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 December 31, 1998
[ ] 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 February 12, 1999: 1,126,030
<PAGE>
BIG SKY TRANSPORTATION CO.
FORM 10-QSB
For the Period-Ended December 31, 1998
CONTENTS
Part I Financial Information
Item 1. Financial Statements (condensed format):
Balance Sheets
December 31, 1998 (unaudited) and
June 30, 1998 (audited) 3
Income Statements
Three months-ended and Six months-ended
December 31, 1998 and 1997 (unaudited) 4
Cash flow Statements
Six months-ended December 31, 1998
and 1997 (unaudited) 5
Item 2. Management's Discussion and Analysis or
Plan of Operation 6
Part II Other Information
Item 1. Legal Proceedings 15
Item 2. Change in Security 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matter of a Vote of Security Holders15
Item 5. Other Information 15
Item 6. Exhibits and reports on Form 8-K 15
<PAGE>
Part I. Financial Information, Item 1.
Financial statements (condensed format)
BIG SKY TRANSPORTATION CO.
Balance Sheets
December 31, June 30,
1998 1998
(unaudited) (audited)
ASSETS
Current Assets:
Cash $ 381,635 $ 512,670
Restricted cash 150,037 151,500
Accounts receivable, net 1,850,160 1,398,470
Expendable parts/supplies 473,951 329,262
Inventory held for sale 30,000 30,000
Prepaid expenses 198,073 53,753
Total current assets 3,083,856 2,475,655
Property & Equipment:
Flight equipment 2,010,379 680,491
Capital lease facility 456,185 456,185
Other property & equipment 326,235 202,086
2,792,799 1,338,762
Accumulated depreciation (531,491) (465,175)
Net property & equipment 2,261,308 873,587
Deposits 50,948 7,258
Total assets $ 5,396,112 $ 3,356,500
===================================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 400,000 $ --
Current long-term debt 165,870 179,836
Current capital lease 271,416 8,164
Accounts payable 690,494 575,056
Accrued expenses 536,725 459,307
Traffic payable 259,426
189,769
Total current liabilities 2,323,931 1,412,132
Long-term debt,excluding current 1,270,484 219,272
Capital lease, excluding current -- 267,216
Total liabilities 3,523,478 1,898,620
Stockholders' Equity
Common stock, no par value
Authorized 2,000,000 shares;
1,126,030 outstanding 564,253 579,722
Additional Paid-in Capital 358,851 228,909
Retained earnings 902,446 673,102
Less Treasury stock (23,853) (23,853)
Stockholders' equity 1,801,697 1,457,880
Total liability &
stockholders' equity $ 5,396,112 $ 3,356,500
===================================
See notes to financial statements.
<PAGE>
BIG SKY TRANSPORTATION CO.
Income Statements
Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
(unaudited) (unaudited)
Operating Revenues:
Passenger $1,983,499 958,639 3,423,997 1,344,323
Cargo 61,754 40,139 104,332 58,684
Public service 1,735,140 1,194,813 2,883,681 1,992,883
Other 26,704 20,474 76,083 36,058
Total 3,807,097 2,214,065 6,488,093 3,431,948
Operating Expenses:
Flying 1,722,971 837,282 2,690,102 1,338,500
Maintenance 572,856 439,286 1,109,111 720,991
Psgr service 773,976 370,077 1,287,925 685,543
Sales 291,139 172,530 500,262 213,488
General/Admin 218,600 138,890 401,741 292,412
Depreciation 51,654 22,926 81,242 42,828
Total 3,631,196 1,980,991 6,070,383 3,293,762
Operating Income
175,901 233,074 417,710 138,186
Other Income/(expenses):
Interest,net (12,800) (8,750) (24,845) (16,274)
Gain(loss)equip (4,717) (4,867) (4,819) 146,637
Total (17,517) (13,617) (29,664) 130,363
Income before taxes
158,384 219,457 388,045 268,549
Income Tax Expense:
Current 12,211 17,282 28,759 20,752
Charge in lieu
of taxes 55,160 71,672 129,942 87,352
Total 67,371 88,954 158,701 108,104
Net Income:
$ 91,013 $ 130,503 $ 229,344 $ 160,445
====================================================
Per share data:
Basic earnings per
common share $.08 $.12 $.20 $.15
Diluted earnings per
Common share $.08 $.12 $.20 $.15
See notes to financial statements.
