Chicago and Southern Air Lines Annual Report 1945

CHICAGO ANO SOUTHERN AIR LINES. INC.
YEAR ENDED DECEMBER 31.1945
1945 ~mi;-To THE STOCKHOLDERS
OF CHICAGO AND SOUTHERN AIR LINES, INC.
General Offices Municipal Airport Memphis 2, Tennessee
ST. PAUL-MINNEAPOLIS'
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SERVICE PENDING AIRPORT DEVELOPMENTS
ANDERSON. IND, MUNCIE. IND, MARION. IND .
NEW CASTLE . IND , SPRINGFIELD. ILL
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ROUTES
Today, Chicago and Southern Air Lines, serving the middle west
and deep south, connecting Chicago and Detroit with New
Orleans and Houston, is reaching out for 27,186 miles of new
routes. The map above shows 2,133 miles of domestic routes
presently operated, and 13,052 miles of new domestic routes
applied for. 14,134 miles of foreign routes applied for through
the Caribbean to South America are not shown on the above
map.
CHICA GO AND SOUTHERN
The Route of the Dlxlellners
DIRECTORS
CARLETON PUTNAM
B. E. BRAUN
ALBERT J. EARLING
L. RAYMOND BILLETT
Of FICERS
CARLETON PUTNAM, President
AIR
HARVEY L. "\.VILLIAMS, Executive Vice-President
B. E. BRAUN, Vice-President-Operations
LINES
N. HENRY JosEPHS, Vice-President-Finance and Administration
ALBERT
J. EARLING, Vice-President-Traffic and Sales
W. J. BYRNE, Treasurer
R. S. MAURER, Secretary
R. S. SCRIVENER, Assistant Treasurer
M.
J. BROWN, Assistant Treasurer
,E. MURRAY, Assistant Secretary
GENERAL OFFICES, Memphis Municipal Airport, Iemphis 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
REPORT OF THE PRESIDENT
TO THE STOCKHOLDERS
. MEMPHIS, TENNESSEE, APRIL 10, 1946
OPERATING EXPANSION
During the year 1945 your Company undertook the largest expansion of operations in its
history. Revenue plane miles flown increased 83% over 1944. An increase of 51 % occurred
over already established routes and the remaining 32% arose from the inauguration in June,
1945, of service over our new route from Detroit to Memphis-via Indianapolis and other inter-
mediate points. In a period involving such a substantial increase in new route operations some
decrease in net revenues might well have been expected, but the wider acceptance by the public
of air travel not only carried the additional costs o the inauguration of new service but, by
enabling us to derive larger revenues from previously established routes, actually increased our
profits for the year.
fARNINGS
Page Four
Net profits for 1945 amounted to $168,891 as compared with $140,750 for 1944. Our increase
from commercial operation was in fact greater than this since, in 1944, we derived $51,435 in net
revenues from Army contracts against none in I 945. On the other hand, air line net operating in-
come in 1945 exceeded 1944's by $94,824. This is perhaps the truest index of your Company's
progress.
Dividends paid in 1945 amounted to $77,476, leaving earnings retained m the business of
$91,415. Depreciation set aside amounted to $346,067.
The following statement sets forth detailed comparisons of the years 1944 and 1945:
Conde~sed Comparative Income Statement
Twelve months Twelve months
ended ended
Dec. 31, 1945 Dec. 31, 1944*
Revenue miles flown ............................................................................................................................... . 5,279,336 2,882,381
Operating Revenue:
Passenger and excess baggage ........................................................................................................ . $4,376,775 $2,545,016
Mail .................................................................................................................................. '. ...................................... . 277,238 281,808
Express ................................................................................................................................................................. . 169,396 107,245
Other ...................................................................................................................................................................... . 25,413 12,643
Total operating revenue ...................................................................................................... _. .............. . $4,848,822 $2,946,712
Total operating expenses .................................................................................................................. . 4,562,478 2,755,192
Income from operations ..................................................................................................................... . $ 286,344 $ 191,520
Other income (net) .................................................................................................................................. . 4,847 50,293
Income before provision for income taxes ................................................................. . $ 291,191 $ 241,813
Provision for Federal and State income taxes ........................................................ . 122,300 101,063
Net income for period ......................................................................................................................... . $ 168,891 $ 140,750
=====
Corrected to reflect subsequent adjustments of net income from U.S. Army contracts and certain reclassifications.
