Chicago and Southern Air Lines First Quarter Report 1953

CHICAGO AND SOUTHERN AIR LINES, INC.
General Offices Municipal Airport Memphis 14, Tennessee
April 21, 1953
REPORT TO THE SHAREHOLDERS
For the Three Months Ended March 31, 1953
Your Company's net profit for the first three months of 1953 was $137,361, equivalent to
27 cents a share on the common stock, after provision for income taxes of $160,000. This com-
pares with net income of $206,653 or 41 cents a share for the first quarter of 1952. Non-mail
revenues increased $615,587 or 17%, while operating expenses increased only $370,511 or 10%.
Mail pay decreased $407,353 or 52% and represented 8% of total operating revenues in the
1953 quarter against 18 % in the same quarter last year. If there had been no reduction in
mail pay in 1953, the operating profit before taxes would have shown a gain of $245,076 or
54% over the comparable 1952 period.
Although the volume of mail carried increased 12%, mail pay on our domestic system was
reduced $142,065 by application of the formula which reduces the rate of mail pay as the
passenger load factor increases. In the first quarter of 1953 our domestic mail pay was at the
rate of 88 cents a ton mile against $1. 77 a ton mile received in the first quarter of 1952. The
compensatory (non-subsidy) mail rate for the C&S domestic operations has been determined by
the CAB to be 53 cents a ton mile. Under our new international mail rate ( effective August 1,
1952), we received $265,288 less international mail pay in the first three months of 1953 than
in the same period of 1952, while carrying 16% more mail.
More than $125,000 of the first quarter costs in 1953 represented inter-change training
expenses, merger expenses, and retirement income costs, none of which were present in the first
quarter of 1952. Also, this year we have been operating weekly Constellation flights between
New Orleans and San Juan via Port-au-Prince and Ciudad Trujillo, a new service started Jan-
uary 10, 1953, all inaugural and development costs of which have been charged off to current
expenses.
A dividend of 15 cents a share was paid March 16, 1953, to stockholders of record March
6, 1953.
On April 1, 1953, C&S and TWA inaugurated two through interchange flights daily in
each direction between Houston and New York. One flight using Constellation aircraft oper-
ates via St. Louis and Pittsburgh, and the other flight using Martin 4-0-4's operates via Shreve-
port, Memphis, Indianapolis, and Pittsburgh. The initial acceptance of this new service is
encouraging and a substantial volume of long haul traffic should be carried on these flights.
By authority of the Board of Directors,
Chairman of the Board President
CHICAGO AND SOUTHERN AIR LINES, INC.
BALANCE SHEETS (Unaudited)
ASSETS
March 31, 1953 Dec. 31, 1952
CURRENT ASSETS:
Cash----------------------------------------------------------------------------------------------------------
United States Government securities ____
__________
. ______________________________________ _
Receivables from-
United States Post Office ___________________________
__________________________________________ _
A. 1 t . t
.ir 1nes, cus omers, a~enc1es, e. c. _____________________________________________________ _
Mam~en~nce and operatmg supphes-----------------------------------------------------
Prepa1d msurance, etc. __________________________________________
_
__________________________________
_
Total current assets------------------------------------------------------------------------------
OTHER ASSETS:
Advance payments on new aircraft ( Note 3) ---------------------------------------
l\1iscellaneous _____
________________________________________________________________
______ . ______ ----------
OPERATING PROPERTY AND EQUIPMENT:
Flight equipment ( Note 2) -----------------------------------------------------------------
Other property and equipmenL------------------------------------------------------------
Less-Reserves for depreciation ( Note 2) ----------------------------------------------
FRANCHISES AND GOODWILL.. __________ ------------------------------------------------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ____ --------------------------
Federal and state income taxes (Note 7) ...... ---------
Unearned revenue .................. -------------
Air travel plan deposits ...... -----
Total current liabilities .................................................................. -----
CAPITAL STOCK AND SURPLUS:
Common stock-authorized 650,000 shares,
without nominal or par value;
issued and outstanding 509,326 shares (Note 4) ------------------------
Earned surplus ---.. ----------------------------------------------------------
Net income for first three months of 1953 ___ ----------------$13 7,361
Dividend paid March 16, 1953 ... ------------------------ 76,399
COMMITMENTS (Note 3)
$ 1,134,024
2,000,000
177,795
1,840,143
256,285
85,214
$ 5,493,461
$ 800,000
285,678
$ 1,085,678
$ 8,786,085
1,494,358
$10,280,443
5,514,408
$ 4,766,035
$ 1
$11,345,175
$ 1,992,383
994,003
254,245
229,075
$ 3,469,706
$ 4,893,645
2,920,862
60,962
$ 7,875,469
$11,345,175
'NOTES TO FINANCIAL STATEMENTS
$ 1,605,238
2,000,000
198,939
1,726,481
278,038
96,475
$ 5,905,171
$ 300,000
207,046
$ 507,046
$ 8,808,975
1,637,071
$10,446,046
5,197,929
$ 5,248,117
$ 1
$11,660,335
$ 2,010,543
1,354,388
254,372
226,525
$ 3,845,828
$ 4,893,645
2,920,862
$ 7,814,507
$11,660,335
1. The Company has entered into a merger agreement with Delta Airlines, Inc. which was approved by the Civil Aeronautics
Board on December 31, 1952, and will be submitted to the stockholders of the two Companies for approval at special
meetings which have been called for April 22, 1953. The C&S stockholders will receive $10,695,846 of 51/2%, 20-year,
convertible subordinated debentures to be issued by Delta, subject to the provisions of the statutory Joint Agreement of
Merger, each $35 of such debentures to be convertible at the holder's option into one share of Delta common stock.
