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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the Fiscal Year Ended June
30, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
_____________ to ____________
Commission File No. 0-27206
SPACEHAB, INCORPORATED
300 D STREET, SW
SUITE 814
WASHINGTON, D.C. 20024
(202) 488-3500
Incorporated in the State of Washington IRS Employer Identification
Number 91-1273737
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:
Title of Each Class Name of Each Exchange
Common Stock on which Registered
(no par value) NASDAQ National Market
Number of shares of Common Stock (no par value) outstanding as of July
23, 1999: 11,229,646.
Aggregate market value of Common Stock (no par value) held by non-affiliates of
the registrant on July 23, 1999, based upon the closing price of the Common
Stock on the Nasdaq National Market of $6.00 was approximately $67,377,876.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES_X_ NO ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for the Annual Meeting of Parts I, II and III of Form 10-K
Stockholders to be held October 14, 1999.
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PART I
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) under "Products
and Services," "Company Strategy," "Dependence on a Single Customer," "Research
and Development," "Competition" and "Backlog" of Item 1 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General" and "--Liquidity and Capital Resources" of Item 7. Such statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected in the statements. In addition to those risks
and uncertainties discussed herein, such risks and uncertainties include, but
are not limited to, whether the Company will fully realize the economic benefits
under its U.S. National Aeronautics and Space Administration ("NASA") and other
customer contracts, the successful development and commercialization of the
Research Double Module and related new commercial space assets, deployment of
the International Space Station ("ISS"), technological difficulties, product
demand and market acceptance risks, the effect of economic conditions,
uncertainty in government funding and the impact of competition.
ITEM 1. BUSINESS
COMPANY BACKGROUND AND HISTORY
SPACEHAB, Incorporated ("SPACEHAB" or the "Company") was incorporated
in 1984 and is the first company to commercially develop, own and operate both
pressurized habitable modules that provide space-based laboratory research
facilities and cargo services aboard the U.S. Space Shuttle system (the "Space
Shuttle" or "STS") and an unpressurized cargo carrier system. A SPACEHAB Single
Module, when installed in the payload bay of a Space Shuttle, more than doubles
the working and living space available to astronauts for research,
experimentation, habitation and storage. The Company presently offers its
SPACEHAB Modules in a single modular version (the "Single Module") and a double
modular version (the "Double Module"). The Company also offers an unpressurized
cargo carrier system, the "ICC" or "Integrated Cargo Carrier", and is currently
completing the construction of a research double module (the "Research Double
Module" or "RDM"). During the second half of fiscal year ("FY") 1998, the
Company initiated development activities for a new asset, a docking double
module (the "Docking Double Module" or "DDM"), that could be used by NASA to
provide more flexible re-supply services to the ISS and also maintain the ISS
in its proper orbit. The Docking Double Module is intended to carry logistics
and perform research on Space Shuttle missions to the ISS and to enable the
Space Shuttle to re-boost and reposition the ISS. All versions of the SPACEHAB
Modules can accommodate a combination of lockers, racks and soft stowage
arrangements, which are provided as a service primarily to NASA. SPACEHAB
Modules, which have been outfitted with systems to facilitate laboratory
research experiments in the near-weightless ("microgravity") environment of
space, are also capable of transporting food, clothing, equipment and other
vital supplies (collectively, "logistics") to the ISS. SPACEHAB also provides a
full range of pre- and post-flight experiment and payload processing services,
and in-flight operations support to assist astronauts and researchers, in space
and on the ground, in connection with the performance of experiments aboard
SPACEHAB Modules. From June 1993 through June 1999, SPACEHAB Modules have flown
thirteen successful missions on the Space Shuttle.
To broaden the opportunities for companies to conduct space research,
SPACEHAB has established a "Microgravity Staircase" that provides a
comprehensive portfolio of ground-based, sub-orbital and space-based research
facilities. During FY 1998, SPACEHAB completed a series of marketing agreements,
asset acquisitions and joint ventures that now enable SPACEHAB to offer
researchers progressive exposure to the microgravity environment.
The Company is committed to expanding its business with NASA while also
diversifying its revenue and customer base by targeting new and related space
services markets. On February 12, 1997, the operating assets and business of
Astrotech Space Operations, L.P. ("Astrotech") were acquired from Northrop
Grumman Corporation. Astrotech is the premier commercial provider of satellite
payload processing facilities in the United States providing launch site
preparation of flight-ready satellites to major
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U.S. space launch companies and satellite manufacturers, including Lockheed
Martin Corporation ("Lockheed Martin"), Motorola Corporation ("Motorola"), The
Boeing Company ("Boeing") and Orbital Sciences Corporation ("Orbital Sciences").
The Astrotech acquisition diversified SPACEHAB's customer base to include
commercial customers of space satellite payload processing services and
broadened the Company's services to include services in support of manned as
well as unmanned space activities.
SPACEHAB expanded its core business by acquiring Johnson Engineering
Corporation, ("JE") on July 1, 1998. With over 650 employees, JE performs
several critical services for NASA including flight crew support services,
operations, training and fabrication of mockups at NASA's Neutral Buoyancy
Laboratory ("NBL") and at NASA's Space Vehicle Mockup Facility ("SVMF"), where
astronauts train for both Space Shuttle and ISS missions. JE also designs and
fabricates flight hardware, such as flight crew equipment and crew quarters
habitability outfitting as well as providing stowage integration services. JE is
also responsible for configuration management of the ISS.
SPACEHAB's fundamental business strategy is based on carefully
anticipating customer requirements, investing capital to develop space-flight
assets, contracting with established aerospace companies for engineering and
asset production while retaining ownership of these assets and providing
innovative, cost-effective solutions that meet customer requirements using
fixed-price service contracts. This strategy has been successful for the
Company in obtaining three significant contracts with NASA: a $184.2 million
Commercial Middeck Augmentation Module contract (the "CMAM Contract") for five
missions, a $91.5 million contract for four missions and three option missions
(all of which were exercised) to the Mir Space Station (the "Mir Contract") and
a $68.2 million Research and Logistics Mission Support Contract (the "REALMS
Contract") for four missions and six option missions. The REALMS Contract
provides an opportunity for the Company to provide similar services to
commercial customers. Contracts with commercial customers on STS-95 and
STS-107 are approximately $26.1 million.
The CMAM Contract, signed in November 1990, required SPACEHAB to
furnish NASA with SPACEHAB module accommodations for experiments developed by
the Centers for the Commercial Development of Space ("CCDS") on five Space
Shuttle missions. The fifth and final CMAM mission was completed successfully
during September 1996.
The basic Mir Contract signed in July 1995 required the Company to
provide Single and Double Module accommodations for the provision of logistics
resupply to the Mir Space Station on four Space Shuttle missions. The fourth
mission, STS-84, was completed successfully in May 1997. In addition, in
September 1996, the Company entered into agreements with the Japanese Space
Agency ("NASDA") and the European Space Agency ("ESA") (collectively, the
"NASDA/ESA Contract"). Pursuant to the NASDA/ESA Contract, SPACEHAB provided
hardware and integration and operations for scientific microgravity experiments
to NASDA and ESA aboard the Logistics Double Module on STS-84.
In June 1997, NASA exercised all three options for additional missions
for $39.0 million under the Mir Contract. The Mir Contract options called for
two Logistics Double Module missions and one Single Module mission that were
successfully completed in September 1997, January 1998 and June 1998,
respectively.
The REALMS Contract, signed in December 1997, requires that the Company
provide a single and a double research module to support microgravity research
payloads on two missions and two double logistics module flights to the ISS to
support outfitting of the ISS. STS-95, a research mission, flew in October 1998,
STS-96, a logistics mission, flew in May 1999. STS-101, a logistics mission, is
scheduled to fly in December 1999 and STS-107, a research mission, is scheduled
to fly in December 2000. The REALMS Contract provides an opportunity for the
Company to provide similar services to commercial customers on STS-95 and
STS-107. During FY 1998, the Company entered into agreements with NASDA, ESA,
the Canadian Space Agency ("CSA") and the Japanese Broadcasting Agency ("NHK")
(collectively, the "STS-95 Commercial Customers"). Pursuant to the agreements,
SPACEHAB provided hardware and integration and operations for scientific
microgravity experiments to the STS-95 Commercial Customers aboard the Single
Research Module on STS-95. The Company completed integration and
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operations efforts for the STS-95 and STS-96 missions and began integration and
operations efforts for STS-101 and STS-107 during FY 1999 reporting $39.1
million in revenue for these missions under the percentage-of-completion revenue
recognition policy.
JE operates under the Flight Crew Systems Development Contract (the
"FCSD Contract") with NASA, a $326.3 million multitask contract which commenced
in May 1993. JE performs several critical services for NASA including flight
crew support services, operations, training and fabrication of mockups at NASA's
Neutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup Facility, where
astronauts train for both Space Shuttle and ISS missions. JE also designs and
fabricates flight hardware, such as flight crew equipment and crew quarters
habitability outfitting as well as providing stowage integration services. JE is
also responsible for configuration management of the ISS.
INDUSTRY OVERVIEW
The U.S. space program encompasses four broad objectives: to advance
scientific research, to establish a permanent human presence in space, to
develop new technologies that contribute to U.S. economic growth and security
and to foster improved international relations through peaceful cooperation in
space with Europe, Japan, Russia and other nations. SPACEHAB is focused on two
markets: (i) microgravity and life sciences space research and (ii) space
support services such as space station logistics and resupply, ground operations
and payload processing and training.
Microgravity and Life Sciences Space Research
In orbit, the forces of inertia and gravity counterbalance each other,
thereby creating a condition of near weightlessness known as "microgravity." In
a microgravity environment, materials and living matter behave in fundamentally
different ways than they do on Earth. This phenomenon has stimulated worldwide
interest from scientists and commercial researchers who are seeking improved
ways to manipulate and process materials and to study biological processes that
cannot otherwise be achieved in ground-based laboratories.
The demand for access to a microgravity environment can be divided into
two broad categories: scientific research and commercial applications. NASA and
other U.S. and international government research organizations provide support
for both basic scientific research and its commercial applications to determine
the fundamental effects that gravity has on physical processes.
Space Support Services and Training
Space support services include providing logistics and payload
processing support to NASA, other governments and commercial customers of the
Space Shuttle and the ISS. Permanently orbiting facilities such as the ISS
require reliable sources of logistics: food, clothing, equipment and supplies
that sustain the astronauts and enable them to conduct research. NASA's current
plans call for the Space Shuttle to be launched at least seven times per year
for the foreseeable future. As currently planned, the ISS will require
approximately five Space Shuttle logistics missions per year.
In order to support the Space Shuttle and ISS operations, NASA requires
ground operations and payload support services before and after each mission.
Payload processing operations entail payload scheduling, mission planning,
safety/certification analysis, physical integration of the payload into its
carrier (such as SPACEHAB modules), the integration of the carriers into the
Space Shuttle's cargo bay, flight operations, technical data gathering and
synthesis, and launch and landing site activities. Space support services also
involve the provision of specialized services and support near launch sites for
commercial satellite manufacturers and launch services. These activities include
mechanical assembly or re-assembly, electrical check, calibration, liquid
propellant loading and related activities.
A significant component of Space Support Services includes managing all
training operations and facility engineering at the NBL. NASA also requires
design and fabrication of full-scale mockups of the
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ISS elements used in NBL and SVMF training and the development of hardware for
the ISS crew living quarters that is scheduled for launch in 2003.
PRODUCTS AND SERVICES
SPACEHAB Single Modules are aluminum cylinders, measuring 10 feet in
length by 13.5 feet in diameter, that incorporate a patented design including a
truncated top and flat-end caps. These fully instrumented modules provide
experiment resources such as power, data management, thermal control and vacuum
venting. SPACEHAB Single Modules are employed primarily for research missions
such as the STS-95 flight that carried senator John Glenn back into space in
October 1998. In FY 1996, the Company completed a development program and
introduced the Logistics Double Module. This module was optimized to carry
logistics and was used by NASA to carry vital supplies to the astronauts and
cosmonauts who resided on the Russian space station Mir. SPACEHAB invested $12.5
million in the design, development, and production of the Logistics Double
Module. During FY 1997, in an effort to anticipate the need of customers, the
Company began the full-scale development and construction of its Research Module
with double module hardware, which when combined with a Single Module becomes
the RDM. The RDM is fully dedicated to microgravity research and is under
contract for the STS-107 mission which is scheduled to fly in December 2000.
Expenditures for the RDM through FY 1999 were $34.3 million. The Company
anticipates total expenditures of approximately $5.7 million to complete this
asset and place it into service. The Company expects that, in order to
completely realize its investment expenditures for the RDM, this module must be
used in seven missions of the RDM.
The Company expects that the RDM will meet or exceed all of NASA's
projected requirements for dedicated microgravity and life sciences research
that had been performed by Spacelab, the U.S. government-owned habitable module,
which was retired after its final mission in April 1998. As a result of the
retirement of NASA's Spacelab, the Company believes that its flight-proven
modules position SPACEHAB to become the sole provider of crew-tended
microgravity research capabilities for the Space Shuttles. The Company also
initiated preliminary development activities for the DDM, which could be used by
NASA to maintain the ISS in the proper orbit while providing more flexible
re-supply services to the ISS utilizing the Space shuttle Columbia.
SPACEHAB has addressed the need to carry unpressurized cargo to the ISS
by designing and developing the ICC. The ICC can be used singularly or in
combination with SPACEHAB Single or Double Modules to provide the optimum mix of
pressurized and unpressurized cargo on a single mission to the ISS. The ICC was
first flown on the first supply mission to the ISS, STS-96, in May 1999. In
order to more fully meet NASA's requirements for attached cargo, the Company has
initiated preliminary design efforts of a vertical carrier and other derivatives
with characteristics similar to the ICC.
In 1998, the Company built on a foundation of existing microgravity
research capabilities by establishing a "Microgravity Staircase" that offers
researchers a broader array of services to tailor experiments to specific
microgravity environments and budgets. The Company entered into a joint venture
with Guigne' Technologies Ltd., to build the SpaceDRUMS (TM) facility, a
facility that uses acoustic energy to position samples inside an experiment
device for "containerless processing", which is scheduled to be the first
commercial research facility on the ISS.
SPACEHAB's Astrotech payload processing business exclusively serves the
commercial satellite manufacturing and launch services industries in Florida and
at the Vandenberg Air Force Base in California. Although payload processing is
generally associated with the final preparation of a satellite or other space
payload for launch, it is also the first step in the launch process and requires
specialized facilities and support usually located at the launch site.