OPERATING STATISTICS
During the year 1944 we had an average of 4.9 planes in operation. In 1945 this average rose to
8.5 although by December 31, 1945, 12 planes were in service. Revenue passengers carried increased
88% in 1945 over 1944, and revenue passenger miles 76%. The average number of passengers
carried per flight dropped slightly (approximately one-half passenger) but this can be attributed
in part to the opening of the new Detroit-Memphis route and in part to a gradual return to more
normal load factors with increasing equipment and service. Mail and express loads per flight de-
clined, although total express pound miles increased 61 %-
Page Five
Operating Statistics Continued
The decline in total mail carried is due, in part, to the general decline in soldier air mail which has
occurred with the ending of the wars in Europe and the Pacific. The decline in revenue per mile
flown derived from the carriage of mail is additionally due, in part, to the opening of new routes
and the increase in schedules flown over old routes. The management is making efforts to offset
these decreases by special attention to programs which will increase the poundage of normal air
mail .handled by your Company. A plan has already been approved by the Post Office Department
to establish an Air Mail Field Office (transfer and distributing, with letter drop in station) at
Memphis, Tennessee, the hub of our existing routes and an important connecting point. This
office should be in operation within sixty days and should increase our mail traffic between all
points on the system.
A program to reduce air mail postage from 8 to 5 cents an ounce is already under way
through the introduction of proposed legislation. The Post Office Department is sponsor-
ing the bill, and there is hope for its passage before Congress adjourns in May or June. This
reduction would have the effect of substantially increasing the overall volume of air mail.
Other phases of this program, such as air parcel post and the carriage of first-class mail by
air, will not be actively undertaken until the 5 cent rate is approved and effected.
Certain comparative operating statistics for the last five years follow:
COMPARATIVE OPERATING STATISTICS
1945 1944 1943 1942 1941
Revenue miles flown .............................. 5,279,336 2,882,381 2,179,472 2,210,187 2,327,573
Passengers per revenue mile flown. 16.47 I 7.08 16.19 12.86 10.06
Number of revenue passengers ....... 197,541 104,906 82,017 69,075 62,125
Revenue passenger miles ..................... 86,876,826 49,242,103 35,293,185 28,438,139 23,414,438
Air mail pound miles .............................. 926,769,202 943,480,867 928,067,008 523,539,524 303,644,050
Air express pound miles ..................... 741,548,360 461,043,926 373,296,563 211,307,515 108,048,653
TRAFFIC DEVELOPMENT
Page Six
In 1944 passenger revenues, including excess baggage, amounted to $2,545,016. In 1945 they
totalled $4,376,775, an increase of 72.0% . Although mail revenues declined $4,570 (1.6% ) ,
express revenues rose $62,151 (57.9% ) and other revenues $12,770 (101.0% ). Our progress in
all these categories over the last five years is indicated in the following table:
I
I
Dollar Comparison of Annual Operating Revenues
1945 1944 1943 1942 1941
Passenger and excess baggage ......................... $4,376,775 $2,545,016 $1,864,999 $1,421,834 $1,081,950
Mail ........................................................................................ 277,238 281,808 301,823 606,004 611,461
Express ................................................................................. 169,396 107,245 96,665 62,309 34,319
Other ..................................................................................... 25,413 12,643 4,842 9,689 3,662
$4,848,822 $2,946,712 $2,268,329 $2,099,836 $1,731,392
Cents Per Mile Comparison of Annual Operating Revenues
1945 1944 1943 1942 1941
Revenue miles flown ............................................. 5,279,336 2,882,381 2,179,472 2,210,187 2,327,573
Passenger and excess baggage ......................... 82.91 88:30 85.57 64.33 46.48
Mail ........................................................................................ 5.25 9.78 13.85 27.42 26.27
Express ................................................................................. 3.21 3.72 4.44 2.82 1.47
Other ..................................................................................... .48 .43 .22 .44 .16
91.85 102.23 104.08 95.01 74.38
Operating costs dropped from 95.60 cents per mile in 1944 to 86.43 cents in 1945 largely as a
result of the increase in plane miles flown. Al though gross income per mile fell from 102. 23
cents to 91.85 cents and net income from 4.88 cents to 3.20 cents, our increased mileage was
nevertheless sufficient to produce the larger net profit already indicated.
