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, 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
601 13/th/ Street, NW
Suite 900 South
Washington, DC 20005
(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 2, 2003:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 12,304,781
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
----- _____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange act)..
Yes No X
_____ -----
SPACEHAB, INCORPORATED AND SUBSIDIARIES
DECEMBER 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 December 31, 2002 and
June 30, 2002 2
Unaudited Condensed Consolidated Statements of Operations for the three and six
months ended December 31, 2002 and 2001 3
Unaudited Condensed Consolidated Statements of Cash Flows for the
six months ended December 31, 2002 and 2001 4
Notes to Unaudited Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk 16
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
1
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,
2002 2002
(unaudited)
--------------- --------------
ASSETS
Cash and cash equivalents $ 1,792 $ 2,145
Restricted cash - 549
Accounts receivable, net 14,364 13,802
Prepaid expenses and other current assets 721 464
--------------- --------------
Total current assets 16,877 16,960
Property, plant, and equipment, net of
Accumulated depreciation and amortization
of $83,631 and $77,651, respectively 170,875 175,851
Goodwill, net of accumulated amortization of $4,553 20,294 20,294
Investment in Guigne, net 1,800 1,800
Other assets, net 5,752 5,921
--------------- --------------
Total assets $ 215,598 $ 220,826
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Loans payable, current portion $ 133 $ 169
Revolving loan payable 975 2,150
Accounts payable & accrued expenses 11,532 14,349
Accrued subcontracting services 7,359 3,043
Convertible notes payable to stockholder 2,628 1,827
Mortgage loan payable 2,127 2,039
Deferred revenue 10,908 15,405
--------------- --------------
Total current liabilities 35,662 38,982
Loans payable, net of current portion - 49
Accrued expenses 643 438
Convertible notes payable to stockholder - 2,039
Deferred revenue 9,448 9,560
Convertible subordinated notes payable 63,250 63,250
Mortgage loan payable 15,992 17,078
Other long term liability 1,840 1,010
--------------- --------------
Total liabilities 126,835 132,406
Commitments and contingencies
Minority interest in consolidated subsidiary 750 750
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
12,304,781 and 11,832,096 shares, respectively 83,297 83,204
Additional paid-in capital 16 16
Accumulated other comprehensive loss (1,840) (1,010)
Accumulated deficit (5,352) (6,432)
--------------- --------------
Total stockholders' equity 88,013 87,670
--------------- --------------
Total liabilities and stockholders' equity $ 215,598 $ 220,826
=============== ==============
See accompanying notes to unaudited condensed consolidated financial statements
2
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,
--------------------------- --------------------------
2002 2001 2002 2001
------------- ------------ ------------ ------------
Revenue $ 28,050 $ 27,727 $ 54,862 $ 50,019
Costs of revenue 22,758 20,471 44,393 40,337
------------- ------------ ------------ ------------
Gross profit 5,292 7,256 10,469 9,682
------------- ------------ ------------ ------------
Operating expenses
Selling, general and administrative 2,667 5,121 6,083 10,057
Research and development 73 125 85 143
------------- ------------ ------------ ------------
Total operating expenses 2,740 5,246 6,168 10,200
------------- ------------ ------------ ------------
Income (loss) from operations 2,552 2,010 4,301 (518)
Interest expense, net of capitalized interest (1,839) (1,308) (3,699) (2,743)
Interest and other income (loss), net (41) (17) (30) 1,124
------------- ------------ ------------ ------------
Income (loss) before income taxes 672 685 572 (2,137)
Income tax benefit (expense) 503 (27) 509 (55)
------------- ------------ ------------ ------------
Net income (loss) $ 1,175 $ 658 $ 1,081 $ (2,192)
============= ============ ============ ============
Income (loss) per share
Net income (loss) per share - basic 0.10 $ 0.06 0.09 $ (0.19)
============= ============ ============ ============
Shares used in computing net income (loss) per share -
basic 12,234,266 11,833,602 12,194,775 11,740,655
============= ============ ============ ============
Net income (loss) per share - diluted $ 0.09 $ 0.05 $ 0.08 $ (0.19)
============= ============ ============ ============
Shares used in computing net income (loss) per share -
diluted 13,606,199 13,166,936 13,558,802 11,740,655
============= ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
3
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands) Six Months Ended
December 31,
2002 2001
------------------- -------------------
Operating activities
Net income (loss) $ 1,081 $ (2,192)
Adjustments to reconcile net loss to
net cash provided by operating activities
Gain on sale of property and equipment - (1,096)
Depreciation and amortization 5,985 7,527
Changes in assets and liabilities
(Increase) decrease in accounts receivable (560) 6,959
(Increase) decrease in prepaid expenses and other current assets (258) 496
(Increase) in other assets (214) (164)
(Decrease)in deferred flight revenue (4,609) (3,027)
(Decrease)in accounts payable and
accrued expenses (2,737) (6,329)
Increase in accrued subcontracting services 4,315 1,059
------------------- -------------------
Net cash provided by operating activities 3,003 3,233
------------------- -------------------
Investing activities
Payments for flight assets under construction (129) (1,715)
Payments for building under construction - (11,139)
Purchases of property, equipment and leasehold improvements (497) (151)
Proceeds received from sale of property and equipment 125 783
Decrease in restricted cash 549 -
------------------- -------------------
Net cash provided by (used for) investing activities 48 (12,222)
------------------- -------------------
Financing activities
Payment of loan payable (85) (3,936)
Payment of note payable under credit agreement - (333)
Proceeds from issuance of common stock 92 545
Repayment of revolving loan payable, net (1,175) (2,530)
Proceeds from mortgage loan - 20,000
Repayment of mortgage loan (998) -
Payment of convertible note payable to stockholder (1,238) (2,804)
Proceeds from sale of minority interest in consolidated subsidiary - 750
------------------- -------------------
Net cash (used for) provided by financing activities (3,404) 11,692
------------------- -------------------
Net change in cash and cash equivalents (353) 2,703
Cash and cash equivalents at beginning of period 2,145 34
------------------- -------------------
Cash and cash equivalents at end of period $ 1,792 $ 2,737
=================== ===================
See accompanying notes to unaudited condensed consolidated financial statements
4
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, 2002, and the results of its operations and cash
flows for the three and six months periods ended December 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 2003 presentation.
