<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED...............SEPTEMBER 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission file number 0-27206
SPACEHAB, Incorporated
300 D Street, SW
Suite 814
Washington, DC 20024
(202) 488-3500
Incorporated in the State of Washington IRS Employer Identification
Number 91-1273737
The number of shares of Common Stock outstanding as of the close of business on
November 1, 1999:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 11,258,494
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
------ -----
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SPACEHAB, INCORPORATED AND SUBSIDIARIES
SEPTEMBER 30, 1999 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999 and
June 30, 1999 3
Condensed Consolidated Statements of Operations for the three months
ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
Three months ended September 30, 1999 and 1998 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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PART 1: FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SPACEHAB, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share data) SEPTEMBER 30, JUNE 30,
1999 1999
(UNAUDITED) (AUDITED)
------------- -------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 19,310 $ 21,346
Accounts receivable, net 17,777 17,471
Prepaid expenses and other current assets 1,658 1,146
-------- --------
Total current assets 38,745 39,963
Property, plant, and equipment, net of
accumulated depreciation and amortization
of $50,897 and $49,247 137,802 132,184
Goodwill, net of accumulated amortization of $1,616 and $1,339,
respectively 25,221 25,498
Investment in joint venture, at cost 1,600 1,400
Other assets, net 6,266 5,301
-------- --------
Total assets $209,634 $204,346
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable under credit agreement, current portion $ 333 $ 333
Loans payable, current portion 3,108 3,126
Accounts payable & accrued expenses 17,952 13,181
Accrued subcontracting services 1,729 6,787
Deferred revenue 3,639 4,162
-------- --------
Total current liabilities 26,761 27,589
Loans payable under credit agreement, net of current portion 333 667
Loans payable, net of current portion 6,270 7,033
Convertible notes payable to shareholder 7,860 7,860
Convertible subordinated notes payable 63,250 63,250
Accrued contract costs 962 940
Deferred income taxes 3,181 2,842
-------- --------
Total liabilities 108,617 110,181
Commitments and contingencies
Stockholders' equity:
Series B Senior Convertible Preferred Stock (authorized 2,500,000 shares,
issued and outstanding 975,000 and 0 shares, respectively,
liquidation preference of $8,775 thousand) 8,688 -
Common stock, no par value, authorized
30,000,000 shares, issued and outstanding
11,258,494 and 11,229,646 shares, respectively 81,708 81,585
Additional paid-in capital 16 16
Retained earnings 10,605 12,564
-------- --------
Total stockholders' equity 101,017 94,165
-------- --------
Total liabilities and stockholders' equity $209,634 $204,346
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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SPACEHAB, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except share data) THREE MONTHS
ENDED SEPTEMBER 30,
1999 1998
-------------- ----------------
<S> <C> <C>
Revenue $ 25,978 $ 28,273
Costs of revenue 23,835 22,224
-------------- ----------------
Gross profit 2,143 6,049
-------------- ----------------
Operating expenses:
Marketing, general and administrative 3,739 3,160
Research and development 491 738
-------------- ----------------
Total operating expenses 4,230 3,898
-------------- ----------------
Income (loss) from operations (2,087) 2,151
Interest expense, net of capitalized interest 1,163 1,431
Interest and other income, net (234) (519)
Other expense - 550
-------------- ----------------
Net income (loss) before income taxes (3,016) 689
Income tax expense (benefit) (1,057) 276
-------------- ----------------
Net income (loss) $ (1,959) $ 413
============== ================
Basic earnings (loss) per share:
Net income (loss) per share - basic $ (0.17) $ 0.04
============== ================
Shares used in computing net income
(loss) per share - basic 11,229,960 11,168,161
============== ================
Diluted earnings (loss) per share:
Net income (loss) per share - diluted $ (0.17) $ 0.04
============== ================
Shares used in computing net income
(loss) per share - diluted 11,229,960 11,352,693
============== ================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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SPACEHAB, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) THREE MONTHS ENDED SEPTEMBER 30,
1999 1998
--------- ----------
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net income (loss) $ (1,959) $ 413
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization 2,081 1,840
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (306) 3,508
Decrease (increase) in prepaid expenses and other current assets (512) (654)
Decrease (increase) in other assets (949) (183)
Increase (decrease) in deferred flight revenue (523) (7,118)
Increase (decrease) in accounts payable and
accrued expenses 4,896 (2,299)
Increase (decrease) in accrued subcontracting services (5,059) (480)
Increase (decrease) in deferred taxes 67 -
---------- ----------
Net cash used for operating activities (2,264) (4,973)
---------- ----------
Cash flows used for investing activities:
Payments for flight assets under construction (5,594) (1,586)
Purchase of Johnson Engineering, net of cash acquired - (25,308)
Payments for building under construction (444) (28)
Purchases of property, equipment and leasehold improvements (1,231) (459)
Investment in joint venture (200) (500)
