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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 2003.
[_] 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
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SPACEHAB, Incorporated
601 13/th/ Street, NW
Suite 900 South
Washington, DC 20005
(202) 488-3500
Incorporated in the State of Washington IRS Employer Identification
Number 91-1273737
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
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Number of shares of Common Stock (no par value) outstanding as of August
26, 2003, 12,374,979. Aggregate market value of Common Stock (no par value) held
by non-affiliates of the registrant on August 23, 2003, based upon the closing
price of the Common Stock on the Nasdaq National Market of $0.96 was
approximately $11,879,980.
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. [_].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange act).
YES [_] NO [X].
Documents Incorporated by Reference:
Proxy Statement for the Annual Meeting of Parts I, II, and III of
Stockholders to be held November 14, 2003. Form 10-K
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PART I
This document may contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including (without limitation) statements under "Company
Strategy," "Products and Services," "Competition," "Dependence on a Single
Customer," "Research and Development," 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, delays and uncertainties in future space
shuttle and ISS programs, and resolution of the Company's indemnification claim
with NASA arising from the loss of the Columbia orbiter and its crew during the
STS-107 mission.
Management believes that NASA, as well as future Space Shuttle and ISS programs
will continue to be funded and supported by the U.S. Government. Furthermore,
management believes that it is highly unlikely that any decision to discontinue
these programs would be made during the next twelve months. However, the Company
is subject to risks and uncertainties, including but not limited to, whether the
Company will fully realize the economic benefits under its NASA and other
customer contracts, the utilization of new commercial space assets, continued
deployment of the ISS, technological difficulties, product demand and market
acceptance risks, the effect of economic conditions, uncertainty in government
funding, the impact of competition and delays and uncertainties in future Space
Shuttle and ISS programs, and resolution of the Company's indemnification claim
with NASA arising from the loss of the Columbia orbiter and its crew during the
STS-107 mission.
Item 1. Business
Company Background and History
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SPACEHAB, Incorporated ("SPACEHAB" or "the Company") was incorporated in 1984.
It is the first Company to commercially develop, own and operate pressurized
space 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. 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 are also capable of transporting food,
clothing, equipment and other vital supplies to the 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, 2003,
SPACEHAB modules and ICCs had flown 18 successful missions on the Space Shuttle,
including 12 logistics missions (five to the ISS and seven to the Russian space
station Mir). The most recent mission, STS-107, utilized the RDM flight asset.
The RDM was destroyed in the tragic STS-107 accident on February 1, 2003. At
this time, the Company does not plan to replace the Research Double Module
("RDM"). SPACEHAB's Space Flight Services business unit has two additional
modules and other flight assets
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available to support the Company's current NASA contract. These modules and
assets can also be used to support future NASA contracts.
In July 2003, the Company submitted a detailed claim for recovery of its RDM
investment in the amount of $87.0 million. The claim is anticipated to be
revised in the first quarter of fiscal year 2004 to incorporate the findings of
the Columbia Accident Investigation Board ("CAIB"), and upon revision will be
refiled with NASA. The Company believes it has a basis for recovery of the loss
from NASA but there can be no assurance as to the timing or the amount, if any,
to be received from the claim. Upon resolution of the claim, any proceeds from
NASA would be recorded in the period in which the claim is resolved.
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 the facilities used in the launch-site
preparation of satellites by satellite manufacturers and space launch services
companies including Lockheed Martin Corporation ("Lockheed Martin"), The Boeing
Company ("Boeing") and Orbital Sciences Corporation. In fiscal year 2002,
Astrotech completed construction of an additional facility in Titusville,
Florida to process larger payloads for the Evolved Expendable Launch Vehicles
("EELV") 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 the expendable launch services markets 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. Then, in March
2003, JE changed its name to SPACEHAB Government Services ("SGS"). SGS provides
support services to NASA including stowage integration services and ISS
Configuration Management support. SGS also designs and fabricates flight
hardware.
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 operates a retail facility adjacent to NASA's Johnson 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 launched
six experiments designed by students in Australia, China, Israel, Japan,
Liechtenstein and the United States on Space Shuttle mission STS-107.
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. The module would provide NASA with the
ability to support a full six-person crew on board the ISS. The Company also
provided NASA with an alternate proposal, utilizing the core Enterprise asset
base/technology in constructing a cargo module. In evaluating the Company's
investment in Enterprise in June 2003, the Company identified significant
uncertainties in new human space flight programs. While the Company believes the
service offered is a valuable service and is actively marketing this service to
NASA, the Company ceased funding development and was unable to determine if or
when this investment would be recovered. Therefore, the Company wrote down its
full investment of $8.2 million in Enterprise as of June 30, 2003.
The current focus of the Company is in three areas: (1) SPACEHAB Flight Services
("SFS") carrier services required to support the Space Shuttle's
return-to-flight, and assembly and utilization of the ISS; (2) SGS support for
the ISS Program Office under cost-type government contracts; and (3) Expansion
of the Astrotech revenue base through new markets and new services. The Company
is continuing to identify new business and business opportunities within its
core competencies.
3
Company Strategy
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SPACEHAB's goal is to be a 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.
. Focusing on quality and responsiveness of services. SPACEHAB'S three
major business units' products are known for providing high quality
services, consistently earning excellent award fees and delivering
flawless missions. SPACEHAB has successfully completed 18 Shuttle
missions to date. The Company intends to maintain and enhance its
reputation for product reliability, process innovation and performance
excellence. SFS is actively supporting the ISS Program as they determine
the best option for preparation to return-to-flight. SGS is competing on
the ISS A/B/C contracts for a major role in support of the ISS Program
Office. Astrotech continues to develop its government market and is
currently working with its current customers to expand the services it
provides under existing contract relationships. By maintaining our focus
on building a strong revenue base, the Company expects to create future
growth opportunities.
. Maintaining its position as a high value, 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 SGS subsidiary 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 SGS to implement
process improvements to reduce costs. The Company considers its position
as a low-cost service provider a prerequisite for future growth.
. Expanding the scope of business. SPACEHAB continues to focus on
expanding its core business base through extension of its existing core
competencies and strategic relationships. The Company's objective is to
further utilize its 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 SGS 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.
. Leveraging international strategic alliances. SPACEHAB seeks to create
and maintain strategic alliances with key international players in the
space industry. Existing relationships include EADS Space Transportation
GmbH ("EADS") (formerly Astrium GmbH and DaimlerChrysler Aerospace AG),
Intospace GmbH, Mitsubishi Corporation, RSC Energia and Alenia Spazio
S.p.A. On August 2, 1999, EADS 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.
. 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 entrepreneurial organization, SPACEHAB seeks to
distinguish itself as an innovative and effective provider of commercial
space services.
