Pacific Air Lines Annual Report 1957

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... ANNUAL REPORT 1957
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PACtFIC A.
IR LINES, INC.
John H. Connelly .
T. R. Mitchell . .
E. Roger Dahl . .
R. E. Costello .
Max A. King .
Walter Roche .
Floyd Hendrickson . .
B O A R D
General Offices:
San Francisco International Airport
San Francisco 28, California
I
OFFICERS
. President and General Manager
. . Executive Vice-President
Treasurer
. . . Vice-President-Traffic and Sales
. . . Vice-President-
-Public Relations
. . Secretary
. Assistant Secretary
0 F DIRECTORS
Leland Hayward, Chairman
Bert Allenberg * *Harry White
John H. Connelly T. R. Mitchell
*R. E. Costello Daniel O'Shea
Floyd Hendrickson Walter Roche
William B. Smullin
AUDITORS
PRICE WATERHOUSE & CO.
120 Montgomery Street, San Francisco, California
REGISTRAR
Bank of America
3 00 Montgomery Street
San Francisco
"' Resigned June, 19 5 8
,..,.. Elected June, 1958
TRANSFER AGENT
Crocker-Anglo National Bank
1 Montgomery Street
San Francisco
PACIFIC AIR LINES
THE YEAR I N
FINANCIAL
Operating revenues, including subsidy . .. .
Operating expenses . .................. .
Non-operating expenses . . . . . . . . ....... .
Net income, after taxes . . . . . . . . . . . . .
Extraordinary income . . . . . . . . . . . . . . . ..
Retained earnings . . . . . . . . . . . . . . . . . . . ..
Total stockholders' equity .. . ... . ...... .
Stockholders' Equity Per Share ..... .
STATISTICAL
Revenue miles flown . . . . . . . . . . . . . . . . . . .
Number of passengers carried* ..... .... .
Available seat miles flown* . .. ... .. . . .. .
Available seat miles sold* . . . . . . . . . . .... .
Per cent of available capacity sold . . ..... .
* Scheduled Service
B R I E F
1957 1956
$ 6,402,996 $ 5,225,736
6,044,896 5,154,251
122,961 48,230
103,139 5,010
125,645
1,253,060 1,024,276
1,835,089 1,606,305
2.73 2.39
4,551,716 4,048,797
319,276 259,522
124,398,543 107,084,154
69,999,789 55,917,208
56.3 % 52.2 %
Serving more than 30 cities in California, Oregon, and Nevada
PACIFIC AIR LINES
THE PRESIDENT'S REPORT
TO OUR STOCKHOLDERS, EMPLOYEES, AND FRIENDS
The year 1957 was one of continued progress for Pacific Air Lines.
During the year we flew an all-time high of 319,000 passengers almost
70,000,000 passenger miles.
On September 29, 1957, we inaugurated daily round-trip service from
Burbank to Las Vegas, and from San Francisco to Las Vegas. The traffic
trends indicate that these routes will enjoy a substantial further growth
and develop into important and profitable segments of our operations.
On March 7, 1958, the Civil Aeronautics Board approved our applica-
tion to change the Company's name to Pacific Air Lines, Inc., which
we believe to be more suitable of the area in which we serve.
At this time we find ourselves standing on the threshold of the jet age,
which we are confident will result in vastly improved service to the
public and, also, further opportunity for the progress of your company
and its employees.
The following pages, reflecting economic data, are respectfully sub-
mitted.
i ~ '\
vJbL\
President
A&ove all fly Pacific Air Lines
PACIFIC AIR LINES
FINANCIAL RESULTS
19 57 revenues, excluding subsidy, reached an all-time high of $4,216,000.
The graph below depicts the growth during the last five years.
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$4,216
1957
REVENUE GROWTH
1956 1955 1954 1953
In spite of the rising costs of providing service, the results of operations
for the year produced a net profit, after taxes of $103,139. At the end of
the year stockholders' equity amounted to $1,835,089 or $2.73 per share
and the net worth of your company was the highest in the local service
industry.
PACIFIC AIR llNES
FINANCIAL RESULTS - (Continued)
A petition has been presented to the Civil Aeronautics Board to estab-
lish a permanent rate of subsidy through June 30, 1958 and it is antici-
pated that the Board will act upon this petition late in 19 5 8. The at-
tached statement of earnings includes two thirds of the total amount
of the claim remaining after a retroactive increase in the temporary rate
in December, 1958.