---------- ----------
Net cash used for investing activities (7,469) (27,881)
---------- ----------
Cash flows provided by (used for) financing activities:
Payment of loan payable (781) (706)
Payment of note payable under credit agreement (333) (500)
Proceeds from issuance of common stock 123 63
Proceeds from issuance of preferred stock, net of expenses 8,688 -
---------- ----------
Net cash provided by (used for) financing activities 7,697 (1,143)
---------- ----------
Net decrease in cash and cash equivalents (2,036) (33,997)
Cash and cash equivalents at beginning of period 21,346 92,327
---------- ----------
Cash and cash equivalents at end of period $ 19,310 $ 58,330
========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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SPACEHAB, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the consolidated
financial position of SPACEHAB, Incorporated and subsidiaries ("SPACEHAB" or the
"Company") as of September 30, 1999, and the results of their operations for the
three month periods ended September 30, 1999 and 1998 and their cash flows for
the three month periods ended September 30, 1999 and 1998. However, the
consolidated financial statements are unaudited, and do not include all related
footnote disclosures. Certain items in cost of revenues, S,G&A and R&D for the
three months ending September 30, 1998 have been reclassified to conform with
the fiscal 2000 consolidated financial statement presentation (see accompanying
table). Management believes that the reclassifications of costs provides better
matching of the specific activities to the costs incurred in conjunction with
such activities.
The consolidated results of operations for the three months ended September 30,
1999 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, 1999.
<TABLE>
<CAPTION>
(In thousands) Three Months Ended
September 30, 1998
--------------------------
Reclassified
As Statement of
Reported Operations
- -------------------------------------------------------- ------------
<S> <C> <C>
Revenue $28,273 $28,273
Costs of revenue 21,740 22,224
------- -------
Gross profit 6,533 6,049
Operating expenses:
Marketing, general & administrative 4,135 3,160
Research and development 247 738
------- -------
Total operating expenses 4,382 3,898
------- -------
Income from operations $ 2,151 $ 2,151
======= =======
</TABLE>
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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 month
periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
(in thousands except per share data) Basic Diluted
----- -------
<S> <C> <C>
SEPTEMBER 30, 1999
Net loss $ (1,959) $ (1,959)
Weighted average outstanding common shares 11,229,960 11,229,960
- ---------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998
Net income $ 413 $ 413
Weighted average outstanding common shares 11,168,161 11,168,161
Outstanding stock options and warrants, using the
treasury stock method
- 184,532
- ---------------------------------------------------------------------------------------------------------------
Adjusted shares 11,168,161 11,352,693
</TABLE>
Convertible notes payable outstanding as of September 30, 1999, convertible into
4,642,202 shares of common stock at $13.625 per share and due October 2007, were
not included in the computation of diluted EPS for the three months ended
September 30, 1999 and 1998, as the inclusion of the converted notes would be
anti-dilutive for these periods.
Options to purchase 99,993 shares of common stock at a price of $5.125 per share
were outstanding as of September 30, 1999, but were not included in the
computation of diluted EPS as the inclusion of these options would be
anti-dilutive. These options expire July 1, 2004.
Options and warrants to purchase 1,876,541 shares of common stock, at prices
ranging from $5.75 to $24.00 per share, were outstanding as of September 30,
1999 but were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of the
common shares during the three months ended September 30, 1999. The options
expire between November 1, 1999 and July 1, 2008.
Options and warrants to purchase 1,309,015 shares of common stock, at prices
ranging from $9.875 to $24.00 per share, were outstanding as of September 30,
1998, but were not included in the computation of diluted EPS because the
exercise prices were greater than the average market price of the common shares
during the three months ended September 30, 1998.
3. REVENUE RECOGNITION:
Under the REALMS (Research and Logistics Mission Support) contract and for new
contract awards for which the capability to successfully complete the contract
can be reasonably assured and the costs at completion can be reliably estimated
at contract inception, revenue is recognized under the percentage-of-completion
method. This percentage-of-completion method allows the Company to report
revenue based on costs incurred on a per mission basis over the period of that
mission. The percentage of completion method results in the recognition of
revenue over the period of contract performance. Revenue provided by the
Astrotech payload processing facilities is recognized ratably over the occupancy
period of the satellites at the Astrotech facilities. Revenue provided by
Johnson Engineering is primarily based on cost-plus award fee contracts, whereby
revenue is recognized to the extent of costs incurred plus estimates of award
fee revenues using the percentage-of-completion method. Award fees, which
provide earnings based on the Company's contract performance as determined by
NASA evaluations, are recorded when the amounts can be reasonably estimated, or
are awarded. Changes in estimated costs to complete and estimated amounts
recognized as award fees are recognized in the period they become known.
