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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, 2002.
[_] 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 August
23, 2002, 12,154,465. Aggregate market value of Common Stock (no par value) held
by non-affiliates of the registrant on August 23, 2002, based upon the closing
price of the Common Stock on the Nasdaq National Market of $1.01 was
approximately $12,276,010.
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 November 12, 2002.
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) statements under "Products
and Services," "Company Strategy," "Dependence on a Single Customer," "Research
and Development," "Competition" and "Backlog" in Item 1 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General" and "Liquidity and Capital Resources" in 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, continued utilization by NASA and others of the Company's
habitat modules and related commercial space assets, completion of the
International Space Station ("ISS"), continued availability and use of the U.S.
Space Shuttle system, 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 Inc. ("SPACEHAB" or "the Company") was incorporated in 1984. It is the
first Company to commercially develop, own and operate pressurized habitat
modules. SPACEHAB habitat modules and unpressurized cargo carriers provide
space-based research facilities and cargo services for use aboard the U.S. Space
Shuttle system. A SPACEHAB Single Module, when installed in the payload bay of a
Space Shuttle, more than doubles the space available to astronauts for research,
habitation and storage. SPACEHAB offers its modules in single and double
versions, outfitted for research, logistics, or a combination research and
logistics depending on customer needs. SPACEHAB's newest space flight asset is
the Research Double Module ("RDM"). The Company also offers an unpressurized
cargo carrier system, the Integrated Cargo Carrier ("ICC").
SPACEHAB modules can accommodate a combination of lockers, racks and soft
stowage arrangements. They are outfitted to support laboratory research in the
microgravity environment of space and also are capable of transporting food,
clothing, equipment and other vital supplies to the International Space Station
("ISS"). The Company sells research and logistics services to NASA and other
customers who want to use the modules and carriers in space. In addition to its
flight assets, SPACEHAB offers a full range of ground-based pre- and post-flight
experiment and payload processing services and in-flight operations support. As
of June 30, 2002, SPACEHAB modules and ICCs had flown 17 successful missions on
the Space Shuttle, including 12 logistics missions (five to the ISS and seven to
the Russian space station Mir).
On February 12, 1997, SPACEHAB acquired the operating assets and business of
Astrotech Space Operations Inc. ("Astrotech") from Northrop Grumman Corporation.
Astrotech is a leading commercial provider of satellite processing services in
the United States, supplying launch-site facilities used in the preparation of
satellites by satellite manufacturers and space launch companies including
Lockheed Martin Corporation ("Lockheed Martin"), The Boeing Company ("Boeing")
and Orbital Sciences Corporation. In fiscal year 2002, Astrotech completed an
additional facility in Titusville, Florida to process payloads for Evolved
Expendable Launch Vehicles ("EELV") primarily for Lockheed Martin and Boeing.
The Astrotech acquisition diversified SPACEHAB's customer base and broadened the
Company's business base to include services that support satellite launches as
well as human space flight activities.
SPACEHAB expanded its capability to support human space flight activities by
acquiring Johnson Engineering Corporation ("JE") on July 1, 1998. With over 460
employees, JE supplies several critical services to NASA including flight crew
training operations support, facility operations, and fabrication of space
vehicle mockups and trainers at NASA's Neutral Buoyancy Laboratory ("NBL") and
Space Vehicle Mockup Facility ("SVMF"), where
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astronauts train for Space Shuttle and ISS missions. JE also designs and
fabricates flight hardware and provides stowage integration services and ISS
configuration management support.
On April 11, 2000, the Company announced the formation of Space Media Inc.
("SMI"), a majority-owned subsidiary intended to create proprietary space-themed
content for education and commerce. In fiscal year 2001, SMI acquired The Space
Store, an online retail operation, anticipating that e-commerce would become an
integral part of its Internet business. The Space Store currently offers an
assortment of space-related products through its website, www.spacestore.com.,
and a retail facility adjacent to Space Center Houston. In fiscal year 2002, SMI
activities were refocused to develop content for the STARS Academy global
education program and pursue corporate promotion and advertising opportunities.
As part of Space Media, the STARS program currently is planning to launch six
experiments designed by students in Australia, China, Israel, Japan,
Liechtenstein and the United States on Space Shuttle mission STS-107, currently
scheduled to launch in January 2003. The results of these experiments will be
available online at www.starsacademy.com/sts107.
In fiscal year 2000, SPACEHAB began design and construction of a commercial
space station habitat module, in partnership with RSC Energia of Korolev,
Russia. Named Enterprise(TM), this multipurpose module is intended to be
attached to the ISS and could provide space station users habitation space,
stowage space, communications, power and other utilities, and laboratory
facilities for long-duration research. In the year ended June 30, 2001, SPACEHAB
and Energia formed the Space Station Enterprise LLC ("SSE LLC"), a Delaware
limited liability corporation, to complete development of Enterprise. SPACEHAB
and Energia have an equal ownership interest in the SSE LLC. The LLC will be
responsible for completing required financing for Enterprise and marketing and
operating the facility planned as part of the ISS Russian Segment. Enterprise,
if completed, would be launched in 2005 based upon the current ISS assembly
schedule. Currently the ISS can only accommodate a three-person crew, which must
spend most of its time maintaining the ISS with very little time for science.
The ISS partners are in the process of evaluating four options, of which the
Enterprise module constitutes two of the options, to increase crew time once
requirements are clarified. The future utilization of Enterprise is expected to
be determined within the next 9-12 months. Enterprise is actively being marketed
to NASA and other potential users.
Company Strategy
SPACEHAB's goal is to be the world's leading provider of commercial space
products and services, including human space flight support, space station
logistics and satellite processing. SPACEHAB is committed to expanding its
business with NASA while also diversifying its customer base by targeting new
and related markets for space services. SPACEHAB's strategy for reaching these
goals is described below.
. Expanding the scope of business. SPACEHAB continues to focus on
expanding its core business -- building on existing assets and Company
expertise to offer new products and services. As it continues to
provide research and resupply services on Space Shuttle missions,
SPACEHAB is well positioned to anticipate emerging requirements for
products and services supporting human space flight. With its
acquisition of Astrotech in 1997 and JE in 1998, SPACEHAB diversified
its revenue and customer base by targeting new space services markets
in flight crew training support, facility operations and payload
processing. SPACEHAB intends to augment its current core competencies
by adding new services through strategic partnerships and innovative
engineering.
. Focusing on quality of service. SPACEHAB'S three business units
products are known for providing high quality services, consistently
earning excellent award fees and delivering flawless missions. SPACEHAB
has successfully completed 17 Shuttle missions to date. The Company
intends to maintain and enhance its reputation for product reliability,
process innovation and performance excellence.
. Maintaining its position as a low-cost service provider. SPACEHAB
offers space services to NASA and other customers, using Company-owned
and leased assets, on a fixed-price basis that the Company believes has
proven to be a significantly less expensive alternative to the
cost-plus basis used by conventional aerospace contractors. Through the
application of commercial best practices in the development and
operation of its hardware and facilities, SPACEHAB substantially
reduces the cost, time and complexity typically associated with
conventional government contractor services. SPACEHAB's JE subsidiary
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provides services to NASA under cost-plus award and incentive fee
contracts as requested by the customer. Cost-plus contracts require
separate pricing negotiations for individual task orders, allowing JE
to implement process improvements to reduce cost.
. Continuing entrepreneurial initiatives. SPACEHAB continues to develop
and offer innovative business arrangements to meet customer
requirements. The Company has repeatedly taken the initiative to
improve its modules and payload processing services and deploy new
assets in anticipation of customer needs. By focusing on quality, cost
and responsiveness and recruiting talented and experienced personnel
into its distinctly entrepreneur organization, SPACEHAB seeks to
distinguish itself as an innovative and effective provider of
commercial space services.
. Leveraging international strategic alliances. SPACEHAB seeks to create
and maintain strategic alliances with key international players in the
space industry. Existing relationships include Astrium GmbH (formerly
DaimlerChrysler Aerospace AG), Intospace GmbH, Mitsubishi Corporation,
RSC Energia and Alenia Spazio S.p.A. On August 2, 1999, Astrium
strengthened its strategic relationship with SPACEHAB by purchasing a
$12.0 million equity stake in the Company. 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.
Products and Services
SPACEHAB's business segments provide a range of products and services to the
aerospace market. Space Flight Services provides space research and space
station resupply services using pressurized habitat modules and unpressurized
cargo carriers that fly on NASA's Space Shuttle. Johnson Engineering supplies
critical services to NASA in support of human space flight, including flight
crew training support, facility operations, and fabrication of space vehicle
mockups and trainers. Astrotech is a leading commercial provider of satellite
processing services. Space Media Inc., a majority-owned subsidiary, operates the
STARS Academy global education program and also includes The Space Store, an
online retail operation. SPACEHAB's Strategic Programs segment is responsible
for developing flight hardware and formulating new business initiatives.
Flight Services
NASA and other users of the Space Shuttle and ISS must follow a complex set of
procedures to prepare payloads for launch, operate them in space, and process
them upon return. SPACEHAB's Flight Services business segment offers these users
affordable, customer-friendly, turn-key, fixed-price payload services using
Company-controlled assets. These services include payload scheduling, mission
planning, safety analysis and certification, physical integration with a carrier
(such as a SPACEHAB module), integration of carriers with the Space Shuttle,
flight operations, data gathering and synthesis, and launch and landing site
activities.
Flight Services is responsible for managing and operating the Company's fleet of
single and double modules, ICCs, and supporting equipment. Modules and carriers
are housed at the SPACEHAB Payload Processing Facility in Cape Canaveral,
Florida. SPACEHAB Single Modules are aluminum cylinders, measuring 10 feet in
length by 13.5 feet in diameter, that incorporate a patented design that
includes a truncated top and flat end caps. These fully instrumented modules
provide resources such as power, data management, thermal control and vacuum
venting. Single Modules (payload capacity 4,800 lb.) are employed primarily for
research and logistics missions. In fiscal year 1996, the Company completed
development of the Logistics Double Module ("LDM" - payload capacity 10,000
lb.), optimized for resupply and used by NASA to carry vital supplies to
cosmonauts and astronauts aboard the Russian space station Mir and the ISS.
In fiscal year 1997, the Company began full-scale development of its RDM
(payload capacity 9,000 lb.), outfitted to serve as a microgravity laboratory.
The RDM was completed in fiscal year 2001 and will make its first flight on NASA
Shuttle mission STS-107, currently scheduled to launch on January 16, 2003. With
the retirement of the government-owned Spacelab in 1998, SPACEHAB believes that
its flight-proven modules position the Company to be the top provider of
crew-tended space research capabilities for NASA's Space Fleet Shuttle.
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SPACEHAB developed the ICC system of unpressurized payload carriers to transport
cargo that does not require a pressurized environment. Cargo suitable for
transport on the ICC includes ISS assembly components, astronaut tools, and
spare parts. Based on a patented pallet technology (the Unpressurized Cargo
Pallet or "UCP"), the ICC flies in what is ordinarily unused volume in the front
of the Space Shuttle's cargo bay. It can be used alone or in combination with
SPACEHAB Single or Double Modules to provide the optimum mix of pressurized and
unpressurized cargo capacity on a single mission to the ISS. By expanding the
capabilities of the Space Shuttle and offering flexibility in the mix of
pressurized and unpressurized cargo carried on each mission, the ICC is a
cost-effective option for ISS logistics.
SPACEHAB completed construction of the ICC in fiscal year 2000. The ICC
initially flew on NASA's first supply mission to the ISS, Space Shuttle flight
STS-96, in May 1999. In fiscal year 2001, the Company sold its ICC assets to
Astrium and entered into an agreement with Astrium to lease back these assets
for a period of four years with two additional four-year options. Through fiscal
year 2002, the ICC had flown a total of five successful missions. Three more ICC
flights are under contract. To meet particular NASA requirements for
unpressurized cargo transport, SPACEHAB, in partnership with Astrium, developed
a Vertical Cargo Carrier ("VCC", designed and built for SPACEHAB by RSC
Energia). In fiscal year 2002, SPACEHAB completed construction of the VCC and
sold this asset to Astrium. The ICC system, including the VCC and other
derivatives, is a highly capable, flexible and adaptable payload transport
option.
Johnson Engineering
SPACEHAB's JE subsidiary provides customer-responsive management and operation
of complex facilities, high-end engineering services, high-fidelity flight
mockup design and development, and disciplined configuration management of
complex systems. JE performs several critical services for NASA, including
support of flight crew training operations, facility operations, stowage
integration, and ISS configuration management. JE provides flight mockups for
NASA's Neutral Buoyancy Laboratory and Space Vehicle Mockup Facility, where
astronauts train for Space Shuttle and ISS missions, and flight hardware such as
crew equipment and crew quarters habitability outfitting.
JE's Flight Crew Systems Development ("FCSD") contract with NASA is a cost-plus
award and incentive fee contract that commenced in May 1993 which was currently
scheduled to conclude on April 30, 2002. In the fourth quarter 2002, NASA
granted JE a five-month extension covering work from May 1 through September 30,
2002, plus options for three one-month extensions covering the period from
October 1 through December 31, 2002. NASA has exercised all three of these
one-month options, adding approximately $9 million in value and bringing the
total value of the 2002 contract extension to $23.2 million and the total value
of the contract from May 1993 through December 2002 to $391.3 million. NASA
intends to recompete elements of this contract for calendar year 2003 and
beyond. JE is competing to continue performing this work. NASA and JE are also
negotiating a bridge contract for stowage engineering and decal lab support,
which will cover work through December 31, 2003, with three two-month options
through June 30, 2004.
JE is also leveraging its experience in building high-fidelity space vehicle
mockups and trainers for NASA by developing additional commercial business in
museum exhibit design engineering and fabrication. In fiscal year 2002, JE
signed its first task order, for $1 million, under a new contract with KK.FTS
Group of Japan to build a mockup of the International Space Station laboratory
module Destiny for a new museum being built outside Tokyo. JE has also completed
development of a major exhibit for Shanghai ScienceLand in China.
Astrotech
SPACEHAB's Astrotech subsidiary provides payload processing services to the
satellite manufacturing and launch industries at Company-owned facilities in
Titusville, Florida, near the Kennedy Space Center/Cape Canaveral launch
complex, and at Vandenberg Air Force Base in California. Astrotech's payload
processing services include support for spacecraft final mechanical assembly,
electrical checkout, liquid propellant loading, solid rocket motor/ordnance
installation, payload fairing encapsulation, providing vehicles for transport of
payloads to the launch pad, and remote payload command and control through
countdown. Payload processing requires specialized facilities located near the
launch site. Astrotech's specialized facilities include environmentally
controlled and hazard-proof work areas, airlock systems, and overhead crane
systems.
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Astrotech has long-term contracts in place with Lockheed Martin and Boeing to
process payloads for EELVs. On August 21, 2002, Lockheed Martin successfully
completed its first launch of the new Atlas V EELV. In support of the Lockheed
Martin and Boeing contracts, Astrotech undertook a major facility expansion at
its Florida site at a cost of approximately $30.5 million, building a new
Spacecraft Processing Facility ("SPF") to support projected higher launch rates
and larger sized payloads associated with new EELVs. In August 2001, Astrotech
completed a $20 million financing of the expansion project. The new SPF,
completed and dedicated in October 2001, is intended to support all planned
configurations of the Delta IV and Atlas V EELVs. In fiscal years 2002 and 2001,
expenditures for this expansion were approximately $15.2 million and $9.9
million, respectively.
Astrotech also has agreements with Boeing to support the processing of all Sea
Launch Expendable Launch Vehicle ("ELV") payloads at Sea Launch facilities in
Long Beach, California, and with Orbital Sciences Corporation to support the
processing of ELV payloads.
In December 1998, Astrotech entered into a relationship with ATK (formerly
Alliant Tech Services Inc.) to develop a new sounding rocket system called the
Oriole. Astrotech completed a successful test launch of the Oriole on July 7,
2000, from NASA's Wallops Flight Facility in Virginia. In August 2001, following
SPACEHAB's adoption of a cost-reduction plan, Astrotech sold the assets of its
Oriole sounding rocket program to DTI Associates Inc. of Arlington, Virginia.
