Southern Airways Annual Report 1954

I Inc.
annual
report
th year of
PROGRESS
FRANK W. HULSE
President
C. M. BRITT
Vice President-Sales
GEORGE F. ESTEY
Secretary-T reasurer
W. S. MAGILL
Director-Operations
MANAGEME NT
IKE F. JONES
Vice President
CECIL A. BEASLEY, JR.
Assistant Secretary
FRANK W. HULSE
President
GEORGE F. ESTEY
Secretary - Treasurer
W. S. MAG ILL
Di rector-Operati ons
C. H. D. TARRER
Assistant Treasurer
C. M. BRITT
Vice President -
Sales
W. B. WHITE, JR.
Assistant Secretary
EXECUTIVE COMMITTEE
FRANK W. HULSE
IVAN ALLEN, JR.
W.
HENRY P. JOHNSTON
ELTON B. STEPHENS
WHITE, JR.
IVAN ALLEN, JR.
Ivan Allen Co.
Atlanta, Ga.
J. MURREY ATKINS
R. S. Dickson & Co.
Charlotte, N. C.
CECIL A. BEASLEY, JR.
Kilpatrick, Ballard & Beasley
Washington, D. C.
EDWARD U. BENEKE
The Beneke Corporation
Columbus, Miss.
ALEXANDER J. BRUNINI
Brunini, Everett, Grantham & Quin
Vicksburg, Miss.
DIRECTORS
FRANK W. HULSE
Southern Ainvays, Inc.
Birmingham, Ala.
ALTON F. IRBY, JR.
A. F. Irby & Co., Inc.
Atlanta, Ga.
HENRY P. JOHNSTON
Birmingham News Company
Birmingham, Ala.
IKE F. JONES
Ga.-Carolina Paper & Supply Co.
Augusta, Ga.
G. GUNBY JORDAN
The Jordan Company
Columbus, Ga.
R. EUGENE ORR
Knight, Orr &Co., Inc.
Jacksonville, Fla.
W. HERBERT SMITH
W. Herbert Smith Co.
Clover, S. C.
ELTON B. STEPHENS
Elton B. Stephens & Assoc.
Birmingham, Ala.
W. B. WHITE, JR.
White, bradley, Arant, All & Rose
Birmingham, Ala.
GEN. RALPH H. WOOTEN
Mid-South Chemical Co.
Memphis, Tenn.
Stock Transfer Agent
THE FIRST NATIONAL BANK OF BIRMINGHAM
EXECUTIVE OFFICE
Brov/n-Marx Building
Birmingham, Alabama
GENERAL OFFICES
Atlanta Airport
Atlanta, Georgia
TO STOCKHOLDERS, EMPLOYEES AND FRIENDS
OF SOUTHERN AIRWAYS, INC.
The year 1954 was the most successful that your company has yet enjoyed. Net profit of $65,355,
or 26c per share, was achieved after charging to expenses of operation some $66,000 for accrued vacations
which will, in fact, not be taken until 1955. These earnings establish a new high in Southern's history
and represent an increase of 105% over the preceding year.
Gratifying as the financial results are, an even greater source of pride is the fact that Southern
operated during the year, as it has throughout its entire history, with a perfect safety record. This
achievement is a tribute to the faithfulness and ability of Southern's employees who in 1954 continued to
render valuable services to your company and through your company to the public.
During the twelve months ended December 31, 1954, we developed 16.1% more passenger miles
than during 1953 despite an increase of only 2.5% in plane miles. This improvement resulted primarily
from concentration by your company of its service over the routes where experience has demonstrated the
traveling public needs and will use the local air transportation we provide. In accordance with the^ften
repeated mandate given all local service carriers by the Civil Aeronautics Board, your company a^^Kd
to the Board and was authorized by it to suspend service at certain points where the volume of traffic did
not justify the cost of operation of such service. Service was, accordingly, discontinued at LaGrange,
Georgia; Clarksdale, Mississippi; and over the segment between Columbus and Jackson, Mississippi. Both
of the latter cities continue, of course, to receive service over other segments of our system.