FURTHER EXPANSION PLANS-EXISTING SYSTEM
Great as has been our expansion m the last year, it is dwarfed by comparison with our
projected program for 1946 and 1947. In May of 1946 your Company will superimpose on
its present fleet of l 2 Douglas DC-3's its new fleet of 4 Douglas DC-4 fifty passenger airplanes,
carrying nearly two-and-one-half times the number of passengers per airplane and cruising some
sixty miles an hour faster. These planes will be powered by new "\i\Tright 9-HD engines and
will be more than twenty miles an hour faster than any ships of this type in service on any
air line. Your management has endeavored to make them, in other respects, the finest of air-
craft. A new nacelle-engine combination has been adopted for maintenance simplification. A
method of synchronizing all four engines to eliminate "propeller throb" has been installed. A
new color scheme and cabin interior arrangement has been conceived by a leading firm of
industrial designers. A visual device for informing passengers of the progress of the flight
Page Seven
Chicago and Southern Douglas DC-4 ... in serv ice before the end of May, 1946
is incorporated in the forward bulkhead. Twelve of the fifty seats are arranged in groups of
four seats each which face each other, with tables between, so that passengers wishing to play
cards or engage in conferences may do so with maximum convenience. One of these sections
1s equipped with drawable curtains to assure complete privacy.
During 1947 we propose to replace all our twin-engine DC-3's with ten or more Martin
2-0-2 forty passenger airplanes, cruising at about 255 miles an hour. This ship will equal in
speed and luxury of accommodations anything in the twin-engine category to be used on other
lines and should maintain our competitive position over all parts of our system in attracting the
shorter haul traffic.
EQUIPMENT LOAN
Page Eight
Financing of the purchase and conversion cost of the DC-4 airplanes, mentioned above, together
with the cost of spare parts and ground equipment necessary for the adaption program, was
accomplished through a chattel mortgage loan on our fleet of sixteen airplanes.
This loan was obtained from the American National Bank and Trust Company of Chicago,
Illinois, and two associated banks, is dated February 15, 1946, and is in the amount of $2,000,000.
It is for a term of two years and is repayable in twenty equal installments, together with interest
at 2% per annum on the principal balance remaining from month to month unpaid.
Chicago and Southern Martin 2-0-2 .. . in service by autumn, 1941
NEW DOMESTIC ROUTE APPLICATIONS
A glance at the map on Page Two of this report will indicate the general pattern of our new
domestic route applications. The status of each one of these before the Civil Aeronautics
Board is as follows:
Examiners' Report Received-Exceptions Submitted
NORTH CENTRAL ST ATES CASE
Between Minneapolis-St. Paul and Chicago, via Rochester, Minn.; Dubuque, Iowa and Rockford, Ill.
Between Minneapolis-St. Paul and Chicago, via Rochester, Minn.; Madison and Milwaukee, Wis.
Chicago and Southern not recommended by Examiner.
Submitted to Examiners-Examiners' Report Not Issued
MEMPHIS- PITTSBURGH-NEW YORK CASE
Between Memphis and New York City via Paducah and Louisville, Ky.; Covington-Cincinnati, Ken-
tucky-Ohio; and Pittsburgh and Allentown-Bethlehem, Pa.
Page Nine
Page Ten
GREAT LAKES AREA CASE
I. (a) Between St. Louis and Memphis, via Poplar Bluff, Mo., and Jonesboro, Ark.
(b) Between St. Louis and Memphis, via Cape Girardeau, Mo., Cairo, Ill., and Blytheville, Ark.
(c) Between Chicago and Memphis, via Champaign-Urbana and Decatur, Ill.; St. Louis, Mo.; West
Frankfort, Ill.; Paducah , Ky.; and Dyersburg and Jackson, Tenn.
2. (a) Between Chicago and Detroit, via Fort Wayne, Ind., and Toledo, Ohio.
(b) Between Chicago and Detroit, via Michigan City and Elkhart, Ind., and _ Adrian, Mich.
3. Between Chicago and Evansville, Ind., via Terre Haute, Incl.
4. Between St. Louis and Cleveland, via Fort Wayne, Ind.
MISSISSIPPI VALLEY CASE
I. (a) Between Memphis and New Orleans via Helena, Ark.; Clarksdale, Greenville, Vicksburg and
Natchez, Miss.; and Baton Rouge, La.
(b) Between Memphis and New Orleans, via Tupelo, Columbus, Jackson and Hattiesburg, Miss.
