Chicago and Southern Air Lines Annual Report 1943

REPORT OF
]or the Twelve Months Ended December 31, 1943
DIRECTORS
C.-\.HLET X P -cTX_\..\I
B. E. BR_\TX
H. R.. B L..L -DER . JR.
L. R. BILLE TT
JOIIX R. L X T.\IIRE
OFFICERS
_
-\.RLET x P -cTx.nr. Pre ident
B. E. Bnxcx. rice-Pre. ident- Operation.
\Y. J. BYRXE . Trea urer
H. R. BoL_
-\.XDER . JR.. ecretary
R. . CRIYEXER .1 i tant Trea urer
E. ~I"C"RIUY, .1ssi tant ecretary
Gen ral Office . ~Iemphi - ~Iunicipal Airport. ~Iemphi ' 't. Tenne ee
orporate Offic . 100 \\' ~ t T nt.h Street. ,Yilmington. D la,-.;-ar
T ran. fer . gent, ~Iis-i -ippi Yall y Tru 't Company. Broa lwa~ and Olin treet. ~t. L ui . ~Ii ~oun
H.e0
i trar, Boatmen X ational Bank, Broa h-rny and Oli,e "'treet, "'t. Loui ' , ~Ii , ouri
TO THE STOCKHOLDERS OF
Financial Report
Yo R company's operation for the year 1943 re ulted
in a net profit after income taxe of $128,055.71.
On D ecember 29, 1943, we were erved with the final
order of the Civil Aeronautic Board reducing our mail
rate from an average of approximately 30 cent per air-
plane mile to .3 of a mill per pound mile. The new rate
ha proved equal to about 13 cents per airplane mile.
The reduction was made effective retroactively to
February 1, 1943,and produced a decrease of $304,180.95
in mail revenue a compared with 1942. Thi decline,
accompanied by a 35% increase in operating costs,
account for a decrea e of $149,664.00 in net profits for
1943.
For the purpose of more complete analy is, there is
et out below a condensed comparative income statement
ba ed upon (1) what would have been the results of
operations for the year 1943 at th old mail rate, (2)
operations for 1942 and (3) actual operation for 1943
at the new mail rate.
Condensed Comparative Income Statement
R evenue miles flown ...
Operating Revenue:
Pa enger and exces baggage .
Mail. ..... .
Expre ... . ...... .
Other . ... . ........................ .
Total operating revenue . .. ...... .. ... . ......... .
011eraling expenses.
Hypothetical
12 mos. ended
Dec. 31, 1943
(Old Mail Rate)
2,179,472
$ 1,864,998.56
666,322.31
96,665.50
11,054.65
$ 2,639,041.02
2,243,673.25
12 rnos. ended 12 rnos. ended
Dec. 31, 1942 Dec. 31, 1943
(N ew Mail Rate)
2,210,187 2,179,472
$ 1,421,834.51 $ 1,864,998.56
606,004.09 301,823.14
62,309.10 96,665.50
9,688.83 11,054.65
$ 2,099,836.53 $ 2,274,541.85
1,659,447.54 2,243,673.25
Income .from opnahons .... . . . . . . . . . . . . . . . . . . . ... . ....... .. ... . $ 395,367.77 $ 440,388.99 $ 30,868.60
Other income, including .fees und prr~(its on Government contracts.
Other deductions . .
Income be.fore provision.for income taxes . ..
Provision J or Federal and , late income laxes . .
.\' et income .for period . . .... .
It will be ob erved that, had our mail rate not been
reduced by the Board, our net profit after federal income
taxe for they ar 1943, in pite of a ri e of $584,225.71
in operating expen e , would have been $344,404.70,
or an increa e of $66,685.35 over 1942. Pa enger
revenue increa ed from 63.7 cent per airplane mile to
T wo
201,632.54 48,731.04 201,632.54
$ 597,000.31 $ 489,120.03 $ 232,501.14
18,168.89 22,400.68 18,168.89
$ 578,831.42 $ 466,719.35 $ 214,332.25
234,426.72 l 9,000.00 86,276.54
$ 344,404.70 $ 277,719.35 L__:!28,055.71
84. cent , and exprc revenue from 2.8 cent to 4.4
cents. Total operating revenue ro e from 95 cent to
104 cents and non-operating income from 2.5 cents to
9.25 cent . Operating cost , however, increa eel from
75 cent to 103 cent .
