UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended...............March 31,ended...............September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission file number 0-27206
SPACEHAB, Incorporated
1595 Spring Hill Road
Suite 360
Vienna, Virginia 22182
(703) 821-3000
Incorporated in the State of I.R.S. Employer Identification
Washington
Identification No. 91-1273737
The number of shares of Common StockoutstandingStock outstanding as of the close of business on
May 1,November 2, 1998:
Class Number of Shares Outstanding
Common Stock 11,163,95411,176,636
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ -----
SPACEHAB, INCORPORATED AND SUBSIDIARY
MARCH 31,SUBSIDIARIES
SEPTEMBER 30, 1998 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION Page
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1998 and June 30, 1997 and March 31, 1998 3
Condensed Consolidated Statements of Operations for the
Three and Ninethree months ended March 31,September 30, 1998 and 1997 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
Ninethree months ended March 31,September 30, 1998 and 1997 and 1998 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 910
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
PART 1: FINANCIAL INFORMATION
Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SPACEHAB, INCORPORATED AND SUBSIDIARYSUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data) September 30, June 30,
March 31,
1997 1998 1998
(unaudited) (audited)
(unaudited)
------------ ------------------------- -----------
ASSETS
............................................................................................
Cash and cash equivalents ................................................ $ 12,886,73158,330 $ 84,962,33092,327
Receivables .................................... 5,176,255 12,972,376........................................ 10,837 5,979
Prepaid expenses and other current assets ............... 199,247 1,766,573
------------ ------------.......... 1,510 550
-------- --------
Total current assets ....................... 18,262,233 99,701,279.......................... 70,677 98,856
Property, plant and equipment, net of
accumulated depreciation and amortization
of $38,115,620$44,761 and $41,996,592 ................ 90,961,873 100,890,281$43,338 ............................ 113,682 112,588
Goodwill, net of accumulated amortization .......... 26,895 3,224
of ... 3,394,773 3,267,444
$55,947$521 and $187,105
Deferred mission costs ......................... 1,438,910 1,918,090$230
Other assets, net .............................. 392,587 5,774,449
------------ ------------.................................. 6,537 5,936
-------- --------
Total assets .............................. $114,450,376 $211,551,543
============ ============.................................. $217,791 $220,604
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
NoteLoan payable, current portion .............................. $ --2,824 $ 3,160,0002,824
Loan payable under credit agreement,
current portion ........................... 500,000 500,000.............................. 333 500
Accounts payable and accrued expenses ..... 2,408,111 4,655,624......... 11,374 6,204
Accrued consulting and subcontracting services .................................. 9,052,308 6,870,578
Advanced billings ......................... 846,855 377,212............... 12,674 13,177
Deferred revenue .............................. 6,374 13,491
-------- --------
Total current liabilities ............ 12,807,274 15,563,414
------------ ------------................ 33,579 36,196
Accrued contract costs ............................. 951 --
Notes payable to shareholder ................... 11,225,246 11,895,001....................... 11,895 11,895
Loan payable under credit agreement, net
of current portion ................................ 1,500,000 1,000,000
Note............................... 667 1,000
Loan payable, net of current portion ........... -- 9,547,123............... 8,471 9,177
Convertible notes payable ...................... -- 63,250,000.......................... 63,250 63,250
Deferred flight revenue ........................ 2,295,898 18,569,648
------------ ------------income taxes .............................. 2,094 2,678
-------- --------
Total liabilities .................... 27,828,418 119,825,186........................ 120,907 124,196
Commitments and contingencies
Stockholders' equity:
Common stock, no par value,authorized
30,000,000 shares, issued and
outstanding 11,146,23711,176,636 and
11,163,95411,168,161 shares, respectively ............................ 81,057,164 81,197,574............. 81,302 81,239
Additional paid-in capital ................ 16,299 16,299
Accumulated.................... 16 16
Retained earnings ...................... 5,548,495 10,512,484
------------ ------------............................. 15,566 15,153
-------- --------
Total stockholders' equity ........... 86,621,958 91,726,357
------------ ------------............... 96,884 96,408
-------- --------
Total liabilities and
stockholders' equity ............................. 114,450,376 211,551,543.................... $217,791 $220,604
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except share data) Three Months
Ended September 30,
-----------------------------
1998 1997
------------ ------------
........................................
Revenue .................................... $ 28,273 $ 2,537
Costs of revenue:
Integration and operations .............. 18,690 3,856
Depreciation ............................ 1,258 1,224
Insurance and other direct costs ........ 1,792 115
------------ ------------
Total costs of revenue ............. 21,740 5,195
------------ ------------
Gross profit (loss) ........................ 6,533 (2,658)
Operating expenses:
Marketing, general and .................. 4,135 2,735
administrative
Research and development ................ 247 292
------------ ------------
Total operating expenses ............. 4,382 3,027
------------ ------------
Income (loss) from operations ........ 2,151 (5,685)
Interest expense, net of
capitalized amounts ....................... 1,431 201
Interest and other income .................. (519) (232)
Other expense .............................. 550 --
------------ ------------
Income (loss) before income
taxes ................................ 689 (5,654)
Income tax expense ......................... 276 --
------------ ------------
Net income (loss) .................... $ 413 $ (5,654)
============ ============
Basic earnings per share:
Net income (loss) per share -
basic ...................................... $ 0.04 $ (0.51)
============ ============
Shares used in computing net
income per share - basic ................... 11,168,161 11,146,660
============ ============
Diluted earnings per share:
Net income (loss) per share -
diluted .................................... $ 0.04 $ (0.51)
============ ============
Shares used in computing net
income per share - diluted ................. 11,352,693 11,146,660
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
SPACEHAB, INCORPORATED AND SUBSIDIARYSUBSIDIARIES
Unaudited Condensed Consolidated Statements of OperationsCash Flows
(In thousands) Three Months Nine Months
Ended
March 31, Ended March 31,
----------------------------- ----------------------------
1997September 30,
1998 1997
1998
------------- ------------
------------ ------------Cash flows provided by (used for) operating activities:
......................................................................................