(c) Between Memphis and Shreveport, via Pine Bluff and El Dorado, Ark.
(d) Between Memphis and Houston, via Little Rock, Hot Springs and Texarkana, Ark.; Shreve-
port, La., and Longview-Marshall , Tyler and Palestine, Texas.
(e) Between Memphis and Houston, via Little Rock and Hot Springs, Ark.; and Texarkana, T yler
and Palestine, Texas.
2. Between New Orleans and Houston, via Baton Rouge, Lafayette-New Iberia and Lake Charles,
La.; Beaumont-Port Arthur and Galveston, Texas and (a) beyond Houston to San Antonio,
Texas via Austin and (b) beyond Houston to Brownsville, Texas via Corpus Christi, by exten-
sion of route No. 8.
3. (a) Between Shreveport and Dallas-Fort Worth via Longview, Texas.
(b) Between Little Rock, Ark., and Dallas-Fort Worth, Texas.
SOUTHEASTERN ST ATES CASE
Between Memphis and ,,vashington, D. C., via Chattanooga, Tenn.; Greenville and Spartanburg, South
Carolina; Charlotte, Winston-Salem, Greensboro and High Point, North Carolina; (a) Danville and
Richmond, Virginia; or (b) Roanoke, Lynchburg and Charlottesville, Virginia.
TEXAS-OKLAHOMA CASE
This application proposes to include Beaumont-Port Arthur, Texas as an intermediate point between
ShreYeport and Houston on Route 53.
KANSAS CITY-MEMPHIS-FLORIDA CASE
Between Omaha, Nebraska and Miami, Fla., via Kansas City, Joplin and Springfield, Mo.; Memphis,
Tenn.; Atlanta, Ga.; and Jacksonville, Orlando, and West Palm Beach, Fla. Two alternate routings
between Memphis and Atlanta are proposed in connection with this application (a) via Chattanooga
or (b) via Birmingham.
MIDDLE ATLANTIC ST ATES CASE
Between Washington, D. C. and New York City, via ,,vilmington, Delaware. (Represents the remainder
of the original Memphis-New York proposal.)
ROUTE CONSOLIDATION CASE
Recently heard in ,vashington. Involves our application for consolidation of Routes 8 and 53.
Assigned for Hearing Before Examiners
NEW YORK-BOSTON-NEW ORLEANS
Assigned for hearing June 10. Involves our application between New Orleans and New York (a) via
Meridian, Miss.; Birmingham, Ala.; Atlanta, Ga.; Asheville, North Carolina; Roanoke, Lynchburg and
Richmond, Va.; Washington, D. C.; and Wilmington, Delaware; or (b) via Montgon:iery, Ala.; Atlanta,
Ga.; Asheville, North Carolina; Roanoke, Lynchburg and Richmond, Va.; Washington, D. C.; and
Wilmington, Delaware.
Awaiting Pre-Hearing Conference
LITTLE ROCK-ST. LOUIS CUT OFF
This application proposes an operation over a Great Circle course between Chicago and Houston, with
a direct non-stop flight between St. Louis and Little Rock. This cut-off would reduce the present
flight time between Houston and Chicago by approximately one hour.
LOUISVILLE CASE
This application seeks the addition of Louisville, Ky., .as an alternate intermediate point to Evansville
between Paducah and Indianapolis on Route 53.
Civil Aeronautics Board procedures require that, after an Examiners' report has been made
and exceptions and briefs have been filed, oral argument before the Board itself be held. An
adverse Examiners' report is in no sense conclusive. Therefore it can be said that all of the
above applications are active, although no assurance can be given as to which, if any, will be
granted.
APPLICATIONS FOR INTERNATIONAi. ROUTES
The Company is actively pressing its applications for new routes to Puerto Rico, South
America, . the Canal Zone and Mexico. In Docket No. 798 service is proposed between New
Orleans and South American cities via Cuba, Puerto Rico and various Caribbean points. Rout-
ings are also proposed between New Orleans and the Canal Zone. Two other applications
propose service from Houston to Mexico City and from New Orleans to Mexico City. All of
these proposals were heard in a consolidated proceeding before the Civil Aeronautics Board
and have been submitted for decision since May, 1945. Although it is impossible to predict
the nature and extent of the routes, if any, which may be awarded to the Company as a result
of that proceeding, the Board's decision, which must be approved by the President of the United
States, should be forthcoming in the near future.
