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...............December 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission file number 0-27206
SPACEHAB, Incorporated
300 D Street, SW
Suite 814
Washington, DC 20024
(202) 488-3500
Incorporated in the State of Washington IRS Employer Identification
Number 91-1273737
The number of shares of Common Stock outstanding as of the close of business on
January 31, 2001:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 11,419,226
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 SUBSIDIARIES
SEPTEMBER 30, 2000 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION Page
----
Item 1. Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
December 31, 2000 and June 30, 2000 3
Unaudited Condensed Consolidated Statements of
Operations for the three and six months ended
December 31, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Cash
Flows for the six months ended December 31, 2000 and 1999 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk 16
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 17
Item 6. Exhibits and Reports on Form 8-K 17
2
PART 1: FINANCIAL INFORMATION
Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data) December 31, June 30,
2000 2000
(unaudited)
--------------------------- -----------------------
ASSETS
Cash and cash equivalents $ 8,410 $ 6,949
Accounts receivable, net 18,331 25,798
Prepaid expenses and other current assets 1,768 2,328
----------------- ----------------
Total current assets 28,509 35,075
Property, plant, and equipment, net of
Accumulated depreciation and amortization
of $60,023 and $56,380, respectively 173,586 158,684
Goodwill, net of accumulated amortization of $2,970
and $2,428, respectively 22,758 23,301
Investment in Guigne, net 1,800 1,800
Other assets, net 7,228 6,249
----------------- ----------------
Total assets $ 233,881 $ 225,109
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable under credit agreement, current portion $ 333 $ 333
Loans payable, current portion 3,126 3,126
Revolving loan payable 8,150 4,500
Accounts payable and accrued expenses 20,062 20,332
Deposit on asset sale 5,000 -
Convertible notes payable to shareholder 7,860 -
Deferred revenue 17,106 8,385
----------------- ----------------
Total current liabilities 61,637 36,676
Loans payable under credit agreement, net of current portion - 333
Loans payable, net of current portion 2,764 4,458
Convertible notes payable to shareholder - 7,860
Accrued contract costs 647 880
Deferred revenue 6,870 6,870
Deferred income taxes - 2,080
Convertible subordinated notes payable 63,250 63,250
----------------- ----------------
Total liabilities 135,168 122,407
Commitments and contingencies
Stockholders' equity:
Series B Senior Convertible Preferred Stock (authorized 2,500,000
shares, issued and outstanding 1,333,334,
liquidation preference of $12,000) 11,892 11,892
Common stock, no par value, authorized
30,000,000 shares, issued and outstanding
11,419,226 and 11,345,032 shares, respectively 82,303 82,074
Additional paid-in capital 16 16
Retained earnings 4,502 8,720
----------------- ----------------
Total stockholders' equity 98,713 102,702
----------------- ----------------
Total liabilities and stockholders' equity $ 233,881 $ 225,109
================= ================
See accompanying notes to unaudited condensed consolidated financial statements.
3
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(Unaudited) (Unaudited)
(In thousands, except share data) Three Months Six Months
Ended December 31, Ended December 31,
------------------------------------------ ---------------------------------
2000 1999 2000 1999
----------------- ------------------ --------------- ------------
Revenue $ 23,975 $ 26,011 $ 50,941 $ 51,989
Costs of revenue 20,836 22,771 43,360 46,606
----------- ----------- ----------- -----------
Gross profit 3,139 3,240 7,581 5,383
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 6,124 3,893 12,054 7,633
Research and development 81 586 195 1,077
----------- ----------- ----------- -----------
Total operating expenses 6,205 4,479 12,249 8,710
----------- ----------- ----------- -----------
Loss from operations (3,066) (1,239) (4,668) (3,327)
Interest expense, net of capitalized interest 807 733 1,619 1,896
Interest and other income, net (1) (68) (163) (303)
----------- ----------- ----------- -----------
Loss before income taxes (3,872) (1,904) (6,124) (4,920)
Income tax benefit (1,134) (632) (1,906) (1,689)
----------- ----------- ----------- -----------
Net loss $ (2,738) $ (1,272) $ (4,218) $ (3,231)
=========== =========== =========== ===========
Basic loss per share:
Net loss per share - basic $ (0.24) $ (0.11) $ (0.37) $ (0.29)
=========== =========== =========== ===========
Shares used in computing net loss per share - basic 11,374,563 11,258,801 11,359,956 11,244,380
=========== =========== =========== ===========
Diluted loss per share:
Net loss per share - diluted $ (0.24) $ (0.11) $ (0.37) $ (0.29)
=========== =========== =========== ===========
Shares used in computing net loss per share -
diluted 11,374,563 11,258,801 11,359,956 11,244,380
=========== =========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Six Months Ended December 31,
2000 1999
------------- -------------
Operating activities:
Net loss $(4,218) $(3,231)
Adjustments to reconcile net loss to
net cash provided by (used for) operating activities:
Depreciation and amortization 4,468 4,208
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 7,467 (317)
Decrease (increase) in prepaid expenses and other current assets 560 (688)
Increase in other assets (1,261) (1,589)
Increase (decrease) in deferred flight revenue 8,721 (2,894)
Decrease in accounts payable and
accrued expenses (3,516) (1,732)
Decrease in deferred taxes (2,080) (102)
----------- -----------
Net cash provided by (used for) operating activities 10,141 (6,345)
----------- -----------
Investing activities:
Payments for flight assets under construction (10,430) (8,420)
Payments for building under construction (4,108) (2,333)
Purchases of property, equipment and leasehold improvements (994) (2,630)
Deposit on asset sale 5,000 -
Purchase of Johnson Engineering, net of cash acquired - 600
Investment in joint venture - (600)
----------- -----------
Net cash used for investing activities (10,532) (13,383)
----------- -----------
Financing activities:
Payment of loan payable (1,694) (1,545)
Payment of note payable under credit agreement (333) (333)
Proceeds from issuance of common stock 229 233
Proceeds from revolving line of credit 3,650 -
Proceeds from issuance of preferred stock, net of expenses - 11,892
----------- -----------
Net cash provided by financing activities 1,852 10,247
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,461 (9,481)
Cash and cash equivalents at beginning of period 6,949 21,346
----------- -----------
Cash and cash equivalents at end of period $ 8,410 $ 11,865
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
5
SPACEHAB, INCORPORATED AND SUBSIDIARIES
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 subsidiaries ("SPACEHAB" or the
"Company") as of December 31, 2000, and the results of their operations and cash
flows for the three and six month periods ended December 31, 2000 and 1999.