During 1954 charter revenues increased most satisfactorily, amounting to approximately four
times the revenues derived from this source of business in 1953.
While rising costs during 1954 continued to be a major problem for the industry, it is a pleasure
to be able to report that southern's per revenue mile costs were reduced to $1,042 from the $1.057 expe
rienced for the calendar year 1953. Through rigid cost control, it was possible to accomplish this reduc
tion and at the same time to place in effect during 1954 salary increases for most of your company's em
ployees. Our expenses during 1954 included a non-cash item for equipment depreciation in the amount
of $109,930.
Under the provisions of the present Internal Revenue Code, it is expected that the Company will
not be required to pay any federal income tax on its 1954 earnings of $65,355. Again assuming no change
in the present law, future earnings of your Company in the approximate amount of $69,000 will not be
subject to federal income tax, provided such earnings occur within the next three years.
The accompanying Balance Sheets and Statement of Profit and Loss permit a comparison of 1954
with 1953 and reflect the substantial improvements in our financial condition resulting from the successful
operation during 1954. For example, our $500,000 bank loan, with $130,000 remaining at the end of
1953, had been reduced to $70,000 as of December 31, 1954. The present balance of $40,000 has been
extended to July 1956 for the purpose of providing additional working capital. Our ability in negotiating
this extension to reduce the interest rate to4% and to obtain other favorable provisions in the loan agree
ment, reflect the excellent credit standing of your company.
As a result of increased revenues and successful control of costs, your company was able to de
crease its subsidy dependence upon the Federal Government during 1954 some $100,000 below that re
quired in 1953. Reduction of mail pay dependence has been in the past and will continue in the future
to be one of the primary objectives of your company's management. It is particularly gratifying to be
able to report that such a reduction was achieved while Southern, at the same time, was improving its
service and meeting the air transportation needs of the fast-growing South.
An important development during 1954 affecting your company and its future was the introduction
in Congress of legislation to substitute permanent certificates for the temporary certificates presently held
by Southern and other local service carriers. Time did not permit final enactment in 1954 and the bills
were re-introduced in the present session of Congress. After hearings before the Commerce Committees
of the House and Senate, at which your President was privileged to testify, both bodies, during the week
of April 17, 1955, passed the legislation without a dissenting vote. Following a conference between
representatives of the two houses of Congress to revise minor differences in the two bills, it is expected
that the legislation will be forwarded to the President for action within the near future.
When and if the bill becomes law, permanent certification will result in marked benefits foryour
company. These include the ability to make long-range plans in the fields of operations, purchasing and
finance, more security for our personnel, avoidance of repeated renewal proceedings together with their
attendant expenses, and a greater likelihood that a suitable airplane for local service will be produced.
Furthermore, the communities served by Southern and the present and potential businesses in those com
munities will be given assurance that they may rely upon the benefits of local air transportation service
on a permanent basis.
Developments of 1954 include the inauguration of a program by the Post Office Department at
certain communities on our system pursuant to which your companyis transporting so-called "surface mail"
if and to the extent that space is available in our aircraft for such mail. "Surface mail" is mail which
^Mies postage in an amount that does not ordinarily qualify such mail to be transported by air. While
S^^iem receives no additional compensation from the Government for this service, we are credited with
such transportation and it does result in a reduction of subsidy dependence. Also, the rendition of such
service by your company represents a very real public benefit, particularly in towns where curtailment of
rail service places a premium upon delivery of mail by other than surface means.
Another development during 1954 was the inauguration of a program of training courses designed
to enable your company's personnel better to serve the public. I am happy to report that a very large
number of our employees are voluntarily participating and it is believed that results to date more than
justify establishment of the program. Our general employee morale continues excellent. Southern's em
ployee turnover rate has continued to decrease and is considerably lower than the average of the other
local service airlines. Our employees nowaverage three and one half years of service with the Company.
