UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
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, South West
Suite 814
Washington, DC 20024
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
April 30, 2002:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 12,086,522
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
MARCH 31, 2002 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 March 31, 2002 and
June 30, 2001 3
Unaudited Condensed Consolidated Statements of Operations for the three and nine
months ended March 31, 2002 and 2001 4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 2002 and 2001 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 6. Exhibits and Reports on Form 8-K 19
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) March 31, June 30,
2002 2001
(unaudited)
--------------- ---------------
ASSETS
Cash and cash equivalents $ 1,091 $ 34
Accounts receivable, net 13,701 17,358
Prepaid expenses and other current assets 946 1,381
-------------- ---------------
Total current assets 15,738 18,773
Property, plant, and equipment, net of
accumulated depreciation and amortization
of $72,480 and $63,580, respectively 178,505 174,054
Goodwill, net of accumulated amortization of $4,292 and $3,500,
respectively 20,555 21,347
Investment in Guigne, net 1,800 1,800
Other assets, net 8,509 6,503
------------- ---------------
Total assets $ 225,107 $ 222,477
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loans payable $ 195 $ 3,459
Revolving loan payable 3,352 6,750
Accounts payable and accrued expenses 15,719 21,023
Accrued subcontracting services 3,771 2,112
Convertible notes payable to shareholder 2,428 7,860
Mortgage loan payable 3,481 -
Deferred revenue 18,280 18,993
------------- ---------------
Total current liabilities 47,226 60,197
------------- ---------------
Loans payable, net of current portion 87 1,439
Accrued contract cost 100 -
Convertible notes payable to shareholder 2,039 -
Deferred revenue 6,690 7,235
Convertible subordinated notes payable 63,250 63,250
Mortgage loan payable 16,119 -
Other liability 425 -
------------- ---------------
Total liabilities 135,936 132,121
Commitments and contingencies
Minority interest in consolidated subsidiary 750 -
Stockholders' equity
Preferred stock, authorized 2,500,000
shares, issued and outstanding 1,333,334 shares 11,892 11,892
Common stock, no par value, authorized
30,000,000 shares, issued and outstanding
12,086,522 and 11,528,145 shares, respectively 83,131 82,513
Additional paid-in capital 16 16
Accumulated other comprehensive income (425) -
Accumulated deficit (6,193) (4,065)
------------- ---------------
Total stockholders' equity 88,421 90,356
------------- ---------------
Total liabilities and stockholders' equity $ 225,107 $ 222,477
============= ===============
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 and per share data) Three Months Nine Months
Ended March 31, Ended March 31,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Revenue $ 24,711 $ 24,453 $ 74,730 $ 75,394
Costs of revenue 18,266 21,865 58,603 65,225
------------- ------------- ------------- -------------
Gross profit 6,445 2,588 16,127 10,169
Operating expenses: ------------- ------------- ------------- -------------
Selling, general and administrative 4,767 5,506 14,824 17,560
Research and development 148 171 291 366
------------- ------------- ------------- -------------
Total operating expenses 4,915 5,677 15,115 17,926
------------- ------------- ------------- -------------
Income (loss) from operations 1,530 (3,089) 1,012 (7,757)
Interest expense, net of capitalized interest (1,438) (1,495) (4,181) (3,114)
Interest and other income, net 2 223 1,126 386
------------- ------------- ------------- -------------
Income (loss) before income taxes 94 (4,361) (2,043) (10,485)
Income tax (expense) benefit (28) 1,388 (83) 3,294
------------- ------------- ------------- -------------
Net income (loss) $ 66 $ (2,973) $ (2,126) $ (7,191)
============= ============= ============= =============
Basic earnings (loss) per share:
Net income (loss) per share - basic $ 0.01 $ (0.26) $ (0.18) $ (0.63)
============= ============= ============= =============
Shares used in computing net income (loss)
per share - basic 11,971,906 11,419,703 11,817,193 11,380,180
============= ============= ============= =============
Diluted earnings (loss) per share:
Net income (loss) per share - diluted $ 0.00 $ (0.26) $ (0.18) $ (0.63)
============= ============= ============= =============
Shares used in computing net income (loss)
per share - diluted 13,308,778 11,419,703 11,817,193 11,380,180
============= ============= ============= =============
See accompanying notes to unaudited condensed consolidated financial statements.