The sale, effective July 26, 2001, turns over all physical and intellectual
property assets of the Oriole program except for those required for Astrotech to
fulfill the terms of an agreement with an existing customer.
Astrotech is pursuing additional business opportunities, including the provision
of payload processing services to new U.S. government customers in the defense
and intelligence communities and support for new space launch facilities
internationally.
Space Media
On April 11, 2000, SPACEHAB announced the formation of SMI, a majority-owned
subsidiary intended to create proprietary space-themed content for education and
commerce. In fiscal year 2000, SMI acquired The Space Store, an online retail
operation, anticipating that e-commerce could become an integral part of its
Internet business. The Space Store currently offers space-related products
through its website, www.spacestore.com, and a retail facility in Houston,
Texas, near NASA's Johnson Space Center. In fiscal year 2001, SMI's focus was to
develop content for STARS Academy(TM) and to pursue corporate promotion and
advertising opportunities. STARS Academy is a global education program offering
students opportunities to learn about and even participate in research aboard
NASA's Shuttle and the ISS. As part of Space Media, the STARS Program currently
is planning to launch six student-designed experiments for schools in Australia,
China, Israel, Japan, Liechtenstein and the United States on Space Shuttle
mission STS-107, currently scheduled to launch in January 2003. In fiscal year
2002, due to limited funding opportunities in the education industry and a
struggling Internet content market, SMI reduced staffing and ended its marketing
program for the STARS Program.
Other Operations
SPACEHAB's Strategic Programs segment is responsible for new initiatives
intended to build on the Company's expertise, expand existing markets and
develop new markets. This segment is responsible for developing innovative,
affordable, "no-box" solutions to complex customer problems identified within
the space industry.
In fiscal year 2000, SPACEHAB began design and construction of a commercial
space station habitat module, in partnership with RSC Energia of Korolev,
Russia. Named Enterprise(TM), this multipurpose module is intended to be
attached to the ISS and could provide space station users habitation space,
stowage space, communications, power and other utilities, and laboratory
facilities for long-duration research. In the year ended June 30, 2001, SPACEHAB
and Energia formed the Space Station Enterprise LLC ("SSE LLC"), a Delaware
limited liability corporation, to complete development of Enterprise. SPACEHAB
and Energia have an equal ownership interest in the SSE LLC. The LLC will be
responsible for completing required financing for Enterprise and marketing and
operating the facility planned as part of the ISS Russian Segment. Enterprise,
if completed, would be launched in 2005 based upon the current ISS assembly
schedule. Currently the ISS can only accommodate a three-person crew, which must
spend most of its time maintaining the ISS with very little time for science. At
an ISS partners' meeting currently scheduled for November/December 2002, four
ISS configuration options will be reviewed and an option path may be
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endorsed. The future utilization of Enterprise is expected to be determined
within the next 9-12 months. Enterprise is actively being marketed to NASA and
other potential users.
In fiscal year 1996, SPACEHAB began development of a SPACEHAB Universal
Communications System ("SHUCS") for use on the ISS and Space Shuttle. The
Company invested $235,000 in this project during fiscal year 2002 and $6.0
million through the year ended June 30, 2002. SHUCS is a space-based commercial
communications system designed to provide significantly increased on-orbit
coverage using a reliable, low-bandwidth communication between Earth and
low-earth-orbit vehicles using the Inmarsat Satellite system. The system can be
used to communicate with the Space Shuttle or the ISS. As the SHUCS design is
essentially complete, the next phase of the program will be to build, integrate
and test the flight hardware, and outfit the ground communications facility. As
of June 30, 2002, SHUCS development was on hold pending a revised business case.
SPACEHAB initiated development of the Docking Double Module ("DDM") during the
second half of fiscal year 1999. DDM was conceived for the purpose of enabling
Columbia, the oldest and heaviest orbiter in NASA's Shuttle fleet, to support
ISS resupply operations. The DDM eliminates the need for the orbiter docking
module and ancillary attachment hardware by allowing orbiters to dock directly
to the roof of the Spacehab module. The DDM could increase orbiter payload
capacity and the orbiters' capability to "reboost" or restore the desired orbit
of the ISS. The DDM utilizes the design of the existing Spacehab modules, but
provides for a reinforced "roof" to allow direct docking to the ISS. As of June
30, 2002, DDM development was on hold pending a revised business case.
In 1998 SPACEHAB entered into a joint venture agreement with Guigne Technologies
Ltd. Of Canada to build SpaceDRUMSTM -- Dynamically Responding Ultrasonic Matrix
Systems -- a space-based facility using acoustic energy to position samples for
containerless processing. The Company's interest in the joint venture was
converted to an equity interest in Guigne Inc., the parent Company of Guigne
Technologies Ltd., effective January 1, 2000. The SpaceDRUMS facility is
completed and scheduled for launch to the ISS on Space Shuttle mission STS-114
no earlier than January 2003. SpaceDRUMS will be installed in the U.S. space
station laboratory module Destiny as a permanent facility. It is designed to
operate on the ISS for five years, supporting space-based research experiments
for NASA and commercial customers.
Industry Overview
Global public spending for space activities (civilian and military) totaled $38
billion in calendar year 2001, up from $37 billion in 2002, according to
Euroconsult. The United States, European Union, and Japan account for 95% of
this spending. The U.S. aerospace industry generated $151 billion in sales in
calendar year 2001, the Aerospace Industries Association of America ("AIA")
reports, up 3.3% over $146 billion in 2000. AIA projects that sales will decline
to $144 billion in calendar year 2002. NASA and other federal agencies
(excluding the Department of Defense) increased space spending by $927 million
to $14.3 billion in 2001. In the commercial satellite industry, sales were
strong through the mid-1990s and peaked in 2000, followed by a slow down in
2001, according to Euroconsult. The satellite market is expected to resume its
growth, however, by 2004.
With an annual budget approaching $15 billion, NASA is responsible for the U.S.
civilian space program. Approximately 81% of SPACEHAB's fiscal year 2002
revenues came from contracts with NASA and other government agencies. The
agency's Space Shuttle system and the ISS are the backbone of the U.S. Space
program, and human space flight programs account for almost half of the space
agency's fiscal year 2002 budget. SPACEHAB plays a key role in the Space Shuttle
and ISS programs, providing its fleet of modules and carriers along with
expertise in payload integration, flight crew systems development and space
station configuration management to NASA, other U.S. and foreign government
agencies, universities, and businesses. SPACEHAB anticipates that demand for its
modules and carriers to support space-based research, space-station resupply and
other flight requirements will grow throughout ISS assembly and operations.
The U.S. space program is focused on advancing scientific research, establishing
a permanent human presence in space, developing new technologies that contribute
to economic growth and security and fostering improved international relations
through peaceful cooperation in space with Europe, Japan, Russia and other
nations. SPACEHAB is focused on two markets: microgravity and space life
sciences research and space support services such as space station logistics and
resupply, ground operations and payload processing. The microgravity
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environment of space provides a unique opportunity to study physical, chemical,
and biological processes without the influence of gravity. Demand for access to
a microgravity environment can be divided into two broad categories: scientific
research and commercial applications. Customers for space flight services
supporting space-based research and development aboard the Space Shuttle and the
ISS include NASA, other government agencies, academic institutions, and private
companies. SPACEHAB provides single and double modules outfitted for laboratory
research as well as unpressurized cargo carriers equipped to carry research
projects and other payloads that do not require crew tending.
The ISS is the largest international engineering project ever undertaken. More
than a dozen nations, including the United States, Canada, Japan, Russia and
members of the European Union, are committed to building and operating the ISS.
Technical constraints and NASA funding limitations have delayed completion of
the ISS, and the agency has not yet committed to the final configuration of ISS
beyond the "core complete" phase, providing a space station crew of only three
and little crew time for research. Members of Congress, the science community,
and other constituencies are pressing NASA to commit to "assembly complete,"
accommodating a crew of six, without further delay and launch more frequent
Shuttle missions, in order to provide greater opportunities for space-based
research. The Enterprise module is one of the options under consideration to
achieve this goal. NASA is reviewing ISS planning and spending in order to
determine how to proceed toward completion of the project. The agency is not
expected to complete its ISS review until mid-2003. Because the ISS will achieve
the "core complete" configuration in approximately two years, the emphasis of
ISS program is transitioning from assembly to operations and utilization. In
order to prepare for this new emphasis, the ISS program office has announced its
intent to consolidate its current contracts into five to eight new contracts
designed to optimize performance in operations and utilization. Under the
current plan these contracts will be awarded beginning in 2003. SPACEHAB'S core
competencies directly support at least three of these consolidated contracts.
The Company has begun planning for these opportunities and expects to submit
proposals in 2003.
Competition
SPACEHAB ranked tenth on NASA's top-ten list of business contractors for the
agency's fiscal year 2000, with $101 million (0.9%) of contract awards. SPACEHAB
was the first small business (SIC Code 8731, less than 1000 employees) ever to
appear on this list. The other nine companies on the 2000 list were Boeing,
Lockheed Martin Corp., Raytheon Corp., Thiokol Corp., Northrup Grumman, United
Technologies Corp., Computer Sciences Corp., SAIC Inc., and TRW Inc. While
SPACEHAB competes with these companies in some market segments, no other
companies currently compete directly with SPACEHAB's core business in providing
pressurized modules and unpressurized cargo carriers that fly aboard the Space
Shuttle.
SPACEHAB provides research, logistics, infrastructure and payload processing
services to NASA and other users of the Space Shuttle, ISS, and ELV's. In April
1998, NASA terminated the government-owned and operated Spacelab program, which
provided laboratory modules for Shuttle missions. SPACEHAB developed RDM, a
commercial successor to Spacelab, under contract with Boeing (formerly McDonnell
Douglas Aerospace). SPACEHAB believes that the RDM will significantly outperform
Spacelab in technology, functionality and cost-effectiveness.
Boeing is NASA's prime contractor for the ISS, and United Space Alliance ("USA,"
a joint Boeing-Lockheed Martin initiative) is NASA's prime contractor for Space
Shuttle operations. SPACEHAB routinely collaborates with Boeing and USA on
Shuttle and ISS activities. SPACEHAB maintains a strategic partnership with
Astrium GmbH. In August 1999, Astrium executed a SPACEHAB stock purchase that
made it the largest single shareholder in the Company. Astrium also takes part
in joint programs with SPACEHAB. The Company's strategic relationships with
Mitsubishi Corporation and Energia may provide additional opportunities for
teaming and partnerships that management believes will enable the Company to
compete for greater market share.
SPACEHAB's JE subsidiary competes with companies that provide operations support
and, engineering and fabrication services to NASA. These competitors include
Boeing, Lockheed Martin, United Space Alliance, Barrios Technologies Inc.,
Hernandez Engineering Inc., Cimarron and Oceaneering Space Systems.
SPACEHAB subsidiary Astrotech's payload processing facilities are located in
Florida and California. At present, Astrotech's U.S. competition is limited to
the California launch site, at Vandenberg Air Force Base ("VAFB")
8
where Spaceport Systems International ("SSI") is located. SSI acquired surplus
U.S. Air Force facilities at the VAFB launch complex before Astrotech
established its facilities there. SSI does not have payload processing
facilities in Florida, where the majority of U.S. commercial satellite launches
occur.
SMI has no known direct competitors.
Dependence on a Single Customer
Approximately $83 million (81%) of SPACEHAB's revenue in fiscal year 2002 was
generated by two NASA contracts - Space Flight Services' Research and Logistics
Mission Support ("REALMS") contract and JE's Flight Crew Systems Development
("FCSD") contract.
A significant portion of the Company's revenue is currently generated from
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 depend upon the agency's
receipt of adequate annual appropriations from the U.S. Congress. Failure to
receive adequate funds could prompt NASA to terminate its contracts with
SPACEHAB "for convenience." For the government's fiscal year ended September 30,
2001, Congress appropriated $14.5 billion for NASA, including $2.1 billion for
the ISS. There is no assurance that future funding will be adequate for NASA to
complete all of its initiatives including those relating to contracts with
SPACEHAB. In calendar year 2002, issues facing NASA have included an ISS funding
shortfall that has prompted the agency to defer commitment to completion of the
ISS beyond a "core complete" state and Space Shuttle flight delays due to the
discovery of flaws in engine parts. 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" or government funding restrictions.
While Astrotech, Space Flight Services and JE contracts with commercial
customers provide additional revenue, SPACEHAB anticipates that NASA business
will continue to account for a significant amount of the Company's revenue over
the next several years. There are no assurances that NASA will require
SPACEHAB's services in the future. A failure to execute new contracts with NASA
would have a material adverse effect on the Company's financial condition and
results of operations. SPACEHAB continues to work on diversifying its customer
base to include private companies.
Backlog
As of June 30, 2002, and June 30, 2001, the Company's contract backlog was
approximately $211.5 million and $205 million, respectively, of which $117
million and $97 million, respectively, represented U.S. government backlog and
$94 million and $108 million, respectively, represented non-U.S. government
contracts.
Contract History
SPACEHAB's initial business strategy focused on anticipating customer
requirements, investing capital to develop space-flight assets, contracting with
established aerospace companies for engineering and asset production, and
retaining ownership of these assets. This strategy enabled SPACEHAB to obtain
three significant space flight-services contracts with NASA to date: a $184.2
million Commercial Middeck Augmentation Module ("CMAM") contract for five
missions, a $91.5 million contract for four missions and three option missions
(all of which were exercised) to the Russian space station Mir, and a $160.3
million Research and Logistics Mission Support (REALMS) contract initially for
four missions with pricing for six mission configurations. SPACEHAB continues to
operate under the REALMS contract, which provides an opportunity for the Company
to sell services to commercial customers as well as to NASA. Contracts with
commercial customers on STS-95, STS-101, STS-105, STS-107 and STS-123 account
for approximately $38.0 million in revenue.
The REALMS contract, signed in December 1997 and amended in October 1999,
requires SPACEHAB to provide single and double modules and unpressurized ICCs to
support research payloads and outfitting of the ISS. REALMS missions flown
include: STS-95, a research mission, October 1998; STS-96, a logistics mission,
May 1999; STS-101, logistics, May 2000; STS-106, logistics, September 2000;
STS-105, logistics, August 2001. REALMS
9
missions under contract but not yet launched include: STS-107, research,
calendar year 2003; STS-112, research, to be determined; STS-116, logistics,
calendar year 2003; and STS-118, logistics, calendar year 2003.
The REALMS contract permits the Company to provide space flight services to
commercial customers as well as to NASA on STS-95, STS-101, and STS-107. In
fiscal year 1998, the Company entered into agreements with NASDA, ESA, the
Canadian Space Agency (CSA) and the Japanese broadcasting agency NHK to provide
them hardware, integration and operations for experiments flown aboard the
SPACEHAB Single Research Module on STS-95. In fiscal year 2000, SPACEHAB
completed integration and operations efforts for STS-101, began integration and
operation efforts for STS-102, STS-105 and STS-106 and continued integration and
operation efforts for STS-107, recognizing $39.6 million in revenue for these
missions under the percentage-of-completion revenue recognition policy. In
fiscal year 2001, the Company completed integration and operations efforts for
STS-102 and STS-106 and continued integration and operations effects for
STS-105, STS-107, STS-114 and STS-112, recognizing $45.0 million in revenue for
these missions. In fiscal year 2002, the Company completed integration and
operations efforts for STS-105, continued integration and operations efforts for
STS-107, and began integration and operations efforts for STS-116 and STS-118.
The Mir contract, signed in July 1995, required SPACEHAB to provide single and
double module accommodations on four Space Shuttle flights for resupply missions
to Mir. The fourth mission, STS-84, was completed successfully in May 1997. In
September 1996, the Company entered into agreements with the National Space
Development Agency of Japan (NASDA) and the European Space Agency (ESA) to
provide them with hardware integration and operations for experiments on STS-84.
In June 1997, NASA exercised three options under the Mir contract for additional
resupply missions. These options, worth a total of $39.0 million, called for two
logistics double module missions and one single module mission. These missions
were successfully completed in September 1997, January 1998 and June 1998.