The rise in operating expen wa due chiefly to the
t
increa ed co, t ' of labor and supplic, in all departmcn L-,
Half of the total increa e i. attributable to alari . and
wage . The company paid employe s $702,690 in l 942
and $998,513 in 1943. Some of thi increa e wa due to
the nece ity of maintaining training program for n w
employee to fill the place. of oth r employees b ing
lo t to el ctive Service. , ome of it arose from the fact
that le . killed per onnel require greater supervision
in order to maintain the company's high afety stand-
ard , and mu.-t be employ d in larger numbers to ac-
compli h an equivalent amount of work. Some of it
wa attributable to the nationwide rise in remuneration
to all cla e of worker , and the n d of the company
to compete for . killed mploye s in a mark t where the
demand i unprecedented.
The trend of c ts in categories other than labor is
illu trated by an incr ase of 77 in the ost of food
erved to pa . . engers, although the numb ~
r of pas. enger.
carried roe only 19 , an increa. e of 23 in th CO.'t of
materials for equipment maint nance, and an incr a.
of 70 in General Taxe., th greater part b ing 'ocial
ecuri ty Taxe .
Application for New Mail Rate
It ON Y.Iarch 8, 1944, your company filed an application
for an increa e in it. mail rate, requ . ting that the
Civil Aeronautics Board re tore the rate in effect prior
to February 1, 1943. The harp increa.-e in our operating
co ts and the continuing uncertaintie. pre. ented by th
po ibility of renegotiation of our military contracts
and variou di allowance of charge. alr ady billed
have made thi action eem advi .. able.
New Stock Issue
I N X ovember, 1943, your company .-old to the public
through it. banker 60,000 shares of common tock,
thereby increa ing it capitalization from 231,337
shares to 291,337 hare . The net proceeds of th i.' sale,
amounting to '660,000, had been applied a.' follows as
at December 31, 1943:
To Tax avings Xote .. ...... . .... . . ,'100,000.00
To 'C. . Government B nds . ..... . . 300,000.00
To Retirement of X ote.- Payable .... . 150,000.00
To Expen. e. of Stock I. '.'Ue . . . . . . . . . . 29,.583 . .51
To Ca h . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,416.49
The managem nt believes that th company's in-
creased financial tr ngth resulting from this issue will
be sufficient to meet the d mands of any reasonable
expansion program in the imm diate postwar period.
Military Contracts
Yo ft ompany throughout 1943 continu d to per-
form air cargo transportation . rvi es for the Air Trams-
port Command of the ( nited States Army, including
th~ training of pilot.- and mechanic.- under the Com-
mand'.- Tran. ition Training Program.
It lik wise continued to onduct a Modifi ation
Center for th, rmy'. Y.Iateriel Command. All these
activities hav be n extensiv in nature but s recy
agr ement. mak impossible a .tatistical statem nt re-
garding them until the onclusion of th war.
New Route Applications
0 the back cover of this report will be found a map
. hawing new route applied for by your ompany.
~ Tone of the e application. has yet been heard by the
Civil Aer nautic. Board xcept (1) Y.I mphi.- to Detr it
and Cleveland, (2) , t. Loui.- to D etroit and Cleveland
ancJ (3) Chicago to Detroit. Thes three have progre.'. ed
to the stage of completed hearing.-.; b for an Examiner,
but no Exam in r' report ha.- yet been is.'ued in any of'
them. ll of our applications for routes out of cw
Orleans and Hou.'ton to Latin American countrie and
the 'aribb an area will probably be set for a consolidated
hearing next fall. Th ~ total mileage in volv din Chi ago
and :outhern' applications for n w routes i.' 43,94.5
mile.-.