4
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended March 31,
2002 2001
---------------------------------
Operating activities
Net loss $ (2,126) $ (7,191)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Gain on sale of property and equipment (1,096) -
Depreciation and amortization 10,721 6,594
Changes in assets and liabilities:
Decrease in accounts receivable 4,829 15,475
Decrease (increase) in prepaid expenses and other current assets 435 (80)
(Increase) decrease in other assets (3,005) 23
(Decrease) increase in deferred flight revenue (1,257) 9,717
Decrease in accounts payable and
accrued expenses (5,584) (1,630)
Decrease in deferred taxes - (3,551)
Increase in accrued subcontracting services 1,559 -
---------------------------------
Net cash provided by operating activities 4,476 19,357
---------------------------------
Investing activities
Payments for flight assets under construction (2,338) (16,131)
Payments for building under construction (11,682) (5,888)
Purchases of property, equipment and leasehold improvements (91) (1,617)
Proceeds received from sale of property and equipment 833 -
Proceeds received from sale of flight assets - 5,000
---------------------------------
Net cash used for investing activities (13,278) (18,636)
---------------------------------
Financing activities
Payment of loan payable (3,983) (2,518)
Payment of note payable under credit agreement (333) (333)
Proceeds from issuance of common stock 616 316
(Repayment) proceeds from revolving line of credit (3,398) 3,700
Proceeds from mortgage loan 19,600 -
Proceeds from sale of minority interest in SMI 750 -
Payment of convertible note payable to shareholder (3,393) -
---------------------------------
Net cash provided by financing activities 9,859 1,165
---------------------------------
Net change in cash and cash equivalents 1,057 1,886
Cash and cash equivalents at beginning of period 34 6,949
---------------------------------
Cash and cash equivalents at end of period $ 1,091 $ 8,835
=================================
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 March 31, 2002, and the results of their operations and cash
flows for the three and nine month periods ended March 31, 2002 and 2001.
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 nine months ended March
31, 2002 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 and nine month
periods ended March 31, 2002 and 2001:
(in thousands except per share data)
Three months ended Three months ended
March 31, 2002 March 31, 2001
------------------------------------------ ----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------ ----------------------------------------
Basic EPS:
Income (loss) available to
common stockholders $ 66 11,971,906 $ 0.01 $ (2,973) 11,419,703 $ (0.26)
Effect of dilutive securities:
Convertible notes payable - - - - - -
Options and warrants - 3,538 0.00 - - -
Convertible preferred shares: - 1,333,334 (0.01) - - -
------------------------------------------ ----------------------------------------
Diluted EPS:
Income (loss) available to
common stockholders $ 66 13,308,778 $ 0.00 $ (2,973) 11,419,703 $ (0.26)
========================================== ========================================
Nine months ended Nine months ended
March 31, 2002 March 31, 2001
-----------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------ ----------------------------------------
Basic EPS:
Loss available to
common stockholders $ (2,126) 11,817,193 $ (0.18) $ (7,191) 11,380,180 $ (0.63)
Effect of dilutive
securities:
Convertible notes payable - - - - - -
Options and warrants - - - - - -
------------------------------------------ ----------------------------------------
Diluted EPS:
Loss available to
common stockholders $ (2,126) 11,817,193 $ (0.18) $ (7,191) 11,380,180 $ (0.63)
========================================== ========================================
6
Convertible notes payable outstanding as of March 31, 2002, 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 nine months
ended March 31, 2002 and 2001, as the inclusion of the converted notes would be
anti-dilutive for these periods.
Options and warrants to purchase 3,025,178 shares of common stock at prices
ranging from $1.69 to $24.00 per share were outstanding for the three and nine
months ended March 31, 2002 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 nine months ended March 31, 2002. Options
are included under the treasury stock method to the extent they are dilutive.