The CMAM contract, signed in November 1990, required SPACEHAB to furnish NASA
with SPACEHAB module accommodations on five Space Shuttle missions for
experiments developed by NASA-sponsored Centers for the Commercial Development
of Space. The fifth CMAM mission was completed successfully during September
1996.
JE operates primarily under the FCSD contract, a multitask cost-plus-award and
incentive-fee contract whose total value is currently $391.3 million, for the
period from May 1993 through December 2002. In fourth quarter 2002, NASA granted
JE a five-month FCSD contract extension covering work from May 1 through
September 30, 2002, plus options for three one-month extensions covering the
period from October 1 through December 31, 2002. NASA has exercised all three of
these one-month options, adding approximately $9 million in value and bringing
the total value of the 2002 contract extension to $23.2 million. NASA intends to
recompete elements of this contract for calendar year 2003 and beyond. JE is
competing to continue performing this work. JE performs several critical
services for NASA including support of flight crew training operations and
fabrication of space flight mockups at NASA facilities where astronauts train
for Space Shuttle and ISS missions. Two contracts have a period of performance
through the end of 2003, crew services and ISS configuration management. JE also
provides stowage integration services and designs and fabricates space flight
hardware, such as crew equipment and crew quarters habitability outfitting. JE
is responsible for configuration management support to the ISS program under a
contract won in a competitive bid in 2001. For fiscal years 2002, 2001 and 2000,
JE recognized revenue of $40.5 million, $53.5 million and $58.2 million,
respectively.
In fiscal year 2002, Astrotech completed a major facility expansion at its
Florida site at a cost of approximately $30.5 million, building a new Spacecraft
Processing Facility ("SPF") to support projected higher launch rates and larger
sized payloads associated with new EELVs. In August 2001, Astrotech completed a
$20 million financing of the expansion project. The new SPF, completed and
dedicated in October 2001, is intended to support all planned configurations of
the Delta IV and Atlas V EELVs
In fiscal year 2000, SPACEHAB's Astrotech subsidiary completed negotiations of
long-term extensions to payload processing contracts with its two largest
customers, Boeing and Lockheed Martin. The total revenue under these contracts
is approximately $85 million. Astrotech also has payload processing contracts in
place with Boeing Sea
10
Launch and Orbital Sciences Corporation. Astrotech has successfully supported
the processing of over 150 satellites since the beginning operations in 1985 and
continues to be recognized as the industry leader in commercial satellite
processing. For fiscal years 2002, 2001 and 2000, Astrotech recognized revenues
of $9.9 million, $6.2 million and $7.6 million, respectively.
Research and Development
SPACEHAB incurred $383,000, $393,000 and $2.4 million in research and
development expenditures during fiscal years 2002, 2001 and 2000, respectively.
Approximately $222,000 of the Company's research and development expenditures
for fiscal year 2002 was spent on development of the Enterprise module. The
remainder of $161,000 was spent on miscellaneous research and development
projects in 2002.
Approximately $139,000 of the Company's research and development expenditures
for fiscal year 2001 was spent completing development of Astrotech's Oriole
sounding rocket program, and $166,000 was spent on development of a Lightweight
Tunnel to replace and improve upon the pressurized tunnel that NASA now uses to
connect the Space Shuttle middeck to SPACEHAB modules in the Shuttle's cargo
bay. The remainder of $88,000 was spent on miscellaneous research and
development projects.
Approximately $1.1 million of SPACEHAB's research and development expenditures
for fiscal year 2000 was spent on development of the Oriole program. In
addition, $0.5 million was spent on development of the Enterprise module, and
$0.8 million was spent on various studies conducted by third parties.
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, 2002, the Company and its wholly and majority-owned
subsidiaries employed 595 regular fulltime employees, 460 are employed by JE, 99
are employed by SPACEHAB, 28 are employed by the Astrotech subsidiary, and 4 are
employed by the SMI subsidiary. Of these employees, approximately 11% hold
advanced degrees, including 8 individuals 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 and majority-owned subsidiaries, Astrotech,
JE, and Space Media currently occupy 10 locations. The corporate headquarters
which had been located at 300 D Street SW, Suite 814, Washington, DC 20024 was
re-designated at 12130 State Highway 3, Webster, TX 77598. The office at 300 D
Street SW, Suite 814, Washington, DC consists of 15,499 square-feet of office
space and houses 11 employees including portion of SPACEHAB's executive
management, finance and marketing team. The term of the present lease expires on
December 16, 2007. As of June 30, 2002, the Company sublet the entire space
through the end of the term of the Company's lease and is currently leasing a
small office in Washington, D.C. on a month to month basis.
11
SPACEHAB has 99 employees encompassing executive management, sales and
marketing, flight services and JE employees located at 12130 State Highway 3,
Webster, TX 77598. The facility consists of 126,000 square feet of
non-contiguous office and manufacturing space located near the Johnson Space
Center. The term of the lease is for two and a half years and expires on March
15, 2003.
SPACEHAB also leases offices at 1331 Gemini Avenue, Suites 300 and 310,
Houston, Texas 77058. The Houston offices consist of approximately 23,000 square
feet of non-contiguous office space located near the Johnson Space Center. The
lease has a five-year term commencing March 1, 1998, and expiring February 28,
2003. On May 1, 2002 the Company terminated the lease on 11,735 square feet of
space and on July 1, 2002 the Company signed a lease with a subtenant for 2,550
square feet of space leaving the Company with 8,695 square feet of space to
sublease. The Company is actively seeking a subtenant for the remaining space.
The Company's Flight Services payload processing facility, housing a
4-person operations team, is located near the Kennedy Space Center in Cape
Canaveral, Florida. The facility is contained in an approximately 58,000
square-foot plant. The Company owns the building that houses the payload
processing facility but 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 unpressurized flight assets. 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.
SPACEHAB occupies 23,000 square feet of office space located at 6000
Technology Drive in Huntsville, Alabama housing the Company's subcontractor
personnel. The lease expires on September 30, 2004.
Astrotech occupies two locations. Astrotech's headquarters and Florida
operations teams, consisting of 18 personnel, are located in a nine-building,
owned facility at 1515 Chaffee Drive, Titusville, Florida 32780. This 140,000
square-foot facility supports non-hazardous and hazardous material processing,
payload storage and customer offices. The construction of the new 50,000 square
foot space craft processing facility was completed in March 2002. These
buildings presently occupy one-third of the 62-acre property owned by Astrotech,
with one-third available for expansion and the remaining one-third reserved for
hazardous facility safety clearances.
Astrotech has a 2-person technical staff located on Vandenberg Air
Force Base in Santa Barbara County, California. Astrotech presently rents a
60-acre site on the Air Force Base and owns five buildings comprising 18,800
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 the
lessor's option, to the lessor at no cost.
Additionally, Astrotech has nine employees who are housed at the Sea
Launch facility in Long Beach, California.
JE occupies two locations. Its headquarters are located at 555 Forge
River Road, Suite 150, Webster, Texas 77058. The headquarters house JE's
87-person engineering team within a 31,114 square-foot facility. This office
lease expires on June 28, 2003.
JE also occupies approximately 9,826 square feet of space at 18100
Upper Bay Road, Houston, Texas 77058 that houses an 11-person engineering and
laboratory team. The lease will expire on December 31, 2002.
SMI, Space Store, has 4 employees and occupies approximately 1,000
square feet of space located at 1400 NASA Road One, Suite E., Houston, TX 77058.
The lease expires on August 2006.
12
Additionally, JE has more than 365 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. Legal Proceedings
On June 21, 2002, Escott Ventures II, LLC ("ESV") filed Case Number
1:02CV01236 in the U.S. District Court for the District of Columbia against
Space Media, Inc., SPACEHAB, Inc., Shelley A. Harrison and Julia A. Pulzone
(collectively, "Defendants"). This suit relates to ESVs investment in Space
Media, Inc., and asserts claims for federal securities fraud, fraud in the
inducement, common law fraud, negligent misrepresentation, breach of contract,
breach of duty of good faith and fair dealing, tortuous interference with
contractual relations and conspiracy to commit fraud. ESV seeks rescission of
its contract and return of its $750,000 investment, plus unspecified expenses,
consequential damages, exemplary and punitive damages, prejudgment interest, and
costs and disbursements, including attorney and expert fees. Defendants answered
the complaint on July 17, 2002, asserted a number of affirmative defenses, and
intend to contest the case vigorously. The parties have subsequently agreed to
engage in mediation in an attempt to resolve this matter.
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 the year ended June 30, 2002.
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 closing stock
prices for fiscal years 2002 and 2001 are as follows:
Fiscal 2002 High Low
- ----------- ---- ---
First Quarter $2.600 $1.370
Second Quarter $1.660 $0.600
Third Quarter $1.839 $0.730
Fourth Quarter $1.650 $1.000
Fiscal 2001 High Low
- ----------- ---- ---
First Quarter $6.406 $4.375
Second Quarter $5.750 $2.063
Third Quarter $3.083 $2.000
Fourth Quarter $2.091 $2.063
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 August
16, 2002, 12,154,465 shares of Common Stock were outstanding. The Company had
approximately 2,946 shareholders of record and beneficial holders of its Common
Stock on June 30, 2002.
13
On August 2, 1999, Astrium, a related party and a shareholder,
purchased an additional $12.0 million equity stake in SPACEHAB representing
1,333,334 shares of Series B Senior Convertible Preferred Stock. Under the
agreement, Astrium, a related party, purchased all of SPACEHAB's 975,000
authorized and unissued shares of preferred stock. At the annual stockholders
meeting held on October 14, 1999, the shareholders approved the proposal to
increase the number of authorized shares of preferred stock to 2,500,000, in
order to complete the transaction with Astrium, a related party, allowing them
to purchase the additional 358,334 preferred shares. The preferred stock
purchase increased Astrium's, a related party, and investment interest in
SPACEHAB to approximately 11.5%. 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.
Sales of Unregistered Securities
During fiscal year 2002, the Company did not issue any unregistered
securities.
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.
Year Ended Year Ended Year Ended Year Ended Year Ended
June 30 June 30 June 30 June 30 June 30
-------------------------------------------------------------------
1998 1999 2000 2001 2002
-------------------------------------------------------------------
(in thousands, except per share data)
Statement of Operations Data:
Revenue $ 64,087/1/ $107,720/5/ $105,708 $105,254 $102,773
Costs of revenue 36,321 89,283 87,931 92,243 81,767
-------------------------------------------------------------------
Gross profit 27,766 18,437 17,777 13,011 21,006
Selling, general and administrative 13,712 14,599 17,832/6/ 21,796 19,507/9/
expenses
Research and development expenses 2,620 3,636 2,440/7/ 393 383
-------------------------------------------------------------------
Operating income (loss) 12,697 202 (2,495) (9,178) 1,116
Interest expense, net of capatalized 4,480 4,905 3,773 4,804 5,533
amounts
Net income (loss) 9,604 (2,589) (3,844) (12,785)/8/ (2,367)
Net income (loss) per common share - $0.84 ($0.23) ($0.34) ($1.12) ($0.20)
Diluted/2/
Shares used in computing net income 14,571 11,185 11,273 11,400 11,884
(loss) Per common share - diluted/2/
Other Data:
Cash provided by (used for) operations $ 31,604 ($6,331) $ 1,424 $ 17,124 $ 8,592
Total investing activities 23,113/3/ 58,619/4/ 29,794 23,076 13,716
Balance Sheet Data (at period end):
Working capital (deficiency) $ 62,660 $ 12,374 ($1,601) ($41,424) ($22,022)
Total assets 220,604 204,346 225,109 222,477 220,826
Long-term debt, excluding current 85,322 78,810 75,901 64,589 82,416
portion
Stockholders' equity 96,408 94,165 102,702 90,356 87,670
14
/1/ 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.
/2/ 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 share. Earnings per share
for FY 1994 through FY 1997 have been restated to reflect the provisions of
this new standard.
/3/ Includes $20.1 million of consideration for the purchase of Astrotech.
/4/ Includes $24.7 million of consideration for the purchase of JE and a $1.4
million investment in a joint venture.
/5/ Includes revenues of $58.4 million generated by JE subsequent to its
acquisition on July 1, 1998.
/6/ Includes approximately $1.8 million of expenses associated with the startup
of SMI.
/7/ Includes approximately $0.5 million of expenses associated the Enterprise
module.
/8/ Includes approximately $3.3 million of non-cash expense to record a full
valuation allowance on the Company's deferred tax asset.
/9/ Includes approximately $0.8 million of non-cash expenses related to
subleasing of excess facilities.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
SPACEHAB was incorporated in 1984 to commercially develop space habitat
modules to operate in the cargo bay of NASA's Space Shuttles. SPACEHAB, along
with its Johnson Engineering Corporation ("JE"), Astrotech Space Operations,
Inc. ("Astrotech"), and Space Media, Inc. ("SMI") subsidiaries define the
Company.
SPACEHAB's Flight Services business unit generates revenue by providing
a turnkey service that includes access to the modules and unpressurized cargo
carriers and integration and operations support to scientists and researchers
responsible for the experiments and/or logistics supplies for module missions
aboard the Space Shuttle System and under the FCSD Contract. Revenue generated
under the REALMS Contract and for new contract awards for which the capability
to successfully complete the contract can be demonstrated at contract inception,
revenue is recognized under the percentage-of-completion method and is being
reported based on costs incurred over the period of the contract. With respect
to the FCSD cost-plus award and incentive fee contract, revenue is recognized
based on costs incurred plus a proportionate amount of estimated fee earned.
Revenue provided by Astrotech's payload processing services is recognized
ratably over the occupancy period of the satellite while in the Astrotech
facilities. Under the multi-year contracts for payload processing services with
commercial launch vehicle providers, revenue is billed and recognized on a
quarterly basis as cost are incurred.
JE primarily operates under the FCSD Contract which is currently a
$391.3 million multitask cost-plus-award and incentive-fee contract. The
contract commenced in May 1993 and was scheduled to conclude in September 2002.
Subsequent to June 30, 2002, NASA exercised its option to extend the contract
through December 2002. The contract is currently in the recompete process with a
contactor selection expected by NASA in the fall of 2002. JE performs services
under a cost-plus award and incentive fee contract for government services that
is requested and directed by NASA.
Astrotech revenue is generated from various multi-year fixed-price
contracts with satellite and launch vehicle providers. The services and
facilities Astrotech provides to its customers support the final assembly,
checkout and countdown functions associated with preparing a satellite for
launch. 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. Under the multi-year contracts for payload processing services with
commercial launch vehicle providers, revenue is billed and recognized on a
quarterly basis as cost are incurred. Costs incurred by Astrotech are recognized
as incurred.
On April 11, 2000, SPACEHAB announced the formation of SMI, a
majority-owned subsidiary intended to create proprietary space-themed content
for education and commerce. In fiscal year 2000, SMI acquired The Space Store,
an online retail operation, anticipating that e-commerce could become an
integral part of its Internet business. The Space Store currently offers
space-related products through its website, www.spacestore.com, and a retail
15
facility in Houston, Texas, near NASA's Johnson Space Center. In fiscal year
2001, SMI focused on content development and subscription expansion for STARS
Academy(TM), corporate promotion and advertising opportunities, and creation of
a library of content for redistribution through various media channels. STARS
Academy is a global education program offering students opportunities to learn
about and even participate in research aboard NASA's Shuttle and the ISS. As
part of Space Media, the STARS Program currently is planning to launch six
student-designed experiments for schools in Australia, China, Israel, Japan,
Liechtenstein and the United States on Space Shuttle mission STS-107, currently
scheduled to launch in January 2003.
The Company's revenues for the year ended June 30, 2002 were primarily
generated from the REALMS contract and contracts with related commercial
customers in its flight services segment with one mission flown in August 2001,
and the FCSD contract with JE. The Company's revenues for the year ended June
30, 2001 were primarily generated from the REALMS contract and contracts with
related commercial customers, with two missions flown in September 2000 and
March 2001, and the FCSD contract with JE. The Company's revenues for the year
ended June 30, 2000 were primarily generated from the REALMS contract and
contracts with related commercial customers, with one mission flown in May 2000
and the FCSD with JE.
Costs of revenue include integration and operations expenses associated
with the performance of two types of efforts: (i) sustaining engineering in
support of all missions under a contract and (ii) mission specific support.