Astrotech's payload processing activities provide the necessary resources for
mechanical assembly or reassembly, electrical check, calibration, liquid
propellant loading and numerous other related activities. Additionally,
Astrotech's specialized facilities include, but are not limited to, clean rooms,
airlock systems, overhead crane systems, hazard-proof work areas and
environmentally controlled rooms.
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Astrotech completed the expansion of its Florida facility in 1998 to
add a new encapsulation high bay that enables parallel processing activities in
support of the new Atlas II and Delta III launch vehicle payloads. The expansion
also will support the small and medium classes of the Air Force's new Evolved
Expendable Launch Vehicle ("EELV"), which is scheduled to begin commercial
payload launch activities in 2001. Astrotech also completed an expansion of its
Vandenberg facility during 1998. Expenditures for these expansions were
approximately $4.0 million.
In FY 1999, Astrotech acquired an additional 23.5 acres of land
adjoining its existing Florida site to support the planned construction of
additional payload processing facilities to support the increased projected
launch rate and larger sized payloads associated with the new EELV's being
developed by Boeing and Lockheed Martin under Air Force contracts. Astrotech
initially plans to support commercial payload launches on the Boeing Delta IV,
which is scheduled to begin operations in 2001. Expenditures for this expansion
in FY 1999 were approximately $1.1 million.
Astrotech operates its payload processing services under exclusive
multiyear agreements with Lockheed Martin to support the processing of all
commercial Atlas payloads and with Boeing to support the processing of all Delta
payloads launched from Cape Canaveral Air Station, Florida and Vandenberg Air
Force Base, California. Astrotech also has a similar arrangement with Boeing to
support the processing of all Sea Launch payloads at Boeing's facility in Long
Beach, California.
Astrotech continues its pursuit of a second major business area,
providing sounding rocket flight hardware and launch services. In December 1998,
Astrotech entered into a relationship with Alliant Tech Services, Inc., located
in Rocket Center, WV, to develop a new sounding rocket system, named the
"Oriole." Astrotech plans to market the Oriole to NASA in support of its
suborbital microgravity and scientific research programs, and to the Department
of Defense ("DoD") in support of its Theater High Altitude Air Defense ("THAAD")
target missile programs. The test launch of the Oriole is expected to occur in
December 1999.
Astrotech also plans to pursue additional opportunities, including:
(i) providing payload processing facilities and services to new U.S. Government
customers in the defense and intelligence communities; (ii) supporting new space
launch facilities and related payload processing functions internationally and
(iii) expanding its sounding rocket services to include the provision of
microgravity research by developing research facilities and flight hardware.
On July 1, 1998, SPACEHAB broadened its core business by acquiring
Johnson Engineering. JE performs several critical services for NASA including
flight crew support services, operations, training and fabrication of mockups at
NASA's Neutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup Facility,
where astronauts train for both Space Shuttle and ISS missions. JE also designs
and fabricates flight hardware, such as flight crew equipment and crew quarters
habitability outfitting as well as providing stowage integration services. JE is
also responsible for configuration management of the ISS. JE's ability to
perform detailed design, fabrication, and operations complements the Company's
traditional strengths in conceptual design and program management. The
acquisition of JE provides many of the critical skills and capabilities used to
perform SPACEHAB services that currently are acquired through subcontracting
relationships.
JE primarily operates under the FCSD Contract which is currently a
$326.3 million multitask cost-plus-award and incentive-fee contract. The
contract commenced in May 1993 and will conclude in April 2001 although NASA has
the option to exercise a one-year extension.
The Company continues to pursue new business opportunities by
identifying customer requirements and creating and implementing innovative
technical solutions. The Company believes that the demand for microgravity and
life sciences research conducted on SPACEHAB Modules and demand for the use of
its modules for logistics support and other infrastructure services including
communications, power supply and refueling and reboosting services will increase
both during the assembly phase and after the ISS becomes fully operational. The
ISS is the largest engineering and scientific project ever undertaken. More
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than a dozen nations, led by the United States, Russia, Japan and the European
Community, have spent over $25 billion to date and will spend over $90 billion
to develop, build, launch and operate the ISS. The ISS assembly began in late
1998. In addition, the Company also believes that the increasing demand for
satellites and the improvements in satellite technology will continue to provide
opportunities in the satellite launch services field.
COMPANY STRATEGY
SPACEHAB's goal is to be recognized as a global market leader providing
products and services supporting the human space flight, logistics and satellite
launch industries. The Company seeks to achieve this goal through implementation
of the following strategy:
1. Focusing on Quality of Service. SPACEHAB has had thirteen Shuttle
Missions to date, all of which have been completed successfully. The Company
intends to maintain and enhance its reputation for product reliability, process
innovation and performance excellence.
2. Expanding Scope of Business. SPACEHAB continuously evaluates
opportunities to offer new products and services to its customer base and to
develop assets and acquire complementary, attractively valued businesses. For
example, the Company is in the process of constructing the Research Double
Module and developing the Docking Double Module and has developed and flown the
Integrated Cargo Carrier. Based on SPACEHAB's continuing involvement in
microgravity research and logistics Space Shuttle missions, and its close
interaction with NASA and other users of its SPACEHAB Module services, the
Company is well positioned to anticipate emerging requirements for new services
in the human space flight industry. In 1998, the Company built on its foundation
of microgravity research services by establishing a "Microgravity Staircase."
The Microgravity Staircase offers researchers a broader array of services to
tailor experiments to specific microgravity environments and budgets. With the
acquisition of Astrotech on February 12, 1997, the Company diversified its
revenue and customer base targeting new and related space services markets.
Astrotech is the premier commercial provider of satellite payload processing
facilities in the United States providing launch site preparation of
flight-ready satellites to major U.S. space launch companies and satellite
manufacturers. The acquisition of JE on July 1, 1998 complements SPACEHAB's
traditional strengths in conceptual design and program management while adding
skills in engineering, design and training critical to NASA as well as the
successful completion of the ISS.
3. Maintaining Position as Low-Price Provider. The Company continues to
offer its payload processing and logistics support services to NASA and other
customers using SPACEHAB owned assets, on a fixed-price basis that the Company
believes is significantly lower than the cost-plus basis used by traditional
aerospace contractors. Through the focus and rigorous application of commercial
best practices in the development and operation of its hardware and facilities,
SPACEHAB substantially reduces the cost, time and complexity that burden
conventional government contractors providing services under cost-plus
contracts.
JE performs services under a cost-plus award and incentive fee contract for
government services that is requested by and directed by NASA. This contract
form provides for the lowest cost to the government by requiring a separate
negotiation of the price for each task order, thereby allowing JE to implement
commercial best practices to reduce cost. JE's capabilities also provide a base
with which to pursue commercial opportunities.
4. Continuing Entrepreneurial Initiative. The Company continues to develop
and offer innovative business arrangements to meet NASA and other customer
requirements. The Company has repeatedly taken the initiative to improve its
modules and payload processing services and to deploy new assets in anticipation
of customer needs. By focusing on the quality, cost and responsiveness of its
services, and by attracting and recruiting highly talented and experienced
personnel into its distinctly entrepreneurial organization, SPACEHAB seeks to
distinguish itself as an innovative and effective provider of commercial
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space services while achieving higher contract profit margins for module
contracts than are customary in traditional government aerospace contracts.
5. Leveraging International Strategic Alliances. The Company seeks to
create and maintain strategic alliances with key international players in the
space industry. Such relationships include Mitsubishi Corporation in Japan;
DaimlerChrysler Aerospace AG ("DASA"), Alenia Spazio S.p.A. ("Alenia") and
Intospace GmbH in Europe; and RSC Energia in Russia. On August 2, 1999, DASA
strengthened its strategic relationship with the Company by agreeing to purchase
a $12.0 million equity stake in SPACEHAB. The Company believes these alliances
have produced and will continue to produce business opportunities with these
partners, the governments of their respective countries and other industries
within those countries.
Through the Company's contracts, it continues to implement its business
strategy by identifying customer requirements, creating innovative technical
solutions, raising private capital to develop assets and providing services
pursuant to those contracts.
DEPENDENCE ON A SINGLE CUSTOMER
Approximately $85.8 million (or 79.7 percent) of the Company's FY 1999
revenue was generated from two NASA contracts - the REALMS Contract and the FCSD
Contract. While Astrotech, and the STS-95 and STS-107 commercial customer
contracts represented additional revenue sources, the Company anticipates that
revenue from NASA will continue to account for a significant amount of the
Company's revenue over the next several years. There are no assurances, however,
that NASA will require the Company's module services in the future. Therefore,
the Company's failure to execute new contracts with NASA would have a material
adverse effect on the Company's financial condition and results of operations.
Additionally, a significant portion of the revenue for JE is derived under
contracts with NASA. Accordingly, the Company continues to focus its efforts on
diversifying its customer base to include commercial companies, as evidenced
with the Astrotech acquisition.
RESEARCH AND DEVELOPMENT
The Company believes that the timely development of new products and
enhancements to existing hardware are essential to maintaining its competitive
position. In the past three fiscal years, the Company has spent an aggregate of
approximately $9.7 million on research and development.
Approximately $1.0 million of the Company's research and development
expenditures for FY 1999 were spent on the development of a new product line for
Astrotech, sounding rockets. In addition, $0.7 million was spent on various
studies conducted by third parties. In 1998 and 1997, approximately $1.9 million
and $0.7 million, respectively, was spent on the design, development and
qualification of the new SPACEHAB Universal Communications System ("SHUCS").
Beginning in FY 1996 and continuing throughout FY 1998, the Company had been
working on the development of this new proprietary module communications system
that will be independent of the Space Shuttle's existing data downlink. SPACEHAB
began capital asset construction of SHUCS in the fourth quarter of FY 1998. In
addition, in 1998, the Company spent approximately $0.6 million for research and
development of the ICC. SPACEHAB began capital asset construction of the ICC in
FY 1999. Completion of this asset expands the Company's product and service
lines to meet market requirements for low-cost unpressurized carriers for
research experiments and cargo. SPACEHAB developed the ICC to carry
unpressurized cargo to the ISS, based on a patented pallet technology (the
"Unpressurized Cargo Pallet" or "UCP"), which can be used independently or in
tandem with the SPACEHAB Single or Double Modules. The ICC's design is such that
it is located in what is ordinarily unused volume in the front of the Space
Shuttle's cargo bay. By expanding the capabilities of the Space Shuttle and by
offering flexibility in the mix of pressurized and unpressurized cargo carried
on each mission, the Company believes that the ICC could become the preferred
method for providing logistics and utilization resupply to the ISS. The Company
also incurred $1.3 million, $1.7 million and $0.4 million in other research and
development expenditures during fiscal years 1999, 1998 and 1997 respectively.
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COMPETITION
Currently, there are no other companies that compete directly with
SPACEHAB in providing pressurized module services that are carried aboard the
Space Shuttles. NASA had a government-owned and operated system, Spacelab, which
provided services similar to those provided by SPACEHAB modules. However, NASA
has terminated the Spacelab program with its final mission in April 1998. The
Company has commenced the design and construction of the Research Double Module
under a contract with Boeing (formerly McDonnell Douglas Aerospace). The
Research Double Module represents a commercial replacement for NASA's Spacelab.
The Company believes that this module will significantly outperform Spacelab in
terms of technology, capacity, functionality and cost-effectiveness.
The Company's long-term strategy for growth is to provide research,
logistics, infrastructure and payload processing services to NASA and others
during the International Space Station era. This strategy could require the
Company to compete with commercial companies such as Lockheed-Martin, Boeing and
others who have existing NASA support contracts, greater financial resources and
manufacturing capabilities, and larger marketing, sales and technical
organizations than the Company. In FY 1997, SPACEHAB entered into an agreement
with United Space Alliance ("USA"), a Boeing and Lockheed Martin joint venture,
to expand the commercial use of the Space Shuttle fleet. Although this agreement
has expired, SPACEHAB and USA are continuing to pursue joint business
opportunities. SPACEHAB's existing strategic relationships with DASA, Mitsubishi
Corporation, Boeing and Alenia, may provide additional opportunities for
teaming and partnerships that management believes will enable the Company to
compete for market share.
The Italian Space Agency has contracted to build three multi-purpose
logistics modules ("MPLM") intended for use in connection with the ISS. Although
the MPLM provides similar services as SPACEHAB's Modules for ISS logistics
missions, SPACEHAB believes that its Modules are complementary to the MPLM. Each
module is expected to be used for special situations, e.g.- the MPLM is expected
to be used when a requirement exists for heavy construction materials; when the
requirement exists for crew rotation, food, supplies and equipment, the Spacehab
modules would be used due in part to the flexibility and late access
capabilities of the SPACEHAB modules. Of the five planned or possible logistics
missions per year to the ISS, the Company expects that two or three will be
SPACEHAB missions with the remainder being MPLM missions.
Astrotech's payload processing facilities are located in Florida and
California. At present, management believes that Astrotech's U.S. competition is
limited to the California Vandenberg Air Force Base launch site where a
competitor, California Commercial Spaceport, Inc. ("CCSI") is located. CCSI was
established by obtaining surplus U.S. Air Force facilities at the VAFB launch
complex before Astrotech established its facilities there and when no commercial
alternative was available. To the Company's knowledge, CCSI has won several
contracts to process NASA spacecraft for launch from VAFB. CCSI does not have
payload processing facilities in Florida, where the majority of U.S. commercial
satellite launches occur.
JE's competitors include Boeing, Lockheed-Martin, United Space
Alliance, Raytheon Barrios Technologies, Hernandez Engineering, Cimarron and
Oceaneering Space & Thermal Systems.
BACKLOG
A significant portion of the Company's revenue is currently generated
from its contracts with NASA that, similar to contracts with other agencies of
the U.S. government, contain provisions pursuant to which NASA may terminate the
contract "for convenience." The Company's contracts with NASA are conditioned by
its terms upon NASA receiving an adequate annual appropriation of funds from the
U.S. Congress. Failure to receive funds from Congress or a withdrawal by
Congress of prior appropriations would permit NASA to terminate its contracts
with SPACEHAB "for convenience." For the government's fiscal year 1999, both the
U.S. Senate and House of Representatives have authorized and approved an annual
appropriation of $13.7 billion for NASA, including $2.3 billion for the ISS,
indicating a
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commitment by the government to the space industry. However, there can be no
assurance that the level of approved funding will be adequate for NASA to
complete all of the initiatives including those relating to the contracts with
the Company.
SPACEHAB anticipates that a portion of future revenue will be derived
from contracts with entities other than agencies of the U.S. government that
will not be subject to federal contract regulations such as termination "for
convenience of the government" or federal government funding restrictions.
However, to the extent that such contracts require the use of the Space Shuttle
for transportation, these systems must be available and will have to be obtained
at a reasonable cost to SPACEHAB.