Annual Meeting
TuE annual m eting of sto kholders will b" held at
the ompany'.- Gen ral Offi es at the Y.Iunicipal Airport,
::viemphi ', Tenn s. ee, at 2 p.m. on Tu sday, ::\1:ay 2,
1944, for the purpose of electing your Board of Dire tors
for the en.-uing y~ar, and tran ."acting su h other husi-
nes. as may come before it. ::'\otice of thi.' me,tin g is
en losed herewith, and it i.' hoped that you will h, ahl
to be pr ~
s nt.
Re ~ i ~
~farch 31, 1944. Pre8ident.
T hree
ZrcJ@!J,
[A DELAWARE CORPORATION}
ASSETS
Current Assets:
C'a ,h on demand deposit and on hand ..
pecial cash dcpo it restricted to use on government con-
tracts . . . . . . . . . . . . . . . . ..
rn it eel tatc Trea ury Obligations, at co t (approximate
ma rket quotation $167,350.00)-see ::"Jote 1 . .. . .. ..... .
.Funds deposited with Federal Reserve Bank for purchase
of Employees' War SaYings Bonds ....
Accounts receivahle:
Pnitecl State, Government departments-see Note 2 ... .
Traffic balances, agents and other trade receivable . . .. .
Contract receivable-City of Memphis . . .
Due .from officers and employees ...... .
lnYentory of parts, supplies, etc., at approximate cost.
Other Assets:
Equipment replacement fund :
Ca h on demand deposit . . . . ...... .
Un ited States Treasury Obligations, at cost (market
quotation $241,500.00)-see Note 3 ..
Accrued interest receivable ...
:\1iscellaneous investmenls, at cost ....
Fixed Assets:
Cost
Flight equipment ........................ .
Other property ancl equipment .. .
\Vork in process ......... .
$599,058.72
363,809.83
8,740.61
$971,609.16
Def erred Charges:
Prepaid insurance .................. .
Deposit in escrow- see Tote 4 ...... .
Other prepayments and deferred charges .
Franchises and Goodwill
$905,287.65
188,787.90
70,070.59
7,868.71
$ 1,118.29
240,000.00
182.62
Depreciation
$407,872.15
169,391.39
$577,263.54
$ 623,014.41
165,000.00
167,184.06
1,762.50
1,172,014.85
158,580.12
$ 241,300.91
761.00
$
$
S et
191,186.57
194,418.44
8,740.61
19,846.84
7,000.00
15,308.13
$2,287,555.94
242,061.91
394,345.62
42,154.97
1.00
$2,966,119.44
STATEMENT NO. I
BALANCE SHEET DECEMBER 31, 1943---
LIABILITIES
Current Liabilities:
Accounts payable . ............. ......... .
Traffic balances and deposits payable ... .
Due to United State Post Office Department . . .. . ..... .
Advances on United States Government contract .
Reserve for purchase of Employees' \V'ar Savings Bonds ..
Accrued liabilities :
Salaries and wages .. . .. . ...... . ............. . ... .
F ederal and . tate taxes on income .......... .
Taxes, other than income .....
Other . . _ ..... .
Dividends payable, J anuary 1, 1944 .... . .
Less cash deposited with transfer agent .
:<foi'
ong-Term Debt:
~ ote payable to bank, due July 31, 1945- see Note 3 ..
Unearned Revenue .
Def erred Credits:
Execs of selling price over net book amount on equipment
sold to the l1n ited Slates Government ..... .
Other . . . ...... . .......................... . . . ... .
Reserves:
Engine overhaul... . . ..... ... ...... .
Contingencies- sales of air pmnps ..
Capital Stock and Surplus:
Capital tock- Common, no par value :
Authorized, 500,000 shares
Issued and outstanding, 291,337 shares- see Note 5 .... .
Earned urplus, since May 23, 1938, from Statement No. 3
$ 90,292.29
90,000.00
51,775.26
6,625 .66
$ 36,417.13
36,417.13
$ 186,755.90
$
$
$
205,876.23
200,777.09
264,606.27
5,364.67
238,693.!el
69,066.30
625.44
4,976.92
5,839.43
$ 1,449,733.00
101,502.09
$ 1,102,073.37
225,000.00
7,302.89
69,691.74
10,816.::35
1,551,235.09
$2,966,119.44
NOTE: The accompanying notes are an integral part of this ba,1nce heet and should be read in conjunction herewith.