ANNUAi. MEETINC,
The annual meeting of stockholders will be held at the Company's General Office at the Munici-
pal Airport, Memphis, Tennessee, at 2 p.m. on Tuesday, May 7, 1946, 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 being sent you and it is hoped that you will be
able to be present.
Respectfully submitted,
~~
By Order of the Board of Directors President.
Page Eleven
Page Twelve
CHICAGO AND SOUTHERN AIR LINES,
( A Delaware Corporation)
ASSETS
CURRENT ASSETS :
Cash ....................................................................................................................................................... . $ 322,528
United States Government securities, at cost (Note 1) ................................ . 868,821
Receivables from:
Air lines, customers, agencies, etc. ................................................................... , ............... . 342,567
United States Government. ...................................................................................................... .. ~8, 127
Officers and employees .................................................................................................................. . l 3,491
Materials and supplies, at average cost... ............................................................................ . 80,719 $1,666,253
OTHER ASSETS AND DEFERRED CHARGES:
Prepayments ................................................................................................................................................... .
Claims for refund of prior years Federal income taxes ...................................... ..
Receivable from sale of stock purchase warrants (Note 2) ........................... .
Miscellaneous ................................................................................................................................................ .
OPERATING PROPERTY AND EQUIPMENT:
$ 117,012
40,434
42,000
14,085
Depreciation
Classification Cost Reserves (Note 3)
Flight equipment. ................................................................................................. .
Other property and equipment... ........................................................... .
Work in progress .................................................................................................. .
$1,757,842 $ 834,747
529,431
251,086
254,082
213,531
$2,538,359
FRANCHISES AND GOODWILL
$1,088,829 1,449,530
I
$3,329,315
NOTES:
(1) United States Government securities in the principal amount of $640,000 were pledged
as collateral to secure a note payable to bank of $300,000.
The Company in 1946 has secured a commitment for a bank loan of $2,000,000 represented
by 20 notes of $100,000 each, secured by chattel mortgage on aircraft, each note maturing serially
over a period of two years from date of its issue, with interest at 2%, in connection with the
acquisition and conversion of additional aircraft. It is contemplated that a portion of the pro-
ceeds will be utilized to pay off the Company's unsecured bank loan of $100,000 outstanding at
December 31, 1945 together with subsequent temporary borrowings of $500,000 incurred in con-
nection with the acquisition of aircraft. The chattel mortgage securing the $2,000,000 bank loan
provides that so long as any of the indebtedness secured thereby shall remain unpaid the Com
pany (a) will not declare or pay any dividends, other than stock dividends, except out of net
profits earned subsequent to February 15, 1946, and (b) will maintain a minimum working
capital of $500,000.
(2) At December 31, 1945 there were outstanding options to purchase, on or before Feb-
ruary 25, 1946, 29,315 shares of capital stock at $8 per share. These options, which represented
the unexercised portion of options for 50,000 shares of capital stock granted in 1936, were all
exercised prior to February 25, 1946.
INC. BALANCE SHEET- DECEMBER 31, 1945
LIABILITIES
CURRENT LIABILITIES:
Notes payable to bank (Note 1) ............................................................................................... ..
Accounts payable and accrued liabilities .......................................................................... ..
Liability for purchase of aircraft from United States Government... ..... ..
Traffic balances, and deposits payable ................................................................................... .
Accrued Federal and State income taxes ............................................................................. .
$ 400,000
281,067
208,000
224,295
151,414 $1,264,776
UNEARNED TRANSPORTATION REVENUE 127,742
CAPITAL STOCK AND SURPLUS:
Capital stock-authorized 500,000 shares, without nominal or par
value; issued and outstanding 310,011 shares (Notes 2 and 4) .............. ..
Stock purchase warrants for 42,000 shares of capital stock (Note 2)
Earned surplus since May 23, 1938 ......................................................................................... .
$1,599,125
42,000
295,672 1,936,797
COMMITMENTS for purchase and conversion of aircraft aggregate approximately
$3,000,000.
$3,329,315
.. As of October _27, 194:5 the Company issued stock purchase warrants to Mr. Harvey L.