The consolidated results of operations for the three and six month periods ended
December 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. 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
Annual Report on Form 10-K for the year ended June 30, 2002.
2. Earnings per Share
The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations for the three and six
month periods ended December 31, 2002 and 2001:
(in thousands except per share data)
Three months ended Three months ended
December 31, 2002 December 31, 2001
----------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------- -----------------------------------------
Basic EPS:
Income available to
common stockholders $ 1,175 12,234,266 $ 0.10 $ 658 11,833,602 $ 0.06
Effect of dilutive securities:
Convertible notes payable - - - - - -
Options and warrants,using - - - - - -
the treasury stock method - 38,599 - - - -
----------------------------------------- -----------------------------------------
Convertible preferred shares - 1,333,334 - - 1,333,334 -
----------------------------------------- -----------------------------------------
Diluted EPS:
Income available to
common stockholders $ 1,175 13,606,199 $ 0.09 $ 658 13,166,936 $ 0.05
========================================= =========================================
5
Six months ended Six months ended
December 31, 2002 December 31, 2001
----------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------- -----------------------------------------
Basic EPS:
Income (loss) available to
common stockholders $ 1,081 12,194,775 $ 0.09 $ (2,192) 11,740,655 $ (0.19)
Effect of dilutive securities:
Convertible notes payable - - - - - -
Options and warrants,using - - - - - -
the treasury stock method - 30,693 - - - -
----------------------------------------- -----------------------------------------
Convertible preferred shares - 1,333,334 - - - -
----------------------------------------- -----------------------------------------
Diluted EPS:
Income (loss) available to
common stockholders $ 1,081 13,558,802 $ 0.08 $ (2,192) 11,740,655 $ (0.19)
========================================= =========================================
Convertible notes payable outstanding as of December 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 six months
ended December 31, 2002 and 2001, as the inclusion of the converted notes would
be anti-dilutive for these periods.
Options to purchase 1,974,594 shares of common stock, at prices ranging from
$0.93 to $14.00 per share, were outstanding at December 31, 2002 but were not
included in diluted EPS as the option prices were greater than the average
market price of the common shares during the three months ended December 31,
2002. The options expire between March 11, 2003 and July 23, 2011.
Options to purchase 1,944,594 shares of common stock, at prices ranging from
$1.15 to $14.00 per share, were outstanding at December 31, 2002 but were not
included in diluted EPS as the option prices were greater than the average
market price of the common shares during the six months ended December 31, 2002.
The options expire between March 11, 2003 and July 23, 2011.
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.
3. Revenue Recognition
SPACEHAB's Space Flight Services business unit's revenue is derived primarily
from long-term fixed-price contracts with the U.S. Government and commercial
customers. Revenue under these contracts is recognized using the percentage of
completion method of accounting. Such revenues are recorded based on the
percentage of costs incurred in the applicable reporting period as compared to
the most recent estimates of costs to complete each mission. Estimating future
costs and, therefore, revenues and profits, is a process requiring a high degree
of management judgment. Management bases its estimates on historical experience
and various assumptions that are believed to be reasonable under the
circumstances. Costs to complete include, when appropriate, material, labor,
subcontracting costs, lease costs, commissions, insurance and depreciation.
Reviews of the status of contracts are performed by business segment personnel
through periodic contract status and performance reviews. In the event of a
change in total estimated contract cost or profit, the cumulative effect of such
change is recorded in the period in which the change in estimate occurs.
6
With respect to its cost-plus award and incentive fee contract, SPACEHAB's
subsidiary, Johnson Engineering Corporation ("JE"), recognizes revenue 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.
Revenue generated from SPACEHAB's subsidiary Astrotech Space Operations
("Astrotech") payload processing facilities is billed and recognized on a
quarterly basis under the terms of its existing long term contracts for costs
incurred.
4. Statements of Cash Flows - Supplemental Information
(a) Cash paid for interest costs was $3.4 million and $3.9 million for the six
months ended December 31, 2002 and 2001, respectively. The Company capitalized
no interest costs during the six months ended December 31, 2002 and capitalized
$0.9 million during the six months ended December 31, 2001.
(b) The Company paid no income taxes during the six months ended December 31,
2002 and December 31, 2001.
