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Warrantech Announces 2nd Quarter Fiscal 2004 Earnings

November 6, 2003

Warrantech Corp., an independent provider of service contracts and aftermarket warranties, on Nov. 6 reported profits for the fourteenth consecutive quarter.

Net income was $781,406 or $0.05 per diluted share for the company’s second quarter for fiscal 2004, which ended Sept. 30, 2003, versus $890,525 or $0.06 per diluted share in the second quarter fiscal 2003.

For the six-month period in fiscal 2004, net income was $996,701 or $0.07 per fully diluted share, compared to $1,602,885 or $0.10 per diluted share in the corresponding period last year. According to Warrantech, the change in net income for the second quarter and six-month periods of fiscal 2004 resulted from lower margins from segment mix and higher levels of net deferred revenue recognized last year.

“Warrantech continues to grow, and our financial performance is strong,” said Joel San Antonio, Warrantech chairman and CEO. “Today, we reported our fourteenth consecutive quarter of profits. Gross revenues were up 14 percent, and all our business segments show positive top line growth trends.

“While revenue is rising, we are focusing on optimizing segment contribution to obtain higher margins going forward,” San Antonio said. “I expect future growth will come from increased market penetration in the consumer products and international business units, and the continued growth of the reinsurance and direct marketing lines in Automotive.”

Gross Revenues Increase

Gross revenues for the second quarter fiscal 2004 ended Sept. 30, 2003, increased to $42,344,838, an increase of 9.4 percent, compared to $38,708,291 for the same quarter in fiscal 2003.

For the first six-months of fiscal 2004 period, gross revenue was $82,428,279, an increase of 14 percent, compared to $72,358,475 in the same period last year.

Automotive gross revenues were $29,739,829, up 4.1 percent during the second quarter fiscal 2004. For the first six months of fiscal 2004, Automotive gross revenues were $58,023,231, up 10.4 percent, compared to $52,578,238 in the same period in fiscal 2003.

According to Warrantech, the change in Automotive gross revenues for the second quarter and six-month periods were due primarily to increased business from direct marketers and reinsurance programs.

International gross revenues for the second quarter fiscal 2004 were $2,649,533, an increase of 100.6 percent from $1,321,018 in the comparable quarter the prior year. For the first six months of fiscal 2004, International gross revenues were $4,561,380, an increase of 81.5 percent from $2,513,815 in the same period last year. Warrantech said the change in International gross revenues was due to increased retail penetration by existing clients and to new business generated within the Latin American market.

Consumer Products Services (CPS) segment gross revenues were $10,364,652, during the second quarter 2004, up 16.0 percent compared to $8,933,123 in the corresponding 2003 period. For the first six months of fiscal 2004, CPS gross revenues were $20,344,271 an increase of 16.7 percent compared to $17,432,574 same period last year. The change in CPS gross revenues was due to increased volumes from existing clients and new business, according to the company.

Net Earned Administrative Fees Fall

Net earned administrative fees are gross revenues less the combined sum of premiums, commissions, and sales allowances plus or minus net deferred revenue. The net earned administrative fee for the fiscal 2004-second quarter ended Sept. 30, 2003 was $9,587,578, compared to $9,938,267 for the same quarter last year.

For the first six months of fiscal 2004, net earned administrative fees were $18,042,935, compared to $18,972,403 for the corresponding period last year.

Warrantech said the reduction in net earned administrative fee for the second quarter and first six months of fiscal 2004 was due primarily to lower margins and higher amounts of net deferred revenue recognized last year.

During the second quarter fiscal 2004, net deferred revenue was $631,129 compared to $896,598 in the second quarter of fiscal 2003. For the six months of fiscal 2004, net deferred revenue was $1,014,490 compared to $1,512,913 in the same period in 2003.

The Automotive segment’s net earned administrative fee was $3,589,071 during the second quarter of 2004, a reduction of $1,960,200 from the $5,549,271 net earned administrative fee in the same quarter 2003. For the first six months of fiscal 2004, Automotive net earned administrative fee was $6,900,538 compared to $10,558,403 during the same period in 2003.

Although the Automotive segment had an increase in its gross revenue, its net earned administrative fee decreased due to lower margins due to product mix and lower net deferred revenues recognized this period, according to Warrantech.

The net earned administrative fee for the Consumer Products segment was $4,143,072 in the second quarter of fiscal 2004, compared to $3,741,217 for the same quarter in the previous year. For the six-month period of fiscal 2004, net earned administrative fees for the Consumer Products segment were $8,026,926 compared to $7,103,062 in the same 2003 period. The increase was due to higher volumes from existing clients and new business, according to Warrantech.

Net earned administrative fee for the International segment increased to $1,881,660 in the second quarter 2004, from $760,817 for the same quarter in the prior year. For the first six months of fiscal 2004, International net earned administrative fees were $2,962,086, up from $1,477,089 in the same period last year. Warrantech said the increase in International’s net earned administrative fee was the result of increased volumes from existing clients, new business in South America and increased market penetration in Puerto Rico.

Service, Selling, General and Administrative (SG&A) Expenses Up 3 Percent

SG&A expenses for the second quarter fiscal 2004 were $8,024,878, up 2 percent compared to $7,894,879 in the corresponding 2003 quarter. For the first six months of fiscal 2004, SG&A expenses were $15,530,728, up 3 percent from $15,097,222 in the same period in fiscal 2003.

Rent related expense and higher employee costs contributed to the increase in SG&A during the current quarter and six-month periods. Legal fees were down $573,110 or 53.6 percent in the second quarter of 2004 from the same quarter last year. For the first half of fiscal 2004, legal fees were $704,987, down 51.8 percent from $1,461,562 for the same period in fiscal 2003.

Income from Operations Decreases

For the second quarter fiscal 2004 Warrantech had income from operations of $504,807 compared to $1,021,853 in the second quarter fiscal 2003. For the first six months of fiscal 2004, income from operations was $431,234 compared to $1,830,527 in the corresponding period last year.

The decrease in income from operations was primarily due to lower earned administrative fees and slightly higher selling, general and administrative expenses, according to Warrantech.

SEC Selects Warrantech's Periodic Reports for Review

In March 2003 the Division of Corporation Finance of the Securities and Exchange Commission ("SEC") selected the Company's periodic reports for review. The SEC staff said that the purpose of the review was to assist Warrantech in its compliance with applicable disclosure requirements and to enhance the overall disclosure in the company's reports.

As a result of the communications with the SEC staff, the company amended certain of its disclosures as reflected in its annual report filed on Form 10-K for the fiscal year ended March 31, 2003.

The company also restated its financial statements for prior periods to reflect certain changes in accounting policy. The cumulative effect of the change to prior periods was a net benefit of $1,721,184 in retained earnings.

Warrantech said is still in discussions with the SEC staff on what the company called "two remaining complex issues." According to Warrantech, it expects to receive an independent report on these issues by mid-November and will then prepare a written report to the SEC.

About Warrantech

Warrantech Corp. administers and markets service contracts and aftermarket warranties on automobiles, automotive components, recreational vehicles, appliances, consumer electronics, homes, computer and computer peripherals for retailers, distributors and manufacturers.

The company provides its services in the United States, Canada, Puerto Rico and Latin America.

For more information on Warrantech, visit www.warrantech.com.

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