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...............September 30, 2001
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
November 1, 2000:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 11,832,096
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, 2001 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 September 30, 2001 and
June 30, 2001 3
Unaudited Condensed Consolidated Statements of Operations for the three months
ended September 30, 2001 and 2000 4
Unaudited Condensed Consolidated Statements of Cash Flows for the
three months ended September 30, 2001 and 2000 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk 16
PART II - OTHER INFORMATION
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) September 30, June 30,
2001 2001
(unaudited)
-------------- -------------
ASSETS
Cash and cash equivalents $ 1,716 $ 34
Accounts receivable, net 21,155 17,358
Prepaid expenses and other current assets 1,657 1,381
-------------- -------------
Total current assets 24,528 18,773
Property, plant, and equipment, net of
Accumulated depreciation and amortization
of $66,365 and $63,580, respectively 178,923 174,054
Goodwill, net of accumulated amortization of $3,749 and $3,500,
respectively 21,098 21,347
Investment in Guigne, net 1,800 1,800
Other assets, net 6,368 6,503
-------------- -------------
Total assets $ 232,717 $ 222,477
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable, current portion $ 264 $ 3,459
Revolving loan payable 5,828 6,750
Accounts payable & accrued expenses 22,248 21,023
Accrued subcontracting services 2,712 2,112
Convertible notes payable to shareholder 7,860 7,860
Deferred revenue 22,740 18,993
-------------- -------------
Total current liabilities 61,652 60,197
Loans payable, net of current portion 439 1,439
Deferred revenue 7,051 7,235
Convertible subordinated notes payable 63,250 63,250
Construction loan payable 12,442 -
-------------- -------------
Total liabilities 144,834 132,121
Commitments and contingencies
Minority interest in consolidated subsidiary 750 -
Stockholders' equity:
Series B Senior Convertible Preferred Stock (authorized 2,500,000 Shares,
issued and outstanding 1,333,334 shares,
liquidation preference of $12,000) 11,892 11,892
Common stock, no par value, authorized
30,000,000 shares, issued and outstanding
11,832,096 and 11,528,145 shares, respectively 82,863 82,513
Additional paid-in capital 16 16
Accumulated other comprehensive income (723) -
Accumulated Deficit (6,915) (4,065)
-------------- -------------
Total stockholders' equity 87,133 90,356
-------------- -------------
Total liabilities and stockholders' equity $ 232,717 $ 222,477
============== =============
See accompanying notes to unaudited condensed consolidated financial statements.
3
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except share data) Three Months
Ended September 30,
2001 2000
----------- -----------
Revenue $ 22,292 $ 26,966
Costs of revenue 19,866 22,524
----------- -----------
Gross profit 2,426 4,442
----------- -----------
Operating expenses:
Selling, general and administrative 4,936 5,930
Research and development 18 114
----------- -----------
Total operating expenses 4,954 6,044
----------- -----------
Loss from operations (2,528) (1,602)
Interest expense, net of capitalized interest (1,435) (812)
Interest and other income, net 1,141 162
----------- -----------
Loss before income taxes (2,822) (2,252)
Income tax (expense) benefit (28) 772
----------- -----------
Net loss $ (2,850) $ (1,480)
=========== ===========
Basic loss per share:
Net loss per share - basic $ (0.24) $ (0.13)
=========== ===========
Shares used in computing net
loss per share - basic 11,647,709 11,345,353
=========== ===========
Diluted loss per share:
Net loss per share - diluted $ (0.24) $ (0.13)
=========== ===========
Shares used in computing net
loss per share - diluted 11,647,709 11,345,353
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands) Three Months Ended September 30,
2001 2000
--------------- ----------------
Operating activities:
Net loss $ (2,850) $ (1,480)
Adjustments to reconcile net loss to
net cash provided by (used for) operating activities:
Gain on sale of property and equipment (1,096) -
Depreciation and amortization 3,427 2,290
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (2,375) 13,456
Increase in prepaid expenses and other current assets (276) (187)
Decrease (increase) in other assets (28) (1,331)
Increase (decrease) in deferred flight revenue 3,563 (4,135)
Decrease in accounts payable and
Accrued expenses (693) (1,204)
Increase in accrued subcontracting services 600 324
--------------- ----------------
Net cash provided by operating activities 272 7,733
--------------- ----------------
Investing activities:
Payments for flight assets under construction (971) (4,793)
Payments for building under construction (5,868) (2,028)
Purchases of property, equipment and leasehold improvements (36) (745)
Cash received from sale of property and equipment 583 -
--------------- ----------------
Net cash used for investing activities (6,292) (7,566)
--------------- ----------------
Financing activities:
Payment of loan payable (3,861) (870)
Payment of note payable under credit agreement (333) (333)
Proceeds from issuance of common stock 349 121
(Repayment) proceeds of revolving line of credit (922) 150
Proceeds from investment in SMI 750 -
Proceeds from construction loan 11,719 -
--------------- ----------------
Net cash provided by (used for) financing activities 7,702 (932)
--------------- ----------------
Net change in cash and cash equivalents 1,682 (765)
Cash and cash equivalents at beginning of period 34 6,949
--------------- ----------------
Cash and cash equivalents at end of period $ 1,716 $ 6,184
=============== ================
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 September 30, 2001, and the results of their operations and
cash flows for the three month periods ended September 30, 2001 and 2000.