<PAGE>
BIG SKY TRANSPORTATION CO.
Cash Flow Statements
Six months-ended
December 31,
1998 1997
(unaudited) (unaudited)
Net cash provided (used):
by operations (102,313) (15,902)
by investing (1,462,004) 153,926
by financing 1,433,282 (107,359)
Increase in cash (131,035) 30,665
Cash at beginning of period 512,670 544,706
Cash at end of period 381,635 575,371
<PAGE>
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 Six months-ended
December 31, December 31,
1998 1997 1998 1997
Passengers 23,335 12,641 39,341 18,373
Avg. passenger
trip (miles) 252 209 255 206
Revenue passenger
Miles 5,883,285 2,643,530 10,017,148 3,789,678
Available
seat miles 16,702,406 8,187,506 28,551,813 12,003,106
Passenger
load factor(%) 35.3 32.3 35.1 31.6
Aircraft miles 843,677 439,516 1,467,585 459,702
Yield per
Revenue passenger
mile (cents) 33.7 36.3 34.2 35.5
Freight pounds
Enplaned 77,776 67,803 124,657 87,989
Operating cost
per available
seat mile (cents) 21.7 24.2 21.3 27.4
Operating
break-even load
factor (%) 33.6 28.9 32.8 30.3
<PAGE>
BIG SKY TRANSPORTATION CO.
Management's Discussion and Analysis or
Plan of Operation
Analysis of Results for the three months-ended
December 31, 1998 and 1997:
As disclosed in the Company's filing on Form 8-K of October 9,
1998, the Company was selected by the U.S. Department of
Transportation ("DOT") as an emergency air carrier replacement for
Aspen Mountain Air ("AMA") to conduct Essential Air Service ("EAS")
at eight communities in Arkansas, Oklahoma, and Texas. The
operations connect to a primary hub at Dallas Fort Worth Airport
("DFW") and a secondary hub at St. Louis International Airport
("STL"). The DOT order provided that the Company would assume the
two EAS contracts held by AMA, under the same terms, through
November 30, 1999. The Company proposed to phase in the services
gradually over a ninety-day period commencing November 15, 1998 as
it took delivery of the five aircraft required for the service.
Due to DOT concerns over the future of AMA and the potential
interruption of service to the EAS communities, the Company agreed
to assume full responsibility for the two contracts on November 15,
1998. Because of a shortage of aircraft available to start the
service, the DOT agreed that the Company would use a "wet-lease"
operator in conjunction with its own equipment to initiate 85% of
the operation covered by the contracts. The Company currently
provides this service using two of its own aircraft and contracts
with Merlin Express ("MEI") to operate two aircraft. At a full
schedule, the annual public subsidy revenue for the two contracts
is $6.3 million. The following analysis of results includes the
impact of this new service collectively referred to as DFW
operations.
Three months-ended
December 31,
1998 1997
(unaudited) (unaudited) Change
Operating Revenues:
Passenger $1,983,499 958,639 1,024,860
Cargo 61,754 40,139 21,615
Public service 1,735,140 1,194,813 540,327
Other 26,704 20,474 6,230
Total 3,807,097 2,214,065 1,593,032
Total operating revenues in the second quarter of fiscal year 1999
totaled $3.8 million, versus $2.2 million in the same quarter of
fiscal year 1998. Passenger revenues of $1.98 million in the
quarter were $1.02 million, or 107% greater than the same quarter
last year. Freight and other revenues were greater than the
corresponding 1997 quarter by 46%. The increases in revenues
were attributable to new scheduled air services between Billings MT
and Kalispell MT, and Spokane WA initiated during the last quarter
of fiscal 1998, new once daily service between Missoula, Kalispell
and Spokane initiated during the current quarter, and the DFW
operations. Revenue passengers enplaned during the quarter ended
December 31, 1998 totaled 23,335 , an increase of 10,694, or 85%,
over the same quarter in 1997. The average passenger fare during
the quarter was $85.03 compared to $75.83 during the same quarter
in fiscal 1998. The average fare increase is attributable to the
increase in the proportion of passengers carried in the longer
segments of the new markets.
