Warrantech Reports Net Income for Second Quarter 2002; Sixth Consecutive Quarter of Profitable Performance
EULESS, Texas--Nov. 13, 2001--Warrantech Corporation (OTC:WTEC), a leader and innovator in providing service contracts and aftermarket warranties, today reported the sixth consecutive quarter of profitability. Net income reached $548,247 or $0.04 per diluted share for the company's fiscal second quarter 2002, which ended Sept. 30, 2001, compared to net income of $692,383 or $0.05 per diluted share in the same period a year ago.For the six-month period, net income was $679,470 or $0.04 per diluted share compared to net income of $932,983 or $0.06 per diluted share for the same period a year ago. The earnings decrease for the second quarter 2002 and the six-month period ending Sept. 30, 2001, compared to the prior year periods was due in part to the loss of net earned administrative fees from the loss of the Staples account. The decline in administrative fee income continues to be offset by stringent cost containment practices and revenue generated from the company's new and existing customer base.
"We are pleased with our accomplishments this quarter," Joel San Antonio, Warrantech chairman and chief executive officer, said. "Warrantech had another profitable quarter -- in spite of challenges that have affected us all. To date, Warrantech has reported six straight profitable quarters. Cash and cash equivalents for the quarter and six-month period increased, and we improved working capital by over $2.8 million.
"In addition, the Warrantech team made significant headway in penetrating new markets and establishing new business alliances. During the second quarter, we announced a new automotive program in South America; agreed to provide home warranty programs with byowner.com; and launched a three-year agreement with United Wireless, a premier cellular telephone provider in Cleveland, Ohio," San Antonio said.
Net Earned Administrative Fee
The net earned administrative fee for the quarter ended Sept. 30, 2001, was $9.3 million compared to $12.8 million for the same period last year.
For the six months ended Sept. 30, 2001, the net earned administrative fee was $18.5 million, compared to $25.3 million for the prior year.
The net earned administrative fee for the Consumer Products segment decreased $3.8 million from $7.5 million for the same period the previous year. This change resulted primarily from the loss of the Staples account that was partially offset by increased volume from new and existing customers.
Net earned administrative fee for the International segment increased to $667,281 for the second quarter from $488,457 for the same quarter last year. This increase was the result of the new business signed over the past year in South America and increased volumes from existing customers, despite the loss of business resulting from the closing of the company's United Kingdom operations.
The Automotive segment's net earned administrative fee remained flat for the quarter at $5.0 million on a yearly comparison resulting from higher deferred revenues from prior periods recognized this quarter versus the same quarter last year offset by lower sales in the quarter.
Service, Selling, General and Administrative (SG&A)
SG&A expenses including a legal settlement for the second quarter 2002 declined significantly to $7.1 million, a decrease of 27% compared to $9.7 million in the quarter last year. The decrease in SG&A resulted from improved call center technologies, cost containment and the closing of the United Kingdom operations last year. Total employee and human resource related expenses were down $885,481, or 15.4%, to $4.8 million for the second quarter 2002 from $5.7 million for the same quarter last year. The total decrease in SG&A reflects an $824,332 reduction related to the legal settlement with American International Group, Inc. ("AIG") during the second quarter 2002 for reimbursement of legal expenses.
For the six months ended Sept. 30, 2001, SG&A including the legal settlement was $15.0 million, a decrease of 24% compared to $19.8 million a year ago.
Income from Operations
Income from operations for the second quarter 2002 was $840,440 a 404% increase compared to $166,695 in the previous year. The increase in income from operations for the second quarter 2002 was the result of the elimination of losses by closing the United Kingdom operation, the overall reduction in SG&A including the AIG legal settlement, offset by the decreased earned administrative fee from the loss of the Staples account.
For the six months ended Sept. 30, 2001, income from operations was $768,074, a 25% decrease compared to $1.0 million in the prior year period. The decrease in income from operations for the six-month period was the result of the loss of the Staples account, substantially offset by the elimination of losses resulting from the United Kingdom closing and the overall reductions in SG&A.
Pre-tax Profit
The Automotive segment reported a pre-tax profit for the second quarter 2002 of $2.3 million compared to $2.1 million in the prior year. This decrease was the result of lower revenues partially offset by reductions in SG&A. Consumer Products reported a pre-tax loss of $1.3 million in the second quarter of 2002 compared to $534,047 profit in the second quarter of 2001 due to the loss of the Staples account. International pre-tax loss decreased to $233,953 for the second quarter of 2002 from a loss of $1.4 million in the prior year period, primarily due to increased business and the elimination of losses from the United Kingdom resulting from the closing of that operation on Sept. 30, 2000.
About Warrantech:
Warrantech Corporation administers and markets service contracts and after-market warranties on automobiles, automotive components, recreational vehicles, appliances, consumer electronics, homes, computer and computer peripherals for retailers, distributors and manufacturers. The company continues to expand its domestic and global penetration, and now provides its services in the United States, Canada, Mexico, Puerto Rico and Latin America. For additional information on Warrantech, access www.warrantech.com.
