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, 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
January 31, 2002:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 11,970,618
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
DECEMBER 31, 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 December 31, 2001 and
June 30, 2001 3
Unaudited Condensed Consolidated Statements of Operations for the three and six
months ended December 31, 2001 and 2000 4
Unaudited Condensed Consolidated Statements of Cash Flows for the six
months ended December 31, 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 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
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,
2001 2001
(unaudited)
-------------- ----------
ASSETS
Cash and cash equivalents $ 2 ,737 $ 34
Accounts receivable, net 11,621 17,358
Prepaid expenses and other current assets 885 1,381
----------- ----------
Total current assets 15,243 18,773
Property, plant, and equipment, net of
Accumulated depreciation and amortization
of $69,784 and $63,580, respectively 180,199 174,054
Goodwill, net of accumulated amortization of $4,028 and $3,500,
respectively 20,819 21,347
Investment in Guigne, net 1,800 1,800
Other assets, net 5,901 6,503
----------- ----------
Total assets $ 223,962 222,477
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable, current portion $ 195 $ 3 ,459
Revolving loan payable 4,220 6,750
Accounts payable & accrued expenses 15,176 21,023
Accrued subcontracting services 3,172 2,112
Convertible notes payable to shareholder 2,428 7,860
Deferred revenue 15,881 18,993
----------- ----------
Total current liabilities 41,072 60,197
Loans payable, net of current portion 234 1,439
Convertible notes payable to shareholder 2,628 --
Deferred revenue 7,319 7,235
Convertible subordinated notes payable 63,250 63,250
Construction loan payable 20,476 --
----------- ----------
Total liabilities 134,979 132,121
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 11,970,618 and 11,528,145 shares, respectively 83,058 82,513
Additional paid-in capital 16 16
Accumulated other comprehensive income (476) --
Accumulated Deficit (6,257) (4,065)
----------- ----------
Total stockholders' equity 88,233 90,356
----------- ----------
$ 223,962 $ 222,477
Total liabilities and stockholders' equity =========== ==========
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,
------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------- -------------- --------------
Revenue $ 27,727 $ 23,975 $ 50,019 $ 50,941
Costs of revenue 20,471 20,836 40,337 43,360
------------- ------------- -------------- --------------
Gross profit 7,256 3,139 9,682 7,581
------------- ------------- -------------- --------------
Operating expenses:
Selling, general and administrative 5,121 6,124 10,057 12,054
Research and development 125 81 143 195
------------- ------------- -------------- --------------
Total operating expenses 5,246 6,205 10,200 12,249
------------- ------------- -------------- --------------
Income (loss) from operations 2,010 (3,066) (518) (4,668)
Interest expense, net of capitalized interest (1,308) (807) (2,743) (1,619)
Interest and other income, net (17) 1 1,124 163
------------- ------------- -------------- --------------
Income (loss) before income taxes 685 (3,872) (2,137) (6,124)
Income tax (expense) benefit (27) 1,134 (55) 1,906
Net income (loss) ------------- ------------- -------------- --------------
$ 658 $ (2,738) $ (2,192) $ (4,218)
============= ============= ============== ==============
Basic income (loss) per share:
Net income (loss) per share - basic $ 0.06 $ (0.24) $ (0.19) $ (0.37)
============= ============= ============== ==============
Shares used in computing net income (loss) per share
- - basic 11,833,602 11,374,563 11,740,655 11,359,956
============= ============= ============== ==============
Diluted earnings (loss) per share:
Net income (loss) per share - diluted $ 0.05 $ (0.24) $ (0.19) $ (0.37)
============= ============= ============== ==============
Shares used in computing net income (loss) per share
- - diluted 13,166,936 11,374,563 11,740,655 11,359,956
============= ============= ============== ==============
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,
2001 2000
--------------------------------
Operating activities:
Net loss $ (2,192) $ (4,218)
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 7,527 4,468
Changes in assets and liabilities:
Decrease in accounts receivable 6,959 7,467
Decrease in prepaid expenses and other current assets 496 560
Increase in other assets (164) (1,261)
(Decrease) increase in deferred flight revenue (3,027) 8,721
Decrease in accounts payable and
Accrued expenses (6,329) (3,516)
Decrease in deferred taxes -- (2,080)
Increase in accrued subcontracting services
1,059 --
--------------------------------
Net cash provided by operating activities 3,233 10,141
--------------------------------