Costs associated with the performance of the contracts using the
percentage-of-completion method of revenue recognition are expensed as incurred.
Costs associated with the cost-plus-award and incentive fee contracts are
expensed as incurred by JE. Other costs of revenue include depreciation expense
and costs associated with the Astrotech payload processing facilities. Flight
related insurance covering transportation of the SPACEHAB Modules from
SPACEHAB's payload processing facility to the Space Shuttle, in-flight insurance
and third-party liability insurance are also included in costs of revenue and
are recorded as incurred. Selling, general and administrative and interest and
other expenses are recognized when incurred.
Critical Accounting Policies
Revenue Recognition. SPACEHAB's Flight Services business unit's revenue is
derived primarily from long-term fixed- price contracts with the US Government
and commercial customers. Revenue under these contracts is recognized using the
percentage of completion method of accounting. Such revenues are recorded based
on the percentage of costs incurred in the applicable reporting period as
compared to the most recent estimates of costs to complete each mission.
Estimating future costs and, therefore, revenues and profits, is a process
requiring a high degree of management judgment. Management bases its estimate on
historical experience and on various assumptions that are believed to be
reasonable under the circumstances. Costs to complete include, when appropriate,
material, labor, subcontracting costs, lease costs, commissions, insurance and
depreciation. Reviews of the status of contracts are performed by business
segment personnel through periodic contract status and performance reviews. In
the event of a change in total estimated contract cost or profit, the cumulative
effect of such change is recorded in the period in which the change in estimate
occurs.
Intangible Assets. In assessing the recoverability of goodwill and other
intangibles, the Company must make assumptions regarding the estimated future
cash flows and other factors to determine the fair value of the respective
assets. If these circumstances or their related assumptions change in the
future, the Company may be required to record impairment charges for these
assets. The Company adopted Statement of Financial Standards No. 142, "Goodwill
and Other Intangible Assets", on July 1, 2002, under which the Company will
cease to amortize goodwill and will be required instead to analyze goodwill at
least annually for impairment issues.
Long-Lived Assets. In assessing the recoverability of long-lived assets,
fixed assets and assets under construction, the Company evaluates the
recoverability of those assets in accordance with the provisions of Statements
of Financial Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of". This Statement requires
that certain long-lived fixed assets of the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset
16
exceeds the fair value of the asset. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Results of Operations
Fiscal Year Ended June 30, 2002 as Compared to the Fiscal Year Ended June 30,
2001
Revenue. The Company's revenue decreased slightly from last year at
approximately $102.8 million for the year ended June 30, 2002, as compared to
$105.3 million for the year ended June 30, 2001. For the year ended June 30,
2002, $51.4 million was recognized from the REALMS Contract and related
commercial customers, $40.5 million from JE, $9.9 million from Astrotech, $0.7
million from SMI and $0.3 million of miscellaneous revenue. For the year ended
June 30, 2001, $45.0 million was recognized from the REALMS Contract and related
commercial customers, $53.5 million from JE, $6.2 million from Astrotech, $0.5
million from SMI and $0.1 million of miscellaneous revenue. The increase in
revenue under the REALMS Contract and related commercial customers is due
primarily to an increase in contract value resulting from the extended launch
date of STS-107. Revenue at JE declined primarily due to the deletion of certain
tasks under the FCSD contract partially offset by an increase in commercial
contract revenue. Astrotech's revenue increase is due primarily to the structure
of the multiyear contracts with its two largest customers, Boeing and Lockheed,
whereby revenue is billed and recognized on a quarterly basis for cost incurred.
SMI's revenue increase is primarily the result of the increased revenue
generated by the Space Store.
Costs of Revenue. Costs of revenue for the year ended June 30, 2002
decreased 11% to approximately $81.8 million, as compared to $92.2 million for
the year ended June 30, 2001. For the year ended June 30, 2002, $29.8 million of
costs were for integration and operation costs under the REALMS Contract and
related commercial customers, $37.3 million for cost of revenue at JE, $4.2
million for integration and operations at Astrotech, $0.5 million for SMI, $0.2
million of miscellaneous cost of goods sold and depreciation of $9.7 million. In
contrast, the primary costs of revenue for the year ended June 30, 2001 included
$31.1 million of costs for integration and operation costs under the REALMS
Contract and related commercial customers, $49.8 million for cost of revenue at
JE, $4.3 million for integration and operations at Astrotech, $0.4 million for
cost of revenue at SMI and depreciation of $6.6 million. Cost of revenue
decreased under the REALMS Contract and related commercial customers contracts
primarily as the result of the mix of missions flown and cost savings due to
launch date extensions. Cost of revenue at JE decreased primarily due to the
deletion of certain tasks under the FCSD contract partially offset by increased
costs under its commercial contracts. JE recognized costs in excess of revenue
of $1.0 million for a commercial contract. Cost of revenue remains relatively
unchanged at Astrotech. Cost of goods sold at SMI increased primarily due to the
increase of sales at the Space Store. Depreciation increased due primarily to
the inclusion of a full year of depreciation on the RDM for the year ended June
30, 2002.
Operating Expenses. Operating expenses decreased by 10% to approximately
$19.9 million for the year ended June 30, 2002, as compared to $22.2 million for
the year ended June 30, 2001. Selling, general and administrative ("SG&A")
expenses decreased $2.3 million from the year ended June 30, 2001 due primarily
to Company wide cost reduction actions. SMI's expenses decreased approximately
$3.3 million associated with the downsizing of the SMI operation partially
offset by $2.0 million of increased expenses associated with the Company's bid
and proposal efforts to win the NASA Microgravity contract. In addition, the
Company recognized $0.8 million of expense for excess facilities that have been
sublet. Astrotech's SG&A expenses decreased approximately $0.2 million due to
staff and facility cost reductions relative to the sale of the sounding rocket
business. SG&A at SPACEHAB was reduced by approximately $0.3 million due to a
reduction in depreciation expense for assets that reached the end of their
depreciable lives. SG&A expenses at JE decreased by approximately $1.0 million
due primarily to a reduction in facilities costs of $0.3 million, reduction in
bid and proposal costs $0.1 million, reduction in management information
expenses $0.3 million and approximately $0.3 million in other expense
categories. SG&A expenses relative to Enterprise decreased approximately $0.2
million.
Research and development costs for the year ended June 30, 2002 as compared
to the year ended June 30, 2001 were essentially unchanged at approximately $0.4
million and $0.4 million, respectively.
17
Interest Expense, Net of Capitalized Interest. Interest expense was
approximately $8.0 million and $7.5 million for the years ended June 30, 2002
and June 30, 2001, respectively. In the year ended June 30, 2002, the Company
incurred interest on the mortgage for the Astrotech facility expansion. $1.3
million of interest expense was capitalized in 2002 as compared to $2.7 million
in 2001. Interest is capitalized on the in-progress construction of the
Company's modules and payload processing facilities.
Interest and Other Income, Net. Interest and other income was approximately
$1.2 million and $0.3 million for the years ended June 30, 2002 and 2001,
respectively. The Company recognized a gain of approximately $1.1 million on the
sale of the Oriole Sounding Rocket assets during the year ended June 30, 2002.
Interest income is earned by the Company through the short-term investment of
available funds.
Net Loss. The net loss for the year ended June 30 2002 was approximately
$2.4 million, or $0.20 per share (basic and fully diluted EPS), on 11,884,309
shares as compared to approximately $12.8 million, or $1.12 per share (basic and
fully diluted EPS), on 11,400,482 shares for the year ended June 30, 2001. The
net loss for the year ended June 30, 2002 included a non-cash charge of $0.8
million for the loss on excess facilities, in Washington, DC and Houston, TX.
The net loss for the year ended June 30, 2001 included a $3.3 million non-cash
charge to record a full valuation allowance on the Company's deferred tax asset.
Income tax benefit for the year ended June 30, 2001 was ($0.9). As of June 30,
2002, the Company had approximately $40.7 million of available net operating
loss carry-forwards expiring between 2007 and 2021 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 the
years ended June 30, 2002 and 2001.
Fiscal Year Ended June 30, 2001 as Compared to the Fiscal Year Ended June 30,
2000
Revenue. The Company's revenue essentially remained unchanged from last
year at approximately $105.3 million for the year ended June 30, 2001 as
compared to $105.7 million for the year ended June 30, 2000. For the year ended
June 30, 2001, $45.0 million was recognized from the REALMS contract and related
commercial customers, $53.5 million from JE, $6.2 million from Astrotech and
$0.5 million from SMI, $0.1 million of miscellaneous revenue. For the year ended
June 30, 2000, $39.6 million was recognized from the REALMS contract and related
commercial customers, $58.2 million from JE, $7.6 million from Astrotech and
$0.3 million of miscellaneous revenue. The increase in revenue under the REALMS
contract and related commercial customers is due primarily to an increase in
contract value due to a two-year slip in the launch date of STS-107. Revenue at
JE declined primarily due to the deletion of certain tasks under the FCSD
contract partially offset by an increase in commercial contract revenue.
Astrotech's revenue decline is primarily the result of the impact of a reduced
number of launches, of customer launch vehicle failures, which have been
subsequently corrected, and the bankruptcies of Iridium and ICO Satellite
Systems. SMI had no revenue for the year ended June 30, 2000.
Costs of Revenue. Costs of revenue for the year ended June 30, 2001,
increased 5% to approximately $92.2 million, as compared to $87.9 million for
the year ended June 30, 2000. For the year ended June 30, 2001, $31.1 million of
costs were for integration and operation costs under the REALMS Contract and
related commercial customers, $49.8 million for cost of revenue at JE, $4.3
million for integration and operations at Astrotech, $0.4 million for SMI and
depreciation of $6.6 million. In contrast, the primary costs of revenue for the
year ended June 30, 2000, $24.7 million of costs were for integration and
operation costs under the REALMS Contract and related commercial customers,
$53.1 million for cost of revenue at JE, $4.7 million for integration and
operations at Astrotech, and depreciation of $5.4 million. Cost of revenue
increased under the REALMS Contract and related commercial customers contracts
primarily as the result of the increased costs of the launch date slippage of
STS-107. Cost of revenue at JE decreased primarily due to the deletion of
certain tasks under the FCSD contract partially offset by increased costs under
its commercial contracts. In addition, approximately $1.2 million of
non-reimbursable cost overruns related to the delivery of the robotic training
arm for NASA under a fixed-price contract were included in cost of revenue for
JE in the year ended June 30, 2000. JE completed this delivery during the year
ended June 30, 2000. Cost of revenue decreased at Astrotech due to the reduced
number of missions processed. SMI incurred no costs of revenue for the year
ended June 30, 2000.
18
Operating Expense. Operating expenses increased by 9% to approximately
$22.2 million for the year ended June 30, 2001, as compared to $20.3 million for
the year ended June 30, 2000. Selling, general and administrative ("SG&A")
expenses increased $4.0 million from the year ended June 30, 2000 due primarily
to the start up costs associated with Space Media of $3.2 million, and expenses
associated with JE's efforts to expand its customer base into commercial markets
of $0.4 million. This increase was offset by a decrease in research and
development costs of $2.0 million.
Research and development costs for the year ended June 30, 2001 was
approximately $0.4 million, as compared to $2.4 million for the year ended June
30, 2000. This decrease is due primarily to a shift in emphasis to the
completion of the current assets under construction as opposed to the
development of new assets. Approximately $0.1 million was spent by Astrotech for
the completion of the development of the sounding rocket program this year as
compared to $1.1 million in the year ended June 30, 2000 and $0.3 million was
spent on the development of a lightweight tunnel and miscellaneous items in the
year ended June 30, 2001 as compared to $0.5 million spent on research and
development on the EnterpriseTM module during the year ended June 30, 2000.
There were no research and development expenditures for Enterprise during the
year ended June 30, 2001.
Interest Expense, Net of Capitalized Interest. Interest expense was
approximately $7.5 million and $7.4 million for the years ended June 30, 2001
and June 30, 2000 respectively. $2.7 million of interest expense was capitalized
in 2001 as compared to $3.7 million in 2000. Interest is capitalized on the
in-progress construction of the Company's modules and payload processing
facilities.
Interest and Other Income, Net. Interest and other income was approximately
$0.3 million and $0.7 million for the years ended June 30, 2001 and 2000,
respectively. Interest income is earned by the Company through the short-term
investment of available funds.
Net Loss. The net loss for the year ended June 30, 2001 was approximately
$12.8 million, or $1.12 per share (basic and fully diluted EPS), on 11,400,482
shares as compared to a loss of $3.8 million, or $0.34 per share (basic and
fully diluted EPS), for the year ended June 30, 2000 on 11,272,767 shares. The
net loss for the year ended June 30, 2001 includes a $3.3 million non-cash
charge to record a full valuation allowance on the Company's deferred tax asset.
Income tax benefit for these periods was ($0.9) million and ($1.8) million for
the years ended June 30, 2001 and 2000, respectively. As of June 30, 2001, the
Company had approximately $41.7 million of available net operating loss
carry-forwards expiring between 2007 and 2021 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 the
years ended June 30, 2001 and 2000.
Liquidity and Capital Resources
The Company has incurred net losses in the years ended June 30, 2002, 2001
and 2000. 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.
On October 21, 1997, the Company completed a private placement offering of
convertible subordinated notes payable (the "Notes Offering"), which provided
the Company with net proceeds of approximately $59.9 million which has been
used, in part, for capital expenditures associated with the development and
construction of space related assets, the purchase of JE on July 1, 1998, and
for general corporate purposes.
In 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,
2000, $4.5 million was drawn on the line of credit, which expired on August 31,
2000. On August 9, 2000, the Company entered into a $15 million revolving credit
facility with a different financial institution, which provided a working
capital line of credit with a letter of credit sub-limit of $10.0 million (the
"New Credit Facility").
19
This New Credit Facility replaced the $10 million Revolving Line of Credit.
Certain assets of the Company collateralize the new credit facility. The term of
the new agreement was through August 2003. In conjunction with the Astrotech
Financing, discussed below, of its satellite processing facility in Titusville,
Florida in August 2001, the terms of the New Credit Facility were amended. Space
Media, Inc. is no longer a party to the New Credit Facility and the maximum
amount allowable to be drawn under the New Credit Facility was reduced to $3.0
million in May 2002. Effective December 31, 2001, the New Credit Facility was
further amended. Certain collateral was released by the financial institution
and the maximum amount allowable to be drawn under the New Credit Facility was
to be reduced each month beginning January 1, 2002 through July 1, 2002. As of
June 30, 2002, $2.15 million was drawn on the New Credit Facility.
Subsequent to the year ended June 30, 2002, the Company entered into a $5.0
million line of credit with a new financial institution. This credit facility
replaces the New Credit Facility which was repaid and expired subsequent to the
year ended June 30, 2002. The term of this new credit facility is through June
2005.
In July 1997, Astrotech obtained a five-year term loan (the "Term Loan
Agreement"), which is guaranteed by SPACEHAB, and provides for loans of up to
$15.0 million for general corporate purposes and equipment financing. In
conjunction with the Astrotech financing of its satellite processing facility in
Titusville, Florida in August 2001, $3.1 million of the term Loan Agreement was
repaid. As of June 30, 2002, the Company had loans payable of $0.2 million.
In December 1998, the Company amended its agreement with Alenia Spazio
S.p.A ("Alenia") relative to the subordinated convertible notes payable to
Alenia with an outstanding balance of $11.9 million. In consideration for a
payment of $4.0 million, Alenia agreed to reduce the annual interest rate from
12% to 10% 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%. The maturity date of this debt was August 1,
2001 and was subsequently extended to November 15, 2001 to provide for
completion of a restructuring agreement. On November 15, 2001 the Company
entered into an agreement with Alenia to restructure the terms of this debt to
provide for a $3.0 million payment of principal and interest on December 31,
2001 and quarterly amortization of the remaining principal beginning March 2002
through December 2003. In addition, the interest rate was reduced to 8%
effective January 1, 2002. The balance at the date of restructure was $7.9
million and the outstanding balance is $3.9 million as of June 30, 2002.