Revenue ..............................Net income (loss) .................................. $ 15,031,345413 $ 18,997,057 $ 38,136,763 $ 39,290,001
Costs(5,654)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization ..................... 1,840 1,350
Changes in assets and liabilities:
Decrease in accounts receivable ................. 3,508 612
Increase in prepaid and other
current assets ................................ (654) (1,102)
Increase in deferred mission costs .............. -- (2,892)
Increase in other assets ........................ (683) (1,913)
Increase (decrease) in
deferred flight revenue ....................... (7,118) 8,732
Decrease in accounts payable
and accrued expenses .......................... (2,299) (452)
Increase (decrease) in accrued
subcontracting services ....................... (480) 117
-------- --------
Net cash used for
operating activities ...................... (5,473) (1,202)
-------- --------
Cash flows used for investing activities:
Payments for modules under construction (1,586) .... (6,043)
Purchase of revenue:
Integration and operations ........ 5,804,721 7,563,134 14,777,180 18,370,066
Depreciation ...................... 2,376,139 978,460 7,128,416 2,935,381
Insurance other direct costs ...... 136,801 520,116 243,051 915,116
------------ ------------ ------------ ------------
Total costs of revenue ......... 8,317,661 9,061,710 22,148,647 22,220,563
------------ ------------ ------------ ------------
Gross profit ......................... 6,713,684 9,935,347 15,988,116 17,069,438
Operating expenses:
Marketing, general and
administrative .................. 2,663,375 3,979,981 6,543,551 10,021,402
Research and development .......... 136,776 741,796 451,340 1,793,373
------------ ------------ ------------ ------------
Total operating expenses ....... 2,800,151 4,721,777 6,994,891 11,814,775
------------ ------------ ------------ ------------
Income from operations ......... 3,913,533 5,213,570 8,993,225 5,254,663
Interest expense,Johnson Engineering,
net of capitalized
amountscash acquired ............................. (25,308) --
Payments for building under
construction ..................................... (28) (710)
Purchase of property and equipment ................. (459) (105)
-------- --------
Net cash used for
investing activities ........................ (27,381) (6,858)
-------- --------
Cash flows provided by (used for)
financing activities:
Proceeds from loan payable ......................... -- 14,119
Payment of loan payable ............................ (187,201) (1,253,367) (865,518) (2,631,701)
Interest(706) --
Payment of loan payable under
credit agreement .................................. (500) (500)
Proceeds from issuance of common
stock ............................................. 63 --
Proceeds from exercise of common
stock options ..................................... -- 23
-------- --------
Net cash provided by (used
for) financing activities .................. (1,143) 13,642
-------- --------
Net increase (decrease)in cash
and other income ............ 375,501 931,151 1,190,075 2,341,030
------------ ------------ ------------ ------------
Income before income taxes ..... 4,101,833 4,891,354 9,317,782 4,963,992
Income tax expense ................... 894,659 -- 2,124,659 --
------------ ------------ ------------ ------------
Income before extraordinary item 3,207,174 4,891,354 7,193,123 4,963,992
Extraordinary item - gain on early
retirementcash equivalents ...................... (33,997) 5,582
Cash and cash equivalents at
beginning of debt, netperiod ................................ 92,327 12,887
-------- --------
Cash and cash equivalents at end of
taxes ... -- -- 3,274,029 --
------------ ------------ ------------ ------------
Net income .....................period ............................................. $ 3,207,17458,330 $ 4,891,354 $ 10,467,152 $ 4,963,992
============ ============ ============ ============
Basic earnings per share:
Income before extraordinary item ... $ 0.29 $ 0.44 $ 0.65 $ 0.45
Extraordinary item ................. -- -- 0.29 --
------------ ------------ ------------ ------------
Net income per share - basic ......... $ 0.29 $ 0.44 $ 0.94 $ 0.45
============ ============ ============ ============
Shares used in computing net income
per share - basic ................. 11,146,236 11,156,274 11,109,721 11,152,312
============ ============ ============ ============
Diluted earnings per share:
Income before extraordinary item ... $ 0.29 $ 0.37 $ 0.65 $ 0.44
Extraordinary item ................. -- -- 0.29 --
------------ ------------ ------------ ------------
Net income per share - diluted ....... $ 0.29 $ 0.37 $ 0.94 $ 0.44
============ ============ ============ ============
Shares used in computing net income
per share - assuming dilution ..... 11,153,855 16,062,335 11,149,679 11,407,595
============ ============ ============ ============18,469
======== ========
See accompanying notes to unaudited condensed consolidated
financial statements.
SPACEHAB, INCORPORATED AND SUBSIDIARY
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended March 31,
1997 1998
------------- --------------
Cash flows provided by (used for) operating activities:
.........................................