Investing activities:
Payments for flight assets under construction (1,715) (10,430)
Payments for building under construction (11,139) (4,108)
Purchases of property, equipment and leasehold improvements (151) (994)
Proceeds received from sale of property and equipment 783 --
Deposit on asset sale -- 5 ,000
--------------------------------
Net cash used for investing activities (12,222) (10,532)
--------------------------------
Financing activities:
Payment of loan payable (3,936) (1,694)
Payment of note payable under credit agreement (333) (333)
Proceeds from issuance of common stock 545 229
(Repayment) proceeds from revolving line of credit (2,530) 3,650
Proceeds from sale of minority interest in SMI 750 --
Proceeds from construction loan 20,000 --
Payment of convertible note payable to shareholder (2,804) --
--------------------------------
Net cash provided by financing activities 11,692 1,852
--------------------------------
Net change in cash and cash equivalents 2,703 1,461
Cash and cash equivalents at beginning of period 34 6,949
--------------------------------
Cash and cash equivalents at end of period $ 2,737 $ 8,410
================================
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, 2001, and the results of their operations and cash
flows for the three and six month periods ended December 31, 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 and six months ended
December 31, 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 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, 2001 and 2000:
(in thousands except per share data)
Three months ended Three months ended
December 31, 2001 December 31, 2000
-------------------------------------------- --------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------- --------------------------------------------
Basic EPS:
Income (loss) available to
common stockholders $ 658 11,833,602 $ 0.06 $ (2,738) 11,374,563 $ (0.24)
Effect of dilutive
securities:
Convertible notes payable - - - - - -
Options and warrants - - - - - -
Convertible preferred shares 0 1,333,334 - - - -
-------------------------------------------- --------------------------------------------
Diluted EPS:
Income (loss) available to
common stockholders $ 658 13,166,936 $ 0.05 $ (2,738) 11,374,563 $ (0.24)
============================================ ============================================
Six months ended Six months ended
December 31, 2001 December 31, 2000
-------------------------------------------- --------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------- --------------------------------------------
Basic EPS:
Loss available to
common stockholders $ (2,192) 11,740,655 $ (0.19)$ (4,218) 11,359,956 $ (0.37)
Effect of dilutive securities:
Convertible notes payable - - - - - -
Options and warrants - - - - - -
-------------------------------------------- --------------------------------------------
Diluted EPS:
Loss available to
common stockholders
$ (2,192) 11,740,655 (0.19)$ (4,218) 11,359,956 (0.37)
============================================ ============================================
6
Convertible notes payable outstanding as of December 31, 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 and six months
ended December 31, 2001 and 2000, as the inclusion of the converted notes would
be anti-dilutive for these periods.
Options and warrants to purchase 3,065,464 shares of common stock at prices
ranging from $2.31 to $24.00 per share were outstanding for the three and six
months ended December 31, 2001 but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the average
price of the common shares during the three and six months ended December 31,
2001.
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.
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 Flight Crew System
Development Contract ("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. 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.
Changes in estimated costs to complete are recognized in the period they become
know. Revisions to previous estimates to complete arising from a contract
modification required to fund an increase in the scope of work due to delays in
the timing of the STS-107 launch date, the equitable adjustment, are included in
the second quarter of fiscal year 2002 calculations for revenue recognition. The
additional contract funding is estimated to have contributed approximately an
additional $4.2 million to revenue in the second quarter of fiscal year 2002
based on work performed under the percentage of completion method of revenue
recognition.
4. Statements of Cash Flows - Supplemental Information
(a) Cash paid for interest costs was $3.9 million and $3.4 million for the six
months ended December 31, 2001 and December 31, 2000, respectively. The Company
capitalized interest of approximately $941,000 and $2.2 million during the six
months ended December 31, 2001 and 2000, respectively.
