Aether Holdings Announces Second Quarter 2005 Results; Reports Net Income of $.02 Per Share; Completes Reorganization to Protect Tax Loss Carryforwards.BALTIMORE Baltimore, city (1990 pop. 736,014), N central Md., surrounded by but politically independent of Baltimore co., on the Patapsco River estuary, an arm of Chesapeake Bay; inc. 1745. -- Aether aether: see ether, in physics and astronomy. Aether god of whole atmosphere. [Gk. Myth.: Jobes, 42] See : Air Holdings, Inc. (Nasdaq:AETH), the new parent holding company of Aether Systems, Inc., today reported financial results for the quarter ended June June: see month. 30, 2005.(1) Net income for the second quarter of 2005 was $0.02 per share, or approximately $778,000, which was a significant increase from a net loss of ($1.14) per share, or approximately ($49.8 million) in the second quarter of 2004. The Company said that its move to profitability in the current quarter was primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to increased earnings from its mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. ("MBS See Mb/sec. MBS - mobile broadband services ") portfolio, including realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. of $423,000 on sales of MBS. No gains on sales of MBS were recognized during the first quarter of 2005. In the first quarter of 2005, net loss was ($0.01) per share, or approximately ($658,000). "Although MBS market conditions remained challenging during the second quarter, we are very pleased that we were able to achieve profitability through the careful and conservative management of our MBS portfolio, coupled with a reduction in our operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. ," said David S. Oros, Aether's Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "In addition, with our stockholders having voted to approve our holding company reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. at our July July: see month. 12th annual meeting, we have now implemented transfer restrictions on our common stock to help protect the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. value of our substantial net operating and capital loss carryforwards Loss Carryforward An accounting technique with which a company applies net operating losses of the current year to future year's profits in order to reduce tax liability. Notes: ." The Company also indicated that during the current quarter it completed the process of transitioning its operations to the MBS business. Accordingly, the Company said, the level of operating expenses for the quarter, exclusive of certain non-recurring costs associated with its holding company reorganization, was more indicative of the anticipated future level of quarterly operating expenses. The Company reiterated that it expects future recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. quarterly operating expenses to be approximately $1 million, excluding management fees paid to its third-party MBS portfolio manager. During the second quarter, those fees totaled approximately $139,000. During the second quarter, the Company settled $326.8 million in additional MBS purchases and entered into repurchase agreements Repurchase agreement An agreement with a commitment by the seller (dealer) to buy a security back from the purchaser (customer) at a specified price at a designated future date. to fund a substantial portion of those purchases. At June 30, 2005, the Company's MBS portfolio had a fair value of $352.0 million, as compared to a fair value of $434.4 million at March 31, 2005. The decreased size of the MBS portfolio reflects the sale during the second quarter of approximately $73 million of MBS, as well as principal repayments of approximately $19.7 million. As of June 30, 2005, the Company had $253.1 million in borrowings under short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. repurchase agreements, which had a weighted average maturity of 26 days and a weighted average interest rate of 3.31%. The weighted average coupon Weighted average Coupon The weighted average of the gross interest rates of mortgages underlying a pool as of the pool issue date; the balance of each mortgage is used as the weighting factor. of the Company's MBS was 4.44% at June 30, 2005, up from 4.01% at March 31, 2005 and 3.92% at December December: see month. 31, 2004. The Company's debt-to-equity ratio debt-to-equity ratio The relationship between long-term funds provided by creditors and funds provided by owners. A firm's debt-to-equity ratio is calculated by dividing long-term debt by owners' equity. Both items are shown on the balance sheet. as of June 30, 2005 was 2.0:1, as compared to 2.7:1 as of March 31, 2005 and .1:1 as of December 31, 2004. All of the Company's MBS are guaranteed by U.S. government-chartered agencies. In addition, all of the Company's MBS are hybrid adjustable-rate securities that have initial fixed interest rates for three to five years and thereafter generally reset on an annual basis. In Q2 2005, the weighted average annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. yield on average earning assets Earning Assets Any income-earning asset owned by a company. Notes: These assets are generally interest-bearing accounts, bonds, and securities available for sale. See also: Asset, Asset Valuation, Earnings, Net Interest Margin was 4.12%, versus 3.64% as of March 31, 2005 and 3.76% as of December 31, 