The map on the inside back cover of this report shows our system' as presently constituted as well
as new route applications recently filed with the Civil Aeronautics Board. No date has been set by the
Board for hearing of these applications arxl, in accordance with Board practice, they will remain pending
on the docket until reached in their regular order.
A photograph of Jackson, Mississippi, Southern's third city traffic wise, appears on the back
cover of this report. In the interest of economy, this report was compiled by our own personnel and printed
in our ovwi print shop.
The management of your company would appreciate any comments you may have for the improve
ment of our service to the public. Your use of the services rendered by Southern and your recommendation
of its use to your friends and associates would be particularly helpful.
We pledge our best efforts to make 1955 another year of improvement and progress.
Respectfully yours.
Frank W. Hulse
President
April 22, 1955
BALANCE SHEETS
SOUTHERN AIRWAYS, INC.
\ -
DECEMBER 31
,
1954, and 1953
ASSETS
1954 1953
j LIABILITIES
rr
1954 1953
CURRENT ASSETS 1 CURRENT LIABILITIES
Cash $ 242,868.61 $ 92,726.15 Notes payable:
Accounts receivable: Current installments on long-term debt - Note B $ 70,000.00 $ 120,000.00
United States Government -
for mail For equipment and supplies (subordinated) - Note C 49,403.42 -0-
and other transportation - Note B 234,809.19 204,348.36 For insurance premium -0- 31,616.00
Airline traffic, air travel plans, and Accounts payable and accrued expenses:
other trade receivables 156,615.22 149,430.12 Trade accounts 236,711.83 157,903.59
Inventories of repair parts and Payroll and taxes withheld therefrom 68,792.30 13,270.07
operating supplies - at cost 113,374.21 119,403.14 Vacation pay - Note D 66,054.10 -0-
Prepaid aircraft engine overhaul. Other accruals 46,507.01 41,814.61
insurance, and interest 84,884.50 91,184j^6 ^^nearned transportation revenue 19,772.74 9,760.94
W
^Bate taxes on income - estimated 3,203.55 1,500.00
TOTAL CURRENT ASSETS $ 832,551.73 $ 657,092.33
TOTAL CURRENT LIABILITIES $ 560,444.95 $ 375,865.21
INVESTMENTS AND OTHER ASSETS 5,429.92 4,176.01
LONG-TERM DEBT
PROPERTY AND EQUIPMENT - at cost, less allowances Note payable to bank in monthly installments
for depreciation and overhaul - Note B of $10,000.00 - Note B $ 70,000.00 $ 130,000.00
Hangar (located on leased land) $ 129,381.48 $ 124,479.23 Less payments due within one year shown above 70,000.00 120,000.00
Aircraft and related equipment 774,804.71 745,675.47 $ -0- 10,000.00
Other equipment 176,527.10 163,872.29 Note payable for equipment and supplies
Improvements to rented property 14,017.29 9,812.05 (subordinated) - Note C -0- 109,403.42
$1 ,094,730.58 $1,043,839.04 $ -0- $ 119,403.42
Less allowances for depreciation and CAPITAL
overhaul 788,069.33 696,085.85 Common stock, par value $3.00 per share:
$ 306,661.25 $ 347,753.19 Authorized 400,000 shares; issued and
outstanding 250,000 shares $ 750,000.00 $ 750,000.00
DEFERRED CHARGES .
Paid-in surplus 6,251.38 6,251.38
Unamortized cost of certificate of public 1 Earned surplus-deficit * 162,553.51* 227,908.28
convenience and necessity, and other expenses 9,499.92 14,590.20 1 $ 593,697.87 $ 528,343.10
$1 ,154,142.82 $1,023,611.73 $1 ,154,142.82 $1 ,023,611.73
N O T 1E S T '0 F 1 N A NCIAL STATEMENTS
Note A -
The Company is engaged in air transportation with office furniture and equipment, automotive equipment, assignment standing; and (3) to maintaina net worth of one and one-fourth times equipment and supplies in the amount of $49,403. 42 was subordinated
respect to persons, property, and mail under authority of aTemporary
Certificate of Public Convenience and Necessity issued by the Civil
Aeronautics Board, vdiich v3s originally effective February 8, 1949,
and which was renewed under date of April 14, 1953 (with certain
modifications) for an additional period expiring December 31, 1956.