5. Credit Facilities
The Company issued subordinated notes for a portion of the amount due to Alenia
Spazio S.p.A. ("Alenia"), a shareholder, under a previously completed
construction contract for the Company's flight modules. Alenia may elect to
convert, in whole or part, the remaining principal amount into equity of
Astrotech Space Operations, Inc., on terms and conditions to be agreed with the
Company. 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 from 10% to 8% beginning January 1, 2002. The
obligation is collateralized by one of the Company's flight assets. The
outstanding balance of this note is $2.6 million at December 31, 2002.
In August 2002, the Company entered into a $5.0 million line of credit with a
new financial institution. This credit facility replaced a previous credit
facility which was repaid and expired on July 31, 2002. The term of this new
credit facility is through August 28, 2005. Covenants under this credit facility
include, but are not limited to, tangible net worth, debt to worth and debt
service coverage. As of December 31, 2002, $1.0 million was outstanding under
this credit facility.
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 collateralized primarily by Astrotech's multi-year
payload processing contracts with The Boeing Company and Lockheed Martin
Corporation. Interest accrues on the outstanding principal balance at a
LIBOR-based rate, adjustable quarterly. The loan matures on January 15, 2011.
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% plus 225 basis points.
During the six months ended December 31, 2002, $1.0 million of principal was
repaid.
In conjunction with this financing, a swap agreement was required to be entered
into to provide for a fixed rate of interest under the loan commitment beginning
January 2002. The objective of the hedge was to eliminate the variability of
cash flows in the interest payments for the total amount of the variable rate
debt, the sole source of which is due to changes in the USD-LIBOR-BBA interest
rate. Changes in the cash flows of the interest rate swap are expected to
exactly offset the changes in cash flows attributable to fluctuations in the
USD-LIBOR-BBA interest rates on the total variable rate debt. The value of the
swap, approximately $1.8 million, is recorded in other
7
comprehensive income (loss) on the balance sheet and other long-term liability.
It is the only item included in other comprehensive loss which for the three and
six months ended December 31, 2002 was a loss of $0.0 million and $0.8 million.
The comprehensive income for the three and six months ended December 31, 2002 is
$1.2 million and $0.2 million, respectively. Comprehensive income is the sum of
net income and other comprehensive income (loss).
6. Asset Sales
On November 30, 2000, Astrium, N.V., a related party, 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
occurred in two phases. The first phase was for the purchase of the ICC assets
and the second phase was for the purchase of the VCC assets. Phase one of the
transactions was completed in the quarter ended March 31, 2001. Phase two was
completed in the quarter ended June 30, 2002. The Company recognized a minimal
loss on the sale. SPACEHAB has entered into an agreement with Astrium, a related
party, to lease these assets for a period of four years with two additional
four-year options.
7. Segment Information
Based on its organization, the Company currently operates in five major business
segments: Space Flight Services, JE, Astrotech, Space Media, Inc. ("SMI") and
All Other. Space Flight Services was founded to commercially develop space
habitat modules and carriers that operate in the cargo bay of the Space
Shuttles. Space 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 in
fiscal year 2002, includes start up business units, which are expected to
provide services to the Federal Government and NASA.
The Company's chief operating decision maker utilizes both revenue and income
before taxes, including allocated interest based on the investment in the
segment, in assessing performance and making overall operating decisions and
resource allocations. As such, other income or expense items including taxes and
corporate overhead have not been allocated to the various segments.
(in thousands)
Three Months Ended December 31, 2002
Pre-Tax Net Depreciation
Income Fixed And
Revenue (Loss) Assets Amortization
----------------------------------------------------------
Space Flight Services $ 14,072 $ (1,090) $ 120,374 $ 2,085
Johnson Engineering 9,879 863 956 216
Astrotech 3,804 1,189 49,483 485
SMI 212 (109) 62 65
All Other 83 (181) - -
----------------------------------------------------------
$ 28,050 $ 672 $ 170,875 $ 2,851
==========================================================
8
Three Months Ended December 31, 2001
Pre-Tax Net Depreciation
Income Fixed And
Revenue (Loss) Assets Amortization
--------------------------------------------------------
Space 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
========================================================
(in thousands)
Six Months Ended December 31, 2002
Pre-Tax Net Depreciation
Income Fixed And
Revenue (Loss) Assets Amortization
--------------------------------------------------------
Space Flight Services $ 26,440 $ (2,095) $ 120,374 $ 4,235
Johnson Engineering 21,153 1,562 956 487
Astrotech 6,650 1,507 49,483 1,010
SMI 336 (192) 62 130
All Other 283 (210) - -
--------------------------------------------------------
$ 54,862 $ 572 $ 170,875 $ 5,862
========================================================
Six Months Ended December 31, 2001
Pre-Tax Net Depreciation
Income Fixed And
Revenue (Loss) Assets Amortization
--------------------------------------------------------
Space 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
========================================================
8. Minority Investment in Consolidated Subsidiary
Pursuant to a stock purchase agreement entered into as of September 27, 2001,
escottVentures II, LLC ("ESV"), of Melbourne, Florida, purchased 5,914,826 newly
issued shares of SMI's Series A redeemable, convertible preferred stock for
$750,000. On June 21, 2002, ESV filed Case Number 1:02CV01236 in the U.S.
District Court for the District of Columbia against Space Media, Inc., SPACEHAB,
Inc., Shelley A. Harrison and Julia A. Pulzone (collectively, "Defendants").