4
Products and Services
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SPACEHAB's business segments provide a range of products and services to the
aerospace market. SFS provides space research and space station resupply
services using pressurized habitat modules and unpressurized cargo carriers that
fly on NASA's Space Shuttles. SGS supplies critical services to NASA in support
of human space flight, including stowage integration and ISS Configuration
Management. Astrotech is a leading commercial provider of satellite processing
services. Space Media Inc., a wholly-owned subsidiary, operates The Space Store,
an online retail operation.
SPACEHAB 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. SFS 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.
SFS is responsible for managing and operating the Company's fleet of single
modules, which can also be combined to form a double module, 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
5,400 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 made its first flight on NASA
Shuttle mission STS-107. The RDM was destroyed in the STS-107 Columbia accident.
The Company has no plans to replace the RDM at this time. The SFS business unit
is continuing operations, supporting three of the next five planned Space
Shuttle missions. The Company is in negotiations with NASA on the value of
equitable adjustments for delays in these missions that will provide additional
revenue for contracted preparation activities during the period prior to NASA's
return to flight. During the fourth quarter. The Company completed all STS-107
accident investigation support activities with NASA.
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,
unpressurized experiments, 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 or rear 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 1999. 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
EADS and entered into an agreement with EADS to lease back these assets for a
period of four years with two additional four-year options. Through fiscal year
2003, the ICC has flown a total of five successful missions. Three additional
ICC flights are under contract. To meet particular NASA requirements for
unpressurized cargo transport, SPACEHAB 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 EADS for
inclusion in the lease back arrangements cited above. The ICC system, including
the VCC and other derivatives, is a highly capable, flexible and adaptable
payload transport option.
5
SPACEHAB Government Services
SPACEHAB's SGS subsidiary provides customer-responsive management and services
supporting the operation of complex facilities. Additionally, SGS provides
high-end engineering services, high-fidelity flight mockup design and
development, and disciplined configuration management of complex systems. SGS
performs several critical services for NASA, including stowage integration and
ISS Configuration Management.
SGS's Flight Crew Systems Development ("FCSD") contract with NASA is a cost-plus
award and incentive fee contract that commenced in May 1993, and was scheduled
to conclude on April 30, 2002. NASA exercised a series of extensions on the
contract to extend the performance period of the contract to December 2002. The
revised total value of the contract as of April 30, 2003 was $399.1 million.
NASA opened elements of this contract for recompete for calendar year 2003. SGS
competed to continue performing this work, but was notified in February 2003
that their recompete bid was not accepted. Contract work was transitioned to the
successful bidder in April 2003.
SGS is bidding on a number of ISS contracts proposed under the ISS contract
consolidation effort. The ISS contracts that the Company has submitted proposals
for, in June and July 2003, are the Mission Integration Contract ("MIC"), the
Program Integration and Control Contract ("PICC") and the Cargo Mission Contract
("CM"). These contracts are support contracts to the ISS office. All three
contracts are approximately five year contracts with two additional one-year
options. The tasks under the MIC contract include: a) program and business
management support, b) configuration, data and IT management, c) international
integration and d) ISS system analysis and integration and Russian language and
logistics services. The tasks under the PICC Contract include: a) integrated ISS
on orbit operations requirements analysis, b) manifesting of cargo and
logistics, c) on-orbit stowage planning and Integration and d) Russian language
and logistics support. The tasks under the CM Contract include: a) ISS cargo and
cargo carrier integration, b) sustaining engineering of government carriers and
logistics and c) procurement of commercial carrier assets. Subsequent to the
year ended June 30, 2003, the Company was notified that it was in the
competitive range as a finalist on all three contracts. The estimated value of
all these contracts is in excess of $100 million over five years. Awards for
these contracts are expected in October 2003.
SGS 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, SGS
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. The mockup was
completed in fiscal year 2003. SGS has also completed development of a major
exhibit for Shanghai Science and Technology Museum in Shanghai, China.
Astrotech Space Operations
SPACEHAB's Astrotech subsidiary provides payload processing services to the
satellite manufacturing and the launch services industries at Company-owned
facilities in Titusville, Florida, near the Kennedy Space Center/Cape Canaveral
Air Force Station launch complexes, and Vandenberg Air Force Base ("AFB") 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, and remote payload command and control through countdown. Payload
processing requires specialized facilities located near the launch site, with
such features as advanced environmental control, hazard-proof work areas,
airlock systems, and overhead bridge cranes.
Astrotech has long-term contracts in place with Lockheed Martin and The Boeing
Company to process payloads for Expendable Launch Vehicle ("ELV") missions. On
August 21, 2002, Lockheed Martin successfully completed its first launch of the
new Atlas V launch vehicle system followed by the successful launch of the
Boeing Delta IV launch vehicle on November 20, 2002. In support of the Lockheed
Martin and Boeing contract extensions, Astrotech undertook a major facility
expansion at its Florida site at a cost of approximately $31 million, building a
new Spacecraft Processing Facility ("SPF") and associated infrastructure
upgrades to support projected higher launch rates and larger sized payloads
associated with these new launch vehicle systems. In August 2001, Astrotech
completed a $20 million financing in support of this expansion project. The new
SPF, dedicated in October 2001, is intended to support all planned
configurations of the Boeing Delta IV and Lockheed Martin Atlas V launch vehicle
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systems. In fiscal years 2003, 2002 and 2001, expenditures for this expansion
were approximately $0.5 million, $15.2 million and $9.9 million, respectively.
The balance of the project costs were incurred in prior periods.
Astrotech also has contract agreements in place with Sea Launch Company, LLC to
provide payload processing and facilities operations support for the Sea Launch
Program at the Home Port facility in Long Beach, California, and with Orbital
Sciences Corporation to support the processing of Pegasus and Taurus launches
from both its Florida and Vandenberg AFB facilities.
Astrotech secured a contract with NASA in April 2003 to provide payload
processing support for the NASA MESSENGER and DEEP Impact spacecraft at its
Florida and Vandenberg AFB facilities, during fiscal years 2004 and 2005,
respectively. This represents the first of several new business opportunities
being pursued by Astrotech in support of government payloads for both NASA and
the U.S. Air Force.
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 launched
six student-designed experiments for schools in Australia, China, Israel, Japan,
Liechtenstein and the United States on Space Shuttle mission STS-107 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 and is currently focused
solely on The Space Store.
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. As of March 2003, Strategic Programs have been absorbed into
other segments of the Company.
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. The module would provide NASA with the
ability to support a full six-person crew on board the ISS. The Company also
provided NASA with an alternate proposal, utilizing the core Enterprise asset
base/technology in constructing a cargo module. In evaluating the Company's
investment in Enterprise in June 2003, the Company identified significant
uncertainties in new human space flight programs. While the Company believes the
service offered is a valuable service and is actively marketing this service to
NASA, the Company ceased funding development and was unable to determine if or
when this investment would be recovered. Therefore, the Company wrote down its
full investment of $8.2 million in Enterprise as of June 30, 2003.