Options to purchase 8,000 shares of common stock at $2.813 per share were
outstanding as of the three and nine months ended March 31, 2001 but were not
included in the computation of diluted EPS as the inclusion of these options
would be anti-dilutive. These options expire March 31, 2011.
Options and warrants to purchase 3,562,115 shares of common stock, at prices
ranging from $3.44 to $24.00 per share, were outstanding as of the three and
nine months ended March 31, 2001 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 nine months ended March
31, 2001. The options expire between April 10, 2001 and February 12, 2011.
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.
4. Statements of Cash Flows - Supplemental Information
(a) Cash paid for interest costs was $4.3 million and $3.9 million for the nine
months ended March 31, 2002 and March 31, 2001, respectively. The Company
capitalized interest of approximately $1.4 and $2.4 million during the nine
months ended March 31, 2002 and 2001, respectively.
(b) The Company paid no income taxes during the nine months ended March 31, 2002
and March 31, 2001.
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 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 $6.5 million.
7
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 March 31, 2002, $3.4
million was drawn on the New Credit Facility and the maximum amount allowable to
be drawn under the New Credit Facility is $4.25 million as of March 31, 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 March 31, 2002, the Company had loans payable of
$282,000 related to equipment financing at the Company's JE subsidiary only.
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 payments required under the agreement were made on December 31, 2001 and
March 31, 2002 and the outstanding balance is $4.5 million as of March 31, 2002.
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 which were
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 were 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"). 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 $425,000
during the nine months ended March 31, 2002 due to declines in the market rate
of interest. For the nine months ended March 31, 2002, $20.0 million was drawn
on the loan and $400,000 of principal was repaid on January 15, 2002. The loan
was converted from a construction loan to a term loan on December 31, 2001.
Amortization of loan principal began on January 15, 2002 and continues on a
quarterly basis through the loan maturity date. Interest is payable quarterly on
the outstanding principal 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
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. Phase two of the transaction is expected
to be completed by June 30, 2002.
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
8
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 note of $655,000, bearing
interest and secured by the Astrotech Sounding Rocket Program intellectual
property and due July 26, 2002. Astrotech recognized a gain of approximately
$1.1 million on the sale in the quarter ended September 30, 2002.
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 of $567,000 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 March 31, 2002
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
--------------------------------------------------------
Flight Services $ 12,212 $ 211 $ 129,754 $ 2,232
Johnson Engineering 9,813 481 1,654 422
Astrotech 2,530 299 47,022 294
SMI 152 (311) 75 73
All other 4 (586) - -
-------------------------------------------------------
$ 24,711 $ 94 $ 178,505 $ 3,021
=======================================================
Three Months Ended March 31, 2001
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
---------------------------------------------------------
Flight Services $ 10,391 $ (1,613) $ 131,794 $ 1,265
Johnson Engineering 12,671 (524) 2,671 409
Astrotech 1,230 (742) 31,984 251
SMI 161 (1,482) 669 11
All other - - - -
--------------------------------------------------------
$ 24,453 $ (4,361) $ 167,118 $ 1,936
========================================================
Nine Months Ended March 31, 2002
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
--------------------------------------------------------
Flight Services $ 37,230 $ (2,075) $ 129,754 $ 7,887
Johnson Engineering 29,940 1,717 1,654 1,233
Astrotech 6,765 1,877 47,022 768
SMI 515 (1,357) 75 221
All other 280 (2,205) - -
--------------------------------------------------------
$ 74,730 $ (2,043) $ 178,505 $ 10,109
========================================================
Nine Months Ended March 31, 2001
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
---------------------------------------------------------
Flight Services $ 30,924 $ (3,144) $ 131,794 $ 4,126
Johnson Engineering 40,702 (330) 2,671 1,236
Astrotech 3,444 (2,609) 31,984 731
SMI 324 (4,402) 669 27
All other - - - -
---------------------------------------------------------
$ 75,394 $ (10,485) $ 167,118 $ 6,120
=========================================================
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 appointed a representative
to 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. In February 2002,
eScottVentures II's representative resigned his seat on the board of directors.
