UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission File No. 0-27206
SPACEHAB, Incorporated
(Exact name of registrant as specified in this charter)
| Washington | 91-1273737 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
12130 Highway 3, Building 1
Webster, Texas 77598-1504
(713) 558-5000
The number of shares of Common Stock outstanding as of November 10, 2004:
| Class |
Number of Shares Outstanding | |
| Common Stock |
12,605,851 |
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 whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes ¨ No x
SPACEHAB, INCORPORATED AND SUBSIDIARIES
SEPTEMBER 30, 2004 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page | ||||
| DEFINITIONS | 2 | |||
| PART 1 - | FINANCIAL INFORMATION | |||
| Item 1. |
3 | |||
| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2004 and June 30, 2004 |
3 | |||
| 4 | ||||
| 5 | ||||
| Notes to Unaudited Condensed Consolidated Financial Statements |
6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 3. | 22 | |||
| Item 4. | 22 | |||
| PART II - | ||||
| Item 1. | 23 | |||
| Item 6. | 24 | |||
1
As used in this Form 10-Q, the abbreviations and acronyms contained herein have the meanings set forth below. Additionally, the terms “SPACEHAB”, “the Company”, “we”, “us” and “our” refer to SPACEHAB, Incorporated and its subsidiaries, unless the context clearly indicates otherwise.
| APB |
Accounting Principles Board | |
| ASO |
Astrotech Space Operations | |
| Astrotech |
Astrotech Space Operations | |
| Boeing |
The Boeing Company | |
| CM |
Configuration Management | |
| CMC |
Cargo Mission Contract | |
| Common Stock |
SPACEHAB common stock | |
| FASB |
Financial Accounting Standards Board | |
| ISS |
International Space Station | |
| JAXA |
Japan Aerospace Exploration Agency | |
| JE |
Johnson Engineering Corporation | |
| JETIS |
Japanese Experiment Thermal Incubator Service | |
| Lloyd’s |
Lloyd’s of London | |
| Lockheed Martin |
Lockheed Martin Corporation | |
| NASA |
National Aeronautics and Space Administration | |
| ORU |
Orbital Replacement Unit | |
| PI&C |
Program Integration and Control | |
| RDM |
Research Double Module | |
| ReALMS |
Research and Logistics Mission Support | |
| SEC |
Securities and Exchange Commission | |
| SFAS |
Statement of Financial Accounting Standards | |
| SFS |
SPACEHAB Flight Services | |
| SGS |
SPACEHAB Government Services | |
| SMI |
Space Media, Inc. | |
| SPF |
Spacecraft Processing Facility |
2
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except share data)
| September 30, 2004 |
June 30, 2004 |
|||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | — | $ | 506 | ||||
| Restricted cash |
558 | 430 | ||||||
| Short-term investments |
2,911 | 5,037 | ||||||
| Restricted short-term investments |
2,766 | 1,604 | ||||||
| Accounts receivable, net |
14,676 | 7,878 | ||||||
| Prepaid expenses and other current assets |
648 | 495 | ||||||
| Total current assets |
21,559 | 15,950 | ||||||
| Property and equipment, net of accumulated depreciation and amortization of $51,040 and $49,755, respectively |
78,420 | 79,600 | ||||||
| Deferred financing costs, net |
1,070 | 1,163 | ||||||
| Other assets, net |
2,124 | 3,212 | ||||||
| Total assets |
$ | 103,173 | $ | 99,925 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Revolving loan payable |
$ | 2,492 | $ | 1,445 | ||||
| Mortgage loan payable, current portion |
1,946 | 1,946 | ||||||
| Accounts payable |
1,605 | 2,424 | ||||||
| Accounts payable-EADS |
2,227 | 3,262 | ||||||
| Accrued interest |
2,368 | 1,108 | ||||||
| Accrued expenses |
2,264 | 3,600 | ||||||
| Accrued subcontracting services |
2,947 | 2,176 | ||||||
| Deferred revenue, current portion |
4,006 | 6,340 | ||||||
| Total current liabilities |
19,855 | 22,301 | ||||||
| Accrued contract cost and other |
218 | 372 | ||||||
| Deferred revenue, net of current portion |
221 | 900 | ||||||
| Mortgage loan payable, net of current portion |
3,216 | 3,692 | ||||||
| Convertible subordinated notes payable |
63,250 | 63,250 | ||||||
| Total liabilities |
86,760 | 90,515 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity |
||||||||
| Preferred Stock, no par value, convertible, 2,500,000 shares authorized, 1,333,334 shares issued and outstanding, (liquidation preference of $12,000) |
11,892 | 11,892 | ||||||