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. In June
2003, the Company wrote down a portion of its investment in the DDM due to
uncertainties in human space flight programs. The remaining costs, consisting of
module materials, were reclassified to flight assets and will be depreciated
over their remaining useful lives.
7
The Company decided to discontinue marketing and funding the development of the
SPACEHAB Universal Communications System ("SHUCS") and wrote down its investment
in SHUCS in June 2003.
In 1998 SPACEHAB entered into a joint venture agreement with Guigne Technologies
Ltd. of Canada to build SpaceDRUMS(TM) -- 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 complete and scheduled for launch to the ISS on Space Shuttle mission
STS-114. 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
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The U.S. aerospace industry generated $148 billion in sales in calendar year
2002, the Aerospace Industries Association of America ("AIA") reports, down 3.2%
over $153 billion in 2001. AIA projects that sales will decline to $138 billion
in calendar year 2003. NASA and other federal agencies (excluding the Department
of Defense) will decrease space spending by $764 million to $15 billion in 2003.
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 of $15 billion, NASA is responsible for the U.S. civilian
space program. Approximately 77% of SPACEHAB's fiscal year 2003 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. Currently, the
Space Shuttle fleet is temporarily grounded pending resolution of the
investigation into the STS-107 Columbia orbiter disaster. Based on public
statements made by NASA subsequent to the year ended June 30, 2003, the Company
believes the Shuttle will return to flight however that return is expected to be
no earlier that March 2004.
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 within the U.S. Space program: space support
services such as space station logistics and resupply, and microgravity and
space life sciences research, and ground operations and payload processing. The
microgravity 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 SFS
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.
8
NASA is reviewing ISS planning and spending in order to determine how
to proceed toward completion of the project. The agency is expected to complete
its plan for return to flight in early 2004, and then revise its long term plan
with the International Partners no earlier than January 2004. Because the ISS is
expected to achieve the "core complete" configuration in approximately two
years, the emphasis of the 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 October 2003. SPACEHAB's core competencies directly support at
least three of these consolidated contracts. The Company submitted proposals for
these three contracts in June and July 2003.
Competition
- -----------
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 the RDM, a
commercial successor to Spacelab, under contract with Boeing (formerly McDonnell
Douglas Aerospace). SPACEHAB believed that the RDM would significantly
outperform Spacelab in technology, functionality and cost-effectiveness;
however, the RDM was lost in the Columbia orbiter accident in February 2003.
SPACEHAB's remaining modules are optimized for logistics, but also provide
significant laboratory capability for Shuttle missions. SFS is continuing
operations, supporting three of the next five Space Shuttle missions.
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 support activities.
SPACEHAB maintains a strategic partnership with EADS. In August 1999, EADS
executed a SPACEHAB stock purchase that made it the largest single shareholder
in the Company. EADS also takes part in joint programs with SPACEHAB. The
Company's strategic relationships with Mitsubishi Corporation and Energia
provide additional opportunities for teaming and partnerships that management
believes will enable the Company to compete for greater market share.
SPACEHAB's SGS subsidiary competes with companies that provide operations
support, configuration management, and engineering and fabrication services to
NASA. These competitors include Boeing, Lockheed Martin, USA, Barrios
Technologies Inc., Hernandez Engineering Inc., Cimarron and Oceaneering Space
Systems.
SPACEHAB's Astrotech subsidiary company-owned 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")
where Spaceport Systems International ("SSI") is located. SSI acquired surplus
U.S. Air Force ("USAF") facilities through a lease agreement with USAF at VAFB
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 within the space product online retail
business sector.
Dependence on a Single Customer
- -------------------------------
Approximately $72.9 million or 77% of SPACEHAB's revenue in fiscal year 2003 was
generated by four NASA contracts - SFS's Research and Logistics Mission Support
("REALMS"), SGS's Flight Crew Systems Development ("FCSD"), International Space
Station Configuration Management ("ISS CM"), and Stowage Engineering and Decal
("SEDC") contracts.
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
9
its contracts with SPACEHAB "for convenience." For the government's fiscal year
ended September 30, 2003, Congress appropriated $15.0 billion for NASA,
including $1.5 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. In February
2003, the crash of the Columbia orbiter and the subsequent investigation of the
crash have temporarily delayed launches of the entire NASA shuttle fleet.
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.
Management believes that NASA, as well as future Space Shuttle and ISS programs
will continue to be funded and supported by the U.S. Government. Furthermore,
management believes that it is highly unlikely that any decision to discontinue
these programs would be made during the next twelve months. However, the Company
is subject to risks and uncertainties, including but not limited to, whether the
Company will fully realize the economic benefits under its NASA and other
customer contracts, the utilization of new commercial space assets, continued
deployment of the ISS technological difficulties, product demand and market
acceptance risks, the effect of economic conditions, uncertainty in government
funding, the impact of competition and delays and uncertainties in future Space
Shuttle and ISS programs, and resolution of the Company's indemnification claim
with NASA arising from the loss of the Columbia orbiter and its crew during the
STS-107 mission.
While the Astrotech, SFS and SGS contracts with commercial customers provide
additional revenue, SPACEHAB anticipates that contracts with NASA 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, 2003, and June 30, 2002, the Company's contract backlog was
approximately $169.6 million and $211.5 million, respectively, of which $100.3
million and $116.9 million, respectively, represented U.S. government backlog
and $69.3 million and $94.0 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 $241.5
million 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 on any mission at NASA's discretion. Contracts with
commercial customers on STS-95, STS-101, STS-107 and STS-123 account for
approximately $37.8 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. Four logistics missions and
two research missions have been flown under the REALMS contract. REALMS missions
under contract but not yet launched include: STS-112, research, launch date to
be determined; STS-116, logistics, launch date to be determined; and STS-118,
logistics, launch date to be determined. SPACEHAB is in negotiations with NASA
on an equitable adjustment for delays in launching missions STS-116 and STS-118
due to the Columbia accident. The equitable adjustment is a cost based contract
price adjustment to cover the period until the Shuttle returns to flight.
10
Additionally, SPACEHAB sells ICC services to The Boeing Company under the $19.9
million Unpressurized Payloads Accommodation Services (UPAS) contract. The UPAS
contract, signed in November 1999 and amended in November 2000, requires
SPACEHAB to provide unpressurized ICCs to support outfitting of the ISS. The
STS-102 mission was flown under UPAS in March 2001. The STS-114 mission is
currently under the UPAS contract and is scheduled to be flown no earlier than
March 2004. SPACEHAB is in negotiations with Boeing on an equitable adjustment
for delays in launching mission STS-114 due to the Columbia accident. The
equitable adjustment is a cost based contract price adjustment to cover the
period until the Shuttle returns to flight.
Revenue recognized under the REALMS contract and contracts with commercial
customers for fiscal year 2003, 2002 and 2001 is $46.8 million, $51.4 million
and $45.0 million, respectively.