Net income ............................. $ 10,467,152 $ 4,963,992
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ........ 7,420,550 4,115,536
Gain on early retirement of debt,
net of taxes, before legal expenses (3,383,891) --
Amortization of financing fees ....... -- 340,939
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable ........................ 1,915,136 (7,796,121)
Increase in prepaid and other
current assets ................... (681,184) (1,567,326)
Decrease (increase) in deferred
mission costs .................... 611,744 (479,180)
Increase in other assets ........... (145,656) (1,774,900)
Increase (decrease) in deferred
flight revenue .................... (14,309,595) 16,273,750
Increase (decrease) in accounts
payable and accrued expenses ..... (1,493,235) 2,247,513
Decrease in advanced billings ...... -- (469,643)
Increase in accrued consulting
and subcontracting services ...... 2,892,632 1,736,128
------------ ------------
Net cash provided by operating
activities ................. 3,293,653 17,590,688
------------ ------------
Cash flows used for investing activities:
Payments for modules under
construction ...................... (3,679,552) (13,360,122)
Purchase of Astrotech, net of cash
acquired .......................... (19,960,021) --
Payments for building under
construction ...................... -- (3,205,236)
Purchase of property and equipment .... (2,878,931) (504,547)
------------ ------------
Net cash used for investing
activities ................... (26,518,504) (17,069,905)
------------ ------------
Cash flows provided by (used for) financing activities:
Payment of note payable to Insurers ... (3,185,060) (500,000)
Payment of debt placement fees ....... -- (4,042,714)
Proceeds from issuance of convertible
notes payable ..................... -- 63,250,000
Payment of legal fees on early
retirement of debt ................ (109,986) --
Proceeds from note payable ............ -- 14,119,025
Payment of note payable ............... (1,411,902)
Proceeds from issuance of common stock 24,000 140,407
------------ ------------
Net cash provided by (used for)
financing activities ......... (3,271,046) 71,554,816
------------ ------------
Net increase (decrease) in cash
and cash equivalents ......... (26,495,897) 72,075,599
Cash and cash equivalents at beginning
of period .............................. 50,795,548 12,886,731
------------ ------------
Cash and cash equivalents at end of
period ............................. $ 24,299,651 $ 84,962,330
============ ============
See accompanying notes to unaudited condensed
consolidated financial statements.
SPACEHAB, INCORPORATED AND SUBSIDIARYSUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the consolidated
financial position of SPACEHAB, Incorporated and subsidiarysubsidiaries ("SPACEHAB" or the
"Company") as of March 31,September 30, 1998, and the results of their operations for the
three and nine month periods ended March 31, 1997 and 1998 and their
cash flows for the ninethree months ended March 31, 1997September 30, 1998 and 1998.1997. However, the
consolidated financial statements are unaudited and do not include all related
footnote disclosures. The consolidated results of operations for the three
and nine months ended March
31,September 30, 1998 are not necessarily indicative of the results
that may be expected for the full year. The Company's consolidated results of
operations fluctuate significantly from quarter to quarter.quarter (see note 4). The
interim unaudited condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
appearing in the Company's Form 10-K for the year ended June 30, 1997.1998.
2. Earnings per Share:
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which
establishes new guidelines for the calculations of earnings per share. Earnings
per share for all prior periods have been restated to reflect the provisions of
this Statement.
The following are reconciliations of the numerators and denominators of
the basic and diluted earnings per share computations for "income before
extraordinary item" and "extraordinary item" for the three and nine month
periodsmonths ended
March 31,September 30, 1998 and 1997, respectively:
Three months ended March Three months ended March
31,(in thousands except per share data) Basic Diluted
September 30, 1998
31, 1997
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ------------ ------------- ----------
Basic EPS:
Income available to
......................................................
Net income ............................. $ 413 $ 413
------------ ------------
Weighted average outstanding
common stockholders $4,891,354 11,156,274 $ 0.44 $3,207,174 11,146,236 $ 0.29
Effect of dilutive
securities:
Convertible notes
payable ........... $ 990,803 4,642,202 -- -- -- --
Optionsshares ........................ 11,168,161 11,168,161
Outstanding stock options and
warrants, using the treasury
stock method ......................... -- 263,859 -- -- 7,619 --
---------- ---------- ----- ---------- ---------- ------
Diluted EPS:
Income available to184,532
------------ ------------
Adjusted shares ........................ 11,168,161 11,352,693
September 30, 1997
Net income (loss) ...................... $ (5,654) $ (5,654)
Weighted average outstanding
common stockholders $5,882,157 16,062,335 $ 0.37 $3,207,174 11,153,855 $ 0.29
========== ========== ====== ========== ========== ======
Nine months ended March Nine months ended March
31, 1998 31, 1997
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ------------ ------------- ----------
Basic EPS:
Income before
extraordinary item $4,963,992 11,151,312 $0.45 $7,193,123 11,109,721 $0.65
Extraordinary -- -- -- $3,274,029 11,109,721 $0.29
Effect of dilutive
securities:
Convertible notes
payable -- -- -- -- 36,406 --
Options and warrants -- 256,283 -- -- 3,552 --
---------- ----------- ------ ----------- ----------- -----
Diluted EPS:
Income available to
common stockholders:
Income before
extraordinary item $4,963,992 11,407,595 $0.44 $7,193,123 11,149,679 $0.65
Extraordinary item -- -- -- $3,274,029 11,149,679 $0.29shares ..................... 11,146,660 11,146,660
Convertible notes payable outstanding as of March 31,September 30, 1998, convertible into
4,642,202 shares of common stock at $13.625 per share and due October 2007, were
not included in the computation of diluted EPS for the nine month periodthree months ended
March 31,September 30, 1998 as the inclusion of the converted notes would be
anti-dilutive.
Options and warrants to purchase 1,525,3511,256,015 shares of common stock, at prices ranging
from $8.63$9.875 to $14.88$24.00 per share, were outstanding foras of September 30, 1998, but
were not included in the ninecomputation of diluted EPS because the options'
exercise prices were greater than the average market price of the
common shares during the three months ended March 31,September 30, 1998. The options
expire between October 21, 1998 and August 3, 2007.
Options and warrants to purchase 783,753 shares of common stock, at prices
ranging from $12.00 to $24.00 per share, were outstanding as of September 30,
1997, but were not included in the computation of diluted EPS because the
options' and warrants' exercise prices were greater than the average market
price of the common shares during the ninethree months ended March 31, 1997.