As of June 30, 1999, the Company's contract backlog is estimated to be
approximately $167.3 million, of which $149.5 million represents U.S. government
backlog and $17.8 million represents non-U.S government contracts.
CERTAIN REGULATORY MATTERS
The Company is subject to federal, state and local laws and regulations
designed to protect the environment and to regulate the discharge of materials
into the environment. The Company believes that its policies, practices and
procedures are properly designed to prevent unreasonable risk of environmental
damage and consequential financial liability to the Company. Compliance with
environmental laws and regulations and technology export requirements has not
had in the past, and, the Company believes, will not have in the future,
material effects on the capital expenditures, earnings or competitive position
of the Company.
EMPLOYEES
As of June 30, 1999, the Company employed 745 regular employees, 28 of
whom are employed by the Astrotech subsidiary and 659 are employed by JE. Of
these 745 employees, 111 (approximately 15 percent) hold advanced degrees,
including 11 who hold doctorate degrees. Additionally, a significant number of
the Company's employees have experience in both the space industry and/or
governmental space agencies, with a special expertise in commercial space and
human space flight. None of the Company's employees are covered by collective
bargaining agreements. Underlying all of SPACEHAB's efforts has been the
dedication and skill of its personnel. The Company believes that the dedication
of its employees is critical to its success and that its relations with its
employees are excellent.
ITEM 2. PROPERTIES
The Company and its wholly-owned subsidiaries, Astrotech and JE,
currently occupy six locations, with the corporate headquarters located at 300 D
Street SW, Suite 814, Washington, DC 20024. The corporate headquarters occupy
approximately 15,499 square-feet of office space and house SPACEHAB's 19-person
executive management, accounting and marketing team. The term of the present
lease expires on December 16, 2007.
SPACEHAB has 35 employees encompassing sales and marketing, flight
system development, operations and health and sciences located at 1331 Gemini
Avenue, Suites 300 & 310, Houston, Texas 77058. The Houston offices consist of
approximately 22,930 square feet of non-contiguous office space located near the
Johnson Space Center. In January 1998, the Company negotiated an agreement for
one lease for the two office suites. The new lease is a five-year term
commencing March 1, 1998, and expiring February 28, 2003. In addition, JE
occupies a portion of Suites 300 & 310 and 4,473 square feet of the first and
second floors housing 76 employees supporting marketing, finance and corporate
services. The first and second floor space is on a month-to-month basis.
The Company's payload processing facility, housing a 3-person
operations team, is located near the Kennedy Space Center in Cape Canaveral,
Florida. The facility is contained in an approximately 50,000 square-foot plant.
The Company owns the building that houses the payload processing facility but
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leases the land upon which it is constructed. The payload processing facility
has a clean room work area of approximately 24,000 square-feet. This work area
is designed to accommodate the SPACEHAB Single and Double Modules, as well as
the ICC. This area includes 11 secure experiment/payload integration and work
areas ranging in size from 300 square-feet to 1,000 square-feet each. In
addition, the facility provides office space, stock rooms, storage areas, a
machine shop, an electrical shop, conference rooms, and other miscellaneous
accommodations. In July 1997, the Company negotiated a new agreement with the
Canaveral Port Authority for the lease of the land. The term of the new lease is
for a forty-three year period commencing August 28, 1997. Upon expiration of the
land lease, all improvements on the property revert at no cost to the lessor.
Astrotech occupies three locations. Its headquarters are located at
6305 Ivy Lane, Suite 520, Greenbelt, MD 20770. The headquarters occupy
approximately 6,250 square-feet of leased office space at this site and house a
9-person management and administrative team. The term of the present lease is a
five-year period expiring on May 31, 2003.
Astrotech's 12-person engineering and support team is located in an
eight-building, owned facility at 1515 Chaffee Drive, Titusville, Florida 32780.
This 88,000 square-foot facility supports non-hazardous and hazardous material
processing, payload storage and customer offices. These buildings presently
occupy one-third of the 37.5-acre property owned by Astrotech, with the
remaining two-thirds available for expansion.
Astrotech has a 3-person technical staff located at the Vandenberg Air
Force Base in Vandenberg, California. Astrotech presently rents a 60-acre site
on the Air Force Base and owns four buildings comprising 16,500 square-feet,
which are dedicated to the same functions provided at the Florida facility. The
term of the present land lease expires on July 13, 2013. Upon expiration of the
land lease, all improvements on the property revert at no cost to the lessor.
JE occupies five locations. Its headquarters are located at 555 Forge
River Road, Suite 150, Webster, Texas 77058. The headquarters houses JE's
463-person engineering team within a 69,100 square-foot facility. This office
lease will expire on June 30, 2003.
JE has an 11-person fabrication shop located at 920 Gemini Avenue,
Houston, Texas, 77058. This 17,920 square-foot facility is being leased for a
three-year term that will expire on January 31, 2001.
JE also occupies two facilities used for storage at 926 and 928 Gemini
Ave, Houston, Texas 77058. These facilities are 4,431 square feet and 8,992
square feet respectively. The lease will expire on April 30, 2002.
JE also occupies 3,852 square feet of space at 18100 Upper Bay Road,
Houston, Texas 77058 that houses a 19-person engineering and laboratory team.
The lease will expire on July 31, 2000.
Additionally, JE has more than 75 additional employees who are housed
at various government facilities within the Houston area.
The Company believes that its current facilities and equipment are
generally well maintained and in good condition and are adequate for its present
and foreseeable needs.
ITEM 3. LITIGATION
The Company is not currently involved in any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of FY 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock (the "Common Stock") trades on the NASDAQ
National Market System under the symbol "SPAB." The Common Stock has been
publicly traded since December 22, 1995, the date of the closing of the
Company's initial public offering. The quarterly high and low stock prices for
fiscal years 1999, 1998 and 1997 are as follows:
Fiscal 1999: High Low
- ------------ ---- ---
First Quarter $11 3/4 $ 8 1/4
Second Quarter $10 3/4 $ 7
Third Quarter $10 13/16 $ 6
Fourth Quarter $ 6 1/8 $ 5
Fiscal 1998: High Low
- ------------ ---- ---
First Quarter $12 3/16 $ 8 3/4
Second Quarter $11 3/8 $ 9 11/16
Third Quarter $11 3/8 $ 9 7/8
Fourth Quarter $12 $11
Fiscal 1997: High Low
- ------------ ---- ---
First Quarter $11 1/4 $ 8
Second Quarter $ 8 1/2 $ 5 1/2
Third Quarter $ 7 1/8 $ 5
Fourth Quarter $ 9 1/4 $ 5 3/4
The Company has never paid cash dividends. It is the present policy of
the Company to retain earnings to finance the growth and development of its
business and, therefore, the Company does not anticipate paying cash dividends
on its Common Stock in the foreseeable future.
The Company has authorized 30,000,000 shares of Common Stock. At July
24, 1999, 11,229,646 shares of Common Stock were outstanding. The Company had
approximately 2,151 shareholders of record and beneficial holders of its Common
Stock on June 30, 1999.
The Company has authorized and issued 975,000 shares of preferred
stock. On August 2, 1999, DASA, a shareholder, agreed to purchase 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. The other
358,334 shares of Series B Senior Convertible Preferred Stock will be issued
upon shareholder approval of a proposal to increase the number of authorized
shares of preferred stock that will be presented at the next stockholders
meeting scheduled for October 14, 1999. The preferred stock purchase will
increase 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, provides the holder to a right 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.
SALES OF UNREGISTERED SECURITIES
During FY 1999, the Company issued no unregistered securities.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the
audited consolidated financial statements of SPACEHAB. This selected financial
information should be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
report.
Nine(1)
Year Ended Months
September Ended Year Ended Year Ended Year Ended
30, June 30, June 30, June 30, June 30,
---------- --------- --------- --------- ---------
1995 1996 1997 1998 1999
---------- --------- --------- --------- ---------
(in thousands, except per share data)
Statement of Operations Data:
Revenue(2) $ 46,059 $ 56,397 $ 56,601(3) $ 64,087 $ 107,720(8)
Costs of revenue 23,349 20,985 34,120 35,058 89,283
--------- --------- --------- --------- ---------
Gross profit 22,710 35,412 22,481 29,029 18,437
Marketing, general and administrative
expenses 3,816 4,056 8,567 13,712 14,599
Research and development expenses 1,600 100 1,252 2,620 3,636
--------- --------- --------- --------- ---------
Operating income 17,294 31,256 12,662 12,697 202
Interest expense, net of capitalized
amounts 1,365 699 955 4,480 4,905
Net income (loss) 15,809 28,829 13,832(4) 12,131 (2,589)
Net income (loss) per common share -
Diluted(5) $ 2.36 $ 3.19 $ 1.24 $ 0.84 $ (0.23)
Shares used in computing net income
(loss) Per common share - diluted(5) 6,746 9,343 11,160 14,571 11,185
Other Data:
Cash provided by (used for) operations $ 26,838 $ 13,151 $ (5,995) $ 31,604 $ (6,331)
Total investing activities 4,943 6,266 29,308(6) 23,113 58,619(7)
Balance Sheet Data (at period end);
Working capital $ 7,192 $ 45,942 $ 3,159 $ 62,660 $ 12,374
Total assets 86,701 129,709 114,450 220,604 204,346
Long-term debt, excluding current portion 24,886 17,318 12,725 85,322 78,810
Stockholders' equity (deficit) (1,715) 71,596 86,622 96,408 94,165
- ------------------------------
(1) Effective October 1, 1995, the Company changed its fiscal year-end to June
30.
(2) The Company recognized revenue upon the completion of each flight under the
Mir and CMAM Contracts. For new contract awards for which the capability to
successfully complete the contract can be demonstrated at contract inception,
revenue recognition under the percentage-of-completion method is being reported
based on costs incurred over the period of the contract.
(3) Includes revenues of $2,860 generated by Astrotech subsequent to its
acquisition on February 12, 1997.
(4) Includes an extraordinary gain of $3,274, net of taxes and legal fees,
relating to the amendment and restatement of a credit agreement.
(5) In December 1997, the Company adopted the provisions of Statement of
Financial Accounting No. 128, Earnings Per Share, which establishes new
guidelines for the calculations of earnings per
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share. Earnings per share for FY 1994 through FY 1997 have been restated to
reflect the provisions of this new standard.
(6) Includes $20,134 of consideration for the purchase of Astrotech.
(7) Includes $24,745 of consideration for the purchase of JE and a $1,400
investment in a joint venture.
(8) Includes revenues of $58.4 million generated by Johnson
Engineering subsequent to its acquisition on July 1, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
SPACEHAB was incorporated in 1984 to commercially develop space habitat
modules to operate in the cargo bay of the Space Shuttles. SPACEHAB, along with
the Astrotech and JE subsidiaries define the Company.
During FY 1998 the Company operated under two contracts with NASA.
First, the Mir Contract, with a total contract value of $91.5 million, including
$39.0 million for three Mir option missions that were flown in FY 1998. Second,
the REALMS Contract, with a total contract value of $44.9 million consisting of
three missions, two of which were flown in October of 1998 and in May of 1999.
The remaining mission to be flown under the REALMS Contract is scheduled for
December of 2000. This contract also provides SPACEHAB an opportunity to have
direct commercial relationships with other space agencies by providing them
research space in the modules. In fact, on the October 1998 flight, most of the
revenue recognized came from customers other than NASA. The Company's revenues
for FY 1998 were generated primarily from the Mir Contract, the REALMS Contract,
and through the Company's commercial customer contracts. The Company's revenues
for FY 1999 were generated primarily from the REALMS Contract, with an
additional mission scheduled for December 1999, and the FCSD Contract.
SPACEHAB generates revenue by providing a turnkey service that includes
access to the modules and provides integration and operations support services
to scientists and researchers responsible for the experiments and/or logistics
supplies for module missions aboard the Space Shuttle System and under the FCSD
Contract. Under the CMAM and Mir Contracts, the Company recognized revenue only
at the completion of each Space Shuttle mission using Company assets.
Accordingly, the Company's quarterly revenue and profits fluctuated dramatically
based on NASA's launch schedule and will continue to do so for any contract for
which revenue is recognized only upon completion of a mission. For the REALMS
Contract and for new contract awards for which the capability to successfully
complete the contract can be demonstrated at contract inception, revenue
recognition under the percentage-of-completion method is being reported based on
costs incurred over the period of the contract. The percentage-of-completion
method results in the recognition of revenue over the period of contract
performance, thereby decreasing the quarter-by-quarter fluctuations of reported
revenue.
The expenses associated with the operations of SPACEHAB are recorded
differently based on the type of expense. Costs of revenue include integration
and operations expenses associated with the performance of two types of efforts:
(i) sustaining engineering in support of all missions under a contract and (ii)
mission specific support. Expenses associated with sustaining engineering are
expensed as incurred. Mission specific expenses relating to the CMAM Contract
and the Mir Contract were deferred as assets and not expensed until the specific
Space Shuttle mission was flown and the related revenue was recognized. Costs
associated with the performance of the contracts using the
percentage-of-completion method of revenue recognition are expensed as incurred.
Costs associated with the cost-plus-award and incentive fee contracts are
expensed as incurred. Other costs of revenue include depreciation expense and
costs associated with the Astrotech payload processing facilities. Flight
related insurance covering transportation of the SPACEHAB Modules from
SPACEHAB's payload processing facility to the Space Shuttle, in-flight insurance
and third-party liability insurance are also included in costs of revenue and
are recorded as incurred. Marketing, general and administrative and interest and
other expenses are recognized when incurred.
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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.
Johnson Engineering's revenue is derived primarily from the FCSD
Contract which is a $326.3 million multitask contract which will conclude in
April 2001, although NASA has the option to exercise a one year extension. JE
performs services under a cost-plus award and incentive fee contract for
government services that is requested by and directed by NASA.
RESULTS OF OPERATIONS
FY 1997 results include the operations of Astrotech subsequent to its
acquisition on February 12, 1997. In addition, FY 1999 results include JE that
was acquired July 1, 1998.
Fiscal Year Ended June 30, 1999 as Compared to the Fiscal Year Ended June 30,
1998
Revenue. The Company's revenue increased approximately 68% to
approximately $107.7 million for the year ended June 30, 1999, as compared to
$64.1 million for the year ended June 30, 1998. For the year ended June 30,
1999, $39.1 million was recognized from the REALMS contract and related
commercial customers, $9.8 million from Astrotech, $58.4 million from JE and
$0.4 of miscellaneous revenue. Conversely, for the year ended June 30, 1998
revenue of $39.0 million was recognized from the Mir Contract, $14.3 million
from the REALMS Contract and related commercial customers and $10.8 million from
Astrotech. The decrease in module revenue from the year ended June 30, 1998 is
attributable to the delay in the ISS assembly. Astrotech's revenue declined from
the year ended June 30, 1998 due to launch vehicle failures which have been
subsequently corrected.