During the 19 5 7 session of Congress legislation was enacted whereby
the government will guarantee 90 % of a loan, up to $5,000,000, to an
air carrier for the purchase of new aircraft equipment. On November
17, 1958, our petition for such a guarantee was approved by the Civil
Aeronautics Board and, consequently, a government-guaranteed loan
commitment totaling slightly more than $5,000,000 was obtained from
the Bank of America. Your company has purchased six Fairchild aircraft
under this loan and it is estimated that delivery of this equipment will
be effected during the first half of 1959.
OPERATIONS AND EQUIPMENT
You will recall the disastrous fire which destroyed much of our over-
haul facilities late in 1955. During 1957 we completed our rebuilding
program and are proud to say that our overhaul shop is unequaled else-
where in the local service industry. The modern facilities now allow
us to perform all maintenance and overhauls necessary to "keep 'em
flying" and, after expenditures for additional equipment, will also
enabie us to service the forty-four passenger tur ho-prop Fair child air-
planes to be delivered in 1959.
At the end of the year our fleet consisted of 7 Martinliners and 11 DC-
3 aircraft.
PACIFIC AIR LINES
A S S E T S
Current Assets:
Cash
Accounts receivable:
United States Government-mail,
passengers and other
(Notes C and D).
Traffic and agents . .... .. .
Miscellaneous, less allowance for
possible losses ( 19 5 7 - $13,000;
1956 - $2,692) ........... .
Employees . . . . . . . . . .... .
Inventories of materials and supplies,
at approximate cost, not in excess
of market .. .. . ........ .
Prepaid expenses . . .
Property and Equipment, at cost:
Flight equipment-pledged under
notes payable . .
Ground and other equipment .. . . . .. .
Less-Accumulated depreciation
Construction in progress.
Deposits on purchase of flight
equipment (Note B) .
Investments in Service Organizations,
at cost
Deferred Charges:
Extension and development expense ..
Other .
B A L A
December 31
1957
$ 12,120
1,237,033
160,038
26,192
3,834
233,379
114,489
$ 1,787,085
$ 3,661,357
678,956
$ 4,340,313
2,123,072
$ 2,217,241
92,695
145,786
$ 2,455,722
$ 4,321
$ 37,521
157,293
$ 194,814
$ 4,441,942
1956,
$ 114,011
689,596
286,157
26,041
4,834
206,945
119,873
$ 1,447,457
$ 3,736,446
561,455
$ 4,297,901
1,765,020
$ 2,532,881
81,080
$ 2,613,961
$ 4,321
$ 34,230
164,795
$ 199,025
$ 4,2 64,7 <>4
N C E s H E E T PACIFIC AIR LINES
LIABILITIES
Current Liabilities:
Notes payable-current instalments
on long-term debt
Accounts payable
Taxes collected or withheld from others
Accrued expenses .. ..... . ... .
Transportation sold, not yet used or
refunded
Estimated federal income taxes ..
Long-Term Debt:
5 % notes payable to bank-secured
by chattel mortgage on flight equip-
ment-maturing in monthly instal-
ments to June 15, 1963 (Note A) . .
Conditional sales contracts ..
Provision For Federal Income Taxes of
Future Years
Capital Stock and Surplus:
Common stock:
Authorized, 10,000,000 shares of 5 0c
par value per share (Note G)
Issued, 671,410 sh.ares ..
Paid-in surplus
Earnings retained for use in the bus-
iness, per accompanying statement
(Note A)
December 31
1957
$ 490,187
917,697
92,108
155,960
29,997
301,341
$ 1,987,290
$ 515,787
$ 515,787
$ 103,776
$ 335,705
246,324
1,253,060
$ 1,835,089
$ 4,441,942
1956
$ 335,210
1,029,379
79,985
134,545
28,876
53,821
$ 1,661,816
$ 857,000
3,187
$ 860,187
$ 136,456
$ 335,705
246,324
1,024,276
$ 1,606,305
$ 4,264,764
PACIFIC AIR LINES
STATEMENT 0 F
Operating revenues:
Passenger . . . . . . . . . . ...... . ... .
Mail . . . . . . . . . . ....... . ... . .
Charter and contract operations . .
Express, freight and excess baggage .
Other .. .. . ....... . ..... .
Federal subsidy (Notes C and D) .