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 2002 presentation.
The consolidated results of operations for the three months ended September 30,
2001 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, 2001.
2. Earnings per Share
The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share computations for the three months ended
September 30, 2001 and 2000:
(in thousands except per share data) Basic Diluted
----- -------
September 30, 2001
Net loss $ (2,850) $ (2,850)
Weighted average outstanding common shares 11,647,709 11,647,709
------------------------------------------------------------------------
September 30, 2000
Net loss $ (1,480) $ (1,480)
Weighted average outstanding common shares 11,345,353 11,345,353
------------------------------------------------------------------------
Convertible notes payable outstanding as of September 30, 2001, 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 months ended
September 30, 2001 and 2000, as the inclusion of the converted notes would be
anti-dilutive for these periods.
Options and warrants to purchase 3,156,143 shares of common stock, at prices
ranging from $2.31 to $24.00 per share, were outstanding as of September 30,
2001 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 three months ended September 30, 2001. The options
expire between October 11, 2001 and July 23, 2011.
Options to purchase 1,318,070 shares of common stock at prices ranging from
$4.875 to $5.125 per share were outstanding as of September 30, 2000, 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 3, 2005 and December
20, 2010.
Options and warrants to purchase 2,414,303 shares of common stock, at prices
ranging from $5.75 to $24.00 per share, were outstanding as of September 30,
2000 but were not included in the computation of diluted EPS because
6
the options and warrants exercise prices were greater than the average market
price of the common shares during the three months ended September 30, 2000. The
options expire between April 10, 2001 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. The 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. With respect to the FCSD cost- plus award
and incentive fee contract, Johnson Engineering Corporation's ("JE") revenue is
recognized based on costs incurred plus a proportionate amount of estimated fee
earned. Award fees, which provide earnings based on the Company's contract
performance as determined by the National Aeronautics and Space Administration
("NASA") evaluations, are recorded when the amounts can be 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. Revenue
provided by the Astrotech payload processing facilities is billed and recognized
on a quarterly basis under the terms of its existing long term contracts.
4. Statements of Cash Flows - Supplemental Information
(a) Cash paid for interest costs was $0.9 million and $0.5 million for the
three months ended September 30, 2001 and September 30, 2000, respectively. The
Company capitalized interest of approximately $0.4 million and $1.1 million
during the three months ended September 30, 2001 and 2000, respectively.
(b) The Company paid no income taxes during the three months ended September
30, 2001 and September 30, 2000.
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. 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 was through August 2003. In conjunction with the Astrotech Financing,
discussed below, of its satellite processing facility in Titusville, Florida in
August 2001, the terms of the New Credit Facility have been amended. Space
Media, Inc. is no longer a party to the New Credit Facility and the maximum
amount allowable to be drawn under the Credit Facility has been reduced to $6.5
million. On October 24, 2001 the New Credit Facility was further amended. New
covenants were established and the term of the agreement was revised to July 31,
2002 with a reduction in the maximum amount allowable to be drawn under the
Credit Facility to $3.0 million in May 2002. As of September 30, 2001, $5.8
million was drawn on the New Credit Facility.
