Aether Systems Announces Third Quarter 2004 Results; Transition to Mortgage-Backed Securities Business Underway.OWINGS MILLS, Md. -- Aether aether: see ether, in physics and astronomy. Aether god of whole atmosphere. [Gk. Myth.: Jobes, 42] See : Air Systems, Inc. (Nasdaq:AETH) today reported financial results for the quarter ended September September: see month. 30, 2004, during which the Company completed the sales of its Transportation and Mobile Government segments. Accordingly, the results of those two business segments are reported as discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. , with the Company's 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 now comprised solely of its mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. ("MBS See Mb/sec. MBS - mobile broadband services ") business.(1) The Company said that as a result of the transition from its historical businesses to its MBS business, third quarter revenue is substantially lower, and 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. are higher, than what is anticipated once MBS operations are fully-implemented. For the third quarter, the Company reported $256,000 of interest income from assets associated with its MBS operations, including approximately $21 million of MBS acquired in mid-September n. 1. the middle part of September. Noun 1. mid-September - the middle part of September period, period of time, time period - an amount of time; "a time period of 30 years"; "hastened the period of time of his recovery"; "Picasso's blue and $56 million of 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. notes issued by the Federal Home Loan Mortgage Corporation Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, privately owned, government-sponsored organization that uses private capital to buy home mortgages as a means to help lower housing costs. (Freddie Mac Freddie Mac: see Federal Home Loan Mortgage Corporation. ). The Company also recognized a $960,000 gain on the sale of certain MBS assets during the quarter. Loss from continuing operations for Q3 2004 was ($0.09) per share, or approximately ($4.0 million). The Company also recorded a gain on the sales of its Transportation and Mobile Government segments (net of transaction fees and expenses) of approximately $2.9 million, or $0.07 per share, and a loss from discontinued operations of ($0.06) per share or approximately ($2.6 million). As a result, net loss was ($0.09) per share, or approximately ($3.7 million). Operating expenses were approximately $3.3 million, as compared to approximately $3.0 million in the third quarter of 2003 and $4.6 million in Q2 2004. A majority of the operating expenses for the third quarter include costs associated with the wind-up wind-up or wind·up n. 1. a. The act of bringing something to an end. b. A concluding part; a conclusion. 2. of discontinued operations and the implementation of MBS operations, all of which are anticipated to be completed by year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. . In addition, the Company expects to reduce operating expenses to a quarterly run rate below $1 million by the end of Q1 2005, as it streamlines its operating structure to a level appropriate to support its MBS strategy. "Having completed the sale of our Transportation and Mobile Government segments, we are now focused entirely on our MBS business strategy and reducing our operating expenses, so that we can begin generating positive cash flow for our shareholders during the first quarter of 2005," said David 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. . "I am excited about the potential for our Company to realize substantial value from our assets, including approximately $700 million in 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. loss carry-forwards that can be used to significantly reduce the amount of tax we otherwise would owe on earnings from our MBS operations." As of September 30, in addition to $21 million of MBS at fair value and $56 million of Freddie Mac notes, the Company had $42.3 million of commitments to purchase MBS (which it purchased on October October: see month. 28, 2004). In addition, the Company held $215.7 million in cash, cash equivalents and restricted cash, which includes the net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of approximately $32.2 million from the Transportation and Mobile Government sales. "We will continue to take a conservative approach to building our MBS portfolio," said David C. Reymann, Aether's Chief Financial Officer. "Working with our outside investment and financial advisors, we will continue to carefully evaluate key market indicators in order to deploy our capital effectively to maximize value for our shareholders." As previously announced, the Company completed the redemption of its remaining $155 million of outstanding 6% convertible subordinated notes on October 4, 2004. The total cost of the redemption, 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 the terms of the notes, was approximately $157 million. As a result, the Company will recognize a charge of approximately $2.4 million in the fourth quarter, consisting of a $1.8 million premium on early extinguishment The destruction or cancellation of a right, a power, a contract, or an estate. Extinguishment is sometimes confused with merger, though there is a clear distinction between them. and the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of $560,000 of deferred financing costs. The Company estimates that after taking into account the redemption and estimated additional costs associated with the completion of transitional activities, it will have approximately $128 - $130 million of cash (including restricted cash), cash equivalents and investments (including MBS investments). Subject to market conditions, the Company said it plans to invest additional amounts in MBS and to begin leveraging its MBS investments, with a goal of having an MBS portfolio of $750 million to $1 billion by the end of the first quarter of 2005. Conference Call Aether will host a conference call on Wednesday Wednesday: see week. , November November: see month. 3, 2004 at 8:30 a.m., Eastern Time. Interested parties may access the call at www.aethersystems.com or by telephone at 1-800-441-0022. Please ask for the Aether Systems call. Replay of this call will be available until November 24, 2004, by calling 800-839-0860, access code 1098. About Aether Systems, Inc. Aether Systems owns and manages a portfolio of residential mortgage-backed securities Residential mortgage-backed securities (RMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on residential rather than commercial real estate. and other short-term government agency investments. Our principal business objective is to generate net income from the spread between the interest income on these securities and the costs of borrowing to finance their acquisition. Forward Looking Statement Disclosure This press release contains "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. ," 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 the implementation of the RMBS RMBS Residential Mortgage-Backed Securities RMBS Rambus, Inc. (NASDAQ stock symbol) RMBS Russian Mortgage-Backed Securities strategy. 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) we may not be able to implement our MBS strategy successfully, or the results of such implementation may be inconsistent with our expectations; (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 sold; (3) the MBS strategy we are implementing 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 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. 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 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: , because of a failure to generate sufficient taxable earnings, regulatory limits or both, (6) in managing the MBS portfolio, we will depend heavily on FBR FBR Friedman, Billings, Ramsey Group, Inc. (investment firm) FBR Fast Breeder Reactor FBR Federal Benefit Rate FBR Foundation for Biomedical Research FBR Foundation for Blood Research FBR Fluidized Bed Reactor Investment Management, Inc., who may choose to cease working with us, in which event our performance could be negatively affected; and (7) other factors discussed in our Current Report on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. filed on June 10, 2004 with the Securities and Exchange Commission, as well as our other filings with the SEC. 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 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 , the results of the Transportation and Mobile Government segments for all prior periods have been reclassified as discontinued operations, so that period-to-period comparisons are presented on a comparable basis.
AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2004 2003 2004 2003
--------- -------- --------- ---------
in thousands except per share
data
Interest income from RMBS
portfolio $ 256 $ - $ 256 $ -
Interest expense from RMBS
portfolio - - - -
--------- -------- --------- ---------
Net interest income
from RMBS portfolio 256 - 256 -
Gain on future purchase
commitments 960 - 1,826 -
Selling, general and
administrative expenses (2,703) (2,020) (9,676) (11,530)
Depreciation and amortization (445) (663) (1,547) (2,315)
Option and warrant expense (13) (218) (571) (707)
Impairment of intangibles and
other long-lived assets - - - (1,367)
Other expense (146) - (93) (838)
Restructuring charge 41 (101) (649) (205)
--------- -------- --------- ---------
Total operating
expenses (3,266) (3,002) (12,536) (16,962)
--------- -------- --------- ---------
Operating loss (2,050) (3,002) (10,454) (16,962)
Other income (expense):
Interest income from money
market accounts 614 1,138 3,222 4,734
Interest expense from
subordinated notes payable (2,604) (2,576) (7,811) (7,787)
Equity in losses of
investments - (5) - (97)
Investment gain (loss),
including impairments, net - 87 (4,971) (37)
--------- -------- --------- ---------
Loss from continuing
operations (4,040) (4,358) (20,014) (20,149)
Loss from discontinued
operations (2,582) (5,548) (44,969) (16,915)
Gain on sale of discontinued
operations 2,876 - 20,546 -
--------- -------- --------- ---------
Net loss $ (3,746) $(9,906) $(44,437) $(37,064)
========= ======== ========= =========
Loss per share - basic and
diluted - from continuing
operations $ (0.09) $ (0.10) $ (0.46) $ (0.47)
Loss per share - basic and
diluted - from discontinued
operations (0.06) (0.13) (1.03) (0.40)
Income per share - basic and
diluted - gain on sale of
discontinued operations 0.06 - 0.47 -
--------- -------- --------- ---------
Net loss per share -
basic and diluted $ (0.09) $ (0.23) $ (1.02) $ (0.87)
========= ======== ========= =========
Weighted average shares
outstanding - basic
and diluted 43,840 42,762 43,639 42,406
========= ======== ========= =========
AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
Sept. 30, Dec. 31,
2004 2003
----------- ---------
in thousands (Unaudited)
Current assets:
Cash and cash equivalents $ 206,860 $ 26,222
Short-term investments available for sale 55,993 20
Mortgage-backed securities, at fair value 20,950 -
Current assets from discontinued operations - 55,649
Interest receivable 311 -
Prepaid expenses and other current assets 2,400 2,720
----------- ---------
Total current assets 286,514 84,611
Restricted cash 8,832 13,460
Investments available for sale - 220,849
Furniture, computers, and equipment, net 953 2,608
Investments not readily available for sale 171 2,273
Non-current assets from discontinued operations - 71,984
Other assets 732 2,320
----------- ---------
$ 297,202 $398,105
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible subordinated notes payable $ 154,912 $ -
Accounts payable and accrued expenses 4,611 4,741
Current liabilities from discontinued
operations - 35,185
Restructuring reserve 240 1,407
Accrued employee compensation and benefits 709 538
Accrued interest payable 206 2,529
----------- ---------
Total current liabilities 160,678 44,400
Long-term liabilities:
Convertible subordinated notes payable - 154,912
Restructuring reserve - 70
Non-current liablilities from discontinued
operations - 19,419
Other long-term liabilities 2,057 3
Stockholders' equity 134,467 179,301
Commitments and contingencies
----------- ---------
$ 297,202 $398,105
=========== =========
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