Operating expenses (Note H):
Flying operations . .
Direct maintenance-flight equipment.
Depreciation-flight equipment (Note E) .
Direct maintenance-ground equipment .
Maintenance burden ........ . .
Passenger service . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft servicing . . . . . . . . . . . . . . . . . . . . . . . . .
Traffic servicing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Promotion and sales . . . . . . . . . . . . .
Advertising . . . . . . . . . ... .. . ... . .
General and administrative
Depreciation-ground equipment . .. ... . . . .
Operating income
Other (income) and expenses:
Interest ... . .. . . .. ..... .
Extension and development ....... .
Net (gain)or loss on disposition of assets .
Adjustment of spare parts inventory .
Other, net . . . . . . .. . ... .
Estimated federal income taxes
Net earnings for year .
Additional temporary subsidy ($12,100-Note C) and
estimated final subsidy ($249,660-Note D) for
19 5 6, less related federal income tax .
Earnings retained for use in the business:
Balance, beginning of year
Balance, end of year . . . . . . . . . . . . . . . . . .
EARNINGS
Year ended December 31
1957 1956
$ 3,791,591
116,605
199,257
91,684
17,589
$ 4,216,726
2,186,270
$ 6,402,996
$ 1,906,179
1,014,200
350,955
$ 3,271,334
$ 82,204
351,828
231,340
379,739
870,970
122,900
218,956
424,850
90,775
$ 2,773,562
$ 6,044,896
$ 358,100
$ 62,757
10,172
6,741
43,417
( 126)
$ 122,961
$ 235,139
132,000
$ 103,139
125,645
$ 228,784
1,024,276
$ 1,253,060
$ 3,129,855
102,496
224,101
95,855
21,417
$ 3,573,724
1,652,012
$ 5,225,736
$ 1,604,876
847,228
264,646
$ 2,716,750
$ 72,280
320,164
209,605
342,246
763,249
107,621
193,828
383,529
44,979
$ 2,437,501
$ 5, 154,251
$ 71,485
$ 45,902
7,243
(2,497)
(2,418)
$ 48,230
$ 23,255
18,245
$ 5,010
$ 5,010
1,019,266
$ 1,024,276
PRICE WATERHOUSE & Co.
To the Board of Directors of
Pacific Air Lines, Inc.
120 MONTGOMERY STREET
SAN FRANCISCO 4
December 1 1958
In our opinion, the accompanying statements present
fairly the financial position of Pacific Air Lines, Inc.
(formerly Southwest Airways Company) at December 31 1957 and
the results of its operations for the year, in conformity with
generally accepted accounting principles. These principles
have been applied on a basis consistent with that of the pre-
ceding year, except for the change which we approve, in the
basis of providing depreciation on certain flight equipment as
described in Note E to the financial statements. Our examina-
tion of these statements was made in accordance. with generally
accepted auditing standards, and accordingly included such tests
of the accounting records and such other auditing procedures as
we considered necessary in the circumstances. Certain receivables
from the United States Government selected for tests were not
confirmed by direct correspondence, but we satisfied ourselves
as to these amounts by means of other auditing procedures.
PACIFIC AIR LINES
N O T E S T 0 FINANC IAL STATEMEN TS
December 31, 19 5 7
NOTE A:
Notes payable at December 31, 195 7 comprised
the following:
5 o/o secured bank loan, under agreement
dated May 1, 1957, payable in monthly
instalments of $15,000 to May 15, 1958,
and balance payable June 15, 1958 ........ $ 307,000
5 /~ secured bank loan, under agreement
dated May 1, 1957, payable in monthly
instalments of $30,000 commencing July
15, 1958 to May 15, 1963, and balance
payable June 15, 1963 ............................ 695,787
Conditional sales contract ................... 3,187
$ 1,005,974
During 1958, repayment extensions were obtained
for both bank loans; as at November 21, 1958, the
balances payable were $142,000 and $695,787, re-
spectively.
