Southern Airways Annual Report 1958

Southern Airways, Inc.
ANNUAL
REPORT
60.z~ P/a{J(N w.11/2 t/2e g;ut/2 /oz- 10 Great ~ars I
Pictorial Highlights---1949-1959
FIRST FLIGHT- June 10, 1949 FIRST AIR EXPRESS - June 10, 1949
FIRST CLASS MAIL BY AIR - December, 1953 FIRST SYSTEM SALES MEETING - August, 1950
FIFTH ANNIVERSARY - June, 1954

Frank W. Hulse
President
*C. M. Britt
Vice President-Sales
C. H. D. Tarrer
Assistant Treasurer
*Resigned February 28, 1959.
Southern Airways, Inc.
Management
OFFICERS
Ike F. Jones
Vice Presid ent
**Graydon Hall
Vice President-Sales
Cecil A. Beasley, Jr.
Assistant Secretary
**A ssumes o ffice May 1, 1959.
EXECUTIVE COMMITTEE
W. S. Magill
Vice President-Operations
George F. Estey
Secretary-Treasurer
W. B. White, Jr.
Assistant Secretary
Frank W. Hulse Henry P. Johnston W. B. White, Jr.
Ivan Allen, Jr. Elton B. Stephens
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
Bruini, Everett, Grantham & Quin
Vicksburg, Miss.
DIRECTORS
Frank W. Hulse
Southern Airways, Inc.
Birmingham, Ala.
Alton F. Irby, Jr.
A. F. Irby & Co., Inc.
Atlanta, Ga.
Henry P. Johnston
Radio & TV Consultant
Birmingham, Ala.
R. Eugene Orr
Knight, Orr & Co., Inc.
Jacksonville, Fla.
W. Herbert Smith
W. Herbert Smith Co.
Clover, S. C.
Elton B. Stephens
Ebsco Industries, Inc.
Birmingham, Ala.
Ike F. Jones W. B. White, Jr.
Ga.-Carolina Paper & Sup. Co.
Augusta, Ga.
G. Gunby Jordan
The Jordan Company
Columbus, Ga.
STOCK TRANSFER AGENT
The First National Bank of Birmingham
Birmingham, Alabama
White, Bradley, Arant, All & Rose
Birmingham, Ala.
Gen. Ralph H. Wooten
Chemical Fire & Casualty Ins. Co.
Memphis, Tenn.
Executive O ffice: Brown-Marx Building, Birmingham, Ala bam a G e neral Offices: Atlanta Airport, Atla nta, Georgia .
President's Report
To Shareholders, Employees and Friends:
It is a pleasure to report that the calendar year 1958 was the most profitable of your
Company's history. Earnings were $146,602, after taxes, or 58 per share. Establishment of
a pe1manent mail rate by the Civil Aeronautics Boar.cl, retroactive to A,pril 6, 1956, converted
previously r ported losses for 1956 and 1957 into profits and, in fact, resulted in your
Company showing a profit for each of the past six consecutive years. The deficit of $143,190
previously reported to you as of December 31, 1957 was converted to a surplus of $118,186
as of December 31, 1958. Total income of $5,461,000 in 1958 was an all-time high and exceeded
the previous year by some $815,000, an increase of 18% .
The year 1959 is our tenth anniversary year and, as you will see from this report, our
prngress has been substantial since the first scheduled flight on June 10, 1949. We plan an
extensive program, with events continuing during the entire year, to celebrate the anniversary
and to promote the use of your Company's services. Our progress has already received
substantial public and official recognition. For example, the Chairman of the Civil Aeronautics
Board, the Honorable James R. Durfee, made a special trip to Athens, Georgia to be principal
speaker at our tenth anniversary sales meeting in February.
This report includes pictorial presentations on the inside front and back covers which
highlight certain of your Company's operations and progress during its first ten years.
In addition to achieving good financial results in 1958, the Company operated success-
fully in other areas. Again we will be recognized by the National Safety Council for having
continued our perfect safety record since the beginning of our 0peration. Through 1958 we
have flown some 237,250,000 passenger miles with a perfect safety record. This distance, it is
interesting to note, approximates ten thousand trips around the world at the equator.
Air freight service, inaugurated at the end of 1957, has come to provide .an im,portant
new source of revenue. We developed in 1958 total freight and express revenues of $101,000,
an amount more than double that obtained in 1957.