| Common stock, no par value, 30,000,000 shares authorized, 12,721,951 and 12,688,062 shares issued, respectively |
83,795 | 83,751 | ||||||
| Less treasury stock, 116,100 and 116,100 shares, respectively |
(117 | ) | (117 | ) | ||||
| Additional paid-in capital |
16 | 16 | ||||||
| Accumulated deficit |
(79,173 | ) | (86,132 | ) | ||||
| Total stockholders’ equity |
16,413 | 9,410 | ||||||
| Total liabilities and stockholders’ equity |
$ | 103,173 | $ | 99,925 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except share data)
| Three Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue |
$ | 13,033 | $ | 18,850 | ||||
| Costs of revenue |
10,786 | 13,527 | ||||||
| Gross profit |
2,247 | 5,323 | ||||||
| Operating expenses |
||||||||
| Selling, general and administrative |
1,966 | 2,932 | ||||||
| Research and development |
7 | — | ||||||
| Recovery of nonrecurring charge, loss of Research Double Module |
(8,244 | ) | — | |||||
| Total operating expenses |
(6,271 | ) | 2,932 | |||||
| Income from operations |
8,518 | 2,391 | ||||||
| Interest expense |
(1,458 | ) | (1,740 | ) | ||||
| Interest and other income, net |
41 | 33 | ||||||
| Income before income taxes |
7,101 | 684 | ||||||
| Income tax expense |
(142 | ) | (18 | ) | ||||
| Net income |
$ | 6,959 | $ | 666 | ||||
| Income per share: |
||||||||
| Net income per share – basic |
$ | 0.55 | $ | 0.05 | ||||
| Shares used in computing net income per share – basic |
12,574,224 | 12,370,955 | ||||||
| Net income per share – diluted |
$ | 0.49 | $ | 0.05 | ||||
| Shares used in computing net income per share – diluted |
14,247,860 | 13,745,450 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
| Three Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 6,959 | $ | 666 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
1,365 | 1,527 | ||||||
| Loss on asset sales and write-offs |
3 | — | ||||||
| Changes in assets and liabilities: |
||||||||
| Increase in accounts receivable |
(6,798 | ) | (1,929 | ) | ||||
| Increase in prepaid expenses and other current assets |
(153 | ) | (368 | ) | ||||
| Decrease in other assets |
1,088 | 208 | ||||||
| Decrease in accounts payable, accounts payable-EADS and accrued expenses |
(1,930 | ) | (832 | ) | ||||
| Increase (decrease) in accrued subcontracting services |
771 | (53 | ) | |||||
| Decrease in deferred revenue |
(3,013 | ) | (1,393 | ) | ||||
| Decrease in long-term contracts costs and other liabilities |
(154 | ) | — | |||||
| Net cash used in operating activities |
(1,862 | ) | (2,174 | ) | ||||
| Cash flows from investing activities |
||||||||
| Payments for flight assets under construction |
— | (49 | ) | |||||
| Purchases of property, equipment and leasehold improvements |
(95 | ) | (307 | ) | ||||
| Proceeds received from sale of property and equipment |
— | 11 | ||||||
| Sale of short-term investments |
964 | 2,569 | ||||||
| Investments in restricted cash |
(128 | ) | — | |||||
| Net cash provided by investing activities |
741 | 2,224 | ||||||
| Cash flows from financing activities |
||||||||
| Net borrowing under revolving loan payable |
1,047 | 497 | ||||||
| Payment of mortgage loan |
(476 | ) | (538 | ) | ||||
| Payment of convertible notes payable to shareholder |
— | (1,327 | ) | |||||
| Proceeds from issuance of common stock, net of expenses |
44 | 23 | ||||||
| Purchase of treasury stock |
— | (6 | ) | |||||
| Net cash provided by (used in) financing activities |
615 | (1,351 | ) | |||||
| Net change in cash and cash equivalents |
(506 | ) | (1,301 | ) | ||||
| Cash and cash equivalents at beginning of period |
506 | 1,301 | ||||||
| Cash and cash equivalents at end of period |
$ | — | $ | — | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
SPACEHAB, INCORPORATED AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, except as discussed elsewhere within, necessary for a fair presentation of the consolidated financial position of SPACEHAB, Incorporated and subsidiaries (“SPACEHAB” or the “Company”) as of September 30, 2004, and the results of its operations and cash flows for the three months ended September 30, 2004 and 2003. However, the condensed consolidated financial statements are unaudited, and do not include all related footnote disclosures. Certain amounts presented for prior periods have been reclassified to conform with the fiscal year 2005 presentation.
