Warrantech Reports Fiscal 2004 Financial Results
BEDFORD, Texas--Aug. 2, 20045, 2004--Warrantech Corporation (OTC:WTEC), a leading independent provider of service contracts and after-market warranties, announced that it has filed its Form 10-K for the fiscal year ending March 31, 2004 which reports the company's financial results for the year.The filing of this report followed discussions which began more than one year ago between the company and the staff at the Securities and Exchange Commission (SEC). During these discussions the company sought guidance from the SEC staff concerning revenue recognition policies, including a new accounting pronouncement which became effective for transactions after June 30, 2003.
Based upon the guidance received from the SEC staff, Warrantech now recognizes revenues over the life of the service contracts which it administers. Despite Warrantech's cash flow generating power, the new revenue recognition pronouncement makes it unlikely that the company will reflect a profit until fiscal 2008. While there can be no assurance of profit in fiscal 2008, if business remains at current levels, the company expects revenues recognized from prior periods will equal the revenue being deferred to future periods.
For the twelve months ended March 31, 2004, the company is showing a net loss of $0.5 million or $0.03 per diluted share, compared to net income of $1.5 million or $0.10 per diluted share for the fiscal year 2003, with $229.5 million of gross revenues not being recognized and being deferred to future periods.
"Despite the reported loss, Warrantech's business grew in fiscal 2004," said Joel San Antonio, Warrantech chairman and chief executive officer. "The growth was driven by our international and consumer service divisions, while revenues from our automotive segment were lower. Overall gross revenues increased from $118.1 million in 2002 to $147.8 million in 2003 and $149.3 million in fiscal 2004. Over that same period, selling, general and administrative expenses decreased.
"Warrantech's positive gross revenue growth and cost management were obscured by the new accounting policies which require that the majority of revenue from new contract sales must be deferred to future periods. Reporting a net loss when revenues increased and expenses were down is confusing, yet these results are due to the new accounting policies. However, our mission remains clear: Warrantech will continue creating and delivering a range of innovative products while maximizing the service experience to the consumer," San Antonio said.
Gross Revenues
Gross revenues for the year ended March 31, 2004, were $149.3 million, an increase of 2 percent, compared to $146.8 million for the same period last year. For the twelve months ended March 31, 2004, the international segment had gross revenues of $7.7 million, an increase of 44 percent compared to $5.4 million in the corresponding period a year ago. For the twelve-month period ended March 31, 2004, consumer products reported gross revenues of $39.0 million, up 16 percent compared to $33.7 million in the previous year. For the twelve months ended March 31, 2004, the automotive segment had gross revenues of $103.5 million, down 4 percent compared to $108.0 million in the prior year.
Direct Costs
Direct costs are expenses related to the production and acquisition of service contracts. These costs consist primarily of insurance premiums and commission expenses. For the fiscal year ended March 31, 2004, direct costs were $87.4 million, up 40% compared with $62.5 million in fiscal 2003.
Service, Selling, General and Administrative (SG&A)
For the fiscal year ended March 31, 2004, SG&A expenses were $29.9 million, down $0.7 million or 2 percent from $30.6 million in the prior year. The decrease in SG&A expense was attributed to a rigorous cost containment program, increased reliance on new technology, and a decrease in legal expense resulting from the settlement of several lawsuits during fiscal 2003. Employee and payroll expenses were $17.8 million, up 2 percent due to a rise in health care costs during fiscal 2004 compared to $17.5 million during the same period a year ago. Rent expense increased to $2.2 million for fiscal 2004, compared to $1.9 million for fiscal 2003, a result of the company's move to the new corporate headquarters in Bedford, Texas. Over time, rent expense is expected to diminish as operations were consolidated into one facility.
Income (Loss) from Operations
For the twelve months ended March 31, 2004, loss from operations was $1.3 million, compared to income from operations of $1.1 million in the prior year.
About Warrantech:
Warrantech Corporation administers and markets service contracts and after-market warranties on automobiles, automotive components, recreational vehicles, appliances, jewelry, musical instruments, 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.
These 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 relationships with any major customer, (f) the ability to successfully identify and contract new business opportunities, both domestically and internationally, (g) the ability to secure necessary capital for general operating or expansion purposes, (h) the adverse outcomes of litigation, (i) the non-payment of notes due from an officer and two directors of the company in 2007 which would result in a charge against earnings in the period in which the event occurred, (j) the inability of any of the insurance companies which insure the service contracts marketed and administered by the company to pay the claims under the service contracts, (k) the termination of extended credit terms being provided by the company's current insurance company, (l) the development of facts and circumstances which could affect existing accounting policies, and (m) the illiquidity of the company's common stock. 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 and there could be a materially adverse effect on the company's business.