Costs of Revenue. Costs of revenue for the year ended June 30, 1999,
increased 146% to $89.3 million, as compared to $36.3 million for the year ended
June 30, 1998. For the year ended June 30, 1999, $25.9 million of costs was for
integration and operation costs under the REALMS Contract and related commercial
customers, $4.6 million was for integration and operations at Astrotech, $53.8
million for cost of revenue at JE, and depreciation of $5.0 million. In
contrast, the primary costs of revenue for the year ended June 30, 1998, are
$19.2 million for integration and operation costs under the Mir Contract, $7.8
million under the REALMS Contract and related commercial customers, $4.4 million
for integration and operations at Astrotech, and depreciation of $4.9 million.
Operating Expenses. Operating expenses increased by 21.0% to
approximately $18.2 million for the year ended June 30, 1999, as compared to
approximately $15.1 million for the year ended June 30, 1998. This increase is
due primarily to the inclusion of JE's operating expenses of approximately $2.5
million, staff additions and related expenses during the first half of the year
and increased consulting expenses partially offset by the decrease in R&D costs
of $0.7 million. Research and development costs for the year ended June 30, 1999
were $3.6 million, as compared to $4.3 million for the year ended June 30, 1998.
This decrease is due primarily to the completion of the ICC and SHUCS R&D
efforts partially offset by research and development expenses associated with
Astrotech's sounding rocket program.
Interest Expense. Interest expense was approximately $7.4 million for
the year ended June 30, 1999, as compared with approximately $6.4 million for
the year ended June 30, 1998. The increased interest expense is due primarily to
a full year of interest expense on the $63.3 million of convertible notes as
compared to a partial year in 1998. $2.5 million of interest expense was
capitalized in 1999 as
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compared to $2.0 million in 1998. Interest is capitalized based primarily on the
construction of the Company's modules and payload processing facilities.
Interest Income. Interest and other income was approximately $1.6
million and $3.9 million for the years ended June 30, 1999 and 1998,
respectively. This decrease is due primarily to the Company's use of cash for
the purchase of JE and expenditures for property, plant and equipment and debt
payments. Interest income is earned by the Company through the short-term
investment of funds.
Net Income (Loss) Net Loss. Net loss for the year ended June 30, 1999,
was approximately ($2.6) million, or ($0.23) per share (basic and fully diluted
EPS), on 11,184,742 shares as compared to $9.6 million, or $0.86 per share
(basic EPS), for the year ended June 30, 1998, on 11,154,271 shares and $0.84
per share, fully diluted, on 14,571,278 shares. Income tax expense (benefit) for
these periods was ($0.5) million and $2.5 million for the years ended June 30,
1999 and 1998, respectively. As of June 30, 1999, the Company had approximately
$19.7 million of available net operating loss carry-forwards expiring between
2006 and 2019 to offset future regular taxable income
The effects of inflation and changing prices have not significantly
impacted the Company's revenue or income from continuing operations during FY
1999 and 1998.
Fiscal Year Ended June 30, 1998 as Compared to the Fiscal Year Ended June 30,
1997
Revenue. The Company's revenue increased approximately 13% to
approximately $64.1 million for the year ended June 30, 1998 as compared to
$56.6 million for the year ended June 30, 1997. For the year ended June 30,
1998, $39.0 million was recognized from the Mir Contract, $14.3 million from the
REALMS Contract and related commercial customers, and $10.8 million from
Astrotech. Conversely, for the year ended June 30, 1997, $47.1 million was
recognized from the Mir Contract, $8.0 million from the CMAM contract, $4.0
million from the NASDA/ESA contract, and $2.9 million from Astrotech.
Costs of Revenue. Costs of revenue for the year ended June 30, 1998,
increased 4% to $36.3 million, as compared to $35.0 million for the year ended
June 30, 1997. The primary components of costs of revenue for the year ended
June 30, 1998 are $19.2 million for integration and operation costs under the
Mir Contract, $7.8 million for costs under the REALMS Contract and related
commercial customers, $4.4 million for integrations and operations costs at
Astrotech, and depreciation of $4.9 million. In contrast, the primary costs of
revenue for the year ended June 30, 1997 are, $19.3 million of integration and
operation costs under the Mir Contract, $1.0 million under the CMAM Contract,
$3.6 million under the NASDA/ESA Contract, $1.3 million for integrations and
operations costs at Astrotech, and $9.8 million of depreciation. The decrease in
depreciation expense is attributable to the impact of extending the estimated
useful lives of the Company's modules to 2012. This change in accounting
estimate is treated prospectively and is based on current available information
from NASA, which extends the estimated useful life of the Space Shuttle program
to at least 2012.
Operating Expenses. Operating expenses increased by 69% to
approximately $15.1 million for the year ended June 30, 1998, as compared to
approximately $8.9 million for the year ended June 30, 1997. This increase is
due primarily to staff additions, adding strength in engineering, design and
research and development capabilities and the inclusion of a full year of
Astrotech's operating expenses as opposed to approximately four months of
expenses in 1997 subsequent to the acquisition. Research and development costs
for the year ended June 30, 1998 were $4.3 million, as compared to $1.7 million
for the year ended June 30, 1997. The increase is due primarily to the Company's
efforts to develop space related assets including the ICC and the SHUCS, which
is being developed to provide reliable and Shuttle-independent data
communication channels that are responsive to payload user requirements.
Interest Expense. Interest expense was approximately $6.4 million for
the year ended June 30, 1998, as compared with approximately $1.3 million for
the year ended June 30, 1997. The increase in interest expense was due to the
Company's issuance of its Subordinated Convertible Notes due 2007 and interest
costs from the use of a term note. There was also approximately $2.0 million and
$0.3 million of
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interest capitalized during the year ended June 30, 1998, and year ended June
30, 1997, respectively. Interest is capitalized based primarily on the
construction of the Company's research double module and double module hardware.
Interest Income. Interest and other income was approximately $3.9
million and $1.8 million for the years ended June 30, 1998 and 1997,
respectively. This increase is due to interest earned by the Company through the
short-term investment of funds raised by the Company's financing activities.
Net Income. Net income for the year ended June 30, 1998 was
approximately $9.6 million, or $0.86 per share (basic EPS), on 11,154,271 shares
as compared to $13.8 million, or $1.24 per share (basic EPS), for the year ended
June 30, 1997, on 11,118,825 shares. Income tax expense for these periods was
$2.5 million and $3.0 million for the years ended June 30, 1998 and 1997,
respectively. As of June 30, 1998, the Company had approximately $7.9 million of
available net operating loss carry-forwards expiring between 2006 and 2009 to
offset future regular taxable income. Utilization of these net operating loss
carry-forwards may be subject to limitations in the event of significant changes
in the stock ownership of the Company. While there are no restrictions on
transfers or sales of shares of Common Stock that would prevent such a change
from occurring, there is no plan to initiate any such changes on ownership
resulting in the loss of these carry-forwards.
The effects of inflation and changing prices have not significantly
impacted the Company's revenue or income from continuing operations during FY
1998 and 1997.
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 June 30, 1999, no
amounts were drawn on this line of credit that expires in October 1999. 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 June 30, 1999, the Company had drawn $15.0
million on this loan, $1.0 million of which was drawn in April of 1999, which
had an outstanding balance on that date of $10.1 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 JE, 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 $1.0 million as of June 30, 1999.
Subsequent to June 30, 1999, DASA agreed to purchase a $12.0 million equity
stake in SPACEHAB. DASA has agreed to purchase 1.33 million shares of preferred
stock, convertible into common shares on a one for one basis, which will
increase DASA's investment interest in SPACEHAB to approximately 11.5 percent.
Under the agreement DASA purchased all of SPACEHAB's 975,000 authorized and
unissued preferred shares. The other 358,334 shares will be issued upon
shareholder approval of a proposal to increase the number of authorized
preferred shares that will be presented at the next shareholders meeting on
October 14, 1999. No dividends are payable on the preferred shares which are
convertible into common shares on a one-for-one basis.
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For the period ended June 30, 1999, the Company was in breach of certain
loan covenants of the term loan and line of credit facility. The covenants had
been negotiated prior to the acquisition of JE. While the Company had not drawn
against the line of credit, covenant waivers were requested and received, for
the year ended June 30, 1999, from both lending institutions. The Company
believes it will be in compliance with the covenants on a going forward basis.
Cash Flows From Operating Activities. Cash provided by (used for)
operations for the years ended June 30, 1999, 1998 and 1997 was ($6.3) million,
$31.6 million and ($6.0) million, respectively. The significant changes between
1999 and 1998 were; the ($2.6) million loss due primarily to the delay in the
ISS assembly and a ($7.8) million change in deferred flight revenue due to the
decrease in progress payments for the missions under the REALMS Contract and
related commercial customers. Progress payments of $11.8 million were recorded
at the end of 1998 for missions STS-95 and STS-96. Those missions flew in 1999.
The reduction of those progress payments was partially offset by progress
payments for STS-107. The significant change between 1998 and 1997 was caused by
the timing of progress payments received by the Company under its contracts.
Under the Mir Contract, the REALMS Contract and the NASDA/ESA Contracts progress
payments are structured such that expenses incurred under these contracts are
billed as costs are incurred.
Cash Flows Used in Investing Activities. For the years ended June 30,
1999, 1998 and 1997, cash flows used in investing activities were $58.6 million,
$23.1 million and $29.3 million, respectively. Expenditures during the year
ended June 30, 1999 were $24.7 million for the purchase of JE, $27.3 million of
expenditures for the various flight assets including the RDM and ICC system,
$4.2 million for the expansion of both SPACEHAB's payload processing facilities
and Astrotech's payload processing facilities and a $1.4 million investment in
the SpaceDRUMS joint venture. For the years ended June 30, 1998 and 1997, the
major items of investing were for the construction of the RDM, which began in
1997, and the purchase of Astrotech. The Company anticipates that it will spend
approximately $5.7 million in FY 2000, $40.0 million in the aggregate, to
complete the RDM during FY 2000.
The Company expects to continue funding any additional capital
expenditures and working capital requirements from internally generated cash
flow, draw-downs on existing credit facilities and through future debt and/or
equity offerings.
Cash Flows From Financing Activities. For the years ended June 30,
1999, 1998 and 1997, cash flows provided by (used for) financing activities were
($6.0) million, $70.9 million and ($2.6) million, respectively. During the year
ended June 1999, the Company made a principal payment of $4.0 million to Alenia,
paid $2.8 million and borrowed an additional $1.0 million under the Term Loan
Agreement. During the year ended June 30, 1998, the Company received net
proceeds of approximately $14.1 million and made payments of $2.1 million under
the Term Loan Agreement. In October 1997, the Company received net proceeds
after commissions and other expenses of approximately $59.9 million by
completing an offering of $55.0 million of its 8 percent Convertible
Subordinated Notes due 2007 as well as the underwriters' exercise of the
over-allotment for an additional $8.3 million for a total of $63.3 million.
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.
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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.
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.
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.
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A) Based on an ongoing assessment, the Company has determined that the vast
majority of the hardware and software used in its administrative functions are
Y2K compliant. The computers that are not compliant are being replaced and 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 Process 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 1999 and work is progressing on the upgrade.
C) Surveys and/or questionnaires are 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.
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. 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 worse 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.
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."
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SPACEHAB, Incorporated and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
SPACEHAB, Incorporated and subsidiaries (the Company) as of June 30, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SPACEHAB,
Incorporated and subsidiaries as of June 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
------------
KPMG LLP
McLean, Virginia
August 13, 1999, except as to note 8
which is as of September 8, 1999
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SPACEHAB, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
- -----------------------------------------------------------------------------------------------------------------------------------
June30,
------------------------------
ASSETS 1999 1998
- ------------------------------------------------------------------------------------------ --------- ---------
Current assets:
Cash and cash equivalents $ 21,346 $ 92,327
Accounts receivable, net (note 4) 17,471 5,979
Prepaid expenses and other current assets 1,146 550
- ------------------------------------------------------------------------------------------ --------- ---------
Total current assets 39,963 98,856
- ------------------------------------------------------------------------------------------ --------- ---------
Property and equipment:
Flight assets 98,594 95,046
Module improvements in progress 49,553 33,829
Payload processing facilities 23,348 21,755
Furniture, fixtures equipment and leasehold improvements 9,936 5,296
- ------------------------------------------------------------------------------------------ --------- ---------
181,431 155,926
Less accumulated depreciation and amortization (49,247) (43,338)
- ------------------------------------------------------------------------------------------ --------- ---------
Property and equipment, net 132,184 112,588
Goodwill, net of accumulated amortization of $1,339 and $230, respectively 25,498 3,224
Investment in joint venture (note 16) 1,400 --
Other assets, net 5,301 5,936
- ------------------------------------------------------------------------------------------ --------- ---------
Total assets $ 204,346 $ 220,604
- ------------------------------------------------------------------------------------------ --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable under credit agreement, current portion (note 6) $ 333 $ 500
Loans payable, current portion (note 8) 3,126 2,824
Accounts payable 3,772 1,075
Accrued expenses 9,409 5,129
Accrued subcontracting services 6,787 13,177
Deferred revenue 4,162 13,491
- ------------------------------------------------------------------------------------------ --------- ---------
Total current liabilities 27,589 36,196
- ------------------------------------------------------------------------------------------ --------- ---------
Loans payable under credit agreement, net of current portion (note 6) 667 1,000
Loans payable, net of current portion (note 8) 7,033 9,177
Convertible notes payable to shareholder (note 7) 7,860 11,895
Convertible subordinated notes payable (note 8) 63,250 63,250
Accrued contract costs 940 --
Deferred income taxes (note 13) 2,842 2,678
- ------------------------------------------------------------------------------------------ --------- ---------
Total liabilities 110,181 124,196
- ------------------------------------------------------------------------------------------ --------- ---------
Commitments and contingencies (notes 1, 11, 15 and 16) Stockholders' equity
(notes 8, 11 and 12):
Common stock, no par value, authorized 30,000,000 shares, issued and
outstanding 11,229,646 and 11,168,161 shares, respectively 81,585 81,239
Additional paid-in capital 16 16
Retained earnings 12,564 15,153
- ------------------------------------------------------------------------------------------ --------- ---------
Total stockholders' equity 94,165 96,408
- ------------------------------------------------------------------------------------------ --------- ---------
Total liabilities and stockholders' equity $ 204,346 $ 220,604
- ------------------------------------------------------------------------------------------ --------- ---------
See accompanying notes to consolidated financial statements.
