Aether Holdings Announces Third Quarter 2005 Results; Reports Net Loss of ($0.02) per share; Income from Continuing Operations of $0.01 per share.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 parent holding company of Aether Systems, Inc., today reported financial results for the quarter ended September September: see month. 30, 2005.(1) Net loss for the third quarter of 2005 was ($0.02) per share, or approximately ($835,000), compared with a net loss of ($0.09) per share, or approximately ($3.7 million) in the third quarter of 2004 and net income of $0.02 per share or approximately $778,000 in the second quarter of 2005. The Company said it recorded a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. charge to discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. during the current quarter of ($0.03) per share or approximately ($1,073,000) relating primarily to settlement of a dispute associated with the September 2004 sale of its Transportation segment. Income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the increased to $0.01 per share or approximately $238,000 in the third quarter of 2005 compared to a loss of ($0.09) per share or approximately ($4.0 million), in the third quarter of 2004. Income from continuing operations was $0.02 per share or approximately $899,000 in the second quarter of 2005. The Company attributed the reduction in income from continuing operations in the current quarter versus the prior quarter primarily to the increase in its borrowing costs associated with leveraging 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 and the recognition of a loss of approximately ($159,000) associated with the sale of MBS during the quarter. The Company recognized a gain of approximately $423,000 on sales of MBS during the second quarter of 2005. The Company said 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. , exclusive of management fees paid to its third-party MBS portfolio manager, were approximately $1.0 million in the third quarter as compared to approximately $1.3 million in the second quarter of 2005. This level of operating expenses is consistent with guidance previously provided by the Company. At September 30, 2005, the Company's MBS portfolio had a fair value of $281.2 million, compared to a fair value of $352.0 million at June June: see month. 30, 2005. The reduction in fair value during the quarter is attributable to the sale of approximately $33.1 million of MBS, principal repayments of approximately $34.8 million and a mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. adjustment of approximately $2.7 million. No additional MBS were purchased during the quarter. As of September 30, 2005, the Company had approximately $181.7 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 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. , which had a weighted average maturity of 18 days and a weighted average interest rate of 3.84%, compared to 26 days and 3.31% as of June 30, 2005. 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. on the Company's MBS was 4.35% during the quarter ending September 30, 2005, compared to 3.93% at September 30, 2004 and 4.44 % at June 30, 2005. 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 September 30, 2005 was 1.5:1, compared to 2.0:1 as of June 30, 2005. 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 or five years and thereafter generally reset on an annual basis. In Q3 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 4.01%, versus 3.88% in Q3 of 2004 and 4.12% in Q2 of 2005. For the third 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 3.51%, which equates to an interest rate spread of .50% for the quarter, compared to 1.09% for the second quarter of 2005. The Company did not have borrowings under short-term repurchase agreements during the third quarter of 2004. 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 32.1 during the third quarter of 2005, as compared to zero during the third quarter of 2004 and 17.0 for the second quarter of 2005. The Company said that as a result of 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. and sustained flatness in the yield curve, which have had a negative impact on the value and performance of its MBS investments, it did not acquire additional MBS during the third quarter and does not expect to acquire additional MBS in the near term. The Company also stated that as a result of continuing principal repayments on its existing MBS portfolio, the size of its portfolio will continue to decline absent additional MBS purchases. In addition, expected further increases in the federal funds rate will likely continue to increase short-term borrowing costs and thereby reduce the Company's interest rate spreads and net interest income from its MBS investments. The Company reiterated that it is continuing to evaluate other potential business opportunities that could enable it to more rapidly 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. 