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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, 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
<TABLE>
<S> <C>
Incorporated in the State of Washington IRS Employer Identification
Number 91-1273737
</TABLE>
The number of shares of Common Stock outstanding as of the close of business on
February 1, 2000:
<TABLE>
<S> <C>
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 11,286,709
</TABLE>
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
DECEMBER 31, 1999 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1999 and
June 30, 1999 3
Condensed Consolidated Statements of Operations for the three and six months
ended December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
six months ended December 31, 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 11
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 17
Item 6. Exhibits and Reports on Form 8-K 18
</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) DECEMBER 31, JUNE 30,
1999 1999
(UNAUDITED) (AUDITED)
--------------------- ------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,865 $ 21,346
Accounts receivable, net 17,788 17,471
Prepaid expenses and other current assets
Total current assets 1,834 1,146
-------- --------
31,487 39,963
Property, plant, and equipment, net of
accumulated depreciation and amortization
of $52,645 and $49,247 144,705 132,184
Goodwill, net of accumulated amortization of $1,891 and $1,339, respectively 24,347 25,498
Investment in joint venture 2,000 1,400
Other assets, net 6,801 5,301
-------- --------
Total assets $209,340 $204,346
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable under credit agreement, current portion $ 333 $ 333
Loans payable, current portion 3,126 3,126
Accounts payable & accrued expenses 17,536 13,181
Accrued subcontracting services 3,213 6,787
Deferred revenue 1,268 4,162
-------- --------
Total current liabilities 25,476 27,589
Loans payable under credit agreement, net of current portion 333 667
Loans payable, net of current portion 5,488 7,033
Convertible notes payable to shareholder 7,860 7,860
Convertible subordinated notes payable 63,250 63,250
Accrued contract costs 861 940
Deferred income taxes 3,012 2,842
-------- --------
Total liabilities 106,280 110,181
Commitments and contingencies
Stockholders' equity:
Preferred Stock (authorized 2,500,000 shares, issued and outstanding
1,333,334 and 0 shares, respectively (liquidation preference of $12,000) 11,892 -
Common stock, no par value, authorized 30,000,000 shares, issued and
outstanding 11,286,709 and 11,229,646 shares, respectively 81,819 81,585
Additional paid-in capital 16 16
Retained earnings 9,333 12,564
-------- --------
Total stockholders' equity 103,060 94,165
-------- --------
Total liabilities and stockholders' equity $209,340 $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 SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 26,011 $ 23,634 $ 51,989 $ 51,907
Costs of revenue 22,771 20,478 46,606 42,703
------------ ------------ ------------ ------------
Gross profit 3,240 3,156 5,383 9,204
------------ ------------ ------------ ------------
Operating expenses:
Marketing, general and administrative 3,893 3,930 7,633 7,090
Research and development 586 1,233 1,077 1,970
------------ ------------ ------------ ------------
Total operating expenses 4,479 5,163 8,710 9,060
------------ ------------ ------------ ------------
Income (loss) from operations (1,239) (2,007) (3,327) 144
Interest expense, net of capitalized interest 733 1,227 1,896 2,658
Interest and other income, net (68) (918) (303) (1,437)
Other expense - - - 550
------------ ------------ ------------ ------------
Net loss before income taxes (1,904) (2,316) (4,920) (1,627)
Income tax (benefit) (632) (465) (1,689) (189)
------------ ------------ ------------ ------------
Net loss $ (1,272) $ (1,851) $ (3,231) $ (1,438)
============ ============ ============ ============
Basic earnings (loss) per share:
Net loss per share - basic $ (0.11) $ (0.17) $ (0.29) $ (0.13)
============ ============ ============ ============
Shares used in computing net loss per share - basic 11,258,801 11,176,651 11,244,380 11,172,507
============ ============ ============ ============
Diluted earnings (loss) per share:
Net loss per share - diluted $ (0.11) $ (0.17) $ (0.29) $ (0.13)
============ ============ ============ ============
Shares used in computing net loss per share - diluted 11,258,801 11,176,651 11,244,380 11,172,507
============ ============ ============ ============
</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) SIX MONTHS ENDED DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net loss $ (3,231) $ (1,438)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 4,208 3,693
Changes in assets and liabilities:
Increase in accounts receivable (317) (4,624)
Increase in prepaid expenses and other current assets (688) (639)