(b) The Company paid no income taxes during the six months ended December 31,
2001 and December 31, 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
7
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 were amended. Space Media, Inc. is no longer a party
to the New Credit Facility and the maximum amount allowable to be drawn under
the New Credit Facility was reduced to $6.5 million. Effective as of 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 New Credit Facility to $3.0
million in May 2002. Effective December 31, 2001, the New Credit Facility was
further amended. Certain collateral was released by the financial institution
and the maximum amount allowable to be drawn under the New Credit Facility will
be reduced each month beginning January 1, 2002 through July 1, 2002. As of
December 31, 2001, $4.2 million was drawn on the New Credit Facility and the
maximum amount allowable to be drawn under the New Credit Facility is $6.0
million as of January 1, 2002.
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 December 31, 2001, the Company had loans payable of
$329,000 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 restructuring agreement. On November 15, 2001 the Company
entered into an agreement with Alenia to restructure the terms of this debt to
provide for a $3.0 million payment of principal and interest on December 31,
2001 and quarterly amortization of the remaining principal beginning March 2002
through December 2003. In addition, the interest rate was reduced to 8 percent.
The payment was made on December 31, 2001 and the outstanding balance is $5.1
million.
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 $20.0 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 The Boeing Company ("Boeing") and Lockheed
Martin Corporation ("Lockheed Martin") and the satellite processing facility.
Interest accrues on the outstanding principal balance at a LIBOR-based rate,
adjustable quarterly. The loan matures 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. The value of the swap
agreement declined by approximately $476,000 during the six months ended
December 31, 2001 due to declines in the market rate of interest. For the six
months ended December 31, 2001, $20.0 million was drawn on the loan. The loan
was converted from a construction loan to a term loan on December 31, 2001.
Amortization of loan principal will begin on January 15, 2002 and continue on a
quarterly basis through the loan maturity date. Interest is payable quarterly on
the outstanding principle balance at the rate of 5.62%.
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 transaction was
8
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 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.
9
(in thousands)
Three Months Ended December 31, 2001
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
-----------------------------------------------------
Flight Services $ 15,416 $ 1,251 $ 131,226 $ 2,991
Johnson Engineering 9,952 834 1,847 420
Astrotech 1,988 (59) 47,036 250
SMI 239 (450) 78 65
All other 132 (891) 12 -
-----------------------------------------------------
$ 27,727 $ 685 $ 180,199 $ 3,726
=====================================================
Three Months Ended December 31, 2000
Net Depreciation
Pre-Tax Fixed And
Revenue Income Assets Amortization
(loss)
-----------------------------------------------------
Flight Services $ 9,352 $ (510) $ 139,316 $ 1,399
Johnson Engineering 13,402 (899) 2,847 395
Astrotech 1,103 (861) 30,845 234
SMI 118 (1,602) 578 8
All other - - - -
-----------------------------------------------------
$ 23,975 $(3,872) $ 173,586 $ 2,036
=====================================================
Six Months Ended December 31, 2001
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
-----------------------------------------------------
Flight Services $ 25,018 $(2,286) $ 131,226 $ 5,655
Johnson Engineering 20,127 1,236 1,847 811
Astrotech 4,235 1,578 47,036 474
SMI 363 (1,046) 78 148
All other 276 (1,619) 12 -
-----------------------------------------------------
$ 50,019 $(2,137) $ 180,199 $ 7,088
=====================================================
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
Johnson Engineering 28,031 150 2,847 828
Astrotech 2,214 (1,882) 30,845 480
SMI 163 (2,920) 578 16
All other - - - -
-------------------------------------------------------
$ 50,941 $(6,124) $ 173,586 $ 4,185
=======================================================
10
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. These shares are
convertible at the option of the holder one for one into SMI common stock.