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4. STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION:
(a) Cash paid for interest costs was $0.6 million for each of the three month
periods ended September 30, 1999 and 1998. The Company capitalized interest of
approximately $0.8 million and $0.6 million during the three months ended
September 30, 1999 and 1998, respectively.
(b) The Company paid no income taxes during the three months ended September 30,
1999, and paid $0.4 million for income taxes during the three months ended
September 30, 1998.
5. CREDIT FACILITIES:
On June 16, 1997, the Company entered into a $10.0 million line of credit
agreement with a financial institution. Outstanding balances on the line of
credit accrue interest at either the lender's prime rate or a LIBOR-based rate,
and are collateralized by certain assets of the Company. The term of the
agreement is through January 2000. As of September 30, 1999, the Company had not
drawn against the line of credit.
On July 14, 1997, the Company's wholly owned subsidiary, Astrotech, entered into
a five-year credit facility with a financial institution for loans of up to
$15.0 million. This loan is collateralized by the assets of Astrotech and
certain other assets of the Company, and is guaranteed by the Company. Interest
accrues at LIBOR plus three percent. As of September 30, 1999, the Company had
drawn $15.0 million against this loan. As of September 30, 1999 and 1998, the
outstanding balance on this loan was $9.4 million and $11.3 million,
respectively.
In October 1997, the Company completed a private placement offering for $63.3
million of aggregate principal of its 8% Convertible Subordinated Notes due
2007. Interest is payable semi-annually. The notes are convertible into the
common stock of the Company at a rate of $13.625 per share. This offering
provided the Company with net proceeds of approximately $59.9 million to be used
for capital expenditures associated with the development and construction of
space related assets, the purchase of Johnson Engineering and for other general
corporate purposes.
6. PREFERRED STOCK:
On August 2, 1999, DaimlerChrysler Aerospace AG (Dasa), 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, Dasa
purchased all of SPACEHAB's 975,000 authorized and unissued shares of preferred
stock. At the annual stockholders meeting held on October 14, 1999, the
shareholders approved the proposal to increase the number of authorized shares
of preferred stock to 2,500,000, in order to complete the transaction with Dasa.
The preferred stock purchase increased Dasa's investment 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.
7. SEGMENT INFORMATION:
The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information", as of June 30, 1999. SFAS No. 131 establishes annual
and interim reporting standards for an enterprise's operating segments.
Based on its organization, the Company operates in three business segments;
Astrotech, Johnson Engineering and SPACEHAB. Astrotech, acquired in February
1997, provides payload processing facilities to serve the satellite
manufacturing and launch services industry. Astrotech currently provides launch
site preparation of flight ready satellites to major U.S. space launch companies
and satellite manufacturers. Johnson Engineering, acquired in July 1998, is
primarily engaged in providing engineering services and products to the Federal
Government and NASA, primarily under the Flight Crew Systems Development
Contract (FCSD). SPACEHAB was founded to commercially develop space habitat
modules to operate in the cargo bay of the Space Shuttles. SPACEHAB provides
access to the
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modules and integration and operations support services for both NASA and
commercial customers.
The Company's chief operating decision maker utilizes both revenue and income
before taxes, including allocated interest based on the investment in the
segment, in assessing performance and making overall operating decisions and
resource allocations. As such, other income/expense items including taxes and
corporate overhead have not been allocated to the various segments. Other income
and expense items are included in SPACEHAB. Pretax income (loss) in the
following table includes an allocation of interest expense.
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended September 30, 1999
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPACEHAB $ 5,610 $ (3,644) $ 114,980 $ 1,489
Astrotech 2,801 138 20,918 249
Johnson Engineering 17,567 491 1,903 342
-----------------------------------------------------------------------------
$ 25,978 $ (3,016) $ 137,802 $ 2,081
Three Months Ended September 30, 1998
Net Depreciation
Pre-Tax Fixed And
Revenue Income Assets Amortization
-----------------------------------------------------------------------------
SPACEHAB $ 11,400 $ 602 $ 93,701 $ 1,241
Astrotech 2,518 134 19,528 319
Johnson Engineering 14,354 (48) 454 280
-----------------------------------------------------------------------------
$ 28,273 $ 689 $ 113,682 $ 1,840
</TABLE>
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 such statements.
SPACEHAB was incorporated in 1984 to commercially develop space
habitat modules to operate in the cargo bay of the Space Shuttles. SPACEHAB
currently provides space within and on the modules for both NASA and commercial
customers. Astrotech was established in 1984 to provide payload processing
facilities to serve the satellite manufacturing and launch services industry.
Astrotech currently provides launch site preparation of flight-ready satellites
to major U.S. space launch companies and satellite manufacturers. Johnson
Engineering was incorporated in the state of Colorado in 1973 and is primarily
engaged in providing engineering services and products to the federal
government.
