Warrantech Corporation Reports Second Quarter 2003 -- Earnings Up 62 Percent; Tenth Consecutive Quarter of Profitable Performance
EULESS, Texas--Nov. 14, 2002--Warrantech Corporation (OTCBB:WTEC), a leader and innovator in the marketing and administration of service contracts and aftermarket warranties, today reported profits for the tenth consecutive quarter. Net income reached $888,046 or $0.06 per diluted share for the company's fiscal second quarter 2003, which ended Sept. 30, 2002, up 62 percent above net income of $548,247 or $0.04 per diluted share in the same period a year ago.For the six-month period, net income was $1,597,927 or $0.10 per diluted share, up 135 percent compared to net income of $679,470 or $0.04 per diluted share for the same period a year ago. The increase in earnings for the second quarter 2003 and the six-month period ending Sept. 30, 2002 compared to prior year periods was due to an increase in gross receipts in all business segments and maintaining a streamlined and efficient infrastructure.
"We are pleased to report our tenth consecutive quarter of positive earnings," Joel San Antonio, Warrantech chairman and chief executive officer, said. "During the second quarter, Warrantech signed a marketing agreement with MARTA Cooperative of America, the largest member-owned retail buying cooperative in the U.S. consumer electronics and appliance industry. In addition, a 10-year lease was signed on our new state-of-the-art world headquarters in Bedford, Texas. For the first time in our company's history, all of Warrantech's operations will be under one roof. Warrantech is well positioned for the future. We believe Warrantech has the best people, equipment and management team in our industry," San Antonio said.
Gross Receipts
Gross Receipts represent total payments from dealers, inclusive of premiums and commissions. For the quarter ended September 30 2002, gross receipts were $38,708,291 compared to $27,435,725 for the same period last year increasing 41%. All business segments reported increases in gross receipts this quarter over the same period last year. For the six-month period gross receipts were up 33% to $72,358,475 this year compared to $54,538,433 last year. The Automotive segment reported a strong increase of 50% to $52,578,238 this year from $35,125,391 last year, while the International segment was flat at $2,513,815 and Consumer Products segment reported a slight increase of 2% to $17,432,574 from $17,174,716.
Net Earned Administrative Fee
The net earned administrative fee for the quarter ended Sept. 30, 2002 was $9,934,415, up 7 percent compared to $9,265,963 for the same period last year. The positive change in net earned administrative fees was due primarily to the appreciable increase from new products and existing and new dealers. For the six months ended Sept. 30, 2002, the net earned administrative fee was $18,964,701 compared to $18,493,585 in the previous year.
The net earned administrative fee for the Consumer Products segment remained relatively flat at $3,760,816 compared to $3,788,346 for the same period the previous year. During the six-month period ended Sept. 30, 2002, net earned administrative fee for Consumer Products segment was $7,142,259, down from $8,433,220 in the corresponding period for the prior year. Sales increases from the top five consumer product division customers were partially offset from lower deferred revenues from prior periods.
Net earned administrative fees for the International segment increased to $760,817 during the second quarter 2003, up 14 percent from $667,281 for the same quarter last year. This Increase in International segment net earned administrative fee during the quarter was the result of the new business signed over the past year in South America and an increase from existing customers in Puerto Rico. For the six-month period ended Sept. 30, 2002, net earned administrative fee for the International segment was $1,477,090, down from $1,913,695 in the corresponding period in fiscal 2002. For the six-month period, net earned administrative fee income was down due to the loss of a large customer in Chile that was partially offset by increased market penetration from existing customers in the Latin American market.
The Automotive segment's net earned administrative fee increased significantly to $5,525,822, up 12 percent from $4,951,572 for the same period in fiscal 2002. For the six months ended Sept. 30, 2002, Automotive segment net earned administrative fee was $10,511,505, an increase of 25 percent above $8,426,769 during the previous year. The increase in automotive net administrative fee revenue was due to a 69 percent increase in the number of automotive warranty contracts sold.
Service, Selling, General and Administrative (SG&A)
SG&A expenses for the second quarter 2003 were $7,894,879, up slightly compared to $7,882,693 in the corresponding period the previous year. While legal fees increased $820,056 payroll and other expenses were down $807,870. For the six months ended Sept. 30, 2002, SG&A expenses were $15,097,222, down 5 percent from $15,848,080 in the same period the previous year. The decrease in SG&A is due to improved call center technologies, and strict adherence to cost cutting programs. Employee and payroll expenses were $4,521,704 down more than 7 percent in the second quarter 2003 compared to $4,840,313 in the second quarter 2002.
Other service-related expenses, including consulting fees were down $218,602 or 37 percent to $371,887 at September 30, 2002 compared to $590,489 during the corresponding period the previous year. During the quarter, telephone expenses were $396,266, down 40 percent from $662,818 in the quarter ended Sept. 30, 2001. For the six months ended Sept. 30, 2002, telephone expenses were $833,437, down 39 percent from $1,364,150 in the prior year period.
Income from Operations
Income from operations for the second quarter 2003 was $1,018,001, up 21 percent compared to $840,440 in the previous year. For the six months ended Sept. 30,2002, income from operations was $1,822,825, up 137 percent compared to $768,074 in the prior year period. The increase in income from operations for the second quarter and the six-month period for fiscal 2003 was primarily the result of increased gross receipts in the Automotive segment, lower SG&A in Consumer Products segment and a reduction in depreciation and amortization expense.