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SPACEHAB, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended
June 30,1999 June 30,1998 June 30,1997
- ------------------------------------------------------------------------ ------------ ------------ ------------
Revenue $ 107,720 64,087 $ 56,601
- ------------------------------------------------------------------------ ------------ ------------ ------------
Costs of revenue:
Integration, operations and transportation 69,113 25,762 23,726
Depreciation 5,030 4,923 9,825
Other direct costs 5,334 4,373 569
Indirect costs 9,806 1,263 926
- ------------------------------------------------------------------------ ------------ ------------ ------------
Total costs of revenue 89,283 36,321 35,046
- ------------------------------------------------------------------------ ------------ ------------ ------------
Gross profit 18,437 27,766 21,555
- ------------------------------------------------------------------------ ------------ ------------ ------------
Operating expenses:
Marketing, general and administrative 14,599 10,731 7,193
Research and development 3,636 4,338 1,700
- ------------------------------------------------------------------------ ------------ ------------ ------------
Total operating expenses 18,235 15,069 8,893
- ------------------------------------------------------------------------ ------------ ------------ ------------
Income from operations 202 12,697 12,662
Interest expense, net of capitalized interest (note 3) (4,905) (4,480) (955)
Interest and other income, net 1,615 3,914 1,822
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net income (loss) before income taxes and extraordinary item (3,088) 12,131 13,529
Income tax expense (benefit) (note 13) (499) 2,527 2,971
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net income (loss) before extraordinary item (2,589) 9,604 10,558
Extraordinary item - gain on early retirement of debt, net of
taxes and legal fees (note 6) -- -- 3,274
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net income (loss) $ (2,589) $ 9,604 $ 13,832
- ------------------------------------------------------------------------ ------------ ------------ ------------
Basic earnings (loss) per share:
Net income (loss) before extraordinary item $ (0.23) $ 0.86 $ 0.95
Extraordinary item -- -- 0.29
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net income (loss) per share - basic $ (0.23) $ 0.86 $ 1.24
- ------------------------------------------------------------------------ ------------ ------------ ------------
Shares used in computing net income (loss) per share - basic 11,184,742 11,154,271 11,118,825
- ------------------------------------------------------------------------ ------------ ------------ ------------
Diluted earnings (loss) per share:
Net income (loss) before extraordinary item $ (0.23) $ 0.84 $ 0.95
Extraordinary item -- -- 0.29
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net income (loss) per share - diluted $ (0.23) $ 0.84 $ 1.24
- ------------------------------------------------------------------------ ------------ ------------ ------------
Shares used in computing net income (loss) per share - diluted 11,184,742 14,571,278 11,160,322
- ------------------------------------------------------------------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements.
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SPACEHAB, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock Additional Retained Total
--------------------------- paid-in earnings stockholders'
Shares Amount capital (deficit) equity
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 11,069,237 $ 79,863 $ 16 $ (8,283) $ 71,596
Common stock issued upon stock option exercises 2,000 24 -- -- 24
Common stock issued upon conversion of debt (note 8) 75,000 1,170 -- -- 1,170
Net income -- -- -- 13,832 13,832
- ---------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 11,146,237 81,057 16 5,549 86,622
Common stock issued upon stock option exercises 8,725 60 -- -- 60
Common stock issued under employee stock purchase 13,199 122 -- -- 122
plan
Net income -- -- -- 9,604 9,604
- ---------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1998 11,168,161 81,239 16 15,153 96,408
Common stock issued upon stock option exercises 1,070 8 -- -- 8
Common stock issued under employee stock purchase 60,415 338 -- -- 338
plan
Net income (loss) -- -- -- (2,589) (2,589)
- ---------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1999 11,229,646 $ 81,585 $ 16 $ 12,564 $ 94,165
- ---------------------------------------------------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements.
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SPACEHAB, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended
June 30, 1999 June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------- ------------- ------------- -------------
Cash flows from operating activities:
Net income (loss) $ (2,589) $ 9,604 $ 13,832
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 7,017 5,587 10,185
Amortization of debt placement costs 538 226 --
Gain on early retirement of debt -- -- (4,093)
Interest converted to notes payable -- 670 1,300
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (3,126) (803) 1,843
Increase in prepaid expenses and other current assets (290) (351) (15)
Decrease in deferred mission costs -- 1,439 1,267
Decrease (increase) in other assets (14) (1,980) (258)
Increase (decrease) in deferred flight revenue (7,762) 9,628 (28,051)
Increase (decrease) in accounts payable and --
accrued expenses 345 3,633 (968)
Increase (decrease) in advance billings (1,567) 720 (239)
Increase (decrease) in accrued
subcontracting services 97 553 (798)
Increase in deferred taxes 1,020 2,678 --
- ---------------------------------------------------------------------------- -------- -------- --------
Net cash provided by (used for) operating activities (6,331) 31,604 (5,995)
- ---------------------------------------------------------------------------- -------- -------- --------
Cash flows from investing activities:
Payments for flight assets under construction (27,381) (17,245) (8,443)
Payments for building under construction (871) (3,988) --
Purchases of property, equipment and leasehold improvements (4,222) (1,880) (731)
Purchase of Astrotech, net of cash acquired -- -- (20,134)
Purchase of Johnson Engineering, net of cash acquired (24,745) -- --
Investment in joint venture (1,400) -- --
- ---------------------------------------------------------------------------- -------- -------- --------
Net cash used for investing activities (58,619) (23,113) (29,308)
- ---------------------------------------------------------------------------- -------- -------- --------
Cash flows from financing activities:
Payments of note payable to insurers (500) (500) (2,520)
Payment of debt placement costs -- (3,984) --
Proceeds from issuance of convertible subordinated notes payable -- 63,250 --
Proceeds from note payable 1,000 14,119 --
Payments of note payable (2,842) (2,118) --
Payments of note payable to shareholder (4,035) -- --
Payments of legal fees on early retirement of debt -- -- (110)
Proceeds from exercise of stock options 8 60 24
Proceeds from issuance of common stock, net of expenses 338 122 --
- ---------------------------------------------------------------------------- -------- -------- --------
Net cash provided by (used for) financing activities (6,031) 70,949 (2,606)
- ---------------------------------------------------------------------------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents (70,981) 79,440 (37,909)
Cash and cash equivalents at beginning of year 92,327 12,887 50,796
- ---------------------------------------------------------------------------- -------- -------- --------
Cash and cash equivalents at end of year $ 21,346 $ 92,327 $ 12,887
- ---------------------------------------------------------------------------- -------- -------- --------
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE COMPANY
SPACEHAB, Incorporated (the Company) is the first company to
commercially develop, own and operate habitable modules that provide
space-based laboratory research facilities and cargo services aboard
the U.S. Space Shuttle system. The Company currently owns and operates
three pressurized laboratory and logistics supply modules, which
significantly enhance the capabilities of the Space Shuttle fleet. The
Company is currently constructing a new research module with associated
double module hardware. The Company's modules are unique to the Space
Shuttle fleet.
To date, the Company has successfully completed thirteen
missions aboard the Space Shuttle and substantially all of the
Company's revenue has been generated under contracts with NASA. The
Company's contracts are subject to periodic funding allocations by
NASA. NASA's funding is dependent on receiving annual appropriations
from the United States government. During the years ended June 30,
1999, 1998 and 1997, approximately 80%, 68% and 88% of the Company's
revenues were generated under U.S. Government contracts.
On February 12, 1997, the Company acquired the assets and
certain of the liabilities of Astrotech Space Operations, L.P.
("Astrotech"), a subsidiary of Northrop Grumman, a provider of
commercial satellite launch processing services and payload processing
facilities in the United States. These services are provided at the
Astrotech facilities in Cape Canaveral, Florida and Vandenberg Air
Force Base in California, and are provided to launch service providers
on a fixed-price basis. Additionally, Astrotech provides management and
consulting services to the Boeing Company for its Sea Launch program at
the Boeing facility in Long Beach, California.
On July 1, 1998, the Company acquired all of the outstanding
shares of capital stock of Johnson Engineering Corporation ("JE"). JE
performs several critical services for NASA including flight crew
support services, operations, training and fabrication of mockups at
NASA's Neutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup
Facility, where astronauts train for both Space Shuttle and ISS
missions. JE also designs and fabricates flight hardware, such as
flight crew equipment and crew quarters' habitability outfitting as
well as providing stowage integration services. JE is also responsible
for configuration management of the ISS.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
SPACEHAB, Incorporated and its wholly owned subsidiaries Astrotech and
JE. All significant intercompany transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
For purposes of its consolidated statements of cash flows, the
Company considers short-term investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are
primarily made up of commercial paper investments recorded at cost,
which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. All furniture,
fixtures and equipment are depreciated using the straight-line method
over the estimated useful lives of the respective assets,
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27
which is generally five years. The Company's payload processing
facilities are depreciated using the straight-line method over their
estimated useful lives ranging from sixteen to forty-three years.
Through June 30, 1997, the Company's flight modules were
depreciated over a ten-year period using the straight-line method.
Effective July 1, 1997, the Company extended the estimated useful lives
of its space modules through 2012. This change in accounting estimate
is treated prospectively and was based on then currently available
information from NASA, which estimated the duration of the Space
Shuttle program through at least 2012. As a result of this change in
estimate, the Company's net income increased by $6.2 million for FY
1998.
The Company has adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of (Statement 121). Statement
121 requires that long-lived assets to be held and used, including
goodwill, be reviewed by the Company for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized when the undiscounted net
cash flows associated with the asset are less than the asset's carrying
amount. Impairment losses, if any, are measured as the excess of the
carrying amount of the asset over its estimated fair value.
GOODWILL
The excess of the cost over the fair value of net tangible and
identifiable intangible assets acquired in purchase business
combinations has been assigned to goodwill. Goodwill is being amortized
on a straight-line basis over twenty to twenty-five years.
INVESTMENT IN JOINT VENTURES
The Company generally uses the equity method of accounting for
its investments in, and earnings of, investees. In accordance with the
equity method of accounting, the carrying amount of such an investment
is initially recorded at cost and is increased to reflect the Company's
share of the investee's income and is reduced to reflect the Company's
share of the investee's losses. For those investments for which the
Company has provided substantially all of the investee's funding, the
Company uses the modified equity method of accounting whereby 100% of
the investee's current period earnings or losses are recognized.
STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-based Compensation (Statement
123), which encourages, but does not require, the recognition of
stock-based employee compensation at fair value. The Company has
elected to continue to account for stock-based employee compensation
using the intrinsic value method as prescribed in Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, compensation cost for options to
purchase common stock granted to employees is measured as the excess,
if any, of the fair value of common stock at the date of the grant over
the exercise price an employee must pay to acquire the common stock.
Warrants to purchase common stock granted to other than
employees as consideration for goods or services rendered are
recognized at fair value.
REVENUE RECOGNITION
Prior to the REALMS contract (note 10), the Company recognized
revenue upon completion of each module flight. Total contract price was
allocated to each flight based on the amount of services the Company
provided on the flight relative to the total services provided for
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all flights under contract. Obligations associated with a specific
mission, e.g., integration services, were also recognized upon
completion of the mission. Costs directly related to specific missions
were deferred until the respective missions were completed.
For all other contract awards for which the capability to
successfully complete the contract can be reasonably assured and costs
at completion can be reliably estimated at contract inception, revenue
recognition under the percentage-of-completion method is being used
based on costs incurred over the period of the contract. Revenue
provided by Astrotech's payload processing services is recognized
ratably over the occupancy period of the satellite while in the
Astrotech facilities. Revenue provided by JE 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, provisions for
contract losses and estimated amounts recognized as award fees are
recognized in the period they become known.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
The Company recognizes income taxes under the asset and
liability method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
NET INCOME (LOSS) PER SHARE
In December 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per
Share, (Statement 128). Statement 128 supersedes Accounting Principles
Board Opinion No. 15, Earnings per Share (APB 15) and its related
interpretations, and promulgates new accounting standards for the
computation and manner of presentation of the Company's earnings (loss)
per share. The Company has restated previously reported annual earnings
per share data in accordance with the provisions of Statement 128 (note
14). The Company does not believe that the adoption of Statement 128
had a material impact on the computation or manner of presentation of
its earnings (loss) per share data as currently or previously presented
under APB 15.
Basic earnings (loss) per share are calculated by dividing net
income (loss) by the weighted average number of common shares
outstanding during the period.
The computation of diluted earnings (loss) per share includes
all common stock options and warrants and other common stock, to the
extent dilutive, that potentially may be issued as a result of
conversion privileges, including the convertible subordinated notes
payable (note 8).
COMPREHENSIVE INCOME
During fiscal year 1999, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS No. 130"). SFAS No.
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130 requires the display of comprehensive income, which includes
unrealized gains or losses on investments and accumulated foreign
currency translation adjustments, if any. There were no such components
of other comprehensive income for the years ended June 30, 1999, 1998
or 1997.
ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the reported
periods. Actual results could differ from these estimates.
RECLASSIFICATIONS
Certain FY 1997 and 1998 amounts have been reclassified to
conform to the fiscal 1999 consolidated financial statement
presentation.
(3) STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Cash paid for interest costs was approximately $5.4 million,
$3.4 million and $1.3 million for the years ended June 30, 1999, 1998
and 1997, respectively. The Company capitalized interest of
approximately $2.5 million, $2.0 million and $0.3 million during the
years ended June 30, 1999, 1998 and 1997, respectively, related to the
module improvements and building in progress.
The Company paid income taxes of approximately $0.4 million, $19
thousand and $2.4 million for the years ended June 30, 1999, 1998 and
1997, respectively.
During FY 1997, the Company's convertible note payable, with a
carrying value of approximately $1.2 million, was converted into 75,000
shares of common stock (note 8).
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(4) ACCOUNTS RECEIVABLE
At June 30, 1999 and 1998, accounts receivable consisted of (in
thousands):
1999 1998
- ------------------------------------------------------------------------------------------ ------- -------
U.S. government contracts:
Billed $ 0,523 $ 452
Unbilled 2,661 3,202
Total U.S. government contracts 13,184 3,654
- ------------------------------------------------------------------------------------------ ------- -------
Commercial contracts:
Billed 3,481 2,277
Unbilled 806 48
- ------------------------------------------------------------------------------------------ ------- -------
Total commercial contracts 4,287 2,325
- ------------------------------------------------------------------------------------------ ------- -------
Total accounts receivable $17,471 $ 5,979
- ------------------------------------------------------------------------------------------ ------- -------
The Company anticipates collecting substantially all receivables within
one year.