Holders of the Series A preferred stock are entitled to receive dividends only
when and if declared by SMI's Board. On and after September 28, 2004, the
holders of at least two-thirds of the outstanding Series A preferred stock can
require SMI to redeem their shares. 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% based on voting rights
as a result of eScottVentures II equity investment.
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 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 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 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 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, 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, offers an
assortment of space-related products.
The Company currently operates under two significant contracts with NASA: (1)
the REALMS Contract, currently a $182.1 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 December 2003; and (2) the FCSD contract is 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. NASA has
recently requested that the Company provide a proposal for continuation of the
contract through September 30, 2002 and has also requested that the Company
provide estimates for three 1-month options through December 31, 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
11
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.
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 (research module mission) and STS-112 (research module mission) are
currently scheduled to fly in July 2002 and August 2004, respectively. SPACEHAB
is in final negotiations with NASA for two logistics missions utilizing both a
SPACEHAB pressurized module and the ICC.
SPACEHAB also has a $17.9 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 January
2003.
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 a 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
12
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.
Space Media, Inc. generated $363,000 of revenue for the period ended December
31, 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 December 31, 2001 as compared to the three months
ended December 31, 2000.
Revenue. Revenue increased by 16% to approximately $27.7 million as compared to
- -------
$24.0 million for the three months ended December 31, 2001 and 2000,
respectively. For the three months ended December 31, 2001, revenue of $15.4
million was recognized from the REALMS Contract with NASA and with related
commercial customers, $10.1 million from JE primarily under the FCSD and
Configuration Management Contract ("CM"), $2.0 million from Astrotech and
$240,000 from SMI operations. In contrast, 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 $118,000 from SMI operations. The
increase in revenue under the REALMS contract is primarily attributable the
equitable adjustment added to the contract. Changes in estimated costs to
complete are recognized in the period they become know. Revisions to previous
estimates to complete arising from a contract modification required to fund an
increase in the scope of work due to delays in the timing of the STS-107 launch
date, the equitable adjustment, are included in the second quarter of fiscal
year 2002 calculations for revenue recognition. The additional contract funding
is estimated to have contributed approximately an additional $4.2 million to
revenue in the second quarter of fiscal year 2002 based on work performed under
the percentage of completion method of revenue recognition. 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 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 for cost incurred.
Costs of Revenue. Costs of revenue for the three months ended December 31, 2001
- ----------------
decreased by 2% to $20.5 million, as compared to $20.8 million for the three
months ended December 31, 2000. For the period ended December 31, 2001,
integration and operations costs for the REALMS and related commercial customer
contracts were $7.7 million, $8.7 million for JE, $1.0 million for Astrotech
payload processing, $153,000 million for SMI, and $2.9 million of depreciation
expense. For the three months 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, $176,000 for SMI, and $1.3 million of depreciation expense. The
increase in costs of revenue under the REALMS contract is primarily due to a
retroactive rate increase from a major subcontractor. The decrease at JE is
primarily due to the deletion of the tasks for delivery of flight hardware
products from the FCSD contract. The increase in depreciation expense is
primarily attributable to deprecation of the Research Double Module ("RDM")
which was placed in service in January 2001.
Operating Expenses. Operating expenses decreased 15% to approximately $5.2
- ------------------
million for the three months ended December 31, 2001 as compared to
approximately $6.2 million for the three months ended December 31, 2000.
Selling, general and administrative expenses decreased approximately $1.0
million as compared to the same period last year primarily due to refocusing the
efforts of SMI. SMI's expenses decreased approximately $1.0 million for the
three months ended December 31, 2001 as compared to the same period last year.
13
Research and Development ("R&D") expenses increased approximately $44,000 for
the three months ended December 31, 2001 as compared to the comparable period in
the prior year due to minimal R&D expenditures on the EnterpriseTM module.
Interest and Other Expense. Interest expense was approximately $1.3 million for
- --------------------------
the three months ended December 31, 2001 and approximately $0.8 million for the
three months ended December 31, 2000. There was also approximately $562,000 and
$1.1 million of interest capitalized for the three months ended December 31,
2001 and 2000, respectively. The increase in interest expense is due to less
capitalized interest in the three months ended December 31, 2001 than in the
three months ended December 31, 2000. Interest is capitalized based on the
construction of the Company's modules and additional facilities being
constructed by Astrotech.