On August 2, 1999 Astrium GmbH ("Astrium"), a related party and
shareholder, purchased an additional $12.0 million equity stake in SPACEHAB
representing 1,333,334 shares of Series B Senior Convertible Preferred Stock.
Under the agreement, Astrium, a related party, purchased all of SPACEHAB's
975,000 authorized and unissued shares of preferred stock. At the annual
stockholders meeting held on October 14, 1999, the shareholders approved the
proposal to increase the number of authorized shares of preferred stock to
2,500,000, in order to complete the transaction with Astrium, a related party,
allowing them to purchase the additional 358,334 preferred shares. The preferred
stock purchase increased Astrium's, a related party, investment voting interest
in SPACEHAB to approximately 11.5%. The Series B Senior Convertible Preferred
Stock is: convertible at the holders' option on the basis of one share of
preferred stock for one share of common stock, entitled to vote on an "as
converted" basis the equivalent number of shares of common stock and has
preference in liquidation, dissolution or winding up of $9.00 per preferred
share. No dividends are payable on the convertible preferred shares.
Cash Flows From Operating Activities. Cash provided by operations for the
years ended June 30, 2002, 2001, and 2000 was $8.6 million, $17.1 million and
$1.4 million, respectively. For the year ended June 30, 2002, the significant
items affecting cash provided by operating activities were primarily the result
of depreciation and amortization of $13.4 million, a non-cash charge of
approximately $770,000 to record a loss on subletting two facilities, an
decrease in accounts payable of $6.1 million and a decrease in accounts
receivable of $4.2 million. For the year ended June 30, 2001, the significant
items affecting cash provided by operating activities were primarily the result
of deprecation and amortization of $10.6 million, a non-cash charge of
approximately $3.3 million to record a full valuation allowance against the
Company's deferred tax asset, an increase in deferred revenue of $11.0 million,
primarily related to equitable adjustment payments for STS-107, and a decrease
in accounts receivable of $8.4 million. For the year ended June 30, 2000, the
significant items affecting cash provided by operating activities were primarily
the result of depreciation and amortization of $8.8 million, $11.1 million
provided by deferred revenue,
20
primarily from a payment received for STS-123, the increase in accounts
receivable of $8.3 million and decrease in accrued subcontracting services of
$4.8 million.
Cash Flows Used in Investing Activities. For the years ended June 30, 2002,
2001, and 2000, cash flows used in investing activities were $13.7 million,
$23.1 million and $29.8 million, respectively. During the year ended June 30,
2002, the Company's expenditures for flight assets under construction relate
primarily to the completion of the VCC for sale to Astrium, a related party,
adapter plates for unpressurized ICC and VCC missions and for the Enterprise
Module. Approximately, $15.4 million was spent for buildings under construction
and equipment, primarily for the expansion of Astrotech's Payload processing
facilities in Titusville, Florida. The Company received $4.4 million in services
payments for the sale of its VCC assets to Astrium, a related party, completing
the last phase of its asset sale and received $1.4 million in cash, primarily
for the Oriole sounding rocket business and the Clear Lake Industries sales.
During the year ended June 30, 2001, the Company's expenditures for flight
assets under construction relate primarily to the completion for the Research
Double Module ("RDM"), which was placed in service in April 2001 and
expenditures for the Enterprise Module. Approximately, $8.9 million was spent
for buildings under construction, primarily for the expansion of Astrotech's
Payload processing facilities in Titusville, Florida. The Company received $7.6
million in cash for the sale of its ICC assets to Astrium, a related party.
Expenditures for the year ended June 30, 2000 were primarily for the continued
construction of the Company's flight assets including, among others, the RDM,
Adaptable Double Module, Enterprise module and completion of the ICC. A
significant portion of the cash used for buildings under construction relate to
the expansion of Astrotech's payload processing facilities. Expenditures for
this expansion in the year ended June 30, 2000 were approximately $4.0 million.
In addition, $1.2 million was returned to the Company as certain escrow funds
relative to the purchase of JE were received. An additional $0.6 million was
invested in Guigne, completing the Company's contractual obligation for the
financing of the SpaceDRUMS(TM) joint venture
Cash Flows From Financing Activities. For the years ended June 30, 2002,
2001, and 2000, cash flows (used for) provided by financing activities were $7.2
million, ($1.0) million and $14.0 million, respectively. During the year ended
June 30, 2002 the Company received $20.0 million related to the financing of the
Astrotech payload processing facility in Titusville, Florida and repaid
approximately $0.9 million of the loan. The Company repaid $4.0 million of the
loan payable, $4.0 million of the note payable and repaid in full, $333,000, the
note payable to insurers. In addition the Company repaid $4.6 million of the New
Credit Facility and subsequent to the year ended June 30, 2002, repaid the New
Credit Facility. During the year ended June 30, 2001 the Company borrowed $2.25
million under the New Credit Facility and made payments of $3.3 million on the
notes payable and $0.3 million on the note payable to the senior debt holders.
During the year ended June 30, 2000 the Company received $11.9 million from the
issuance of convertible preferred shares to Astrium, a related party and
borrowed $4.5 million on the Revolving Line of Credit. In addition, the Company
paid approximately $2.9 million on other notes payable.
The Company has incurred net losses in the years ended June 30, 2002, 2001
and 2000. Historically, the Company has financed its capital expenditures,
research and development and working capital requirements with cash generated
from operations under its various contracts, as well as with proceeds received
from both public and private debt and equity offerings and borrowings under
credit facilities.
The Company's liquidity has been constrained over the previous two fiscal
years. A significant portion of this constraint arose from funding of new
operations and assets to support future Company growth, funding a portion of the
construction cost of the new Astrotech Florida facility and funding of required
debt repayments. In addition, the Company was committed to capital investments
to complete certain flight assets.
Due to changes in the external markets, the Company re-evaluated its
strategy. Beginning in the third quarter of the fiscal year 2001, management
began an aggressive multi-faceted plan to improve the Company's financial
position and liquidity. This plan included the following components: i)
completing the external financing for the new facility required to support
operations at Astrotech's Florida location; ii) reducing operating costs and
establishing an operating plan for fiscal year 2002 which provides for
sufficient cash flow to support efficient operations; iii) renegotiating the
terms and conditions of the revolving line of credit; iv) limiting cash
commitments for future capital investments and new asset development; v)
restructuring the repayment of certain debts maturing in fiscal year 2002; vi)
divesting non-core assets; vii) obtaining external investor funding for its
Space Media
21
subsidiary; viii) completing negotiations for certain contract equitable
adjustments due to the Company under it long-term services contract with NASA;
and ix) improving the overall liquidity of the Company.
Under this Plan, the Company undertook extensive efforts to reduce cash
required for both operations and capital investments. Specifically, the Company
took steps to reduce overhead beginning in the third quarter of the fiscal year
2001 and reduced its workforce by approximately 10%. The Company's fiscal year
2002 operating plan realized efficiencies from these actions. In August 2001,
Astrotech obtained $20 million of financing for the expansion of its payload
processing facilities. The financing provided funds for completion of the
facility construction as well as a return of approximately $6.5 million of
previously invested working capital of the Company. The Company used
approximately $3.1 million of these working capital funds to repay an existing
obligation under Astrotech's credit facility. Additionally, the Company
completed planned divesting of non-core assets. Development and construction of
new assets is currently limited to those assets required to fulfill existing
commitments under contracts. The Company has no further on-going commitments to
fund development or construction of any asset.
Under this Plan, the Company refocused the scope of SMI's operations on
near term initiatives in order to maximize the potential return of capital
invested to date in SMI. In September 2001, the Company obtained $750,000 from
an investor to fund future operations of SMI in exchange for equity in SMI. As a
result, the Company's ownership interest in SMI was reduced to approximately
51%.
The Company completed the restructure of certain debt obligations and
secured contract funding on the equitable adjustment due under its contract with
NASA. The Company is in compliance with the terms of the restructured debt as of
June 30, 2002.
As discussed above, management implemented and completed the Plan begun in
the third quarter of fiscal year 2001. Management continues to focus its efforts
on improving the overall liquidity of the Company through reducing operating
expenses and limiting cash commitments for future capital investments and new
asset development, and believes it will be successful in these efforts.
The Company's plans indicate that all cash generated from operations during
the next fiscal year will be used to fund operations and reduce existing debt.
The Company believes that the cash flows from operations, borrowings under the
replacement credit facility and elimination of discretionary capital
expenditures and other expenses will be sufficient to enable the Company to meet
its cash requirements for the next twelve months.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Accounting for Goodwill and
Other Intangible Assets." The Statement eliminates the requirement to amortize
costs in excess of net assets acquired (goodwill) under the purchase method of
accounting, and sets forth a new methodology for periodically assessing and, if
warranted, recording impairment of goodwill. The Company will be required to
adopt the new rules effective July 1, 2002. The elimination of amortization of
goodwill is expected to increase earnings by approximately $1.0 million. The
Company will analyze and assess the impairment provisions of the new Statement,
but has not yet determined the impact, if any, of the adoption of those
provisions.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations- reporting the effects of disposal of a segment of a business, and
extraordinary, unusual and infrequently occurring events and transactions. SFAS
144 is effective for fiscal years beginning after December 15, 2001. The Company
expects to adopt SFAS 144 as of July 1, 2002 and it does not expect that the
adoption of this statement will have a significant impact on the Company's
financial position and results of operations.
22
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
SPACEHAB's primary exposure to market risk relates to interest rates.
SPACEHAB's financial instruments which are subject to interest rate risk
principally include the New Credit Facility, the Term Loan Agreement and fixed
rate long-term debt. SPACEHAB's long-term debt obligations are generally not
callable until maturity. On September 30, 2001 SPACEHAB's Astrotech Space
Operations, Inc. subsidiary completed a financing for a building under
construction. In conjunction with this financing, a swap agreement was entered
into to provide for a fixed rate of interest under the loan commitment beginning
January 2002. SPACEHAB does not use any other interest rate swaps or derivative
financial instruments to manage its exposure to fluctuations in interest rates
are subject to interest rate risk principally include the New Credit Facility,
the Term Loan Agreement and fixed rate long-term debt. The value of the swap
agreement declined by approximately $1.0 million during the year ended June 30,
2002 due to declines in the market rate of interest. SPACEHAB does not use any
other interest rate swaps or derivative financial instruments to manage its
exposure to fluctuations in interest rates.
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. 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 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, technological difficulties, product demand and
market acceptance risks, the effect of economic conditions, uncertainty in
government funding and the impact of competition.
23
Item 8. Financial Statements and Supplementary Data.
Report of Independent Auditors
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, 2002 and 2001, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SPACEHAB,
Incorporated and subsidiaries at June 30, 2002 and 2001, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
McLean, Virginia
August 23, 2002
24
Report of Independent Auditors
The Board of Directors
SPACEHAB, Incorporated and Subsidiaries:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of SPACEHAB, Incorporated and subsidiaries
for the year ended June 30, 2000. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the cash
flows of SPACEHAB, Incorporated and subsidiaries for the year ended June 30,
2000, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
KPMG LLP
McLean, Virginia
August 31, 2000
25
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
June 30,
----------------------
Assets 2002 2001
- ------------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 2,145 $ 34
Restricted cash (note 8) 549 -
Accounts receivable, net (note 4) 13,802 17,358
Prepaid expenses and other current assets 464 1,381
- ------------------------------------------------------------------------------------------------------
Total current assets 16,960 18,773
- ------------------------------------------------------------------------------------------------------
Property and equipment
Flight assets 162,166 159,400
Module improvements in progress 19,622 24,188
Payload processing facilities 45,367 40,192
Furniture, fixtures, equipment and leasehold improvements 23,003 13,854
- ------------------------------------------------------------------------------------------------------
250,158 237,634
Less accumulated depreciation and amortization (74,307) (63,580)
- -----------------------------------------------------------------------------------------------------
Property and equipment, net 175,851 174,054
Goodwill, net of accumulated amortization of $ 4,553 and 3,500, respectively 20,294 21,347
Investment in Guigne, (note 19) 1,800 1,800
Other assets, net 5,921 6,503
- ------------------------------------------------------------------------------------------------------
Total assets $ 220,826 $ 222,477
======================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------
Current
liabilities
Loans payable under credit agreement, current portion (note 6) $ - $ 333
Loans payable, current portion (note 8) 169 3,126
Revolving loan payable (note 8) 2,150 6,750
Accounts payable 5,996 10,533
Accounts payable- Astrium 2,767 2,751
Accrued expenses 5,586 7,739
Accrued subcontracting services 3,043 2,112
Convertible notes payable to shareholder (note 7) 1,827 7,860
Mortgage loan payable (note 8) 2,039 -
Deferred revenue 15,405 18,993
- ------------------------------------------------------------------------------------------------------
Total current liabilities 38,982 60,197
- ------------------------------------------------------------------------------------------------------
Loans payable (note 8) 49 1,139
Accrued contract costs 100 100
Miscellaneous note payable - 200
Accrued expenses 338 -
Deferred revenue 9,560 7,235
Convertible notes payable to shareholder (note 7) 2,039 -
Mortgage loan payable (note 8) 18,088 -
Convertible subordinated notes payable (note 8) 63,250 63,250
- ------------------------------------------------------------------------------------------------------
Total liabilities 132,406 132,121
- ------------------------------------------------------------------------------------------------------
Minority interest in subsidiary 750 -
- ------------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 1, 11 and 16) Stockholders' equity (notes
7, 8, 11 and 12)
Preferred stock, no par value, convertible, authorized 2,500,000 shares,
issued and outstanding 1,333,334 shares,(liquidation preference of $12,000) 11,892 11,892
Common stock, no par value, authorized 30,000,000 shares, issued
and outstanding 12,154,465 and 11,528,145 shares, respectively 83,204 82,513
Additional paid-in capital 16 16
Accumulated other comprehensive loss (1,010) -
Accumulated deficit (6,432) (4,065)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 87,670 90,356
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 220,826 $ 222,477
======================================================================================================
See accompanying notes to consolidated financial statements.
26
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share data)
==================================================================================================================
Year ended Year ended Year ended
June 30, June 30, June 30,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Revenue $ 102,773 $ 105,254 $ 105,708
- ------------------------------------------------------------------------------------------------------------------
Costs of revenue 81,767 92,243 87,931
- ------------------------------------------------------------------------------------------------------------------
Gross profit 21,006 13,011 17,777
- ------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 18,737 21,796 17,832
Loss on subleases 770 - -
Research and development 383 393 2,440
- ------------------------------------------------------------------------------------------------------------------
Total operating expenses 19,890 22,189 20,272
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 1,116 (9,178) (2,495)
Interest expense, net of capitalized interest (note 3) (6,683) (4,804) (3,773)
Interest and other income, net 1,150 311 662
- ------------------------------------------------------------------------------------------------------------------
Loss before income taxes (4,417) (13,671) (5,606)
Income tax benefit (note 13) (2,050) (886) (1,762)
- ------------------------------------------------------------------------------------------------------------------
Net loss $ (2,367) $ (12,785) $ (3,844)
==================================================================================================================
Loss per share:
Net loss per share - basic and diluted $ (0.20) $ (1.12) $ (0.34)
==================================================================================================================
Shares used in computing net loss per share - basic and diluted 11,884,309 11,400,482 11,272,767
==================================================================================================================
See accompanying notes to consolidated financial statements.
27
SPACEHAB, INCORPORATED AND
SUBSIDIARIES
Consolidated Statements of
Stockholders' Equity
(In thousands, except share data)
----------------------------------------------------------------------------------------------------------------------------------
Convertible
Preferred Stock Accumulated Total
Common Stock Additional other Stockholders'
------------------- ----------------------- Paid-In (Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit) (Loss) Equity
----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 - $ - 11,229,646 $ 81,585 $ 16 $ 12,564 $ $ 94,165
====================================================================================================================================
Preferred stock issued 1,333,334 11,892 - - - - - 11,892
Common stock issued under
employee stock purchase plan - - 115,386 489 - - - 489
Net loss - - - - - (3,844) - (3,844)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 1,333,334 $ 11,892 11,345,032 $ 82,074 $ 16 $ 8,720 - $ 102,702
====================================================================================================================================
Common stock issued under
employee stock purchase plan - - 183,113 439 - - - 439
Net loss - - - - - (12,785) - (12,785)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001 1,333,334 $ 11,892 11,528,145 $ 82,513 $ 16 $ (4,065) - $ 90,356
====================================================================================================================================
Common stock issued under bonus
plan - - 224,635 350 - - - 350
Common stock issued under
employee stock purchase plan - - 401,685 341 - - - 341
Accumulated other comprehensive - - - - - - (1,010) (1,010)
income
Net loss - - - - - (2,367) - (2,367)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss - - - - - - - (3,377)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 1,333,334 $ 11,892 12,154,465 $ 83,204 $ 16 $ (6,432) $ (1,010) $ 87,670
====================================================================================================================================
See accompanying notes to consolidated
financial statements.