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 and equipment financing. In
conjunction with the Astrotech financing of its satellite processing facility in
Titusville, Florida in August 2001, approximately $3.1 million of the Term Loan
Agreement was repaid. As of September 30, 2001, the Company had loans payable of
$0.4 million related to equipment financing at the Company's JE subsidiary.
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. The maturity date of this debt was
August 1, 2001 and was subsequently extended to November 15, 2001 to provide for
completion of a
7
restructuring agreement. The Company has entered into an agreement with Alenia
to restructure the terms of this debt to provide for a $3.0 million payment on
December 31, 2001 and repayment of the remaining principal over an extended
period. A binding term sheet has been executed by both parties. Documentation of
this new agreement is expected to be completed by November 15, 2001. The revised
agreement provides for a payment of $3.0 million on December 31, 2001 and
quarterly amortization of the remaining principal beginning March 2002 through
December 2003. As of September 30, 2001, the principal balance of this loan of
$7.9 million is classified as a current liability. Upon completion of the
restructured, note $4.2 million of the debt will remain as a current liability
and $3.7 million will be classified to long term liabilities.
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 Johnson Engineering and for other general
corporate purposes.
On August 30, 2001, SPACEHAB's Astrotech subsidiary completed a $20 million
financing of its satellite processing facility expansion project in Titusville,
Florida with a financial institution. The proceeds of this financing are to be
used to complete the construction of the payload processing facility and
supporting infrastructure. The loan is collaterized primarily by the multi year
payload processing contracts with Boeing and Lockheed Martin and the satellite
processing facility. Interest accrues on the outstanding principal balance at a
LIBOR-based rate, adjustable quarterly. The loan is payable on January 15, 2011.
In conjunction with this financing, a swap agreement was entered into to provide
for a fixed rate of interest under the loan commitment beginning January 2002.
For the three months ended September 30, 2001, $11.7 million was drawn on the
loan.
6. Asset Sales
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") flight assets. The total purchase price of $15.4 million is
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 transactions was
completed during the three months ended March 31, 2001. SPACEHAB has entered
into an agreement with Astrium to lease these assets for a period of four years
with two additional four-year options.
On August 2, 2001, SPACEHAB'S Astrotech subsidiary sold the assets of its Oriole
sounding rocket program and related property for approximately $1.2 million to
DTI Associates, of Arlington, Virginia. The sale, effective July 26, 2001, turns
over all physical and intellectual property assets of Astrotech's sounding
rocket program, including the design of the Oriole Rocket, except for those
assets required for Astrotech to fulfill the terms of an agreement with an
existing customer. The terms of the sale are as follows: an initial cash payment
at closing, five equal monthly payments beginning September 2001 and a
promissory interest bearing note, secured by the Astrotech Sounding Rocket
Program intellectual property, due July 26, 2002. Astrotech has recorded a gain
of approximately $1.1 million on the sale.
On August 9, 2001, SPACEHAB's Johnson Engineering (JE) Subsidiary sold its
Filter Housing Machining operations assets and technology for approximately
$850,000 to Clear Lake Industries Holdings LLC ("CLI"), a company recently
formed by W.T. Short, retired SPACEHAB Senior Vice President for JE. The sale
was effective July 1, 2001. The terms of the sale are as follows: an initial
cash payment at closing and an interest-bearing note due June 29, 2006. The sale
was recorded at book value.
7. Segment Information
Based on its organization, the Company currently operates in four major business
segments: SPACEHAB, now designated Flight Services for Company management
reporting, JE, Astrotech and Space Media, Inc. ("SMI"). Flight Services was
founded to commercially develop space habitat modules and carriers that operate
in the cargo bay of
8
the Space Shuttles. Flight Services provides a turnkey service that includes
access to the modules and carriers and provides integration and operations
support services for both NASA and commercial customers. 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.
Astrotech provides payload processing facilities to serve the satellite
manufacturing and launch services industry. Astrotech currently provides launch
site preparation facilities for flight ready satellites of major U.S. space
launch companies and satellite manufacturers. SMI was established in April 2000,
to develop space themed commercial business activities. The All Other segment,
established this fiscal year, includes start up business units, which are
expected to provide services to the Federal Government and NASA.