Interest and Other Income. Interest and other income was approximately $17,000
- -------------------------
of expense for the three months ended December 31, 2001. The Company recognized
a pre tax loss of $81,000 on the sale of assets to Astrium for the three months
ended December 31, 2000.
Income Taxes. Based on the Company's projected taxable status for fiscal year
- ------------
2002, the Company recorded a tax expense of approximately $27,000 as compared to
a tax benefit of $1.1 million for the three months ended December 31, 2000.
Net Income (Loss). The net income for the three months ended December 31, 2001
- -----------------
was approximately $650,000 or $0.06 per share basic and $0.05 per share diluted
on 11,833,602 shares and 13,166,936 shares respectively as compared to net loss
of $2.7 million or $0.24 per share (basic and diluted EPS) on 11,374,563 shares
for the three months ended December 31, 2000.
For the six months ended December 31, 2001 as compared to the six months ended
December 31, 2000.
Revenue. Revenue decreased 2% to approximately $50.0 million as compared to
- -------
$50.9 million for the six months ended December 31, 2001 and 2000, respectively.
For the six months ended December 31, 2001, revenue of $25.0 million was
recognized from the REALMS Contract with NASA and with related commercial
customers, $20.4 million from JE primarily under the FCSD Contract, $4.2 million
from Astrotech, and $400,000 for SMI. In contrast, for the six months ended
December 30, 2000, 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 $163,000 for SMI. The
increase in revenue under the REALMS contract is primarily attributable to the
equitable adjustment added to the contract. Changes in estimated costs to
complete are recognized in the period they become know. Revisions to previous
estimates to complete arising from a contract modification required to fund an
increase in the scope of work due to delays in the timing of the STS-107 launch
date, the equitable adjustment, are included in the second quarter of fiscal
year 2002 calculations for revenue recognition. The additional contract funding
is estimated to have contributed approximately an additional $4.2 million to
revenue in the second quarter of fiscal year 2002 based on work performed under
the percentage of completion method of revenue recognition. 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 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 for cost incurred.
Costs of Revenue. Costs of revenue for the six months ended December 31, 2001
- ----------------
decreased by 7% to $40.3 million, as compared to $43.4 million for the
comparable period last year. For the six months ended December 31, 2001,
integration and operations costs for the REALMS and related commercial customer
contracts were $14.6 million, $18.0 million for JE, $1.9 million for Astrotech
payload processing, $363,000 for SMI, and $5.4 million of depreciation expense.
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, $169,000 for SMI,
and $2.8 million of depreciation expense. The increase in costs of revenue under
the REALMS contract is primarily due to a retroactive rate increase from a major
subcontractor. The decrease at JE is primarily due to the deletion of the tasks
for delivery of flight hardware products from the FCSD contract. The increase in
depreciation expense is primarily attributable to depreciation of the RDM which
was placed in service in January 2001.
Operating Expenses. Operating expenses decreased approximately 17% to
- ------------------
approximately $10.2 million for the six months ended December 31, 2001 as
compared to approximately $12.2 million for the six months ended December 31,
2000. Selling, general and administrative expenses decreased as compared to the
same period last year primarily due to refocusing the efforts of SMI. SMI's
expenses decreased approximately $1.8 million for the six months ended December
31, 2001 as compared to the same period last year. Other reductions in selling,
general and administrative expenses of
14
approximately $0.2 million are primarily attributable to cost reductions
instituted during the last half of the fiscal year ended June 30, 2001. R&D
expenses decreased by approximately $52,000 for the period ended December 31,
2001 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 and Other Expense. Interest expense was approximately $2.7 million for
- --------------------------
the six months ended December 31, 2001 and approximately $1.6 million for the
six months ended December 31, 2000. There was also approximately $941,000 and
$2.2 million of interest capitalized for the six months ended December 31, 2001
and 2000, respectively. The increase in interest expense is due to less
capitalized interest in the six months ended December 31, 2001 than in the six
months ended December 31, 2000. Interest is capitalized based on the
construction of the Company's modules and additional facilities being
constructed by Astrotech.