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
March 31,
------------------------------
2004 2003
---------------- -------------
Gross revenues $149,328,267 $146,754,611
---------------- -------------
Revenues deferred to future
periods (14,929,216) (2,582,371)
Deferred revenues earned (14,437,772) (45,934,893)
---------------- -------------
Net (increase) decrease in deferred
revenues (29,366,988) (48,517,264)
---------------- -------------
Net revenues 119,961,279 98,237,347
Direct costs 87,427,618 62,549,340
---------------- -------------
Gross Profit $32,533,661 $35,688,007
---------------- -------------
Operating expenses
Service, selling, and general and
administrative 29,931,180 30,573,275
Provision for bad debt expense 590,000 150,444
Depreciation and amortization 3,280,604 3,885,054
---------------- -------------
Total costs and expenses 33,801,784 34,608,773
---------------- -------------
Income (loss) from operations (1,268,123) 1,079,234
Other income 574,460 774,274
---------------- -------------
Income (loss) before provision for
income taxes (693,663) 1,853,508
Provision for income taxes (177,292) 386,616
---------------- -------------
Net income (loss) ($516,371) $1,466,892
================ =============
Earnings (loss) per share:
Basic ($0.03) $0.10
Diluted ($0.03) $0.10
Weighted average number of shares
outstanding:
Basic 15,344,563 15,317,881
Diluted 15,569,608 15,398,910
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, March 31,
2004 2003
-------------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents $5,229,773 $6,422,530
Investments in marketable securities 1,370,731 843,980
Accounts receivable, (net of allowances
of $233,667 and $230,064, respectively) 23,369,612 22,008,608
Other receivables - net 7,322,289 5,299,887
Deferred income taxes 3,478,250 2,098,171
Receivable from Reliance Warranty, Inc. - 15,892,635
Employee receivables 70,908 73,833
Prepaid expenses and other current
assets 728,265 1,218,392
-------------- -------------
Total current assets 41,569,828 53,858,036
-------------- -------------
Property and equipment, net 5,746,851 8,296,313
-------------- -------------
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 18,879,171 19,792,378
Deferred direct costs 186,513,417 173,557,349
Investments in marketable securities 1,083,400 1,355,263
Restricted cash 825,000 825,000
Split dollar life insurance policies 900,145 877,126
Other assets 29,448 47,122
-------------- -------------
Total other assets 209,867,871 198,091,528
-------------- -------------
Total Assets $257,184,550 $260,245,877
============== =============
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, March 31,
2004 2003
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
------------------------------------
Current liabilities:
Current maturities of long-term
debt and capital lease
obligations $664,406 $802,070
Insurance premiums payable 31,613,047 36,070,992
Income taxes payable 48,099 81,236
Accounts and commissions payable 7,083,459 8,118,371
Claims loss liability 5,608,893 9,262,407
Accrued expenses and other
current liabilities 3,776,199 3,534,106
---------------- ----------------
Total current liabilities 48,794,103 57,869,182
---------------- ----------------
Deferred revenues 228,955,971 216,720,628
Claims loss liability 3,882,685 9,491,578
Long-term debt and capital lease
obligations 980,903 1,218,670
Deferred rent payable 369,839 417,720
---------------- ----------------
Total liabilities 282,983,501 285,717,778
---------------- ----------------
Commitments and contingencies -- --
Stockholders' equity (Capital
Deficiency):
Preferred stock - $.0007 par
value authorized - 15,000,000
Shares issued - none at Mar.
31, 2004 and Mar. 31, 2003 -- --
Common stock - $.007 par value
authorized - 30,000,000
Shares issued - 16,586,283
shares at Mar. 31, 2004 and
16,530,324 shares at
March 31,2003 116,106 115,714
Additional paid-in capital 23,800,228 23,760,809
Loans to directors and officers (10,747,470) (10,462,094)
Accumulated other comprehensive
income, net of taxes 150,801 (196,974)
Retained earnings (deficit) (34,931,059) (34,414,686)
---------------- ----------------
(21,611,394) (21,197,231)
Treasury stock - at cost,
1,187,606 shares at Mar. 31,
2004 and 1,249,690 shares at
March 31, 2003 (4,187,557) (4,274,670)
---------------- ----------------
Total Stockholders' Equity
(Capital Deficiency) (25,798,951) (25,471,901)
---------------- ----------------
---------------- ----------------
Total Liabilities and
Stockholders' Equity
(Capital Deficiency) $257,184,550 $260,245,877
================ ================