Similarly, additional options to purchase 50,000 shares of common stock at a
price of $7.00 per share were also not included in the diluted EPS calculation
for the three month period ended March 31,September 30, 1997. The
options expire between June
24,November 1, 1997 and August 1, 2005July 13, 2004 and warrants expire
between June 30,December 31, 1997 and June 21, 1998.
Options and warrants3. Acquisition of Johnson Engineering:
On July 1, 1998, the Company agreed to purchase 1,818,597 and 1,811,021acquire all of the outstanding shares of
commoncapital stock of Johnson Engineering Corporation ("Johnson Engineering").
Johnson Engineering performs several critical services for NASA including flight
crew support services, operations, training and fabrication of mockups at prices ranging from $11.00NASA's
Neutral Buoyancy Laboratory and at NASA's Mockup and Integration Laboratory,
where astronauts train for both Space Shuttle and International Space Station
missions. Johnson Engineering also designs and fabricates flight hardware, such
as flight crew equipment and crew quarters habitability outfitting as well as
provides stowage integration services.
The Company paid approximately $25.3 million, including transaction costs, to
$14.00 per share, were outstandingacquire all of the capital stock of Johnson Engineering. The business
combination is being accounted for using the purchase method under Accounting
Principles Board Opinion No. 16, Business Combinations, (APB Opinion 16) to
record the purchase of all the capital stock of Johnson Engineering. The
purchase price has been allocated to the assets and liabilities acquired based
on preliminary estimates of fair value as of the date of acquisition. Based on
the allocation of the net assets acquired, goodwill of approximately $24 million
was recorded. Such goodwill is being amortized on a straight-line basis over 25
years. The purchase price has been allocated as follows ($ in thousands):
Cash ..................................... $ 2
Prepaid and other current assets ......... 306
Accounts receivable, net.................. 8,366
Inventory ................................ 5
Property, plant and equipment,net ........ 446
Other assets ............................. 622
Goodwill ................................. 23,962
Current liabilities ...................... (7,470)
Accrued contract costs ................... (928)
--------
Total purchase price ..................... $ 25,311
========
APB Opinion 16 requires, for purchase business computations, the presentation of
pro forma combined results of operations for the threecurrent year and nine month periods ended March 31, 1998, respectively. These were not
included in the computation of diluted EPS becausepreceding
year as if the options' and warrants'
exercise prices were greater thancombination had occurred at the average market pricebeginning of the common shares
during the three and nine month periods
ended March 31, 1998.presented. The options expire
between June 24, 1998 and October 21, 2004 and warrants expire June 21, 1998.
3. Depreciationfollowing unaudited pro forma consolidated results of Flight Modules:
Effective July 1, 1997, the Company extended the estimated useful livesoperations
are not necessarily indications of its
space modules through 2012. This change in accounting estimate is treated
prospectively and is based on current available information from NASA, which has
estimated the lifeactual or future results of the Space Shuttle program through at least 2012.operations.
(in thousands except per share data) Three Months
Ended September 30,
1998 1997
----------------------
...............................................
Revenue .......................................... $28,273 $ 16,316
Gross profit (loss) .............................. 6,533 (1,706)
Net income (loss) ................................ $ 413 (4,858)
======= =======
Net income (loss) per share - basic and diluted... $ 0.04 $ (0.44)
======= =======
4. Revenue Recognition:
Revenue isUnder the Mir contract, revenue was recognized upon completion of each module
flight, under the Mir
contract. Totaltotal contract revenue iswas allocated to each flight based on the amount
of services the Company providesprovided on the flight relative to total services
provided for all flights under contract. Obligations associated with a specific
mission, e.g., integration services, arewere also recognized upon completion of the
mission. For the REALMS contract and for new contract awards for which the
capability to successfully complete the contract can be reasonably assured and
the costs at completion can be reliably estimated at contract inception, revenue
recognitionis and will be recognized under the percentage-of-completion method. This
percentage-of-completion method is being reportedallows the Company to report revenue based on
costs incurred on a per mission basis over the period of the contract.that mission. The
percentage of completion method will resultresults in the recognition of revenue over the
period of contract performance, thereby decreasing significant quarter by
quarter fluctuations of reported revenue. Revenue provided by the Astrotech
payload processing facilities is recognized ratably over the occupancy period of
the satellites at the Astrotech facilities. Revenue provided by Johnson
Engineering is primarily based on cost-plus award fee contracts, whereby revenue
is recognized to the extent of costs incurred plus estimates of award fee
revenues using the percentage-of-completion method. Award fees, which provide
earnings based on the Company's contract performance as determined by NASA
evaluations, are recorded when the amounts can be reasonably estimated, or are
awarded.
5. Statements of Cash Flows - Supplemental Information:
(a) Cash paid for interest costs was $1.49$0.6 million and $0.87 million$0 for the ninethree months
ended March 31,September 30, 1998 and 1997, respectively. The Company capitalized
interest of approximately $1.35$0.6 million and $0.11$0.3 million during the ninethree months
ended March 31,September 30, 1998 and 1997, respectively. (b) The Company paid $1.34$0.4
million and $2.10$1.3 million for income taxes during the ninethree months ended
March 31,September 30, 1998 and 1997, respectively.
6. New Credit Facilities:
On June 16, 1997, the Company entered into a $10.0 million line of credit
agreement with a financial institution. Outstanding balances on the line of
credit accrue interest at either the lender's prime rate or a LIBOR-based rate,
and are collateralized by certain assets of the Company. The term of the
agreement is through October 1999. As of March 31,September 30, 1998, the Company had not
drawn against the line of credit.
