ) (444,600 ) (322,400 )
 
IMPAIRMENT OF INVESTMENT IN NOTES (293,200 ) - (546,100 ) -
 
INTEREST EXPENSE (26,200 ) (363,900 ) (84,200 ) (925,200 )
 
INTEREST AND OTHER INCOME/(EXPENSE)   (9,000 )   96,100     22,100     376,800  
 
Income before income taxes 6,092,600 4,740,400 16,889,000 12,336,700
 
PROVISION FOR INCOME TAXES   (2,609,100 )   (2,050,400 )   (6,979,000 )   (5,126,900 )
 
NET INCOME $ 3,483,500   $ 2,690,000   $ 9,910,000   $ 7,209,800  
 
EARNINGS PER SHARE – BASIC $ .70   $ .54   $ 1.99   $ 1.43  
 
EARNINGS PER SHARE – DILUTED $ .66   $ .51   $ 1.89   $ 1.39  
 
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC   4,970,046     5,011,862     4,980,160     5,055,405  
 
WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED   5,263,343     5,224,580     5,239,424     5,203,628  

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