Four Five
CHICAGO AND SOUTHERN AIR LINES, INC.
-STATE-MENT-N0
. _ 2
k&dl~fl~--'
YEAR, 1943
Operating Revenue- ' Ce ~Tot 6 :
Pa nger ... .
:\fail .......... .
Expre ..... .
Exe baggage.
0th r (n t) ..... . .. .
Operating Expense:
Flying operation ....... .
Ground operations .. . .. .
~Iaintenan e ..... .. ... . ..... .
D epreciation ........... . .. . .
Pa enger rvice . . ......... .
Traffic and adverti ing . . ..... .
General an l admini. trativ ..
Taxe , other than income ........... . ..... .
Income From Operations .. . .... .
Other Income, including fee and profit on governm nt contract
le . xpen e applicable ther to ......... . . . . . ..... . . .. .. . . .
Other Deductions:
Inler . t ..... .
Ext n. ion and development .. . . . . .. . ... . ... . . . .. .. . . .. .
Lo .. on rrtirement of eguipm nt . . ... . . . . .. .... . . . .... . .. ... .
Lo. on operation of employ ' cafeteria .. . .. .... . .. .
~li 'cellan ou . . . . . . . . . . . . . . . ............. . .... . . . ...... .
Income Before Provision for Taxes On Income .....
Provision for Federal and State Taxes On Income
(Provi ion for exce -profit tax not required) .
Net Income, to tat ment ~ o. 3 .............. . . .... ........ .
$1,831,358.65
$
301,823.14
96,665.50
33,639.91
ll,054.65
395,491.02
404,916.75
400,029.64
140,479.40
201,252.92
379,091.86
215,529.47
106,882.19
8,327.77
1,632.24
1,576.65
6,212.58
419.65
2,274,541.85
2,243,673.25
$ 30,868.60
201,632.54
$ 232,501.14
18,168.89
$ 214,332.25
86,276.54
$ 128,055.71
_TOTE: Th a companying not ar an integral part of thi tatement of income and . hould I
read in conjun tion her with.
ix
I
I
CHICAGO AND SOUTHERN AIR LINES, INC.
~;tr __
S TAT-EMENT------.NO
. 3
YEAR, 1943
Earned Surplus-.inc :\fay 23, 1938:
Balan e, J a nua ry l , 1943 ........................ .
Le.. wri te-off of disall ow d co.t . in urr d und er
(T
ni t d ,'tate \rmy onlra L. prior to D cm bcr
31, 1942, le.s adju.-tm nL.- of .21 8.50.69 in pro-
vision for fed ra l an d state income tax.- appli able
thereto . ........... . ................... .. .... .
Ba lance, ,Jan uary 1, HW3, as adj u.ted ............. .
~ et incom for t lP year 1943 from -'Lat,mc11L X<J. 2
Deduct:
Ca.-h dividend d 0
clared- F our di vid =-nd.- of ,0.12
ach per .-har , payable April l , l 943, .July l 1943,
October 1, 1943 and ,January 1, l 944, r .-p tiv ly
Ca pital stock exp 0
nse in urred in on n tion with t h
sal of new i.- u of capital stock . . . . . . . . . . . . . . . . . . 2!J,.58~L5 1
Les.- am ount charged to apita l .-uq lus .......... .
Ba la n e, D ecemb r 31, 1943, to, tatement X o. 1 ...
Capital Surplus:
Balance, .January l , 1943 .. . . .................... .
D educt capital stock xpens in urrcd in conne tion
with sale of new i.-.-u of capital .tock .... . ... .
L .-.- am oun t charged to earn d surplus .... . .
B alance, D ecember 31, 1943 .... . .......... . .
Total Surplus, D ecem her 31, 1D43 . . . ...... ... . . . .