On July 14, 1997, the Company's wholly-owned subsidiary, Astrotech, entered into
a five year credit facility with a financial institution for loans of up to
$15.0 million. This loan is collateralized by the assets of Astrotech and
certain other assets of the Company, and is guaranteed by the Company. Interest
accrues at LIBOR plus three percent. As of March 31,September 30, 1998, the Company had
drawn $14.12$14.1 million against this loan. As of March 31,September 30, 1998 and 1997, the
outstanding balance on this loan was $12.71 million.$11.3 million and $14.1 million,
respectively.
In October 1997, the Company completed a private placement offering for $63.25
million of aggregate principal of 8% Convertible Subordinated Notes due 2007.
Interest is payable semi-annually. The notes are convertible into the common
stock of the Company at a rate of $13.625 per share. This offering provided the
Company with net proceeds of approximately $59.91$59.9 million to be used for capital
expenditures associated with the development and construction of space related
assets, the purchase of Johnson Engineering and for other general corporate
purposes.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
GeneralGENERAL
This document may contain "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including (without limitation) the "General" and
"Liquidity and Capital Resources" sections of this Item 2. Such statements are
subject to certain risks and uncertainties, including those discussed herein,
which could cause actual results to differ materially from those projected in
such statements.
SPACEHAB was incorporated in 1984 to commercially develop space habitat
modules to operate in the cargo bay of the Space Shuttles.
The Company currently operates under two contracts with NASA, the Mir
Contract, with a total contract value of $90.2 million andNASA: the Research
and Logistics Module Services Contract, (the "REALMS Contract"), a $61.8 million
contract for two research missions on boardaboard the Space Shuttle and a logistics
mission to resupply the International Space Station. To date,Station; and, the Company has
recognized $79.4Flight Crew
Systems Development Contract (the "FCSD Contract") currently a $324.9 million
of the Mirmultitask cost-plus-award and incentive-fee contract, value, representing the completion
of the first six missions. The remaining $10.8 million represents the final Mir
option mission scheduled to be flown during the fourth quarter of fiscal 1998.that commenced in May 1993
and will conclude in April 2001. The value of the newly awardedNASA portion of the REALMS
contract is $42.8 million for three firm missions for NASA.missions. The additional $19.0 million
will be derived from three of NASA's major International Space Station partners;partners:
the European Space Agency (ESA), the National Space Development Agency of Japan
(NASDA) and the Canadian Space Agency (CSA). The Company has the potential to
increase the total current REALMS contract value of $61.8 million by approximatelyan additional $22.0 million
through module usage sales to commercial customers for microgravity space
research.
Additionally, the REALMS contract has an option for a fourth mission valued at a
minimum of $15.8 million. The first two missions under the REALMS Contract are scheduled for
flights in the second and fourth quarters of fiscal 1999; the third is currently
projectedscheduled for launch in MaySeptember 2000. Additionally, the REALMS contract has an
option for a fourth mission for $17.8 million. In October 1998, NASA confirmed
its intention to exercise this option and has manifested the Company's
Integrated Cargo Carrier (ICC) on this mission at a price to be negotiated.
Under the FCSD Contract, Johnson Engineering provides a variety of critical crew
training, support and manufacturing functions on a cost plus award and
incentive fee basis.
Revenue
SPACEHAB generates revenue byby: (i) providing lockers and/or volume within
the SPACEHAB Modules, and byModules; (ii) integration and operations support services provided
to scientists and researchers responsible for the experimentsexperiments; and/or by(iii) from
NASA or International Agencies to carry logistics supplies for Module missions
aboard the Shuttle system. Under the Mir Contract, the Company recognizesrecognized
revenue only at the completion of each Space Shuttle mission utilizing Company
assets. Accordingly, the Company's quarterly revenue and profits havehad fluctuated
dramatically based on NASA's launch schedule and will continue to do so under
the Mir Contract and any other contract for which revenue is recognized only upon completion of a mission.
For the REALMS contract and for future contactcontract awards for which the capability
to successfully complete the contract can be demonstrated at contract inception,
revenue recognition under the percentage-of-completion method is being reported
based on costs incurred on a per mission basis over the period of the contract.mission.
The percentage-of-completion method results in the recognition of revenue over
the period of contract performance, thereby significantly decreasing the
quarter-by-quarter fluctuations of reported revenue.
Astrotech revenue is derived from various multiyear fixed price contracts
with satellite and launch vehicle manufacturers. The services and facilities
Astrotech provides to its customers support the final assembly, checkout and
countdown functions associated with preparing a satellite for launch. This
preparation includes: the final assembly and checkout of the satellite,
installation of the solid rocket motors, loading of the liquid propellant,
encapsulation of the satellite in the launch vehicle, transportation to the
launch pad and command and control of the satellite during pre-launch countdown.
Revenue provided by the Astrotech payload processing facilities is recognized
ratably over the occupancy period of the satellites in the Astrotech facilities.
In addition, Astrotech will generate additional revenue from an exclusive
multiyear agreement to process all Sea Launch program payloads at the Boeing
facility in Long Beach, California.
Johnson Engineering generates revenue primarily from its multiyear
cost-plus-award and incentive-fee contract with NASA. Johnson Engineering's
flight crew support services include operations, training and fabrication of
mockups at NASA's Neutral Buoyancy Laboratory, and at NASA's Mockup and
Integration Laboratory, where astronauts train for both Space Shuttle and
International Space Station missions. Johnson Engineering also designs and
fabricates flight hardware including flight crew equipment and crew quarters
habitability outfitting and provides stowage integration services. Revenue
provided by Johnson Engineering is recognized to the extent of costs incurred
plus award fee using the percentage of completion method, measured on costs
incurred. Award fees, which provide earnings based on the Company's contract
performance as determined by periodic NASA evaluations, are recorded when the
amounts can be reasonably estimated, or are awarded.
