Warrantech Corporation Reports Net Income for First Quarter 2003; Ninth Consecutive Quarter of Profitable Performance; Earnings up 441%
EULESS, Texas--Aug. 12, 2002--Warrantech Corporation (OTC:WTEC), a leader and innovator in administering service contracts and aftermarket warranties, today reported profits for the ninth consecutive quarter.Net income reached $709,881 or $0.05 per diluted share for the company's fiscal first quarter 2003, which ended June 30, 2002, up 441 percent above net income of $131,223 or $0.01 per diluted share in the same period a year ago. The automotive segment had significant increases in the number of contracts from both new and existing customer's and the company has continued its stringent cost containment practices.
"This is the ninth consecutive quarter that Warrantech has reported profits," Joel San Antonio, Warrantech chairman and chief executive officer, said. "Earnings for this quarter rose 441 percent over the same quarter last year. Clearly, our management team's ability to increase market penetration and manage expenses has helped Warrantech grow in spite of a sluggish economy."
"In Canada, we signed marketing agreements with two large electronics retailers. On the consumer products side, three of Warrantech's largest clients renewed contracts during the quarter, and our automotive division signed a five-year administration agreement with Royal & SunAlliance. In addition, our new automotive reinsurance program has grown 26 percent since it was introduced in January 2002. Warrantech's hard work shows. Working capital continues to improve, and Warrantech is financing its current operations without incurring any long-term debt," Mr. San Antonio said.
Gross Receipts
Gross Receipts represent total payments from dealers, inclusive of premiums and commissions. For the quarter ended June 30, 2002, gross receipts were $33.7 million compared to $27.1 million for the same period last year. A 41 percent increase in the number of contracts sold contributed to a $7.2 million increase in automotive gross receipts from $16.8 million last year to $24.0 million this year. International gross receipts declined from $1.7 million last year to $1.2 million this year as a result of a loss of a customer in Chile.
Net Earned Administrative Fee
The net earned administrative fee for the quarter ended June 30, 2002 was $9.0 million compared to $9.2 million for the same period last year. The change was due primarily to lower amount of deferred revenues from prior periods recognized in the current quarter. The Automotive segment's net earned administrative fee rose to $5.0 million for the first quarter 2003, an increase of $1.5 million or 43 percent compared to the same period last year. The increase in gross receipts was partially offset by higher premium costs and lower deferred revenues from prior periods recognized during the quarter ended June 30, 2002. The net earned administrative fee for the Consumer Products segment decreased to $3.4 million during the first quarter 2003 from $4.6 million for the same period the previous year, down $1.3 million or 27 percent. This change was attributed to lower deferred revenues from prior periods recognized during the first quarter.
Net earned administrative fees for the International segment were $716,273 for the first quarter 2003, down from $1.2 million in the same quarter last year. Increased sale volumes from existing customers in Puerto Rico helped to partially offset the loss of a significant customer in Chile.
Service, Selling, General and Administrative (SG&A)
SG&A expenses for the first quarter 2003 declined $763,044 or 10 percent to $7.2 million, compared to $8.0 million in the corresponding quarter last year. The decrease in SG&A resulted from improved call center technologies, stringent cost containment measures and lower legal expenses. Total employee and human resource related expenses were down $288,448 or 5 percent to $4.4 million for the first quarter 2003 from $4.7 million for the same quarter last year.
Income from Operations
Income from operations for the first quarter 2003 rose to $804,824 compared to a loss of $72,366 in the previous year. This sharp increase in income from operations was due to rising automotive warranty sales and reduced SG&A expenses.
Pre-tax Profit
The Automotive division reported a 48 percent increase in pre-tax profit for the first quarter 2003 to $1.4 million compared to $951,963 in the prior year. This increase was the result of higher net earned administrative fees while SG&A was held flat. Consumer Products reported a pre-tax loss of $574,839 in the first quarter of 2003 compared to $1.2 million loss in the first quarter of 2002, primarily due to reductions in SG&A expense. The International business segment had pre-tax income of $47,283, compared to $117,023 in the first quarter of 2002, primarily due to the loss of a customer in Chile that was partially offset by lower SG&A expense.
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, Puerto Rico and Latin America. For additional information on Warrantech, access http://www.warrantech.com/.