WIiliams and two V1ce-Pres1dents of the Company entitling the holders thereof to purchase
24,000 shares, 10,000 shares and 8,000 shares, respectively, of capital stock at $30 per share at any
time to October 27, 1955. At the time of the issuance of the warrants the Company received
demand notes in an amount equal to $1 for each share of capital stock of the Company subject
to purchase upon the exercise of the warrants, being an aggregate amount of $42,000, bearing
interest at the rate of 3% per annum from October 27, 1945. Pursuant to a contract dated
January 25, 1946, Mr. Harvey L. Williams became affiliated with the Company as Executive
Vice-President on February 15, 1946. The market quotation of the Company's capital stock al
October 26, 1945 was approximately $26 per share. These warrants had not been exercised to
December 31 , 1945.
(3) Includes reserves of $659,559 for fully depreciated property.
. (4~ At December 31 , 1945 the Company had a contingent liability to repurchase, at the
issue I?nce of $8 per share with adjustments for interest less dividends, 18,324 shares of capital
stock issued subsequent to December 8, 1944 pursuant to options granted in 1936. The same
contin~ent liability has since attached to 29,315 shares of capital stock issued on the exercise
of opt10ns subsequent to December 31, 1945. The market quotation of the Company's capital
stock at December 31 , 1945 was approximately $33 per share.
Page Thirteen
CHICAGO AND SOUTHERN AIR LINES, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1945
OPERATING REVENUES:
Passenger and excess baggage ....................................................................................................... .
Mail ........................................................................................................................................................................ .
Express ................................................................................................................................................................. .
lv!iscellaneous (net) ..................................................................................................... .-......................... .
Total operating revenues ............................................................................................................ .
OPERATING EXPENSES:
Flying and ground operation ........................................................................................................ .
Maintenance .................................................................................................................................................. ..
Traffic, sales and advertising ........................................................................................................ .
General and administrative .......................................................................................................... ..
Depreciation ................................................................................................................................................... .
Total operating expenses ............................................................................................................ .
Net earnings from operations before income taxes ........................................ .
OTHER INCOME (NET)
Net income before income taxes ........................................................................................ ..
PROVISION FOR FEDERAL AND STATE INCOME TAXES
(No excess profits tax payable) ................................................................................................ .
Net income ............................................................................................................................................... ..
Page Fourteen
$4,376,775
277,238
169,396
25,413
$4,848,822
$2,245,429
798,679
660,152
512,151
346,067
$4,562,478
$ 286,344
4,847
$ 291,191
122,300
$ 168,891
CHICAGO AND SOUTHERN AIR LINES, INC.
STATEMENT OF SURPLUS
YEAR ENDED DECEMBER 31, 1945
EARNED SURPLUS SINCE MAY 23, 1938
.BALANCE DECEMBER 31, 1944, per previous report... .................... .
ADD:
Profit on sale of aircraft to United States Government in 1942............... $ 45,715
Adjustment of United States Army contracts applicable to prior
years ................................................................................................................................................................. . 15,798
BALANCE DECEMBER 31, 1944, as adjusted
NET INCOME for the year ended December 31, 1945,
per accompanying statement ................................................................................................... .
DEDUCT-Cash dividend (25c per share) .............................................................. .
BALANCE DECEMBER 31, 1945 ........................................................................................... .
$ 142,744
61,513
$ 204,257
168,891
$ 373,148
77,476
$ 295,672
Page Fiftee,i
ARTHUR ANDERSEN & CO.
ACCOUNTANTS AND AUDITORS
5 0 6 OLIVE STREET
ST. LOUIS 1
TO THE BOARD OF DIRECTORS OF
CHICAGO AND SOUTHERN AIR LINES, INC.:
We have examined the balance sheet of CHICAGO AND SOUTHERN AIR LINES, I C.
(a Delaware corporation) as of December 31, 1945, and the statements of income and surplus
for the fiscal year then ended, have reviewed the system of internal control and the accounting
procedures of the Company and, without making a detailed audit of the transactions, have
examined or tested accounting records of the Company and other supporting evidence, by
methods and to the extent we deemed appropriate. Our examination was made in accord-
ance with generally accepted auditing standards applicable in the circumstances and included all
procedures which we considered necessary.
In our opinion, the accompanying balance sheet and related statements of income and
surplus present fairly the position of Chicago and Southern Air Lines, Inc., at December 31,
1945, and the results of its operations for the fiscal year, in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding year except that in
1944 the Company capitalized certain indirect costs incident to the conversion of aircraft to com-
mercial use. We concur with the Company's 1945 policy of charging similar costs to expense.
St. Louis
1
Missouri
April 3, I 946
ARTHUR ANDERSEN & CO.
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