However, the consolidated financial statements are unaudited, and do not include
all related footnote disclosures. Certain amounts presented for prior periods
have been reclassified to conform with the fiscal year 2001 presentation.
The consolidated results of operations for the three and six months ended
December 31, 2000 are not necessarily indicative of the results that may be
expected for the full year. The Company's results of operations have fluctuated
significantly from quarter to quarter (see note 3). 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, 2000.
2. Earnings per Share:
The following are reconciliation's of the numerators and denominators of
the basic and diluted earnings per share computations for the three and six
month periods ended December 31, 2000 and 1999:
(in thousands except per share data)
Three months ended Three months ended
December 31, 2000 December 31, 1999
----------------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ---------------- ---------------- ------------ -------------- -----------
Basic EPS:
Loss available to
common stockholders $ (2,738) 11,374,563 $ (0.24) $ (1,272) 11,258,801 $ (0.11)
Effect of dilutive
securities:
Convertible notes payable - - - - - -
Options and warrants - - - - - -
--------- ------------- ---------- ----------- ------------- ----------
Diluted EPS:
Loss available to
common stockholders $ (2,738) 11,374,563 $ (0.24) $ (1,272) 11,258,801 $ (0.11)
========= ============= ========== =========== ============= ==========
6
Six months ended Six months ended
December 31, 2000 December 31, 1999
----------------------------------------------------- -----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------------------- -----------------------------------------------
Basic EPS:
Loss available to
common stockholders $ (4,218) 11,359,956 $ (0.37) $ (3,231) 11,244,380 $ (0.29)
Effect of dilutive
securities:
Convertible notes payable - - - - - -
Options and warrants - - - - - -
-------- ----------- --------- -------- ----------- -------
Diluted EPS:
Loss available to
common stockholders $ (4,218) 11,359,956 $ (0.37) $ (3,231) 11,244,380 $ (0.29)
======== =========== ========= ======== =========== =======
Convertible notes payable outstanding as of December 31, 2000, 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 three and six months
ended December 31, 2000 and 1999, as the inclusion of the converted notes would
be anti-dilutive for these periods.
Options to purchase 35,000 shares of common stock at $4.125 per share were
outstanding as of the three and six months ended December 31, 2000, but were not
included in the computation of diluted EPS as the inclusion of these options
would be anti-dilutive. These options expire October 14, 2009.
Options and warrants to purchase 3,526,301 shares of common stock, at prices
ranging from $4.00 to $24.00 per share, were outstanding as of the three and six
months ended December 31, 2000 but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the average
market price of the common shares during the three and six months ended December
31, 2000. The options expire between February 22, 2001 and October 12, 2010.
Options to purchase 837,326 shares of common stock at prices ranging from $4.125
to $5.125 per share were outstanding as of the three and six months ended
December 31, 1999, but were not included in the computation of diluted EPS as
the inclusion of these options would be anti-dilutive. These options expire
between July 1, 2004 and December 20, 2008.
Options and warrants to purchase 2,522,089 shares of common stock, at prices
ranging from $5.75 to $24.00 per share, were outstanding as of the three and six
months ended December 31, 1999 but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the average
market price of the common shares during the three and six months ended December
31, 1999. The options expire between August 10, 2000 and July 1, 2008.
3. Revenue Recognition:
Under the Research and Logistics Mission Support ("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 is recognized under the percentage-of-completion
method. This percentage-of-completion method allows the Company to report
revenue based on costs incurred on a per mission basis over the period of that
mission. The percentage of completion method results in the recognition of
revenue over the period of contract performance. Revenue provided by the
Astrotech Space Operations, Inc. ("Astrotech") payload processing facilities is
recognized ratably over the occupancy period of the satellites at the Astrotech
facilities. Revenue provided by Johnson Engineering Corporation ("JE"), formerly
designated Engineering Services or "ES" for company management reporting, 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
7
reasonably estimated, or are awarded. Changes in estimated costs to complete and
estimated amounts recognized as award fees are recognized in the period they
become known.