Pre-tax Profit
The Automotive segment reported a pre-tax profit for the second quarter 2003 of $1,264,191 compared to $2,291,301 in the prior year period. For the six months ended Sept. 30, 2002, the Automotive segment had pre-tax profits of $2,672,481, compared to $3,243,264 in the previous year. This decrease was the result of greater absorption of corporate costs this year.
Consumer Products reported a pre-tax loss of $152,680 in the second quarter 2003 compared to $1,289,763 in the second quarter 2002. For the six-months ended Sept. 30, 2002, Consumer Products segment had a pre-tax loss of $727,519 compared to a pre-tax loss of $2,462,484 in the corresponding period in the prior year. Strict cost-cutting measures in payroll, sales related costs and telephone expenditures slashed total SG&A expense.
The International segment reported a pre-tax loss of $31,045 for the second quarter 2003 compared to a pre-tax loss of $233,953 in the second quarter 2002. For the six-month period ended Sept. 30, 2002, International segment had a pre-tax income of $16,238 compared to a pre-tax loss of $116,929 in the previous year. The loss of a large customer in Chile was partially offset by increased market penetration from new and existing customers in other Latin American markets served by Warrantech.
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 required by the fund, 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 For the Six Months Ended
September 30, September 30,
--------------------------------------------------
2002 2001 2002 2001
--------------------------------------------------
Earned administrative
fee (net of
amortization of
deferred costs) $9,934,415 $9,265,963 $18,964,701 $18,493,585
--------------------------------------------------
Costs and expenses
Service, selling,
and general and
Administrative 7,894,879 7,882,693 15,097,222 15,848,080
Legal settlement - (824,332) - (824,332)
Depreciation and
amortization 1,021,535 1,367,162 2,044,654 2,701,763
-------------------------------------------------
Total costs and
expenses 8,916,414 8,425,523 17,141,876 17,725,511
-------------------------------------------------
Income from
operations 1,018,001 840,440 1,822,825 768,074
Other income 336,552 148,007 566,509 340,996
-------------------------------------------------
Income before
provision for income
taxes 1,354,553 988,447 2,389,334 1,109,070
Provision for income
taxes 466,507 440,200 791,407 429,600
-------------------------------------------------
Net income $888,046 $548,247 $1,597,927 $679,470
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Earnings per share:
Basic $0.06 $0.04 $0.10 $0.04
Diluted $0.06 $0.04 $0.10 $0.04
Weighted average
number of shares
outstanding:
Basic 15,322,181 15,239,712 15,317,881 15,209,681
Diluted 15,430,348 15,239,712 15,398,910 15,209,681
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, March 31,
2002 2002
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $3,113,336 $7,033,448
Investments in marketable securities 653,570 954,653
Accounts receivable, (net of allowances of
$183,661 and $256,019, respectively) 22,842,552 18,442,135
Other receivables, net 9,964,850 4,931,749
Income tax receivable -- 1,129,076
Deferred income taxes 1,881,500 2,653,000
Prepaid expenses and other current assets 1,382,417 600,944
-------------- ------------
Total current assets 39,838,225 35,745,005
-------------- ------------
Property and equipment, net 7,727,039 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 2,329,315 2,329,315
Deferred direct costs 16,271,621 22,570,930
Investments in marketable securities 1,610,443 1,376,619
Restricted cash 825,000 825,000
Split dollar life insurance policies 969,171 904,172
Notes receivable 3,566,022 2,818,639
Other assets 42,433 44,546
-------------- ------------
Total other assets 27,251,295 32,506,511
-------------- ------------
Total Assets $74,816,559 $77,551,229
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WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, March 31,
2002 2002
--------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $684,103 $801,788
Insurance premiums payable 29,940,557 26,470,265
Accounts and commissions payable 6,686,754 6,960,465
Income tax payable 114,484 --
Accrued expenses and other current
liabilities 3,222,279 3,168,666
--------------- ------------
Total current liabilities 40,648,177 37,401,184
--------------- ------------
Deferred revenues 26,550,286 33,559,379
Long-term debt and capital lease
obligations 685,472 957,159
Deferred rent payable 135,555 190,260
--------------- ------------
Total liabilities 68,019,490 72,107,982
--------------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.0007 par value
authorized - 15,000,000
Shares issued - none at Sept. 30,
2002 and Mar. 31, 2002 -- --
Common stock - $.0007 par value
authorized - 30,000,000
Shares issued - 16,530,324 shares at
Sept. 30, 2002 and
16,525,324 shares at March 31,2002 115,714 115,679
Additional paid-in capital 23,748,009 23,745,944
Loans to directors and officers (10,320,187) (10,163,875)
Accumulated other comprehensive income,
net of taxes (140,767) (52,028)
Retained earnings (deficit) (2,379,905) (3,977,832)
--------------- ------------
11,022,864 9,667,888
Treasury stock - at cost, 1,214,469 shares
at Sept. 30, 2002
and 1,212,159 shares at March 31, 2002 (4,225,795) (4,224,641)
--------------- ------------
Total Stockholders' Equity 6,797,069 5,443,247
--------------- ------------
--------------- ------------
Total Liabilities and
Stockholders' Equity $74,816,559 $77,551,229
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