Chicago and Southern Air Lines Annual Report 1944

NNUAL~PORT FOR 1 44
ST. PAUL-MINNEAPOLIS
DIRECTORS
CARLETON PUTNAM
B. E. BRAUN
H. R. BOLANDER, Ju.
L. R. BILLETT
JOHN R. LONGMIRE
OFFICERS
CARLETON PuTN AM, President
B. E. BRAUN, Vice-President- Operations
H. R. BOLANDER, JR., Vice-President-Secretary
W. J. BYRNE, Treasurer
R. S. SCRIVENER, Assistant Treasurer
M. J. BROWN, Assistant Treasurer
E. MURRAY, AssZ:stant Secretary
General Offices, Memphis Municipal Airport, Memphis 2, Tennessee
Corporate Office, 100 West Tenth Street, Wilmington, Delaware
Transfer Agent, Mississippi Valley Trust Company, Broadway and Olive Street, St. Louis, Missouri
Registrar, Boatmen's National Bank, Broadway and Olive Street, St. Louis, Missouri
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TO THE STOCKHOLDERS OF
Earnings
DuRING the year 1944, your company earned $177,703.34 after taxes, but before provision for military contract
adjustments.* This compares with earnings of $128,055.71 for 1943, and constitutes an increase of $49,647.63 over
the preceding year, despite a decline of $107,197.83 in revenue from Army contracts. Income from commercial
operations before taxes increased from $30,868.60 in 1943 to $217,179.52 in 1944.
The following statement sets forth detailed comparisons of the two years:
Condensed Comparative Income Statement
Twelve months Twelve months
ended ended
Dec. 31, 1944 Dec. 31, 1943
Revenue miles flown . ...................................................................... . .. . 2,882,881 2,179,472
Operating Revenue:
Passenger and excess baggage ............ . ............ . . . ............... .. ............. . . . .. . $ 2,545,016.42 $ 1,864,998.56
Mail ... .. ............... .. . . ... . ....... . ......... . . . ... . .. . ... . ........ . . . . .. ......... . .. . 281,807.84 801,828.14
Express ..... . .... . ....... . ................. . ....... . ............... . . . .. . .... . .. ... ....... . 107,245.02 96,665.50
Other ... . .......... . ..... . ........ . . . ................................... .. ... . ........... . 12,648.52 11,054.65
Total operating revenue . ...... . ........ . ... . .................. .. ..... .. .... ... ... .... ....... . .. . $ 2,946,712.80 $ 2,274,541.85
Total operating expenses ....... .......... . .... . ........ .. . .. .... . .... . ........ ... .... . . . ..... . . . 2,729,538.28 2,248,678.25
Income from operations . .. . .............. . ......... . ......... . .. . . . . . .. . . . . . ..... . ........... . . $ 217,179.52 $ 80,868.60
Other income, including fees and profits on Government contracts . ........... . ........... . .. . ......... . 99,786.22 201,682.54
$ 816,965.74 $ 282,501.14
Other deductions . ... . ........ . .......... . . . ........ . .... .. .................. . ... . ............. . 18,262.40 18,168.89
Income before provision for income taxes . .......... . ............................................. . $ 808,708.84 $ 214,882.25
Provision for Federal and State income taxes . ..... . ....... . .. . .......... . .. . .. . ... .. ..... . .. . .... . . 126,000.00 86,276.54
Net income for period, before reserves . . .............. . ...... . ..... . .... . ........ .. . . . . ........ . . . . $ 177,708.84 $ 128,055.71
*Since December 81, 1948, reserves totaling $100,000 have been set up against possible adjustments on Army contracts. (See note 2 of "notes to
Financial Statements" for additional details.)
