Southern Airways Annual Report 1957

9 LITTLE ROCK
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PORTARTHJR
O 'ft~USTON
A AMA
- - - ROUTES IN OPERATION
-----TEMPORARILY SUSPENDED
_,_ .. _ _ EGLIN EXTENSION, PRESENTLY OPERATED BY EXEMPTION
............. SOUTH CENTRAL CASE PROPOSED SERVICE
_,,....,_ SOUTHEASTERN CASE PROPOSED SERVICE
= PIEDMONT INVESTIGATION - APPLICATIONS FILED
LINA
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Incorporated
EXECUTIVE OFFICES BIRMINGHAM, ALABAMA
TO STOCKHOLDERS, EMPLOYEES AND FRIENDS:
The audited financial statements of Southern Airways, Inc. for the year ended December 31,
1957, are presented herewith. In reviewing the statements it should be kept in mind that, as
pointed out in footnote A to the statements, we have been operating on a temporary mail rate and
the results shown in these statements, therefore, to that extent are tentative.
Proceedings have already begun by which the Ci~il Aeronautics Board will determine a retro-
active final Mail Rate. Your Company's management believes that under this new rate mail payments
for 1957 (and, in fact, since April 6, 1956 when Southern filed an application for a higher rate)
will be adjusted upward to compensate for increased costs not reflected in the temporary rate.
Upon receipt of the new rate I will advise you of its retroactive effect on our financial
operating results for 1957.
On September 3, 1957, service between Atlanta and Eglin Air Force Base, Florida was inaugu-
rated under an exemption authority granted by the Civil Aeronautics Board. Traffic over this new
route immediately exceeded system average and continues to contribute to higher system load
factors.
Air freight service was introduced on December 1, 1957, consistent with the policy of your
Company to provide a complete air transportation service. Results to date indicate clearly the
acceptance of this service by the shipping public.
Passenger traffic in 1957 increased 15.9% in terms of revenue passenger miles to a new high
of 37,500,000. Enplaned passengers increased 13.8% to 215,000, also a record.
During 1957, the Civil Aeronautics Board inititated three area route investigations affecting
Southern: the South Central Area Local Service Case, the Southeastern Area Local Service Case and
the Piedmont Local Service Area Investigation. Hearings have been held before Civil Aeronautics
Board Examiners in the first two of these cases with hearing of the Piedmont Case scheduled for
this fall.
A map showing our present system, the new services proposed in the South Central and South-
eastern Cases and the applications on file in the Piedmont Case is enclosed. Of greatest impor-
tance to Southern, is the Southeastern Case which for the first time is affording the Civil Aero-
nautics Board and your Company an opportunity to modify on a comprehensive basis Southern's route
system. Further, our system should be improved qualitatively to the extent that our approach to
self-sufficiency and our future will be greatly enhanced.
The Civil Aeronautics Board decision on the South Central Case is expected this summer, and
decision on the Southeastern Case should com
e oy t he spring of 1959 . The results of the Piedmont
Case will probably be known in 1960.
April 28, 1958
i:J;;;Z
Frank W
. Huls~
President
Southern Airways, lncorpoRltecl
FINANCIAL STATEMENTS
Balance Sheet
ASSETS
CURRENT ASSETS
DECEMBER 3 I, I 9 5 7 Statement of Income
Cash
Accounts receivable:
United States Government - for mail and
other transportation - ~ote A
Airline traffic and other receivables
Claim for income tax refund , arising from
carry-back of operating loss
M
aintenance and other operating supplies -
at average cost
Prepaid aircraft engine overhaul , insurance
and other expenses
INVESTMENTS AND OTHER ASSETS
PROPERTY AND EQUIPMENT - on the basis
of cost - Note B
Hangar (located on leased land)
Aircraft and related equipment
Other equipment
Improvements to rented property
Work in progress
Less allo,1ance~ for depreciation and overhaul
DEFERRED CHARGES
Unamorti zed route extension and development costs
LIABILITIES
CURRENT LIABILITIES
Payments on long-term debt due within one year
Accounts payable
Airline traffic and other collections and
withholdings as agents
Salaries, wages, and vacation pay
Accrued advertising, taxes, and other expenses
Air travel card deposits
Unearned transportation revenue
LONG-TERM DEBT - Note B
Note s payable to banks in monthly installments
aggregating $9,421 . 19
Less payments due within one year included in
current liabilities
CAPITAL - Notes B, c, and D
Common Stock, par value $3 . 00 a share:
Authorized - 400,000 shares
Issued and outstanding - 252,400 shares
Paid in surplus (no change during year)
Earned-surplus deficit (deduction*)
$ 193,968.94
$ 230,517.45
284 , 943.40 515,460.85
3,421.35
114,934.33
142,563. 67
TOTAL CURRENT ASSETS $ 970,349.14
17,668.93
$ 140,491.16
1,280,197.60
251 , 048 . 57
54,834.57
39 , 428.79
$1 ,766 ,000. 69
1,142, 111 . 22 623,889 .47
35 , 785.30
$1, 647,692.84
$ ll3,053.92
420,296. ll
258 , 094. 63
115,710. 04
41,888.80
39,525.00
23 ,993 . 23
TOTAL CURRENT LIABILIT !ES $1,012,561.73
$ 131 , 053 . 92
$ 757,200 .00
3,121.78
18, 000.00
143.190 . 67* _-2..l2.....L2l.J.l
$1 , 647 , 692 .84
Statement of Earned-Surplus Deficit
Deficit at January 1, 1957 $
Net loss and special credits for the year
Deficit at December 31, 1957 $
See Notes to Financial Statements.