Note'B -
Note payable tobankfor money borrowed (on which
the original borrowing of $500,000.00 has been reduced by repay
ments to $70,000.00) is secured by ten aircraft and substantially all
of the related equipment, hangar located on land leased until Jan
uary 11, 1959 (with option of renewal for five years), station and
of air mail pay due from United States Government, insurance pol
cies for $150,000.00 on life of an officer, and lease unde^^fcch
the Company is lessee of the land on which the hangar is I^^V J
The Indebtedness is further secured by the guaranty of an officer of
the Company.
Under terms of the loan agreement with the bank,
the Company has agreed, among other things, (l)to maintain net
current assets (computed without inclusion of the unpaid balance of
the loan as a current liability) of $300,000.00 or 10% of operating
expenses (exclusive of depreciation) for the preceding tweI v.e months,
whichever is greater; (2) to pay no dividends while the note is out-
ce poll- the unpaie
e^^ich of
Ff^ of
the unpaid principal amount of the note; otherwise the entire balance
of t^^^pn may be called by the bank.
As of April 18,' 1955, at which time the unpaid
balance of the note amounted to $40,000.00, the bank hod agreed
to extend the due date of the note to permit repayment in four equal
monthly installments beginning in July, 1956. In additian, the bank
also has agreed to release (l)the subordination referred to in the
following Note C, (2) the assignment of mail pay, and (3) the guar
anty of an officer of the Company.
Note C - Note payable to Southern Airways Company for
at December 31, 1954 to the note payable to bank for money bor
rowed; however, subsequent to that date as explained in Note B
above, the subordination has been released by the bank.
Note D -
The Company has accrued at December 31, 1954,
by charge to profit and loss, the liability for vacation pay earned by
its employees under employment agreements in effect during the year.
Under the method of accounting followedin prior years, vacation pay
earned by employees was not charged to expense until the following
year when-such vacations were taken. This change in method of re
cognizing vacation expense had the effect of reducing the net profit
(after income taxes) for the year by approximately $65,000.00.
SOUTHERN AIRWAYS, INC.
STATEMENT OF PROFIT AND LOSS
YEAR ENDED DECEMBER 31
OPERATING REVENUES
T ransportation:
1954 1953
Passenger $ 1,324,138.61 $ 1,128,839.39
Mai 1 1,935,732.50 2,036,353.60
Express 37,046.86 36,435.37
Excess baggage 7,020,22 5,987.15
Charter 37,045.50 10,011.99
Service sales, agency service, and other revenue
21,177.72 25,761.73
OPERATING EXPENSES
TOTAL OPERATING REVENUES $ 3,362,161.41 $ 3,243,389.23
Flying operations $ 1,454,434.01 $ 1,529,280.75
Ground operations 534,229.54 513,530.72
Ground and indirect maintenance 265,217.98 257,741.30
Passenger service 144,102.40 135,041.62
Traffic and sales 494,767.76 459,360.07
Advertising and publicity 70,412.40 66,577.88
General and administrative 264,511.28 233,4^70
OTHER INCOME
TOTAL OPERATING EXPENSES $ 3,227,675.37
$ 134,486.04
$ 3,194,^flp4
$ 48,390.19
Cash discounts and interest earned
Reduction of rents and landing fees and
5,598.81 4,646.47
taxes accrued for prior years 3,635.00 6,551.86
Sundry other income
OTHER DEDUCTIONS
4,615.30
$ 148,335.15
1,510.78
$ 61,099.30
Interest expense
Amortization of route extension and
$ 8,353.25 $ 19,038.61
certificate renewal costs 2,836.20 6,656.65
Provision for vacation pay - Note D
Life insurance premiums and other
66,054.10 -0-
deductions 3,236.83
$ 80,480.38
2,017.43
$ 27,712.69
PROFIT BEFORE TAXES ON INCOME
TAXES ON INCOME
Provision for the year for state
$ 67,854.77 $ 33,386.61
income taxes 2,500.00 1,500.00
NET PROFIT $ 65,354.77 $ 31,886.61
Provision for depreciation and overhaul of
property and equipment included above:
1954 -
$109,929.97; 1953 - $160,497.27
STATEMENTS OF PAID-IN SURPLUS AND EARNED SURPLUS-DEFICIT
PAID-IN SURPLUS
Balance at beginning and end of year
(no change during year)
EARNED SURPLUS -
DEFICIT
Deficit at beginning of year
Credit net profit for the year
$ 6,251.38 $
6,^P.38
$ 227,908.28
65,354.77
$ 259,794.89
31,886.61
162,553.51 $ 227,908.28
Deficit at end of year
ERNST & ERNST
ACCOUNTANTS AND AUDITORS
SYSTEM SERVICE
ATLANTA
FIRST
NATIONAL BANK BLDG.