4. Statements of Cash Flows - Supplemental Information:
(a) Cash paid for interest costs was $3.4 million and $3.6 million for the six
month periods ended December 31, 2000 and 1999, respectively. The Company
capitalized interest of approximately $2.2 million and $1.7 million during the
six months ended December 31, 2000 and 1999, respectively.
(b) The Company paid no income taxes during the six month periods ended
December 31, 2000 and 1999.
(c) During the three months ended December 31, 1999, the Company received a
$0.6 million refund of purchase price paid for the JE acquisition in 1998. In
accordance with the acquisition agreement, the refund resulted from JE's
failure to attain certain minimum award fee scores on its FCSD contract for the
period from April 1, 1999 to September 30, 1999. The refund has been recorded
as a reduction of goodwill from the JE acquisition.
5. Credit Facilities:
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 August 8,
2000, $4.5 million was drawn on the line of credit which was replaced on August
9, 2000. On August 9, 2000, the Company entered into a $15 million revolving
credit facility with a different financial institution, which provides a working
capital line of credit with a letter of credit sub-limit of $10.0 million (the
"New Credit Facility"). This New Credit Facility replaced the $10 million
Revolving Line of Credit. Certain assets of the Company collateralize the new
credit facility. The term of the new agreement is through August 2003. As of
December 31, 2000, $8.2 million was drawn on the New Credit Facility and $2.0
million was subsequently repaid.
In July 1997, Astrotech obtained a five-year term loan (the "Term Loan
Agreement"), which is guaranteed by SPACEHAB, and provides for loans of up to
$15.0 million for general corporate purposes. As of December 31, 2000, the
Company had loans payable of $5.9 million. In December 1998, the Company
amended its agreement with Alenia Spazio S.P.A. ("Alenia") relative to the
subordinated convertible notes payable to shareholder with an outstanding
balance of $11.9 million. In consideration for a payment of $4.0 million,
Alenia agreed to reduce the annual interest rate from 12 percent to 10 percent
on the outstanding balance as of January 1, 1999, and the interest payment due
for the quarter ended December 31, 1998, was waived resulting in an effective
interest rate of 8.75 percent. As of December 31, 2000, the Company had loans
payable of $7.9 million which are due August 1, 2001. An amended agreement with
the senior debt holders requires that an interest rate of 8.25 percent be
applied to the senior debt with an outstanding balance of $0.3 million as of
December 31, 2000.
In October 1997, the Company completed a private placement offering for $63.3
million of aggregate principal of its 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 $59.9 million to be used
for capital expenditures associated with the development and construction of
space related assets, the purchase of JE and for other general corporate
purposes.
6. Preferred Stock:
On August 2, 1999, Astrium GmbH ("Astrium"), a shareholder, purchased an
additional $12.0 million equity stake in SPACEHAB representing 1,333,334 shares
of Series B Senior Convertible Preferred Stock. Under the agreement, Astrium
purchased all of SPACEHAB's 975,000 authorized and unissued shares of preferred
stock. At the annual stockholders meeting held on October 14, 1999, the
shareholders approved the proposal to increase the number of authorized shares
of preferred stock to 2,500,000, in order to complete the transaction with
Astrium, allowing them to purchase the additional 358,334 preferred shares. The
preferred stock purchase increased Astrium's investment voting interest in
SPACEHAB to approximately 11.5 percent. The Series B Senior Convertible
Preferred Stock is convertible at the holders' option on the basis of one share
of preferred stock for one share of common stock, entitled to vote on an "as
8
converted" basis the equivalent number of shares of common stock and has
preference in liquidation, dissolution or winding up of $9.00 per preferred
share. No dividends are payable on the convertible preferred shares.
7. Asset Sale:
On November 30, 2000, Astrium entered into an agreement with the Company to
purchase the Company's Integrated Cargo Carrier ("ICC") and Vertical Cargo
Carrier ("VCC") assets. The total purchase price is $15.4 million comprised of
both cash and services payments. The transaction will occur in two phases. The
first phase is for the purchase of the ICC assets and the second phase is for
the purchase of the VCC assets. Phase one of the transaction is anticipated to
be completed in the third quarter upon completion of appropriate license
transfers.
8. Segment Information:
Based on its organization, the Company operates in four business segments:
Astrotech, JE, Space Media, Inc. ("SMI") and SPACEHAB, now designated Flight
Services for Company management reporting. Astrotech, acquired in February
1997, provides payload processing facilities to serve the satellite
manufacturing and launch services industry. Astrotech currently provides launch
site preparation of flight ready satellites to major U.S. space launch companies
and satellite manufacturers. JE is primarily engaged in providing engineering
services and products to the Federal Government and NASA, primarily under the
Flight Crew System Development ("FCSD") Contract. SMI was established in April
2000, to provide proprietary content from the International Space Station
("ISS") for broadcast and Internet distribution. Flight Services was founded
to commercially develop space habitat modules to operate in the cargo bay of the
Space Shuttles. Flight Services provides a turnkey service that includes access
to the modules and provides integration and operations support services for both
NASA and commercial customers.
The Company's chief operating decision maker utilizes both revenue and income
before taxes, including allocated interest based on the investment in the
segment, in assessing performance and making overall operating decisions and
resource allocations. As such, other income or expense items including taxes
and corporate overhead have not been allocated to the various segments.