SGS historically has operated primarily under the FCSD contract, a multi-task
cost-plus award and incentive-fee contract. NASA exercised a series of
extensions on the contract to extend the performance period of the contract to
December 2002. The revised total value of the contract as of April 30, 2003 was
$399.1 million. NASA opened elements of this contract for recompete for calendar
year 2003. SGS competed to continue performing this work, but was notified in
February 2003 that their recompete bid was not accepted. Contract work was
transitioned to the successful bidder in April 2003. Two NASA contracts have a
period of performance through December 2003, Crew Services and ISS Configuration
Management. SGS also provides stowage integration services and designs and
fabricates space flight hardware, such as crew equipment and crew quarters
habitability outfitting. SGS is responsible for configuration management support
to the ISS program under a contract won in a competitive bid in 2001. For fiscal
years 2003, 2002 and 2001, SGS recognized revenue of $34.7million, $40.8 million
and $53.5 million, respectively.
In fiscal year 2002, Astrotech completed a major facility expansion at its
Florida site at a cost of approximately $31 million, building a new Spacecraft
Processing Facility to support projected higher launch rates and larger sized
payloads and payload fairings associated with the Boeing Delta IV and Lockheed
Martin Atlas V launch vehicle system. In August 2001, Astrotech completed a $20
million financing of the expansion project. The new SPF, dedicated in October
2001, is intended to support all planned configurations of the Delta IV and
Atlas V.
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 Sea Launch Company, LLC and Orbital Sciences Corporation. Astrotech
has successfully supported the processing of over 200 satellites since the
beginning operations in 1985 and continues to be recognized as the industry
leader in commercial satellite processing. For fiscal years 2003, 2002 and 2001,
Astrotech recognized revenues of $12.4 million, $9.9 million and $6.2 million,
respectively.
Research and Development
- ------------------------
SPACEHAB incurred $0.1 million, $0.4 million and $0.4 million in research and
development expenditures during fiscal years 2003, 2002 and 2001, respectively.
The Company spent $0.1 million in 2003 on miscellaneous research & development
projects, including the Next Generation Cargo Service.
Approximately $0.2 million of the Company's research and development
expenditures for fiscal year 2002 was spent on development of the Enterprise
module. The remainder of $0.2 million was spent on miscellaneous research and
development projects in 2002.
Approximately $0.1 million of the Company's research and development
expenditures for fiscal year 2001 was spent completing development of
Astrotech's Oriole sounding rocket program, and $0.2 million 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 $0.1 million was spent on
miscellaneous research and development projects.
11
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, 2003, the Company and its wholly owned subsidiaries employed 258
regular full-time employees, 146 are employed by SGS, 78 are employed by
SPACEHAB, 28 are employed by Astrotech, and 6 are employed by SMI. Of these
employees, approximately 17% hold advanced degrees, including 2 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 owned subsidiaries, Astrotech, SGS, and SMI,
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, Texas 77598 in fiscal year 2002. The term of the
present lease for the D Street space expires on December 16, 2007. As of June
30, 2002, the Company sublet the entire D Street space through the end of the
term of the Company's lease. The Company is currently leasing space at 601
13/th/ Street N.W., Suite 900 South, Washington, DC 20005. The space consists of
5,920 square feet and the lease expires May 2006. There are 8 employees in
Washington, DC.
SPACEHAB has 92 employees encompassing executive management, sales and
marketing. SFS and SGS employees are located at 12130 State Highway 3, Webster,
Texas 77598. The facility consists of 90,867 square feet of office and
manufacturing space located near the Johnson Space Center. The lease expires on
March 15, 2006.
The Company's Flight Services payload processing facility, housing a 4-person
SPACEHAB operations team plus subcontractor ground operations teams of
approximately 35 persons, 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 an agreement with the Canaveral Port Authority for the lease
of the land. The term of the 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.
SFS 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 company-owned locations. Astrotech's headquarters and
Florida operations team, consisting of 18 personnel, are located in a
nine-building complex at 1515 Chaffee Drive, Titusville, Florida 32780. This
140,000 square foot facility supports non-hazardous and hazardous flight
hardware processing, payload storage and customer offices. The construction of
the new 50,000 square foot Spacecraft Processing Facility was completed in
12
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 leases a 60-acre site on
the Base and owns four buildings comprising 18,800 square feet, dedicated to the
same functions provided at the Florida facility. The term of the present land
lease expires on July 13, 2013, with provisions to extend the lease at the
request of the lessee and the concurrence of the lessor. Upon final 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 eight employees who are housed at the Sea Launch
Home Port facility in Long Beach, California provided per the provisions of the
Astrotech contract with Sea Launch Company, LLC.
SGS occupies two additional locations. One is located at 555 Forge River Road,
Suite 150, Webster, Texas 77058. The office space houses 17 employees within a
31,114 square foot facility. This office lease expired on June 28, 2003 and was
extended on a monthly basis through August 31, 2003 when the operations were
consolidated into the facility at 12130 State Highway 3, Webster, Texas. SGS
also occupies approximately 9,826 square feet of space at 18100 Upper Bay Road,
Houston, TX 77058 that houses a 26-person engineering and laboratory team. The
lease expires on December 31, 2003.
Additionally, SGS has 77 employees who are housed at various government
facilities within the Houston area.
SMI, The Space Store, has 6 employees and occupies approximately 2,450 square
feet of space located at 1400 NASA Road One, Suite D, Houston, Texas 77058. The
lease expires in March 2008.
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.
Pursuant to a stock purchase agreement entered into as of September 27, 2001,
escottVentures II, LLC ("ESV"), of Melbourne, Florida, purchased 5,914,826 newly
issued shares of SMI's Series A redeemable, convertible preferred stock for
$750,000. On June 21, 2002, ESV filed Case Number 1:02CV01236 in the U.S.
District Court for the District of Columbia against Space Media, Inc., SPACEHAB,
Inc., Shelley A. Harrison and Julia A. Pulzone (collectively, "Defendants").
This suit, relating to ESV's investment in Space Media, Inc., sought rescission
of the stock purchase agreement and return of its $750,000 investment, plus
unspecified expenses, consequential damages, exemplary and punitive damages,
prejudgment interest, and costs and disbursements, including attorney and expert
fees. The Defendants and ESV settled the suit through mediation. A stipulation
and order of dismissal was filed with the Court by the parties on January 22,
2003, following the payment of cash and issuance of restricted shares of
SPACEHAB common stock to ESV. ESV is no longer a shareholder of SMI.
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, 2003.
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 2003
and 2002 are as follows:
13
Fiscal 2003 High Low
- ------------------------ -------- --------
First Quarter $ 1.050 $ 0.600
Second Quarter $ 1.010 $ 0.660
Third Quarter $ 1.040 $ 0.690
Fourth Quarter $ 1.130 $ 0.880
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
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 June 30, 2003,
12,374,979 shares of Common Stock were outstanding. The Company had
approximately 2,696 shareholders of record and beneficial holders of its Common
Stock on June 30, 2003.