This suit, relating to ESV's investment in Space Media, Inc., sought rescission
of the stock purchase agreement and return of its $750,000 investment, plus
unspecified expenses, consequential damages,
9
exemplary and punitive damages, prejudgment interest, and costs and
disbursements, including attorney and expert fees. Subsequent to the period
ended December 31, 2002, the Defendants and ESV settled the suit through
mediation. A stipulation and order of dismissal was filed with the Court by the
parties on January 22, 2003, following the payment of cash and issuance of
restricted shares of Spacehab common stock to ESV.
9. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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. The Company adopted the new rules
effective July 1, 2002. The elimination of amortization of goodwill is expected
to increase earnings by approximately $1.0 million for the fiscal year. The
Company will continue to analyze and assess the impairment provisions of the new
statement on an ongoing basis. As of the period ended December 31, 2002, the
Company did not record an impairment write down.
The financial statements for the six months ended December 31, 2001 included
amortization of goodwill. The unaudited condensed Consolidated Statements of
Operations for that period reported a loss before income taxes of $2.1 million.
If goodwill had not been amortized to conform with the current accounting
pronouncement, the loss before income taxes would have been $1.5 million.
10. Subsequent Events
The Company is under contract with NASA to support the STS-107 mission on its
Columbia orbiter. The mission utilized the Company's Research Double Module
("RDM") flight asset. On February 1, 2003 the RDM was lost in the tragic STS-107
accident. The loss of the RDM was partially covered by NASA and commercial
sources. The company's commercial insurance on the module was $17.7 million. The
Company expects to incur a material loss in connection with the write down of
this asset which had a net book value of $67.2 million at December 31, 2002.
However, the amount of loss expected to be recognized by the Company is subject
to significant uncertainty as the Company works with NASA and other parties to
resolve the contingencies surrounding the accident. The Company has not yet
begun negotiating the value of the NASA coverage. Other options for recovering
the value of the RDM are also being evaluated. The Company has two additional
modules within its asset base that will be used to support the Company's current
NASA contract and can be used to support future contracts.
JE performs services under a cost-plus award and incentive-fee contract for
government services that are requested and directed by NASA. JE primarily
operates under the FCSD Contract. The tasks under the contract were segmented
and a recompete for a portion of these tasks was begun in July 2002. On February
7, 2003, the Company was notified that its bid for this contract under recompete
was not accepted and the contract has been awarded to another company. As a
result of this event, the Company will be evaluating the impact of this contract
loss on its financial position and results of operations.
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
utilization of new commercial space assets, continued deployment of the
International Space Station ("ISS"), technological difficulties, product demand
and market acceptance risks, the effect of economic conditions, uncertainty in
government funding, the
10
impact of competition and delays and uncertainties in future space shuttle and
ISS programs arising from or as a result of the loss of the Columbia orbiter and
its crew during the STS-107 mission.
SPACEHAB was incorporated in 1984 to commercially develop space habitat modules
to operate in the cargo bay of NASA's Space Shuttles. SPACEHAB's subsidiaries
include, Johnson Engineering Corporation ("JE"), Astrotech Space Operations,
Inc. ("Astrotech") and Space Media, Inc. ("SMI").
The Company is under contract with NASA to support the STS-107 mission on its
Columbia orbiter. The mission utilized the Company's Research Double Module
("RDM") flight asset. On February 1, 2003 the RDM was lost in the tragic STS-107
accident. The loss of the RDM was partially covered by NASA and commercial
sources. The company's commercial insurance on the module was $17.7 million. The
Company expects to incur a material loss in connection with the write down of
this asset which had a net book value of $67.2 million at December 31, 2002.
However, the amount of loss expected to be recognized by the Company is subject
to significant uncertainty as the Company works with NASA and other parties to
resolve the contingencies surrounding the accident. The Company has not yet
begun negotiating the value of the NASA coverage. Other options for recovering
the value of the RDM are also being evaluated. The Company has two additional
modules within its asset base that will be used to support the Company's current
NASA contract and can be used to support future contracts.
At this time, the Company does not plan to replace the RDM. SPACEHAB's Space
Flight Services business unit has two additional modules and other flight assets
available to support the Company's current NASA contract. These modules and
assets can be used to support future NASA contracts.
SPACEHAB's Space Flight Services business unit is continuing its operations,
finalizing preparations for the STS-114 mission. SPACEHAB is providing a cargo
carrier, known as the External Stowage Platform 2, or ESP2, that will be
deployed and permanently mounted to the orbiting International Space Station
(ISS). The Company continues to support two additional ISS resupply missions,
STS-116 and STS-118.
Revenue
SPACEHAB's Space Flight Services business unit generates revenue by providing a
turnkey service that includes access to the modules and unpressurized cargo
carriers and integration and operations support to scientists and researchers
responsible for the experiments and/or logistics supplies for module missions
aboard the Space Shuttle System and under the Flight Crew Systems Development
("FCSD") Contract. Revenue generated under the Research and Logistics Mission
Support ("REALMS") Contract, currently a $239.2 million contract, and for new
contract awards for which the capability to successfully complete the contract
can be demonstrated at contract inception, is recognized under the
percentage-of-completion method and is being reported based on costs incurred
over the period of the contract.
