U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
CHANGE ACT
for the transition period _________ to _______________
Commission file number 1-7991
BIG SKY TRANSPORTATION CO.
(exact name of small business issuer as specified in its charter)
MONTANA 81-0387503
(state of other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1601 Aviation place
Billings Logan Int'l Airport
Billings MT 59105
(406) 245-9449
(address of registrant's principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS: 1996 Series Common Stock, no par value
SHARES OUTSTANDING: at November 12, 1999: 1,262,462
BIG SKY TRANSPORTATION CO.
FORM 10-QSB
For the Period-Ended September 30, 1999
CONTENTS
Part I Financial Information
Item 1. Financial Statements (condensed format):
Balance Sheets
September 30, 1999 (unaudited) and
June 30, 1999 (audited)
Income Statements
Three months-ended September 30, 1999 and
1998 (unaudited)
Cash flow Statements
Three months-ended September 30, 1999
and 1998 (unaudited)
Item 2. Management's Discussion and Analysis or
Plan of Operation
Part II Other Information
Item 1. Legal Proceedings
Item 2. Change in Securities nd Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matter to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and reports on Form 8-K
Part I. Financial Information, Item 1.
Financial statements (condensed format)
BIG SKY TRANSPORTATION CO.
Balance Sheets
September 30, June 30,
1999 1999
(unaudited) (audited)
ASSETS
Current Assets:
Cash $ 639,217 $ 220,294
Restricted cash 150,405 137,500
Accounts receivable, net 1,918,250 1,698,313
Income tax refund receivable 44,972 35,603
Expendable parts/supplies 505,163 444,882
Inventory held for sale 30,000 30,000
Prepaid expenses 183,541 111,360
Deferred income taxes 150,407 69,000
Total current assets 3,621,955 2,746,952
Property & Equipment:
Flight equipment 2,452,909 2,329,732
Capital lease facility 456,185 456,185
Other property & equipment 444,337 509,031
3,353,431 3,294,948
Accumulated depreciation (544,944) (592,357)
Net property & equipment 2,808,487 2,702,591
Deposits 114,986 176,991
Total assets $ 6,545,428 5,626,534
===================================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 800,000 $ 700,000
Current long-term debt 175,140 190,169
Current capital lease 265,110 267,216
Accounts payable 1,367,988 856,073
Accrued expenses 802,663 296,930
Traffic payable 632,053 296,930
Total current liabilities 4,042,954 2,906,825
Long-term debt,excluding current 1,162,110 1,192,981
Capital lease, excluding current - 0 - - 0 -
Total liabilities 5,205,064 4,099,806
Stockholders' Equity
Common stock, no par value
Authorized 2,000,000 shares;
1,245,302 outstanding 814,225 814,225
Additional Paid-in Capital 242,034 242,034
Retained earnings 307,958 494,322
Less Treasury stock (23,853) (23,853)
Stockholders' equity 1,340,364 1,526,728
Total liability &
stockholders' equity $ 6,545,428 $ 5,626,534
===================================
See notes to financial statements.
BIG SKY TRANSPORTATION CO.
Income Statements
Three months-ended
September 30,
1999 1998
(unaudited) (unaudited)
Operating Revenues:
Passenger $ 2,492,977 1,441,719
Cargo 63,247 41,407
Public service 2,517,617 1,148,491
Other 24,518 49,379
Total 5,098,359 2,680,996
Operating Expenses:
Flying 2,192,089 965,738
Maintenance 1,191,357 541,222
Passenger service 1,174,961 506,792
Sales 381,611 209,122
General/Administrative 308,938 186,716
Depreciation 79,983 29,588
Total 5,328,939 2,439,178
Operating Income (230,580) 241,818
Other Income/(expenses):
Interest, net (55,414) (12,046)
Gain (loss) equipment 200 (102)
Total (55,214) (12,148)
Income before taxes (285,794) 229,670
Income Tax provision (Benefit): (99,429) 91,330
Net Income: $ (186,365) $ 138,340
====================================
Per share data:
Basic earnings per
common share ($.15) $.12
Diluted earnings per
Common share ($.14) $.12
See notes to financial statements.
BIG SKY TRANSPORTATION CO.
Cash Flow Statements
Three months-ended
September 30,
1999 1998
(unaudited) (unaudited)
Net cash provided (used):
by operations 552,607 219,573
by investing (185,678) (133,342)
by financing 51,994 (83,283)
Increase in cash 418,923 2,948
Cash at beginning of period 220,294 512,670
Cash at end of period 639,217 515,618
PART I. Financial Information, Item 2.
BIG SKY TRANSPORTATION CO.