(in thousands)
Three Months Ended December 31, 2000
Pre-Tax Net Depreciation
Income Fixed and
Revenue (loss) Assets Amortization
------------------------------------------------------------------------
Flight Services $ 9,352 $ (510) $139,316 $1,399
SMI 118 (1,602) 578 8
Astrotech 1,103 (861) 30,845 234
Johnson Engineering 13,402 (899) 2,847 395
------- ------- -------- ------
$23,975 $(3,872) $173,586 $2,036
======= ======= ======== ======
Three Months Ended December 31, 1999
Pre-Tax Net Depreciation
Income Fixed and
Revenue (loss) Assets Amortization
------------------------------------------------------------------------
Flight Services $10,798 $ (276) $120,010 $1,393
SMI - - - -
Astrotech 1,274 (1,109) 21,616 249
Johnson Engineering 13,939 (519) 3,079 381
------- ------- -------- ------
$26,011 $(1,904) $144,705 $2,023
======= ======= ======== ======
9
Six Months Ended December 31, 2000
Pre-Tax Net Depreciation
Income Fixed and
Revenue (loss) Assets Amortization
------------------------------------------------------------------------
Flight Services $20,533 $(1,472) $139,316 $2,861
SMI 163 (2,920) 578 16
Astrotech 2,214 (1,882) 30,845 480
Johnson Engineering 28,031 150 2,847 828
------- ------- -------- ------
$50,941 $(6,124) $173,586 $4,185
======= ======= ======== ======
Six Months Ended December 31, 1999
Pre-Tax Net Depreciation
Income Fixed and
Revenue (loss) Assets Amortization
------------------------------------------------------------------------
Flight Services $16,408 $(3,920) $120,010 $2,728
SMI - - - -
Astrotech 4,075 (971) 21,616 498
Johnson Engineering 31,506 (29) 3,079 723
------- ------- -------- ------
$51,989 $(4,920) $144,705 $3,949
======= ======= ======== ======
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
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
the statements. In addition to those risks and uncertainties discussed herein,
such risks and uncertainties include, but are not limited to, whether the
Company will fully realize the economic benefits under its U.S. National
Aeronautics and Space Administration ("NASA") and other customer contracts, the
successful development and commercialization of the Research Double Module and
related new commercial space assets, deployment of the ISS, technological
difficulties, product demand and market acceptance risks, the effect of economic
conditions, uncertainty in government funding and the impact of competition.
SPACEHAB was incorporated in 1984 to commercially develop space habitat
modules to operate in the cargo bay of the Space Shuttles. SPACEHAB, along with
the Astrotech Space Operations, Inc. ("Astrotech"), Johnson Engineering
Corporation ("JE"), formerly designated Engineering Services ("ES") for company
management reporting, and Space Media, Inc. ("SMI") subsidiaries define the
Company.
SPACEHAB's Flight Services business segment provides a turnkey service that
includes access to the modules and provides integration and operations support
services to NASA and commercial customers. Astrotech currently provides launch
site preparation of flight-ready satellites to major U.S. space launch companies
and satellite manufacturers. JE, formerly designated Engineering Services or
"ES" for Company management reporting, was incorporated in the state of Colorado
in 1973 and is primarily engaged in providing engineering services and products
to the federal government, primarily NASA, under both prime contracts and
subcontracts. JE also provides engineering
10
fabrication services to commercial customers. These services include designing
and fabrication of space flight hardware, mockups and museum exhibits. On April
11, 2000, the Company announced the formation of Space Media, Inc. ("SMI"), a
majority-owned subsidiary and media corporation, to develop space-themed
commercial business activities. SMI is also managing the Company's S*T*A*R*S tm
(Space Technology and Research Students) global space education program. On June
28, 2000, SMI acquired all of the capital stock of The Space Store. The Space
Store, an online retail operation, is a wholly owned subsidiary of SMI. The
Space Store offers an assortment of space-related products.
The Company currently operates under two significant contracts with NASA: (1)
the REALMS Contract, currently a $133.6 million firm fixed price contract for
Space Shuttle system and International Space Station ("ISS") research and
logistics services that commenced in December 1997 with a period of performance
through July 2000; and (2) the Flight Crew Systems Development Contract ("FCSD
Contract") currently a $322.4 million multitask cost-plus-award and incentive-
fee contract, that commenced in May 1993 and was scheduled to conclude in April
2001. NASA has notified the Company that it plans to exercise its option to
extend certain tasks for an additional year through April 2002.
The original REALMS contract provided for two research missions and two
logistics missions. In October 1999, NASA executed a modification to the REALMS
contract to provide for an extension of the period of performance through
December 2003 and to facilitate NASA's ability to add additional research and
logistics missions to the existing contract during this extended time as pre-
priced option missions. To date, NASA has exercised three option missions
including two ISS logistics missions and one Space Shuttle research mission.
The REALMS contract also provides SPACEHAB with an opportunity to
significantly increase its revenue through commercial sales of a portion of the
payload capacity on each research or logistics mission. The current commercial
value of this commercial capacity is approximately $38.0 million with an
additional $5.6 million of potential commercial value being marketed to
SPACEHAB's commercial customer base including the European Space Agency ("ESA"),
the National Space Development Agency of Japan ("NASDA") and the Canadian Space
Agency ("CSA").