"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995:
Except for the historical information contained herein, the matters discussed in this release may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The Company makes such forward-looking statements under the provisions of the "safe harbor" section of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect the Company's views and assumptions, based on information currently available to management. Such views and assumptions are based on, among other things, the Company's operating and financial performance over recent years and its expectations about its business for the current and future fiscal years. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions, including, but not limited to, (a) prevailing economic conditions which may significantly deteriorate, thereby reducing the demand for the Company's products and services, (b) availability of technical support personnel or increases in the rate of turnover of such personnel, resulting from increased demand for such qualified personnel, (c) changes in the terms or availability of insurance coverage for the Company's programs, (d) regulatory or legal changes affecting the Company's business, (e) loss of business from or significant change in relationship with, any major customer of the Company, (f) the ability to successfully identify and contract new business opportunities, both domestically and internationally, (g) ability to secure necessary capital for general operating or expansion purposes, (h) adverse outcomes of litigation, (i) additionally, if any of the insurance companies, which insure the service contracts, marketed and administered by the Company were unable to pay the claims under the service contracts, it could have a materially adverse effect on the Company's business,(j) additionally, if Butler Financial Solutions, LLC is unable to cover the claims previously insured by Reliance Insurance Companies, or if the Company's current insurance carrier ceases to provide credit to the Company in order to fund any shortfalls, Warrantech Automotive may ultimately be required to honor the claims under those service contracts in which Warrantech Automotive was the obligor. Since management is not able to determine the Company's potential claims liability, if any, under such contracts, the Company has not taken a reserve for claims losses for which the Company may ultimately be liable. Should one or more of these or any other risks or uncertainties materialize or develop in a manner adverse to the Company, or should the Company's underlying assumptions prove incorrect, actual results of operations, cash flows or the Company's financial condition may vary materially from those anticipated, estimated or expected.
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
June 30,
-------------------------
2002 2001
---------- ------------
Earned Administrative Fee (net of
amortization of deferred costs) $9,030,286 $9,227,622
---------- ------------
Costs and expenses
Service, selling, and general and
administrative 7,202,343 7,965,387
Depreciation and amortization 1,023,119 1,334,601
---------- ------------
Total costs and expenses 8,225,462 9,299,988
---------- ------------
Income from operations 804,824 (72,366)
Other income (expense) 229,957 192,990
---------- ------------
Income before provision for income taxes 1,034,781 120,624
Provision for income taxes 324,900 (10,599)
---------- ------------
Net income $709,881 $131,223
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Earnings per share:
Basic $0.05 $0.01
Diluted $0.05 $0.01
Weighted average number of shares
outstanding:
Basic 15,307,642 15,100,432
Diluted 15,386,538 15,100,432
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, March 31,
2002 2002
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $6,717,835 $7,033,448
Investments in marketable securities 855,755 954,653
Accounts receivable, (net of allowances
of $218,782 and $256,019,
respectively) 20,028,366 18,442,135
Other receivables, net 6,887,848 4,931,749
Income tax receivable -- 1,129,076
Deferred income taxes 2,275,125 2,653,000
Prepaid expenses and other current
assets 519,050 600,944
----------- -----------
Total current assets 37,283,979 35,745,005
----------- -----------
Property and equipment, net 8,515,795 9,299,713
----------- -----------
Other assets:
Excess of cost over fair value of
assets acquired (net of accumulated
amortization of $5,825,405) 1,637,290 1,637,290
Deferred income taxes 2,382,290 2,329,315
Deferred direct costs 19,421,275 22,570,930
Investments in marketable securities 1,496,717 1,376,619
Restricted cash 825,000 825,000
Split dollar life insurance policies 959,171 904,172
Notes receivable 3,049,589 2,818,639
Other assets 44,545 44,546
----------- -----------
Total other assets 29,815,877 32,506,511
----------- -----------
Total Assets $75,615,651 $77,551,229
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WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, March 31,
2002 2002
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $746,871 $801,788
Insurance premiums payable 26,908,501 26,470,265
Accounts and commissions payable 6,474,037 6,960,465
Income tax payable 120,641 --
Accrued expenses and other current
liabilities 3,590,319 3,168,666
------------ ------------
Total current liabilities 37,840,369 37,401,184
------------ ------------
Deferred revenues 30,692,610 33,559,379
Long-term debt and capital lease
obligations 835,995 957,159
Deferred rent payable 163,970 190,260
------------ ------------
Total liabilities 69,532,944 72,107,982
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock - $.0007 par value
authorized - 15,000,000 Shares
issued - none at June 30, 2002 and
March 31, 2002 -- --
Common stock - $.007 par value
authorized - 30,000,000 Shares issued
- 16,525,324 shares at June 30, 2002
and March 31,2002 115,679 115,679
Additional paid-in capital 23,745,944 23,745,944
Loans to directors and officers (10,245,610) (10,163,875)
Accumulated other comprehensive income,
net of taxes (40,714) (52,028)
Retained earnings (deficit) (3,267,951) (3,977,832)
------------ ------------
10,307,348 9,667,888
Treasury stock - at cost, 1,212,159
shares at June 30, 2002 and March 31,
2002 (4,224,641) (4,224,641)
------------ ------------
Total Stockholders' Equity 6,082,707 5,443,247
------------ ------------
Total Liabilities and Stockholders'
Equity $75,615,651 $77,551,229
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