On August 2, 1999, EADS, 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, EADS, 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 EADS allowing them to purchase the additional 358,334 preferred
shares. The preferred stock purchase increased EADS's 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.
On March 25, 2003 the Board of Directors authorized the Company to repurchase up
to $1.0 million of the Company's outstanding common stock at market prices. Any
purchases under the Company's stock repurchase program may be made from
time-to-time, in the open market, through block trades or otherwise in
accordance with applicable regulations of the Securities and Exchange
Commission. As of June 30, 2003, the Company had repurchased 109,800 shares at a
cost of $111,495. The Company will continue to evaluate the stock repurchase
program and the funds authorized for the program.
Sales of Unregistered Securities
- --------------------------------
During fiscal year 2003, 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.
14
Year Ended Year Ended Year Ended Year Ended Year Ended
June 30 June 30 June 30 June 30 June 30
-----------------------------------------------------------------------------
1999 2000 2001 2002 2003
-----------------------------------------------------------------------------
(in thousands, except per share data)
Statement of Operations Data:
Revenue $ 107,720/1/ $ 105,708 $ 105,254 $ 102,773 $ 94,963
Costs of revenue 89,283 87,931 92,243 81,767 78,791
-----------------------------------------------------------------------------
Gross profit 18,437 17,777 13,011 21,006 16,172
Selling, general and
administrative expenses 14,599 17,832/3/ 21,796 18,737 13,098
Loss of Research Double Module -- -- -- -- 50,268
Goodwill impairment -- -- -- -- 11,925
Asset impairment charge -- -- -- -- 16,143
Loss on subleases -- -- -- 770/6/ --
Research and development expenses 3,636 2,440/4/ 393 383 118
-----------------------------------------------------------------------------
Income (loss) from operations 202 (2,495) (9,178) 1,116 (75,380)
Interest expense, net of
capitalized amounts and interest
and other income 4,905 3,773 4,804 5,533 7,252
Net loss (2,589) (3,844) (12,785)/5/ (2,367) (81,775)
Net loss per common share - basic
and diluted ($ 0.23) ($ 0.34) ($ 1.12) ($ 0.20) ($ 6.66)
Shares used in computing net
loss per common share - basic and
diluted 11,185 11,273 11,400 11,884 12,285
Other Data:
Cash provided by (used in)
operations ($ 6,331) $ 1,424 $ 17,124 $ 8,592 $ 19,780/7/
Total investing activities 58,619/2/ 29,794 23,076 13,716 14,630
Balance Sheet Data (at period end):
Working capital (deficiency) $ 12,374 ($ 1,601) ($ 41,424) ($ 22,022) ($ 4,750)
Total assets 204,346 225,109 222,477 220,826 121,356
Long-term debt, excluding current
portion 78,810 75,901 64,589 82,416 78,110
Stockholders' equity 94,165 102,702 90,356 87,670 5,090
/1/ Includes revenues of $58.4 million generated by JE subsequent to its
acquisition on July 1, 1998.
/2/ Includes $24.7 million of consideration for the purchase of JE and a $1.4
million investment in a joint venture.
/3/ Includes approximately $1.8 million of expenses associated with the startup
of SMI.
/4/ Includes approximately $0.5 million of expenses associated the Enterprise
module.
/5/ Includes approximately $3.3 million of non-cash expense to record a full
valuation allowance on the Company's deferred tax asset.
/6/ Includes approximately $0.8 million of non-cash expenses related to
subleasing of excess facilities.
/7/ Includes approximately $17.7 million of insurance proceeds related to the
loss of the RDM.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
SPACEHAB, Incorporated ("SPACEHAB" or "the Company") was incorporated in 1984 to
commercially develop space habitat modules to operate in the cargo bay of U.S.
National Aeronautics and Space Administration's ("NASA") Space Shuttles.
SPACEHAB Flight Service ("SFS"), along with SPACEHAB Government Services
("SGS"), Astrotech Space Operations, Inc. ("Astrotech") and Space Media, Inc.
("SMI") subsidiaries define the Company.
15
SPACEHAB Flight Services 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. Revenue generated under the Research and Logistics Mission Support
("REALMS") Contract, and under new contract awards for which the capability to
successfully estimate costs and complete the contract can be demonstrated at
contract inception, is recognized under the percentage-of-completion method and
is being reported based on costs incurred over the period of the contract.
SGS primarily operated under the Flight Crew System Development ("FCSD")
Contract which was a $399.1 million multi-task cost-plus award and incentive-fee
contract. The contract commenced in May 1993 and concluded in April 2003.
Portions of the contract were under recompete and those portions were awarded to
another bidder and transitioned to that successful bidder in April 2003. Two of
the original seven FCSD tasks remain under new contracts with SGS. SGS has bid
on a number of International Space Station ("ISS") contracts that are expected
to be awarded in October 2003. SGS performs services under a cost-plus award and
incentive-fee contracts directed by NASA.
Astrotech revenue is generated from various multi-year, fixed-price contracts
with launch service 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, check-out and installation of the
solid rocket motors, loading of the liquid propellants, encapsulation of the
satellite in the launch vehicle payload fairings, payload transportation to the
launch pad and command and control of the satellite during pre-launch countdown.
Under the multi-year contracts for payload processing services with commercial
launch vehicle providers, revenue is billed and recognized on a quarterly basis
as costs are incurred. Costs incurred by Astrotech are recognized as incurred.
The revenue generated from other payload support contracts, such as those with
NASA, is recognized ratably over the occupancy period of the satellites in the
Astrotech facilities.
On April 11, 2000, SPACEHAB announced the formation of SMI, a wholly-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 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 launched six student-designed experiments for schools
in Australia, China, Israel, Japan, Liechtenstein and the United States on Space
Shuttle mission STS-107 in January 2003.
The Company's revenues for the year ended June 30, 2003 were primarily generated
from the REALMS contract and contracts with related commercial customers in its
SPACEHAB Flight Services segment with one mission flown in January 2003, and the
FCSD contract with SGS. The Company's revenues for the year ended June 30, 2002
were primarily generated from the REALMS contract and contracts with related
commercial customers, with one mission flown in August 2001, and the FCSD
contract with SGS. 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 SGS.
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 SGS. 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
16
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 U.S. Government
and commercial customers. Revenue under these contracts is recognized using the
percentage of completion method of accounting. Such revenues are recorded based
on the percentage of costs incurred in the applicable reporting period as
compared to the most recent estimates of costs to complete each mission.
Estimating future costs and, therefore, revenues and profits, is a process
requiring a high degree of management judgment. Management bases its estimate on
historical experience and on various assumptions that are believed to be
reasonable under the circumstances including the negotiation of an equitable
adjustment, added to the contract as a pricing amendment, due to the delay in
the return to flight. The contract amendment is in accordance with the terms of
the REALMS contract. 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.