Operating Statistics
THE improvement in commercial operations is traceable directly to the re-acquisition in the summer of 1944 of
the two airplanes surrendered to the Air Transport Command in June, 1942. The company's military operations
ceased as of June, 1944, and during the second half of the year all our efforts were bent upon meeting the heavy
demands of traffic on our regular transportation services. Although after the return of the two planes our fleet was
no larger than it had been in 1941, we nevertheless flew over 550,000 more plane miles in 1944 than in 1941. Other
comparisons indicating the degree of utilization of our fleet in war and pre-war years follow:
Revenue miles flown . . .. . . ... .. .. . .. . .. . .. . . . ..... .
Passengers per revenue mile flown .. .. . . .. . . . .... ... . .
Number of revenue passengers ........ . . . ... . . . ..... .
Revenue passenger miles . .. . ..... . .... ... . .. . .. .. . . .
Air mail pound miles . .. . . . . . ... . . ... ............. .
Air express pound miles ...... .... . ........ . .... . .. .
1944 1943 194f 1941
2,882,381 2,179,472 2,210,187 2,327,573
17.08 16.19 12.86 10.06
104,906 82,017 69,075 62,125
49,242,103 35,293,185 28,438,154 23,414,438
943,480,867 928,067,007 523,539,524 303,644,050
461,043,926 373,296,563 211,307,515 108,048,653
1940
1,983,263
8.06
42,064
15,979,090
254,095,673
73,205,641
The 24% increase in plane miles flown with the same number of aircraft as between 1941 and 1944 (the actual
increase would have been 76% if the two returned planes had been available throughout the entire year) was made
possible by an increase in daily utilization of each plane from 7 hours and 50 minutes in 1941 to 13 hours and 45
minutes in 1944. For this performance without disturbance of our safety record high commendation is due the
company's Maintenance Division, and it is perhaps proper to mention here that it received Aviation Magazine's
1944 Maintenance Award for air lines operating up to 10,000,000 plane miles annually.
T ra/f ic Development
DuRING the past five years your company has set successively new highs each year in the major categories of
traffic statistics. The figures below speak for themselves:
Dollar Comparison of Annual Operating Revenues
1944 1943 194f 1941 1940
Passenger and excess baggage . .. ... ......... . ........ $ 2,545,016.42 $ 1,864,998.56 $1,421,834.51 $ 1,081,950.48 $ 733,026.74
Mail .. . ........ . ..... ............ . ........ 281,807.84 301,823.14 606,004.09 611,460.74 429,445.81
Express . .. .. . .. . .... . .. ......... . . . ....... . . . .... 107,245.02 96,665.50 62,309.10 34,318.57 24,904.28
Other ........ . ...... . ... . ............... . .. . . .. .. 12,643.52 11,054.65 9,688.83 3,662.39 3,190.71
$ 2,946,712.80 $2,274,541.85 $2,099,836.53 $1,731,392.18 $1,190,567.54
Cents Per Mile Comparison of Annual Operating Revenues
1944 1943 194f 1941 1940
Revenue miles flown . . . ....... ... ... . . .. . ....... . .. 2,882,381 2,179,472 2,210,187 2,327,573 1,983,263
Passenger and excess baggage . . ... . . ................. 88.30c 85.57c 64.33c 46.48c 36.96c
Mail ............... . . . . ........... . .. .. .. . .... . . 9.78c 13.85c 27.42c 26.27c 21.65c
Express ... .. . ........... . ... . . . . . ..... . ... . .... . 3.72c 4.44c 2.82c 1.47c 1.26c
Other . .. . ..... . ............ . .......... . .......... .43c .5lc .44c .16c .16c
102.23c 104.37c 95.0lc 74.38c 60.03c
It should be noted that in spite of a substantial increase in plane miles flown, passenger revenues per plane mile
increased from 85.57 cents in 1943 to 88.30 cents in 1944, a gain of 2.73 cents. Mail revenues fell off 4.07 cents,
due in part to the fact that the first month of 1943 was flown at our old mail rate, which, during the month of January,
1943, yielded 30.98 cents a plane mile. As I stated in my report of last year, the Civil Aeronautics Board, as of
December 29, 1943, reduced our mail rate to .3 mill per pound mile effective retroactively to February 1, 1943. The
reduction in mail revenue produced by this order is a major reason for the decline in total per mile operating revenues
between 1943 and 1944 of 2.14 cents. However, as a result of the larger number of plane miles flown, operating
expenses decreased 8.25 cents.