SPACEHAB is required to record 100% of SMI's losses for financial reporting
purposes.
9. Depreciation of Property, Plant and Equipment
Effective January 1, 2002, the company extended the estimated useful life of its
space flight assets, which is a component of property, plant and equipment,
through June 30, 2016. This change in accounting estimate is treated
prospectively and is based on currently available information which extends the
expected life of the international space station and Space Shuttles through at
least 2016. The change in the asset life is estimated to reduce annual
depreciation expense by approximately $2.5 million.
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 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
that operate in the cargo bay of the Space Shuttles. SPACEHAB business segments
and subsidiaries now include Space Flight Services, Johnson Engineering (JE),
Astrotech Space Operations and Space Media, Inc. ("SMI").
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 $224.5 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 $382.3 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
11
certain tasks for an additional year through April 2002. NASA has
recently extended the contract through September 30, 2002 and also approved
three 1-month contract extensions through December 31, 2002.
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 of its NASA missions; the value of this commercial capacity to
date is approximately $38.3 million. SPACEHAB has flown five Space Shuttle
missions under the REALMS contract to date. Remaining missions under this
contract are STS-107 (Research Double Module, scheduled to launch in July 2002),
STS-116 (Logistics Single Module, 2003), and STS-118 (Logistics Single Module,
2003).
SPACEHAB has a $17.9 million contract with The Boeing Company, NASA's prime
contractor for the International Space Station (ISS), to provide an Integrated
Cargo Carrier (ICC) for an ISS logistics mission flown March 2001 and a
deployable ICC for an ISS mission scheduled to launch 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 year
ended June 30, 2001. The minimum revenue commitments under these contracts
combined is $85 million over 10 years. Astrotech also has an exclusive multiyear
agreement to process all Sea Launch payloads at the Sea Launch facility in Long
Beach, California.
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 multiyear 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 when 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 multiyear fixed price contracts with
satellite and launch vehicle manufacturers. The services and facilities
Astrotech provides to its customers support the final assembly, checkout and
countdown functions associated with preparing a satellite for launch. This
preparation includes: the final assembly and checkout of the satellite,
installation of the solid rocket motors, loading of the liquid propellant,
encapsulation of the satellite in the launch vehicle, transportation to the
launch pad and command and control of the satellite during pre-launch countdown.
Revenue provided by the Astrotech payload processing facilities is billed and
recognized on a quarterly basis under the terms of its existing long term
contracts. In addition, Astrotech generates revenue from an exclusive multiyear
agreement to process all Sea Launch program payloads at the Sea Launch facility
in Long Beach, California.
Space Media, Inc. generated $515,000 of revenue for the period ended March 31,
2002 primarily through its wholly owned subsidiary, The Space Store, an online
retail business, from the sale of space-related products.
12
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 March 31, 2002 as compared to the three months ended
March 31, 2001.
Revenue. Revenue increased by 1% to approximately $24.7 million as compared to
- -------
$24.5 million for the three months ended March 31, 2002 and 2001, respectively.
For the three months ended March 31, 2002, revenue of $12.2 million was
recognized from the REALMS Contract with NASA and with related commercial
customers, $9.8 million from JE primarily under the FCSD and Configuration
Management Contract ("CM"), $2.5 million from Astrotech and $152,000 from SMI
operations. In contrast, for the three months ended March 31, 2001, revenue of
$10.4 million was recognized from the REALMS Contract with NASA and with related
commercial customers, $12.7 million from JE under the FCSD Contract, $1.2
million from Astrotech and $161,000 from SMI operations. The increase in revenue
under the REALMS contract is primarily attributable to the increased
integrations and operations activity as STS-107 approaches its July 2003 launch
date. The change in the 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
multiyear 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 March 31, 2002
- ----------------
decreased by 16% to $18.2 million, as compared to $21.9 million for the three
months ended March 31, 2001. For the period ended March 31, 2002, integration
and operations costs for the REALMS and related commercial customer contracts
were $6.0 million, $8.8 million for JE, $1.2 million for Astrotech payload
processing, $30,000 for SMI, and $2.1 million of depreciation expense. For the
three months ended March 31, 2001, integration and operations costs for the
REALMS and related commercial customer contracts were $7.9 million, $11.6
million for JE, $1.1 million for Astrotech payload processing, $111,000 for SMI,
and $1.2 million of depreciation expense. The decrease in costs of revenue under
the REALMS contract and related commercial customers is primarily due to a
reduction in costs incurred on missions which were completed in the period ended
March 31, 2001. 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, partially
offset by the extension of the useful life of the flight modules to 2016.