JE performs services under a cost-plus award and incentive-fee contract for
government services that are requested and directed by NASA. JE primarily
operates under the FCSD Contract which is currently a $405.5 million multitask
cost-plus award and incentive-fee contract. Revenue is recognized on this
contract based on costs incurred plus a proportionate amount of estimated fee
earned. The contract commenced in May 1993 and was scheduled to conclude in
September 2002. The tasks under the contract were segmented and a recompete for
a portion of these tasks was begun in July 2002. In August 2002, NASA exercised
its option to extend the contract through December 2002 during the recompete
period. In December 2002, NASA further extended the contract through June 2003,
with six one-month extensions. To date, two of the one-month extensions have
been exercised. On February 7, 2003, the Company was notified that its bid for
this contract under recompete was not accepted and the contract has been awarded
to another company.
Astrotech revenue is generated from various multi-year fixed-price contracts
with satellite and launch service vehicle providers. The services and facilities
Astrotech provides to its customers support the final assembly, checkout and
countdown functions associated with preparing a satellite for launch including
transportation of the satellite and launch vehicle payload fairing to the launch
pad. Astrotech's facilities are also used by its customers to encapsulate the
satellite in the launch vehicle, and includes a new facility to accommodate the
evolved expendable launch
11
vehicles ("EELV"), the newest class of launch vehicle. Revenue provided by the
Astrotech payload processing facilities is recognized ratably over the occupancy
period of the satellites in the Astrotech facilities. Under the multi-year
contracts for payload processing services with commercial launch vehicle
providers, revenue is billed and recognized on a quarterly basis as costs are
incurred.
On April 11, 2000, SPACEHAB announced the formation of SMI, a majority-owned
subsidiary intended to create proprietary space-themed content for education and
commerce. In fiscal year 2000, SMI acquired The Space Store, an online retail
operation, anticipating that e-commerce could become an integral part of its
Internet business. The Space Store currently offers space-related products
through its website, www.spacestore.com, and a retail facility in Houston,
Texas, near NASA's Johnson Space Center. In fiscal year 2001, SMI's focus was to
develop content for STARS Academy(TM) and to pursue corporate promotion and
advertising opportunities. STARS Academy is a global education program offering
students opportunities to learn about and even participate in research aboard
NASA's Shuttle and the ISS. As part of Space Media, the STARS Program supported
six student-designed experiments for schools in Australia, China, Israel, Japan,
Liechtenstein and the United States for launch on Space Shuttle mission STS-107,
which launched on January 16, 2003. In fiscal year 2002, due to limited funding
opportunities in the education industry and a struggling Internet content
market, SMI reduced staffing and ended its marketing program for the STARS
Program. SMI's revenue is now generated primarily from internet sales of The
Space Store.
Cost 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. Selling, general and administrative and interest and
other expenses are recognized when incurred.
RESULTS OF OPERATIONS
For the three months ended December 31, 2002 as compared to the three months
ended December 31, 2001.
Revenue. Revenue increased slightly to approximately $28.1 million as compared
to $27.7 million for the three months ended December 31, 2002 and 2001,
respectively. For the three months ended December 31, 2002 revenue of $14.1
million was recognized from Space Flight Services primarily under the REALMS
Contract with NASA and commercial customers, $9.9 million from JE primarily
under the FCSD Contract, $3.8 million from Astrotech, $0.2 million from SMI,
primarily from the Space Store and $0.1 million of other service revenue. In
comparison, for the three months ended December 31, 2001 revenue of $15.4
million was recognized from Space Flight Services primarily under the REALMS
Contract with NASA and commercial customers, $10.0 million from JE primarily
under the FCSD Contract, $2.0 million from Astrotech, $0.2 million from SMI,
primarily from the Space Store and $0.1 million of other service revenue.
Revenue from the REALMS contract with NASA and commercial customers decreased by
$1.6 million due to the types of missions under contract. Revenue for STS-107
decreased as compared to the same period last year and was partially offset by
the addition of revenue for missions STS-114, STS-116, and STS-118. Revenue at
Astrotech increased by $1.8 million due primarily to the increase in the number
of missions completed and processed in the quarter ended December 31, 2002 as
compared to the same period last year and additional payments under its long
term contracts.
Costs of Revenue. Costs of revenue for the three months ended December 31, 2002
increased by 11% to approximately $22.8 million, as compared to $20.5 million
for the prior year's quarter. For the three months ended December 31, 2002,
integration and operations costs of Space Flight Services for the REALMS
Contract with NASA and commercial customers were $10.1 million, $8.7 million for
JE, $1.5 million for Astrotech payload processing, $0.1 million for SMI and $0.1
million related to other service revenue. Costs of revenue also includes $2.3
million
12
of depreciation expense. In comparison, for the three months ended December 31,
2001, integration and operations costs of Space Flight Services for the REALMS
Contract with NASA and commercial customers were $7.7 million, $8.7 million for
JE, $1.0 million for Astrotech payload processing, and $0.2 million for SMI.
Costs of revenue also include $2.9 million of depreciation expense. The change
in costs of revenue of Space Flight Services for the REALMS Contract with NASA
and commercial customers is due to increased costs of leased flight assets and
increased integration and operations activities for STS-114, which is scheduled
to launch in March 2003. Astrotech's increase in costs of revenue is due to the
costs of the additional missions in the quarter ended December 31, 2002 as
compared to the quarter ended December 31, 2001 and additional costs of the EELV
facility which was placed in service in March 2002. The reduction in
depreciation expense is primarily related to the change in the useful life of
the Company's flight assets from 2012 to 2016 partially offset by the increased
depreciation for the EELV facility at Astrotech.
