Aether Systems Announces Third Quarter 2001 Results; Expense Reduction Efforts on Schedule as Company Reports Solid Cash Position and Infrastructure Established for Growth.Business Editors/Hi-Tech Writers OWINGS MILLS, Md.--(BUSINESS WIRE)--Nov. 14, 2001 Aether aether: see ether, in physics and astronomy. Aether god of whole atmosphere. [Gk. Myth.: Jobes, 42] See : Air Systems, Inc. (Nasdaq:AETH), a leading provider of wireless data products and services, today announced financial results for the third quarter ended September September: see month. 30, 2001. Revenues for the third quarter were $25 million as compared to $16.2 million in the same period last year, an increase of $8.8 million or 54 percent. The results include 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. services revenue of $11.2 million, engineering services revenue of $0.6 million, software product revenue of $8.2 million, and device sales of $4.9 million. In the same period last year, total revenue was $16.2 million with recurring services revenue of $7.6 million, engineering services revenue of $2.5 million, software product revenue of $5.3 million and device sales of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $0.9 million. Aether reported a third quarter operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. , excluding certain non-cash charges Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. and one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. adjustments, of ($1.10) per share or a total of ($44.9 million), compared with ($0.40) per share or ($15.2 million) operating loss in the same period last year. As part of Aether's integration strategy, the company has increased operational efficiencies through cost-cutting initiatives including the consolidation or closing of facilities and a reduction in workforce. As a result of these efforts, the company recognized a restructuring charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. of $18.2 million, which relates to severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and related costs to a reduction of 230 positions and the costs incurred in closing or consolidating six facilities. After completing an earlier announced effort to reduce expenses by $78 million, Aether is in the process of reducing annual expenses by an additional $25 million, for a total reduction of $103 million in annual expenses. 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. this quarter decreased from $63 million in Q2 2001 to $53 million, and the company remains on track to decrease operating expenses to approximately $38 million in Q1 2002. Cash burn also decreased this quarter from $78 million in Q2 2001 to $59 million this quarter. As of September 30, 2001, cash, 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. investments, and cash equivalents total $594 million. "Aether is adapting effectively to the challenging market conditions we face, while continuing to build the infrastructure required for growth and leadership in the wireless data market," said 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. Dave Oros. "From our inception INCEPTION. The commencement; the beginning. In making a will, for example, the writing is its inception. 3 Co. 31 b; Plowd. 343. Vide Consummation; Progression. , we have grown the business, beating expectations along the way. In this changed environment, our focus has been on cost reductions and we can report strong results on that front. We are ahead of schedule and more than $78 million along the way to 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. expense reductions of $103 million, which will position Aether to limit operating expenses to approximately $38 million in Q1 2002. Simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics , we have built a first-class infrastructure including redundant Repetitive. See redundancy. network operation centers, and an open-standard wireless application platform - Aether Fusion(TM) - geared for scalable application development and deployment Installing, setting up, testing and running. This military term, which means the placement of troops and equipment in the field, is widely used with computers as an alternate to the word "implementation. ." Oros continued, "Aether sees growth potential in four key areas: transportation products and services, sales to public safety, defense and security agencies, our new channel to reach the small-to-medium enterprise market through our recent agreement with AOL (A division of Time Warner, Inc., New York, NY, www.aol.com) The world's largest online information service with access to the Internet, e-mail, chat rooms and a variety of databases and services. , and core enterprise services such as field force automation driven by Aether Fusion. Recent world events have obviously placed an increased emphasis on public safety, an area where Aether already has years of experience and more than 1,000 local, state, and federal agencies using our mobile government products every day. Aether's Homeland Security Noun 