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: , which totaled $776.6 million and $272.2 million, respectively at September 30, 2005. The Company said it has not yet identified a particular strategy or business to pursue, either in addition to or in lieu of Instead of; in place of; in substitution of. It does not mean in addition to. its MBS investment activities. Conference Call Aether will host a conference call on Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , November 4, 2005 at 8:30 a.m., Eastern Time. Interested parties may access the call at www.aetherholdings.com or by telephone at (800) 500-0177 / (719) 457-2679. Please ask for confirmation code 2784295. Replay of this call will be available until November 24, 2005, by calling (888) 203-1112 / (719) 457-0820, access code 2784295. 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 tax loss carryforward See carryforward. , because of a failure to generate sufficient taxable earnings, regulatory 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 financial condition could be negatively affected by post-closing indemnity Recompense for loss, damage, or injuries; restitution or reimbursement. An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual. claims relating to the sale of our Transportation segment, as the buyer of that business has alleged significant claims, which we are vigorously disputing; (8) as a result of continuing negative market conditions for the MBS business, we may pursue additional or different business strategies that involve new or additional risks, and there is no assurance we will be able to identify or successfully implement any such additional or different strategies; and (9) 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 Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See 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 HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2005 2004
------------- -------------
in thousands (Unaudited)
Cash and cash equivalents $22,446 $60,723
Mortgage-backed securities, at fair value 281,189 62,184
Interest receivable 1,289 356
Prepaid expenses and other assets 372 4,124
Restricted cash 8,633 8,832
Furniture, computers, and equipment, net 228 367
------------- -------------
Total assets $314,157 $136,586
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $3,546 $3,494
Repurchase agreements 181,749 -
Accrued employee compensation and benefits 83 186
Accrued restructuring - 259
Accrued interest payable 78 -
Other long-term liabilities 2,057 2,057
------------- -------------
Total liabilities 187,513 5,996
Stockholders' equity 126,644 130,590
Commitments and contingencies
------------- -------------
Total liabilities and stockholders'
equity $314,157 $136,586
============= =============
AETHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
in thousands except per share
data
Interest income from MBS
portfolio $3,317 $256 $7,459 $256
Interest expense on short-term
borrowings (2,131) - (3,851) -
--------- --------- --------- ---------
Net interest income from
MBS portfolio 1,186 256 3,608 256
--------- --------- --------- ---------
--------- --------- --------- ---------
Gain (loss) on sale of MBS (159) 960 264 1,826
--------- --------- --------- ---------
Selling, general and
administrative expenses 1,036 2,674 4,070 9,647
Investment advisor fees 108 29 289 29
Depreciation 30 445 107 1,547
Stock compensation expense - 13 76 571
Other expense (income) (54) 146 (260) 93
Restructuring charge - (41) (7) 649
--------- --------- --------- ---------
Total other operating
expenses 1,120 3,266 4,275 12,536
--------- --------- --------- ---------
Net operating loss (93) (2,050) (403) (10,454)
Non operating income (expense)
-----------------------------
Other interest income 331 614 901 3,222
Interest expense from
subordinated notes payable - (2,604) - (7,811)
Investment gain (loss),
including impairments, net - - (19) (4,971)
--------- --------- --------- ---------
Total non operating income
(expense) 331 (1,990) 882 (9,560)
Income (loss) from
continuing operations 238 (4,040) 479 (20,014)
Discontinued operations
-----------------------
Loss from discontinued
operations (1,073) (2,582) (1,194) (45,450)
Gain (loss) on sale of
discontinued operations - 2,876 - 21,027
--------- --------- --------- ---------
Loss from discontinued
operations (1,073) 294 (1,194) (24,423)
--------- --------- --------- ---------
Net loss $(835) $(3,746) $(715) $(44,437)
========= ========= ========= =========
Income (loss) per share - basic
and diluted - from continuing
operations $0.01 $(0.09) $0.01 $(0.46)
Income (loss) per share - basic
and diluted - from
discontinued operations (0.03) (0.06) (0.03) (1.03)
Income (loss) per share - basic
and diluted - gain on sale of
discontinued operations - 0.06 - 0.47
--------- --------- --------- ---------
Net income (loss) per
share - basic and diluted $(0.02) $(0.09) $(0.02) $(1.02)
========= ========= ========= =========
Weighted average shares
outstanding
Basic 44,019 43,840 44,006 43,639
========= ========= ========= =========
Diluted 44,538 43,840 44,486 43,639
========= ========= ========= =========
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