Increase in other assets (1,589) (233)
Decrease in deferred flight revenue (2,894) (4,539)
Increase (decrease) in accounts payable and
accrued expenses 1,842 (3,589)
Decrease in accrued subcontracting services (3,574) (4,570)
Decrease in deferred taxes (102) -
-------- --------
Net cash used for operating activities (6,345) (15,939)
-------- --------
Cash flows used for investing activities:
Payments for flight assets under construction (8,420) (3,948)
Purchase of Johnson Engineering, net of cash acquired 600 (25,344)
Payments for building under construction (2,333) (446)
Purchases of property, equipment and leasehold improvements (2,630) (2,061)
Investment in joint venture (600) -
-------- --------
Net cash used for investing activities (13,383) (31,799)
-------- --------
Cash flows provided by (used for) financing activities:
Payment of loan payable (1,545) (1,412)
Payment of loan payable under credit agreement (333) (500)
Proceeds from issuance of common stock, net of expenses 233 145
Payments of note payable to shareholder - (4,035)
Payments of legal fees on early retirement of debt - -
Proceeds from issuance of preferred stock, net of expenses 11,892 -
-------- --------
Net cash provided by (used for) financing activities 10,247 (5,802)
-------- --------
Net increase (decrease) in cash and cash equivalents (9,481) (53,540)
Cash and cash equivalents at beginning of period 21,346 92,327
-------- --------
Cash and cash equivalents at end of period $ 11,865 $ 38,787
======== ========
</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 December 31, 1999, and the results of their operations for the
three and six month periods ended December 31, 1999 and 1998 and their cash
flows for the six months ended December 31, 1999 and 1998. However, the
consolidated financial statements are unaudited, and do not include all related
footnote disclosures. Certain items in s, S,G&A and R&D for the
three and six month periods ending December 31, 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 and six months ended
December 31, 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. 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 Six Months Ended
December 31, 1998 December 31, 1998
------------------------------- ------------------------------
Reclassified Reclassified
As Statement of As Statement of
Reported Operations Reported Operations
- --------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenue $23,634 $23,634 $51,907 $51,907
Costs of revenue 20,156 20,478 41,896 42,703
------------------------------- ------------------------------
Gross profit 3,478 3,156 10,011 9,204
Operating expenses:
Marketing, general & administrative 4,722 3,930 8,857 7,090
Research and development 763 1,233 1,010 1,970
------------------------------- ------------------------------
Total operating expenses 5,485 5,163 9,867 9,060
------------------------------- ------------------------------
Income from operations ($2,007) ($2,007) $144 $144
=============================== ==============================
</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 and six
month periods ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(in thousands except per share data)
Three months ended Three months ended
December 31, 1999 December 31, 1998
-------------------------------------------- --------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common stockholders $ (1,272) 11,258,801 $ (0.11) $ (1,851) 11,176,651 $ (0.17)
Effect of dilutive securities:
Convertible notes payable - - - - - -
Options and warrants - - - - - -
-------------------------------------------- --------------------------------------------
Diluted EPS:
Income available to
common stockholders $ (1,272) 11,258,801 $ (0.11) $ (1,851) 11,176,651 (0.17)
<CAPTION>
Six months ended Six months ended
December 31, 1999 December 31, 1998
-------------------------------------------- --------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common stockholders $ (3,231) 11,244,380 $ (0.29) $ (1,438) 11,172,507 $ (0.13)
Effect of dilutive securities:
Convertible notes payable - - - - - -
Options and warrants - - - - - -
-------------------------------------------- --------------------------------------------
Diluted EPS:
Income available to
common stockholders $ (3,231) 11,244,380 $ (0.29) $ (1,438) 11,172,507 $ (0.13)
</TABLE>
Convertible notes payable outstanding as of December 31, 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 and six months
ended December 31, 1999 and 1998, as the inclusion of the converted notes would
be anti-dilutive for these periods.
Options to purchase 837,326 shares of common stock at prices ranging from $4.125
to $5.125 per share were outstanding as of the three and six months ended
December 31, 1999, but were not included in the computation of diluted EPS as
the inclusion of these options would be anti-dilutive. These options expire
between July 1, 2004 and December 20, 2008.
