Warrantech Reports First Quarter Fiscal 2005 Results
BEDFORD, Texas--Sept. 2, 2004--Warrantech Corporation (OTC:WTEC), a leading independent provider of service contracts and after-market warranties, today announced that it has filed its Form 10-Q for the first quarter ended June 30, 2004 of fiscal year 2005.After a cumulative deferral of $238.0 million of gross revenues on the Balance Sheet to future periods, the newly adopted accounting treatment caused the company to show a net loss of ($0.8) million or ($0.05) per diluted share for the first quarter of fiscal 2005 compared to a net loss of ($0.5) million or ($0.03) per diluted share in the first quarter 2004.
"We have not wavered in our mission," said Joel San Antonio, Warrantech chairman and chief executive officer. "Despite the new accounting treatment during fiscal 2004, we started a number of new programs, and made improvements to Warrantech's management team. Hard work pays off in positive performance. Although weakness continued in the automotive segment, gross revenues are up in both the international and consumer product services divisions. In spite of a weak economy and complex accounting rule changes that obscure the success of our achievements, I'm proud of what Warrantech and our management team has accomplished."
Gross Revenues
Gross revenues for the first quarter of fiscal 2005 ended June 30, 2004, were $33.0 million, down 16 percent compared to $39.2 million in the first quarter fiscal 2004. Gross revenues in the international division rose 11 percent during the first quarter 2005 to $2.1 million, up $0.2 million from $1.9 million in the comparable 2004 quarter. Consumer products services reported gross revenues of $9.4 million during the first quarter fiscal 2005, up 3 percent or $0.3 million in the same period the previous year. The automotive division had gross revenues of $21.8 million during the first quarter fiscal 2005, down $6.5 million or 23 percent from $28.3 million in the same quarter in fiscal 2004.
Direct Costs
Direct costs are primarily insurance premiums and commission expenses related to the production and acquisition of service contracts. For the first quarter fiscal 2005, direct costs were $17.4 million, down $5.7 million or 25 percent, from $23.1 million in the same quarter in fiscal 2004. Automotive direct costs decreased $5.8 million or 32 percent, consumer products direct costs decreased $0.5 million or 9 percent, while international direct costs increased $0.1 million or 11 percent during the first quarter fiscal 2005 compared to the same period in fiscal 2004.
Gross Profit
Gross profit for the first quarter 2005 decreased $0.8 million or 11 percent compared to the same period in fiscal 2004. The automotive segment gross profit increased $0.3 million or 18 percent during the first quarter fiscal 2005 compared to the same period in fiscal 2004. The consumer products gross profit decreased $0.5 million or 13 percent during the first quarter fiscal 2005 compared to the same period in fiscal 2004. International gross profit increased $0.1 million, or 9 percent during the first quarter fiscal 2005 compared to the same quarter in fiscal 2004.
Service, Selling, General and Administrative (SG&A)
SG&A expenses for the first quarter 2005 were $7.0 million, down $0.4 million or 5 percent from $7.4 million in the first quarter fiscal 2004. Legal expenses increased $0.3 million during the first quarter 2005 due to litigation expenses related to the Lloyd's Underwriter's lawsuit and legal advice in connection with seeking guidance from the staff of the Securities and Exchange Commission. Employee costs were lower at $4.3 million during the first quarter fiscal 2005 compared to $4.5 million in the same period the previous year due primarily to efficiencies in total head count. Rent expense decreased by $0.2 million from $0.6 million in the first quarter fiscal 2004 compared to $0.4 million in the same period in fiscal 2005 due to the company's move to the new corporate headquarters in Bedford, Tx. Depreciation decreased from $0.9 million in the first quarter of 2004 to $0.7 million in the same period in 2005 due to the company's planned obsolescence and reduced requirement for capital expenditures on call center equipment.
Income from Operations
For the first quarter fiscal 2005, Warrantech had a loss from operations of $1.4 million compared to an operating loss of $1.1 million in the same period last year. The change in income from operations was primarily due to higher levels of revenue, which must be deferred to future periods.