85 , 451.63
57 ,739.04
143,190.67
OPERATING REVENUES
Passenger
Mai~ (principally subsidy from U.S. Government) - Note A
Express, freight, and excess baggage
Charter
Service sales and other revenues - net
OPERA Tl NG EXPENSES - Note F
Flying operations
Maintenance
Passenger service
Ai rcraft and traffic servicing
Promotion and sales
General and administrative
Depreciation and amortization
OTHER I NCO ME
OTHER DEDUCTIONS
Interest - principally on long-term debt
Life insurance expense and other dedu ctions
$1 ,375,368. 88
861 , 643.45
208,485.24
$
1,261,171.77
406,316. 88
273,544.88
179 , 043.73
8,497 .41
1,765 .86
$2,262,337.15
2,028,872.00
71,009.83
50,234 . 25
14,772. 50
$4,427,225.73
4 ,565 , 574. 83
$ 138,349.10*
4,044.63
$ 134,304.47*
10,263.27
LCES BEFCRE HCQ\.U: TAX CREDIT $ 144,567. 74*
I NCO ME TAX CREDIT
Estimated refundable taxes on income of prior year,
arising from carry-back of loss
SPECIAL CREDITS
Increase in 1956 compensation for mail
transportation (subsidy) due to retroactive
increase in temporary ma il rate - Note A
Adjustments resulting from final determination of
certain prior year expense and other accruals
5. 711.80
NET LCES - NITTE A $ 138 , 855 . 94*
$ 61,013.30
20, 103. 60 81 ,11 6.90
NET LCES AND SPECIAL CREDITS $ 57,739.04*
* Indicates red figures.
NOTES TO FINANCIAL STATEMENTS
NOTE A - The Company is engaged in air transportation with respect to persons , property , and mail
under authority of a Permanent Certificate of Public Convenience and Ne cessity issued by the Civi l
Aeronautics Board effecti ve January 24, 1956. Since April 6, 1956, the Company has been compen-
sated for the transportation of mail (subsidy) under temporary rates which are subject to adjust-
ment in a future Civil Aeronautics Board proceeding to determine a final mail rate . The amount of
retroactive_subsidy which the Company will rece i ve for the period s ince April 6, 1956 , and, there-
fore, the final net income for periods subsequent to that date, will not be determined until t he
establishment of the permanent mail rate.
On July 3, 1957, the Company was granted an increase in the temporary rate retroactive to
~pril 6 , 1956. Pending final determination of a permanent rate, the portion of thi s increase which
is applicable to 1956 is shown in the statement of in come for 1957 as a special credit.
NITTE B - Long-term debt includes a 4~ note (payable in monthly installments of $9 , 000. 00) in the
amou~t of $126,000.00 secured by thirteen aircraft and substantially all of the related equipment ,
station and office furniture and equipment, automotive equipment , and insuran ce policies for
$150 ,000.00 on the life of an officer.
NOTE B - Continued
Under terms of the loan agreement with the bank, the Company has agreed, among other things, (1)
to maintain net current assets of $300,000.00 (computed without inclusion of the unpaid balance of
the loan as a current liability) or la% of operating expenses (exclusive of depreciation) for the
preceding twelve months, whichever is greater; (2) to pay no dividends while the notes are out-
standing; and (3) to maintain a net worth of one and one-fourth times the unpaid principal amount
of the notes; otherwise the entire balance of the loan may be called by the bank. The restriction
relating to maintenance of net current assets has been waived by the bank for the year 1957.
Long-term debt also includes a note (payable in monthly installments of $421.19) in the amount
of $5,053.92 secured by shop equipment having a net book value of $9,186.52.
NITTE C - At December 31, 1957, restricted options to purchase Common Stock of the Company were held
by officers. One option for 10,000 shares at $6.05 a share expires May 1, 1960, and options for the
other 10,000 shares at $4.67 a share expire on May 1, 1965. These options were granted in 1955
and none have been exercised since then.
NITTE D - In January, 1958, the Company's employees completed subscription to 31,000 shares of the
Company's $3.00 par value Common Stock offered to such employees in December, 1957, at $3.25 a
share, the subscription price plus interest to be collected through pay roll deductions over a
thirty-six month period. Upon collection of each subscription, the Common Stock account will be
credited with the par value of the subscribed shares, and the balance of the proceeds will be cred-
ited to paid-in surplus.
NITTE E - During the year 1956 the Company adopted employee retirement plans for a maj or portion of
its employees. Estimated future annual cost of the plans, including the cost of funding the past
service benefits over a period of twenty years, on the basis of present employment, is approximate-
ly $66,000.00.
NITTE F - Operating expenses for the year ended December 31, 1957, are classified in accordance with
the r evised Uniform System of Accounts for Air Carriers, which became effective in 1957. Such re-
vised classification of accounts had no effect on the determination of the net loss for the year.
Board of Directors
Southern Airways, Inc.
Birmingham, Alabama
ACCOUNTANT~ REPORT
We have examined the financial statements of Southern Airways,
Inc. as of and for the year ended December 31, 1957. Our examination was made
in accordance with generally accepted auditing standards, and accordingly in-
cluded such tests of the accounting records and such other auditing procedures
as we considered necessary in the circumstances.
In our opinion, subject to the effect of any future retroactive
determination of mail compensation rates as explained in Note A to the financial
statements, the accompanying balance sheet and statements of income and earned-
surplus deficit present fairly the financial position of Southern Airways, Inc.
at December 31, 1957, 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.
Atlanta, Georgia
April 4, 1958
ERNST & ERNST
Certified Public Accountants