Two
Detroit Route Acquisition
ONE of the most important developments in the history of your company occurred on August 3, 1944, when the
Civil Aeronautics Board granted us a certificate to operate between Detroit, Michigan, and Memphis, Tennessee,
via Toledo, Ohio; Fort Wayne, Marion, Anderson-Muncie-New Castle, Indianapolis and Evansville, Indiana; and
Paducah, Kentucky. The Government has recognized the strategic importance to the war effort of this new route
and has made available a sufficient number of aircraft to start operations by June 1, 1945. The route increases the
company's route mileage 47% and connects the Southern and Southwestern cities your company presently serves
with important and heavily industrialized cities in the Northeast. While its operation will probably not increase
net earnings in the early stages of its development, it should prove a valuable long term addition to our system.
Little Rock
PREVIOUSLY a temporary stop, Little Rock, Arkansas, was made a permanent stop on our system on November
10, 1944, by a decision of the Civil Aeronautics Board. This award was of considerable importance in connection with
your company's plans for future expansion as outlined on the map showing new route applications which appears
on the front cover of this report. It has made possible an application for direct service between St. Louis and
Little Rock which, if acted upon favorably, will provide us with the shortest possible great circle course between
Chicago and Houston, and also between Chicago anq Mexico City if our Houston-Mexico City route is granted.
Applications for New Routes
THE map on the front cover shows all the company's pending new route applications. Hearings have been held on
(1) the Caribbean and Latin American, (2) the New Orleans-Miami and (3) the Beaumont-Port Arthur applications,
but examiners' reports have not yet been issued in any of these proceedings except the Caribbean and Latin American,
in which the examiner has not recommended any routes for award to us. His recommendations will, of course, be
contested by us before the Civil Aeronautics Board. The Board is carrying new route applications to hearing with
all possible dispatch and the coming year should bring final decisions on most of the applications depicted by the
map. Which, if any, of these routes may be awarded to Chicago and Southern, it is of course impossible to predict.
Financing of New Route Operations
OuR stock issue in 1943 resulted in net proceeds to the company of $660,000. Taken together with our other assets
and available bank credits, this provides us with a current purchasing power sufficient not only to finance the new
Detroit route but also to handle a reasonable number of other awards if we are fortunate enough to obtain them.
Annual Meeting
THE annual meeting of stockholders will be held at the company's General Offices at the Municipal Airport, Mem-
phis, Tennessee, at 2 p.m. on Tuesday, May 1, 1945, for the purpose of electing your Board .of Directors for the
ensuing year and transacting such other business as may come before it. Notice of this meeting is enclosed herewith,
and it is hoped that you will be able to be present.
Respectfully submitted,
March 21, 1945.
Three
&Cllf lY
!&It), ~
[ A DELAWARE CORPORATION]
ASSETS
Current Assets:
Cash on demand deposit and on hand. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $172,137.44
United States Government obligations at cost (market quotation $731,727.50)
(See Note 1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727,274.06
Accounts receivable:
United States War Department, on service contracts, less reserve of
$100,000.00 (See Note 2) ........................................ . 241,599.42
Other United States Government Departments .. .................... . 96,240.25
Traffic balances .................................................. . 173,549.45
Due from officers and employees ............ ... ............... . .... . 8,715.54
Sundry ......................................................... . 22,072.46
Inventory of parts and supplies, at average cost ............ . . ......... . 164,537.98
Other Assets:
Special cash deposits .... ... .............................. . ......... . $ 11,481.58
Miscellaneous investments, at cost ...... . ... . ............. . .......... . 2,281.00
Property and Equipment:
Cost Reserve Net
Flight equipment. .................... . $ 849,020.27 $543,295.94 $305,724.33
Other property and equipment ...... . ... . 408,431.40 217,010.91 191,420.49
Work in progress ...................... . 29,861.52 29,861.52
$1,287,313.19 $760,306.85
De/erred Charges:
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,988.09
Other prepayments and deferred charges. ....... . . . . . . . . . . . . . . . . . . . . . . . 18,153.06
Franchises and Goodwill . ............. -... -. -........ .. ...... . . .