"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are subject to risks and uncertainties. Other risks and uncertainties include but are not limited to, Warrantech Automotive's ability to secure an alternate source of payment of claims under the vehicle service contracts as a result of the Reliance Insurance Company Liquidation, the effectiveness of cost containment measures and the continuation of current levels of business activity, the impact of competitive products, product demand and market-acceptance risks, reliance on key strategic alliances, fluctuations in operating results and cash flow and other risks detailed from time to time in the company's filings with the Securities and Exchange Commission. These risks could cause the company's actual results for the current fiscal year and beyond to differ materially from those expressed in any forward looking statements made by, or on behalf of, the company.
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Six Months Ended
Sept. 30, Sept. 30,
--------------------------- ------------------------
2001 2000 2001 2000
----------- ----------- ---------- ----------
Earned Administrative
Fee (Net of
amortization of
deferred costs) $9,265,963 $12,792,032 $18,493,585 $25,297,008
----------- ----------- ---------- ----------
Costs and expenses
Service, selling,
and general and
Administrative 7,882,693 9,738,490 15,848,080 19,836,632
Legal settlement (824,332) -- (824,332) --
Depreciation and
amortization 1,367,162 1,837,294 2,701,763 3,382,220
Loss on
abandonment of
assets -- 1,049,552 -- 1,049,552
----------- ----------- ---------- ----------
Total costs and
expenses 8,425,523 12,625,336 17,725,511 24,268,404
----------- ----------- ---------- ----------
Income from
operations 840,440 166,696 768,074 1,028,604
Other income
(expense) 148,007 237,673 340,996 404,785
----------- ----------- ---------- ----------
Income before
provision for
income taxes 988,447 404,369 1,109,070 1,433,389
Provision (benefit)
for income taxes 440,200 (288,014) 429,600 500,406
----------- ----------- ---------- ----------
Net income $548,247 $692,383 $679,470 $932,983
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Earnings per share:
Basic $0.04 $0.05 $0.04 $0.06
Diluted $0.04 $0.05 $0.04 $0.06
Weighted average
number of shares
outstanding:
Basic 15,239,712 15,305,954 15,209,681 15,305,272
Diluted 15,239,712 15,305,954 15,209,681 15,305,272
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Sept. 30, March 31,
2001 2001
------------------ ---------------
A S S E T S
-----------
Current assets:
Cash and cash equivalents $3,084,307 $3,001,924
Investments in marketable securities 916,802 196,154
Accounts receivable, (net of
allowances of $1,464,385 and
$1,079,946, respectively) 10,900,984 12,152,515
Other receivables, net 6,304,559 7,065,531
Income tax receivable 5,352,021 5,378,648
Deferred income taxes 265,195 571,182
Prepaid expenses and other
current assets 950,160 964,929
------------------ ---------------
Total current assets 27,774,028 29,330,883
------------------ ---------------
Property and equipment, net 10,218,098 11,898,890
Other assets:
Excess of cost over fair value of
assets acquired (net of
accumulated amortization of
$5,825,405) 1,637,060 1,637,290
Deferred income taxes 2,723,252 2,724,096
Deferred direct costs 32,234,555 46,258,971
Investments in marketable securities 1,383,298 3,094,176
Restricted cash 800,000 800,000
Split dollar life insurance policies 708,262 708,262
Notes receivable 333,467 599,796
Other assets 104,809 64,809
------------------ ---------------
Total other assets 39,924,703 55,887,400
------------------ ---------------
Total Assets $77,916,829 $97,117,173
================== ===============
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Sept. 30, March 31,
2001 2001
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $862,495 $801,265
Insurance premiums payable 16,143,805 19,100,164
Accounts and commissions payable 6,167,836 6,346,872
Accrued expenses and other current
liabilities 4,545,116 5,890,078
----------- ----------
Total current liabilities 27,719,252 32,138,379
----------- ----------
Deferred revenues 45,031,682 60,057,704
Long-term debt and capital lease
obligations 974,929 1,209,853
Deferred rent payable 242,839 293,293
----------- ----------
Total liabilities 73,968,702 93,699,229
----------- ----------
Stockholders' equity:
Preferred stock - $.0007 par value
authorized - 15,000,000 shares
issued - none at Sept. 30, 2001 and
March 31, 2001 -- --
Common stock - $.007 par value
authorized - 30,000,000 shares
issued - 16,516,978 shares at
Sept. 30, 2001 and 16,514,228 shares
at March 31, 2001 115,599 115,580
Additional paid-in capital 23,670,103 23,742,868
Loans to directors and officers (9,997,612) (9,833,244)
Accumulated other comprehensive income,
net of taxes (18,532) (31,949)
Retained earnings (deficit) (5,554,635) (6,234,105)
----------- ----------
8,214,923 7,759,150
Treasury stock - at cost, 1,277,266
shares at Sept. 30, 2001 and
1,415,171 shares at March 31, 2001 (4,266,796) (4,341,206)
----------- ----------
Total Stockholders' Equity 3,948,127 3,417,944
----------- ----------
Total Liabilities and Stockholders'
Equity $77,916,829 $97,117,173
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