(5) ACQUISITIONS
JOHNSON ENGINEERING
On July 1, 1998, the Company paid approximately $24.7 million,
including transaction costs, to acquire all of the capital stock of JE.
The business combination has been accounted for using the purchase
method under Accounting Principles Board Opinion No. 16, Business
Combinations, (APB Opinion 16). The purchase price has been allocated
to the assets and liabilities acquired based on estimates of fair value
as of the date of acquisition. Based on the allocation of the net
assets acquired, goodwill of approximately $23.4 million was recorded.
Such goodwill is being amortized on a straight-line basis over 25
years. The purchase price has been allocated as follows (in thousands):
Cash $ 0
Prepaid and other current assets 306
Accounts receivable, net 8,366
Inventory 5
Property, plant and equipment, net 446
Other assets 622
Goodwill 23,362
Current liabilities (7,434)
Accrued contract costs (928)
--------
Total purchase price $ 24,745
========
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31
The following represents pro forma combined results of operations for
the prior year as if the acquisition of JE had occurred as of July 1, 1997, (in
thousands, except per share data):
Year ended
June 30, 1998
-------------------------------------------------------------------------- -------------
Revenue $ 116,266
Gross profit 34,280
Net income 9,251
-------------------------------------------------------------------------- ---------
Net income per common share - basic $ 0.83
Net income per common share - diluted $ 0.82
-------------------------------------------------------------------------- ---------
ASTROTECH
The Company paid $20.1 million, including transaction costs,
to acquire substantially all of the assets and certain of the
liabilities of Astrotech. The purchase was effective on February 12,
1997. The business combination was accounted for using the purchase
method. The purchase price was allocated to the assets and liabilities
acquired based on estimates of fair value as of the date of
acquisition. Based on the allocation of the net assets acquired,
goodwill of approximately $3.5 million was recorded and is being
amortized on a straight line basis over twenty years.
(6) LOANS PAYABLE UNDER CREDIT AGREEMENT
Prior to an August 1996 amendment, the Company's credit
agreement consisted of a $6.5 million term loan bearing interest at 1
percent per month and a $5.5 million non-interest-bearing term loan
with several insurance companies. In addition, a revolving credit
commitment with a subcontractor and former shareholder provided a
maximum outstanding balance of $6.0 million and bore interest at a rate
of 1 percent per month.
In August 1996, the Company's credit agreement was amended.
Under the amendment, the revolving credit commitment with a
subcontractor and former shareholder was canceled. In exchange for the
full satisfaction of the Company's term loans with the various
insurance companies, the Company paid the insurance companies $2.5
million and agreed to pay an additional $2.0 million under a new
non-interest-bearing term loan. As of June 30, 1999, the remaining
balance due under the term loan is due in installments of $0.33 million
on each of August 1, 1999, 2000 and 2001. As a result of this amended
and restated agreement, the Company recognized an extraordinary gain of
$3.3 million, net of income taxes and other related expenses of $0.8
million and $0.1 million, respectively, during the year ended June 30,
1997.
In conjunction with a payment of certain principal of notes
payable due to Alenia Spazio S.p.A. in December 1998, see note 7, the
annual interest rate on the outstanding balances was amended to be at
8.25 percent per year. Aggregate interest cost incurred on the debts
due under the various credit agreements was approximately $40 thousand
, $0 and $0.1 million for the years ended June 30, 1999, 1998 and 1997
respectively.
(7) NOTES PAYABLE TO SHAREHOLDER
The Company issued subordinated notes for a portion of the
amount due to Alenia Spazio S.p.A. (Alenia), a shareholder, under a
previously completed construction contract for the Company's flight
modules. In December 1998, the Company amended its agreement with
Alenia Spazio S.p.A. relative to the subordinated notes payable with an
outstanding principal balance of $11.9 million due in August 2001. In
exchange for payment of $4.0 million of principal, Alenia agreed to
waive the interest payment due for the quarter ended December 31, 1998
and to reduce
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the annual interest rate on the subordinated notes from 12 to 10
percent on the outstanding balance as of January 1, 1999. In addition,
Alenia may elect to convert, in whole or part, the remaining principal
amount into SPACEHAB equity, on terms and conditions to be agreed with
SPACEHAB.
The subordinated notes had aggregate outstanding balances of
$7.9 million and $11.9 million at June 30, 1999 and 1998, respectively.
The notes currently bear interest at an annual rate of 10 percent. No
amount of principal or accrued interest on the notes is due until all
amounts under the amended and restated credit agreement due to the
various insurance companies (note 6) are repaid. As such, all principal
payments are due under these notes on August 1, 2001. However, during
fiscal 1998, the Company began paying interest quarterly. The Company
paid $0.4 million of interest during the year ended June 30, 1999 and
intends to continue to pay interest quarterly.
Interest cost converted to additional principal on the notes to
Alenia was approximately $0 and $0.7 million for the years ended June
30, 1999 and 1998, respectively.
(8) OTHER LONG-TERM DEBT
CONVERTIBLE NOTE PAYABLE
On August 12, 1992, the Company issued a subordinated promissory
note to an investment bank in the amount of $0.9 million, carrying
interest at LIBOR plus 3 percent, and maturing six months after the
payment of all other indebtedness due under the amended and restated
credit agreement and the subordinated notes to Alenia. The note was
convertible at the option of the holder into 75,000 shares of the
Company's common stock at any time prior to maturity. On October 25,
1996, the investment bank exercised its option to convert the note into
the Company's common stock.
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. Certain assets of the Company collateralize this
loan. The term of the agreement is through October 1999. Through June
30, 1999, the Company has not drawn against the line of credit.
On July 14, 1997, the Company's subsidiary, Astrotech, entered
into another credit facility for loans of up to $15.0 million with a
financial institution. The term of the agreement is through July 13,
2002. 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. Principal and interest
are payable on a quarterly basis. In April 1999, the Company borrowed
an additional $1.0 million under this credit facility with the same
terms, conditions and expiration date of the original loan. Principal
payments of $3.1 million are due in FY 2000, 2001, and 2002 and
principal payments of $0.8 million are due in FY 2003. At June 30,
1999, the Company had an outstanding balance of $10.2 million under
this credit facility and accrued interest of $0.2 million.
COVENANT CHANGES
For the period ended June 30, 1999, the Company was in breach of
certain loan covenants of the term loan and line of credit facility.
The covenants had been negotiated prior to the acquisition of JE. While
the Company had not drawn against the line of credit, covenant waivers
were requested and received, for the year ended June 30, 1999, from
both lending institutions. The Company believes it will be in
compliance with the covenants on a going forward basis.
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33
CONVERTIBLE SUBORDINATED NOTES
In October 1997, the Company completed a private placement
offering for $63.3 million of aggregate principal of unsecured 8
percent 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 and for other general corporate purposes.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated
fair values of the Company's financial instruments as of June 30, 1999
and 1998 in accordance with Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial Instruments (in
thousands):
June 30, 1999 June 30, 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
amount value amount value
-------------------------------------------- ------------ ----------- ----------- ------------
Financial liabilities:
Loans payable under credit agreement $ 1,000 920 $ 1,500 1,279
Notes payable to shareholder 7,860 7,860 11,895 11,895
Loans payable under credit facility 10,159 10,159 12,001 12,001
Convertible notes payable 63,250 50,600 63,250 68,784
-------------------------------------------- ------------ ------------ ----------- ------------
The fair value of the Company's long-term debt is based on quoted
market price or is estimated based on the current rates offered to the
Company for debt of similar remaining maturities and other terms. The
carrying amounts of cash and cash equivalents, receivables, and
accounts payable and accrued expenses approximate their fair market
value because of the relatively short duration of these instruments.
(10) NASA CONTRACTS
MIR SPACE STATION CONTRACT
On July 14, 1995, NASA and the Company completed final
negotiations to provide the Company's flight modules and related
integration services over four missions to the Russian Space Station
Mir. The contract was subsequently amended which resulted in a total
contract value of $91.5 million and the addition of three missions.
During the years ended June 30, 1998 and 1997, the Company
recognized $39.0 million and $41.7 million, respectively, of revenue
under the Mir contract. Work under the Mir contract, as amended, was
completed with its final mission in June 1998.
RESEARCH AND LOGISTICS MODULE SERVICES CONTRACT
On December 21, 1997, the Company entered into the Research and
Logistics Module Services (REALMS) Contract to provide to NASA its
flight modules and related integration services over three missions at
an aggregate fixed price of $44.9 million. This contract provides for
NASA to use the flight modules for both science and logistics missions.
During 1999, NASA
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34
exercised an additional option mission and change orders thereby
increasing the contract value to $68.2 million.
During the years ended June 30, 1999 and 1998, the Company
recognized $28.2 million and $14.3 million of revenue, respectively,
under this contract.
FLIGHT CREW SYSTEMS DEVELOPMENT CONTRACT ("FCSD")
JE primarily operates under NASA's FCSD Contract which is
currently a $326.3 million multi task cost plus-award and incentive fee
contract. The contract commenced in May 1993 and will conclude in April
2001. NASA has the option to exercise a one year extension. JE performs
several critical services for NASA including flight crew support
services, operations, training and fabrication of mockups at NASA's
Neutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup
Facility, where astronauts train for both Space Shuttle and ISS
missions. JE also designs and fabricates flight hardware, such as
flight crew equipment and crew quarters habitability outfitting as well
as providing stowage integration services. JE is also responsible for
configuration management of the ISS.
(11) STOCKHOLDER RIGHTS PLAN
On March 26, 1999, the Board of Directors adopted a Stockholder
Rights Plan designed to deter coercive takeover tactics and to prevent
a potential acquirer from gaining control of the Company without
offering a fair price to all of the Company's stockholders. A dividend
of one preferred share purchase right (a "Right") was declared on every
share of Common Stock outstanding on April 9, 1999. Each Right under
the Plan entitles the holder to buy one one-thousandth of a share of a
new series of junior participating preferred stock for $35. If any
person or group becomes the beneficial owner of 15 percent or more of
common stock (with certain limited exceptions), then each Right (not
owned by the 15 percent stockholder) will then entitle its holder to
purchase, at the Right's then current exercise price, common shares
having a market value of twice the exercise price. In addition, if
after any person has become a 15 percent stockholder, and is involved
in a merger or other business combination transaction with another
person, each Right will entitle its holder (other than the 15 percent
stockholder) to purchase, at the Right's then current exercise price,
common shares of the acquiring company having a value of twice the
Right's then current exercise price. The rights were granted to each
shareholder of record on April 9, 1999. At any time before a person or
group acquires a 15% position, SPACEHAB generally will be entitled to
redeem the Rights at a redemption price of $0.01 per Right. The Rights
will expire on April 9, 2009.
(12) COMMON STOCK OPTION AND STOCK PURCHASE PLANS
NON-QUALIFIED OPTIONS
Non-qualified options are granted at the sole discretion of the
Board of directors. Prior to the adoption of the 1994 Stock Incentive
Plan (the 1994 Plan), stock options granted to the Company's officers
and employees were part of their employment contract or offer. The
number and price of the options granted was defined in the employment
agreements and such options vest incrementally over a period of four
years and generally expire within ten years of the date of grant.
300,000 options were granted in fiscal year 1999 in connection with the
acquisition of JE.
THE 1994 PLAN
Under the terms of the 1994 Plan, the number and price of the
options granted to employees is determined by the Board of Directors
and such options vest, in most cases, incrementally over a period of
four years and expire no more than ten years after the date of grant.
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35
THE DIRECTORS' STOCK OPTION PLAN
Prior to an amendment on October 21, 1997, each nonemployee
member of the Board of Directors was annually granted options to
purchase 5,000 shares of common stock at exercise prices equal to the
fair market value on the date of grant. Subsequent to the amendment,
each nonemployee member of the Board of Directors received a one-time
grant of an option to purchase 10,000 shares of common stock. Further,
each new nonemployee director after the amendment date shall receive a
one-time grant of an option to purchase 10,000 shares. In addition,
effective as of the date of each annual meeting of the Company's
stockholders on or after the effective date, each nonemployee director
who is elected or continues as a member of the Board of Directors of
the Company shall be awarded an option to purchase 5,000 shares of
common stock. Options under the Director's Plan vest after one year and
expire seven years from the date of grant.
1997 EMPLOYEE STOCK PURCHASE PLAN
During the year ended June 30, 1998, the Company adopted an
employee stock purchase plan that permits eligible employees to
purchase shares of common stock of the Company at prices no less than
85 percent of the current market price. Eligible employees may elect to
participate in the plan by authorizing payroll deductions from one
percent to ten percent of gross compensation for each payroll period.
On the last day of each quarter, each participant's contribution
account is used to purchase the maximum number of whole and fractional
shares of common stock determined by dividing the contribution
account's balance by the lesser of 85 percent of the price of a share
of common stock on the first day of the quarter or the last day of a
quarter. The maximum number of shares of common stock that may be
purchased under the plan is 1,500,000. Through June 30, 1999, 73,614
shares have been issued under the plan.