Public service revenues in the second quarter of fiscal year 1999
were $1.74 million compared to $1.19 million during the same
quarter of fiscal year 1998. The increase of $540 thousand, or
45%, was the result of EAS revenues associated with the DFW
operations since start-up on November 15.
Three months-ended
December 31,
1998 1997
(unaudited) (unaudited) Change
Operating Expenses:
Flying 1,722,971 837,282 885,689
Maintenance 572,856 439,286 133,570
Psgr service 773,976 370,077 403,899
Sales 291,139 172,530 118,609
General/Admin 218,600 138,890 79,710
Depreciation 51,654 22,926 28,728
Total 3,631,196 1,980,991 1,650,205
Total operating expenses in the second quarter totaled $3.63
million compared to $1.98 million in the second quarter of fiscal
1998, an increase of 83%. All expense categories increased due to
two factors. The first cause was the addition of the DFW
operations, including start up costs required to commence the
services. The second factor was the expansion of the route system
in Western Montana and Spokane.
Flying operations expense experienced the greatest increase of $886
thousand, or 106%. The primary reasons for this increase were costs
associated with the DFW operations and the expansion of the Company
operations based in Montana The largest increases included wet-
lease operations expense, flight crews associated with DFW
operations, aircraft ownership and related costs, and fuel usage
for the increased operations.
Maintenance expense increased by $134 thousand, or 30%, over the
second quarter 1998. The increase was primarily attributable to the
addition of two aircraft and the opening of a maintenance base
during the quarter, to support the DFW operations. To a lesser
extent, the increase is also attributed to higher average daily
aircraft utilization in the expanded Montana operation.
Passenger service expense increased by $404 thousand, or 109% in
the second quarter of fiscal 1999 compared to the same period in
1998. The increase is attributable to several factors related to
expanded services in Montana and the DFW operations. Nine new
stations were opened and two contract handling operations were
added to support the DFW operations. Increased contract ground
handling expenses were also realized to support the expanded
service in Western Montana and Spokane. Air traffic liability
insurance , landing fees, and passenger security fees relating to
the expanded services and passengers also contributed to the
increase.
Sales expense increased by $119 thousand, or 69%, over the second
quarter of 1998. This increase is attributed to higher travel
agency commission expense and computer reservation services ("CRS
fees") associated with the increased passengers and passenger
revenues. Greater emphasis on advertising for the expanded Montana
services and for the new DFW operations also contributed to the
increase.
General and administrative expense was $80 thousand, or 57%,
greater than the second quarter of fiscal 1998. The increase is
attributable to costs associated with the additional administrative
staff required for the increased operations and revenues. Legal and
professional expenses also increased due to legal services related
to the addition of service points and aircraft associated with the
DFW operation.
Depreciation expense was $29 thousand, or 125%, greater than the
second quarter of fiscal 1998. The increase results from the
acquisition through purchase of the Company's seventh aircraft,
purchase of a spare aircraft engine in the third quarter of fiscal
1998, and acquisition of new, year 2000 compliant, computer
hardware and software.
Analysis of Results for the six-months ended
December 31, 1998 and December 31, 1997
Six months-ended
December 31,
1998 1997
(unaudited) (unaudited) Change
Operating Revenues:
Passenger $ 3,423,997 1,344,323 2,079,674
Cargo 104,332 58,684 45,648
Public service 2,883,681 1,992,883 890,798
Other 76,083 36,058 40,025
Total 6,488,093 3,431,948 3,056,145
Total revenues of $6.5 million for the six months ended December
31, 1998 were $3.1 million, or 89%, greater than the six months
ended December 31, 1997. The primary reasons for the increase were
the expanded services in Montana that impacted the full period in
the current year as compared to only one quarter of the prior
period, and the new DFW operations that commenced in the current
quarter. Passenger revenues increased by $2.1 million, or 155%,
and public service revenues increased by $891 thousand, or 45%.