Operating Expenses. Operating expenses decreased 13% to approximately $4.9
- ------------------
million for the three months ended March 31, 2002 as compared to approximately
$5.7 million for the three months ended March 31, 2001. Selling, general and
administrative expenses decreased approximately $739,000 compared to the same
period last year primarily due to refocusing the efforts of SMI partially offset
by expenses associated with costs relating to competition for a contract with
NASA's Marshall Space Flight Center in Huntsville, Alabama. SMI's expenses
decreased approximately $1.1 million for the three months ended March 31, 2002
as compared to the same period last year.
Research and Development ("R&D") expenses decreased approximately $23,000 for
the three months ended March 31, 2002 as compared to the comparable period in
the prior year due to the Company's emphasis on completing existing assets in
progress and limiting new projects.
Interest and Other Expense. Interest expense was approximately $1.4 million for
- --------------------------
the three months ended March 31, 2002 and approximately $1.5 million for the
three months ended March 31, 2001. There was also approximately $422,000 and
$239,000 of interest capitalized for the three months ended March 31, 2002 and
2001, respectively. The increase in interest expense is due to less capitalized
interest in the three months ended March 31, 2002 than in
13
the three months ended March 31, 2001. 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 $2,000
- -------------------------
for the three months ended March 31, 2002 as compared to $223,000 of income for
the three months ended March 31, 2001. Due to the Company's efforts to minimize
borrowings under the line of credit and the low interest rates currently
available, there were minimal excess funds to invest.
Income Taxes. Based on the Company's projected taxable status for fiscal year
- ------------
2002, the Company recorded a tax expense of approximately $28,000 for the three
months ended March 31, 2002 as compared to a tax benefit of $1.4 million for the
three months ended March 31, 2001.
Net Income (Loss). The net income for the three months ended March 31, 2002 was
- -----------------
approximately $66,000 or $0.01 per share basic and $0.00 per share diluted on
11,971,906 shares and 13,308,778 shares respectively as compared to net loss of
$3.0 million or $0.26 per share (basic and diluted EPS) on 11,419,703 shares for
the three months ended March 31, 2001.
For the nine months ended March 31, 2002 as compared to the nine months ended
March 31, 2001.
Revenue. Revenue decreased 1% to approximately $74.7 million for the nine months
- -------
ended March 31, 2002 as compared to $75.4 million for the nine months ended
March 31, 2001. For the nine months ended March 31, 2002, revenue of $37.2
million was recognized from the REALMS Contract with NASA and with related
commercial customers, $30.2 million from JE primarily under the FCSD Contract,
$6.8 million from Astrotech, and $515,000 from SMI. In contrast, for the nine
months ended March 31, 2001, revenue of $30.9 million was recognized from the
REALMS Contract with NASA and with related commercial customers, $40.7 million
from JE under the FCSD Contract, $3.5 million from Astrotech, and $324,000 for
SMI. The increase in revenue under the REALMS contract is primarily attributable
to the equitable adjustment added to the contract during the second fiscal
quarter and the increased integrations and operations activity as STS-107
approaches its launch date of July 2002. 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 multiyear 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 nine months ended March 31, 2002
- ----------------
decreased by 10% to $58.6 million, as compared to $65.2 million for the
comparable period last year. For the nine months ended March 31, 2002,
integration and operations costs for the REALMS and related commercial customer
contracts were $20.7 million, $26.8 million for JE, $3.1 million for Astrotech
payload processing, $434,000 for SMI, and $7.6 million of depreciation expense.