Options and warrants to purchase 2,522,089 shares of common stock, at prices
ranging from $5.75 to $24.00 per share, were outstanding as of the three and six
months ended December 31, 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
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during the three and six months ended December 31, 1999. The options expire
between August 10, 2000 and July 1, 2008.
Options and warrants to purchase 1,425,373 shares of common stock for the three
month period ended December 31, 1998, at prices ranging from $8.88 to $24.00 per
share, were outstanding as of December 31, 1998 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
December 31, 1998. The options expire between February 19, 1999 and August 3,
2007.
Options and warrants to purchase 1,342,000 shares of common stock for the six
months ending December 31, 1998, at prices ranging from $9.875 to $24.00 per
share, were outstanding 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 six months ended December 31, 1998. The options
expire between February 19, 1999 and August 3, 2007.
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.
4. STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION:
(a) Cash paid for interest costs was $3.6 million and $3.8 million for the six
month periods ended December 31, 1999 and 1998, respectively. The Company
capitalized interest of approximately $1.7 million and $1.2 million during the
six months ended December 31, 1999 and 1998, respectively.
(b) The Company paid no income taxes during the six months ended December 31,
1999, and paid $0.4 million for income taxes during the six months ended
December 31, 1998.
(c) During the three months ended December 31, 1999, the Company received a $0.6
million refund of purchase price paid for the JE acquisition in 1998. In
accordance with the acquisition agreement, the refund resulted from JE's failure
to attain certain minimum award fee scores on its FCSD contract for the period
from April 1, 1999 to September 30, 1999. The refund has been recorded as a
reduction of goodwill from the JE acquisition.
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 May 2000. As of December 31, 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
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December 31, 1999, the Company had drawn $15.0 million against this loan. As of
December 31, 1999 and 1998, the outstanding balance on this loan was $8.6
million and $10.6 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,
allowing them to purchase the additional 358,334 preferred shares. 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 modules and integration and operations support services for both
NASA and commercial customers.
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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 December 31, 1999
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
--------------------------------------------------------------
<S> <C> <C> <C> <C>
SPACEHAB $ 10,798 $ (276) $ 120,010 $ 1,498
Astrotech 1,274 (1,109) 21,616 249
Johnson Engineering 13,939 (519) 3,079 381
--------------------------------------------------------------
$ 26,011 $ (1,904) $ 144,705 $ 2,128
Three Months Ended December 31, 1998
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
--------------------------------------------------------------
SPACEHAB $ 9,376 $ (1,346) $ 95,273 $ 1,267
Astrotech 2,284 (131) 19,620 319
Johnson Engineering 11,974 (839) 911 287
--------------------------------------------------------------
$ 23,634 $ (2,316) $ 115,804 $ 1,874
Six Months Ended December 31, 1999
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
--------------------------------------------------------------
SPACEHAB $ 16,408 $ (3,920) $ 120,010 $ 2,987
Astrotech 4,075 (971) 21,616 498
Johnson Engineering 31,506 (29) 3,079 723
--------------------------------------------------------------
$ 51,989 $ (4,920) $ 144,705 $ 4,208
Six Months Ended December 31, 1998
Pre-Tax Net Depreciation
Income Fixed And
Revenue (loss) Assets Amortization
--------------------------------------------------------------
SPACEHAB $ 20,776 $ (744) $ 95,273 $ 2,488
Astrotech 4,802 3 19,620 638
Johnson Engineering 26,329 (886) 911 567
--------------------------------------------------------------
$ 51,907 $ (1,627) $ 115,804 $ 3,693
</TABLE>
8. JOINT VENTURE:
During the six months ended December 31, 1999, the Company invested an
additional $0.6 million in a joint venture with Guigne Inc., in accordance with
the Company's initial funding commitment to the joint venture. The joint venture
is constructing the Space-DRUMS facility to be used aboard the International
Space Station. In accordance with the
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joint venture agreement, in December 1999 the Company informed Guigne Inc. of
its intention to convert its investment in the joint venture to up to 19% common
stock of Guigne Inc, subject to completion of a fair market value appraisal of
Guigne Inc. The Company will not receive representation on Guigne's Board of
Directors and will have no operational or financial influence on Guigne. The
appraisal of Guigne is expected to be completed during the Company's third
fiscal quarter of 2000. Based on preliminary estimates of fair market value of
Guigne, during the three months ended December 31, 1999, the Company recognized
a $0.2 million valuation allowance against its investment in Guigne.