Total passengers carried of 39,341 were 114% greater than the six-
month period in 1997.
Six months-ended
December 31,
1998 1997
(unaudited) (unaudited) Change
Operating Expenses:
Flying $ 2,690,102 1,338,500 1,351,602
Maintenance 1,109,111 720,991 388,120
Psgr service 1,287,925 685,543 602,382
Sales 500,262 213,488 286,774
General/Admin 401,741 292,412 109,329
Depreciation 81,242 42,828 38,414
Total 6,070,383 3,293,762 2,776,621
Consistent with the quarterly results, all expense categories
increased significantly in the six months ended December 31, 1998
compared to the period ended December 31, 1997.
Flying operations expense increased by $1.35 million, or 101%, in
the six months ended December 31, 1998 versus December 31, 1997.
The increase is attributable to costs related to the fleet
expansion, additional flight crews, fuel, and aircraft wet lease
and charter costs, required for the new and expanded services.
Maintenance expenses were $388 thousand, or 54%, greater in the
1998 period versus the 1997 period. The increase is directly
attributable to the expanded fleet and aircraft utilization
associated with the new and expanded services.
Passenger service expense for the six-month period ended December
31, 1998 was $602 thousand, or 88%, greater than the same period in
1997. This increase was primarily related to more contract ground
handling services, new and increased station related activities,
and air traffic liability insurance.
Sales and marketing expenses increased by $287 thousand, or 134%,
in the 1998 period over the 1997 period. The principle factors
related to the increase were travel agency commissions and CRS
booking fees associated with the significant increase in passengers
and revenues, and advertising and promotional expenses.
General and administrative expense in the six months ended December
31, 1998 were $109 thousand, or 37%, greater than the six months
ended December 31, 1997. The increase is primarily attributable to
increased administrative personnel and legal and professional fees
associated with the expanded services. Additional expenses were
also incurred for the promotion of the Company's twentieth
anniversary and the installation of the new hardware and software
systems.
Depreciation expense was $38 thousand, or 90%, greater in the six-
month period of 1998 versus 1997 due to the purchase of the
Company"s seventh aircraft during the current period, acquisition
of a spare aircraft engine in the third quarter of last fiscal
year, and new computer hardware and software.
Liquidity and Capital Resources:
Net non-operating expense was $85 thousand for the three months
ended December 1998, compared to $103 thousand for the December
1997 quarter. Interest expense during the quarter include the use
of the Company's line of credit to support the expansion in the DFW
operations, and interest associated with the loan related to the
purchase of the seventh aircraft. Pursuant to the Company's
Chapter 11 Reorganization "Fresh Start" reporting adopted in 1991,
a $55 thousand charge in lieu of tax was recorded in the December
1998 quarter compared to $72 thousand in the December 1997 period.
The quarter ended December 1998 generated an operating income of
$176 thousand, and net income of $91 thousand, compared to
operating income of $233 thousand and net income of $131 thousand
during the same period in 1997. The current quarter operating
results reflect start-up related costs associated with the DFW
operations and new route expansion in Montana. Operating income for
the six months ended December 31, 1998 was $418 thousand and net
income was $229 thousand. This compares to operating income of $138
thousand and net income of $160 thousand in the 1997 six-month
period.
A review of current liquidity and capital resources are as follows:
Working Capital Current Ratio
Year-end June 30, 1998 $1,063,523 1.8: 1
Quarter-end
December 31, 1998 $ 759,925 1.3: 1
Long-term Debt Stockholder's
(excluding current portion) Equity
Year-end June 30, 1998 $486,488 $1,457,880
Quarter-end
December 31, 1998 $1,270,484 $1,801,697
Stockholder equity at December 31, 1998 increased 28.5% over the
balance at the fiscal year ended June 30, 1998. The Company is
current on all of its debt service obligations.