. 2!J,.583 . .5 ]
7,488.48
,'122,66.5.76
7,488.48
2!J,8~38.0D
l W3,600.62
128,0.5.5. 71
23 ] ,6.56.33
l 30, J .54.24
, ](Jl ,.502.09
J 01 ,.502.00
~'OTE : Th accompanyin g note.- are a n in tegral part of this slatemcnt of su rplus aml sh<Ju ld b
r ,ad in on junction herewith.
, lVen
---
f
CHICAGO AND SOUTHERN AIR LINES, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR , 1943
1. 1n w, tment in l nit d tate Trea ury oblio-ation includ l nited State Trea ury note , clue December 15,
1945, amountin o to 34,734.06, which haY been d posited v;rith th 1 rea ' ury Department a ecurity on a bond
furnd1ed by the Company, in connc tion with thee tabli hment of a replac m nt fund, in accordance with the
proYi -ions of the Internal HeYcnu Code re ultin from the requi itioning of two airplane by the Government.
2. Rec iYabl due from the rnitecl tate Government repre ent principally, charge that ar ubject to audit aud
approYal by the \Yar Department and the extent to which the financial po ition of the Company and it incom
for the year 1943 may be affected by adju tmcnts, if any, i indeterminable.
3. The Company i obligated to a bank in re pect of a loan for $225,000.00, repre ented by a note due July 31, 1945,
again, t ,Yhi h the Company ha agreed to maintain a clepo it with the bank in exc of the balance of the note,
or to exc ut a morto-age on uch of it per onal property a ,vill in ure adequate ecurity for the loan.
rnitc<l tat ' Trca ury 2 bond , du eptcmber 15, 1952/ 50 in the amount of $240,000.00 were purcha ed in
April, 1943, \Yith the bank' p rmi sion, from fund theretofore maintained on cl po it. The e bond were
held in 'afckeeping by the bank at Decemb r 31, 1943.
4. The Company, looether with other airline companie operating into Chicago, ha ent reel into an agreement with
the City of hicago, ,Yh reby th Company i to advance an amount not to exceed ( 84,000.00 a it hare
of the co. t of a new terminal building, aid urn to b recoverable through rental and landing fee . At Decem-
I
ber 31 1943 the um of 7 000.00 had been paid to thee crow agent but the remaining $77,000.00 ha not been
taken into ace unt in th balanc heet.
5 . \.t December 0 1. 1943 there were out landing 291 337 hare of no par value common tocl , of ,vhich 46,675 hares
arc rcprc ntcd by Yoling trusl certificate under an agreement dated December 31, 1935, and 12,5,610 share
by Yoting trust agreement date l Octob r 1, 1943. Of the 208 663 hare of authorized but uni 'ued common
st ck 47,9 9 hare arc re ervecl to cover option .
6. The Company, pur uant to an order of the Civil Aeronautic Board, cluced it mail pay to a traight rate of
3/ 10 f a mill per pound mile effective February 1, 1943. The Civil Aeronautic Board on February 2-7, 1943
al o order d the Company to how cau e why it rate for the tran portation of pa enger hould not be reduced
by 10 . Thi~ ord r ha not b come effective and it differ from that concerning mail r v nue in that it i
not r troadin,.
7. The ( ompany has certain ontract , with the \Yar Department which ar - sulJjecl to renegotiation and the po 'Sib}
effc t upon the net profits in re pect thereof is not presently determinable. Section 403 of the Sixth Supple-
m ntal X ational Def en, .\ ppropriation \.ct a am nclecl pro,ide in ub tancc, among oth r thing , for the
ren gotiation of contract made with certain departments or agencie of the nited tate Government (in-
cluding ub- ontract ther under) and the recapture under certain circum tance , of profit derived from
such ontracts. The ontract price negotiation may b commenced by the Government within one year aft r
the lose of the Company' fi cal year in which completion or termination of the contract or uh-contract occur .
In the e\cnt the contracts held by the Company are renc0
otiatcd in accordance with th proYision of the .\ ct,
il i: possible that the recapture of profit may ha,e a material adverse eff ct on the :finan ial condition of the
Company.
