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Warrantech Reports Net Income For Fourth Quarter And FY 2002

June 25, 2002

Warrantech Corporation, a service contract and extended warranty administrator, reported June 25 the eighth consecutive quarter of profitability. Net income rose to $1,085,599 or $0.07 per diluted share for the company's fiscal fourth quarter 2002 ended March 31, 2002, compared to net income of $24,014 or $0.00 per diluted share in the same period a year ago.

For the twelve months ended March 31, 2002, net income was $2,256,273 or $0.15 per diluted share compared to net income of $1,866,924 or $0.12 per diluted share for the fiscal year (FY) 2001. The earnings increase for the fourth quarter 2002 was primarily the result of increased revenues. Despite the loss of the Staples account and decreased deferred revenue from prior periods recognized this year versus last year, the increase in earnings resulted from the benefit from the American International Group, Inc. (AIG) settlement, lower SG&A expenses and lower depreciation and amortization.

"We are proud to report Warrantech's strong financial performance for fiscal 2002. This is the eighth consecutive quarter we have delivered profits to our shareholders," Joel San Antonio, Warrantech chairman and chief executive officer, said. "This year, our management team increased penetration in key markets while aggressively managing the company's bottom line. As a result, cash and short-term investments increased 49 percent, and working capital improved significantly. We are expanding operations in South America and Canada as we continue developing new ways to serve our existing customer base. Going forward, we will continue to focus on the fundamentals and are committed to enhancing shareholder value," San Antonio said.

The net earned administrative fee for the quarter ended March 31, 2002 was $10,283,766 compared to $12,678,940 during the same quarter last year. The change was due primarily to the lower amount of deferred revenue recognized this period versus last period offset by an appreciable increase in net earned administrative fees from its existing and new dealers. For the twelve months ended March 31, 2002, the net earned administrative fee was $37,327,306, compared to $49,700,944 for FY 2001. Excluding the loss of Staples, the company experienced an increase in net earned administrative fee from the existing and new dealer client-base.

The Automotive segment's net earned administrative fee increased during the fourth quarter to $6,506,816, up 50 percent, compared to $4,351,672 during the same quarter last year. For the twelve months ended March 31, 2002, the net earned administrative fee was $19,019,558, up $3,013,299 or 19 percent above $16,006,259 in FY 2001. The increase in net administrative fee revenue is due to higher sales volumes and a $1,060,274 rise in deferred revenue from prior periods, according to the company.

The net earned administrative fee for the Consumer Products segment was $3,596,883 during the fourth quarter 2002 compared to $7,874,800 in the fourth quarter 2001. For the twelve months ended March 31, 2002, Consumer Products net earned administrative fee revenue was $16,364,702 compared to $32,240,460 in FY 2001. The change was primarily attributed to the loss of Staples as a customer and a decrease in deferred revenue from prior periods recognized this year versus last year.

Net earned administrative fee for the International segment was $186,848 for the fourth quarter 2002 from $570,771 for the same quarter in 2001 resulting from the closing of the United Kingdom operation. For the twelve months ended March 31, 2002, net earned administrative fees increased $537,791, or 30 percent, to $2,353,491 compared to $1,815,700 for FY 2001. The company's increased business volumes from Peru and Chile were the primary reason for the sharp increase in net earned administrative fee revenue in the international business segment. Strong demand in South America demonstrates Warrantech's ongoing success in penetrating the emerging Latin American market.

SG&A expenses for the fourth quarter 2002 decreased significantly to $7,525,842, down 30 percent from $10,776,004 in the corresponding quarter in 2001. For the twelve months ended

March 31, 2002, SG&A expense declined $9,846,598, or 25 percent to $29,944,008 compared to $39,790,606 for the same period in FY 2001. According to the company, the decrease in SG&A is due to improved call

center technologies, strict adherence to cost cutting programs and the closure of operations in the United Kingdom. Employee and payroll expenses were down to $4,812,849 or 13 percent in the fourth quarter 2002 compared to $5,550,089 in the fourth quarter 2001. For the twelve months ended March 31, 2002, employee and payroll expenses declined $3,767,040, or 17 percent to $18,589,220 compared to $22,356,260 in FY 2001.

Other service-related expenses including consulting and legal fees declined sharply due to the $824,332 settlement with AIG and a reduction in computer system development. For the fourth quarter 2002, service-related expenses were $739,777 compared to $1,604,279 for the same period a last year. During the twelve months ended March 31, 2002, service expenses were $2,839,703, a 56 percent drop from $6,479,217 in FY 2001. Rent expense was $351,749 during the fourth quarter 2002 compared to $634,752 during the same period in 2001. For the twelve months ended March 31, 2002, rent expense decreased $988,387 from FY 2001 due to the closure of offices in the United Kingdom and the company's relocation of corporate offices to Texas.

Income from operations for the fourth quarter 2002 was $1,716,605, up from $364,339 in the same quarter in 2001. The increase in income from operations resulted from a combination of reduced depreciation, amortization and SG&A. For the twelve months ended March 31, 2002, income from operations was $2,902,856 an 18 percent increase from $2,463,492 for FY 2001. The increase in income from operations for FY 2002 was the result of lower depreciation and amortization, the reduction of losses from the closing of the United Kingdom operations, the benefit of the AIG settlement, which were offset by decreased net earned administrative fees resulting from the loss of the Staples account.

The Automotive division reported a pre-tax profit for the fourth quarter 2002 of $3,218,793 compared to $1,074,904 in the fourth quarter 2001. For the twelve months ended March 31, 2002, the Automotive division had pre-tax profits of $7,729,176, an increase of 81 percent, compared to $4,277,109 in FY 2001. This increase was the result of increased sales and higher amortization of deferred earned administrative fee revenue, lower SG&A expense and lower depreciation.

Consumer Products reported a pre-tax loss of $1,020,650 in the fourth quarter of 2002 compared to a $237,137 pre-tax profit in the fourth quarter of 2001. For the twelve months ended March 31, 2002, the Consumer Products division reported a pretax loss of $3,704,242 compared to pre-tax income of $3,927,266 in FY 2001. The cancellation of the Staples contract and a decrease in deferred revenue recognized this period were the primary reasons for the pre-tax loss. Partially offsetting the effect of Staples were strict cost cutting measures in payroll and telephone expenditures that slashed total SG&A expense.

The International business segment reported a pre-tax loss of $415,726 for the fourth quarter

2002 compared to pre-tax loss of $591,668 in the fourth quarter 2001. For the twelve months ended March 31, 2002, International had a pre-tax loss of $907,600 compared to pre-tax income of $1,392,294 in FY 2001. Increased business activity in South America and Canada combined with lower SG&A expense in the current period offset almost all of the gain resulting from the closing of the UK operation in the prior fiscal year in the International segment.

About Warrantech

Warrantech Corporation markets and administers service contracts and extended 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 www.warrantech.com.

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