Goodwill. 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 and when
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 ceased to amortize
goodwill and will be required instead to analyze goodwill at least annually for
impairment issues. Goodwill impairment tests will be conducted in April of each
fiscal year.
Long-Lived Assets. In assessing the recoverability of long-lived assets, fixed
assets, assets under construction and intangible assets, the Company evaluates
the recoverability of those assets in accordance with the provisions of
Statements of Financial Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". 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 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, 2003 as Compared to the Fiscal Year Ended June 30,
2002
Revenue. The Company's revenue decreased 8% from last year to approximately
$95.0 million for the year ended June 30, 2003, as compared to $102.8 million
for the year ended June 30, 2002. For the year ended June 30, 2003, $46.7
million was recognized from the REALMS Contract and related commercial
customers, $34.8 million from SGS, $12.4 million from Astrotech, and $1.1
million from SMI. For the year ended June 30, 2002, $51.4 million was recognized
from the REALMS Contract and related commercial customers, $40.8 million from
SGS, $9.9 million from Astrotech, and $0.7 million from SMI. The decrease in
revenue under the REALMS Contract and related commercial customers is
attributable to the completion of STS-107, mix of missions under contract and
the delay in contracted missions due to the STS-107 accident, which resulted in
a decrease in margin due to the impact of the equitable adjustment. The decrease
in revenue at SGS is due to the close-out of the FCSD contract completed April
30, 2003. The revenue increased at Astrotech is due to an escalation in several
commercial contracts in the year ended June 30, 2003 as compared to the same
period last year and additional billings under its long term contracts. Revenue
at SMI increased due to higher volume of goods sold, in part STS-107 memorabilia
sales at the Space Store.
17
Costs of Revenue. Costs of revenue for the year ended June 30, 2003 decreased
slightly to approximately $78.8 million, as compared to $81.8 million for the
year ended June 30, 2002. For the year ended June 30, 2003, $35.2 million of
costs were for integration and operation costs under the REALMS Contract and
related commercial customers, $30.9 million for cost of revenue at SGS, $5.5
million for integration and operations at Astrotech, $0.5 million for SMI, and
depreciation of $6.7 million. In contrast, the primary costs of revenue for the
year ended June 30, 2002 included $29.8 million of costs for integration and
operation costs under the REALMS Contract and related commercial customers,
$37.5 million for costs of revenue at SGS, $4.2 million for integration and
operations at Astrotech, $0.5 million for costs of revenue at SMI and
depreciation of $9.7 million. Costs of revenue increased under REALMS due to the
increased work on STS-116, STS-118 and STS-114 missions, partially offset by the
close-out of STS-107. Additionally, there was an additional $1.5 million in
Integrated Cargo Carrier ("ICC") and Vertical Cargo Carrier ("VCC") lease costs
this year compared to the same period last year primarily due to a full year of
VCC lease costs in fiscal 2003. Costs decreased at SGS due to the close-out of
the FCSD contract and the elimination of the direct work force required to
support the contract operations. Costs increased at Astrotech primarily due to
increased facilities costs, as a result of its new building in full operation
for the entire fiscal year. Costs increased at SMI due to the memorabilia sales
increase.
Operating Expenses. Operating expenses increased significantly to approximately
$91.6 million for the year ended June 30, 2003, as compared to $19.9 million for
the year ended June 30, 2002. Operating expenses include the Research Double
Module ("RDM") loss of $50.3 million, goodwill impairment of $11.9 million, and
asset impairment of $16.1 million. On February 1, 2003 the Company's RDM was
destroyed in the tragic STS-107 accident. The net book value of the RDM was
$67.9 million which was partially offset by commercial insurance proceeds of
$17.7 million. As a result of the loss of the recompete of the FCSD contract at
SFS, during the three months ended March 31, 3003, a goodwill impairment test
was performed . The impairment test indicated that the goodwill at SGS was
impaired and a $11.9 million impairment charge of goodwill was recorded. Due to
the uncertainties in the human space flight programs following the STS-107
accident, the company decided to no longer fund certain work in process flight
assets and recorded an impairment charge of $16.1 million. The remaining
selling, general and administrative ("SG&A") expenses decreased $5.7 million
from the year ended June 30, 2002 due primarily to Company wide cost reduction
actions. SMI's expenses decreased $1.0 million associated with the downsizing of
the SMI operation during the year ended June 2002. Operating expenses at
SPACEHAB were reduced by $0.6 million in compensation and benefits due to staff
reductions, $1.6 million in facilities and $0.5 in depreciation and other
expenses. Astrotech's operating expenses decreased $0.4 million due to no longer
recording amortization of goodwill of $0.2 and reduction of $0.2 million in
financing fees that occurred in fiscal year 2002. SGS's operating expenses
decreased by $2.6 million due to the closing of the Huntsville operation
partially offset by increased bid and proposal expenses on the FCSD and
International Space Station ("ISS") contracts. In the year ended June 30, 2002,
the Company recognized $0.8 million of expenses for excess facilities that have
been sublet.
Research and development costs for the year ended June 30, 2003 as compared to
the year ended June 30, 2002 were immaterial at approximately $0.1 million and
$0.4 million, respectively.
Interest Expense, Net of Capitalized Interest. Interest expense was
approximately $7.2 million and $8.0 million for the years ended June 30, 2003
and June 30, 2002, respectively. The decrease was primarily due to the fact that
no interest expense was capitalized in 2003 as compared to $1.3 million of
capitalized interest in 2002. In addition, fiscal year 2003 includes a full year
of interest on the mortgage loan payable. Interest was capitalized on the
in-progress construction of the Company's modules and payload processing
facilities in 2002.
Interest and Other Income, Net. Interest and other income for the year ended
June 30, 2003 was immaterial and was $1.2 million for the year ended June 30,
2002. 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 and was immaterial for fiscal years 2003 and 2002. During fiscal year
2003, the Company invested the proceeds of its commercial insurance policy from
the loss of the RDM flight asset.
Net Loss. The net loss for the year ended June 30, 2003 was approximately $81.8
million, or $6.66 per share (basic and fully diluted EPS), on 12,285,467 shares
as compared to approximately $2.4 million, or $0.20 per share (basic
18
and fully diluted EPS), on 11,884,309 shares for the year ended June 30, 2002.
The net loss for the year ended June 30, 2003 included $78.3 million of non-cash
charges relating to the loss of the RDM, goodwill impairment and asset
impairment. 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. As of June 30, 2003 the Company had approximately $47.6 million of
available net operating loss carryforwards expiring between 2008 and 2023 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, 2003 and 2002.