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STOCK OPTION ACTIVITY SUMMARY
The following table summarizes the Company's stock option plans:
Non-qualified options 1994 Plan Directors' plan
-------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
average average average
Shares exercise Shares exercise Shares exercise
outstanding price outstanding price outstanding price
- ------------------------------------------------------------------------------------------------------------------
Outstanding at 6/30/96 620,462 12.28 1,000,738 13.35 - -
Granted 14,166 8.88 1,024,751 6.90 50,000 7.00
Exercised - - 2,000 12.00 - -
Forfeited 194,642 12.00 790,266 13.14 - -
- ------------------------------------------------------------------------------------------------------------------
Outstanding at 6/30/97 439,986 12.01 1,233,223 8.20 50,000 7.00
Granted 10,000 10.13 257,338 11.00 145,000 10.92
Exercised - - 3,725 10.02 5,000 10.13
Forfeited 149,941 12.16 8,583 11.96 - -
- ------------------------------------------------------------------------------------------------------------------
Outstanding at 6/30/98 300,045 12.33 1,478,253 8.62 190,000 9.99
Granted 300,000 14.00 572,713 11.69 50,000 7.00
Exercised - - 1,070 9.69 - -
Forfeited 106,241 12.00 140,670 9.16 - -
- ------------------------------------------------------------------------------------------------------------------
Outstanding at 6/30/99 493,804 $13.42 1,909,226 $ 9.50 240,000 $ 9.37
- ------------------------------------------------------------------------------------------------------------------
Options exercisable at:
June 30, 1997 429,720 12.16 819,742 8.49 - -
June 30, 1998 295,978 12.17 983,620 8.55 45,000 7.00
June 30, 1999 191,770 12.39 1,072,121 8.56 190,000 9.99
Weighted-average fair value
at date of grant
during the fiscal
period ended
June 30, 1997 14,166 2.80 1,024,751 2.56 50,000 2.19
June 30, 1998 10,000 4.25 257,338 3.83 145,000 3.43
June 30, 1999 300,000 3.12 572,713 4.50 50,000 2.21
- ------------------------------------------------------------------------------------------------------------------
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(12) CONTINUED
The following table summarizes information about the Company's
stock options outstanding at June 30, 1999:
Options outstanding Options exercisable
--------------------------------------- --------------------------
Weighted-
average
remaining Weighted- Weighted-
contractual average average
Number life exercise Number exercise
Range of exercise prices outstanding (years) price exercisable price
------------------------------- ----------- ----------- --------- ----------- ---------
$24.00 6,100 3.25 $ 24.00 4,066 $ 24.00
$10.13 - $14.88 1,607,551 5.45 12.30 638,243 12.29
$ 5.75 - $9.88 1,029,379 3.80 6.89 811,582 6.80
------------------------------- ----------- ----------- --------- --------- ---------
$ 5.75 - $24.00 2,643,030 4.80 $ 10.22 1,453,891 $ 9.26
------------------------------- ----------- ----------- --------- --------- ---------
The Company applies APB Opinion 25 and related interpretations
in accounting for its plans. Accordingly, as all options have been
granted at exercise prices equal to the fair market value as of the
date of grant, no compensation cost has been recognized under these
plans in the accompanying consolidated financial statements. Had
compensation cost been determined consistent with Statement 123, the
Company's net income and earnings per common share would have been
reduced to the pro forma amounts indicated below (in thousands, except
per share data):
Years ended June 30,
-----------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------------------
Net income (loss):
As reported $ (2,589) $ 9,604 10,558
Pro forma (4,424) 8,772 8,964
-------------------------------------------------------------------------------------------------
Net income (loss) per share - basic:
As reported $ (0.23) $ 0.86 0.95
Pro forma (0.40) 0.79 0.81
-------------------------------------------------------------------------------------------------
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in fiscal years
1999, 1998 and 1997, respectively: 0.0 percent dividend growth;
expected volatility ranging from 35 percent to 40 percent; risk-free
interest rates ranging from 5.68 percent to 6.71 percent; and expected
lives ranging from three to seven years.
The effects of compensation cost as determined under Statement
123 on net income in fiscal years 1999, 1998 and 1997 may not be
representative of the effects on pro forma net income in future
periods.
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WARRANTS
The Company also has 53,000 currently exercisable warrants
outstanding to purchase the Company's common stock at $9.00 per share,
with an expiration date of June 2002. The fair market value of these
warrants was recognized at issuance. All such warrants were issued at
exercise prices equivalent to, or in excess of, the determined fair
market value of the Company's common stock at the date of issuance.
(13) INCOME TAXES
The components of income tax expense (benefit) from continuing
operations are as follows (in thousands):
Year ended Year ended Year ended
June 30, 1999 June 30, 1998 June 30, 1997
- ---------------------------------------------- ------------- --------------- ---------------
Current:
Federal $(1,447) -- 2,706
State and local 15 -- 265
- ---------------------------------------------- ------- ------- -------
(1,432) -- 2,971
- ---------------------------------------------- ------- ------- -------
Deferred:
Federal 847 2,148 --
State and local 86 379 --
- ---------------------------------------------- ------- ------- -------
933 2,527 --
- ---------------------------------------------- ------- ------- -------
Income tax expense (benefit) $ (499) 2,527 2,971
- ---------------------------------------------- ------- ------- -------
During the year ended June 30, 1997, income tax expense of
$819,000 was allocated to the extraordinary gain on early retirement of
debt.
A reconciliation of the expected amount of income tax expense
(benefit), calculated by applying the statutory federal income tax rate
of 34 percent in FY 1999, 1998 and 1997 to income (loss) from
continuing operations before taxes, to the actual amount of income tax
expense (benefit) recognized follows (in thousands):
Years ended
-------------------------------------------------------
June 30, 1999 June 30, 1998 June 30, 1997
--------------------------------------------------------------------------------------------------
Expected expense (benefit) $ (1,050) 4,241 4,600
Change in valuation allowance 169 (2,058) (2,640)
State income tax (15) 299 1,011
Other non deductibles, primarily goodwill
amortization 397 45 -
--------------------------------------------------------------------------------------------------
Income tax expense $ (499) 2,527 2,971
--------------------------------------------------------------------------------------------------
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The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of June 30, 1999 and 1998 are presented below (in
thousands):
1999 1998
--------------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 7,863 $ 3,140
General business credit carryforwards 2,189 2,189
Alternative minimum tax credit carryforwards 3,292 4,905
Capitalized research and development costs 270 452
Other 900 225
--------------------------------------------------------------------------------------------------
Total gross deferred tax assets 14,514 10,911
Less - valuation allowance (169) -
--------------------------------------------------------------------------------------------------
Net deferred tax assets 14,345 10,911
--------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 16,700 13,364
Other 487 74
--------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 17,187 13,438
--------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ (2,842) $ (2,527)
--------------------------------------------------------------------------------------------------
As of June 30, 1998, current deferred tax assets of $151,000 are
included in prepaid expenses and other current assets in the
accompanying balance sheet.
The net changes in the total valuation allowance for the years
ended June 30, 1999, 1998 and 1997 were an increase of $0.2 million and
decreases of $4.7 million and $2.1 million, respectively.
At June 30, 1999, the Company had accumulated net operating
losses of $19.7 million available to offset future regular taxable
income. These operating loss carryforwards expire between the years
2007 and 2019. Utilization of these net operating losses may be subject
to limitations in the event of significant changes in stock ownership
of the Company.
Additionally, the Company has approximately $2.2 million and $3.3
million of research and experimentation and alternative minimum tax
credit carryforwards, respectively, available to offset future regular
tax liabilities. The research and experimentation credits expire
between the years 2000 and 2008; the alternative minimum tax credits
carryforward indefinitely.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets are realizable. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based upon the level of projected future regular taxable
income over the periods, which the deferred tax assets are deductible,
management believes that the Company will realize the benefits of these
deductions. As of June 30, 1999, the Company provided a valuation
allowance of $169 thousand against deferred tax assets. The amount of
the deferred tax assets considered realizable, however, could be
reduced if estimates of future regular taxable income during the
carryforward period are reduced.
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40
(14) NET INCOME (LOSS) PER SHARE
In December 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
Per Share, which established new guidelines for the calculations of
earnings (loss) per share. Earnings (loss) per share for all prior
periods have been restated to reflect the provisions of this Statement.
The following are reconciliations of the numerators and
denominators of the basic and diluted earnings (loss) per share
computations for "income (loss) before extraordinary item" and
"extraordinary item" for the years ended June 30, 1999, 1998 and 1997
(in thousands, except share data):
Per common share Assuming Dilution
- -----------------------------------------------------------------------------------------------------------------------------------
1999
Net loss $ (2,589) $ (2,589)
Net loss, as adjusted $ (2,589) $ (2,589)
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding common shares 11,184,742 11,184,742
Adjusted shares 11,184,742 11,184,742
- -----------------------------------------------------------------------------------------------------------------------------------
1998
Net income $ 9,604 $ 9,604
Assuming conversion of convertible subordinated notes $ - $ 2,625
- -----------------------------------------------------------------------------------------------------------------------------------
Net income, as adjusted $ 9,604 $ 12,229
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding common shares 11,154,271 11,154,271
Outstanding stock options -- 269,898
Assuming conversion of convertible subordinated notes -- 3,147,109
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted shares 11,154,271 14,571,278
- -----------------------------------------------------------------------------------------------------------------------------------
1997
Net income before extraordinary item $ 10,558 $ 10,558
Net income $ 13,832 $ 13,832
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding common shares 11,118,825 11,118,825
Outstanding stock options -- 14,168
Assuming conversion of convertible notes -- 27,329
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted shares 11,118,825 11,160,322
- -----------------------------------------------------------------------------------------------------------------------------------
Options and warrants to purchase 899,131 and 792,361 shares of
common stock, at prices ranging from $7.50 to $24.00 per share were
outstanding for the years ended June 30, 1998 and 1997, respectively.
These were not included in the computations of diluted earnings per
share because the options' and warrants' exercise prices were greater
than the average market price of the common shares during the years
ended June 30, 1998 and 1997.
All options and warrants to purchase shares of common stock were
excluded from the computations of diluted earnings (loss) per share for
the year ended June 30, 1999, because the impact of such options and
warrants is anti-dilutive.
(15) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution retirement plan, which
covers all employees and officers. For the years ended June 30, 1999,
1998 and 1997, the Company contributed $0.8 million, $0.1 million and
$0.1 million, respectively, to the plan. The Company has the right, but
not the obligation, to make contributions to the plan in future years
at the discretion of the Company's Board of Directors.
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(16) COMMITMENTS
INTEGRATION AND OPERATIONS CONTRACTS
On August 13, 1997, the Company initiated a letter agreement
with The Boeing Company, a major subcontractor, for standard
integration and operation services to the Company for future missions
that were not already provided for under its contract for missions to
the Mir Space Station. In August 1998, this letter agreement became a
cost plus incentive fee contract whereby Boeing will provide
integration and operations services required to successfully complete
four research missions (one single module mission and three double
module missions) and five logistics double module missions.
Additionally, there are several tasks that are separately priced to
yield a contract value of up to $42.3 million. As of June 30, 1999,
$16.2 million has been incurred under this commitment.
MODULE CONSTRUCTION CONTRACTS
During fiscal year 1997, the Company entered into a $36.8
million cost-plus-fee contract with Boeing to construct a new research
module with associated double module hardware. The Company has taken
initial delivery of the module and is in the process of completing its
construction which is expected to be completed in the middle of fiscal
year 2000. The Company has incurred approximately $32.9 million in
construction costs through June 30, 1999.
During FY 1999, the Company entered into a $4.6 million letter
agreement with Boeing to initiate activities to support the fabrication
of a double docking module. The letter contract period of performance
is through August 1999. The Company plans to extend the letter
agreement. The Company has incurred $1.0 million in costs through June
30, 1999.
JOINT VENTURE
During June 1998, the Company entered into a joint venture
agreement with Guigne Technologies Limited for the purpose of
developing, fabricating, marketing and sales of SpaceDRUMS(TM)
services. In accordance with the joint venture agreement, the Company
has agreed to contribute, in exchange for a 50 percent interest in
SpaceDRUMS(TM), an aggregate of $2.0 million of working capital to the
joint venture at varying dates and amounts through October 1999. The
Company's contributions will be in the form of an unsecured
non-interest bearing note. Through June 30, 1999, the Company has made
contributions of $1.4 million to the joint venture. During 1999, the
joint venture entered into a $5.0 million contract with the Colorado
School of Mines for the lease of the SpaceDRUMS(TM) facility.
The Company does not have the ability to exclusively control the
operational and financial policies of SpaceDRUMS, although the Company
does exert significant influence and as such is recognizing its
investment in SpaceDRUMS using the modified equity method of
accounting. During the year ended June 30, 1999, SpaceDRUMS had no
revenues and generated a net loss of approximately $0.001 million of
which the Company recognized its proportionate share. SpaceDRUMS has
total assets, total liabilities and total equity as of June 30, 1999:
$3.7 million, $2.3 million and $1.4 million respectively. The carrying
value of the investment in SpaceDRUMS is $1.4 million as of June 30,
1999.
LEASES
The Company is obligated under capital leases for equipment and
noncancelable operating leases for equipment, office space, storage
space, and the land for a payload processing facility. Future minimum
payments under these capital leases and noncancelable operating leases
are as follows (in thousands):
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Capital Operating
Year ending June 30, leases leases
---------------------------------------------------------------------------------------------------
2000 $ 87 $ 2,353
2001 57 2,241
2002 28 2,093
2003 18 1,656
2004 and thereafter 17 7,224
---------------------------------------------------------------------------------------------------
207 $ 15,567
=========
Less: amount representing interest between 9% and 12% (50)
--------------------------------------------------------------------------------------
Present value of net minimum capital lease payments $ 157
======================================================================================
Rent expense for the years ended June 30, 1999, 1998 and 1997,
was approximately $2.2 million, $0.5 million and $0.5 million
respectively.
(17) 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, JE 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. JE,
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 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.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies, see note
2. Information about the Company's segments is as follows:
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(in thousands)
Fiscal year 1999: Net Depreciation
Pre-Tax Fixed And
Revenue Income (loss) Assets Amortization
--------------------------------------------------------------------
SPACEHAB $ 39,477 $ (2,925) $ 109,912 $ 5,227
Astrotech 9,845 (505) 20,625 1,164
Johnson Engineering 58,398 342 1,647 1,164
--------------------------------------------------------------------
$107,720 $ (3,088) $ 132,184 $ 7,555
Fiscal year 1998: Net Depreciation
Pre-Tax Fixed And
Revenue Income Assets Amortization
--------------------------------------------------------------------
SPACEHAB $ 53,262 $ 10,308 $ 92,815 $ 4,639
Astrotech 10,825 1,823 19,773 1,174
Johnson Engineering - - - -
--------------------------------------------------------------------
$ 64,087 $ 12,131 $ 112,588 $ 5,813
Fiscal year 1997: Net Depreciation
Pre-Tax Fixed And
Revenue Income Assets Amortization
--------------------------------------------------------------------
SPACEHAB $ 53,741 $ 13,070 $ 74,620 $ 9,806
Astrotech 2,860 459 16,341 379
Johnson Engineering - - - -
--------------------------------------------------------------------
$ 56,601 $ 13,529 $ 90,961 $ 10,185
(18) SUBSEQUENT EVENT
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. The other
358,334 shares of Series B Senior Convertible Preferred Stock will be
issued upon shareholder approval of a proposal to increase the number
of authorized shares of preferred stock that will be presented at the
next stockholders meeting scheduled for October 14, 1999. The preferred
stock purchase will increase 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.