Management's Discussion and Analysis or
Plan of Operation
Summary of Airline Operating Statistics:
Three months-ended
September 30,
% change
1999 1998 +/(-)
Passengers carried 31,793 16,006 98.6
Average passenger
trip (miles) 267 258 3.3
Revenue passenger miles 8,479,132 4,133,863 105.1
Available seat miles 25,768,465 11,849,407 117.5
Passenger load factor (%) 32.91 34.89 (5.7)
Aircraft miles 1,356,235 623,908 117.4
Yield per revenue
passenger mile (cents) 29.40 34.88 (15.7)
Freight pounds enplaned 82,023 46,881 75.0
Operating cost per
available seat mile (cents) 20.68 20.58 0.5
Operating break-even load
factor (%) 34.39 31.74 8.4
BIG SKY TRANSPORTATION CO.
Management's Discussion and Analysis or
Plan of Operation
Analysis of Results for the three months-ended
September 30, 1999 and 1998:
On November 15, 1998 Big Sky commenced service under an Essential Air
Service ("EAS") contract with the U.S. Department of Transportation ("DOT")
to eight communities in the south central U.S. as disclosed in a Form 8-K
filing dated October 9, 1998. This service resulted in a substantial increase
in the size and scope of our business, herein referred to as the DFW
operations.
Three months-ended
September 30,
1999 1998
(unaudited) (unaudited) Change
Operating Revenues:
Passenger $ 2,492,977 1,441,719 1,051,258
Cargo 63,247 41,407 21,840
Public service 2,517,617 1,148,491 1,369,126
Other 24,518 49,379 (24,861)
Total 5,098,359 2,680,996 2,417,363
Total operating revenues in the first quarter of fiscal year 2000 were
$5.1 million, 90% greater than revenues of $2.7 million in the same quarter of
fiscal year 1999.
Passenger revenues of $2.5 million in the quarter were $1.1 million, or 73%
greater than the same quarter last year. The increase in passenger revenue
was attributable to: (1) the new DFW operation; (2) increased traffic in our
western Montana routes; and (3) connecting traffic in Montana related to our
code-share agreement with Northwest Airlines that began June 2, 1999.
Revenue passengers enplaned during the quarter ended September 30, 1999
totaled 31,793, an increase of 15,787, or 99%, over the same quarter in 1998.
The average passenger fare during the quarter of $78.41 was $11.66, or 13%,
less than the average passenger fare during the same quarter in fiscal 1999.
The average fare decrease is attributable to lower yields in the DFW operation,
and in the connecting traffic carried under the code-share agreement with
Northwest Airlines.
Public service revenues in the first quarter of fiscal year 2000 were $2.5
million compared to $1.1 million during the same quarter of fiscal year 1999.
The increase of $1.4 million, or 119%, was due to the addition of the DFW
operations.
Three months-ended
September 30,
1999 1998
(unaudited) (unaudited) Change
Operating Expenses:
Flying 2,192,089 965,738 1,226,351
Maintenance 1,191,357 541,222 650,135
Passenger service 1,174,961 506,792 668,169
Sales 381,611 209,122 172,489
General/Admin 308,938 186,716 122,222
Depreciation 79,983 29,588 50,395
Total 5,328,939 2,439,178 2,889,761
Total operating expenses in the first quarter totaled $5.3 million compared
to $2.4 million in the first quarter of fiscal 1999, an increase of 118%.
All expense categories increased substantially as a result of the DFW
operations. Two other factors also contributed to the expenses increasing at
a greater rate than revenues, (1) severe pilot attrition to larger airlines,
and (2) non-scheduled engine maintenance.
Flying operations expense increased by 127% to $2.2 million. In the current
quarter we operated a fleet of thirteen Metro aircraft compared to six Metro
aircraft in the prior year. Available seat miles were 25.8 million in the
current period, an increase of 117% over the prior year. These increases
were a result of the DFW operations and expanded service in western Montana,
and had a proportionate impact on all flying operation expense categories.
During the quarter we suffered the loss of 25% of our pilot workforce, compared
to our normal turnover rate of 10-15% annually. We believe this spike in the
turnover rate was the result of increased hiring by larger airlines in
response to a reinterpretation of the existing flight and duty time rules by
the Federal Aviation Administration ("FAA") that must be complied with by
December 15, 1999. These rules affect all Part 121 and Part 135 air carriers,
and also led to a need for a 3% increase in our pilot staffing as well. The
cost of hiring, training, and related expenses to replace the attrition and
expand the staff was approximately $300,000 in the quarter, and
approximately $250,000 more than the prior year.
Maintenance expense increased by $650,135, or 120%, over the first quarter
1999. The increase was attributable to the increased fleet size and
operations, as well as non-scheduled engine maintenance events that occurred
at a higher rate than we normally experience. The non-scheduled maintenance
costs were approximately $100,000 greater than the prior period.
Passenger service expense increased by $668,169, or 132% in the first quarter
of fiscal 2000 compared to the same period in fiscal 1999. This increase is
directly related to the DFW operation and its higher cost of doing business,
and expanded services in western Montana and Bismarck, North Dakota.
