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 March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
for the transition period ________________ to ________________
Commission file number 1-7991
BIG SKY TRANSPORTATION CO.
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(exact name of small business issuer as specified in its charter)
MONTANA 81-0387503
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(state of other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1601 AVIATION PLACE
BILLINGS LOGAN INTERNATIONAL AIRPORT
BILLINGS, MT 59105
(406) 247-3910
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(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 March 31, 2002: 1,252,112
BIG SKY TRANSPORTATION CO.
FORM 10-QSB
For the Period-Ended March 31, 2002
CONTENTS
Part I Financial Information
Item 1. Financial Statements (condensed format):
Balance Sheets
March 31, 2002 and
June 30, 2001 .........................................................3
Income Statements
Three and Nine months ended
March 31, 2002 and 2001................................................4
Cash Flow Statements
Nine months ended March 31, 2002 and 2001..............................5
Item 2. Management's Discussion and Analysis or Plan of Operation....................10
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K..........................................11-12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIG SKY TRANSPORTATION CO.
Balance Sheets
March 31, 2002 June 30, 2001
(unaudited) (audited)
--------------- --------------
Assets
Current Assets
Restricted cash 183,672 137,500
Accounts receivable, net 1,506,142 2,378,528
Expendable parts & supplies, at cost 1,112,199 941,011
Prepaid expenses 122,976 266,589
Deferred income taxes 69,000 69,000
--------------- --------------
Total Current Assets 2,993,989 3,792,628
Property and Equipment, net 3,100,359 3,379,850
Deferred Income Taxes & Other 707,185 587,650
--------------- --------------
Total Assets 6,801,533 7,760,128
Liabilities & Stockholders' Equity
Current Liabilities
Current maturities of long-term debt 230,574 224,288
Notes payable 873,029 1,414,058
Accounts payable 2,384,264 2,208,786
Accrued expenses 769,378 920,922
Traffic balances & unused tickets 951,231 932,144
--------------- --------------
Total Current Liabilities 5,208,476 5,700,198
Long-Term Debt, Excluding Current Installments 1,411,392 1,586,285
Stockholders' Equity
Common stock of no par value; 819,125 819,125
(20,000,000 shares authorized, 1,252,112 &
1,252,112 shares issued)
Additional paid-in capital 242,034 242,034
Accumulated deficit (855,641) (563,661)
Less treasury stock (20,000 shares, at cost) (23,853) (23,853)
--------------- --------------
Stockholders' Equity 181,665 473,645
--------------- --------------
Total Liabilities & Stockholder's Equity 6,801,533 7,760,128
3
BIG SKY TRANSPORTATION CO.
Income Statements
(unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
------------ -------------- --------------- ------------
Operating Revenues:
Passenger 2,808,477 $ 3,290,594 8,982,657 $ 9,861,527
Cargo 19,056 33,329 78,357 170,128
Public service 3,598,869 2,864,763 10,269,146 8,290,794
Other 48,239 64,815 323,627 292,753
------------- ------------- -------------- -------------
Total 6,474,641 6,253,501 19,653,787 18,615,202
------------- ------------- -------------- -------------
Operating Expenses:
Flying 2,651,846 2,717,353 8,088,718 7,774,194
Maintenance 1,434,210 1,459,824 4,623,072 4,148,025
Traffic 1,690,092 1,506,596 4,738,217 4,209,848
Marketing 359,830 479,894 1,232,327 1,429,058
General/Admin. 333,910 361,819 1,015,527 1,000,350
Depreciation 114,119 96,250 352,076 275,909
-------------- ----------- -------------- --------------
Total 6,584,007 6,621,736 20,049,937 18,837,384
-------------- ----------- -------------- --------------
Operating loss (109,366) (368,235) (396,150) (222,182)
Other Income (Expense)
Interest, net (72,582) (66,368) (215,759) (197,689)
Inc Nontransport Ven - - 178,338 -
Capital gain (loss) (281) - (10,311) 250
-------------- ------------ -------------- --------------
Total (72,863) (66,368) (47,732) (197,439)
-------------- ------------ -------------- --------------
Loss before taxes (182,229) (434,603) (443,882) (419,621)
Income tax benefit (85,372) (185,167) (151,901) (179,024)
-------------- ------------ -------------- --------------
Net loss (96,857) $ (249,436) (291,981) $ (240,597)
============== ============ ============== ==============
Per share data:
Basic loss per common
share $ (.08) $ (.20) $ (.23) $ (.19)
============== ============= ============== ==============
Diluted loss per
common share $ (.08) $ (.20) $ (.23) $ (.19)
============== ============= ============== ==============
4
BIG SKY TRANSPORTATION CO.