Costs of Revenue
Costs of revenue for SPACEHAB missions include integration and operations
expenses associated with the performance of twothree types of efforts: (i)
sustaining engineering in support of all missions under a contract and (ii)
mission specific support. Expenses associated with sustaining engineering are
expensed as incurred. Mission specific expenses relating to the Mir Contract are recorded as assets
and not expensed until the specific Space Shuttle mission is flown and the
related revenue is recognized. Other costs of revenue include depreciation expense,
andrelated insurance, costs associated with the Astrotech payload processing
facilities.
Flight related insurance covering transportation offacilities and Johnson Engineering costs under the SPACEHAB Modules from
SPACEHAB's payload processing facility to the Space Shuttle, in-flight insurance
and third-party liability insurance are also included in costs of revenue and
are expensed as incurred. Marketing, general and administrative, research and
development and interest and other expenses are recognized when incurred.FCSD Contract.
RESULTS OF OPERATIONS
For the three months ended March 31,September 30, 1998 as compared to the three months
ended March 31,September 30, 1997.
Revenue. The Company recorded revenue of approximately $19.00$28.3 million and
$15.03$2.5 million for the three months ended March 31,September 30, 1998 and 1997,
respectively. Revenue of $11.4 million was generated from the REALMS contract
with NASA and with related commercial customers, $14.4 million from Johnson
Engineering and $2.5 million from Astrotech. In accordance with the Company'scontrast, $2.5 million of
revenue recognition policy for the period ending September 30, 1997 was primarily generated by
Astrotech because under the Mir Contract,contract, SPACEHAB's revenue iswas recorded at the
completion of a mission when the SPACEHAB modules arewere returned to the Company. Revenue was recognized for the sixth Mir
Contract mission ($13.60 million)Company
and there were no completed missions during the quarter ended March 31, 1998 in
addition to revenue generated from the REALMS Contract ($2.83 million) and from
Astrotech ($2.53 million). In contrast, revenue for the quarter ended March 31,
1997 was primarily derived from the Mir Contract ($13.81 million).quarter.
Costs of Revenue. CostsCost of revenue for the quarter ended March 31,ending September 30,
1998 increased 8.94%by 318.4% to $9.06$21.7 million, as compared to $8.32$5.2 million for the
prior year's quarter. This significant increase is due to the inclusion of
Johnson Engineering's costs of $13.2 million primarily for costs incurred in
support of the FCSD contract. For the quarter ended
March 31, 1997. The primary components ofending September 30, 1998,
integration and operations costs for the REALMS and related commercial customer
contracts were $5.9 million, and costs of revenue also include $0.9 million for
Astrotech payload processing and $1.3 million of depreciation expense. For the
quarterthree months ended March 31, 1998 include integration and operation costs underSeptember 1997, the Mir Contract
($5.33 million), the REALMS Contract ($1.04 million), and the NASDA/ESA Contract
($0.15 million); Astrotech operations ($1.47 million); and, depreciation ($0.98
million). The primary components of costscost of revenue for the quarter ended March
31, 1997 includedinclude
integration and operations costs under the Mir Contract ($5.30
million),contract of $2.9 million, the
NASDA/ESA Contract ($0.19 million);contract of $0.1 million, $0.9 million for Astrotech payload
procession and depreciation ($2.38
million). The decrease in depreciation expense during 1998 is primarily
attributable to the impact of extending the estimated useful lives of the
Company's modules. This change in accounting estimate is treated prospectively
and is based on current available information from NASA, which extends the
estimated useful life of the space shuttle program to at least 2012.$1.2 million.
Operating Expenses. Operating expenses increased approximately 68.62%44.78% to
approximately $4.72$4.4 million for the three months ended March 31,September 30, 1998 as
compared to approximately $2.80$3.0 million for the three months ended March 31,September 30,
1997. This increase is due primarily to the Company's efforts to increase staff,
adding strength in engineering, design and research and development capabilities
and reflects the additional costs of approximately $0.21$0.7 million incurred for
operating the AstrotechJohnson Engineering subsidiary, which was acquired in February 1997.July 1998.
Research and Developmentdevelopment costs increased 442.4%decreased slightly to $0.74$0.25 million from $0.14$0.29
million.
This increase was due to the Company's continuous efforts to develop
space- related assets.
Interest and Other Expense. Interest expense was approximately $1.25$1.4
million for the three months ended March 31,September 30, 1998 as compared to
approximately $0.19$0.2 million for the three months ended March 31,September 30, 1997. There
was also approximately $1.35$0.6 million and $0.10$0.3 million of interest capitalized
amounts for the quarter ended March 31,September 30, 1998 and 1997, respectively.
TheInterest was capitalized is interest was based on the construction of the Company's scienceresearch
module with double module hardware, which will be placed in service beginning in late 1999. Additional amounts were
capitalizedthe ICC and an additional payload processing
facility being constructed by Astrotech. Additionally, during the quarterthree months
ended March 31,September 30, 1998, relatingthe Company recognized $0.6 million in other expense
related to costs associated with a debt offering that the construction of an expanded facility for Astrotech which was acquiredCompany canceled in
February 1997.July.
Interest and Other Income. Interest and other income was approximately
$0.93$0.5 million and $0.38$0.2 million for the three months ended March 31,September 30, 1998 and
1997, respectively. This increase is due to interest earned on short-term
investment vehicles by the Company for the investment of proceeds received from
the Company's debt financings completed during July and October 1997.
Net Income.Income (Loss). Net income (loss) was approximately $4.89$0.4 million or $0.44 per share
(basic EPS),and
($5.7) million for the quarter ended March 31,September 30, 1998 on 11,156,274 shares, as
compared to $3.21 million, or $0.29and 1997, respectively.
Basic earnings per share (basic EPS), for the quarter ended March 31, 1997, on 11,146,236 shares. There is no income tax expense for the
three months ended March 31, 1998 primarily due to depreciation timing
differences between book and tax on the Company's flight modules.