Sales expense increased by $172,489, or 82%, over the first quarter of 1999.
Increases in reservations related expense, traffic commissions, and
advertising were a result of the DFW operations, expanded services in
Montana, and the increase in passenger traffic.
General and administrative expense was $122,222, or 65%, greater than the
first quarter of fiscal 1999. The increase is attributed to more
administrative management and other personnel due to the expanded operations,
and increased legal and professional fees.
Depreciation expense was $50,395, or 170%, greater than the first quarter of
last fiscal year. In October 1998 we purchased a Metro III aircraft that is
being depreciated over ten years, and accounts for approximately one-half of
the increase. The remainder of the increase is due to the acquisition of
ground support equipment, maintenance tooling and rotable spare parts needed
to support the expanded fleet and operation.
Net non-operating income was $44,216 for the three months ended September
1999, compared to non-operating expense of $103,478 for the September 1998
quarter. Interest expense of $55 thousand in the current period was offset
by a credit provision for federal income tax of $99 thousand. The prior year
interest expense was $12 thousand, and the provision for state and federal
tax was $91 thousand. The increase in interest expense is due to debt
service for the Metro III purchased in October 1998, and use of our line of
credit in the current period.
The quarter ended September 1999 generated an operating loss of $230,580,
and net loss of $186,365, compared to operating income of $241,818 and net
income of $138,340 during the same period in 1998. The pilot shortage
problem was the major cause of the negative financial operating performance
in the current period. Beyond the large expense of training replacement
pilots ($280 thousand), we were forced to cancel 245 flights during the
quarter due to the lack of flight crews which resulted in a loss of
approximately $160 thousand in revenues. Costs for crew overtime pay,
temporary duty assignments, passenger reaccomodation, and additional
customer service items increased total expenses by approximately $75
thousand. All told the economic impact of the crew attrition problem
exceeded $500 thousand in the period.
A review of current liquidity and capital resources are as follows:
Cash provided by operations in the three months ended September 30, 1999
was $552,607. During the quarter Big Sky joined the Airline Reporting
Corporation ("ARC"), the clearing house for travel agency sales settlements.
Membership in ARC allows travel agents to sell tickets using our two letter
airline code, GQ, and remit payment directly to us. This arrangement has
significantly improved our cash flow timing from travel agent sales and
increased our air traffic liability balance. Previous to our ARC membership
travel agents sold tickets for travel on Big Sky utilizing another airlines
code and remitted payment to those airlines. Big Sky was then paid by the
other airlines after travel was provided and our billing was submitted.
The new relationship improves cash flow from travel agent sales by 45 - 90
days. Cash used in investing activities was $185,678 during the period.
Cash provided by financing activities was $51,994 in the three-month period.
Working Capital Current Ratio
Year-end June 30, 1999 ($159,873) .95: 1
Quarter-end
September 30, 1999 ($402,999) .90: 1
Long-term Debt Stockholder's
(excluding current portion) Equity
Year-end June 30, 1999 $1,192,981 $1,526,728
Quarter-end
September 30, 1999 $1,162,110 $1,340,363
Stockholder's equity at September 30, 1999 decreased 12.2% in the first
fiscal year quarter ended September 1999 as a result of the net loss. The
Company is current on all of its debt service obligations.
The Company has established a line of credit through First Interstate Bank
and Trust Co. of Billings for an amount of up to $1,500,000. The maximum
amount drawn on the line of credit during the quarter was $1,100,000. The
average outstanding balance under the line of credit was approximately
$600,000. During the period we completed the construction of a new corporate
office facility to house all of our administrative functions. This facility
eliminated the need for three locations that had been rented on a month to
month basis. Big Sky paid interest on a construction loan for the
facility during the quarter and has negotiated the terms of a long-term
lease for the new facility and our existing hangar facility. The lessor of
both facilities is Jon Marchi, Chairman of Big Sky Transportation Co., who
has been lessor of the current hangar facility since 1994.
Our current EAS contract covering the DFW operation expires on November
30,1999. We have submitted our proposal to the DOT to continue the services
in the region for the two-year period commencing December 1, 1999. There are
no competitive proposals at the present time, and we anticipate negotiating
the terms of the new contract before the expiration date of the present
contract. The EAS contract that covers our Montana points expires on
November 30, 2000. We have held the Montana EAS contract continuously since
1980.
Year 2000: Big Sky is working to resolve the potential impact of the year
2000 on the ability of our computerized information systems to accurately
process information that may be date sensitive. We have replaced all of our
internal computerized systems with new, year 2000 compliant hardware and
software. Testing of all of the systems is complete and all are operational.