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 September 30, 2001
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
----------------------------------------------------
Flight Services $ 9,602 $ (3,537) $ 133,577 $ 2,664
Johnson Engineering 10,175 402 2,034 391
Astrotech 2,246 1,637 43,259 224
SMI 124 (596) 53 83
All other 145 (728) - -
----------------------------------------------------
$ 22,292 $ (2,822) $ 178,923 $ 3,362
====================================================
Three Months Ended September 30, 2000
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
----------------------------------------------------
Flight Services $ 11,181 $ 122 $ 134,424 $ 1,462
Johnson Engineering 14,629 (27) 3,469 433
Astrotech 1,111 (1,029) 29,010 246
SMI 45 (1,318) - 8
----------------------------------------------------
$ 26,966 $ (2,252) $ 166,903 $ 2,149
====================================================
8. Investment in SMI
Pursuant to agreements entered into as of September 27, 2001, eScottVentures II,
LLC, of Melbourne, Florida, purchased 5,914,826 newly issued shares of SMI's
Series A redeemable, convertible preferred stock for $750,000. eScottVentures II
has assumed a seat on SMI's board of directors along with its equity stake.
SPACEHAB's ownership in Space Media, Inc. has been reduced to approximately 51%
as a result of eScottVentures II equity investment.
9
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 International Space
Station ("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 Johnson
Engineering Corporation ("JE"), formerly designated Engineering Services ("ES")
for Company management reporting, the Astrotech Space Operations, Inc.
("Astrotech"), 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 carriers 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 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 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 that intends to create proprietary
space-themed content for education and commerce. During the year ended June 30,
2001, SMI's activities were refocused primarily to develop content for the STARS
Academy(tm), corporate promotion and advertising opportunities and offering a
library of content that can be redistributed through various media channels. The
STARS Academy is a global education program offering students a scientific,
cultural and social adventure across the earth, into the oceans and aboard the
International Space Station. SMI offers retail products associated with the
STARS Academy. The STARS Academy program currently is planning to launch
student-designed experiments on a Space Shuttle mission during calendar year
2002 for schools in Australia, Canada, China, Israel, Japan, Singapore,
Thailand, and the United States. During the year ended June 30, 2000, SMI
acquired The Space Store, an online retail operation, anticipating that
e-commerce is expected to be an integral part of its Internet business. The
Space Store currently offers an assortment of space-related products though its
Space Store website, www.spacestore.com.
------------------
The Company currently operates under two significant contracts with NASA: (1)
the REALMS Contract, currently a $160.3 million firm fixed price contract for
Space Shuttle system and ISS research and logistics services that commenced in
December 1997 with a period of performance through December 2003; and (2) the
Flight Crew Systems Development Contract ("FCSD Contract") currently a $366.6
million multitask cost-plus-award and incentive-fee contract, that commenced in
May 1993 and was scheduled to conclude in April 2001. NASA has exercised 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.
10
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.
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, fourth
and fifth missions, which were logistics missions to the ISS, were flown in May
1999 (STS-96), May 2000 (STS-101), September 2000 (STS-106) and August 2001
(STS-105). The remaining missions currently under the REALMS contract, STS-107
and STS-122, research missions, are currently scheduled to fly in June 2002 and
July 2004, respectively. NASA has recently notified SPACEHAB that it intends to
exercise its option for two logistics missions utilizing both a SPACEHAB
pressurized module and the ICC within the next few months.
SPACEHAB also has a $17.4 million contract directly with The Boeing Company
("Boeing"), NASA's prime contractor for ISS development and assembly, for an ISS
logistics mission, STS-102 (ICC mission) that flew in March 2001 and a
deployable ICC mission on flight STS-113 that is scheduled to fly in August
2002.
During the year ended June 30, 2000, Astrotech completed negotiations of long-
term extensions to payload processing contracts with its two largest customers,
Boeing and Lockheed Martin. Astrotech received a six-year contract from Lockheed
Martin for Atlas V payload processing (with options through 2010) and a ten-year
contract from Boeing for Delta IV payload processing. Lockheed Martin exercised
one of its available five, one-year extensions during the period ended March 31,
2001. The minimum revenue commitments under these contracts combined is $85
million over 10 years.
Revenue
Flight Services generates revenue by providing turnkey service that includes
access to the modules and provides integration and operations support services
to scientists and researchers responsible for the experiments and/or 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.