28
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Year ended Year ended Year ended
June 30, 2002 June 30, 2001 June 30, 2000
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (2,367) $(12,785) $ (3,844)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Gain on sale of property & equipment (1,096) - -
Loss on subleases 770 - -
Depreciation 11,595 8,691 7,133
Amortization 1,089 1,259 1,089
Amortization of debt placement costs 730 623 528
Valuation allowance of deferred tax asset - 3,292 -
Valuation allowance of investment in Guigne - - (200)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 4,211 8,440 (8,327)
Decrease (increase) in prepaid expenses and other current assets 917 947 (1,182)
Increase in deferred mission costs - - (1,031)
Increase in other assets (691) (1,064) (240)
(Decrease) increase in deferred flight revenue (1,262) 10,973 11,093
(Decrease) increase in accounts payable and accrued expenses (6,135) 2,007 1,955
Increase (decrease) in accrued subcontracting services 831 113 (4,788)
Decrease increase in deferred taxes - (5,372) (762)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,592 17,124 1,424
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Payments for flight assets under construction (2,600) (20,150) (23,009)
Payments for building under construction and leasehold improvements (15,409) (8,934) (4,868)
Purchases of property and equipment (983) (1,558) (2,361)
Sale of Vertical Cargo Carrier 4,400 - -
Proceeds from sale of flight assets - 7,566 -
Proceeds from sale of property and equipment 1,425 - -
Increase in restricted cash (549) - -
Purchase of Johnson Engineering, net of cash acquired - - 1,200
Purchase of The Space Store - - (156)
Investment in Guigne - - (600)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (13,716) (23,076) (29,794)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Payments of note payable to insurers (333) (333) (333)
Proceeds from issuance of convertible preferred stock - - 11,892
(Repayment) proceeds from revolving line of credit (4,600) 2,250 4,500
Payments of note payable (4,047) (3,319) (2,575)
Payments of note payable to shareholder (3,994) - -
Proceeds from sale of minority interest in SMI 750 - -
Proceeds from mortgage loan 20,000 - -
Payment of mortgage loan (882) - -
Proceeds from issuance of common stock, net of expenses 341 439 489
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 7,235 (963) 13,973
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,111 (6,915) (14,397)
Cash and cash equivalents at beginning of year 34 6,949 21,346
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,145 $ 34 $ 6,949
========================================================================================================================
See accompanying notes to consolidated financial statements.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of the Company, Operating Environment and Liquidity
Description of the Company and Operating Environment
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
four pressurized laboratory and logistics supply modules, which
significantly enhance the capabilities of the Space Shuttle fleet. The
Company is currently constructing a module that will attach to the
International Space Station ("ISS") and be primarily used for storage,
power and utility service and laboratory facilities for long-duration
research. The Company's modules are unique to the Space Shuttle fleet
and ISS.
To date, the Company has successfully completed seventeen
missions aboard the Space Shuttle and substantially all of the
Company's revenue has been generated under contracts with National
Aeronautics and Space Administration ("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, 2002, 2001, and 2000
approximately 81%, 83% and 86% of the Company's revenues were generated
under U.S. Government contracts, respectively.
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 Sea Launch 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 support 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.
On April 11, 2000, the Company announced the formation of Space
Media, Inc. ("SMI"), a majority-owned subsidiary that intends to create
proprietary space-themed content for education and commerce. During the
year ended June 30, 2001, SMI's activities were refocused primarily to
develop content for the STARS Academy(TM), corporate promotion and
advertising opportunities and offering a library of content that can be
redistributed through various media channels. The STARS Academy is a
global education program offering students a scientific, cultural and
social adventure across the earth, into the oceans and aboard the
International Space Station. SMI offers retail products associated with
the STARS Academy. As part of Space Media, the STARS program currently
is planning to launch six experiments designed by students in
Australia, China, Israel, Japan, Liechtenstein and the United States on
Space Shuttle mission STS-107, currently scheduled to launch in
January, 2003. During the year ended June 30, 2000, SMI acquired The
Space Store, an online retail operation. The Space Store currently
offers an assortment of space-related products through its Space Store
website, www.spacestore.com.
In fiscal year 2000, SPACEHAB began design and construction of
a commercial space station habitat module, in partnership with RSC
Energia of Korolev, Russia. Named Enterprise(TM), this multipurpose
module is intended to be attached to the ISS and could provide space
station users habitation
30
space, stowage space, communications, power and other utilities, and
laboratory facilities for long-duration research. In the year ended
June 30, 2001, SPACEHAB and Energia formed the Space Station Enterprise
LLC ("SSE LLC"), a Delaware limited liability corporation, to complete
development of Enterprise. SPACEHAB and Energia have an equal ownership
interest in the SSE LLC. The LLC will be responsible for completing
required financing for Enterprise and marketing and operating the
facility planned as part of the ISS Russian Segment. Enterprise, if
completed, would be launched in 2005 based upon the current ISS
assembly schedule. Currently the ISS can only accommodate a
three-person crew, which must spend most of its time maintaining the
ISS with very little time for science. At an ISS partners' meeting
currently scheduled for late 2002, four ISS configuration options will
be reviewed and one option path endorsed. The future utilization of
Enterprise is expected to be determined within the next 9-12 months.
Enterprise is actively being marketed to NASA and other potential
users. SSE LLC is actively pursuing additional investors to provide
investment funds and participate as owners of SSE LLC in completing
Enterprise.
(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 and majority-owned
subsidiaries Astrotech, JE and SMI. 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 money market investments and overnight repurchase
agreements 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, 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.
Effective January 1, 2002, the Company extended the estimated
useful lives of its space flight assets, which is a component of plant,
property and equipment, through June 30, 2016. This change in
accounting estimate is treated prospectively and is based on current
available space related programs and activities which extends the
expected life of the international space station and Space Shuttles
from 2012 through at least 2016.
Goodwill
The excess of the cost over the fair value of net tangible and
identifiable intangible assets acquired in business combinations
accounted for as a purchase has been assigned to goodwill. Goodwill has
been amortized on a straight-line basis over five to twenty-five years.
Beginning July 1, 2002, goodwill will no longer be amortized in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 142, "Accounting for Goodwill and Other Intangible Assets."
The Company periodically evaluates whether changes have occurred
that would require revision of the remaining estimated useful life of
the assigned goodwill or render the goodwill not recoverable. If such
circumstances arise, the Company would use an estimate of the
undiscounted value of expected future operating cash flows to determine
whether the goodwill is recoverable.
31
Investments in Affiliates
The Company uses the equity method of accounting for its
investments in, and earnings of, investees in which it exerts
significant influence. 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
investor's income and is reduced to reflect the Company's share of the
investor's losses. Investments in which the Company has less than 20%
ownership and no significant influence are accounted for under the cost
method and are carried at cost.
Impairment of Long- Lived Assets
The Company accounts for long-lived assets in accordance with
the provisions SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This
Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Stock-Based Compensation
The Company accounts for stock-based employee compensation
arrangements using the intrinsic value method as prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees ("APB Opinion 25"), 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. The Company has
adopted the disclosure requirements of SFAS No. 123, Accounting for
Stock-based Compensation ("SFAS 123").
Warrants to purchase common stock granted to other than
employees as consideration for goods or services rendered are
recognized at fair value.
Revenue Recognition
Revenue generated under the REALMS Contract and 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, is recognized under the
percentage-of-completion method based on costs incurred over the period
of the contract. Revenue provided by JE is primarily derived from
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. Revenue provided by
Astrotech's payload processing services is recognized ratably over the
occupancy period of the satellite while in the Astrotech facilities.
For the multi-year contracts with Boeing and Lockheed, revenue is
billed and recognized on a quarterly basis for costs incurred.
Research and Development
Research and development costs are expensed as incurred.
32
Income Taxes
The Company recognizes income taxes 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 and operating loss and tax credit
carryforward. 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
Basic earnings (loss) per share are calculated by dividing net
income (loss) by the weighted average number of common shares
outstanding during the period. 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).
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 reporting
periods. Actual results could differ from these estimates.
Derivatives
The Company accounts for derivatives pursuant to SFAS No.133,
Accounting for Derivative Instruments and Hedging Activities, as
amended. This standard requires that all derivative instruments be
recognized in the financial statements and measured at fair value
regardless of the purpose or intent for holding them. Changes in the
fair value of derivative instruments are either recognized periodically
in income or shareholders' equity (as a component of accumulated other
comprehensive income), depending on their use and designation.
Reclassifications
Certain 2001 and 2000 amounts have been reclassified to conform
with the 2002 consolidated financial statement presentation.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 142,
"Accounting for Goodwill and Other Intangible Assets." The Statement
eliminates the requirement to amortize costs in excess of net assets
acquired (goodwill) under the purchase method of accounting, and sets
forth a new methodology for periodically assessing and, if warranted,
recording impairment of goodwill. The Company will be required to
adopt the new rules effective July 1, 2002. The elimination of
amortization of goodwill is expected to increase earnings by
approximately $1.0 million. The Company will analyze and assess the
impairment provisions of the new Statement, but has not yet determined
the impact, if any, of the adoption of those provisions.
In August 2001, the Financial Accounting Standards Board issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No.
121, Accounting for the
33
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations- reporting the effects of
disposal of a segment of a business, and extraordinary, unusual and
infrequently occurring events and transactions. SFAS 144 is effective
for fiscal years beginning after December 15, 2001. The Company expects
to adopt SFAS 144 as of July 1, 2002 and it does not expect that the
adoption of this statement will have a significant impact on the
Company's financial position and results of operations.
(3) Statements of Cash Flows - Supplemental Information
Cash paid for interest costs was approximately $7.3 million,
$7.0 million and $6.9 million for the years ended June 30, 2002, 2001
and 2000, respectively. The Company capitalized interest of
approximately $1.3 million, $2.7 million and $3.7 million during the
years ended June 30, 2002, 2001 and 2000, respectively, related to the
module improvements and a building in progress.
The Company paid no income taxes for the years ended June 30,
2002, 2001 and 2000.
(4) Accounts Receivable
At June 30, 2002 and 2001, accounts receivable consisted of (in
thousands):
2002 2001
----------------------------------------------------------------
U.S. government contracts:
Billed $ 6,371 $ 9,181
Unbilled 1,233 3,085
----------------------------------------------------------------
Total U.S. government contracts 7,604 12,266
----------------------------------------------------------------
Commercial contracts:
Billed 6,168 4,378
Unbilled 30 714
----------------------------------------------------------------
Total commercial contracts 6,198 5,092
----------------------------------------------------------------
Total accounts receivable $ 13,802 $ 17,358
================================================================
The Company anticipates collecting substantially all receivables
within one year. Unbilled receivables represent estimated future
revenue billings for contract milestones not achieved or amounts
accrued for future cost-based billings.
The accuracy and appropriateness of the Company's direct and
indirect costs and expenses under its government contracts, and
therefore its accounts receivable recorded pursuant to such contracts,
are subject to extensive regulation and audit, including by the U.S.
Defense Contract Audit Agency or by other appropriate agencies of the
U.S. government. Such agencies have the right to challenge the
Company's cost estimates or allocations with respect to any government
contract. Additionally, a substantial portion of the payments to the
Company under government contracts are provisional payments that are
subject to potential adjustment upon audit by such agencies. In the
opinion of management, any adjustments likely to result from inquiries
or audits of its contracts would not have a material adverse impact on
the Company's financial condition or results of operations.
34
(5) Acquisition
The Space Store
On June 28, 2000, the Company paid approximately $200,000
including transaction costs, to acquire all of the capital stock of The
Space Store. The business combination has been accounted for using the
purchase method under 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 $200,000 was
recorded. Such goodwill is being amortized on a straight-line basis
over 5 years. With the implementation of SFAS 142 goodwill will no
longer be amortized beginning July 1, 2002. Historical results of
operations of The Space Store are insignificant. The Space Store is a
wholly owned subsidiary of SMI. The Space Store is involved in
e-commerce and sells space related items.
(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%
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%
per month.
In August 1996, the Company's credit agreement was amended. 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. In conjunction with a payment in
December 1998 of certain principal of notes payable due to Alenia
Spazio S.p.A., (note 7), the annual interest rate on the outstanding
balances under the credit agreement was amended to be 8.25% per year.
Aggregate interest cost incurred on the debts due under the credit
agreement was approximately $5,000, $30,000 and $57,000 for the years
ended June 30, 2002, 2001 and 2000, respectively. As of June 30, 2001,
the remaining balance due under the term loan was $0.33 million. This
amount was paid in full August 1, 2002.
(7) Convertible 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. Alenia may elect to convert, in whole or part, the remaining
principal amount into equity, on terms and conditions to be agreed with
the Company.
On November 15, 2001 the Company entered into an agreement with
Alenia to restructure the terms of this debt to provide for a $3.0
million payment of principal and interest on December 31, 2001 and
quarterly amortization of the remaining principal beginning March 2002
through December 2003. In addition, the interest rate was reduced from
10% to 8% beginning January 1, 2002. The obligation is collateralized
by one of the Company's flight assets. The payments required under the
agreement were made on December 31, 2001, March 31, 2002, and June 30,
2002 and the outstanding balance is $3.9 million at June 30, 2002. The
Company paid approximately $584,000 interest during 2002 and
approximately $800,000 during each of the years ended June 30, 2001 and
2000.
(8) Other Debt
Revolving Loan Payable
35
On June 16, 1997, the Company entered into a $10.0 million
revolving loan payable 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 agreement expired on August
31, 2000.
On August 9, 2000, the Company entered into a $15 million
revolving credit facility with a financial institution that provides a
working capital line of credit with a letter of credit sub-limit of
$10.0 million. This new credit facility replaced the previous $10
million revolving line of credit. Certain assets of the Company
collateralize the new credit facility. The term of the agreement was
through August 2003.
In conjunction with the Astrotech financing (Mortgage Loan
Payable) of its satellite processing facility in Titusville, Florida,
in August 2001, the terms of the credit facility were amended. Space
Media, Inc. is no longer a party to the credit facility and the maximum
amount allowable to be drawn under the Credit Facility has been reduced
to $6.5 million. Effective as of October 24, 2001 the New Credit
Facility was further amended. New covenants were established and the
term of the agreement was revised to July 31, 2002 with a reduction in
the maximum amount allowable to be drawn under the New Credit Facility
to $6.5 million. Effective December 31, 2001, the New Credit Facility
was further amended. Certain collateral was released by the financial
institution and the maximum amount allowable to be drawn under the New
Credit Facility was to be reduced each month beginning January 1, 2002
through July 1, 2002 and matures on July 31, 2002. The Company also
provided certain flight assets as additional collateral to secure the
obligation. As of June 30, 2002, $2.15 million was drawn on the New
Credit Facility and the maximum amount allowable to be drawn under the
New Credit Facility was $2.25 million as of June 30, 2002. Subsequent
to the year end, the loan was paid in full.
Subsequent to the year ended June 30, 2002, the Company entered
into a $5.0 million line of credit with a new financial institution.
This credit facility replaces the New Credit Facility which was repaid
and expired subsequent to the year ended June 30, 2002. The term of
this new credit facility is through June 2005. Covenants under this
credit facility include, but are not limited to, tangible net worth,
debt to worth and debt service coverage.
