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. -0- *T 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 ========= ========= ========= ========= *T
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