Interest and Other Income. Interest and other income was approximately $1.1
- -------------------------
million and $0.2 million for the six months ended December 31, 2001 and 2000,
respectively. The Company recorded a gain of approximately $1.1 million on the
sale of the Oriole Sounding Rocket assets during the six months ended December
31, 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
- ------------
2002, the Company recorded a tax expense of approximately $55,000 for the six
months ended December 31, 2001, as compared to $1.9 million tax benefit recorded
for the six months ended December 31, 2000.
Net Income (Loss). The net loss for the six months ended December 31, 2001 was
- -----------------
approximately $2.2 million or $0.19 per share (basic and diluted EPS) on
11,740,655 shares as compared to net loss of $4.2 million or $0.37 per share
(basic and diluted EPS) on 11,359,956 shares for the six months ended December
31, 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 original term of the new agreement at the time was through
August 2003. In conjunction with the Astrotech Financing of its satellite
processing facility in Titusville, Florida in August 2001, the terms of the New
Credit Facility was amended. Space Media, Inc. is no longer a party to the New
Credit Facility and the maximum amount allowable to be drawn under the New
Credit Facility was reduced to $6.5 million. Effective as of 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 New Credit Facility to $3.0
million in May 2002. Effective as of December 31, 2001, the New Credit Facility
was further amended. Certain collateral was released by the financial
institution and the maximum amount allowable to be drawn under the New Credit
Facility will be reduced each month beginning January 1, 2002 through July 1,
2001. As of December 31, 2001, $4.2 million was drawn on the New Credit Facility
and the maximum amount allowable to be drawn under the New Credit Facility is
$6.0 million as of January 1, 2002.
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 December 31, 2001, the Company had loans payable of $329,000
related to equipment financing at the Company's JE subsidiary.
15
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. The maturity date of this debt was
extended from August 1, 2001 to November 15, 2001. On November 15, 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 remaining principal over an extended period. The revised agreement provides
for a payment of $3.0 million of principal and interest on December 31, 2001 and
quarterly amortization of the remaining principal beginning March 2002 through
December 2003. In addition, the interest rate was reduced to 8 percent. The
payment was made on December 31, 2001 and the outstanding balance is $5.1
million.
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 flows provided by operating
activities for the six months ended December 31, 2001 and December 31, 2000 were
$3.2 million and $10.1 million, respectively. The significant change during the
six months ended December 31, 2001 was the decrease in deferred flight revenue
due primarily to completion of various tasks required under the REALMS and
related commercial contracts. Accounts payable and accrued expenses decreased by
$6.3 million due to payments made to various vendors. Accounts receivable
decreased due to collections from various customers primarily under the REALMS
and FCSD contracts. The increase in depreciation and amortization from $4.5
million to $7.5 million, is primarily the result of the completion of the
Research Double Module which was completed in December 2000.
Cash Flows from Investing Activities. For the six months ended December
31, 2001 and 2000, cash flows used for investing activities consisted of
approximately $12.2 million and $10.5 million, respectively. For the period
ended December 31, 2001, $11.1 million was spent on the completion of the
payload processing facilities at Astrotech relative to the contract extensions
with Boeing and Lockheed Martin. In addition, $1.7 million was spent on various
flight assets primarily the Vertical Cargo Carrier ("VCC"). The Company received
$783,000 in cash proceeds from the sale of the Oriole sounding rocket assets and
the equipment sold to Clear Lake Industries. For the period ended December 31,
2000, the Company received $5.0 million from Astrium for the phase I sale of the
ICC assets. In addition, $4.1 million was spent for the construction of payload
processing facilities at Astrotech relative to the contract extensions with
Boeing and Lockheed Martin and $10.4 million was spent for the construction of
flight assets, primarily the RDM, 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 $11.7 million and $1.9 million for the six months
ended December 31, 2001 and 2000, respectively. The Company paid $9.6 million of
debt during the six months ended December 31, 2001, including the loan payable,
the note payable, the revolving line of credit and the payment to Alenia. $3.1
million of the loan payable was in conjunction with the Astrotech financing. The
Company received $750,000 in the form of external equity investment in SMI. The
Company received $20.0 million relative to the Astrotech financing. During the
period ended December
16
31, 2000, $3.7 million was drawn on the revolving line of credit and $2.0
million under various credit agreements was subsequently repaid.