DELIVERY ZONE 3 N
S^T^AU OI
Board of Directors
Southern
Airways, Inc.
Birmingham, Alabama
We have
examined the balance sheet of
Southern Airways, Inc. as of December 31? 195^? and
the
related statements of profit and loss and surplus-
deficit for the year then ended. Our examinationwas
made in
accordance with generally accepted auditing
standards, and accordingly included such tests ofthe
accounting records and such other auditing procedures
as we
considered necessary in the circumstances.
In our
opinion, the accompanying balance
sheet and statements of profit and loss and surplus-
deficit present fairly the financial position of_
Southern Airways, Inc. at December 31? 195^? and'the
results of its operations for the year then ended, in
conformity with generally accepted accounting princi
ples
which, except for the change (in whichwe concur)
in
method of recognizing vacation expense, as explained
in Note D to the financial statements, have beenapplied
on a
basis
consistent with that of the precedingyear.
Certified Public Accountants
Atlanta,
Georgia
April 18, 1955
COMPARATIVE OPERATING STATISTICS
BY CALENDAR YEARS
1954 1953 1952 1951 1950 1949
REVENUE PLANE MILES 3,098,658 3,022,365 3,330,568 3,070,576 1,860,748 854,082
REVENUE PASSENGERS 133,544 112,328 121,065 96,572 38,117 10,665
REVENUE PASSENGER MILES 22,396,921 19,286,489 20,670,139 17,186,342 6,565,645 1,753,268
PASSENGER LOAD FACTOR 34.84 30.49 29.54 27.19 17.08 9.84
MAIL TON MILES 83,690 80,050 86,387 86,011 48,771 18,495
EXPRESS TON MILES 83,001 73,507 88,403 79,359 44,546 15,765
% SCHEDULED MILES COMPLETED 98.98 97.68 98.47 97.54 96.92 94.34
HOW OUR DOLLARS WERE DIVIDED IN 1954
EMPLOYEES -
Salaries and wages,
insurance benefits, and payroll taxes
AIRCRAFT FUEL AND OIL
MATERIAL, SUPPLIES, AND OUTSIDE REPAIRS
RENTS, AND SERVICES
AMOUNT
$ 1,867,370
449,932
309,360
260,212
DEPRECIATION AND AIRCRAFT OVERHAUL 109,930
ADVERTISING 63,081
TAXES - Other than payroll 55,406
INSURANCE 53,110
ALL OTHER EXPENSES 142,255
NET PROFIT 65,355
PERCENT
55.31 %
13.33
9.16
7.71
3.26
1.87
1.64
1.57
4.21
1.94
TOTAL REVENUES % 3,376,011 100.00%
TOTAL NON MAIL REVENUE
Cents Per Revenue Plane Mile
1949
1950
1951
12.84c;
32.55c
% Increase
Over
Prev i ous
Year
62.77
55.74
1952
1953
14.90
6.76
I' n I
1954 15.28