The first mission under the REALMS contract, STS-95, which carried Senator
John Glenn back into space, was completed in October 1998. The second, third
and fourth missions, which were logistics missions to the ISS were flown in May
1999 (STS-96), May 2000 (STS-101) and October 2000 (STS-106). The remaining
missions currently under the REALMS contract, STS-105 (ICC mission), STS-107
(research module mission) and STS-112 (research module mission) are currently
scheduled to fly in March 2001, August 2001 and April 2002, respectively.
SPACEHAB also has a $6.6 million contract directly with The Boeing Company,
NASA's prime contractor for ISS development and assembly, for an ISS logistics
mission, STS-102 which is scheduled to fly in March 2001.
In November 1999, Astrotech received a six-year contract extension from
Lockheed Martin for Atlas V payload processing (with options through 2010) and a
ten-year contract from Boeing for Delta IV payload processing. The minimum
revenue commitments under these contracts combined is $82 million over 10 years.
Revenue
- -------
Flight Services generates revenue by: (i) providing lockers and/or volume
within and on the modules; (ii) integration and operations support services
provided to scientists and researchers responsible for the experiments; and/or
(iii) from NASA or International Agencies to carry logistics supplies for module
missions aboard the Space Shuttle system. For the REALMS contract and for
contract awards for which the capability to successfully complete the contract
can be demonstrated at contract inception, revenue recognition is being reported
under the percentage-of-completion method based on costs incurred on a per
mission basis over the period of the mission. The percentage-of-completion
method results in the recognition of revenue over the period of contract
performance.
Astrotech revenue is derived from various multi-year 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
11
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 generates revenue from an exclusive multi-
year agreement to process all Sea Launch program payloads at the Sea Launch
facility in Long Beach, California.
JE generates revenue primarily from its multi-year cost plus award and
incentive-fee contract with NASA. JE's flight crew support services include
operations, training and fabrication of mockups at NASA's Neutral Buoyancy
Laboratory, and at NASA's Space Vehicle Mockup Facility ("SVMF"), where
astronauts train for both Space Shuttle and International Space Station
missions. JE also designs and fabricates flight hardware, provides crew
operations and stowage integration support, human systems engineering support
and is also responsible for configuration management support to the ISS Program
Office. Revenue provided by JE 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 contract performance as
determined by periodic NASA evaluations, are recorded when the amounts can be
reasonably estimated or are awarded. JE has also began generating new
commercial revenue under both fixed price and time and material contracts.
Space Media, Inc. generated a nominal amount of revenue for the period ended
December 31, 2000 through its wholly owned subsidiary, The Space Store, an
online retail business, by the sale of space-related products.
Costs of Revenue
- ----------------
Costs of revenue for Flight Services includes integration and operations
expenses associated with the performance of three types of efforts: (i)
sustaining engineering in support of all missions under a contract, (ii) mission
specific support and (iii) other costs of revenue including depreciation
expense, related insurance, costs associated with both the Astrotech and Flight
Services payload processing facilities and JE's direct and indirect costs under
the FCSD Contract.
RESULTS OF OPERATIONS
For the three months ended December 31, 2000 as compared to the three months
ended December 31, 1999.
Revenue. Revenue decreased by 8% to approximately $24.0 million as
-------
compared to $26.0 million for the three months ended December 31, 2000 and 1999,
respectively. For the three months ended December 31, 2000, revenue of $9.4
million was recognized from the REALMS Contract with NASA and with related
commercial customers, $13.4 million from JE under the FCSD Contract, $1.1
million from Astrotech and $0.1 million from SMI operations. In contrast, for
the period ended December 31, 1999, revenue of $10.8 million was recognized from
the REALMS Contract with NASA and with related commercial customers, $13.9
million from JE under the FCSD Contract and $1.3 million from Astrotech. The
decrease in revenue under the REALMS contract is due to the mix of missions
under contract and the slippage of STS-107 which has increased the estimate of
cost to complete the mission. Revenue at JE decreased due to the deletion of
flight hardware products when the FCSD contract was modified in structure
partially offset by the receipt of their award fee score which was higher than
had been accrued. Astrotech's revenue declined due to a reduction in the number
of satellites processed for launch during the three months ended December 31,
2000 as customer delays moved satellite processing jobs into future quarters.
Costs of Revenue. Costs of revenue for the quarter ended December 31, 2000
----------------
decreased by 9% to $20.8 million, as compared to $22.8 million for the prior
year's quarter. For the quarter ended December 31, 2000, integration and
operations costs for the REALMS and related commercial customer contracts were
$6.6 million, $11.7 million for JE, $1.0 million for Astrotech payload
processing, $0.2 million for SMI, and $1.3 million of depreciation expense. For
the three months ended December 31, 1999, integration and operations costs for
the REALMS and related commercial customer contracts were $7.3 million, $0.9
million for Astrotech payload processing, $13.3 million for JE, and $1.3 million
of depreciation expense. The decrease in cost of revenue is primarily due to
the deletion of flight hardware products from the FCSD contract at JE and the
mix of missions under contract for the REALMS contract.
Operating Expenses. Operating expenses increased 39% to approximately $6.2
------------------
million for the three months ended December 31, 2000 as compared to
approximately $4.5 million for the three months ended December 31, 1999.
