Aether (NASDAQ:AETH)
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Aether Holdings, Inc. (Nasdaq:AETH), the parent holding
company of Aether Systems, Inc., today reported financial results for
the quarter ended September 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 charge to discontinued operations
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 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 ("MBS") 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, 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 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 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 repurchase agreements, 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 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 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 yield on
average earning assets 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 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 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 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 net operating and
capital loss carryforwards, 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 its MBS investment activities.
Conference Call
Aether will host a conference call on Friday, 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 Disclosure
This press release contains "forward-looking statements," as such
term is used in the Securities Exchange Act of 1934, as amended. 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 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
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 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 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 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.
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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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