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, two logistics missions to resupply the International
Space Station ("ISS") and one Integrated Cargo Carrier ("ICC") mission; 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 $72.6 million for four firm module missions
and one ICC mission. The commercial value is currently $27.1 million with an
additional $5.1 million non-REALMS commercial value. The Company has the
potential to increase the total REALMS Contract value by an additional $11.7
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 April 2000 and January 2001. 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.
In November, Astrotech received a six-year contract extension from
Lockheed Martin for Atlas V payload processing (with options through 2010) and a
ten-year contract from Boeing for Delta IV payload processing.
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-
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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 in 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 (ISS) 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 December 31, 1999 as compared to the three months
ended December 31, 1998.
Revenue. Revenue increased by 10% to approximately $26.0 million as
compared to $23.6 million for the three months ended December 31, 1999 and 1998,
respectively. Revenue of $10.8 million was recognized from the REALMS Contract
with NASA and with related commercial customers, $13.9 million from Johnson
Engineering under the FCSD Contract and $1.3 million from Astrotech. In
contrast, for the quarter ended December 30, 1998, revenue of $9.4 million was
recognized from the REALMS contract with NASA and with related commercial
customers, $12.0 million from Johnson Engineering and $2.2 million from
Astrotech. The increase in revenue under the REALMS contract is due to the mix
of missions under contract. The increase in Johnson Engineering's revenue was
due primarily to increased astronaut training at the Neutral Buoyancy
Laboratory. The decrease in Astrotech's revenue is due to schedule slips in two
ICO Global Communications Ltd. ("ICO") satellite launches. These launches have
slipped into the next fiscal year pending the bankruptcy reorganization of ICO.
Costs of Revenue. Costs of revenue for the quarter ended December 31,
1999 increased by 11% to $22.8 million, as compared to $20.5 million for the
prior year's quarter. For the quarter ended December 31, 1999, integration and
operations costs for the REALMS and related commercial customer contracts were
$7.3 million, $13.3 for Johnson Engineering, $0.9 million for Astrotech payload
processing, and $1.3 million of depreciation expense. For the three months ended
December 31, 1998, integration and operations costs for the REALMS and related
commercial customer contracts were $6.5 million, $1.1 million for Astrotech
payload processing, $11.6 million for Johnson Engineering, and $1.3 million of
depreciation expense. The increase in costs of revenue is due primarily to the
increased astronaut training at JE and $0.9 million of estimated
non-reimbursable cost overruns determined in the second quarter related to the
delivery of the robotic training arm for NASA under a fixed-price contract.
Operating Expenses. Operating expenses decreased 13% to approximately
$4.5 million for the three months ended December 31, 1999 as compared to
approximately $5.2 million for the three months ended December 31, 1998. The
decrease is due to decreased R&D expenses for the period ended December 31, 1999
as compared to the comparable period last year due to the Company's emphasis on
completing existing assets in progress.
Interest and Other Expense. Interest expense was approximately $0.7
million for the three months ended December 31, 1999 and approximately $1.2
million for the three months ended December 31, 1998. There was also
approximately $0.9 million and $0.6 million of interest capitalized for the
quarters ended December 31, 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
$0.1 million and $0.9 million for the three months ended December 31, 1999 and
1998, respectively. The decrease in interest income for the period ended
December 31, 1999 is due to the reduction of cash which was used 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. In addition, during the three
months ended December 31, 1999, the Company has recognized a $0.2 million
valuation allowance against its investment in a joint venture with Guigne, Inc.
Income Taxes. Based on the Company's projected taxable earnings for
fiscal year 2000, the Company recorded a tax benefit of $0.6 million for the
quarter ended December 31, 1999, as compared to a $0.5 million tax benefit
recorded for the quarter ended December 31, 1998. The Company's estimates of the
recoverability of its deferred tax assets are based, in part, on projections of
future profitability. In the event such projections are not accurate, an
additional valuation allowance on deferred tax assets may be necessary, thereby
resulting in reduced income tax benefits.