The Company currently operates under two significant contracts with
NASA: the REALMS Contract, a $99.7 million contract for two research missions
aboard the Space Shuttle and two logistics missions to resupply the
International Space Station ("ISS"); and, the Flight Crew Systems Development
Contract (the "FCSD Contract") currently a $331.5 million multitask
cost-plus-award and incentive-fee contract, that commenced in May 1993 and will
conclude in April 2001. The value of the NASA portion of the REALMS contract is
$68.4 million for four firm
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missions and the commercial value is currently $31.3 million. The Company has
the potential to increase the total REALMS Contract value by an additional $12.2
million through module usage sales to commercial customers for micro gravity
space research such as the European Space Agency (ESA), the National Space
Development Agency of Japan (NASDA) and the Canadian Space Agency (CSA). The
first mission under the REALMS Contract, STS-95 which carried Senator John Glenn
back into space, was completed in October 1998. The second mission, STS-96, a
re-supply mission to the ISS, was completed in May, 1999. The two remaining
flights are currently scheduled for launch in March 2000 and December 2000.
NASA has recently executed a modification to the REALMS contract whereby up to
six option missions may be added which could potentially increase the contract
value by $128 million. Under the FCSD Contract, Johnson Engineering provides a
variety of critical crew training, support and manufacturing functions on a cost
plus award fee and incentive fee basis.
REVENUE
SPACEHAB generates revenue by: (i) providing lockers and/or volume
within and on the SPACEHAB Modules; (ii) integration and operations support
services provided to scientists and researchers responsible for the experiments;
and/or (iii) from NASA or International Agencies to carry logistics supplies for
Module missions aboard the Shuttle system. For the REALMS contract and for
contract awards for which the capability to successfully complete the contract
can be demonstrated at contract inception, revenue recognition is being reported
under the percentage-of-completion method based on costs incurred on a per
mission basis over the period of the mission. The percentage-of-completion
method results in the recognition of revenue over the period of contract
performance.
Astrotech revenue is derived from various multi-year fixed price
contracts with satellite and launch vehicle manufacturers. The services and
facilities Astrotech provides to its customers support the final assembly,
checkout and countdown functions associated with preparing a satellite for
launch. This preparation includes: the final assembly and checkout of the
satellite, installation of the solid rocket motors, loading of the liquid
propellant, encapsulation of the satellite in the launch vehicle, transportation
to the launch pad and command and control of the satellite during pre-launch
countdown. Revenue provided by the Astrotech payload processing facilities is
recognized ratably over the occupancy period of the satellites in the Astrotech
facilities. In addition, Astrotech expects to generate additional revenue from
an exclusive multi-year agreement to process all Sea Launch program payloads at
the Boeing facility in Long Beach, California. The first Sea Launch payload was
processed by Astrotech and successfully launched during March 1999.
Johnson Engineering generates revenue primarily from its multi-year
cost plus award and incentive-fee contract with NASA. Johnson Engineering'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. Johnson Engineering also designs and
fabricates flight hardware including flight crew equipment and crew quarters
habitability outfitting and provides stowage integration services. Johnson is
also responsible for configuration management of the ISS. Revenue provided by
Johnson Engineering is recognized to the extent of costs incurred plus award fee
using the percentage of completion method, measured on costs incurred. Award
fees, which provide earnings based on contract performance as determined by
periodic NASA evaluations, are recorded when the amounts can be reasonably
estimated or are awarded.
COSTS OF REVENUE
Costs of revenue for SPACEHAB missions include integration and
operations expenses associated with the performance of three types of efforts:
(i) sustaining engineering in support of all missions under a contract, (ii)
mission specific support and (iii) other costs of revenue including depreciation
expense, related insurance, costs associated with both the Astrotech and
Spacehab payload processing facilities and Johnson Engineering direct and
indirect costs under the FCSD Contract.
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RESULTS OF OPERATIONS
For the three months ended September 30, 1999 as compared to the three months
ended September 30, 1998.
Revenue. Revenue decreased by 8% to approximately $26.0 million as
compared to $28.3 million for the three months ended September 30, 1999 and
1998, respectively. Revenue of $5.6 million was recognized from the REALMS
Contract with NASA and with related commercial customers, $17.6 million from
Johnson Engineering under the FCSD Contract and $2.8 million from Astrotech. In
contrast, for the quarter ended September 30, 1998, revenue of $11.4 million was
recognized from the REALMS contract with NASA and with related commercial
customers, $14.4 million from Johnson Engineering and $2.5 million from
Astrotech. The increase in Johnson Engineering's revenue was due primarily to
increased astronaut training at the Neutral Buoyancy Laboratory and partially to
a retroactive increase in the available fee pool. The decrease in revenue under
the REALMS contract is due to the slippage of the assembly of the International
Space Station (ISS) and the stand down of the Shuttle fleet for wiring
inspections. These delays not only reduced the revenue recognized in the current
period, but increased the related costs and therefore reduced gross margin.