The total cost for the replacement, conversion and training was approximately
$200,000. We have successfully tested the ability of our computerized
reservation system contractor to accept reservations and display our flights
after January 1, 2000. We have purchased and installed a new year 2000
compliant telephone system in our new office facility that now houses our
internal reservations department and our flight dispatch department at a
cost of approximately $72,000. We rely on the various computer systems used
by the FAA and other commonly used industry vendors in order to conduct our
daily flight operations. We also rely on many utility companies and
telecommunications service providers at our various station facilities. We
continue to monitor the state of preparedness of these suppliers through
direct contact, our industry trade association, and media sources.
However, if Big Sky and the third party suppliers upon which it relies are
unable to address this issue in a timely manner, it could result in a
material financial risk to Big Sky.
Part II. Other Information
BIG SKY TRANSPORTATION CO.
Item 1. Legal Proceedings
There are no pending legal proceedings which Big Sky is involved with
the exception of the following routine letigation that is incidental to
Big Sky's business: A dispute between Big Sky and the Oklahoma State Board
of Equalization concerning a penalty related to the late filing of property
tax returns. Litigation was commenced in the Oklahoma Court of Tax
Review and the District Court of Oklahoma County, Oklahoma, on September 27,
1999. Two legal proceedings previously reported were resolved reported
were resolved during the quarter: Litigation with Worldwide Aviation Services,
Inc. concerning a dispute over aircraft repairs, and employment grievances
over two of Big Sky's former pilots, Robert Anderson and Robert Muchmore.
These matters were resolved by settlement without material impact on Big
Sky.
Item 2. Change in Securities and Use of Proceeds
No actions have been taken with respect to the modification of any
class of security other then for exchange for outstanding securities of the
Company. No matter have arisen with respect to the use of proceeds from
any securities offering.
Item 3. Defaults Upon Senior Securities
There have been no defaults in the payments of any securities by
the Company.
Item 4. Submission of Matter to a Vote of Security Holders
There were no matter submitted to a vote of security holders during
the period.
Item 5. Other Information
Not applicable
Item 6. Exhibits and reports on Form 8-K
A) Exhibits
2: The debtor's Supplement Disclosure Statement and Third Plan of
Reorganizations (filed August 30, 1991 on Company's Form 8-K report and
incorporated herein by reference).
3: (I) and (II) The Company's Articles of Incorporation Incorporating
Amendments and Restated Bylaws were filed as Exhibits 2.1 and 2.2 to the
Company's Form 8-A Registration filed August 23, 1997, and incorporated
herein by reference.
4: (a) Specimen certificate for shares of the Company's 1996 Common Stock
was filed as Exhibit 1.1 to the Company's Report Form 8-A Registration
filed August 2, 1997, and incorporated herein by reference.
10: (a) DOT Order 98-9-12, issued September 14, 1998, provided for selection
of the Company as Essential Air Service carrier for seven Montana points
with a hub at Billings, Montana, and one daily trip between Sidney and
Bismarck, through November 30, 2000. See Exhibit 10(a) to Company's report
on Form 10-K filed September 25, 1998, incorporated herein by reference.
(b) DOT Order 98-10-9, issued October 7, 1998 provided for selection of
the Company as Essential Air Service carrier for eight points in Arkansas,
Oklahoma and Texas, with a hub at Dallas, Texas, through November 30, 1999.
See Exhibit 28 to the Company's report on Form 10-QSB filed November 16,
1998, incorporated herein by reference.
11: A new method for computing earnings per share has been established by
SFAS No. 128 "Earnings per Share". The new standard simplifies the standards
for computing earnings per share and requires presentation of two new
amounts, basic and diluted earnings per share. This standard has been
applied retoactively.
15: The accompanying unaudited condensed financial statements have been
prepared by the Company in accordance with its understanding of the rules
and regulations of the Securities and Exchange Commission. These financial
statements reflect, in the opinion of management, all adjustments
(consisting only of recurring accruals) for fair presentation of the
results of operations for the interim periods presented. However, these
financial statements have been prepared in accordance with instructions to
Form 10-QSB and therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, statement of
operations and cash flows in conformity with generally-accepted
accounting principles. Results of operations for the three month-ended
September 30, 1999 and 1998 are not necessarily indicative of the results
to be expected for the full year. It is recommended that these interim
financial statements be read in conjunction with the financial statements
and notes thereto, included in the Company's latest annual report on
Form 10-KSB.
18: No change.
19: Not applicable
20. Not applicable
22: Not applicable
23: Not applicable
24: Not applicable
25: Not applicable
27: Not applicable
B) Reports on Form 8-K
No reports on Form 8-K were filed during the September 1999 quarter.
C) Item 27 Financial Data Schedule
(Only for filings via EDGAR)
BIG SKY TRANSPORTATION CO.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIG SKY TRANSPORTATION CO.
Registrant
By:_______________________
s/s Kim B. Champney
President & CEO
November 12, 1999