Net Income (Loss). The net loss for the quarter ended December 31, 1999
was approximately ($1.3) million or ($.11) per share (basic and diluted EPS) on
11,258,801 shares as compared to net loss of ($1.9) million or ($0.17) per share
(basic and diluted EPS) on 11,176,651 shares for the quarter ended December 31,
1998.
13
<PAGE> 14
For the six months ended December 31, 1999 as compared to the six months ended
December 31, 1998.
Revenue. Revenue increased marginally to approximately $52.0 million as
compared to $51.9 million for the six months ended December 31, 1999 and 1998,
respectively. Revenue of $16.4 million was recognized from the REALMS Contract
with NASA and with related commercial customers, $31.5 million from Johnson
Engineering under the FCSD Contract and $4.1 million from Astrotech. In
contrast, for the six months ended December 30, 1998, revenue of $20.8 million
was recognized from the REALMS contract with NASA and with related commercial
customers, $26.3 million from Johnson Engineering and $4.8 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 schedule 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 April 2000. Astrotech's revenue declined due to slips in two ICO Global
Communications Ltd. ("ICO") satellite launches. These launches have slipped into
the next fiscal year pending the bankruptcy reorganization of ICO.
Costs of Revenue. Costs of revenue for the six months ended December
31, 1999 increased by 9% to $46.6 million, as compared to $42.7 million for the
comparable period last year. For the six months ended December 31, 1999,
integration and operations costs for the REALMS and related commercial customer
contracts were $12.7 million, $29.2 for Johnson Engineering, $2.1 million for
Astrotech payload processing, and $2.6 million of depreciation expense. For the
six months ended December 31, 1998, integration and operations costs for the
REALMS and related commercial customer contracts were $13.1 million, $24.8 for
Johnson Engineering, $2.3 million for Astrotech payload processing, and $2.5
million of depreciation expense. The increase in costs of revenue is due
primarily to the increased astronaut training at JE and $0.9 million of
estimated non-reimbursable cost overruns related to the delivery of the robotic
training arm for NASA, under a fixed-price contract and also due to increased
SPACEHAB costs due to the slippage in Shuttle launches.
Operating Expenses. Operating expenses decreased approximately 4% to
approximately $8.7 million for the six months ended December 31, 1999 as
compared to approximately $9.1 million for the six months ended December 31,
1998. R&D expenses decreased for the period ended December 31, 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
December 31, 1999 as compared to the comparable period last year primarily due
to increased personnel costs.
Interest and Other Expense. Interest expense was approximately $1.9
million for the six months ended December 31, 1999 and approximately $2.6
million for the six months ended December 31, 1998. There was also approximately
$1.7 million and $1.2 million of interest capitalized for the six months ended
December 31, 1999 and 1998, respectively. Interest is capitalized based on the
construction of the Company's modules and additional facilities being
constructed by Astrotech. During the six months ended December 31, 1998, the
Company recognized $0.6 million in other expenses related to costs associated
with a debt offering that the Company cancelled in July.
Interest and Other Income. Interest and other income was approximately
$0.3 million and $1.4 million for the six months ended December 31, 1999 and
1998, respectively. The decrease in interest income for the period ended
December 31, 1999 is due to the reduction of cash which was used 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. In addition, during the three
months ended December 31, 1999, the Company has recognized a $0.2 million
valuation allowance against its investment in a joint venture with Guigne, Inc.
Income Taxes. Based on the Company's projected taxable earnings for
fiscal year 2000, the Company recorded a tax benefit of $1.7 million for the six
months ended December 31, 1999, as compared to $0.2 million tax benefit recorded
for the six months ended December 31, 1998. The Company's estimates of the
recoverability of its deferred tax assets are based, in part, on projections of
future profitability. In the event such projections are not accurate, an
additional valuation allowance on deferred tax assets may be necessary, thereby
resulting in reduced income tax benefits.
14
<PAGE> 15
Net Income (Loss). The net loss for the six months ended December 31,
1999 was approximately ($3.2) million or ($0.29) per share (basic and diluted
EPS) on 11,244,380 shares as compared to net loss of ($1.4) million or ($0.13)
per share (basic and diluted EPS) on 11,172,507 shares for the six months ended
December 31, 1998.