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 customer, $40.8million from SGS, $9.9 million from Astrotech and $0.7
million from SMI. For the year ended June 30, 2001, $45.0 million was recognized
from the REALMS Contract and related commercial customers, $53.5 million from
SGS, $6.2 million from Astrotech and $0.5 million from SMI. 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 SGS 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 multi-year 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, $37.5 million for cost of revenue at SGS, $4.2 million for
integration and operations at Astrotech, $0.5 million for SMI and depreciation
of $9.7 million. In contrast, the primary costs of revenue 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 SGS, $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 decrease 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 SGS
decreased primarily due to the deletion of certain tasks under the FCSD contract
partially offset by increased costs under its commercial contracts. SGS
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 Expense. 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 a loss of $0.8 million 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 SGS decreased by approximately $1.0 million due primarily to a
reduction in facilities costs of $0.3 million, reduction in bid and proposal
costs of $0.1 million, reduction in management information expenses of $0.3
million and approximately $0.3 million in other expense categories. SG&A
expenses relative to Enterprise decreased approximately $0.2 million.
19
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.
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) milliom. 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.
Liquidity and Capital Resources
- -------------------------------
The Company has incurred net losses in the years ended June 30, 2003, 2002 and
2001. The Company's loss in 2003 includes a $50.3 million nonrecurring charge
related to the loss of the RDM discussed above, an asset impairment charge of
approximately $16.1 million and a goodwill impairment charge of approximately
$11.9 million. The Company has historically financed its capital expenditures,
research and development and working capital requirements with milestone
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.
On August 9, 2000, the Company entered into a $15 million revolving credit
facility with a 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"). 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. On July 31, 2002, the New Credit Facility was repaid and expired.
20
On August 29, 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. The term of this new credit facility is through June 2005. As of June
30, 2003, no amounts were drawn on this line of credit. For the year ended June
30, 2003, the Company obtained waivers for the covenant compliance of the new
credit facility. Covenants include, but are not limited to, leverage ratio,
tangible capital funds and liquidity ratio. The covenants were revised to
eliminate certain covenants and to include a liquidity ratio and a limited
pledge of $5.6 million of the Company's investment account.
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, 2003, the Term Loan Agreement was repaid in full.
On November 15, 2001 the Company entered into an agreement with Alenia Spazio
S.P.A. ("Alenia") to restructure the terms of its $11.9 million debt. The terms
of the restructure 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 outstanding balance is $2.0 million
as of June 30, 2003.
On August 2, 1999, EADS GmbH ("EADS"), 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, EADS 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 EADS allowing them to purchase the additional 358,334 preferred
shares. The preferred stock purchase increased EADS's 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, 2003, 2002, and 2001 was $19.8 million, $8.6 million and $17.1
million, respectively. For the year ended June 30, 2003, the significant items
affecting cash provided by operating activities, other than the net loss, were
primarily the result of $78.3 million of non-cash charges for the loss of the
RDM, asset impairment and goodwill impairment. In addition the Company received
$17.7 million of commercial insurance proceeds related to the loss of the RDM.
Depreciation and amortization was approximately $9.4 million for the period
ended June 30, 2003. Deferred revenue decreased $8.9 million for three missions
under contract, STS-116, STS-118 and STS-114. For the year ended June 30, 2002,
the significant items affecting cash provided by operating activities, other
than the net loss, were primarily the result of depreciation and amortization of
$13.4 million, a non-cash charge of approximately $0.8 million to record a loss
on subletting two facilities, a 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,
other than the net loss, 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.
Cash Flows Used in Investing Activities. For the years ended June 30, 2003,
2002, and 2001, cash flows used in investing activities were $14.6 million,
$13.2 million and $23.1 million, respectively. During the year ended June 30,
2003, the primary change in the cash used in investing activities was due to the
increase in the Company's investments of $14.0 million primarily as the result
of the commercial insurance received for the loss of the RDM. The Company's
expenditures for flight assets under construction were minimal. Approximately
$1.3 million was spent for buildings under construction and equipment, primarily
for the expansion of Astrotech's payload processing facilities in Titusville,
Florida. The remainder of capital expenditures was for flight assets. During the
year ended June 30, 2002, the Company's expenditures for flight assets under
construction relate primarily to the completion of
21
the VCC for sale to EADS, adapter plates for unpressurized ICC and VCC missions
and for additional development work on 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 EADS 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 of the 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 EADS.
Cash Flows From Financing Activities. For the years ended June 30, 2003, 2002,
and 2001, cash flows (used in) provided by financing activities were $(6.5)
million, $7.2 million and ($1.0) million, respectively. During the year ended
June 30, 2003 the Company repaid approximately $6.3 million of debt including
the New Credit Facility which expired and was repaid in July 2002. 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
$0.3 million of 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 repaid $3.6
million of debt.
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 in development to support future Company growth, funding a portion of
the construction cost of the Astrotech Florida facility and funding of required
debt repayments. In addition, the Company was committed to capital investments
to complete certain flight assets.
Beginning in the third quarter of fiscal year 2001, management began an
aggressive multi-faceted plan to improve the Company's financial position and
liquidity. This plan included restructuring and repayment of certain debt
obligations.
Under this plan, the Company undertook extensive efforts to reduce cash required
for both operations and capital investments. Additionally, the Company completed
planned divesting of non-core assets. Development and construction of new assets
is currently limited to those assets required to fulfill existing commitments
under contracts. The Company has no further on-going commitments to fund
development or construction of any asset. The Company completed the planned
restructuring of certain debt obligations and continues to focus on reducing its
outstanding debt. Management completed the implementation of the plan in the
fourth quarter of fiscal year 2002.
On March 25, 2003 the Board of Directors authorized the Company to repurchase up
to $1.0 million of the Company's outstanding common stock at market prices. Any
purchases under the Company's stock repurchase program may be made from
time-to-time, in the open market, through block trades or otherwise in
accordance with applicable regulations of the Securities and Exchange
Commission. As of June 30, 2003, the Company had repurchased 109,800 shares at a
cost of $111,495. The Company will continue to evaluate the stock repurchase
program and the funds authorized for the program.
The Company was under contract with NASA to support the STS-107 mission on its
Columbia orbiter. The mission utilized the Company's RDM flight asset. On
February 1, 2003 the RDM was lost in the tragic STS-107 accident. The RDM was
partially covered by commercial insurance. During the three months ended March
31, 2003, the Company received $17.7 million from commercial insurers. The
Company does not plan on replacing the RDM. The Company has two additional
modules available to support the Company's current NASA contracts. The Company
has invested the majority of the commercial insurance proceeds in U.S. Treasury
securities, Federal sponsored agencies and repurchase agreements collateralized
by U.S. Treasury securities in order to safeguard capital and provide ready
liquidity. In July 2003 the Company submitted a detailed claim in draft to NASA
for recovery of its RDM investment in the amount of $87.0 million. The claim is
anticipated to be revised in the first quarter of fiscal year 2004 to
incorporate the findings of the Columbia Accident Investigation Board, and upon
revision will be refiled with NASA. The Company believes it has a basis
22
for recovery of the loss from NASA but there can be no assurance as to the
timing or the amount, if any, to be received from the claim. Upon resolution of
the claim, any proceeds from NASA would be recorded in the period in which the
claim is resolved.