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. With respect to the FCSD cost-plus award and incentive fee contract,
Johnson Engineering Corporation's ("JE") revenue is recognized based on costs
incurred plus a proportionate amount of estimated fee earned. Award fees, which
provide earnings based on the Company's contract performance as determined by
the National Aeronautics and Space Administration ("NASA") evaluations, are
recorded when the amounts can be 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. JE is also generating commercial
revenue under both fixed price and time and material contracts.
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 countdown.
Revenue provided by the Astrotech payload processing facilities is billed and
recognized on a quarterly basis under the terms of its existing long term
contracts. 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.
11
Space Media, Inc. generated a nominal amount of revenue for the period ended
September 30, 2001 primarily through its wholly owned subsidiary, The Space
Store, an online retail business, from the sale of space-related products.
Costs of Revenue
Costs of revenue include integration and operations expenses associated with the
performance of two types of efforts: (i) sustaining engineering in support of
all missions under a contract and (ii) mission specific support. Costs
associated with the performance of the contracts using the percentage-of-
completion method of revenue recognition are expensed as incurred. Costs
associated with the cost-plus-award and incentive fee contracts are expensed as
incurred by JE. Other costs of revenue include depreciation expense and costs
associated with the Astrotech payload processing facilities. Flight related
insurance covering transportation of 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 recorded
as incurred.
RESULTS OF OPERATIONS
For the three months ended September 30, 2001 as compared to the three months
ended September 30, 2000.
Revenue. Revenue decreased by 17% to approximately $22.3 million as compared to
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approximately $27.0 million for the three months ended September 30, 2001 and
2000, respectively. For the three months ended September 30, 2001 revenue of
$9.6 million was recognized from the REALMS Contract with NASA and with related
commercial customers, $10.2 million from JE primarily under the FCSD Contract,
$2.2 million from Astrotech, $124,000 from SMI, primarily from the Space Store
and $145,000 of miscellaneous revenue. In contrast, for the three months ended
September 30, 2000 revenue of $11.2 million was recognized from the REALMS
Contract with NASA and with related commercial customers, $14.6 million from JE
under the FCSD Contract, $1.1 million from Astrotech, and $45,000 from SMI. The
decrease in revenue under the REALMS contract and related commercial customers
is primarily attributable to mission STS-106, which was added to the contract in
the fourth quarter of fiscal year 2000 and flew in September 2000. STS-106 had
common costs with STS-101 and therefore more revenue could be recognized on a
nominal increase in costs. Revenue at JE decreased due to the deletion of
various tasks, primarily flight hardware, when the FCSD contract was modified in
structure. Astrotech's revenue increase is due primarily due to the structure of
the multi year contracts with its two largest customers, Boeing and Lockheed,
whereby revenue is billed and recognized on a quarterly basis.
Costs of Revenue. Costs of revenue for the three months ended September 30,
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2001 decreased by 12% to $19.9 million, as compared to $22.5 million for the
prior year's quarter. For the three months ended September 30, 2001, integration
and operations costs for the REALMS and related commercial customer contracts
were $6.9 million, $9.1 million for JE, $0.9 million for Astrotech payload
processing, $201,000 for SMI and $244,000 related to miscellaneous revenue. Cost
of revenue also includes $2.5 million of depreciation expense. In contrast, for
the three months ended September 30, 2000, integration and operations costs for
the REALMS and related commercial customer contracts were $6.8 million, $13.2
million for JE, $1.1 million for Astrotech payload processing, $29,000 for SMI
and $1.4 million of depreciation expense. Integration and operations costs for
the REALMS and related commercial customer contracts remained essentially
unchanged for the two periods although more revenue could be recognized in the
prior year on the similar costs due the increased gross margin of STS-106. JE's
costs decreased due to the deletion of various tasks, primarily flight hardware,
when the FCSD contract was modified in structure. Astrotech's costs decreased
slightly from the three months ended September 30, 2000. The increase in costs
of revenue for SMI relates to the costs associated with the STARS Academy
program. The increase in depreciation expense is primarily related to the
completion of the Research Double Module ("RDM") at the end of December 2000.