Loans Payable
In July 1997, the Company's subsidiary, Astrotech, obtained a
five-year loan (the "Term Loan Agreement"), which is guaranteed by
SPACEHAB, and provided for loans of up to $15.0 million for general
corporate purposes and equipment financing. In conjunction with the
Astrotech financing of its satellite processing facility in Titusville,
Florida in August 2001, approximately $3.1 million of the Term Loan
Agreement was repaid. As of June 30, 2002, the Company had total loans
payable under the term loan agreement of $218,000.
Mortgage Loan Payable
On August 30, 2001, SPACEHAB's Astrotech subsidiary completed a
$20.0 million financing of its satellite processing facility expansion
project in Titusville, Florida with a financial institution. The
proceeds of this financing were used to complete the construction of
the payload processing facility and supporting infrastructure. The loan
is collateralized primarily by the multi-year payload processing
contracts with The Boeing Company ("Boeing") and Lockheed Martin
Corporation ("Lockheed Martin"). Interest accrues on the outstanding
principal balance at a LIBOR-based rate, adjustable quarterly. The loan
matures on January 15, 2011. The loan was converted from a construction
loan to a term loan on December 31, 2001. Amortization of loan
principal began on January 15, 2002 and continues on a quarterly basis
through the loan maturity date. Interest is payable quarterly on the
outstanding principal balance at the rate of 5.62% plus 225 basis
points. For the year ended June 30, 2002, $20.0 million was drawn on
the loan and $883,500 of principal was repaid during the year. On June
30, 2002, $0.5 million of cash is restricted for payment on the
construction loan.
36
In conjunction with this financing, a swap agreement was
required to be entered into to provide for a fixed rate of interest
under the loan commitment beginning January 2002. The value of the swap
agreement declined by approximately $1 million during the year ended
June 30, 2002 due to declines in the market rate of interest. The
objective of the hedge was to eliminate the variability of cash flows
in the interest payments for the total amount of the variable rate
debt, the sole source of which is due to changes in the USD-LIBOR-BBA
interest rate. Changes in the cash flows of the interest rate swap are
expected to exactly offset the changes in cash flows attributable to
fluctuations in the USD-LIBOR-BBA interest rates on the total variable
rate debt.
Convertible Subordinated Notes
In October 1997, the Company completed a private placement
offering for $63.25 million of aggregate principal of unsecured 8%
Convertible Subordinated Notes due October 2007. Interest is payable
semi-annually. The notes are convertible into the common stock of the
Company at a rate of $13.625 per share. This offering provided the
Company with net proceeds of approximately $59.9 million which were
used for capital expenditures associated with the development and
construction of space related assets and for other general corporate
purposes.
Loan Covenants
For the year ended June 30, 2002 the Company was in compliance
with all of the loan covenants of the Term Loan and the New Credit
Facility. Covenants include, but are not limited to, tangible net
worth, debt to worth and debt service coverage.
(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, 2002
and 2001 in accordance with SFAS No. 107, Disclosures about Fair Value
of Financial Instruments (in thousands):
June 30, 2002 June 30, 2001
------------------------ ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------------------------------------------------
Financial liabilities:
Loans payable under
credit agreement $ - $ - $ 333 $ 333
Convertible notes payable to
shareholder 3,866 3,866 7,860 7,860
Loans payable under credit facility 218 218 4,264 4,264
Mortgage loan payable 20,127 20,127 - -
Convertible subordinated notes payable 63,250 30,044 63,250 38,029
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, accounts
receivable, and accounts payable and accrued expenses approximate their
fair market value because of the relatively short duration of these
instruments.
(10) NASA Contracts
Research and Logistics Module Services Contract
On December 21, 1997, the Company entered into the REALMS
Contract to provide to NASA its flight modules and related integration
services over three missions at an aggregate fixed price of $44.9
37
million. This contract provides for NASA to use the flight modules for
both science and logistics missions. During the period from December
21, 1997 to June 30, 2002, this contract was amended whereby the REALMS
contract value was increased to $224.5 million and the number of
missions was increased to nine.
During the years ended June 30, 2002, 2001 and 2000, the Company
recognized $43.0 million, $36.6 million and $33.3 million of revenue,
respectively, under this contract.
Subsequent to the year ended June 30, 2002, SPACEHAB negotiated
an equitable adjustment in excess of the REALMS contract value due to
an additional slip in the launch date of the Space Shuttle flight
STS-107 from July 19, 2002 to January 16, 2003.
Flight Crew Systems Development Contract ("FCSD")
JE primarily operates under the FCSD Contract which is currently
a $391.3 million multitask cost-plus-award and incentive-fee contract.
The contract commenced in May 1993 and was scheduled to conclude in
September 2002. Subsequent to June 30, 2002, NASA exercised its option
to extend the contract through December 2002. The contract is currently
in the recompete process with a contactor selection expected by NASA in
the fall of 2002. JE performs services under a cost-plus award and
incentive fee contract for government services that is requested and
directed by NASA.
(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% or more of common
stock (with certain limited exceptions), then each right (not owned by
the 15% 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% 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% 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, the Company
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
As of June 30, 2002, approximately 2,156,602 shares of common
stock were reserved for future grants of stock options under the
Company's three stock option 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.
38
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.
The Directors' Stock Option Plan
Each new non-employee director receives a one-time grant of an
option to purchase 10,000 shares at an exercise price equal to fair
market value on the date of grant. In addition, effective as of the
date of each annual meeting of the Company's stockholders, each
non-employee 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
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% of the current market price. Eligible employees
may elect to participate in the plan by authorizing payroll deductions
from 1% to 10% 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% of the price of a share of common stock on the
first day of the quarter or the last day of a quarter. The number of
shares of common stock that may be purchased under the plan is
1,500,000. Through June 30, 2002, employees have purchased
approximately 774,000 shares under the plan.
Space Media, Inc. Stock Option Plan
During the year ended June 30, 2000, Space Media, Inc., a
majority owned subsidiary of the Company, adopted an option plan ("SMI
Plan") for employees, officers, directors and consultants of Space
Media, Inc. Under the terms of the SMI Plan, 1,500,000 shares have been
reserved for future grants for which the number and price of the
options granted 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. At June 30,
2002, there were 394,750 options issued and outstanding under the SMI
Plan at a weighted average exercise price of $1.16. The options vest
equally over a four-year period and have a life of 10 years. There were
192,375 options exercisable as of June 30, 2002.
39
Stock Option Activity Summary
The following table summarizes the Company's stock option plans,
excluding the SMI plan:
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 June 30, 1999 493,804 $ 13.42 1,909,226 $ 9.50 240,000 $ 9.37
Granted - - 1,034,674 5.10 35,000 4.13
Exercised - - - - - -
Forfeited 95,831 12.39 360,287 7.06 - -
- -------------------------------------------------------------------------------------------------------------------
Outstanding at June 30, 2000 397,973 $ 13.66 2,583,613 $ 8.05 275,000 $ 8.70
Granted - - 1,036,040 4.44 40,000 4.00
Exercised - - - - - -
Forfeited 67,707 12.55 967,539 8.11 - -
- -------------------------------------------------------------------------------------------------------------------
Outstanding at June 30, 2001 330,266 $ 13.89 2,652,114 $ 6.62 315,000 $ 8.11
Granted - - 52,000 2.31 65,000 1.40
Exercised - - - - - -
Forfeited 316,100 14.03 804,882 6.97 - -
- -------------------------------------------------------------------------------------------------------------------
Outstanding at June 30, 2002 14,166 $ 10.68 1,899,232 $ 6.34 380,000 $ 6.96
- -------------------------------------------------------------------------------------------------------------------
Options exercisable at:
June 30, 2000 397,973 13.66 1,423,660 8.58 240,000 9.37
June 30, 2001 330,266 13.89 1,272,238 7.89 275,000 8.70
June 30, 2002 14,166 10.68 1,114,160 7.26 315,000 8.11
Weighted-average fair value at
date of grant during the fiscal
year ended
June 30, 2000 - - 1,034,674 3.02 35,000 1.87
June 30, 2001 - - 1,036,040 2.06 40,000 1.85
June 30, 2002 - - 52,000 1.14 65,000 .64
- -------------------------------------------------------------------------------------------------------------------
The following table summarizes information about the Company's
stock options outstanding at June 30, 2002:
Options outstanding Options exercisable
----------------------------------------- ------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Average
-------------- Contractual Exercise Number Exercise
Range of exercise prices Outstanding Life (years) Price Exercisable Price
- --------------------------------------------------------------------------------------------------------------
$ 2.31 - 3.44 390,000 8.38 $ 3.01 136,501 $ 3.00
4.00 - 5.00 496,246 7.37 4.74 242,996 4.6
5.13 - 8.88 759,600 4.90 5.94 545,362 6.26
9.88 - 14.00 582,552 2.65 11.33 518,467 11.28
- --------------------------------------------------------------------------------------------------------------
2,228,398 5.55 6.47 1,443,326 7.48
- --------------------------------------------------------------------------------------------------------------
40
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 SFAS 123, the
Company's net income (loss) and earnings (loss) per common share would
have been reduced (increased) to the pro forma amounts indicated below
(in thousands, except per share data):
Year Ended Year Ended Year Ended
June 30, 2002 June 30, 2001 June 30, 2000
--------------------------------------------------------------------------------
Net loss:
As reported $ (2,367) $ (12,785) $ (3,844)
Pro forma (3,340) (13,982) (4,996)
================================================================================
Net loss per share - basic:
As reported $ (0.20) $ (1.12) $ (0.34)
Pro forma (0.27) (1.23) (0.44)
================================================================================
The fair value of each option granted and each employee stock
purchase right is estimated using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants
in fiscal years 2002, 2001 and 2000, respectively: 0.0% dividend rate;
expected volatility ranging from 35% to 50%; risk-free interest rates
ranging from 3.875% to 7.875%; and expected lives ranging from three
months to seven years.
The effects of compensation cost as determined under SFAS 123 on
pro forma net income (loss) in years ended June 30, 2002, 2001 and 2000
may not be representative of the effects on pro forma net income (loss)
in future periods.
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 July 1, 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. No
warrants were exercised as of June 30, 2002.
(13) Income Taxes
The Company accounts for taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
Under SFAS 109, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax basis
of assets and liabilities using enacted rates expected to be in effect
during the year in which the differences reverse.
41
The components of income tax expense (benefit) from continuing operations are as
follows (in thousands):
Years Ended June 30,
--------------------------------------------
2002 2001 2000
- -----------------------------------------------------------------------------
Current:
Federal $ (2,134) $ - $ -
State 84 127 -
Foreign - 70
- ----------------------------------------------------------------------------
(2,050) 197 -
- ----------------------------------------------------------------------------
Deferred:
Federal - (685) (1,477)
State and local - (398) (285)
Foreign
- ----------------------------------------------------------------------------
- (1,083) (1,762)
- ----------------------------------------------------------------------------
Income tax expense (benefit) $ (2,050) $ (886) $ (1,762)
============================================================================
A reconciliation of the reported income tax expense to the amount that would
result by applying the U.S. federal statutory rate of 34 percent to the income
(loss) before income taxes to the actual amount of income tax expense (benefit)
recognized follows (in thousands):
Years Ended June 30,
-------------------------------------
2001 2001 2000
- ------------------------------------------------------------------------------
Expected expense (benefit) $ (1,502) $ (4,648) $ (1,906)
Change in valuation allowance (946) 3,948 43
State income taxes (128) (491) (188)
Other, primarily goodwill amortization 526 305 289
Total $ (2,050) $ (886) $ (1,762)
=============================================================================
The Company's deferred tax asset as of June 30, 2002 and 2001 consists of the
following (in thousands):
2002 2001
- ------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 15,459 $ 15,818
General business credit carryforwards 2,170 2,170
Alternative minimum tax credit carryforwards 499 3,292
Accrued expenses 1,478 1,636
Capitalized start-up and organization costs 1,430 1,602
Other 191 190
- ------------------------------------------------------------------------------
Total gross deferred tax assets 21,227 24,708
Less - valuation allowance (3,214) (4,160)
- ------------------------------------------------------------------------------
Net deferred tax assets 18,013 20,548
==============================================================================
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 17,749 20,493
Other 264 55
- ------------------------------------------------------------------------------
Total gross deferred tax liabilities 18,013 20,548
- ------------------------------------------------------------------------------
Net deferred tax assets/(liabilities) 0 $ 0
==============================================================================
42
At June 30, 2002, the Company had accumulated net operating losses of
approximately $40.7 million for Federal income tax purposes, which are
available to offset future regular taxable income. These operating loss
carryforwards expire between the years 2007 and 2022. 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 $0.5
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 2002 and 2008; the alternative minimum tax credits carry-forward
indefinitely.
In assessing the realizability of its net deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the net 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. As
of June 30, 2002, the Company provided a full valuation allowance of
approximately $3.2 million against its net deferred tax assets.
The Company has received approximately $2.1 million in refund claims
related to net operating loss carryforwards for alternative minimum taxes
paid in prior years.
(14) Net Income (Loss) Per Share
The following are reconciliations of the numerators and denominators
of the basic and diluted earnings (loss) per share computations for the
years ended June 30, 2002, 2001 and 2000 (in thousands, except share data):
Per common Assuming
share Dilution
------------------------------------------------------------------------
Year Ended June 30, 2002
Net loss $ (2,367) $ (2,367)
Net loss, as adjusted $ (2,367) $ (2,367)
========================================================================
Weighted average outstanding common shares 11,884,309 11,884,309
Adjusted shares 11,884,309 11,884,309
========================================================================
Year Ended June 30, 2001
Net loss $ (12,785) $ (12,785)
Net loss, as adjusted $ (12,785) $ (12,785)
========================================================================
Weighted average outstanding common shares 11,400,482 11,400,482
Adjusted shares 11,400,482 11,400,482
========================================================================
Year Ended June 30, 2000
Net loss $ (3,844) $ (3,844)
Net loss, as adjusted $ (3,844) $ (3,844)
Weighted average outstanding common shares 11,272,767 11,272,767
Adjusted shares 11,272,767 11,272,767
========================================================================
All options and warrants to purchase shares of common stock were
excluded from the computations of diluted earnings (loss) per share for the
years ended June 30, 2002, 2001 and 2000, 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, 2002, 2001 and
2000, the Company contributed $1.4 million, $1.8 million and
43
$1.5 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.
(16) Commitments
Integration and Operations Contracts
On August 13, 1997, the Company initiated a letter agreement with
Boeing, 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 seven logistics double module
missions. Additionally, there are several tasks that are separately priced
to yield a contract value of up to $139.5 million. As of June 30, 2002
$123.2 million has been incurred under this commitment.
Leases
The Company is obligated under capital leases for equipment and
noncancelable operating leases for equipment, office space, storage space,
the land for a payload processing facility and certain flight assets.
Future minimum payments under these capital leases and noncancelable
operating leases are as follows (in thousands):
Capital Operating
Year ending June 30, Leases Leases
-------------------------------------------------------------------------
2003 $ 218 $ 5,752
2004 212 4,751
2005 67 3,899
2006 - 693
2007 - 674
2008 and thereafter - 3,759
-------------------------------------------------------------------------
497 $ 19,527
------------------
Less: amount representing interest between 9% and 12% (45) -
-------------------------------------------------------------------------
Less: payments due for sublease - (2,777)
-------------------------------------------------------------------------
Present value of net minimum capital lease payments $ 452 16,750
-------------------------------------------------------------------------
Rent expense for the years ended June 30, 2002, 2001 and 2000 was
approximately $2.6 million, $2.9 million and $2.1 million, respectively.
For fiscal years 2003, 2004, 2005, 2006, 2007 and 2008, the Company
expects to receive net payments of approximately $0.5 million, $0.5
million, $0.5 million, $0.5 million, $0.5 million, and $0.3 million
respectively for sub leases.
At June 30, 2002, the capitalized lease assets are recorded at
$361,852 and the annual amortization is $98,762.
(17) Segment information
Based on its organization, the Company operates in four business
segments: SPACEHAB, now designated Flight Services for Company management
reporting, JE, Astrotech and SMI. SPACEHAB was founded to commercially
develop space habitat modules to operate in the cargo bay of the Space
Shuttles. Flight Services provides access to the modules and integration
and operations support services for both NASA and commercial customers. JE
is primarily engaged in providing engineering services and products to the
Federal Government and NASA, primarily under the FCSD Contract. Astrotech
provides payload-processing facilities to serve the satellite
manufacturing and launch services industry. Astrotech currently
44
provides launch site preparation of flight ready satellites to major U.S.
space launch companies and satellite manufacturers. SMI was established in
April 2000, to develop space themed commercial business activities.