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, in prior
periods 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 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,
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.
These shares are convertible at the option of the holder one for one into SMI
common stock. Holders of the Series A preferred stock are entitled to receive
dividends only when and if declared by SMI's Board. On and after September 28,
2004, the holders of at least two-thirds of the outstanding Series A preferred
stock can require SMI to redeem their shares. 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% based on
voting rights as a result of eScottVentures II equity investment.
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. On
January 16, 2002 the New Credit Facility was further amended. Pursuant to the
amendment, effective as of December 31, 2001, certain collateral was released by
the financial institution and the maximum amount allowable to be drawn under the
New Credit Facility will be reduced each month beginning January 1, 2002 through
July 1, 2002. The Company is in compliance with all material terms and
conditions of the New Credit Facility. The Company intends to seek a new lending
arrangement with a commercial lender prior to the expiration of the term of the
New Credit Facility.
On November 15, 2001 the Company entered into an agreement 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. In addition, the
interest rate was reduced to 8 percent. The payment was made on December 31,
2001 and the outstanding balance is $5.1 million.
17
During the six months ended December 31, 2001, the Company has repaid
approximately $9.6 million of obligations under various credit agreements and
the revolving line of credit. The Company's plans indicate that all cash
generated from operations during the current fiscal year will be used to fund
operations and reduce existing debt.
The following table summarizes the contractual obligations of the Company and
its subsidiaries at the end of December 2001, for the current year and for
future periods. The terms of certain contractual obligations are such that
repayment obligations may be accelerated under certain circumstances.
Contractual Obligations
($ in thousands)
Remaining
in
Fiscal Fiscal Fiscal Fiscal
At Year Year Year Year
Contractual Obligations December 31, 2001 2002 2003 2004 2005 Thereafter
- -------------------------------------------------------------------------------------------------------------------
Long-term Debt $ 72,854 4,791 3,453 1,360 0 $ 63,250
Construction Loan Payable 20,000 884 2,039 2,218 2,412 12,447
Capitalized Leases 71 20 28 22 1 0
Operating leases 9,393 1,133 1,824 864 668 4,904
- -------------------------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations $ 102,318 6,828 7,344 4,464 3,081 $ 80,601
===========================================================================
The Company has completed its efforts to secure the remaining portion of
contract funding on the equitable adjustment due under its contract with NASA
for Space Shuttle mission STS-107. Final approval of the equitable adjustment
was negotiated on November 9, 2001.
As discussed above, management has implemented and completed a majority of the
plan begun in the third quarter of the fiscal year 2001 and continues to manage
costs and execute the Company's fiscal year financial plan. Provided that the
Company is able to and continues to successfully execute its multi-faceted plan
to improve the Company's financial position and liquidity, 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. If the Company is unable to successfully execute its financial
plan, cash flow may be insufficient to cover the Company's operating and debt
service requirements in fiscal year 2002 and future periods.
Recent Accounting Pronouncements
- --------------------------------
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 $476,000 during the
six months ended December 31, 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.
18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on November 20, 2001. 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 8,660,306 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
Michael E. Kearney
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 2002.
For 9,547,452 Against 22,673 Abstain 5,050
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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
----------- -----------------------
10.116 Amendment to the Alenia Loan Agreement, dated as
of November 15, 2001 by the Company and Alenia
Spazio, S.P.A.
10.117 Fourth Amendment to Financing and Security
Agreement, dated as of January 16, 2002 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
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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 12, 2002 /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
21