For the nine months ended March 31, 1998 as compared to the nine months ended
March 31, 1997.
Revenue. The Company recorded revenue of approximately $39.29 million and
$38.14 million for the nine months ended March 31,September 30, 1998 and 1997 was
$0.04 per share on 11,168,161 shares and ($0.51) per share on 11,146,660 shares,
respectively. Revenue recognized during the nine months ended March 31, 1998 was from the Mir
Contract ($27.20 million), REALMS Contract ($4.55 million), NASDA/ESA Contract
($0.03 million) and Astrotech ($7.51 million). Conversely,Diluted earnings per share for the nine monthsquarter ended March 31, 1997 the Company's revenue was attributable to the Mir Contract
($27.83 million), the CMAM Contract ($7.96 million), the NASDA/ESA Contracts
($1.13 million) and Astrotech ($1.22 million).
Costs of Revenue. Costs of revenue for the nine months ended March 31, 1998
increased 0.03% to $22.22 million, as compared to $22.15 million for the nine
months ended March 31, 1997. The primary components of costs of revenue for the
nine months ended March 31, 1998 include integration and operation costs under
the Mir Contract ($12.84 million), REALMS Contract ($1.97 million), and the
NASDA/ESA Contract ($0.35 million); Astrotech operations ($3.93 million); and,
depreciation ($2.94 million). In contrast, the primary components of costs of
revenue for the nine months ended March 31, 1997 included integration and
operations costs under the Mir Contract ($12.35 million), the NASDA/ESA Contract
($1.04 million) and the CMAM Contract ($1.07 million); and, depreciation ($7.13
million). The decrease in depreciation expense is attributable to the impact of
extending the estimated useful lives of the Company's modules. This change in
accounting estimate is treated prospectively and is based on current available
information from NASA, which extends the estimated useful life of the Space
Shuttle program to at least 2012.
Operating Expenses. Operating expenses increased by approximately 68.90% to
approximately $11.81 million for the nine months ended March 31, 1998 as
compared to approximately $6.99 million for the nine months ended March 31,
1997. This increase is due primarily to the Company's efforts to increase staff,
adding strength in engineering, design and research and development capabilities
and reflects the additional costs of approximately $0.88 million for operating
the Astrotech subsidiary, which was acquired in February 1997. Research and
development costs increased 297.34% to $1.79 million from $0.45 million. This
increase is due to the Company's efforts to develop space related assets
including the Integrated Cargo Carrier and the SPACEHAB Universal Communications
System to be used in future space flights.
Interest Expense. Interest expense was approximately $2.63 million for the
nine months ended March 31, 1998 as compared to approximately $0.87 million for
the nine months ended March 31, 1997. There was also approximately $1.35 million
and $0.10 million of interest capitalized during the nine months ended March 31,September 30,
1998 and 1997 respectively. Interest is capitalized based on the construction
of the Company's science module with double module hardware. Additional amounts
were capitalized during the nine months ended March 31, 1998 based on costs
incurred on the construction of an expanded facility for Astrotech.
Interest and Other Income. Interest and other income was approximately $2.34
million and $1.19 million for the nine months ended March 31, 1998 and 1997,
respectively. This increase is due to interest earned by the Company on
short-term investment of proceeds received from the Company's credit facilities.
Net Income. Net income was approximately $4.96 million, or $0.45$0.04 per share (basicon 11,352,693 shares and diluted EPS), on 11,152,312 shares (basic EPS) as compared to $10.47
million, or $0.94($0.51) per share (basic EPS), for the nine months ended March 31,
1997, on
11,109,721 shares. There is no income tax expense for the nine months
ended March 31, 1998 primarily due to depreciation timing differences between
book and tax on the Company's flight modules.
.11,168,161 shares, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
The Company has historically financed its capital expenditures, research
and development and working capital requirements with progress payments under
its various contracts, including the CMAM Contract, the Mir Contract, the NASDA/ESA
Contracts and Astrotech's operations, as well as with proceeds received from private debt and
equity offerings and borrowings under credit facilities. During December 1995,
SPACEHAB completed an initial public offering of common stock (the "Offering"),
which provided the Company with net proceeds of approximately $43.48 million. In
June 1997, the Company signed an agreement with a financial institution securing
a $10.0 million revolving line of credit (the "Revolving Line of Credit") that
the Company may use for working capital purposes. As of March 31,September 30, 1998, no
amounts were drawn on this line of credit. In July 1997, Astrotech obtained a
five-year term loan (the "Term Loan Agreement"), which is guaranteed by
SPACEHAB, and provides for draws of up to $15.0 million for general corporate
purposes. As of March 31,September 30, 1998, the Company had drawn $14.12 million on this
loan and had an outstanding balance on that date of $12.71$11.3 million. Further, onOn October
21, 1997, the Company completed a private placement offering of convertible
subordinated notes (the "Notes Offering"), which provided the Company with net
proceeds of approximately $59.91 million to be used for capital expenditures
associated with the development and construction of space related assets, the
purchase of Johnson Engineering, and for general corporate purposes.
Cash Flows fromused for Operating Activities. Cash flows provided byused for operating
activities for the ninethree months ended March 31,September 30, 1998 and 1997, were $17.59$5.5
million and $3.29$1.2 million, respectively. The increase in cash flows providedThis change is caused by operating activities is due primarily to a significant increase in deferred
flight revenue, which reflects billings during the nine months ended March 31,
1998 fortiming of
progress payments received by the option missionsCompany under the Mir contract, the REALMS contractContract, whereby
payments are received and the
NASDA/ESA Contracts.deferred before expenses are incurred. These payments
are reduced as expenses are incurred and revenue is recognized.