Cash used by operations in the six months ended December 31, 1998
was $102,313. Cash used in investing activities was $1,462,004
during the period. The Company purchased a Metro III aircraft
during the period for $1,250,000, and also acquired other parts and
components to support the increased fleet for the DFW operations.
The high gross weight aircraft was financed by a loan for 90% of
the purchase price from Bombardier Capital, which primarily
resulted in cash provided, by financing activities of $1,433,282 in
the six-month period.
The Company has established a line of credit through First
Interstate Bank and Trust Co. of Billings for an amount of up to
$1,000,000. The actual line availability is based upon a borrowing
formula related to accounts receivable, inventories, and accounts
payable. The Company utilizes the line to supplement timing
differences in cash flows. The maximum amount drawn on the line of
credit during the quarter was $600,000. The Company also received
a loan for 90%, or $1,125,000, of the purchase price of the
Company's seventh aircraft.
Year 2000: The Company is continuing to work to resolve the
potential impact of the year 2000 on the ability of the Company's
computerized information systems to accurately process information
that may be date sensitive. The Company is in the process of
replacing all of its internal computerized systems with year 2000
compliant systems. Hardware installation is complete. Approximately
eighty percent of the Company's software systems have been replaced
and are operating. Programming for the balance of the systems is
complete, with migration and training for those systems scheduled
to occur by March 31, 1998. The total cost to replace all of the
hardware and software is estimated at $150,000. The Company
contracts with a major computerized reservation company to accept
passenger reservations. The vendor has represented that its systems
are now year 2000 compliant in those areas for which the company
contracts. The Company also relies on various computer systems used
by the Federal Aviation Administration and other commonly used
industry vendors to conduct flight operations. The Company
continues to monitor the state of preparedness of these suppliers
through direct contact, the Company's industry trade association,
and industry publications. However, if the Company and the third
parties upon which it relies are unable to adequately address this
issue in a timely manner, it could result in a material financial
risk to the Company.
Subsequent to quarter end, on January 12, 1998, the Company filed
on form 8-K, under Item 5, a disclosure that it had entered into a
letter of understanding with Northern Rockies Venture Fund Limited
Partnership of Butte, Montana (NRVF). The letter of understanding
provides for an investment by NRVF and affiliates in the Company's
1996 Series Common Stock in an amount no less than $125,000 and no
greater than $225,000. The price was set at $1.75 per share, the
last price paid in a public stock transaction as of the date of the
finalization of negotiations. Completion of the transaction is
contingent upon finalization of due diligence, document execution,
and securities compliance and is expected to occur by February 25,
1999. The Company will utilize the funds invested for working
capital requirements related to its expanded services in Montana
and the DFW operations.
Part II. Other Information
BIG SKY TRANSPORTATION CO.
Item 1. Legal Proceedings
There are no legal proceedings currently outstanding in
which the Company is involved.
Item 2. Change in Security
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.
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
No action has been taken requiring submission to a vote
of the Company's stockholders and not matter has been
submitted to the stockholders for voting.
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).
4: Specimen certificate for shares of the Common Stock of
the Company (filed as Exhibit 4(b) to Company's Report on Form 10-K
for the year-ended June 30, 1985 and 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 retroactively.
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 and six months ended December 31, 1998
and 1997 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
23: Not applicable
24: Not applicable
25: Not applicable
28: Not applicable
Reports on Form 8-K
October 9, 1998 Form 8-K, Item #5 was filed announcing the
expansion of Essential Air Service in South Central United
States.
January 12, 1999 Form 8-K, Item #5 was filed on the private
placement of 1996 Series Common Stock with Northern Rockies
Venture Fund Limited Partnership of Butte, Montana.
<PAGE>
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/ Kim B. Champney
Kim B. Champney
President & CEO
February 15, 1999
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<RECEIVABLES> 1,850,160
<ALLOWANCES> 1,200
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<CURRENT-ASSETS> 3,083,856
<PP&E> 2,792,799
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<TOTAL-ASSETS> 5,396,112
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<BONDS> 1,270,484
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