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 from Flight Services 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:
(in thousands)
Year Ended June 30, 2002: Net Depreciation
Pre-Tax Fixed And
Revenue Income (loss) Assets Amortization
-----------------------------------------------------------------
Flight Services $ 51,374 $ 1,178 $124,153 $ 9,492
Johnson Engineering 40,504 (2,657) 1,553 1,633
Astrotech 9,936 2,005 50,074 1,266
SMI 678 (1,655) 71 293
Other 281 (3,288) - -
-----------------------------------------------------------------
$102,773 $ (4,417) $175,851 $12,684
-----------------------------------------------------------------
Year Ended June 30, 2001: Net Depreciation
Pre-Tax Fixed And
Revenue Income (loss) Assets Amortization
-----------------------------------------------------------------
Flight Services $ 44,997 $ (7,868) $135,055 $ 7,107
Johnson Engineering 53,526 (887) 2,806 1,647
Astrotech 6,230 18 36,135 966
SMI 501 (4,934) 58 230
-----------------------------------------------------------------
$105,254 $(13,671) $174,054 $ 9,950
-----------------------------------------------------------------
Year ended June 30, 2000: Net Depreciation
Pre-Tax Fixed And
Revenue Income Assets Amortization
-----------------------------------------------------------------
Flight Services $ 39,871 $ (928) $129,709 $ 5,702
Johnson Engineering 58,254 108 3,000 1,537
Astrotech 7,583 (2,944) 25,975 983
SMI - (1,842) - -
-----------------------------------------------------------------
$105,708 $ (5,606) $158,684 $ 8,222
-----------------------------------------------------------------
Foreign revenue for the years ended June 30, 2002, 2001 and 2000 was
approximately $5.9 million, $6.6 million and $1.7 million respectively.
Domestic revenue for the years ended June 30, 2002, 2001 and 2000 was
approximately $96.8 million, $98.7 million and $104.0 million,
respectively.
(18) Convertible Preferred Stock
On August 2, 1999, Astrium, a related party, a shareholder, purchased
an additional $12.0 million equity stake in SPACEHAB representing
1,333,334 shares of Series B Senior Convertible Preferred Stock. Under the
agreement, Astrium, a related party, purchased all of SPACEHAB's 975,000
authorized and unissued shares of preferred stock. At the annual
stockholders meeting held on October 14, 1999, the
45
shareholders approved the proposal to increase the number of authorized
shares of preferred stock to 2,500,000, in order to complete the
transaction with Astrium, a related party, allowing them to purchase the
additional 358,334 preferred shares. The preferred stock purchase
increased Astrium's, a related party, voting interest in SPACEHAB to
approximately 11.5%. 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.
Astrium, a related party, provides unpressurized payload and
integration efforts to SPACEHAB on a fixed price basis in addition to
providing engineering services as required. For the years ended June 30,
2002, 2001 and 2000, Astrium's, a related party, payload and integration
services included in cost of revenue was approximately $4.3 million, $4.3
million and $3.6 million, respectively.
(19) Investment in Guigne
During June 1998, the Company entered into a joint venture agreement
with Guigne Technologies Limited ("GTL"), a Canadian Company, for the
purpose of developing, fabricating, marketing and selling of SpaceDRUMS
services, a containerless processing facility intended to be deployed on
the ISS. In accordance with the joint venture agreement, the Company had
contributed, in exchange for a 50% interest in the joint venture, an
aggregate of $2.0 million of working capital to the joint venture through
December 1999. The Company's contributions were made in the form of an
unsecured non-interest bearing note. The joint venture has entered into
contracts with an aggregate value of $6.9 million for the lease of the
SpaceDRUMS facility with an unrelated party.
The joint venture agreement contained an option whereby the Company
could exchange its interest in the joint venture and the $2.0 million note
for a common equity interest in Guigne Inc. ("GI"), the ultimate parent of
GTL. In accordance with the terms of the joint venture agreement, in
December 1999 the Company notified GI of its intention to exercise its
option. Under the option, the equity interest obtained in GI was
determined by dividing the $2.0 million contributed by the Company by the
fair market value of GI, as determined by independent appraisal, at the
date of exchange. However, such equity interest could not exceed 19% of
the outstanding equity of GI. The independent appraisal and conversion
were finalized subsequent to June 30, 2000, with an effective date of
January 1, 2000, and resulted in the Company obtaining a 15% common equity
interest in GI. The Company accounts for its investment in GI on the cost
method. Upon the exchange, the joint venture was dissolved and all
property, rights, assets and liabilities of the joint venture became the
property, rights, assets and liabilities of GI.
The Company did not have the ability to exclusively control the
operational and financial policies of the joint venture, although the
Company did exert significant influence and as such recognized its
investment in the joint venture prior to the exchange using the modified
equity method of accounting. During the year ended December 31, 1999, no
revenues and no expenses were recognized by the joint venture. During the
quarter ended December 31, 1999, at the time of the Company's exercise of
its option, the Company recognized a $0.2 million valuation allowance
against its investment in GI based on the Company's estimate of the fair
value of GI.
(20) Asset Sale
On November 30, 2000, Astrium, a related party, entered into an
agreement with the Company to purchase the Company's Integrated Cargo
Carrier ("ICC") and Vertical Cargo Carrier ("VCC") flight assets. The
total purchase price of $15.4 million is comprised of both cash and
services payments. The transaction will occur in two phases. The first
phase is for the purchase of the ICC assets and the second phase is for
the purchase of the VCC assets. Phase one of the transactions was
completed in the three months ended March 31, 2001. Phase two was
completed in June 30, 2002. The sale was approximately at book value and
the Company recognized a minimal loss. SPACEHAB has entered into an
agreement with Astrium, a related party, to lease these assets for a
period of four years with two additional four-year options.
46
On August 2, 2001, SPACEHAB'S Astrotech subsidiary sold the assets of
its Oriole sounding rocket program and related property for approximately
$1.2 million to DTI Associates of Arlington, Virginia. The sale turns over
all physical and intellectual property assets of Astrotech's sounding
rocket program, including the design of the Oriole Rocket, except for
those assets required for Astrotech to fulfill the terms of an agreement
with an existing customer. The terms of the sale are as follows: an
initial cash payment at closing, five equal monthly payments beginning
September 2001 and a promissory note of $655,000, bearing interest and
secured by the Astrotech Sounding Rocket Program intellectual property and
due July 26, 2002. Astrotech recognized a gain of approximately $1.1
million on the sale in the quarter ended September 30, 2002. Subsequent to
the year ended June 30, 2002, all payments due under the arrangement have
been received by Astrotech.
(21) Investment in SMI
Pursuant to agreements entered into as of September 27, 2001,
eScottVentures II, LLC, of Melbourne, Florida, purchased 5,914,826 newly
issued shares of SMI's Series A redeemable, convertible preferred stock
for $750,000. These shares are convertible at the option of the holder one
for one into SMI common stock. Holders of the Series A preferred stock are
entitled to receive dividends only when and if declared by SMI's Board. On
and after September 28, 2004, the holders of at least two-thirds of the
outstanding series A preferred stock can require SMI to redeem their
shares. eScottVentures II appointed a representative to SMI's board of
directors along with its equity stake. SPACEHAB's ownership in Space
Media, Inc. has been reduced to approximately 51% based on voting rights
as a result of eScottVentures II equity investment. In February 2002,
eScottVentures II's representative resigned his seat on the board of
directors. SPACEHAB is required to record 100% of SMI's losses for
financial reporting purposes.
(22) Subsequent Event
Subsequent to the year ended June 30, 2002, the Company entered into
a $5.0 million line of credit with a new financial institution. This
credit facility replaces the New Credit Facility which was repaid and
expired subsequent to the year ended June 30, 2002. The term of this new
credit facility is through June 2005. Covenants under this credit
facility include, but are not limited to, tangible net worth, debt to
worth and debt service coverage.
(23) Summary of Selected Quarterly Financial Data (Unaudited)
The following is a summary of selected quarterly financial data for
the previous two fiscal years (in thousands, except per share data):
Three months ended
---------------------------------------------------
September 30 December 31 March 31 June 30
- ---------------------------------------------------------------------------------------------
Year ended June 30, 2002
Revenue $22,292 $27,727 $24,711 $28,043
Income (loss) from operations (2,528) 2,010 1,530 (104)
Net income (loss) (2,850) 685 66 (241)
Net income (loss) per share - basic (0.24) 0.06 0.01 (0.02)
Net income (loss) per share - diluted (0.24) 0.05 0.00 (0.02)
- ---------------------------------------------------------------------------------------------
Year ended June 30, 2001
Revenue $26,966 $23,975 $24,453 $29,860
Income (loss) from operations (1,602) (3,066) (3,089) (1,421)
Net income (loss) (1,480) (2,738) (2,973) (5,594)
Net income (loss) per share - basic (0.13) (0.24) (0.26) (0.49)
Net income (loss) per share - diluted (0.13) (0.24) (0.26) (0.49)
- ---------------------------------------------------------------------------------------------
47
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 2002 Annual Meeting of Stockholders
and is hereby incorporated by reference thereto.
Item 11. Executive Compensation.
The information required by this item will be contained in the
Company's definitive Proxy Statement for its 2002 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 2002 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 2002 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 its wholly owned and majority-owned subsidiaries and
related notes, are set forth herein as indicated below.
Page
Report of Ernst & Young LLP, Independent Auditors ............... 24
Report of KPMG LLP, Independent Auditors ........................ 25
Consolidated Balance Sheets ..................................... 26
Consolidated Statements of Operations ........................... 27
Consolidated Statements of Stockholders' Equity ................. 28
Consolidated Statements of Cash Flows ........................... 29
Notes to Consolidated Financial Statements ...................... 30
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.
48
Exhibit No. Description of Exhibit
3.1* Amended and Restated Articles of Incorporation of the
Company.
3.2 Designation of Rights, Terms and Preferences of Series A
Junior Preferred Stock (see Exhibit 4.4 of this Report on
Form 10-K).
3.3++ Designation of Rights, Terms and Preferences of Series B
Senior Convertible Preferred Stock of SPACEHAB, Incorporated.
3.4* Articles of Amendment of SPACEHAB, Incorporated, including
the Designation of Rights, Terms and Preferences of
Additional Shares of Series B Senior Convertible Preferred
Stock of SPACEHAB, Incorporated.
3.5* 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.
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 (as
amended and restated effective October 21, 1997).
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.
10.32** Indemnification Agreement, dated December 27, 1995, between
the Company and James R. Thompson.
49
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.
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.
10.43** 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").
10.73*//// 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.
10.80*///// 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 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.
50
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 14, 1999).
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.
10.97++++ 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, 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.
10.103*////// SPACEHAB, Incorporated 1997 Employee Stock Purchase Plan.
10.104*+ Secured Promissory Note, dated March 30, 1999, between the
Company and The CIT Group/Equipment Financing, Inc.
51
10.105*+ Amendment No 2 to Loan and Security Agreement, dated October
15, 1999 between the Company, First Union National Bank and
certain other parties.
10.106+++++ Agreement between Astrotech Space Operations, Inc. and
McDonnell Douglas Corporation, dated January 7, 2000.
10.107+++++ Agreement between Astrotech Space Operations, Inc. and
Lockheed Martin Commercial Launch Services, Inc. dated
January 24, 2000.
10.108*+ Amendment No. 3 to Loan and Security Agreement, dated January
31, 2000 between the Company, First Union National Bank and
certain other parties.
10.109*+ Employment and Non-Interference Agreement, dated February 14,
2000, between the Company and Julia A. Pulzone.
10.110*+ Amendment No. 4 to Loan and Security Agreement, dated May 18,
2000 between the Company, First Union National Bank and
certain other parties.
10.111*+ Third Amendment and Assignment of Industrial Real Estate
Lease, and Consent to Assignment of Industrial Real Estate
Lease, dated July 24, 2000, between the Company, American
National Insurance Company and Pall Corporation.
10.112*+ Financing and Security Agreement, dated August 9, 2000, by
and among Bank of America, N.A. and the Company, Johnson
Engineering Corporation, Astrotech Space Operations, Inc. and
Space Media, Inc.
10.113*++++ Employment and Non-Interference Agreement, dated as of
January 1, 2001, between the Company and Michael Kearney.
10.114*+++++ Credit agreement dated as of August 30, 2001 by and between
Astrotech Florida Holdings, Inc. and SouthTrust Bank.
10.115*+++++ Third Amendment to Financing and Security Agreement, dated as
of October 24, 2001 by and among Bank of America, N.A. and
the Company, Johnson Engineering Corporation and Astrotech
Space Operations, Inc.
10.116*++++++ Amendment to the Alenia Loan Agreement, dated as of November
15, 2001 by the Company and Alenia Spazio, S.P.A.
10.117*++++++ Fourth Amendment to Financing and Security Agreement, dated
as of January 16, 2002 by and among Bank of America, N.A. and
the Company, Johnson Engineering Corporation and Astrotech
Space Operations, Inc.
10.118 Financing and Security Agreement, dated August 29, 2000, by
and among Riggs Bank N.A. and the Company, Johnson
Engineering Corporation and Astrotech Space Operations, Inc.
16.*++ Changes in Registrant's Certifying Accountant.
21. Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors. September
23, 2002
23.2 Consent of KPMG LLP.
52
99.1 Certification Pursuant to 18 U.S. C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S. C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
* 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.
*/// Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 2000, filed November 14, 2000.
*//// 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 Definitive Proxy
Statement, filed with the Securities and Exchange Commission on
September 12, 1997.
+ 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.
++++ Incorporated by reference to the Registrant's Report on Form 10-K for
the fiscal year ended June 30, 1999, filed with the Securities and
Exchange Commission on September 17, 1999.
53
+++++ Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended March 31, 2000, filed with the Securities and
Exchange Commission on May 12, 2000.
*+ Incorporated by reference to the Registrant's Report on Form 10-K for
the fiscal year ended June 30, 2000, filed with the Securities and
Exchange Commission on September 12, 2000.
*++ Incorporated by reference to the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on September 13, 2000.
*+++ Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 2000.
*++++ Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended March 31, 2001.
*+++++ Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 2001.
*++++++ Incorporated by reference to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 2001.
The following Reports on Form 8-K were filed by the Registrant during the period
covered by this report.
(a) Reports on Form 8-K.
None.
54
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 17, 2002
By: /s/ Julia A. Pulzone
-----------------------
Julia A. Pulzone
Senior Vice President, Finance
and Chief Financial Officer
Date: September 17, 2002
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 17, 2002
- ------------------------------------
Hironori Aihara
/s/ Melvin D. Booth Director September 17, 2002
- -------------------------------------
Melvin D. Booth
/s/ Dr. Edward E. David, Jr. Director September 17, 2002
- ------------------------------------
Dr. Edward E. David, Jr.
/s/ Richard Fairbanks, III Director September 17, 2002
- ------------------------------------
Richard Fairbanks
/s/ Michael E. Kearney Director September 17, 2002
- ------------------------------------
Michael Kearney
/s/ Josef Kind Director September 17, 2002
- ------------------------------------
Josef Kind
/s/ Gordon S. Macklin Director September 17, 2002
- ------------------------------------
Gordon S. Macklin
/s/ James R. Thompson Director September 17, 2002
- ------------------------------------
James R. Thompson
55
CERTIFICATIONS
I, Dr. Shelley A. Harrison, certify that:
1. I have reviewed this annual report on Form 10-K of SPACEHAB,
Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Date: September 17, 2002
/s/ Dr. Shelley A. Harrison
-----------------------------
Dr. Shelley A. Harrison
Chairman of the Board,
And Chief Executive Officer
I, Julia A. Pulzone, certify that:
4. I have reviewed this annual report on Form 10-K of SPACEHAB,
Incorporated;
5. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report; and
6. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Date: September 17, 2002
/s/ Julia A. Pulzone
---------------------------
Julia A. Pulzone
Chief Financial Officer
56