These delays have resulted in the slippage of STS-101 from November 1999 to
March 2000.
Costs of Revenue. Costs of revenue for the quarter ended September
30, 1999 increased by 7% to $23.8 million, as compared to $22.2 million for the
prior year's quarter. For the quarter ended September 30, 1999, integration and
operations costs for the REALMS and related commercial customer contracts were
$5.4 million, $1.2 million for Astrotech payload processing, $15.9 for Johnson
Engineering, and $1.3 million of depreciation expense. For the three months
ended September 30, 1998, integration and operations costs for the REALMS and
related commercial customer contracts were $6.4 million, $1.2 million for
Astrotech payload processing, $13.2 for Johnson Engineering, and $1.3 million of
depreciation expense. The increase in costs of revenue is due primarily to the
increased training by Johnson Engineering for astronaut training.
Operating Expenses. Operating expenses increased approximately 9% to
approximately $4.2 million for the three months ended September 30, 1999 as
compared to approximately $3.9 million for the three months ended September 30,
1998. R&D expenses decreased for the period ended September 30, 1999 as compared
to the comparable period last year due to the Company's emphasis on completing
existing assets in progress. SG&A expenses increased for the period ended
September 30, 1999 as compared to the comparable period last year primarily due
to personnel costs.
Interest and Other Expense. Interest expense was approximately $1.2
million for the three months ended September 30, 1999 and approximately $1.4
million for the three months ended September 30, 1998. There was also
approximately $0.8 million and $0.6 million of interest capitalized for the
quarters ended September 30, 1999 and 1998, respectively. 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 $0.2 million and $0.9 million for the three months ended September
30, 1999 and 1998, respectively. The decrease in interest income for the period
ended September 30, 1999 is due to the use of cash for operations and capital
expenditures. Interest is earned on the Company's short-term investments of the
proceeds received from the Company's debt financings and preferred stock
purchase by DaimlerChrysler.
Income Taxes. Based on the Company's projected taxable earnings for
fiscal year 2000, the Company recorded a tax benefit of $1.1 million for the
quarter ended September 30, 1999, as compared to $0.3 million income tax expense
recorded for the quarter ended September 30, 1998.
Net Income (Loss). The net loss for the quarter ended September 30,
1999 was approximately ($2.0) million or ($.17) per share (basic and diluted
EPS) on 11,229,960 shares as compared to net income of $0.4 million or $0.04 per
share (basic EPS) on 11,168,161 shares or $0.04 (diluted EPS) on 11,352,693
shares for the quarter ended September 30, 1998.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its capital expenditures,
research and development and working capital requirements with progress payments
under its various contracts, as well as with proceeds received from private debt
and equity offerings and borrowings under credit facilities. During December
1995, SPACEHAB completed an initial public offering of Common Stock (the
"Offering"), which provided the Company with net proceeds of approximately $43.5
million. In June 1997, the Company signed an agreement with a financial
institution securing a $10.0 million revolving line of credit (the "Revolving
Line of Credit") that the Company may use for working capital purposes. As of
September 30, 1999, no amounts were drawn on this line of credit which expires
in January 2000. The Company is currently in the process of negotiating a new
revolving line of credit. In July 1997, Astrotech obtained a five-year term loan
(the "Term Loan Agreement"), which is guaranteed by SPACEHAB, and provides for
draws of up to $15.0 million for general corporate purposes. As of September 30,
1999, the Company had drawn $15.0 million on this loan, which had an outstanding
balance on that date of $9.4 million. On October 21, 1997, the Company completed
a private placement offering of convertible subordinated notes (the "Notes
Offering"), which provided the Company with net proceeds of approximately $59.9
million which has been used, in part, for capital expenditures associated with
the development and construction of space related assets, the purchase of
Johnson Engineering, and for general corporate purposes. In December 1998, the
Company amended its agreement with Alenia relative to subordinated notes payable
with an outstanding balance of $11.9 million. In exchange for payment of $4.0
million of principal, 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. An amended agreement
with the senior debt holders under the Insurers' note requires that an interest
rate of 8.25 percent be applied to the senior debt with an outstanding balance
of $0.7 million as of September 30, 1999. On August 2, 1999, DaimlerChrysler
Aerospace AG (Dasa), 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, Dasa purchased all of SPACEHAB's 975,000
authorized and unissued shares of preferred stock. At the annual stockholders
meeting held on October 14, 1999, the shareholders approved the proposal to
increase the number of authorized shares of preferred stock to 2,500,000, in
order to complete the transaction with Dasa. The preferred stock purchase
increased Dasa's investment interest in SPACEHAB to approximately 11.5 percent.