Operating Expenses. Operating expenses decreased approximately 18% to
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approximately $5.0 million for the three months ended September 30, 2001 as
compared to approximately $6.0 million for the three months ended September 30,
2000. Selling, general and administrative expenses decreased as compared to the
same period last year primarily
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due to refocusing efforts of SMI. SMI's expenses decreased approximately $0.8
million for the three months ended September 30, 2001 as compared to the same
period last year. Other reductions in selling, general and administrative
expenses of approximately $0.2 million are primarily attributable to cost
reductions instituted during the last half of the fiscal year ended June 30,
2001.
Research and development expenses decreased approximately $0.1 million for the
three months ended September 30, 2001 as compared to the comparable period last
year due to the Company's emphasis on completing existing assets in progress and
limiting new investments in research and development.
Interest and Other Expense. Interest expense was approximately $1.4 million for
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the three months ended September 30, 2001 and approximately $0.8 million for the
three months ended September 30, 2000. There was also approximately $0.4 million
and $1.1 million of interest capitalized for the quarters ended September 30,
2001 and 2000, respectively. For the three months ended September 30, 2001,
interest was capitalized based on the additional facility being constructed by
Astrotech. For the three months ended September 30, 2000, interest was
capitalized based on the construction of the Company's modules and additional
facility being constructed by Astrotech.
Interest and Other Income. Interest and other income was approximately $1.1
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million for the three months ended September 30, 2001 and $0.2 million for the
three months ended September 30, 2000. The Company recorded a gain of
approximately $1.1 million on the sale of the Oriole Sounding Rocket assets
during the three months ended September 30, 2001. Interest income is earned on
the Company's short-term investments.
Income Taxes. Based on the Company's projected taxable status for fiscal year
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2002, the Company recorded a tax expense of $28,000 for the quarter ended
September 30, 2001, as compared to $0.8 million tax benefit for the quarter
ended September 30, 2000.
Net Loss. The net loss for the quarter ended September 30, 2001 was
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approximately ($2.9) million or ($.24) per share (basic and diluted EPS) on
11,647,709 shares as compared to a net loss of ($1.5) million or ($0.13) per
share (basic and diluted EPS) on 11,345,353 shares for the quarter ended
September 30, 2000.
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 June 30,
2000, $4.5 million was drawn on the line of credit, which expired on August 31,
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
September 30, 2001, $5.8 million was drawn on the New Credit Facility. In
conjunction with the Astrotech Financing of its satellite processing facility in
Titusville, Florida in August 2001, the terms of the New Credit Facility have
been amended. Space Media, Inc. is no longer a party to the New Credit Facility
and the maximum amount allowable to be drawn under the Credit Facility has been
reduced to $6.5 million. On October 24, 2001 the New Credit Facility was further
amended. New covenants were established and the term of the agreement was
revised to July 31, 2002 with a reduction in the maximum amount allowable to be
drawn under the Credit Facility to $3.0 million in May 2002. As of September 30,
2001, $5.8 million was drawn on the New Credit Facility.
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 and equipment financing. In
conjunction with the Astrotech financing of its satellite processing facility in
Titusville, Florida in August 2001, $3.1 million of the Term Loan Agreement was
repaid. As of September 30, 2001, $0.4 million was outstanding under the Term
Loan Agreement.
13
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 Alenia 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 September 30, 2001, the Company had an outstanding balance
due of $7.9 million. The maturity date of this debt was extended from August 1,
2001 to November 15, 2001. On October 29, 2001, the Company entered into an
agreement with Alenia to restructure the terms of this debt to provide for a
$3.0 million payment on December 31, 2001 and repayment of the principal over an
extended period. Both parties have executed a binding term sheet. Documentation
of this new agreement is expected to be completed by November 15, 2001 to
provide for completion of a restructuring agreement. The revised agreement
provides for a payment of $3.0 million on December 31, 2001 and quarterly
amortization of the remaining principal beginning March 2002 through December
2003. As of September 30, 2001, the principal balance of this loan is $7.9
million. When documentation has been completed, $4.2 million of the debt will be
classified as current and $3.7 million as long term.
On August 2, 1999, Astrium GmbH ("Astrium"), a related party, 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, a related party, purchased all of SPACEHAB's 975,000
authorized and unissued shares of preferred stock. At the Annual Meeting of
stockholders 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, a related party, allowing them
to purchase the additional 358,334 preferred shares. The preferred stock
purchase increased Astrium's, a related party, 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.