2. At March 31, 1953, the Company's fleet consisted of six Model 649 Constellations and twelve DC-3's. The DC-3's (which
cost $1,427,002 including spares) were fully depreciated to a residual value of $3,000 each at December 31, 1948, and
the Constellations (which cost $7,359,083 including spares) are being depreciated to a residual value of $50,000 each
from the dates placed in service (3 in 1950 and 3 in 1951) to December 31, 1955.
3. The Company has entered into a contract with Consolidated Vultee Aircraft Corporation for the purchase of ten new
Convair 340 aircraft to be delivered beginning in September 1953. These aircraft, together with the necessary spare en-
gines, propellers, parts and equipment for maintenance and operation, will cost approximately $7,000,000, against which
advance payments of $800,000 have been made.
4. Stock purchase warrants were outstanding to two officers at March 31, 1953, entitling one to acquire 8,000 shares of
common stock and the other 3,750 shares at a price of $10 per share prior to 1956. The market quotations of the common
stock at the date of fixing the price of the warrants were less than $10.
CHICAGO AND SOUTHERN AIR LINES, INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31 Per Cent
1953 1952 Change
Route miles in operation ......................................................................... .
Revenue plane miles flown ................................................................... .
Available seat miles flown ..................................................................... .
Revenue passenger miles ....................................................................... .
OPERATING REVENUES:
5,854
2,757,753
98,561,394
60,110,145
Passenger and excess baggage ........................................................ $ 3,896,171
United States mail (Note 6) .......................................................... 375,430
Express and freight.......................................................................... 248,316
Miscellaneous (net) ........................................................................ __ 2_4_,6_4_9
Total operating revenues ............................................................ $ 4,544,566
OPERATING EXPENSES:
Flying and ground operations ........................................................ $
Maintenance ---
Traffic, sales and advertising ....................................................... .
General and administrative ........................................................... .
Depreciation ( Note 2) ................................................................... .
Total operating expenses ............................................................ $
NET INCOME FROM OPERATIONS
1,971,559
627,184
918,180
339,042
397,931
4,253,896
BEFORE INCOME TAXES ............................................................ $ 290,670
PROVISION FOR INCOME TAXES (Note 7) .............................. 160,000
Other Income or Deductions* (Net).................................................... 6,691
- - - - -
NET INCOME. ....................................................................................... $ 137,361
Net income per share of capital stock.................................................... 27
Dividends paid per share of capital stock............................................ 15
5,749
2,669,599
94,047,772
53,630,832
$ 3,307,778
782,783
209,664
36,107
$ 4,336,332
$ 1,835,964
578,005
815,403
271,387
382,626
$ 3,883,385
$ 452,947
234,000
12,294*
$ 206,653
41
15
+ 2%
+ 3
+ 5
+ 12
+ 18
52
+ 18
32
+ 5%
+ 7%
+ 9
+ 13
+ 25
+ 4
+ 10%
36
32
- 34%
NOTES TO FINANCIAL STATEMENTS (Continued)
5. In 1951 the Company adopted a contributory retirement income plan for its employees, which was put into effect on July
1, 1952. The Company's liability for past service benefits under the plan (estimated at $700,000) is being paid over a 12-
year period. The Company's share of the cost of the plan, including past service benefits, was $91,441 for the last half
of 1952 and $50,000 for the first quarter of 1953.
6. Mail revenues from the United States Government arc stated m accordance with final rates fixed by the Civil Aero-
nautics Board in rate orders issued as follows:
Date of Effective
Order From
Oct. 18, 1951
Oct. 22, 1952
Dec. 19, 1951
Nov. 1, 1946
Aug. 1, 1952
Oct. 1, 1951
Effective
To
July 31, 1952
Still in effect
Still in effect
Routes
International
International
Domestic
On March 18, 1952, the Post Office Department filed a petition requesting the United States Court of Appeals for the
District of Columbia Circuit to review the Company's final international mail rate order issued by the CAB on October
18, 1951. The Post Office Department contends that the CAB erred in refusing to offset the profits above 7.4% earned
under the Company's final domestic mail rates during the years 1948-1950 against the mail pay need of the Company's
international operations, and accordingly that the Company's mail pay for that period should be reduced by $654,000.
The Company is participating in this appeal as a special intervenor. General Counsel for the Company believes that the
Court should uphold the CAB's decision, both as a matter of law and equity.
7. The Company's federal income tax returns through 1949 have been examined by the Bureau of Internal Revenue and
settled. The tax returns for 1950 and 1951 are now in process of examination and it appears that the depreciation rates
used by the Company may be questioned.
It is believed that the Company has made reasonable provision in its accounts for any additional taxes related to DC-4
depreciation. With respect to Constellation aircraft and related spares, the Company has been depreciating this equip-
ment to a common end date of December 31, 1955, giving an approximate average life of five years. The internal reve-
nue agent examining the return may recommend a seven.year life. The Company considers its depreciation policy proper
and proposes to contest any change. Further, the Company has received a necessity certificate authorizing five-year amor-
tization of approximately 80 % of the cost of the Constellation fleet. With respect to property other than flight equipment
the proposed disallowances are of relatively less importance, and in any event the depreciation disallowed for prior years
should be allowable in future years, with the exception of depreciation on DC-4's which have been disposed of and for
which reasonable tax provision is believed to have been made as explained above.
The Company has no excess profits tax liability.
SYSTEM MAP
Showing Proposed Consolidation With
DELTA AIR LINES
- C&SROUTES
111111111111111 DELTA ROUTES