Operating Expenses. Operating expenses decreased 48% to approximately $2.7
million for the three months ended December 31, 2002 as compared to
approximately $5.2 million for the three months ended December 31, 2001. The
decrease in operating expenses is attributable to the completion of bid and
proposal efforts for the microgravity contract of $0.7 million, refocusing the
efforts of SMI of $0.5 million and elimination of $0.3 million of goodwill
expenses as the result of the change in accounting standards. The company's
ongoing cost reductions initiated during the fiscal year ended June 30, 2002
have resulted in savings of approximately $1.0 million. Legal and insurance
costs decreased $0.4 million, facilities related costs decreased $0.2 million,
depreciation expense decreased $0.2 million and compensation, benefits and
travel decreased $0.2 million.
Research and development expenses decreased slightly for the three months ended
December 31, 2002 as compared to the comparable period last year as the Company
continued to emphasize its core operations and limited new investments in
research and development.
Interest and Other Expense. Interest expense was approximately $1.8 million for
the three months ended December 31, 2002 and approximately $1.3 million for the
three months ended December 31, 2001 due primarily to interest on the mortgage
loan payable on the Astrotech facility. In addition, no interest was capitalized
during the three months ended December 31, 2002. For the three months ended
December 31, 2001, $0.6 million interest was capitalized in conjunction with the
new facility constructed by Astrotech.
Interest and Other Income. Interest and other income was immaterial for the
three months ended December 31, 2002 and December 31, 2001. Interest income is
earned on the Company's short-term investments.
Income Taxes. The Company recorded a tax refund of $0.5 million during December
2002. Based on the Company's projected taxable status for fiscal year 2003, the
Company recorded no tax expense for the three months ended December 31, 2002, as
compared to $27,000 tax expense for the three months ended December 31, 2001.
Net Income/Loss. The net income for the three months ended December 31, 2002 was
approximately $1.2 million or $.10 per share basic and 0.9 per share diluted EPS
on 12,234,266 shares and 13,606,199 shares respectively as compared to a net
income of $0.7 million or $.06 per share basic .05 per share diluted EPS on
11,833,602 shares and 13,581,438 shares, respectively, for the three months
ended December 31, 2001.
For the six months ended December 31, 2002 as compared to the six months ended
December 31, 2001.
Revenue. Revenue increased 10% to approximately $54.8 million as compared to
$50.0 million for the six months ended December 31, 2002 and 2001, respectively.
For the six months ended December 31, 2002, revenue of $26.4 million was
recognized from Space Flight Services primarily under the REALMS Contract with
NASA and commercial customers, $21.2 million for JE primarily under the FCSD
Contract, $6.6 million from Astrotech, $0.3 million from SMI and $0.3 million of
other service revenue. In comparison, for the six months ended December 30,
2001, revenue of $25 million was recognized from Space Flight Services primarily
under the REALMS Contract with NASA and commercial customers, $20.1 million from
JE under the FCSD Contract, $4.2 million from Astrotech, $0.4 million for SMI
and $0.3 million of other service revenue. The increase in revenue under the
REALMS Contract with NASA and commercial customers is attributable to the types
of missions under contract
13
including STS-116 being added to the contract in the third quarter of fiscal
year 2002 and increased mass requested to be flown on STS-116 and STS-118 by
NASA in the period ended December 31, 2002. The increase in revenue at Astrotech
is due primarily to an increase in the number of missions completed and
processed in the six months ended December 31, 2002 as compared to the same
period last year and additional payments under its long term contracts. Revenue
at JE increased due to increased project work on both the FCSD and CM contracts
and reimbursement of facilities costs.
Costs of Revenue. Costs of revenue for the six months ended December 31, 2002
increased by 10% to approximately $44.4 million, as compared to $40.3 million
for the comparable period last year. For the six months ended December 31, 2002,
integration and operations costs of Space Flight Services for the REALMS
Contract with NASA and commercial customers were $17.9 million, $18.6 million
for JE, $2.9 million for Astrotech payload processing, $0.2 million for SMI, and
$4.7 million of depreciation expense. For the six months ended December 31,
2001, integration and operations costs of Space Flight Services for the REALMS
Contract with NASA and commercial customers were $14.6 million, $18.0 million
for JE, $1.9 million for Astrotech payload processing $0.4 million for SMI and
$5.4 million of depreciation expense. Costs of revenue under the REALMS Contract
with NASA and commercial customers increased due primarily to increased costs of
leased flight assets and increased integrations and operations work for STS-114
which is scheduled to fly in March 2003. Astrotech's costs increased due to the
increased costs of the missions added over the guaranteed contract missions and
the costs of the EELV facility which was placed in service in March 2002. The
decrease in depreciation expense is related to the change in the useful life of
the Company's flight assets from 2012 to 2016 partially offset by depreciation
expense for the EELV facility at Astrotech.
Operating Expenses. Operating expenses decreased 40% to approximately $6.2
million for the six months ended December 31, 2002 as compared to approximately
$10.2 million for the six months ended December 21, 2001. The decrease in
operating expenses is primarily the result of the completion of bid and proposal
efforts for the microgravity contract of $1.4 million, refocusing of SMI efforts
of $0.8 million, and the elimination of $0.6 million of goodwill expense as a
result of new accounting standards. The company's ongoing cost reductions
initiated during the fiscal year ended June 30, 2002 have resulted in savings of
approximately $1.2 million. Legal and insurance costs decreased $0.3 million,
facilities related costs decreased $0.4 million, depreciation expense decreased
$0.3 million and compensation, benefits and travel decreased $0.2 million.