Cash Flows From Operating Activities. Cash provided by operations for the three
months ended September 30, 2001 and 2000 was $272,000 and $7.7 million,
respectively. For the three months ended September 30, 2001, the significant
items affecting cash provided by operating activities were primarily the result
of depreciation and amortization of $3.4 million, increase in deferred revenue
of $3.6 million primarily for equitable adjustment payments received for STS-107
which partially offset by the increase in accounts receivable of $2.4 million.
In addition, the Company recorded a $1.1 million gain on the sale of property
and equipment relating to the Astrotech sounding rocket sale and the sale of
equipment to Clear Lake Industries. For the three months ended September 30,
2000, the significant items affecting cash provided by operating activities was
the decrease in accounts receivable by $13.5 million due to collection of
receivables for the STS-101 and STS-106 missions. Other assets increased by $1.3
million primarily due to the tax benefit accrued for the current quarter.
Deferred flight revenue decreased by $4.1 million due to recognition of all
deferred revenue on STS-106, which flew in September 2000.
Cash Flows Used in Investing Activities. For the three months ended September
30, 2001 and 2000, cash flows used in investing activities were $6.3 million and
$7.6 million, respectively. For the three months ended September 30, 2001 $5.9
million was used for the construction of Astrotech's facility expansion in
Florida. In addition, $1.0 million was spent on various flight assets including
the Enterprise Module. The Company received $0.6 million in cash proceeds from
the sale of the Oriole sounding rocket assets and the equipment sold to Clear
Lake Industries. For the three months ended September 30, 2000, cash flows used
in investing activities were primarily used for, $2.0 million for ongoing
construction of Astrotech's payload processing facility, and $4.8 million for
construction of flight assets, primarily the RDM which was to be completed in
the first half of the fiscal year, and the Enterprise/TM/ module.
14
Cash Flows From Financing Activities. For the three months ended September 30,
2001 and 2000, cash flows provided by (used for) financing activities were $7.7
million and ($0.9) million, respectively. For the three months ended September
30, 2001 the Company paid $3.9 million of the loan payable, $3.1 million of
which was in conjunction with the Astrotech financing. The Company received
$11.7 million relative to the Astrotech financing and paid $5.1 million of
obligations under various credit agreements and the revolving line of credit and
received $0.8 million in the form of external equity investment in SMI. For the
three months ended September 30, 2000, the significant change in cash used for
financing activities was that the Company made payments of approximately $1.2
million on the loan payable and note payable.
The Company's liquidity has been constrained over the past fiscal year. A
significant portion of this constraint arose from funding of new operations and
assets to support future Company growth and construction of the new Astrotech
Florida facility prior to obtaining external financing. In addition, the Company
was committed to capital investments to complete certain flight assets.
Due to changes in the external markets, the Company reevaluated its strategy.
Beginning in the third quarter of the fiscal year ended June 30, 2001,
management began an aggressive multi-faceted plan to improve the Company's
financial position and liquidity. This plan included the following components:
i) completing the external financing for the new facility required to support
operations at Astrotech's Florida location; ii) reducing operating costs and
establishing an operating plan for fiscal year 2002 which provides for
sufficient cash flow to support efficient operations; iii) renegotiating the
terms and conditions of the revolving line of credit; iv) limiting cash
commitments for future capital investments and new asset development; v)
restructuring the repayment of certain debts maturing in fiscal year 2002; vi)
divesting non-core assets; vii) obtaining external investor funding for its
Space Media subsidiary; viii) completing negotiations for certain contract
equitable adjustments due to the Company under it long-term services contract
with NASA; and ix) improving the overall liquidity of the Company. Management
anticipates that this strategy will generate sufficient additional liquidity to
support its operations and satisfy its debt obligations.
Under this plan, the Company undertook extensive efforts to reduce cash required
for both operations and capital investments. Specifically, the Company took
steps to reduce overhead beginning in the third quarter of the fiscal year 2001
and reduced its workforce by approximately 10%. The Company's fiscal year 2002
operating plan will continue to realize efficiencies from these actions. In
August 2001, Astrotech completed documentation and obtained $20 million of
financing for the expansion of its payload processing facilities. The financing
provides funds for completion of the facility construction as well as a return
of approximately $7.7 million of previously invested working capital of the
Company. The Company used approximately $3.1 million of these working capital
funds to repay an existing obligation under Astrotech's credit facility.