For the nine months ended March 31, 2001, integration and operations costs for
the REALMS and related commercial customer contracts were $21.3 million, $36.5
million for JE, $3.1 million for Astrotech payload processing, $316,000 for SMI,
and $4.0 million of depreciation expense. The increase in cost of revenue under
the REALMS contract and related commercial customers is due primarily to
increased integrations and operations activity for STS-107 as it approaches its
July 2002 launch date. 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, partially offset by the
extension of the useful life of the flight modules to 2016.
Operating Expenses. Operating expenses decreased approximately 16% to
- ------------------
approximately $15.1 million for the nine months ended March 31, 2002 as compared
to approximately $17.9 million for the nine months ended March 31, 2001.
Selling, general and administrative expenses decreased as compared to the same
period last year primarily due to refocusing the efforts of SMI partially offset
by expenses associated with costs relating to competition for a contract with
NASA's Marshall Space Flight Center in Huntsville, Alabama. SMI's expenses
decreased approximately $3.0 million for the nine months ended March 31, 2002 as
compared to the same period last year.
R&D expenses decreased by approximately $75,000 for the period ended March 31,
2002 as compared to the comparable period last year due to the Company's
emphasis on completing existing assets in progress and limiting new projects.
Interest and Other Expense. Interest expense was approximately $4.2 million for
- --------------------------
the nine months ended March 31, 2002 and approximately $3.1 million for the nine
months ended March 31, 2001. There was also approximately
14
$1.4 million and $2.4 million of interest capitalized for the nine months ended
March 31, 2002 and 2001, respectively. The increase in interest expense is due
to less capitalized interest in the nine months ended March 31, 2002 than in the
nine months ended March 31, 2001. 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 $386,000 for the nine months ended March 31, 2002 and 2001,
respectively. The Company recorded a gain of approximately $1.1 million on the
sale of the Oriole Sounding Rocket assets during the nine months ended March 31,
2002. Interest income is earned on the Company's short-term investments. Due to
the Company's efforts to minimize borrowing under the line of credit and the low
interest rates currently available, there were minimal excess funds to borrower.
Income Taxes. Based on the Company's projected taxable status for fiscal year
- ------------
2002, the Company recorded a tax expense of approximately $83,000 for the nine
months ended March 31, 2002, as compared to $3.3 million tax benefit recorded
for the nine months ended March 31, 2001.
Net Income (Loss). The net loss for the nine months ended March 31, 2002 was
- -----------------
approximately $2.1 million or $0.18 per share (basic and diluted EPS) on
11,817,193 shares as compared to net loss of $7.2 million or $0.63 per share
(basic and diluted EPS) on 11,380,180 shares for the nine months ended March 31,
2001.
LIQUIDITY AND CAPITAL RESOURCES
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 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 March 31, 2002, $3.4 million was drawn on the New Credit
Facility and the maximum amount allowable to be drawn under the New Credit
Facility is $4.25 million as of March 31, 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 March 31, 2002, the Company had loans payable of
$282,000 related to equipment financing at the Company's JE subsidiary only.
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 were used for
capital expenditures associated with the development and construction of space
related assets, the purchase of JE on July 1, 1998, and for general corporate
purposes.
In December 1998, the Company amended its agreement with Alenia Spazio S.p.A.
("Alenia") relative to the subordinated convertible notes payable to shareholder
with an outstanding balance of $11.9 million. In consideration for a payment of
$4.0 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
15
quarterly amortization of the remaining principal beginning March 2002 through
December 2003. In addition, the interest rate was reduced to 8 percent. The
payments were made on December 31, 2001 and March 31, 2002 and the outstanding
balance is $4.5 million as of March 31, 2002.