Cash Flow Statements
(unaudited)
Nine Months Ended
March 31,
2002 2001
------------------ ------------------
Net cash provided (used):
By operations $ 792,487 $ 177,432
By investing activities (82,850) (343,851)
By financing activities (709,637) 166,419
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Decrease in cash - -
Cash at beginning of period $ - $ -
------------------ ------------------
Cash at end of period $ - $ -
================== ==================
5
PART I. FINANCIAL INFORMATION,
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Summary of Airline Operating Statistics:
Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
-------------- --------------- ------------- -------------
Passengers carried 30,795 33,785 100,211 108,614
Average passenger trip
(miles) 283 308 288 307
Revenue passenger miles 8,705,517 10,414,926 28,856,759 33,353,218
Available seat miles 29,696,278 30,066,417 91,308,376 86,469,323
Passenger load factor (%) 29.32 34.64 31.60 38.57
Aircraft miles 1,562,962 1,582,442 4,805,704 4,497,106
Yield per revenue passenger
mile (cents) 32.26 31.59 31.13 29.57
Freight pounds enplaned 26,970 39,222 91,236 150,003
Operating cost per available
seat mile (cents) 22.17 22.02 21.96 21.79
Operating break-even load
factor (%) 29.81 36.68 32.24 39.03
6
Analysis of Results for the Three Months Ended
March 31, 2002 and 2001:
Three Months Ended
March 31
2002 2001
(unaudited) (unaudited) Change %
---------------- -------------- -------------- -------
Operating Revenues:
Passenger $ 2,808,477 $3,290,594 $ (482,117) (15)
Cargo 19,056 33,329 (14,273) (43)
Public service 3,598,869 2,864,763 734,106 26
Other 48,239 64,815 (16,576) (26)
---------------- -------------- --------------
Total $ 6,474,641 $6,253,501 $ 221,140 4
================ ============== ==============
The decrease in passenger revenues is due to a decline in passenger traffic as a
result of the terrorist events of September 11, 2001 ("9/11") and the impact
that they have had on the economy in general. The majority of the traffic
decline has been in our essential air service ("EAS") markets. This decline in
the EAS passenger traffic caused the Department of Transportation ("DOT") to
issue an order authorizing emergency EAS payments, which is the primary reason
for the increase in public service revenues. All EAS contract subsidy rates were
increased on an interim basis pending re-negotiation of rates over the coming
months. Also contributing to the increase in public service revenue was an EAS
route at Moses Lake WA that commenced on July 29, 2001. Cargo revenue declined
due to regulation changes made by the Federal Aviation Administration ("FAA")
after 9/11 that make it uneconomical for us to provide this service for most
types of cargo. Other revenue declined due to the termination of service to
Hobbs, NM in January, which had been privately subsidized by that community to
offset losses for providing the service.
7
Three Months Ended
March 31
2002 2001
(unaudited) (unaudited) Change %
-------------- -------------- --------------- -------
Operating Expenses
Flying $2,651,846 $2,717,353 $ (65,507) (2)
Maintenance 1,434,210 1,459,824 (25,614) (2)
Traffic 1,690,092 1,506,596 183,496 12
Marketing 359,830 479,894 (120,064) (25)
General/Admin. 333,910 361,819 (27,909) (8)
Depreciation 114,119 96,250 17,869 19
------------- ------------- -------------
Total $6,584,007 $6,621,736 $ (37,729) (1)
============= ============= =============
The decrease in flight operations expense is due primarily to lower fuel prices,
which declined by approximately 20% from the prior period. The fuel cost savings
however was offset by a substantial increase in aircraft hull insurance
($100,000) that was directly attributable to 9/11.
Maintenance expense was consistent with the prior period, and in line with the
slight reduction in aircraft miles flown on a year over year basis.
The increase in traffic servicing expense is attributable to large increases in
air traffic liability and war risk liability insurance premiums, and increased
security expenses, which are all directly a result of 9/11.
Marketing and sales expense declined due to costs directly related to the
reduction in passengers and passenger revenues, and reduced advertising
activity.
The decrease in general and administrative expense is due to non-replacement of
employee attrition and generally reduced spending.