$1,606,126.60
13,762.58
527,006.34
41,141.15
1.00
$2,188,037.67
Refer to accompanying
Four
BALANCE SHEET DECEMBER 31, 1944---.
LIABILITIES
Current Liabilities:
Accounts payable ................................................ .
Traffic balances and deposits payable ......................... .. .... .
Accrued salaries, wages, taxes ( other than income), insurance, etc . ..... .
Accrued federal and state taxes on income ................ ; ..... .
Unearned Revenue . . ............... . ......... . ... . .
Deferred Credit:
Profit on equipment sold to the United States Government (See Note 1)
Reserve /or Contingencies:
Sales of air pumps .....
Capital Stock and Surplus:
Capital stock- common, no par value:
Authorized, 500,000 shares
Issued and outstanding, 291,687 shares (See Note 3) ............... .
Earned surplus, since May 23, 1938, per accompanying statement ...... .
notes to financial statements.
Five
$ 61,548.55
167,009.15
128,075.77
130,847.13
$1,452,533.00
142,744.55
$ 487,480.60
30,103.25
69,066.30
6,109.97
1,595,277.55
$2,188,037.67
CHICAGO AND SOUTHERN AIR LINES, INC.
~~~ 7tttJme,------
YEAR ENDED DECEMBER 31, 1944
Operating Revenue: .
Passenger ................................................ .
Mail .................................................... .
Express .................................................. .
Excess baggage ..................................... ...... .
Other, net ....... .. ....... ............ ... ......... .... . .. .
Operating Expenses:
Flying operations .......................... ........ . ...... .
Ground operations ........................................ .
Maintenance .... . . . ....... . .......... .. .................. .
Passenger service ................... .............. . . .. .... .
Traffic and advertising ............ ........ .. ........... . .. .
General and administrative . . .................... .. ..... .. . .
Depreciation .......................... ... ................ .
Operating Profit ................. . .. ......... .... ... ..
Other Income:
$2,501,635.81
281,807.84
107,245.02
43,380.61
12,643.52
$ 565,091.99
504,506.63
522,843.62
219,104.60
343,471.97
389,203.06
185,311.41
Income from Army contracts (net) ........................... $ 87,665.89
Interest earned ... ........ . ............ ... ......... ....... . 8,602.42
Cash discounts and miscellaneous ........................... . 3,517.91
Other Deductions:
Extension and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,257.81
Interest and miscellaneous ................... . ........ . .... . 1,048.56
Losses (net) on retirements of property .. .... . ... . ........... . 956.03
Provision for Federal and State Taxes on Income
(Provision for excess profits tax not required) ... . ..... .. .... .
Provision for Possible Adjustments on Army Contracts
(Applicable mainly to prior years) (See Note 2) .............. .
Net Income for the Year Transferred to Surplus
Refer to accompanying notes to financial statements.
Six
$2,946,712.80
2,729,533.28
$ 217,179.52
99,786.22
$ 316,965.74
13,262.40
$ 303,703.34
126,000.00
$ 177,703.34
50,000.00
$ 127,703.34
CHICAGO AND SOUTHERN AIR LINES, INC.
~IW-----,
YEAR ENDED DECEMBER 31, 1944
Earned Surplus, Since May 23, 1938
Balance, January 1, 1944, per previous published report ... . . . . . . . . .. . . . . . . . . . . . . $ 101,502.09
Less provision for adjustment of receivables from United States War Department
(recorded June 30, 1944, as of December 31, 1943) (See Note 2). ........ . . . . . . 50,000.00
Balance, January 1, 1944, as adjusted ....... . .. . .. : . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,502.09
Net income for the year ended December 31, 1944, per statement of income ..... . 127,703.34
$ 179,205.43
Deduct:
Cash dividend of 12c per share paid on December 27, 1944 ....... . . . . . . . . . . . 36,460.88
Balance, December 31, 1944 .... . ............................ .'. . ............. $ 142,744.55
Refer to accompanying notes to financial statements.