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 nine months ended March 31, 2002 and March 31, 2001 were $4.5
million and $19.4 million, respectively. The significant change during the nine
months ended March 31, 2002 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 $5.6
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 $6.6 million to
$10.7 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 nine months ended March
31, 2002 and 2001, cash flows used for investing activities were approximately
$13.3 million and $18.6 million, respectively. For the period ended March 31,
2002, approximately $11.7 million was spent on the payload processing facilities
at Astrotech relative to the contract extensions with Boeing and Lockheed
Martin. In addition, $2.3 million was spent on various flight assets including
the Vertical Cargo Carrier which will be sold a Astrium in June 2002. The
Company received $833,000 in cash proceeds from the sale of the Oriole sounding
rocket assets and the equipment sold to Clear Lake Industries. For the period
ended March 31, 2001, the Company received $5.0 million from Astrium for the
phase I sale of the ICC assets. In addition, approximately $5.9 million was
spent for the construction of payload processing facilities at Astrotech
primarily related to the contract extensions with Boeing and Lockheed Martin and
$16.1 million was spent for the construction of flight assets, primarily the
RDM, the EnterpriseTM module and the Spacehab Universal Communications System
("SHUCS").
Cash Flows from Financing Activities. Cash flows provided by financing
activities were approximately $9.9 million and $1.2 million for the nine months
ended March 31, 2002 and 2001, respectively. The Company paid $11.5 million of
debt during the nine months ended March 31, 2002, including the loan payable,
the note payable, the revolving line of credit, the construction loan and the
payment to Alenia. $3.1 million of the loan payable was paid in conjunction with
the Astrotech financing. The Company received $20.0 million relative to the
Astrotech financing and repaid $400,000. The Company received $750,000 in the
form of external equity investment in SMI. During the period ended March 31,
2001, $3.7 million was drawn on the revolving line of credit and $2.9 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 January 2001, management began an aggressive multifaceted financial
and operations 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
16
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 has completed items i through viii of the financial and
operations plan and continues to focus on continued improvement in Company
liquidity. Consistent with this focus management has pursued additional cost
reduction efforts and consistently reduced outstanding debt obligations and is
concentrated on attainment of the annual operating plan for fiscal year 2002.
Management continues to focus on expanding its existing customer base and
pursuing new business opportunities as part of its plan to increase asset
utilization and increase backlog to drive future profitability.
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
provided 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.
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.
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.
Under this plan, the Company also 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
appointed a representative to 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. In February 2002, eScottVentures II's representative resigned his
seat on the board of directors. SPACEHAB is required to record 100% of SMI's
losses for financial reporting purposes.
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 is actively seeking 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 payments required under the
agreement were made on December 31, 2001 and March 31, 2002 and the outstanding
balance is $4.5 million.
During the nine months ended March 31, 2002, the Company has repaid
approximately $11.5 million of obligations under various credit agreements and
the revolving line of credit. The Company's plans indicate that all cash
generated from operations during the current fiscal year will be used to fund
operations and reduce existing debt.
17
The following table summarizes the contractual obligations of the Company and
its subsidiaries at March 31, 2002, for the current fiscal and future periods.
The terms of certain contractual obligations are such that repayment may be
accelerated under certain circumstances.
Contractual Obligations
($ in thousands)
Remaining
In
Fiscal Fiscal Fiscal Fiscal
At Year Year Year Year
Contractual Obligations March 31, 2002 2002 2003 2004 2005 Thereafter
- ---------------------------------------------------------------------------------------------------------------------
Long-term Debt $ 71,351 2,732 3,452 1,360 0 $ 63,250
Construction Loan Payable 19,600 484 2,039 2,218 2,412 12,447
Capitalized Leases 61 11 28 22 1 0
Operating Leases 8,827 567 1,824 864 668 4,904
- ---------------------------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations $ 99,839 $ 3,794 $ 7,344 $ 4,464 $3,081 $ 80,601
=======================================================================
As discussed above, management has successfully implemented and completed a
majority of its financial and operating 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. The Company believes that continued achievement of its
operating plan will generate sufficient 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 for the fourth quarter of FY 2002 and
future periods, cash flow may be insufficient to cover the Company's operating
and debt service requirements in fiscal year 2002 and in 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 pretax 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 $425,000 during the
nine months ended March 31, 2002 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
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
19
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEHAB, INCORPORATED
Date: May 10, 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
20