On November 21, 1958, the Company entered into
two new bank loan agreements to finance the pur-
chase of new flight equipment ( see Note B) and
provision was made for repayment of the balances
due under the May 1, 1957 loan agreement. Par-
ticulars of the new loan agreements are as follows:
5 % loan, payable in monthly instalments
ments of $16,700, commencing Decem-
ber 15, 1958 - secured by the Com-
pany's present flight equipment ............ $ 1,000,000
5 % loan, payable in monthly instalments
of $5,500 for each new Fairchild air-
craft acquired, to January 15, 1960, and
$33,000 monthly thereafter-to be se-
cured by new Fairchild aircraft and
equipment .............................................. 3,964,500
5 % loan, payable in monthly instalments
of $5,550, coinmencing July 15, 1959-
to be secured by new Fairchild aircraft
and equipment ........................................ 666,500
On November 17, 1958, the Civil Aeronautics Board
undertook to guarantee 90 % of the principal amount
and 100% of the interest on the two 5 % loans
aggregating $4,631,000.
Under the terms of the November 21, 1958 loan
agreements, the Company has agreed that ( 1) it will
not, without the prior written consent of the bank,
pay any dividends ( except in stock) or purchase,
redeem or otherwise acquire for value any if its out-
standing shares, and (2) commencing January 1,
1959 will maintain current assets at least equal to
current liabilities; for the purpose of this computa-
tion, current instalments under both loan agreements
may be excluded from current liabilities and 60-75 %
of claims for ,etroactive subsidy pending before the
Civil Aeronautics Board, less provision for taxes, may
be included in current assets.
NOTE B:
The Company has undertaken a program calling for
the purchase of six new Fairchild F-27 turbo-prop
aircraft and related spare engines, equipment and
parts for a total cost of approximately $5,340,000,
against which advance payments of $145,786 had been
made as of December 31, 1957. Delivery is scheduled
for the first half 0f 1959, at which time the balance
will be payable.
NOTE C:
On December 5, 1958, the Civil Aeronautics Board
increased the temporary rate of pay for the transpor-
tation of mail for the period from January 9, 1956 to
June 30, 1958. As a result, the Company is entitled
to receive additional compensation of $135,857 for
1957 and $12,100 for 1956 and these amounts have
been included in the accompanying financial state-
ments.
NOTE D~
The Company has applied to the Civil Aeronautics
Board to establish a final rate for the period Janu-
ary 9, 1956 through June 30, 1958, and has filed a
claim for additional compensation for this period. In
the opinion of the management, the amount claimed
is reasonable and has been determined in accordance
with airline subsidy practices and procedures. How-
ever, in order to provide for possible disallowances
by the Civil Aeronautics Board only 66 % of the
amount claimed for the period from January 9,
1956 to December 31, 195 7, has been included in the
accompanying financial statements; these amounts
were $276,590 for 195 7 and $249,660 for 1956.
PACIFIC AIR LINES
NOTES TO FINANCIAL S T AT E M E N T S ( Continued)
December 31, 1957
NOTE E:
During the year ended December 31, 195 7, the
Company changed the basis of providing depreciation
on certain flight equipment acquired during 1956 in
order that such equipment would become fully de-
preciated at approximately the same time as similar
equipment previously acquired. The effect of such
change was to increase 1957 depreciation by approxi-
mately $50,000.
NOTE F:
During 1956, the Company created an insured re-
tirement plan for its pilots. During the year ended
December 31, 1957, income was charged with $28,476
representing cost of current service and a portion of
past service liability. As at _
December 31, 1957, the
estimated unfunded portion of past service costs, pay-
able over the next nine years, amounted to approxi-
mately $167,000.
On September 8, 1958, the Board of Directors ap-
proved a participating retirement plan for all em-
ployees of the Company, other than those who
participate in the retirement plan for pilots. The plan
is to be insured and is to be effective July 1, 1958.
To become eligible to participate in this plan an em-
ployee must have had five years service with the Com-
pany and have attained the age of 25; no credits
accrue to employees for services prior to July 1, 1958.
The estimated cost to the Company of such plan is
not expected to exceed $30,000 per year.
NOTE G:
On October 23, 1958, the Company's Articles of
Incorporation were amended to increase the authorized
capital stock of the Company to $20,000,000 com-
prising 40,000,000 shares of common stock having
a par value of 50c per share. This action was necessary
under the laws of the State of Arizona in order to
enable the Company to increase the limitation on
maximum indebtedness.
NOTE H:
Operating expenses for the year ended December
31, 1956, have been reclassified in accordance with the
provisions of the new uniform system of accounts
prescribed by the Civil Aeronautics Board, effective
January 1, 1957.
;;,6111 PACIFIC AIR l.--lNES
RADAR Equipped
PACIFIC
AIR LINES