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Analysis of Results for the Nine Months Ended
March 31, 2002 and 2001
Nine Months Ended
March 31
2002 2001
(unaudited) (unaudited) Change %
---------------- -------------- -------------- ------
Operating Revenues:
Passenger $ 8,982,657 $ 9,861,527 $ (878,870) (9)
Cargo 78,357 170,128 (91,771) (54)
Public service 10,269,146 8,290,794 1,978,352 24
Other 323,627 292,753 30,874 11
-------------- -------------- -------------
Total $ 19,653,787 $ 18,615,202 $ 1,038,583 6
============== ============== =============
The decrease in passenger revenues for the nine month period is attributable to
the effects of 9/11, offset by the increased revenues associated with an
additional flight between Billings and Denver during the full nine-month
comparative period. The increase in public service revenue is due to the
emergency increase in subsidy rates relating to 9/11 that were made retroactive
to October 2001, and the addition of Moses Lake in July 2001. Cargo revenue
declined for the reasons described above. The increase in other revenue is due
to Hobbs subsidy of $226,000 in the current period versus $196,000 in the prior
year.
Nine Months Ended
March 31
2002 2001
(unaudited) (unaudited) Change %
-------------- --------------- -------------- ------
Operating Expenses
Flying $ 8,088,718 $ 7,774,194 $ 314,524 (4)
Maintenance 4,623,072 4,148,025 475,047 11
Traffic 4,738,217 4,209,848 528,369 13
Marketing 1,232,327 1,429,058 (196,731) (14)
General/Admin. 1,015,527 1,000,350 15,177 2
Depreciation 352,076 275,909 76,167 28
-------------- --------------- --------------
Total $ 20,049,937 $ 18,837,384 $1,212,553 6
============== =============== ==============
The increase in flight operating expense is primarily attributable to increased
flying (6%) and increased hull insurance expense, offset in part by lower fuel
prices. In addition aircraft ownership for sixteen aircraft are in the current
period versus fifteen equivalent aircraft in the prior year.
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The increase in maintenance expense is due to the combination of a higher number
of unscheduled engine maintenance events, increased flying activity, and the
full period impact of the increased fleet size.
The increases in traffic servicing is attributable to the new service in Moses
Lake, the additional trip between Billings and Denver, and the increases in air
traffic liability insurance, war risk liability insurance and security expenses
related to 9/11.
The decrease in marketing expense is a result of costs directly related to lower
passengers and passenger revenues, and reductions in advertising.
The increase in depreciation is attributed to the purchase of an additional
spare engine, aircraft leasehold improvements, and the purchase of customer
reservations software.
Liquidity and Capital Resources:
A review of current liquidity and capital resources are as follows:
Working Capital Current Ratio
--------------- -------------
Year-end June 30, 2001 $(1,907,570) .67:1
Period-ending March 31, 2002 $(2,214,487) .57:1
Long Term Debt Stockholders'
(excluding current portion) Equity
--------------------------- -------------
Year-end June 30, 2001 $1,586,285 $473,645
Period-ending March 31, 2002 $1,411,392 $181,665
Big Sky has renewed its line of credit with First Interstate Bank and Trust Co.
of Billings for an amount up to $1,500,000. Big Sky uses the line to supplement
timing differences in cash flows. The maximum amount drawn on the line of credit
during the nine months ended March 31, 2002 was $1,500,000 compared to a low of
$29,000. The losses over the past two years have required Big Sky to increase
the use of the line of credit, and the continuing impact of 9/11 and the weak
economic conditions that followed have placed additional pressures on cash flow.
Big Sky has completed a number of actions to address this problem. A dispute
with an aircraft lessor relating to reimbursement of scheduled engine
maintenance was settled and provided additional cash in the quarter. We also
concluded restructuring of the leases on four aircraft that provided $190,000 of
lease payment deferrals in the period. The emergency EAS subsidy funding
retroactive to October 2001 also provided an additional $350,000 in the period.
Big Sky has also secured approval of a $495,000 participation loan through the
Montana Board of Investment and First Interstate Bank that is expected to close
during the fourth quarter. Big Sky is current on all of its loan, lease, and tax
obligations, and the combination of the above transactions has reduced reliance
on the bank line of credit. Big Sky shareholders also approved the issuance of
up to 1.3 million additional shares of common or common equivalent stock at the
annual shareholders meeting on February 22, 2002. Big Sky continues to hold
discussions with parties regarding a potential equity offering for which it now
has shareholder approval to proceed. The quarter ended March 31 is historically
the worst financial quarter of the year, typically resulting in losses. We are
encouraged however that both operating and net profit was recorded in the month
of March for the first time since 9/11.