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
December 31, 1999, no amounts were drawn on this line of credit which expires in
May 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 December 31, 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, 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 December 31, 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 six months ended December 31, 1999 and December 31,
1998 were ($6.3) million and ($15.9) million, respectively. Other assets
increased by $1.6 million primarily due to the tax benefit accrued for the
current period. Deferred flight revenue decreased by $2.9 million primarily due
to revenue recognized for the six months ended December 31,1999 for STS-107
under the percentage of completion method. Accounts payable, accrued expenses
and accrued subcontracting services, taken as a group, decreased by $1.7 million
due to payments made to vendors. During fiscal year 2000, certain items that had
been classified as accrued subcontracting in fiscal 1999, are now classified as
accounts payable.
Cash Flows from Investing Activities. For the six months ended December
31, 1999 and 1998, cash flows used for investing activities consisted of
approximately $13.4 million and $31.8 million, respectively. The significant
difference between the two periods was the purchase of Johnson Engineering for
$25.3 million in the period ended December 31, 1998. In the period ended
December 31, 1999, SPACEHAB received $0.6 million from an escrow agreement
relative to the purchase. The significant expenditure for the current period
included $8.4 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 and the Double Docking Module (DDM). The majority of the
expenditures for buildings under construction relate to the expansion of the
Astrotech facility in Florida for the larger payloads required by Boeing and
Lockheed Martin. SPACEHAB invested an additional $0.6 million in the SpaceDrums
joint venture. SPACEHAB intends to convert its investment in the SpaceDrums
joint venture into equity in Guigne Incorporated.
15
<PAGE> 16
Cash Flows from Financing Activities. Cash flows provided by (used for)
financing activities were approximately $10.2 million and ($5.8) million for the
six months ended December 31, 1999 and 1998, respectively. For the period ended
December 31, 1999, SPACEHAB received $11.9 million, net of expenses, from Dasa,
a shareholder in exchange for 1,333,334 shares of Series B convertible preferred
stock. For the period ended December 31, 1998, Spacehab made an early payment of
$4.0 million on Alenia debt in exchange for a lower interest rate and a waiver
of interest due and payable for the quarter ended December 31, 1998.
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 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. The Company has not entered into
any derivative or hedging instruments during the periods covered.
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 had 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. As a result of
SPACEHAB's Y2K program, the company transitioned to the new millennium without
any identified system or system related problems. The Central Processing Unit
(CPU) on the ground support electrical equipment at SPACEHAB's payload
processing facility is not Y2K compliant. SPACEHAB implemented its contingency
plan, as previously disclosed, and changed the year on the CPU to 1972. The CPU
will report the correct day and month but the year will currently be reported as
1973. This change only affects the date printed on reports. The current ground
support equipment is expected to be replaced by mid-2000.
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."
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on October 14, 1999. 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 at least
a majority vote of the necessary quorum voting at the meeting.
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
Chester M. Lee
Gordon S. Macklin
James R. Thompson
Giuseppe Viriglio
The director elected by the holder of the Series B Senior Convertible
Preferred Stock is:
Josef Kind
(b) An amendment to the Company's Articles of Incorporation to increase
the number of authorized shares of preferred stock from 1,000,000 to 2,500,000
was approved by the vote of a majority of the shares of Common Stock and shares
of Series B Senior Convertible Preferred Stock entitled to vote at the meeting,
voting together.
(c) An amendment to the Company's Stock Incentive Plan to increase the
number of shares that may be granted thereunder from 2,750,000 to 3,950,000 was
approved by the vote of a majority in interest of the stockholders present in
person or by proxy and entitled to vote thereon.
(d) The appointment of KPMG LLP as the Company's independent auditors
for fiscal year 2000 was approved and ratified by the vote of a majority in
interest of the stockholders present in person or by proxy and entitled to vote
thereon.
ITEM 5. OTHER INFORMATION
17
<PAGE> 18
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.
NONE
EXHIBIT NO. DESCRIPTION OF EXHIBITS
27. Financial Data Schedule
18
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEHAB, INCORPORATED
Date: February 14, 2000 /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
19
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<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
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11,892
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