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(19) SUMMARY OF SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data
for the previous three fiscal periods (in thousands, except per share
data):
Three months ended
--------------------------------------------------------------
September 30 December 31 March 31 June 30
-----------------------------------------------------------------------------------------------------
Year ended June 30, 1999
Revenue $ 28,273 23,634 26,693 29,120
Income (loss) from operations 2,151 (2,007) 338 (280)
Net income (loss) 413 (1,851) (541) (610)
Net income (loss) per share - 0.04 (0.17) (0.05) (0.05)
basic
Net income (loss) per share - 0.04 (0.17) (0.05) (0.05)
diluted
-----------------------------------------------------------------------------------------------------
Year ended June 30, 1998
Revenue $ 2,537 17,756 18,997 24.797
Income (loss) from operations (5,685) 5,833 5,214 7,335
Net income (loss) (5,654) 5,727 4,891 4,640
Net income (loss) per share - (0.51) 0.51 0.44 0.42
basic
Net income (loss) per share - (0.51) 0.43 0.37 0.35
diluted
----------------------------------------------------------------------------------------------------
Year ended June 30, 1997
Revenue $ 113 22,992 15,031 18,465
Income (loss) from operations (6,171) 12,148 3,914 2,771
Net income (loss) before (7,074) 11,060 3,207 3,365
extraordinary item
Net income (loss) (3,800) 11,060 3,207 3,365
Net income (loss) per share - (0.34) 1.00 0.29 0.30
basic
Net income (loss) per share - (0.34) 0.99 0.29 0.28
diluted
----------------------------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item will be contained in the
Company's definitive Proxy Statement for its 1999 annual meeting of stockholders
and is hereby incorporated by reference thereto.
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45
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be contained in the
Company's definitive Proxy Statement for its 1999 annual meeting of stockholders
and is hereby incorporated by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be contained in the
Company's definitive Proxy Statement for its 1999 annual meeting of stockholders
and is hereby incorporated by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be contained in the
Company's definitive Proxy Statement for its 1999 annual meeting of stockholders
and is hereby incorporated by reference thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of the report:
1. Financial Statements.
The following consolidated financial statements of SPACEHAB,
Incorporated and subsidiary and related notes, together with the report
thereon of KPMG LLP, the Company's independent auditors, are set forth
herein as indicated below.
PAGE
Report of KPMG LLP, Independent Public Accountants............................... 23
Consolidated Balance Sheets ..................................................... 24
Consolidated Statements of Operations ........................................... 25
Consolidated Statements of Stockholders' Equity ................................. 26
Consolidated Statements of Cash Flows............................................ 27
Notes to Consolidated Financial Statements....................................... 28
2. Financial Statement Schedules.
All financial statement schedules required to be filed in Part IV, Item
14(a) have been omitted because they are not applicable, not required,
or because the required information is included in the financial
statements or notes thereto.
3. Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
3.1* Amended and Restated Articles of Incorporation of the Company.
3.2* Amended and Restated By-Laws of the Company.
4.1++ Designation of Rights, Terms and Preferences of Series B Senior
Convertible Preferred Stock of the Registrant.
4.2++ Preferred Stock Purchase Agreement between the Registrant and
DaimlerChrysler Aerospace AG dated as of August 2, 1999.
4.3++ Registration Rights Agreement between the Registrant and
DaimlerChrysler Aerospace AG dated as of August 5, 1999.
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46
4.4+ Rights Agreement, dated as of March 26, 1999, between the Registrant
and American Stock Transfer & Trust Company. The Rights Agreement
includes the Designation of Rights Terms and Preferences of Series A
Junior Preferred Stock as Exhibit A, the form of Rights Certificate
as Exhibit B and the Summary of Rights as Exhibit C.
10.3* Cost Plus Incentive Fee Contract (Number SHB 1009), dated November
23, 1994, between the Registrant and McDonnell Douglas (including
the amendments thereto) (the "Mir Contract").
10.6* Amended and Restated Representation Agreement, dated August 15,
1995, by and between the Registrant and Mitsubishi Corporation.
10.7* Letter Agreement dated August 15, 1995, by and between the
Registrant and Mitsubishi Corporation.
10.12*** Amended and Restated Credit Agreement, dated August 20, 1996 among
the Registrant, the Insurers listed therein and the Chase Manhattan
Bank (National Association), as agent.
10.13* SPACEHAB, Incorporated 1995 Directors' Stock Option Plan.
10.16* Agreement of Sublease, dated April 9, 1991, by and between Eastern
American Teak Corporation and the Registrant (land lease for Cape
Canaveral, Florida facility).
10.23** Employment and Non-Interference Agreement, dated December 27, 1995,
between the Company and Nelda J. Wilbanks.
10.24** Employment and Non-Interference Agreement, dated December 27, 1995,
between the Company and M. Dale Steffey.
10.27** Indemnification Agreement, dated December 27, 1995, between the
Company and Dr. Shelley A. Harrison.
10.28** Indemnification Agreement, dated December 27, 1995, between the
Company and Dr. Edward E. David, Jr.
10.30** Indemnification Agreement, dated December 27, 1995, between the
Company and Robert A. Citron.
10.31** Indemnification Agreement, dated December 27, 1995, between the
Company and Alvin L. Reeser.
10.32** Indemnification Agreement, dated December 27, 1995, between the
Company and James R. Thompson.
10.34** Indemnification Agreement, dated December 27, 1995, between the
Company and Dr. Brad S. Meslin.
10.35** Indemnification Agreement, dated December 27, 1995, between the
Company and Chester M. Lee.
10.36** Indemnification Agreement, dated December 27, 1995, between the
Company and David A. Rossi.
10.37** Indemnification Agreement, dated December 27, 1995, between the
Company and Dr. Shi H. Huang.
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47
10.38** Indemnification Agreement, dated December 27, 1995, between the
Company and Nelda J. Wilbanks.
10.39** Indemnification Agreement, dated December 27, 1995, between the
Company and M. Dale Steffey.
10.41** Indemnification Agreement, dated December 27, 1995, between the
Company and Dr. Udo Pollvogt.
10.43** Indemnification Agreement, dated December 27, 1995, between the
Company and Hironori Aihara.
10.49*// Cost Plus Fee Contract (Number SHB 1013), dated July 31, 1997,
between the Registrant and McDonnell Douglas Corporation, McDonnell
Douglas Aerospace Huntsville Division (the "Research Double Module
Contract").
10.52*// Office Building Lease Agreement, dated October 6, 1993, between
Astrotech and the Secretary of the Air Force (Lease number SPCVAN -
2-94-001).
10.54*// Loan and Security Agreement, dated June 16, 1997, between the
Registrant, Astrotech and First Union National Bank (formerly known
as Signet Bank) (the "Revolving Credit Agreement").
10.55*// Loan and Security Agreement, dated July 14, 1997, between Astrotech
and the CIT Group/Equipment Financing, Inc. (the "Term Loan
Agreement").
10.57*// Employment and Non-Interference Agreement, dated April 10, 1997,
between the Company and John M. Lounge.
10.58*// Indemnification Agreement, dated October 22, 1996, between the
Company and John M. Lounge.
10.69*/// ESA Contract, Dated October 10, 1997, between the Registrant and
Intospace GmbH (the "ESA Contract").
10.70*//// NAS 9-97199, dated December 21, 1997, between the Registrant and
NASA (the "REALMS Contract").
10.72*//// Employment Agreement and Non-Interference Agreement dated January
15, 1998, between the Company and Chester M. Lee.
10.73*//// Employment Agreement and Non-Interference Agreement dated January
15, 1998, between the Company and David A. Rossi.
10.74*//// Amendment number 1 to Loan and Security Agreement dated December 31,
1997, between the Company and First Union National Bank.
10.75*///// STS-95 Agreement A, dated December 20, 1997, between the Registrant
and Mitsubishi Corporation.
10.76*///// STS-95 Agreement B, dated March 18, 1998, between the Registrant and
Mitsubishi Corporation.
10.77*///// NHK Contract, dated May 8, 1998, between the Registrant and
Mitsubishi Corporation.
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48
10.78*///// SHB98001, dated January 31, 1998, between the Registrant and RSC
Energia
10.79*///// SHB98002, dated February 11, 1998, between the Registrant and
Daimler-Benz Aerospace, Space Infrastructure Division
10.80*///// CSA Contract, dated May 21, 1998, between the Registrant and the
Canadian Space Agency.
10.81*///// Gemini Office Building Lease Agreement, dated January 14, 1998,
between the Registrant and Puget of Texas
10.82*///// SHB98006, dated July 8, 1998, between the Registrant and
Daimler-Benz Aerospace AG, Raumfahrt-Infrastuktur
10.84*///// Capital Office Park Lease as amended, dated April 23, 1998, between
Astrotech and Eleventh Springhill Lake Associates L.L.P.
10.85+++ Letter Agreement between the Company and Alenia Aerospazio.
10.86+++ Employment and Non-Interference Agreement dated July 1, 1998 between
the Company and William A. Jackson
10.87+++ Employment and Non-Interference Agreement dated July 1, 1998 between
the Company and Eugene A. Cernan
10.88+++ Employment and Non-Interference Agreement dated July 1, 1998 between
the Company and W.T. Short
10.89+++ Modification S/A 14 to NAS9-97199 dated November 25, 1998, between
the Company and NASA.
10.90 SPACEHAB, Incorporated 1994 Stock Incentive Plan (as amended and
restated effective October 21, 1997).
10.91 Employment and Non-Interference Agreement, dated March 1, 1999,
between the Company and Mark Kissman.
10.92 Employment and Non-Interference Agreement, dated March 1, 1999,
between the Company and Michael Kearney.
10.93 Contract No. NAS 9-18800 between NASA and Johnson Engineering dated
April 28, 1993.
10.94 Cost Plus Incentive Fee Contract No. SHB 1014 dated August 14, 1997
between the Boeing Company and the Registrant.
10.95 Amended and Restated Employment and Non-Interference Agreement,
dated April 1, 1997, between the Company and Dr. Shelly A. Harrison,
amended and restated as of January 15, 1999.
10.96 European Marketing Agreement between Intospace GmbH and the
Registrant dated June 12, 1998.
10.97 Lease for property at 555 Forge River Dr. Suite #150, Webster, TX
between Johnson Engineering and CD UP LP a wholly-owned subsidiary
of Carey Diversified LLC,
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49
successor in interest to J.A. Billip Development Corporation dated
April 30, 1993, as amended.
10.98 Lease for property at 18100 Upper Bay Road, Suite #208, Houston, TX
between Johnson Engineering Corporation and Nassau Development
Company, dated February 19, 1998.
10.99 Lease for property at 920, 926 and 928 Gemini Ave., Houston, TX
under Standard Commercial Lease between Johnson Engineering
Corporation and Lakeland Development dated February 1, 1998.
10.100 Lease for property at 300 D Street, SW, Suite #814, Washington, DC,
between the Registrant and The Washington Design Center, LLC dated
December 16, 1998.
10.101 Lease for property at 16850 Titan, Houston, TX between Johnson
Engineering Corporation and Computer Extension Systems, Inc. dated
August 1, 1999.
10.102 Agreement of Sale and Purchase of Leasehold Interest between Eastern
American Technologies Corporation and Spacehab, Incorporated dated
August 1997.
11. Statement regarding Computation of Per Share Earnings.
21.*// Subsidiary of the Registrant.
23. Con sent of KPMG LLP.
27. Financial Data Schedule.
* Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (File No. 33-97812) and all amendments thereto,
originally filed with the Securities and Exchange Commission on
October 5, 1995.
** Incorporated by reference to the Registrant's Report on Form 10-Q
for the quarter ended December 31, 1995, filed February 14, 1996.
*** Incorporated by reference to the Registrant's Report on Form 10-K
for the fiscal year ended June 30, 1996, filed with the Securities
and Exchange Commission on September 17, 1996.
**** Incorporated by reference to the Registrant's Annual Report on Form
10-K/A for the year ended June 30, 1996, filed with the Securities
and Exchange Commission on December 20, 1996.
***** Incorporated by reference to the Registrant's Report on Form 10-Q/A
for the quarter ended September 30, 1996, filed with the Securities
and Exchange Commission on December 20, 1996.
*/ Incorporated by reference to the Registrant's Report on Form 8-K
filed with the Securities and Exchange Commission on February 27,
1997.
*// Incorporated by reference to the Registrant's Report on Form 10-K
for the fiscal year ended June 30, 1997, filed with the Securities
and Exchange Commission on September 12, 1997.
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50
*/// Incorporated by reference to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1997, filed November 6,
1997.
*//// Incorporated by reference to the Registrant's Report on Form 10-Q
for the quarter ended December 31, 1997, filed February 5, 1998.
*///// Incorporated by reference to the Registrant's Report on Form 10-K
for the fiscal year ended June 30, 1998, filed with the Securities
and Exchange Commission on September 17, 1998.
+ Incorporated by reference to the Registrant's Report on Form 8-K
filed with the Securities and Exchange Commission on April 1, 1999.
++ Incorporated by reference to the Registrant's Report on Form 8-K
filed with the Securities and Exchange Commission on August 19,
1999.
+++ Incorporated by reference to the Registrant's Report on Form 10-Q
for the quarter ended December 31, 1998.
(b) The following Reports on Form 8-K were filed by the Registrant
during the period covered by this report.
1. Report on Form 8-K filed on April 1, 1999 disclosing the
Registrant's adoption of its Stockholder Rights Plan.
2. Report on Form 8-K on July 13, 1998 disclosing the
Registrant's acquisition of all the outstanding shares
of capital stock of Johnson Engineering Corporation, a
Colorado corporation.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
SPACEHAB, Incorporated
By: /s/ Dr. Shelley A. Harrison
---------------------------
Dr. Shelley A. Harrison
Chairman of the Board and
Chief Executive Officer
Date: September 16, 1999
By: /s/ Mark A. Kissman
---------------------------
Mark A. Kissman
Vice President of Finance and Chief
Financial Officer
Date: September 16, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of this
registrant in the capacities and on the dates indicated.
/s/ Hironori Aihara Director September 16, 1999
- ------------------------------------
Hironori Aihara
/s/ Robert A. Citron Director September 16, 1999
- ------------------------------------
Robert A. Citron
Dr. Edward E. David, Jr. Director September 16, 1999
- ------------------------------------
Dr. Edward E. David, Jr.
/s/ Dr. Shi H. Huang Director September 16, 1999
- ------------------------------------
Dr. Shi H. Huang
/s/ Chester M. Lee Director September 16, 1999
- ------------------------------------
Chester M. Lee
/s/ Dr. Brad M. Meslin Director September 16, 1999
- ------------------------------------
Dr. Brad M. Meslin
/s/ Gordon S. Macklin Director September 16, 1999
- ------------------------------------
Gordon S. Macklin
Josef Kind Director September 16, 1999
- ------------------------------------
Josef Kind
/s/ Alvin L. Reeser Director September 16, 1999
- ------------------------------------
Alvin L. Reeser
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52
/s/ James R. Thompson Director September 16, 1998
- ------------------------------------
James R. Thompson
Guiseppe Viriglio Director September 16, 1998
- ------------------------------------
Guiseppe Viriglio
51