The consolidated results of operations for the three month period ended September 30, 2004 are not necessarily indicative of the results that may be expected for the full year. The Company’s results of operations have fluctuated significantly from quarter to quarter. The interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended June 30, 2004.
The Company’s cash and short-term investments were approximately $6.2 million, of which $3.3 million is restricted, as of September 30, 2004. On October 20, 2004 the Company received $8.2 million from U.S. National Aeronautics and Space Administration (“NASA”) in indemnification of losses suffered in the Space Shuttle Columbia accident. Management believes that the Company has sufficient liquidity, including cash and short-term investments and cash anticipated or expected to be generated from operations to fund ongoing operations beyond the remainder of this fiscal year. We also expect to utilize existing cash, cash anticipated from future operations and any potential additional proceeds from NASA in settlement of the Company’s claims related to losses in the Space Shuttle Columbia tragedy, to support strategies for new business initiatives and reduce long term debt.
On February 1, 2003, the Space Shuttle Columbia was lost upon reentry in a tragic accident. SPACEHAB’s Research Double Module (“RDM”) was flown aboard the Columbia mission, flight STS-107, carrying research payloads for NASA and other customers. The Company provided the RDM and related services to NASA under the Research and Logistics Mission Support (“ReALMS”) contract with NASA. As a result of the accident, the RDM was totally destroyed, leading to the following:
Contract Claim. In January 2004 the Company filed a formal proceeding with NASA seeking indemnification under the Company’s ReALMS contract in the amount of $87.7 million for the value of the Company’s RDM and related equipment that was destroyed during the STS-107 Space Shuttle Columbia tragedy. NASA responded to this contract claim on October 5, 2004. NASA’s determination states that its liability is limited under the ReALMS contract to $8.0 million. The Company received payment of $8.2 million, which included $0.2 million of interest, from NASA in October 2004. The Company has the right to appeal NASA’s decision to deny its claim for indemnification in excess of $8.0 million. The appeal can be filed with either the Armed Services Board of Contract Appeals or the U.S. Court of Federal Claims. SPACEHAB is evaluating its options in appealing NASA’s determination.
Lloyd’s Complaint. In January 2004 Lloyd’s of London (“Lloyd’s”), the Company’s insurer for the RDM, filed a complaint in the United States District Court for the Western District of Washington seeking the return of the $17.7 million Lloyd’s had paid to the Company under the RDM insurance policy alleging that, among other things, (i) such proceeds were paid erroneously primarily due to the fact that NASA had not paid indemnification due to the Company prior to the payment of the insurance proceeds, (ii) the Company and its insurance broker misled Lloyd’s in issuing the policy, and (iii) the Company has not cooperated with Lloyd’s in protecting Lloyd’s right of subrogation. In February 2004 Lloyd’s withdrew its complaint from the United States District Court and filed a similar complaint in Superior Court of the State of Washington. On November 1, 2004 SPACEHAB filed a motion with the Superior Court of the State of Washington to dismiss under forum non conveniens. The Company believes that Lloyd’s complaint is without merit and will continue to respond to the complaint accordingly.
6
Tort Claim. On November 8, 2004 the Company filed a second claim with NASA seeking damages of $79.7 million under the Federal Tort Claims Act for the loss of the RDM resulting from NASA’s alleged negligence leading to the destruction of the Space Shuttle Columbia and the loss of the RDM. The Company’s claim represents its loss of $87.7 million less the $8.0 million recovered from NASA. Under federal tort claim procedures, NASA has statutory deadlines for responding to such claims. In the event that the Company’s administrative claim is denied, the Company would have the right to pursue the claim in the Federal District Court.
2. Earnings per Share
The following are reconciliations of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for the three month periods ended September 30, 2004 and 2003 (in thousands, except per share data):
| Three months ended September 30, 2004 |
Three months ended September 30, 2003 | |||||||||||||||