Cash Flows fromused for Investing Activities. For the ninethree months ended
March 31,September 30, 1998 and 1997, cash flows used for investing activities consisted
of capital
expenditures of approximately $13.36$27.4 million and $3.68$6.9 million, respectively. Of
this amount, $8.71The current three
month period's activity consisted primarily of $25.3 million, for the
acquisition of Johnson Engineering. Additional activity included $1.6 million
for the expenditures in the current year are
attributable to thecontinued construction of the Company's scienceresearch module with double
module hardware, which module is to be completed in early 1999. The Company
anticipates that it will spend between $35.0 million1999 and $38.0 million in total
on the asset. As of March 31, 1998, the Company has spent approximately $21.72
million on this asset. In addition, the Company has spent approximately $3.65$0.5 million for the
constructionpurchase of an expanded facility for Astrotech.additional property and equipment.
Cash Flows fromprovided by (used for) Financing Activities. Cash flows
provided by (used for) financing activities were approximately $71.55($1.1) million
and ($3.27)$13.6 million for the ninethree months ended March 31,September 30, 1998 and 1997,
respectively. During the ninethree months ended March 31,September 30, 1998, the Company made
payments on outstanding debt of $1.2 million. In addition, the Company received net
proceeds of approximately $14.12$0.1 million and made paymentsfrom the issuance of $1.41stock under the
Employee Stock Purchase Plan. In contrast, during the three months ended
September 30, 1997, the Company received proceeds of $14.1 million under the
Term Loan Agreement.
In August 1997, the Company also made a payment of $0.50 million under the
Credit Agreement. In October 1997, the Company received net proceeds of
approximately $59.91 million by completing an offering of $55.00 million of its
8% Convertible Subordinated Notes due 2007 as well as exercise of the
underwriters' over-allotment for an additional $8.25 million.
The Company believes that cash flows from the Notes Offering, the Term
Loan Agreement, the Revolving Line of Credit and other current financing
activities will be sufficient to meet any cash flow requirements from operations
and other funding requirements for capital asset construction and development
for at least the next twelve months.
Recent Accounting Pronouncements
Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131). SFAS 131 establishes new
procedures and requirements for the (i) determination of business segments and
(ii) presentation and disclosure of segment information. The Company is required
to adopt the provisions of SFAS 131 for the year ended June 30, 1999.
Year 2000 Considerations
The Year 2000 Y2K issue is the result of computer programs that were written
using two digits rather than four to define the applicable year. Any computer
program that has date-sensitive software may recognize the date using "00" as
the year 1900 rather than the year 2000. This error could result in systems
failures causing disruptions of operations, including, among other things, the
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
Based on an ongoing assessment, the Company has determined that the vast
majority of the computers and software utilized in the general and
administrative functions of the Company are year 2000 compliant. The few older
computers, which are not Y2K compliant, will be replaced over the next year. All
accounting software is Y2K compliant. Additionally, because the majority of the
hardware and software in use by the Company is commercial off the shelf with
minimal customization, the Company expects its efforts and costs to bring 100%
of the hardware and software into compliance to be minimal.
In addition, computers and software utilized in the Company's research and
development and payload processing functions are currently being reviewed to
determine whether they are Y2K compliant. The preliminary assessment is
that those hardware and software products are compliant, including the
electrical ground support equipment of Company's modules. The Company expects to
know the results of that determination by the end of the second quarter of
fiscal 1999.
The Company is in the process of contacting its vendors and customers, i.e. NASA
and the Space Shuttle in particular, to determine whether they are Y2K
compliant.
If necessary, a contingency plan will be devised based on the results of the
data gathered in the vendor survey and research and development and payload
processing survey.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits. The separate Index to Exhibits accompanying this filing is
incorporated herein by reference.
(b)Reports on Form 8-K. No
Report on Form 8-K was dated on July 1, 1998 and filed duringon July 13,
1998 announcing the period
ended March 31, 1998.Registrant's acquisition of all of the
outstanding shares of capital stock of Johnson Engineering
Corporation.
Exhibit No. Description of Exhibits
10.1* ESA Contract, dated October 10, 1997, between the Registrant
and INTOSPACE GmbH (the "ESA Contract").
10. 2*** NAS 97-199, dated December 21, 1997, between the
Registrant and NASA (the "REALMS Contract").
10. 3*** Letter Contract Number SHB 1014, dated August 13, 1997,
between the Registrant and McDonnell Douglas
Aerospace-Huntsville, (as amended).
10. 4*** Employment Agreement and Non-Interference Agreement dated
January 15, 1998, between the Company and Chester M. Lee.
10. 5*** Employment Agreement and Non-Interference Agreement dated
January 15, 1998, between the Company and David A. Rossi.
10. 6*** Amendment number 1 to Employment Agreement and
Non-Interference Agreement dated April 1, 1997, between the
Company and Shelley A. Harrison.
10. 7*** Amendment number 1 to Loan and Security Agreement dated
December 31, 1997, between the Company and First Union
National Bank.
11. Statement regarding Computation of Earnings Per Common Share.
21.** Subsidiary Subsidiaries of the Registrant
27 Financial Data Schedule
* Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 1997 filed with the Securities and
Exchange Commission on November 6, 1997.
** Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1997 filed with the Securities and
Exchange Commission on September 12, 1997.
*** Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended December 31, 1997 filed with the Securities and Exchange
Commission on February 6, 1998.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEHAB, INCORPORATED
Date: May 07,November 6, 1998 /S/ MARGARET E. GRAYSON
----------------------------------
Margaret E. Grayson
Vice President of Finance (CFO)
Treasurer,/s/ Shelley A. Harrison
-----------------------------
Shelley A. Harrison
Chairman and Assistant
Secretary
(Principal Financial and
Accounting
Officer)
Chief
Executive Officer