2004. For the quarter, the Company's weighted average cost of funds Cost of Funds The interest rate paid on an outstanding loan. Notes: Money isn't free! Cost of funds is the cost of borrowing money. See also: Interest Rate Cost of funds Interest rate associated with borrowing money. was 3.03%, which equates to an interest rate spread of 1.09% for the quarter. The weighted average constant prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. rate on the Company's MBS portfolio was 17.0 during the second quarter of 2005, as compared to 16.5 and 7.3 during the first quarter of 2005 and the fourth quarter of 2004, respectively. The Company said as a result of continued tightening in interest rate spreads resulting from ongoing increases in the federal funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. along with sustained flatness in the yield curve, it has continued to follow a conservative approach to its MBS portfolio and has not acquired additional MBS since those settled in May 2005. Additionally, the Company indicated that as a result of continuing principal repayments on its existing MBS portfolio, the size of the portfolio may decline further absent a change in market conditions and a decision by the Company to purchase additional MBS. The Company also reiterated that it is continuing to evaluate other potential business opportunities that could contribute to the Company's profitability and allow it to realize value from its substantial accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. tax loss carryforwards tax loss carryforward See carryforward. more quickly. Such opportunities may complement the MBS business or may involve a different business strategy. Conference Call Aether will host a conference call on Thursday Thursday: see week. , August 4, 2005 at 8:30 a.m., Eastern Time. Interested parties may access the call at www.aethersystems.com or by telephone at (800) 946-0782. Please ask for confirmation code 1649618. Replay of this call will be available until August 24, 2005, by calling (888) 203-1112 / (719) 457-0820, access code 1649618. About Aether Holdings, Inc. Aether Holdings owns and manages a leveraged portfolio of mortgage-backed securities through its wholly-owned subsidiary Aether Systems, Inc. Forward-Looking Statement forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Disclosure This press release contains "forward-looking statements," as such term is used in the Securities Exchange Act of 1934, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. . Such forward-looking statements include those regarding the Company's expectations about anticipated future cash balances and expense reductions. When used herein, the words "anticipate," "believe," "estimate," "intend," "may," "will," and "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. They are not guarantees of future performance or results. The Company's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include: (1) in light of market conditions, the size of our MBS portfolio and the amount of leverage we incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. may remain below targeted levels, which may result in lower earnings than if we had a larger, more highly leveraged portfolio; (2) our future financial results may be negatively affected by contingent or retained liabilities relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc businesses that we have sold; (3) our MBS business involves significant risks related to changes in interest rates and the complexities of managing the overall yield of a leveraged portfolio; (4) leverage that we incur to expand the size of the MBS portfolio may limit our financial flexibility and could have a substantial negative effect on our financial results if we do not successfully manage the risks of borrowing; (5) we may not be able to realize value from our accumulated tax loss carryforwards, because of a failure to generate sufficient taxable earnings, regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. limits or both; (6) in managing the MBS portfolio, we will depend heavily on third party investment managers and financial advisors and consultants, and there is no assurance that such third parties will continue to work with us, in which event our performance could be negatively affected; (7) our cash balance could be negatively affected by post-closing price adjustments relating to the sale of our Transportation segment, as the buyer of that business has disagreed with our calculation of certain of these post-closing adjustments and has requested a price reduction, which we are vigorously vig·or·ous adj. 1. Strong, energetic, and active in mind or body; robust. See Synonyms at healthy. 2. Marked by or done with force and energy. See Synonyms at active. disputing; and (8) other factors discussed in our filings with the Securities and Exchange Commission. Aether undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
(1) In accordance with generally accepted accounting principles
("GAAP"), the results of Aether's Transportation and Mobile
Government businesses, which were sold in September 2004, and its
Enterprise Mobility Systems business, which was sold in January
2004, have been reclassified as discontinued operations for all
periods, so that period-to-period comparisons are presented on a
comparable basis. Aether's continuing operations reflect the
results of its mortgage-backed securities business.
AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(UNAUDITED)
Three Months Six Months
Ended Ended
June 30, June 30,
------------------ ------------------
2005 2004 2005 2004
-------- --------- -------- ---------
in thousands except per share
data
Interest income from MBS
portfolio $ 3,334 $ - $ 4,141 $ -
Interest expense on short-term
borrowings (1,707) - (1,719) -
-------- --------- -------- ---------
Net interest income from MBS
portfolio 1,627 - 2,422 -
-------- --------- -------- ---------
-------- --------- -------- ---------
Gain on sale of MBS 423 - 423 -
-------- --------- -------- ---------
Other operating expenses
(income)
--------------------------------
Selling, general and
administrative expenses 1,433 3,686 3,215 6,972
Depreciation 29 475 78 1,103
Stock compensation expense - 137 76 559
Other income (19) (22) (207) (52)
Restructuring charge - 275 (7) 690
-------- --------- -------- ---------
Total other operating
expenses 1,443 4,551 3,155 9,272
-------- --------- -------- ---------
Net operating income (loss) 607 (4,551) (310) (9,272)
Non operating income (expense)
--------------------------------
Other interest income 301 1,254 570 2,608
Interest expense from
subordinated notes payable - (2,604) - (5,208)
Unrealized gain on future
purchase contracts - 866 - 866
Investment gain (loss),
including impairments, net (9) (5,528) (19) (4,971)
-------- --------- -------- ---------
Total non operating income
(expense) 292 (6,012) 551 (6,705)
Income (loss) from
continuing operations 899 (10,563) 241 (15,977)
Discontinued operations
--------------------------------
Loss from discontinued
operations (121) (39,029) (121) (42,865)
Gain (loss) on sale of
discontinued operations - (245) - 18,151
-------- --------- -------- ---------
Loss from discontinued
operations (121) (39,274) (121) (24,714)
-------- --------- -------- ---------
Net income (loss) $ 778 $(49,837) $ 120 $(40,691)
======== ========= ======== =========
Income (loss) per share - basic
and diluted - from continuing
operations $ 0.02 $ (0.24) $ - $ (0.37)
Income (loss) per share - basic
and diluted - from discontinued
operations (0.00) (0.89) (0.00) (0.98)
Income (loss) per share - basic
and diluted - gain on sale of
discontinued operations - (0.01) - 0.42
-------- --------- -------- ---------
Net income (loss) per share
- basic and diluted $ 0.02 $ (1.14) $ (0.00) $ (0.93)
======== ========= ======== =========
Weighted average shares
outstanding
Basic 44,009 43,802 44,000 43,538
======== ========= ======== =========
Diluted 44,591 43,802 44,595 43,538
======== ========= ======== =========
AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2005 2004
-------------- --------------
in thousands (Unaudited)
Cash and cash equivalents $ 25,434 $ 60,723
Mortgage-backed securities, at fair
value 352,040 62,184
Interest receivable 1,539 356
Prepaid expenses and other assets 1,102 4,124
Restricted cash 8,633 8,832
Furniture, computers, and equipment, net 235 367
-------------- --------------
Total assets $ 388,983 $ 136,586
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 3,469 $ 3,494
Repurchase agreements 253,083 -
Accrued employee compensation and
benefits 96 186
Accrued restructuring - 259
Accrued interest payable 70 -
Other long-term liabilities 2,057 2,057
-------------- --------------
Total liabilities 258,775 5,996
Stockholders' equity 130,208 130,590
Commitments and contingencies
-------------- --------------
Total assets $ 388,983 $ 136,586
============== ==============
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