12
The increase is primarily due to the inclusion of SMI this fiscal year resulting
in $1.5 million of SG&A expenses and the increase resulting from increased
personnel costs and increased marketing expenses at JE to diversify into
commercial markets. SMI had no operations in the comparable period last year.
Research and Development ("R&D") expenses decreased for the three months
ended December 31, 2000 as compared to the comparable period in the prior year
due to the Company's emphasis on completing existing assets in progress and
limited new projects.
Interest Expense, Net of Capitalized Interest. Interest expense was
---------------------------------------------
approximately $0.8 million for the three months ended December 31, 2000 and
approximately $0.7 million for the three months ended December 31, 1999. There
was also approximately $1.1 million and $0.9 million of interest capitalized for
the three months ended December 31, 2000 and 1999, respectively. Interest is
capitalized based on the construction of the Company's modules and additional
facilities being constructed by Astrotech.
Interest and Other Income, Net. Interest and other income was
------------------------------
approximately $0.1 million for the three months ended December 31, 1999. There
was no interest and other income for the three months ended December 31, 2000.
The decrease in interest and other income for the period ended December 31, 2000
is due primarily to the recognition of the loss on the sale of assets to Astrium
of $0.1 million before tax.
Income Taxes. Based on the Company's projected taxable earnings for fiscal
------------
year 2001, the Company recorded a tax benefit of $1.1 million for the quarter
ended December 31, 2000, as compared to a $0.6 million tax benefit recorded for
the quarter ended December 31, 1999. The Company's estimates of the
recoverability of its deferred tax assets are based, in part, on projections of
future profitability. In the event such projections are not accurate, an
additional valuation allowance on deferred tax assets may be necessary, thereby
resulting in reduced income tax benefits.
Net Loss. The net loss for the quarter ended December 31, 2000 was
--------
approximately $2.7 million or $0.24 per share (basic and diluted EPS) on
11,374,563 shares as compared to net loss of $1.3 million or $0.11 per share
(basic and diluted EPS) on 11,258,801 shares for the quarter ended December 31,
1999.
For the six months ended December 31, 2000 as compared to the six months ended
December 31, 1999.
Revenue. Revenue decreased 2% to approximately $50.9 million as compared
-------
to $52.0 million for the six months ended December 31, 2000 and 1999,
respectively. Revenue of $20.5 million was recognized from the REALMS Contract
with NASA and with related commercial customers, $28.0 million from JE under the
FCSD Contract, $2.2 million from Astrotech, and $0.2 million for SMI. In
contrast, for the six months ended December 30, 1999, revenue of $16.4 million
was recognized from the REALMS contract with NASA and with related commercial
customers, $31.5 million from JE and $4.1 million from Astrotech. The increase
in revenue under the REALMS contract is due primarily to the addition of the
STS-106 mission which was added to the contract in March of 2000 and flew in
September 2000. The decrease in revenue at JE is due primarily to the
modification of the FCSD contract whereby flight hardware products were deleted
from the contract partially offset by the receipt of their award fee score which
was higher than had been accrued. Astrotech's revenue declined due to a
reduction in the number of satellites processed for launch during the six months
ended December 31, 2000 as customer delays moved satellite processing jobs into
future quarters. SMI had no operations in the period ended December 31, 1999.
Costs of Revenue. Costs of revenue for the six months ended December 31,
----------------
2000 decreased by 7% to $43.4 million, as compared to $46.6 million for the
comparable period last year. For the six months ended December 31, 2000,
integration and operations costs for the REALMS and related commercial customer
contracts were $13.5 million, $24.9 million for JE, $2.0 million for Astrotech
payload processing, $0.2 million for SMI, and $2.8 million of depreciation
expense. For the six months ended December 31, 1999, integration and operations
costs for the REALMS and related commercial customer contracts were $12.7
million, $29.2 million for JE, $2.1 million for Astrotech payload processing,
and $2.6 million of depreciation expense. The decrease in costs of revenue
under the REALMS contract is primarily due to the mix of missions in process.
The decrease at JE is primarily due to the deletion of the flight hardware
products from the FCSD contract.
13
Operating Expenses. Operating expenses increased approximately 41% to
------------------
approximately $12.2 million for the six months ended December 31, 2000 as
compared to approximately $8.7 million for the six months ended December 31,
1999. SG&A expenses for the period ended December 31, 2000 include six months
of SMI expenses of $2.9 million. SMI was not operating for the comparable
period last year. The remainder of the increase was primarily due to increased
personnel costs and increased marketing expenses at JE to diversify into
commercial markets.
R&D expenses decreased for the period ended December 31, 2000 as compared
to the comparable period last year due to the Company's emphasis on completing
existing assets in progress and limited new projects.
Interest Expense, Net of Capitalized Interest. Interest expense was
---------------------------------------------
approximately $1.6 million for the six months ended December 31, 2000 and
approximately $1.9 million for the six months ended December 31, 1999. There
was also approximately $2.2 million and $1.7 million of interest capitalized for
the six months ended December 31, 2000 and 1999, respectively. Interest is
capitalized based on the construction of the Company's modules and additional
facilities being constructed by Astrotech. Total interest expense increased for
the period ended December 31, 2000 primarily due to the borrowings under the
revolving line of credit.