Added service during 1958 consisted of a new route between Atlanta, Georgia and
Memphis, Tennessee, via Huntsville, Alabama (Redstone Arsenal), and a new route between
Eglin Air Force Base, Florida (Ft. Walton Beach) and New Orleans, Louisiana, and service
to Anniston, Alabama ( Fort McClellan). These additions were made after the Department of
Defense petitioned the Civil Aeronautics Board to e:x,pedite service at these points in the
interest of National Defense. Greenwood, Mississippi was added by an exemption order. The
Civil Aeronautics Board also awarded your Company a new route from Memphis, Tennessee
to New Orleans, Louisiana, via University-Oxford, Greenwood and Jackson, Mississi,ppi and
Bogalusa, Louisiana during 1958 in a decisi,on in the proceeding known as the South Central
Area Local Service Case, which will become effective May 19, 1959. Service over this route
will be inaugurated shortly after that date. The Civil Aeronautics Board Hearing Examiner,
who conducted the Southeastern Area Local Service Case, 1ecommended Southern for a number
of new routes. If these recommendations are adopted by the Board, your Company will be
awarded eight additional new cities. This will result in a large increase in mileage. Officers of
your Company will testify at a hearing starting April 6, 1959, in the Piedmont Area Local
Service Case which involves several route extensions and improvements for our system.
In 1958 we paid off all outstanding bank loans. A new bank credit of $400,000 has
recently been arranged with the Chase Manhattan Bank and a group of other participating
institutions. These include the Union Planters National Bank of Mem.phis, the -Merchants
Southern Airways, Inc.
National Bank of Mobile, and the Trust Company of Georgia of Atlanta. This credit will be
used to pay for flight equipment (including our 17th DC-3), for radio and ground equipment
purchases and to supply working capital.
The ten percent Federal trans,portation tax, imposed during World War II, constitutes
a real detriment to the use of our services by the trnveling public. The principal competition
of Southern Airways is the private automobile, which is not subject to this tax. During the
current session of Congress, the repeal of this tax would in our opinion result in an increase
of total revenues and earnings.
Although our commercial revenues have increased very substantially, we are still
dependent upon subsidy and will be for some time to come. For this reason the Civil Aero-
nautics Board's mail rate policy is of utmost importance to your Company. In this connection,
the Board has recently announced that a new mail rate policy for the Local Service Airlines
will be established on July 1, 1959, or as soon thereafter as possible.
It is believed that this new program will eliminate long periods of uncertain financial
results under tempornry mail rates. For the first time Local Service Airlines will be able
to formulate plans on a stable long range basis. We will assume further responsibility
through more freedom in managerial judgment and in return we will be provided the incentive
of a greater return on the stockholders' investment.
Casey M. Britt, who served for some five years as Vice President of Sales, resigned
on March 1, 1959 to accept employment outside the airline industry. Graydon Hall, presently
Assistant Vice President of Eastern Airlines, and a thirteen year veteran of the airline
industry, will assume duties as Vice President of Sales on May 1, 1959.
During the past several months we have test flown three new airplanes in our
continued search for suitable equipment to replace the time-honored DC-3. We are confident
that, as a result of {oute improvements and additional routes which will be awarded to your
Company in current Civil Aeronautics Board cases, we will be in a position in the near future
to use new aircraft over portions of our system.
More than one-half of our 550 employees have spent in excess of five years in the service
of your Company. During the calendar year 1959, 63 of our employees will complete their
tenth year of service. A great deal of the success of this organization can be attributed to our
devoted, loyal employees and I should like to pay tribute to their untiring efforts in helping
develop Southern Airways.
Respectfully yours,
P resident
A,pril 3, 1959
Financial Statements
Balance Sheet
December 31, 1958
CURRENT ASSETS
Cash
Accounts receivable:
ASSETS
United States Government-for mail and other transportation
Airline traffic and other receivables
Claim for income tax refund, arising from carry-back of prior
year operating loss
Maintenance and other operating supplies-at average cost
Prepaid aircraft engine overhaul, insurance, and other expenses
TOTAL CURRENT ASSETS
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 allowances for depreciation and overhaul
DEFERRED CHARGES
Unamortized route extension and development costs
LIABILITIES
CURRENT LIABILITIES
Notes payable for aircraft purchased-Note B
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
Federal and state taxes on income-estimated
Less payment made on declaration of estimated federal tax
TOTAL CURRENT LIABILITIES
CAPITAL STOCK AND SURPLUS-Notes B, C, D, and E
Common Stock, par value $3.00 a share:
Authorized-400,000 shares
Issued and outstanding-252,400 shares
Installment payments by employees for purchase of stock
Paid-in surplus
Earned surplus
.See Notes to Financial Statements.