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
(Unaudited)
For the Three Months Ended
June 30,
-----------------------------------
2004 2003
------------------ ----------------
Gross revenues $32,994,936 $39,170,157
Revenues deferred to future
periods (31,042,699) (9,620,586)
Deferred revenues earned 21,909,254 844,251
Net (increase) decrease in deferred
revenues (9,133,445) (8,776,335)
------------------ ----------------
Net revenues 23,861,491 30,393,822
Direct costs 17,400,074 23,098,528
------------------ ----------------
Gross Profit $6,461,417 $7,295,294
Operating expenses
Service, selling, and general and
administrative 6,965,207 7,350,767
Provision for bad debt expense 131,279 95,000
Depreciation and amortization 728,489 928,080
------------------ ----------------
Total costs and expenses 7,824,975 8,373,847
------------------ ----------------
Income (loss) from operations (1,363,558) (1,078,553)
Other income 178,641 204,321
------------------ ----------------
Income (loss) before provision for
income taxes (1,184,917) (874,232)
Provision for income taxes (425,378) (399,240)
------------------ ----------------
Net income (loss) ($759,539) ($474,992)
================== ================
Earnings (loss) per share:
Basic ($0.05) ($0.03)
================== ================
Diluted ($0.05) ($0.03)
================== ================
Weighted average number of shares
outstanding:
Basic 15,398,677 15,344,563
================== ================
Diluted 15,398,677 15,344,563
================== ================
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, March 31,
2004 2004
------------------ ---------------
A S S E T S
--------------------------------
Current assets:
Cash and cash equivalents $6,093,021 $5,229,773
Investments in marketable
securities 1,086,622 1,370,731
Accounts receivable, (net of
allowances of $328,065 and
$233,667, respectively) 23,123,347 23,369,612
Other receivables - net 8,111,005 7,322,289
Deferred income taxes 3,478,250 3,478,250
Employee receivables 66,834 70,908
Prepaid expenses and other
current assets 526,584 728,265
------------------ ---------------
Total current assets 42,485,663 41,569,828
------------------ ---------------
Property and equipment, net 5,344,034 5,746,851
------------------ ---------------
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 19,346,464 18,879,171
Deferred direct costs 196,255,326 186,513,417
Investments in marketable
securities 1,384,764 1,083,400
Restricted cash 825,000 825,000
Split dollar life insurance
policies 900,145 900,145
Other assets 32,556 29,448
------------------ ---------------
Total other assets 220,381,544 209,867,871
------------------ ---------------
Total Assets $268,211,241 $257,184,550
================== ===============
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, March 31,
2004 2004
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
-------------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $647,731 $664,406
Insurance premiums payable 36,183,304 31,613,047
Income taxes payable 44,242 48,099
Accounts and commissions payable 6,414,843 7,083,459
Claims loss liability 3,532,287 5,608,893
Accrued expenses and other current
liabilities 4,423,426 3,776,199
------------- -------------
Total current liabilities 51,245,833 48,794,103
------------- -------------
Deferred revenues 238,032,539 228,955,971
Claims loss liability 4,208,213 3,882,685
Long-term debt and capital lease
obligations 1,003,642 980,903
Deferred rent payable 414,836 369,839
------------- -------------
Total liabilities 294,905,063 282,983,501
------------- -------------
Commitments and contingencies -- --
Stockholders' equity (Capital Deficiency):
Preferred stock - $.0007 par value
authorized - 15,000,000
Shares issued - none at June 30,
2004 and Mar. 31, 2004 -- --
Common stock - $.007 par value
authorized - 30,000,000 116,106 116,106
Shares issued - 16,586,280 shares at
June 30, 2004 and March 31,2003
Additional paid-in capital 23,800,228 23,800,228
Loans to directors and officers (10,818,242) (10,747,470)
Accumulated other comprehensive income,
net of taxes 86,422 150,801
Retained earnings (deficit) (35,690,597) (34,931,059)
------------- -------------
(22,506,265) (21,611,394)
Treasury stock - at cost, 1,187,606
shares at June 30, 2004 and
March 31, 2003 (4,187,557) (4,187,557)
------------- -------------
Total Stockholders' Equity
(Capital Deficiency) (26,693,822) (25,798,951)
------------- -------------
------------- -------------
Total Liabilities and Stockholders'
Equity (Capital Deficiency) $268,211,241 $257,184,550
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