Interest and Other Income, Net. Interest and other income was
------------------------------
approximately $0.2 million and $0.3 million for the six months ended December
31, 2000 and 1999, respectively. The decrease in interest income for the period
ended December 31, 2000 is due to the reduction of cash which was used for
operations and capital expenditures and the recognition of the loss on the sale
of assets to Astrium of $0.1 million before tax. Interest is earned on the
Company's short-term investments of the proceeds received from the Company's
debt financings and preferred stock purchase by DaimlerChrysler.
Income Taxes. Based on the Company's projected taxable earnings for fiscal
------------
year 2001, the Company recorded a tax benefit of $1.9 million for the six months
ended December 31, 2000, as compared to $1.7 million tax benefit recorded for
the six months ended December 31, 1999. The Company's estimates of the
recoverability of its deferred tax assets are based, in part, on projections of
future profitability. In the event such projections are not accurate, an
additional valuation allowance on deferred tax assets may be necessary, thereby
resulting in reduced income tax benefits.
Net Loss. The net loss for the six months ended December 31, 2000 was
--------
approximately $4.2 million or $0.37 per share (basic and diluted EPS) on
11,359,956 shares as compared to net loss of $3.2 million or $0.29 per share
(basic and diluted EPS) on 11,244,380 shares for the six months ended December
31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
During December 1995, SPACEHAB completed an initial public offering of
Common Stock (the "Offering"), which provided the Company with net proceeds of
approximately $43.5 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 August 8,
2000, $4.5 million was drawn on the line of credit, which was replaced on August
9, 2000. On August 9, 2000, the Company entered into a $15 million revolving
credit facility with a different financial institution, which provides a working
capital line of credit with a letter of credit sub-limit of $10.0 million (the
"New Credit Facility"). This New Credit Facility replaced the current $10
million Revolving Line of Credit. Certain assets of the Company collateralize
the New Credit Facility. The term of the new agreement is through August 2003.
As of December 31, 2000, $8.2 million was drawn on the New Credit Facility and
$2.0 million was subsequently repaid.
In July 1997, Astrotech obtained a five-year term loan (the "Term Loan
Agreement"), which is guaranteed by SPACEHAB, and provides for loans of up to
$15.0 million for general corporate purposes. As of December 31, 2000, the
Company had loans payable of $5.9 million. On October 21, 1997, the Company
completed a private placement offering of convertible subordinated notes payable
(the "Notes Offering"), which provided the Company with net proceeds of
approximately $59.9 million which has been used, in part, for capital
expenditures associated with the development and construction of space related
assets, the purchase of JE on July 1, 1998, and for general corporate purposes.
In December 1998, the Company amended its agreement with Alenia Spazio S.P.A
("Alenia") relative to the subordinated convertible notes payable to shareholder
with an outstanding balance of $11.9 million. In consideration for a payment
of $4.0
14
million, Alenia agreed to reduce the annual interest rate from 12 percent to 10
percent on the outstanding balance as of January 1, 1999, and the interest
payment due for the quarter ended December 31, 1998, was waived resulting in an
effective interest rate of 8.75 percent. As of December 31, 2000, the Company
had loans payable of $7.9 million. An amended agreement with the senior debt
holders requires that an interest rate of 8.25 percent be applied to the senior
debt with an outstanding balance of $0.3 million as of December 31, 2000.
On August 2, 1999, Astrium GmbH ("Astrium"), a shareholder, purchased an
additional $12.0 million equity stake in SPACEHAB representing 1,333,334 shares
of Series B Senior Convertible Preferred Stock. Under the agreement, Astrium
purchased all of SPACEHAB's 975,000 authorized and unissued shares of preferred
stock. At the annual stockholders meeting held on October 14, 1999, the
shareholders approved the proposal to increase the number of authorized shares
of preferred stock to 2,500,000, in order to complete the transaction with
Astrium, allowing them to purchase the additional 358,334 preferred shares. The
preferred stock purchase increased Astrium's investment voting interest in
SPACEHAB to approximately 11.5 percent. The Series B Senior Convertible
Preferred Stock is convertible at the holders' option on the basis of one share
of preferred stock for one share of common stock, entitled to vote on an "as
converted" basis the equivalent number of shares of common stock and has
preference in liquidation, dissolution or winding up of $9.00 per preferred
share. No dividends are payable on the convertible preferred shares.
On November 30, 2000, Astrium entered into an agreement with the Company to
purchase the Company's Integrated Cargo Carrier ("ICC") and Vertical Cargo
Carrier ("VCC") assets. The total purchase price is $15.4 million comprised of
both cash and services payments. The transaction will occur in two phases. The
first phase is for the purchase of the ICC assets and the second phase is for
the purchase of the VCC assets. Phase one of the transaction is anticipated to
be completed in the third quarter upon completion of appropriate license
transfers.
Cash Flows from Operating Activities. Cash flows provided by (used for)
operating activities for the six months ended December 31, 2000 and December 31,
1999 were $10.1 million and ($6.3) million, respectively. The significant
changes during the current period were the increase in deferred flight revenue
of $8.7 million due to receipt of advance payments for current missions and the
reduction of accounts receivable of $7.5 million due primarily to the collection
of billings for STS-106 which flew in September 2000. Accounts payable and
accrued expenses decreased by $3.5 million due to payments made to various
vendors.