Management continues to focus its efforts on improving the overall liquidity of
the Company through identifying new business opportunities within the areas of
the Company's core competencies, reducing operating expenses and limiting cash
commitments for future capital investments and new asset development. SPACEHAB
Government Services is pursuing significant new contracts to provide service for
the International Space Station. In the event that SPACEHAB Government Services
is not successful in its effort to secure additional contracts, management would
further rightsize the Company's cost structure and evaluate remaining long-lived
assets and goodwill. The Company has continued to restrict new capital
investment and new asset development, limiting projects to those required to
support current contracts and facility maintenance. Additionally, management
continues to evaluate operating expenses in an effort to reduce or eliminate
costs not required to effectively operate the Company.
The Company's cash and short-term investments are approximately $15.3 million as
of June 30, 2003. Management believes that the Company has sufficient liquidity
to fund ongoing operations for at least the next fiscal year but may experience
a reduction in cash balances during fiscal year 2004 to fund its operating and
financing activities. The Company also expects to utilize existing cash and any
potential payment from NASA to support strategies for new business initiatives
and reduce debt service requirements. However, under certain scenarios the
Company could be facing liquidity concerns after the end of fiscal year 2004.
The Company's contractual obligations as of June 30, 2003 are as follows:
Contractual Obligations
(In thousands) Amounts due by period
Less than
Total 1 year 1-3 years 4-5 years Thereafter
--------------------------------------------------------------
Contractual obligations:
- -------------------------------------------
Convertible Notes Payable to Shareholder $ 2,004 $ 2,004 $ -- $ -- $ --
Convertible Subordinated Notes Payable 63,250 -- -- -- 63,250
Mortgage Loan Payable 17,078 2,218 5,037 2,530 7,293
Capital lease obligations 336 269 67 -- --
Operating lease obligations 14,182 5,469 4,565 1,205 2,943
--------------------------------------------------------------
$ 96,850 $ 9,960 $ 9,669 $ 3,735 $ 73,486
==============================================================
Recent Accounting Pronouncements
- --------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." The statement eliminates the requirement to amortize costs
in excess of net assets acquired (goodwill) under the purchase method of
accounting, and sets forth a new methodology for periodically assessing and, if
warranted, recording impairment of goodwill. The Company adopted the new rules
effective July 1, 2002. As of the year ended June 30, 2003, the Company recorded
an impairment write down of approximately $11.9 million on goodwill attributable
to its SGS subsidiary. The Company will continue to analyze and assess the
impairment provisions of the new statement on an ongoing basis.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of SFAS No. 123." This
statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements
23
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in APB Opinion No. 25 and related
interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the fair market value of the Company's stock at the date of the grant
over the exercise price of the related option. The Company has adopted the
disclosure provisions for its financial reports for the fiscal year ended June
30, 2003.
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 $0.9 million during the year ended June 30, 2003 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, including (without limitation) the "General" and
"Liquidity and Capital Resources". Such statements are subject to certain risks
and uncertainties, including those discussed herein, which could cause actual
results to differ materially from those projected in the statements. In addition
to those risks and uncertainties discussed herein, such risks and uncertainties
include, but are not limited to, whether the Company will fully realize the
economic benefits under its U.S. National Aeronautics and Space Administration
("NASA") and other customer contracts, the utilization of new commercial space
assets, continued deployment of the International Space Station ("ISS"),
technological difficulties, product demand and market acceptance risks, the
effect of economic conditions, uncertainty in government funding, the impact of
competition and delays and uncertainties in future space shuttle and ISS
programs, and resolution of the Company's indemnification claim with NASA
arising from the loss of the Columbia orbiter and its crew during the STS-107
mission.
ITEM 9A. Controls and Procedures
Under the supervision and with the participation of the Company's management,
including its principal executive officer and principal financial officer, the
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures within 90 days of the filing date of this
quarterly report, and, based on its evaluation, the Company's principal
executive officer and principal financial officer have concluded that these
controls and procedures are effective. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that we file under the Exchange Act is accumulated and
communicated to its management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
24
Item 8. Financial Statements and Supplementary Data.
Report of Independent Auditors
The Stockholders and 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, 2003 and 2002, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 2003. 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, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2003 in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," effective July 1, 2002.
/s/Ernst & Young LLP
McLean, Virginia
August 20, 2003
25
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
June 30,
---------------------
Assets 2003 2002
- -------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 1,301 $ 2,694
Short-term investments 14,047 --
Accounts receivable, net 6,780 13,802
Prepaid expenses and other current assets 343 464
- -------------------------------------------------------------------------------
Total current assets 22,471 16,960
- -------------------------------------------------------------------------------
Property and equipment
Flight assets 63,970 162,166
Module improvements in progress 305 19,622
Payload processing facilities 46,026 45,367
Furniture, fixtures, equipment and leasehold
improvements 22,088 23,003
- -------------------------------------------------------------------------------
132,389 250,158
Less accumulated depreciation and amortization (48,700) (74,307)
- -------------------------------------------------------------------------------
Property and equipment, net 83,689 175,851
Goodwill, net 8,274 20,294
Investment in Guigne 1,800 1,800
Deferred financing costs, net 2,182 2,606
Other assets, net 2,940 3,315
- -------------------------------------------------------------------------------
Total assets $ 121,356 $ 220,826
===============================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------
Current liabilities
Convertible notes payable to shareholder,
current portion $ 2,004 $ 1,827
Mortgage loan payable, current portion 2,218 2,039
Loans payable, current portion -- 169
Revolving loan payable -- 2,150
Accounts payable 3,231 5,996
Accounts payable- EADS 7,824 2,767
Accrued expenses 4,052 5,586
Accrued subcontracting services 522 3,043
Deferred revenue, current portion 7,370 15,405
- -------------------------------------------------------------------------------
Total current liabilities 27,221 38,982
- -------------------------------------------------------------------------------
Loans payable -- 49
Accrued contract costs and other 255 438
Deferred revenue 8,734 9,560
Convertible notes payable to shareholder -- 2,039
Mortgage loan payable 16,806 18,088
Convertible subordinated notes payable 63,250 63,250
- -------------------------------------------------------------------------------
Total liabilities 116,266 132,406
- -------------------------------------------------------------------------------
Minority interest in subsidiary -- 750
- -------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
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 12,484,779 and 12,154,465 shares,
respectively 83,446 83,204
Treasury stock, 109,800 shares in 2003 (111) --
Additional paid-in capital 16 16
Accumulated other comprehensive loss (1,946) (1,010)
Accumulated deficit (88,207) (6,432)
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