Seven
CHICAGO AND SOUTHERN AIR LINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1944
1. At December 31, 1944, there was deposited with the United States Treasury Department,
$35,000.00 par value U. S. Treasury Notes, guaranteeing payment of income taxes (if any)
in connection with the establishment of a replacement fund during 1942 when two air-
planes were requisitioned by the Government.
The aforementioned replacement fund was used during 1944 to purchase two airplanes to re-
place those requisitioned and as soon as this transaction is reviewed and approved by the
Internal Revenue Department (as to tax liability, if any) the Company will be in a position
to dispose of the deferred credit of $69,066.30 appearing in the balance sheet.
2. The Company from 1942 until June 30, 1944, performed various services for the United States
Army Air Forces under cost-plus-fixed-fee and fixed price contracts. At December 31,
1944, there remained a balance of $341,599.42 due on these contracts, carried as an account
receivable against which a reserve of $100,000.00 has been provided for possible unallow-
able or disputed costs as well as price revisions on a fixed price contract through renegoti-
ation proceedings. The renegotiation phase is applicable to the year 1943 only, as clearance
has been granted for 1942 and little, if any, profit was made during 1944.
The reserve of $100,000.00 has been computed on a net basis, i.e. a gross reserve of approxi-
mately $168,000.00, less income taxes recoverable amounting to approximately $68,000.00,
in the event it becomes necessary to utilize the gross reserve.
In view of the foregoing, the management believes that no further charges against income or
surplus will be required in the final disposition of its claims against the United States Army
Air Forces.
3. At December 31, 1944, there were outstanding 291,687 shares of common stock, of which 5,377
shares were represented by voting trust certificates under an agreement dated December
31, 1935 (now terminated), and 165,166 shares by a new voting trust agreement dated
Octo her 1, 1943.
Of the 208,313 shares of authorized but unissued common stock, 47,639 shares are reserved
to cover options.
4. On January 13, 1943, bonuses, consisting in the aggregate of 1,360 shares of common stock
of the Company, were declared, payable to an officer and three employees, said shares to
be purchased in the open market. This distribution has been deferred due to present salary
stabilization regulations. The market quotation of the Company's stock on January 13,
1943, was $8.25 per share.
Eight
NOONEY & Cox
CtrttjT"ed Publi"c Accounlc
mls
RAILWAY EXCHANGE BUILDIN G
ST. LOU IS 1. MO .
To The Board of Directors of
Chicago and ~outhern ,4ir Lines, Inc.:
March 6, 194.5.
We have examined the balance sheet of Chicago and Southern Air Lines, Inc., as
of December 31, 1944, and the statements of income and surplus for the year then
ended, have revi_
ewed the system of internal control and the accounting procedures
of the Compa11y and, without making a detailed audit of the transactions, have
examined or tested accounting records of the Company and other supporting evidence,
by methods ~nd ~o _
the extent we deemed appropriate.
Our examination was made in accordance with generally accepted auditing standards
applicable in the circumstances and included all procedures we considered necessary;
however, it was not practicable to confirm receivables from the United States Govern-
ment but in this connection we satisfied ourselves by means of other auditing pro-
cedures.
In our opi1~ion, the accompanying balance sheet and related statements of income and
surplus fairly present, after giving consideration to possible adjustinents of govern-
ment receivables as explained in a note to the financial statements, the position of
Chicago and Southern Air Lines, Inc., at December 31, 1944, and the results of its
operations for the year then ended, in conformity with generally accepted accounting
principles applied on a basis consistent with that of the preceding year.
N ooNEY & Cox.