8. On January 13, 19-t3 bonu e con i tino- in th a0gregate of 1,360 apital share ' of the Company were declared
pnyabl t an offi er and three employ e aid hare to be purcha eel in th - open market. 'f hi distribution
cannot be made unle ' and un il p rrni --ion i giYen by th Salary tabilization rnit of the T rea ury Depart-
men l. The quo led price of the Company' ' , tock on January 13 1943 wa 8.25 per , har .
Eight
TOUCHE NIVEN & CO
CERTIFIED PUBLIC ACCOUNTANTS
ARCADE BUILDING
ST . LOUIS
:\larch 31, 1944.
To The Board of Directors of
Chicago and Southern Air Lines, Inc.:
\Ye have examined th balance beet of Chicago and outhern Air Line , Inc. a of
D ec mber 31, 1943, and th . tatement of income and urplu for the year then ended,
haver view d th y t m of internal control and the accounting procedure of th Com-
pany and, without making a cl tailed audit of the tran. action , hav examined or t ted
accounting recor ls of the Company and other . upporting evidence by method and to
the extent ,ve deemed appropriate.
Our examination wa ma I in accordance "ith generally ace pted auditing . tandard
applicable in the circum tanc and included all proc dur . which we con iclered nece ary
except that it wa not practicabl to confirm receivable due from the rnited tate
Government. The e receivable repre ent, principally, charge that ar ubject to audit
and approval by the "\Yar Departm nt and th extent to which the financial po ition of
th Company and th incom for the y ar may be affected by adju tment., if any, i. in-
cleterminabl .
The Company ha certain contract ,vith the \Yar Department which are ubject to
renegotiation, and the po ible eff ct upor th :financial p ition of the Company and the
income for the year in re pect th reof i not pre ently determinable.
In our opinion, ubject to the exception. et forth in the two preceding paragraph.
relating to receivable.- clue from the "Cnitecl State. Gov rnm nt and renegotiation of
go, rnment contract , the accompanying balance heet and related . tatement of incom
and urplu pre ent fairly th po ition of Chicago and Southern Air Lin s, Inc. at Decem-
ber 31, 1943, and the re ults of it. operation for the year then ended, in conformity with
generally accepted accounting principle. appli cl on a basi con i t nt with that of th
preceding y ar.
Tou 'HE, -:\" rvEx & Co.
Nine
- TO SINGAPORE-BATAVIA
ST. PAUL-MINNEAPOLIS ~ \ J MICHIGAN CITY
I
ELKHART
ROCHESTER~-.._ ,... / ADRIAN
~ MADISON ,
rc:::J*~ MILWAUKEE /
DUBUQUE'-~~: / / DETROIT
ROCKFORD
~.,,_~IU'IJl!'.:;~~:sf'TOLEDO
QMAHA C. CHICAGO ~~8 1a,o(LEVELAND
I : .... FORT WAYNE Q!!IW YORK
t r t - - - - - - - - ' ..
~ - - ---IND ;t.;NAf>'OI IS' ANDERSON-MUNCIE PITTSBURGH ..,
~'------------jf------ - - - - - - --1-'4
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KANSAS CITY... TERR l'iAUT~~
~-~ I ~h -
'I', ST. LOUI ---
~ -- CINCINNATI 0wASHINGTON
~.-(Jc, ~"\ ~

~ VANSVILLE RICHMOND
., i.-'--'--------'--------
SPRINGFIELD ~. $1'ADuCAH WINSTON-SALEl CHICAGO and SOUTHERN

~
GREENSBORO.r~
~ AIR LINES
~ HIGH POINT
MEMPHIS CHA TT ANOOGA y PRESENT ROUTES
LITTLE ROCK
1:: C. -=tREENVILLE
. ,.. PROPOSED ROUTES
-----~ATLANTA
~ 0
~~
~
JACKSONVILLE 30
eo
~
MEXICO CITY
9 0
~ ~
TO BUENOS AIRES

.... TO PIO DE JANERIO 6 o