Additionally, the Company completed planned divesting of non-core assets.
Development and construction of new assets is currently limited to those assets
required to fulfill existing commitments under contracts.
Under this plan, the Company refocused the scope of SMI's operations on near
term initiatives in order to maximize the potential return of capital invested
to date in SMI. Pursuant to agreements entered into as of September 27, 2001,
the Company received $750,000 from an investor to fund future operations of SMI
in exchange for equity in SMI. As a result, the Company's ownership interest in
SMI has been reduced to approximately 51%.
On October 24, 2001, the Company completed negotiations with its senior lender
to revise the terms and conditions of the New Credit Facility. The revised terms
and conditions provide for new covenants, a maturity date of July 31, 2002 on
the facility and a reduction in the loan value to $3.0 million in May 2002. The
Company is in compliance with all terms and conditions of the New Credit
Facility.
The Company completed negotiations on October 29, 2001 with Alenia to
restructure its existing obligation. The revised agreement provides for a
payment of $3.0 million on December 31, 2001 and quarterly amortization of the
remaining principal beginning March 2002 through December 2003.
The Company continues its efforts to secure the remaining portion of contract
funding on the equitable adjustment due under its contract with NASA. Management
of the Company has completed negotiations with NASA for the
15
balance of contract funding on the equitable adjustment and is awaiting final
approval of the contract modification. Final approval is expected to occur in
November 2001.
The Company's plans indicate that all cash generated from operations during the
next fiscal year will be used to fund operations and reduce existing debt.
During the three months ended September 30, 2001, the Company has repaid
approximately $5.1 million of obligations under various credit agreements and
the revolving line of credit.
The Company believes that cash flows from operations, funds provided from its
Astrotech expansion financing, borrowings under the New Credit Facility and
spending reductions related to discretionary capital expenditures and other
expenses will be sufficient to enable the Company to meet its cash requirements
for the next twelve months.
As discussed above, management has implemented and completed a majority of the
plan begun in the third quarter of the fiscal year 2001 and expects that it will
be successful in accomplishing the remaining items of the plan; however, no
assurance can be given that the Company will be successful in achieving the
remaining goals. If the Company is unable to complete its strategy, cash flow
may be insufficient to cover the Company's operating and debt service
requirements in fiscal year 2002.
Recent Accounting Pronouncements
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In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Accounting for Goodwill and Other Intangible Assets." The Statement eliminates
the requirement to amortize costs in excess of net assets acquired (goodwill)
under the purchase method of accounting, and sets forth a new methodology for
periodically assessing and, if warranted, recording impairment of goodwill.
Early adoption of this standard is permitted July 1, 2001, however, the Company
did not adopt the new standard early. The Company will be required to adopt the
new rules effective July 1, 2002. The elimination of amortization of goodwill is
expected to increase earnings by approximately $1.0 million. The Company will
analyze and assess the impairment provisions of the new Statement, but has not
yet determined the impact, if any, of the adoption of those provisions.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
SPACEHAB's primary exposure to market risk relates to interest rates. SPACEHAB's
financial instruments which are subject to interest rate 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. On August 30, 2001 SPACEHAB's Astrotech Space Operations, Inc.
subsidiary completed a financing for a building under construction. In
conjunction with this financing, a swap agreement was entered into to provide
for a fixed rate of interest under the loan commitment beginning January 2002.
The value of the swap agreement declined by approximately $723,000 during the
three months ended September 30, 2001 due to declines in the market rate of
interest. SPACEHAB does not use any other interest rate swaps or derivative
financial instruments to manage its exposure to fluctuations in interest rates.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
16
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.
Exhibit No. Description of Exhibits
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21. Subsidiaries of the Registrant
10.114 Credit agreement dated as of August 30,
2001 by and between Astrotech Florida
Holdings, Inc. and SouthTrust Bank.
10.115 Third Amendment to Financing and Security
Agreement, dated as of October 24, 2001 by
and among Bank of America, N.A. and the
Company, Johnson Engineering Corporation
and Astrotech Space Operations, Inc.
(b) Reports on Form 8-K.
None
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: November 8, 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