Cash Flows from Investing Activities. For the six months ended December 31,
2000 and 1999, cash flows used for investing activities consisted of
approximately $10.5 million and $13.3 million, respectively. The significant
difference between the two periods was the receipt of $5.0 million from Astrium
for the phase I sale of the ICC assets. $4.1 million was spent during the period
ended December 31, 2000 for the construction of payload processing facilities at
Astrotech relative to the contract extensions with Boeing and Lockheed Martin.
The facility is expected to be complete during the fall of 2001. For the six
months ended December 31, 2000, $10.4 million was spent for the construction of
flight assets, primarily the Research Double Module ("RDM") which is essentially
complete, the EnterpriseTM module, the Spacehab Universal Communications System
("SHUCS") and the ICC ("ICC") assets sold to Astrium.
Cash Flows from Financing Activities. Cash flows provided by financing
activities were approximately $1.9 million and $10.2 million for the six months
ended December 31, 2000 and 1999, respectively. The significant change between
the two periods was due to the receipt of $11.9 million, net of expenses, in the
period ended December 31, 1999, from Astium, a shareholder in exchange for
1,333,334 authorized and unissued shares Series B Senior Convertible Preferred
Stock. During the period ended December 31, 2000, $3.7 million was drawn on the
revolving line of credit and $2.0 million was subsequently repaid.
As described above, the Company has several on-going asset construction
efforts underway, all of which will require substantial amounts of additional
capital. The Company's current available cash and cash equivalents, and amounts
available under the New Credit Facility are not adequate to fully meet these
financing requirements through the completion of construction of these assets.
Astrotech is in the process of obtaining financing for the payload processing
facility expansion from a financial institution and anticipates completion of
the financing in the fourth quarter of the year ended June 30, 2001. The
Company anticipates financing the Enterprise module from working capital and
third party financing during the year ended June 30, 2001. The Company
anticipates financing SMI from working capital, third party financing and
strategic investors during the year ended June 30, 2001. However, the Company
has no commitments from any third party financing or strategic investor sources
for the Enterprise module or SMI operations.
15
There can be no assurance that the Company will be successful in obtaining
the financings as described above. In the event that the Company is not
successful in obtaining such financings, the Company would be forced to delay,
suspend or abandon certain of the asset construction plans described above and
may be forced to reduce its operating expenditures. The Company believes that
the cash flows from operations, borrowings under the New Credit Facility and
spending reductions related to discretionary capital expenditures and other
expenses would be sufficient to enable the Company to meet its cash requirements
for the next twelve months.
Recent Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving stock
Compensation ("FIN 44"). FIN 44 further defines accounting consequences of
various modifications to the terms of a previously fixed stock option or award
under APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44
becomes effective on July 1, 2000, but certain conclusions in FIN 44 cover
specific events that occur after either December 15, 1998 or January 12, 2000.
The Company is currently evaluating the effect of FIN 44 on the Company's
financial results, but the Company does not anticipate any material effects from
implementing FIN 44.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk.
SPACEHAB's primary exposure to market risk relates to interest rates.
SPACEHAB's financial instruments which are subject to interest risk principally
include the New Credit Facility, the Term Loan Agreement and fixed rate long
term debt. SPACEHAB's long-term debt obligations are generally not callable
until maturity. SPACEHAB does not use interest rate swaps or derivative
financial instruments to manage its exposure to fluctuations in interest rates.
PART II - OTHER INFORMATION
NONE
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on October 12, 2000. A
quorum of at least one-third of the issued and outstanding common stock and
Series B Senior Convertible Preferred Stock of the Company, voting together, was
present and voting.
(a) At the Annual Meeting of Shareholders, candidates for the Board of
Directors stood for and were duly elected, with each nominee
receiving a vote of at least 8,423,903 votes:
The directors elected by the holders of the common stock are:
Hironori Aihara
Melvin D. Booth
Dr. Edward E. David, Jr.
Richard Fairbanks
Dr. Shelley A. Harrison
Gordon S. Macklin
David A. Rossi
Yury P. Semenov
James R. Thompson
The director elected by the holder of the Series B Senior
Convertible Preferred Stock is:
Josef Kind
The following matter was brought to a vote of the shareholders at
the meeting:
(b) The ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for fiscal year 2001.
For 8,903,109 Against 9,992 Abstain 8,099
ITEM 5. OTHER INFORMATION
On December 22, 2000, Michael E. Kearney was named President of
SPACEHAB, following the resignation of David A. Rossi as President and Director
of SPACEHAB. Prior to being named President, Mr. Kearney served as SPACEHAB's
Senior Vice President of Business Development.
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.
A report on Form 8-K was filed September 13, 2000 announcing the
dismissal of KPMG LLP as the independent public accountants of
the Company and the appointment of Ernst & Young LLP as its new
independent accountants for the fiscal year ended June 30, 2001,
subject to stockholder ratification. Stockholder ratification was
obtained at the Annual Meeting of Stockholders on October 12,
2000.
Exhibit No. Description of Exhibits
----------- -----------------------
10.113 Employment and Non-Interference Agreement, dated January
1, 2001 between the Company and Michael E. Kearney
27. Financial Data Schedule
17
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: February 14, 2001 /s/ Julia A. Pulzone
----------------------------------
Julia A. Pulzone
Senior Vice President, Finance
and Chief Financial Officer
/s/ Michael E. Kearney
----------------------------------
Michael E. Kearney
President and Chief Operating
Officer
18