No dividends are payable on the preferred shares which are convertible into
common shares on a one-for-one basis.
Cash Flows from Operating Activities. Cash flows provided by (used
for) operating activities for the three months ended September 30, 1999 and
September 30, 1998 were ($2.3) million and ($5.0) million, respectively. The
significant changes during the current period were; accounts payable increased
by $4.9 million due to the inclusion of certain accrued subcontracting services
with accounts payable this fiscal year, which is offset by a decrease in accrued
subcontracting services of $5.1 million. Other assets increased by $0.9 million
primarily due to the tax benefit accrued for the current quarter. Deferred
flight revenue increased by $0.5 million due to progress payments received from
NASA for STS-101. Prepaid expenses increased by $0.5 million primarily due to
prepaid insurance and other prepaid expenses.
Cash Flows from Investing Activities. For the three months ended
September 30, 1999 and 1998, cash flows used for investing activities consisted
of approximately $7.5 million and $27.9 million, respectively. The significant
difference between the two periods was the purchase of Johnson Engineering for
$25.3 million in the period ended September 30, 1998. The significant
expenditure for the current quarter included $5.6 million for the construction
of flight assets, primarily the Research Double Module (RDM) which is expected
to be completed in the second half of the fiscal year.
Cash Flows from Financing Activities. Cash flows provided by (used
for) financing activities were approximately $7.7 million and ($1.1) million for
the three months ended September 30, 1999 and 1998, respectively. The most
significant event was the receipt of $8.7 million, net of expenses, from Dasa, a
shareholder, on August 2, 1999, in exchange for 975,000 authorized and unissued
shares Series B Senior Convertible Preferred Stock.
The Company believes that cash flows from the preferred share
purchase by Dasa, the Convertible Notes Offering, the Term Loan Agreement, and
the Revolving Line of Credit will be sufficient to meet any cash flow
12
<PAGE> 13
requirements from operations and other funding requirements for capital asset
construction and development for at least the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 becomes effective June 15, 2000 and will require the Company to
disclose additional information on its hedging activities. The Company is
reviewing this standard; however, it is not expected that implementing this
Standard will significantly impact the Company.
Year 2000 Readiness Disclosure Statement
The Year 2000 ("Y2K") issue is the result of computer programs that were written
using two digits rather than four to define the applicable year. Any computer
program that has date-sensitive software may recognize the date using "00" as
the year 1900 rather than the year 2000. This error could result in systems
failures and computational errors causing disruptions of operations, including,
among other things, the temporary inability to process transactions, send
invoices or engage in similar normal business activities.
SPACEHAB has established a Y2K program to address both information-technology
("IT") and non-IT problems that may exist within the SPACEHAB system, including
its vendors and customers, e.g.- NASA and the Space Shuttle. SPACEHAB's Y2K
program is divided into five major phases- Awareness and Risk Assessment,
Inventory and Risk Assessment, Repair, Replacement and Renovation, Verification
and Validation, and Implementation and Monitoring.
Phases
AWARENESS AND RISK ASSESSMENT- This phase is intended to ensure the
establishment of the Y2K program and the awareness of potential risks and
issues. This phase involves communicating the status and progress of the Y2K
program within SPACEHAB and to third parties. SPACEHAB expects that this will be
an on-going activity.
INVENTORY AND RISK ASSESSMENT- This phase involves taking inventory of SPACEHAB
hardware, software and infrastructure to identify those systems that are and are
not Y2K compatible. The emphasis is on those items, which are believed by
SPACEHAB to have a significant impact on the business from a financial, legal or
service perspective. While this process is ongoing, SPACEHAB estimates that this
phase is substantially complete for Company owned hardware and software.
SPACEHAB is continuing to survey third party vendors to determine their state of
readiness. NASA has informed SPACEHAB that the Space Shuttle, all onboard
systems, shuttle facilities and operations are Y2K compliant.
REPAIR, REPLACEMENT AND RENOVATION- This phase, also known as "conversion," is
intended to ensure that the appropriate items identified in the preceding phase
are upgraded to meet the Y2K compliance criteria. Material repairs, replacements
and renovations are substantially complete for systems that are under direct
control of SPACEHAB. No assessment of completion dates are available for those
items for which third parties are responsible until the completion of that
portion of the Inventory and Risk Assessment phase. Nearly all of the third
parties have responded that they are Y2K compatible.
VERIFICATION AND VALIDATION- This phase ensures that critical processes, systems
and infrastructure are verified and tested to ensure Y2K issues will not cause
major disruptions in the on-going operations and business of the Company.
Verification and testing of systems under SPACEHAB's direct control has been
substantially completed by SPACEHAB personnel and personnel of SPACEHAB's major
subcontractor, Boeing.