Research and development expenses decreased slightly for the six months ended
December 31, 2002 as compared to the comparable period last year due as the
Company continued to emphasize its core operations and limited new investments
in research and development.
Interest and Other Expense. Interest expense was approximately $3.7 million for
the six months ended December 31, 2002 and approximately $2.7 million for the
six months ending December 31, 2002 due primarily to interest on the mortgage
loan payable on the Astrotech facility. There was no interest capitalized for
the six months ended December 31, 2002 and $0.9 million of interest was
capitalized for the six months ended December 31, 2001. Interest was capitalized
in conjunction with the construction of the Company's modules and the new
facility constructed by Astrotech.
Interest and Other Income. Interest and other income was immaterial for the six
months ended December 31, 2002 and was approximately $1.2 million for the six
months ended December 31, 2001. 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. The Company recorded a tax refund of $0.5 million in December
2002. Based on the Company's projected taxable status for fiscal year 2003, the
Company recorded no tax expense for the six months ended December 31, 2002, as
compared to 55,000 tax benefit recorded for the six months ended December 31,
2001.
Net Income (Loss). The net income for the six months ended December 31, 2002 was
approximately $1.1 million or $0.09 per share basic and 0.08 per share diluted
EPS on 12,194,775 and 13,558,882 shares, respectively, as
14
compared to net loss of $2.2 million or $0.19 per share (basic and diluted EPS)
on 11,740,655 shares for the six months ended December 31, 2001.
Liquidity and Capital Resources
Historically the Company obtained operating and capital investment funds from
the proceeds of its initial public offering of Common Stock and an offering of
Series B Senior Convertible Preferred Stock. The Company also completed a
private placement offering of convertible subordinated notes to support capital
investments required for development and construction of space flight assets.
The Company's primary source of liquidity is cash flow from operations. The
principal uses of cash flow that affect the Company's liquidity position include
both operational expenditures and debt service payments. Management is focused
on increasing the Company's cash flow and on managing cash effectively through
limiting cash investments in long-term assets.
The Company currently maintains a working capital line of credit facility
totaling $5.0 million in order to ensure appropriate levels of liquidity. As of
December 31, 2002, amounts unused and available under this credit facility were
$4.0 million.
Cash Flows From Operating Activities. Cash provided by operations for the six
months ended December 31, 2002 and 2001 was $3.0 million and $3.2 million,
respectively. For the six months ended December 31, 2002, the significant items
affecting cash provided by operating activities were primarily the result of
depreciation and amortization of $6.0 million and a decrease in deferred revenue
of $4.6 million due primarily to STS-107 which launched on January 16, 2003 and
the impending launch of STS-114 which is scheduled to launch in March 2003.
Accrued subcontracting costs increased $4.3 million due primarily for
integration and operation costs for STS-114 partially offset by a decrease in
accounts payable of $2.7 million. For the six months ended December 31, 2001,
the significant items affecting cash provided by operating activities include
depreciation and amortization of $7.5 million, a decrease of $3.0 million in
deferred revenue due primarily to completion of various tasks under the REALMS
and commercial customer contracts and the decrease of $6.3 million in accounts
payable and accrued expenses due to payments to vendors. Accounts receivable
decreased due to collections primarily under the REALMS and FCSD contracts. In
addition, the Company recorded a $1.1 million gain on the sale of property and
equipment relating to the Astrotech sounding rocket sale and the sale of
equipment to Clear Lake Industries.
Cash Flows Used in Investing Activities. For the six months ended December 31,
2002 and 2001, cash flows used in investing activities were $0.0 million and
$12.2 million, respectively. For the six months ended December 31, 2002 excess
machinery and equipment was sold for $0.1 million which was offset by minor
expenditures in flight assets and property and equipment of $0.6 million. In
addition, cash that was restricted at June 30, 2002 has been released and used
for its intended purpose. The Company does not expect to incur any major capital
expenditures this fiscal year. For the six months 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 VCC.
The Company received $0.8 million in cash proceeds from the sale of the Oriole
sounding rocket assets and the sale of equipment to Clear Lake Industries.
Cash Flows From Financing Activities. For the six months ended December 31, 2002
and 2001, cash flows provided by (used for) financing activities were ($3.4)
million and $11.7 million, respectively. For the six months ended December 31,
2002 the Company paid $3.5 million of obligations under various credit
agreements. The Company paid $9.6 million of debt during the six months ended
December 31, 2001 and $3.1 million of the loan payments was in conjunction with
the Astrotech financing. The Company received $20.0 million relative to the
Astrotech financing. The Company received $750,000 in the form of external
equity investment in SMI.
The Company's liquidity has been constrained over the previous two fiscal years.
A significant portion of this constraint arose from funding of new operations
and assets to support future Company growth, funding a portion of the
construction cost of the Astrotech Florida facility and funding of required debt
repayments. In addition, the Company was committed to capital investments to
complete certain flight assets.
15
Beginning in the third quarter of the fiscal year 2001, management began an
aggressive multi-faceted plan to improve the Company's financial position and
liquidity. This plan included restructuring and repayment of certain debt
obligations.
