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Winmark Corporation Announces Second Quarter Results

Winmark Corporation (Nasdaq: WINA) announced today net income for the quarter ended June 30, 2012 of $3,404,400 (or $.65 per share diluted) compared to net income of $3,400,200 (or $.65 per share diluted) in 2011. For the six months ended June 30, 2012, net income was $6,920,400 (or $1.31 per share diluted) compared to net income of $6,426,500 (or $1.23 per share diluted) for the same period last year.

John L. Morgan, Chairman and Chief Executive Officer, stated, “Our second quarter results for the franchising business continue to show steady growth in both royalties and new franchise agreements. Profits from our leasing business were lower when compared to last year due to unpredictable events in our portfolio. These timing issues will continue to create 'lumpiness' in our leasing results. Management is diligent in adding new customers and building a portfolio of leases that ensure our long-term success.”

Winmark Corporation creates, supports and finances business. At June 30, 2012, there were 946 franchises in operation under the brands Plato's Closet®, Play It Again Sports®, Once Upon A Child® and Music Go Round®. An additional 60 retail franchises have been awarded but are not open. In addition, at June 30, 2012, the Company had a lease portfolio equal to $32.1 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)
       
June 30, 2012   December 31, 2011
 
ASSETS
 
Current Assets:
Cash and cash equivalents $ 2,037,300 $ 9,020,100
Marketable securities 116,600 1,043,800
Receivables, net 1,041,900 1,316,200
Net investment in leases - current 11,454,500 11,746,900
Income tax receivable 1,171,000 116,500
Inventories 84,600 68,500
Prepaid expenses   401,100   362,000
Total current assets 16,307,000 23,674,000
Net investment in leases – long-term 20,618,000 18,102,000
Long-term investments, net 3,539,300 3,817,400
Property and equipment, net 1,323,500 1,474,800
Other assets   677,500   677,500
$ 42,465,300 $ 47,745,700
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current Liabilities:
Line of credit $ 12,800,000 $ -
Accounts payable 1,252,300 1,460,300
Accrued liabilities 2,187,500 1,346,000
Discounted lease rentals 403,200 20,800
Rents received in advance 276,800 274,700
Deferred revenue 1,635,600 1,212,400
Deferred income taxes   3,487,900   3,464,800
Total current liabilities 22,043,300 7,779,000
 
Long-Term Liabilities:
Discounted lease rentals 542,900 -
Rents received in advance 152,200 269,400
Deferred revenue 882,800 844,300
Other liabilities 1,351,500 1,389,200
Deferred income taxes   2,607,100   2,355,100
Total long-term liabilities 5,536,500 4,858,000
 
Shareholders’ Equity:

Common stock, no par, 10,000,000 shares authorized,  5,026,698 and 4,987,643 shares issued and outstanding

-

629,800
Accumulated other comprehensive income 2,200 17,000
Retained earnings   14,883,300   34,461,900
Total shareholders’ equity   14,885,500   35,108,700
$ 42,465,300 $ 47,745,700
 

WINMARK CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)
       
Quarter Ended   Six Months Ended
June 30, 2012   June 25, 2011   June 30, 2012   June 25, 2011
REVENUE:    
Royalties $ 7,693,900 $ 6,819,300 $ 15,982,400 $ 13,872,100
Leasing income 3,285,000 6,980,200 5,677,100 10,215,200
Merchandise sales 656,800 833,000 1,366,600 1,334,400
Franchise fees 270,000 245,000 555,000 320,000
Other   286,700     347,300     444,700     588,000  
Total revenue 12,192,400 15,224,800 24,025,800 26,329,700
 
COST OF MERCHANDISE SOLD 633,500 794,200 1,297,800 1,277,100
 
LEASING EXPENSE 325,700 3,340,200 565,500 3,858,900
 
PROVISION FOR CREDIT LOSSES (14,900 ) (24,100 ) (67,900 ) 21,300
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES   5,221,600     5,030,400     10,357,700     9,876,300  
 
Income from operations 6,026,500 6,084,100 11,872,700 11,296,100
 
LOSS FROM EQUITY INVESTMENTS (240,700 ) (142,900 ) (278,100 ) (219,900 )
 
IMPAIRMENT OF INVESTMENT IN NOTES - (252,900 ) - (252,900 )
 
INTEREST EXPENSE (122,300 ) (26,900 ) (192,100 ) (58,000 )
 
INTEREST AND OTHER INCOME   (10,000 )   13,900     36,300     31,100  
 
Income before income taxes 5,653,500 5,675,300 11,438,800 10,796,400
 
PROVISION FOR INCOME TAXES   (2,249,100 )   (2,275,100 )   (4,518,400 )   (4,369,900 )
 
NET INCOME $ 3,404,400   $ 3,400,200   $ 6,920,400   $ 6,426,500  
 
EARNINGS PER SHARE – BASIC $ .67   $ .68   $ 1.37   $ 1.29  
 
EARNINGS PER SHARE – DILUTED $ .65   $ .65   $ 1.31   $ 1.23  
 
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC   5,056,289     4,980,844     5,054,620     4,985,220  
 
WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED   5,268,245     5,239,443     5,274,223     5,227,468  

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