IMPLEMENTATION AND MONITORING- Y2K upgrades are and will be installed into
SPACEHAB's operating systems as necessary. Monitoring will be employed to ensure
that unforeseen Y2K critical items are appropriately prioritized for correction.
SPACEHAB's implementation and monitoring activities are ongoing.
13
<PAGE> 14
State of Readiness
While there is uncertainty inherent in the Y2K problem resulting in large part
from the uncertainty of the readiness of third party vendors, SPACEHAB's
progress towards completing risk assessment within the SPACEHAB systems is
expected to be completed before the end of 1999.
A) Based on an ongoing assessment, the Company has determined that the hardware
and software used in its administrative functions are Y2K compliant. The few
computers that are not compliant are not critical to the operation and are being
replaced as required. The replacement will be completed during 1999.
B) Some computer hardware used in the operations function of SPACEHAB will
require upgrading. The computers at SPACEHAB's payload processing facility in
Florida used for ground support electrical testing ("GSE") are antiquated,
inefficient and are not Y2K compatible. A proposal has been submitted to upgrade
those systems during fiscal year 2000 and work is progressing on the upgrade.
SPACEHAB has a workable contingency plan for the GSE equipment Y2K readiness.
The GSE will be upgraded and replaced by June 2000.
C) Surveys and/or questionnaires are still being sent to those third parties
that might have an impact on SPACEHAB's business to determine their state of
readiness. Those third parties include; NASA, Boeing, Lockheed-Martin and the
various utility service companies serving our locations. SPACEHAB's customers
and vendors have responded that they are compliant and are assessing the
compliance of their third parties.
Costs
The costs associated with required modifications to become Y2K compliant are not
expected to be material to SPACEHAB's financial position or results of
operations. The current estimate to become Y2K compliant is minimal,
approximately $0.2 million, for the replacement of all hardware and software.
This estimate excludes system enhancements, modifications and upgrades to
replace the inefficient and antiquated GSE equipment, which costs are estimated
to be $0.8 million. Through September 30, 1999, $145 thousand has been incurred
relative to the GSE. These upgrades and replacements are not expected to be
completed until June 2000 as SPACEHAB has a workable contingency plan to the Y2K
readiness. The costs of the Year 2000 program are being expensed as incurred.
Replacement of the GSE equipment will be capitalized. There was no specific
budget in FY 1999 or for FY 2000 for Y2K costs.
Risks
In a likely worst case scenario, the failure to correct a material Y2K problem
could result in an interruption in, or a failure of, certain normal business
activities or operations, including operations that are essential to the
provision of SPACEHAB's services. Due to the general uncertainty inherent in the
Y2K problem, resulting in major part from the state of readiness of third
parties, SPACEHAB is unable to determine at this time whether the consequences
of Y2K failures will have a material impact on SPACEHAB's results of operations,
liquidity or financial condition. Potential Y2K impacts from third parties
include the failure of utility companies and power grids and from the customer
owned IT systems that are located at Astrotech's payload processing facilities.
Contingency Plans
After gathering information from SPACEHAB's Y2K readiness program and to prepare
for the possibility that certain information systems or third parties will not
be Y2K compliant, SPACEHAB intends to develop appropriate contingency plans.
Based on third party responses to date, it appears that no significant systems
will be affected by the Y2K issue. The GSE at SPACEHAB's payload processing
facility in Florida, while not Y2K compliant, is still usable. The only
functionality of the GSE that is expected to be impaired is the printing of the
correct date on computer generated reports.
14
<PAGE> 15
READERS ARE CAUTIONED THAT THE DISCUSSION OF SPACEHAB'S EFFORTS AND EXPECTATIONS
RELATED TO YEAR 2000 ARE FORWARD LOOKING STATEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH SPACEHAB'S DISCLOSURE UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- FORWARD LOOKING
STATEMENTS."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
On August 2, 1999, SPACEHAB designated a new class of Series B
Senior Convertible Preferred Stock (the "Series B Preferred Stock"). On August
5, 1999, SPACEHAB issued and sold 975,000 shares of this newly authorized Series
B Preferred Stock to DaimlerChrysler Aerospace AG. In connection with that
transaction, SPACEHAB agreed that, following an amendment to its Articles of
Incorporation to permit an increase in the number of authorized shares of
preferred stock, it would designate, issue and sell an additional 358,334 shares
of Series B Preferred Stock. The amendment to SPACEHAB's Articles of
Incorporation was approved by SPACEHAB's stockholders at their Annual Meeting on
October 14, 1999 and was effected on that day. The sale by SPACEHAB of the
additional 358,334 shares of Series B Preferred Stock was completed on October
14, 1999. Total consideration of $12 million was paid by DaimlerChrysler
Aerospace AG for all 1,333,334 shares of SPACEHAB's Series B Preferred Stock so
issued.