1. Homeland Security - the federal department that administers all matters relating to homeland security Department of Homeland Security executive department - a federal department in the executive branch of the government of the United States initiative is introducing trusted Aether public safety products and services to agencies all over the country. These public safety opportunities combined with our other corporate initiatives will help Aether return to revenue growth in 2002. Aether is well positioned for success - we have significantly reduced spending and reorganized re·or·gan·ize v. re·or·gan·ized, re·or·gan·iz·ing, re·or·gan·iz·es v.tr. To organize again or anew. v.intr. To undergo or effect changes in organization. to increase efficiencies, activities that will allow Aether to effectively manage our cash position." Aether increased its deferred revenue during the quarter by $5.4 million through the deferral deferral - Waiting for quiet on the Ethernet. of revenue from the sales of equipment of our transportation products. These products are amortized over the life of the contracts and the sale of software maintenance contracts. This brings Aether's total deferred revenue to $24.7 million, which the company will recognize as revenue in future periods. Aether recorded a charge for inventory and inventory reduction efforts of $12.9 million this quarter. This charge relates to inventory that the company believes will decrease in value over time, and losses related to inventory reduction efforts. During the quarter Aether recorded a charge of $174.9 million related to prior acquisitions and investments. The company regularly evaluates the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of its assets. If it is determined that the carrying value is less than its estimated fair value, the carrying value is written down to the estimated fair value and a corresponding charge is recorded. First Nine Months Results For the first nine months of 2001, Aether reported a three-fold increase in revenue to $87.7 million, compared with $32.4 million for the same period in 2000. The results include recurring services revenue of $33.0 million, engineering services revenue of $5.8 million, software product revenue of $29.9 million and device sales of $19.0 million. In the same period last year, Aether recorded recurring services of $16.5 million, engineering services revenue of $5.6 million, software product revenue of $8.7 million and device sales revenue of approximately $1.6 million. Aether will host a conference call on Thursday Thursday: see week. November November: see month. 15, 2001 at 8:30 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy . Interested parties may access the call at www.aethersystems.com or by telephone at 800/441-0022. Please ask for the Aether Systems call. Replay of this call will be available until 5 p.m. EST P.M. also p.m. or p.m. abbr. post meridiem Usage Note: By definition, 12 a.m. on Tuesday Tuesday: see week. , November 20, 2001, by calling 800/839-0860, access code 1233. About Aether Systems, Inc. Aether Systems helps enterprise customers improve efficiency and profitability by providing the services, software and support necessary to extend existing and future business applications from the desktop to any wireless device. Through Aether Fusion(TM), Aether's wireless enabling technology foundation, Aether develops, deploys and manages wireless solutions built on industry standard technology and backed by Aether's expertise in wireless hosting, software and services. Aether provides the worlds of business and government with a single source for reliable, scalable and cost effective wireless solutions. For more information, please visit www.aethersystems.com. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement This press release includes forward-looking statements 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. based on the current expectations of Aether about future events. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about Aether that could cause actual results to differ materially from those in such forward-looking statements. Potential risks and uncertainties include, but are not limited to, market acceptance of the products developed or to be developed by Aether, the ability of Aether to develop new technologies and projects, future decisions regarding investments and acquisitions and future market values of similar businesses, the success of Aether's efforts to reduce marginal costs Marginal cost The increase or decrease in a firm's total cost of production as a result of changing production by one unit. marginal cost The additional cost needed to produce or purchase one more unit of a good or service. while increasing sales, and the success of joint efforts with partner companies. These risks and other risk factors are described under the caption, "Risk Factors" in Aether's filings with the Securities and Exchange Commission. Aether undertakes no obligation to update the forward-looking statements contained in this press release.
AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS (Unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
in thousands except
per share data
Subscriber revenue $ 11,179 $ 7,562 $ 32,987 $ 16,534
Engineering
services revenue 642 2,514 5,786 5,554
Software and
related services 8,205 5,260 29,874 8,691
Device sales 4,922 886 19,045 1,599
--------- --------- --------- ---------
Total revenue 24,948 16,222 87,692 32,378
Cost of subscriber
revenue 6,805 3,165 19,657 7,378
Cost of
engineering
services revenue 314 1,870 3,099 3,511
Cost of software
and related
services 2,892 1,913 9,549 3442
Cost of device
sales 17,560 1,012 33,699 2280
--------- --------- --------- ---------
Total cost of
revenue 27,571 7,960 66,004 16,611
--------- --------- --------- ---------
Gross profit (2,623) 8,262 21,688 15,767
Operating expenses:
Research and
development 16,170 6,201 52,046 11,962
General and
administrative 21,955 20,437 71,439 35,706
Selling and
marketing 14,780 10,529 55,507 32,338
In process
research and
development
related to
acquisitions -- 3,900 -- 6060
Depreciation and
amortization 32,068 72,305 153,311 156,756
Option and warrant
expense 3,513 4,020 12,450 10,070
Impairment of
intangibles 129,201 -- 1,090,781 --
Restructuring
Charge 18,230 -- 34,089 --
--------- --------- --------- ---------
235,917 117,392 1,469,623 252,892
--------- --------- --------- ---------
Operating loss (238,540) (109,130) (1,447,935) (237,125)
Other income
(expense):
Interest income
(expense), net 1,061 14,564 10,661 31,540
Equity in losses
of investment (16,762) (17,572) (48,285) (31,400)
Investment gain/
(loss), including
impairments, net (45,661) -- (141,553) --
Income tax benefit 9,129 574 10,003 574
Minority Interest 47,394 4,303 55,541 5,965
Cumulative effect
of change in
accounting
principle
relating to
adoption of SFAS
133, Accounting
for Derivatives -- -- 6,564 --
--------- --------- --------- ---------
Net loss before
extraordinary
item (243,379) (107,261) (1,555,004) (230,446)
extraordinary
item (early
extinguishment
of debt) -- -- 7,684 --
--------- --------- --------- ---------
Net loss after
extraordinary item (243,379) (107,261) (1,547,320) (230,446)
Net loss per share
- basic and
diluted before
extraordinary item ($ 5.98) ($ 2.80) ($ 38.34) ($ 6.53)
extraordinary item $ 0.00 $ 0.00 $ 0.19 $ 0.00
--------- --------- --------- ---------
Net loss per share
- basic and
diluted ($ 5.98) ($ 2.80) ($ 38.15) ($ 6.53)
========= ========= ========= =========
Weighted average
shares outstanding
- basic and
diluted 40,694 38,343 40,561 35,308
========= ========= ========= =========
Reconciliation to
net operating
loss:
Net loss (243,379) (107,261) (1,547,320) (230,446)
Add back non-cash
and one-time
charges:
One-time
adjustments
(impairment of
goodwill,
write-down of
investments,
inventory
obsolescence) 187,348 -- 1,240,738 --
Amortization of
intangibles
relating to
acquisitions 27,929 70,115 141,068 152,805
In process
research and
development
acquired -- 3,900 -- 6,060
Proportionate
share of losses
in investee 16,762 17,572 48,285 31,400
Option and
warrant expense 3,513 4,020 12,451 10,070
Charges from
adoption of SFAS
133 -- -- (599) --
Restructuring
Charge 18,230 -- 34,089 --
Extraordinary
Item -- -- (7,684) --
Deferred tax
benefit (9,129) (608) (10,004) (608)
Minority Interest
- amortization (46,131) (2,935) (51,160) (4,369)
--------- --------- --------- ---------
Net operating
loss (44,857) (15,197) (140,136) (35,088)
========= ========= ========= =========
Net operating
loss per share -
basic and
diluted ($ 1.10) ($ 0.40) ($ 3.45) ($ 0.99)
========= ========= ========= =========
AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
Sept. 30, Dec. 31,
2001 2000
---------- ----------
in thousands (unaudited)
Current assets:
Cash and cash
equivalents $ 591,940 $ 872,747
Short-term
investments 2,532 2,648
Trade accounts
receivable 27,333 30,263
Inventory 25,898 19,130
Prepaid expenses
and other current
assets 16,242 17,081
---------- ----------
Total current assets 663,945 941,869
Furniture, computers,
and equipment, net 66,875 53,223
Intangibles and other
assets 328,613 1,682,283
---------- ----------
$1,059,433 $2,677,375
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,151 $ 9,747
Accrued expenses 35,413 66,949
Restructuring reserve 14,388 --
Accrued employee
compensation and benefits 13,641 12,566
Deferred revenue 17,718 14,170
Notes payable 15,900 18,813
---------- ----------
Total current liabilities 101,211 122,245
Long-term liabilities:
Convertible subordinated
notes payable and other
notes payable 300,842 321,201
Deferred revenue 6,974 --
Restructuring reserve 12,492 --
Deferred tax liability 691 10,694
Minority interest in
net assets of subsidiary -- 55,537
Stockholders' equity 637,223 2,167,698
Commitments and contingencies
---------- ----------
$1,059,433 $2,677,375
========== ==========
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