Under this plan, the Company undertook extensive efforts to reduce cash required
for both operations and capital investments. Additionally, the Company completed
planned divesting of non-core assets. Development and construction of new assets
is currently limited to those assets required to fulfill existing commitments
under contracts. The Company has no further on-going commitments to fund
development or construction of any asset. The Company completed the planned
restructuring of certain debt obligations and continues to focus on reducing its
outstanding debt.
As discussed above, management completed the implementation of the plan in the
fourth quarter of fiscal year 2002. Management continues to focus its efforts on
improving the overall liquidity of the Company through reducing operating
expenses and limiting cash commitments for future capital investments and new
asset development.
Contractual Obligations
($ in thousands)
Remaining
In
Fiscal Fiscal Fiscal Fiscal
At Year Year Year Year
Contractual Obligations December 31, 2002 2003 2004 2005 2006 Thereafter
- --------------------------------------------------------------------------------------------------------------------------
Long-term Debt $ 66,986 2,197 1,382 - - $ 63,250
Mortgage Loan Payable 18,119 1,041 2,218 2,412 2,614 9,836
Capital Leases 351 72 212 67 - -
Operating Leases, Net 13,997 2,805 4,269 3,403 183 3,338
-----------------------------------------------------------------------------------
Total Contractual Cash Obligations $ 99,453 $ 6,115 $ 8,081 $ 5,882 $ 2,797 $ 76,424
===================================================================================
(excluding interest payments)
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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. The Company adopted the new rules
effective July 1, 2002. The elimination of amortization of goodwill is expected
to increase earnings by approximately $1.0 million for the fiscal year. The
Company will continue to analyze and assess the impairment provisions of the new
statement on an ongoing basis. As of the period ended December 31, 2002, the
Company did not record an impairment write down.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company has no material changes to the disclosure made on this matter in the
Company's Annual Report on Form 10-K for the year ended June 30, 2002.
16
ITEM 4. Controls and Procedures
Under the supervision and with the participation of the Company's management,
including its principal executive officer and principal financial officer, the
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures within 90 days of the filing date of this
quarterly report, and, based on its evaluation, the Company's principal
executive officer and principal financial officer have concluded that these
controls and procedures are effective. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that we file under the Exchange Act is accumulated and
communicated to its management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 21, 2002, escottVentures II, LLC ("ESV") filed Case Number 1:02CV01236
in the U.S. District Court for the District of Columbia against Space Media,
Inc., SPACEHAB, Inc., Shelley A. Harrison and Julia A. Pulzone (collectively,
"Defendants"). This suit related to ESVs investment in Space Media, Inc., and
asserted claims for federal securities fraud, fraud in the inducement, common
law fraud, negligent misrepresentation, breach of contract, breach of duty of
good faith and fair dealing, tortuous interference with contractual relations
and conspiracy to commit fraud. ESV sought rescission of the agreement pursuant
to which the investment was made in SMI and return of its $750,000 investment,
plus unspecified expenses, consequential damages, exemplary and punitive
damages, prejudgment interest, and costs and disbursements, including attorney
and expert fees. Defendants answered the complaint on July 17, 2002, asserting a
number of affirmative defenses. Subsequent to the period ended December 31,
2002, the Defendants and ESV settled the suit through mediation. A stipulation
and order of dismissal was filed with the Court by the parties on January 22,
2003, following the payment of cash and issuance of restricted shares of
Spacehab common stock to ESV.
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 12, 2002. 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 7,550,795 votes:
17
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
Michael E. Kearney
Gordon S. Macklin
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 2003.
For 10,196,851 Against 18,443 Abstain 11,030
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley+-
Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.3 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
b) Reports on Form 8-K.
NONE
18
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. The Company is under contract with NASA
to support the STS-107 mission on its Columbia orbiter. The mission utilized the
Company's Research Double Module ("RDM") flight asset. On February 1, 2003 the
RDM was lost in the tragic STS-107 accident. The RDM was partially insured
through commercial sources and NASA. The Company's commercial insurance on the
module was $17.7 million. The Company is yet to identify the value of the NASA
insurance and is currently evaluating other options for recovering the value of
the RDM.
SPACEHAB, INCORPORATED
Date: February 12, 2003 /s/ Dr. Shelley A. Harrison
---------------------------------------
Dr. Shelley A. Harrison
Chairman of the Board
and Chief Executive Officer
/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
19
CERTIFICATIONS
I, Dr. Shelley A. Harrison, certify that:
1. I have reviewed this annual report on Form 10-Q of SPACEHAB,
Incorporated;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report the financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 12, 2003
/s/ Dr. Shelley A. Harrison
--------------------------------
Dr. Shelley A. Harrison
Chairman of the Board
and Chief Executive Officer
20
CERTIFICATIONS
I, Julia A. Pulzone, certify that:
1. I have reviewed this annual report on Form 10-Q of SPACEHAB,
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report the financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: February 12, 2003
/s/ Julia A. Pulzone
------------------------------
Julia A. Pulzone
Senior Vice President, Finance
and Chief Financial Officer
21
CERTIFICATIONS
I, Michael E. Kearney, certify that:
1. I have reviewed this annual report on Form 10-Q of SPACEHAB,
Incorporated;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
d. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report the financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
e. Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 12, 2003
/s/ Michael E. Kearney
-------------------------------------
Michael E. Kearney
President and Chief Operating Officer
22