The sale of the Series B Preferred Stock was effected as a private
placement in reliance on Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") as the transaction involved only one other party and
therefore did not involve a public offering.
The Series B Preferred Stock is entitled to dividends as declared by
SPACEHAB's Board of Directors, and SPACEHAB may pay dividends upon its Common
Stock only if the Series B Preferred Stock will participate equally in any such
dividend. Upon liquidation, dissolution or winding up of SPACEHAB, the Series B
Preferred Stock will rank senior to the Common Stock of SPACEHAB as to dividends
and distributions and will be entitled, prior and in preference to any
distribution to the holders of Common Stock, to be paid $9 per share of Series B
Preferred Stock upon such liquidation, dissolution or winding up of SPACEHAB.
The Series B Preferred Stock is convertible at any time at the option of the
stockholder into shares of SPACEHAB's Common Stock on a one for one basis,
subject to anti-dilution provisions. The Series B Preferred Stock will be
entitled to an equal number of votes as the number of shares of SPACEHAB's
Common Stock into which such Series B Preferred Stock is then convertible on all
matters except the election of directors. The Series B Preferred Stock is
entitled, voting separately as a class, to elect one director of SPACEHAB.
The above summary is qualified in its entirety by the terms and
provisions of the exhibits filed with SPACEHAB's Current Report on Form 8-K
dated August 19, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
15
<PAGE> 16
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The separate Index to Exhibits accompanying this
filing is incorporated herein by reference.
(b) Reports on Form 8-K.
A report on Form 8-K was dated August 5, 1999 and filed
on August 19, 1999 announcing the purchase of SPACEHAB's
new Series B Senior Convertible Preferred Stock by
DaimlerChrysler Aerospace AG.
EXHIBIT NO. DESCRIPTION OF EXHIBITS
11. Statement regarding Computation of Earnings
Per Common Share
21. Subsidiaries of the Registrant
27. Financial Data Schedule
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEHAB, INCORPORATED
Date: November 12, 1999 /s/Mark A. Kissman
-----------------------------------------
Mark A. Kissman
Senior Vice President, Finance
Chief Financial Officer
/s/David A. Rossi
-----------------------------------------
David A. Rossi
President and Chief Operating Officer
17
<PAGE> 1
EXHIBIT 11
SPACEHAB, INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
(in thousands except per share data) THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
--------------------- ------------------------
<S> <C> <C>
Net Income (loss) and Adjusted Earnings:
Net Income (loss) applicable to common
shareholders used for basic computations $ (1,959) $ 413
--------------------- ------------------------
Dilution adjustments:
Savings in convertible note payable interest
expense, net of tax 759 776
--------------------- ------------------------
Adjusted net income applicable to
common shareholders assuming dilution $ (1,200) $ 1,189
===================== ========================
Average number of shares of common stock
used for basic computation 11,229,960 11,168,161
--------------------- ------------------------
Diluted adjustments (1):
Weighted average shares and share
equivalents outstanding:
Assumed exercise of options and warrants 11,361 184,532
Assumed conversion of convertible debt 4,642,202 4,642,202
--------------------- ------------------------
Total number of shares assumed to be
outstanding assuming dilution 15,883,523 15,994,895
--------------------- ------------------------
Earnings per common share:
Income per common share:
Net Income per share - Basic $ (0.17) $ 0.04
===================== ========================
Net Income per share - Diluted (1) $ (0.08) $ 0.07
===================== ========================
</TABLE>
(1) The assumed exercise of options and warrants and the conversion of
convertible debt is anti-dilutive for the three month period ended
September 30, 1999 but are included in the calculation of dilutive
earnings per share in accordance with Regulation S-K Item 601 (a)(11).
18
<PAGE> 1
EXHIBIT 21
SPACEHAB, INCORPORATED AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION BUSINESS NAME
- ------------------ ------------- -------------
<S> <C> <C>
Astrotech Space Operations, Inc. Delaware Astrotech
Johnson Engineering Corporation Colorado Johnson Engineering
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 19,310
<SECURITIES> 0
<RECEIVABLES> 17,777
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,745
<PP&E> 137,802
<DEPRECIATION> 50,897
<TOTAL-ASSETS> 209,634
<CURRENT-LIABILITIES> 26,761
<BONDS> 0
0
8,688
<COMMON> 81,708
<OTHER-SE> 16
<TOTAL-LIABILITY-AND-EQUITY> 209,634
<SALES> 25,978
<TOTAL-REVENUES> 25,978
<CGS> 23,834
<TOTAL-COSTS> 23,834
<OTHER-EXPENSES> 4,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,163
<INCOME-PRETAX> (3,016)
<INCOME-TAX> (1,057)
<INCOME-CONTINUING> (1,959)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,959)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