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PART II. OTHER INFORMATION
BIG SKY TRANSPORTATION CO.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B
(3) ARTICLES OF INCORPORATION AND BYLAWS.
(i) Big Sky Transportation Co.'s Articles of Incorporation Incorporating
Amendments were filed as Exhibits 2.1 to Big Sky's Form 8-A registration
filed August 23, 1997, and incorporated herein by reference.
(ii) Big Sky Transportation Co.'s Restated Bylaws were filed as Exhibit 2.2
to Big Sky's Form 8-A registration filed August 23, 1997, and incorporated
herein by reference.
(4) INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS.
(i) Specimen certificate for shares of the Common Stock of Big Sky
Transportation Co. 1996 Series Common Stock was filed as Exhibit 1.1 to Big
Sky's Form 8-A registration filed August 23, 1997, and incorporated herein
by reference.
(ii) Big Sky agrees to furnish the Commission on request copies of
instruments with respect to long-term debt , the amount of which debt does
not exceed 10% of the total assets of Big Sky.
(iii) Big Sky has no indentures qualified under the Trust Indenture Act of
1939.
(10) MATERIAL CONTRACTS.
(i) Substantial Business Contracts. There were no substantial business
contracts entered into during the period January 1, 2002, through March 31,
2002. Substantial business contracts previously reported include:
(a) DOT Order 2001-6-22, issued June 25, 2001, provided for selection of Big
Sky as Essential Air Service carrier for Moses Lake/Ephrata, Washington to
Seattle through July 31, 2003 at an annual subsidy rate of $479,702. See
Exhibit 10(i)(a) to Big Sky's report on Form 10-KSB filed September 27,
2001, incorporated herein by reference.
(b) DOT Order 2000-12-21, issued December 22, 2000, provided for the
reselection of Big Sky as Essential Air Service carrier to Harrison,
Arkansas through November 30, 2001. This Order amends DOT Order 99-12-28 by
revising the flight schedule between Harrison, St. Louis and Dallas/Ft.
Worth. See Exhibit 10(i)(b) to Big Sky's report on Form 10-KSB filed
September 27, 2001, incorporated herein by reference.
(c) DOT Order 2000-11-11, issued November 13, 2000, provided for selection
of Big Sky as Essential Air Service carrier at seven Montana points to the
hub at Billings and one daily trip between Sidney and Bismarck from December
1, 2000 through November 30, 2002 at an annual subsidy rate of $4,697,222.
See Exhibit 10(i)(c) to Big Sky's report on Form 10-KSB filed September 27,
2001, incorporated herein by reference.
(d) DOT Order 99-12-28, issued December 29,1999, provided for selection of
Big Sky as Essential Air Service carrier for eight points in Arkansas,
Oklahoma, and Texas, with hub at Dallas, Texas, through November 30, 2001.
See Exhibit 10 (c) to Company's report on Form 10-QSB filed February 14,
2000, incorporated herein by reference.
(ii) Management Contracts and Compensatory Plans.
(a) Big Sky's 1995 Directors Composition, Meeting, and Compensation Plan
specifies compensation for directors based upon their attendance at meetings
and authorizes incentive stock options for up to 2,000 shares of 1996 Series
Common Stock per year. See Big Sky's S-8 Registration No. 333-22775, dated
March 4, 1997, incorporated herein by reference.
11
(b) The Employment Agreement between Big Sky and its President/CEO, Kim B.
Champney, dated April 3, 1998, establishes a base salary of $7,917 per month
with increases, and provides for certain performance based stock options. A
copy of said Employment Agreement was filed with Big Sky's Form 10-KSB dated
September 28, 1999, and is incorporated by reference. This Employment
Agreement was extended in February, 2002, for a period ending June 30, 2004,
with certain changes in compensation establishing a base salary of $9,200
per month with increases. Effectiveness of salary increase is suspended in
accordance with Big Sky's present wage freeze policy.
(11) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS - Basic earnings per
share is based on the weighted average number of common and common
equivalent shares outstanding. Diluted earnings per share is based on the
weighted average number of common and common equivalent shares outstanding
including outstanding stock options that are unexercised.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the March 31, 2002 quarter.
12
BIG SKY TRANSPORTATION CO.
Signature
The Registrant, by the undersigned, has signed this report in accordance with
the requirements of the Securities Exchange Act of 1934.
BIG SKY TRANSPORTATION CO.
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Registrant
By: /s/ Kim B. Champney
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President & CEO
May 14, 2002
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