$ 288,585.24
501,366.05
$ 140,491 . I 6
1,525, I 13.31
282,265.18
57,692.67
70,090.00
$2,075,652.32
1,360,214.10
$ 250,000.00
45,000.00
$ 757,200.00
35,447.87
3,121 .78
118,186.05
$ 288,723.89
789,951.29
3,421.35
115,164.69
139,188.53
$1,336,449.75
25,556.99
715,438.22
49,220.64
$2, 126,665.60
$ 15 I ,500.00
222,301 .22
356,510.00
156,722.51
33,027.51
46,750.00
40,898.66
205,000.00
$1,212,709.90
913,955.70
$2, 126,665.60
Southern Airways, Inc.
Statement of Income
Period of three years ended December 31, 1958
OPERA TING REVENUES
Passenger
Mail ( principally subsidy from U. S. Government)-Note A
Express, freight, and excess baggage
Charter
Service sales and other revenues-net
TOTAL OPERATING REVENUES
OPERATING EXPENSES
Flying operations
Ground and indirect expenses
General and administrative
TOTAL OPERATING EXPENSES
OTHER INCOME
OTHER DEDUCTIONS
Interest expense
Miscellaneous
INCOME-LOSS* BEFORE TAXES ON INCOME
TAXES ON INCOME
Provision for federal and state taxes ( or income tax
credits*), exclusive of portion applicable to special
items shown below
NET INCOME-LOSS*
SPECIAL ITEMS (CREDIT-CHARGE*)
Gain (loss*) on sale of aircraft and related transactions
Less applicable effect on income taxes (credit*)
NET INCOME AND SPECIAL ITEMS
Provision for depreciation and amortization of property
and overhaul of aircra~ included above
*Indicates red figures.
1956
$1 ,950,077.23
1,823,635.06
75,806.04
100,886.19
8,433.80
$3,958,838.32
$1,739,309.12
1,980,49.0.76
244,626.22
$3,964,426. 10
$ 5,587.78*
11,350.40
$ 5,762.62
$ 13,044.50
5,867.89
$ 18.912.39
$ 13, 149.77*
7,422.82*
$ 5,726.95*
$ 32,956.48
17,882.37
$ 15,074.11
$ 9,347.16
$ 181 ,728.82
Statement of Surplus
1957
$2,257,122.77
2,252,993.80
71,009.83
50,234.25
14,772.50
$4,646,133.15
$1,375,368.88
2,897,875.13
273,544.88
$4,546,788.89
$ 99,344.26
4,044.63
$ 103,388.89
$ 8,497.41
1,765.86
$ 10,263.27
$ 93,125.62
59,856.52
$ 33,269.10
$ -0-
-0-
$ -0-
$ 33,269.10
$ 210,641.28
Period of t hree years ended December 31 , 1958
PAID-IN SURPLUS
Balance January I, 1956, and December 31, 1958
( no change during the period)
EARNED SURPLUS
Deficit* at beginning of year
Net income and special items
1956
$ 3,121.78
$ 71,033.02*
9,347.16
$
$
1957
3,121.78
61,685.86*
33,269.10
1958
$2,799,424.24
2,473,589.20
127.424.58
36.851.76
23,745.20
$5,461,034.98
$1,504,496.15
3,283,878.73
301,938.43
$5,090,313.31
$
$
$
$ 370,721.67
1,749.23
$ 372,470.90
$ 12,804.99
3,274.70
$ 16,079.69
356,391.21
192,375.00
164,016.21
$ 37,413.40*
20,000.00
$ 17,413.40*
146,602.81
$ 247,577.58
1958
$ 3,121.78
$ 28,416.76*
146,602.81
SURPLUS (DEFICIT*) AT END OF YEAR $ 61,685.86* $ 28,416,76* $ 118,186.05
======
See Notes fo Financial Statements.
Notes to Financial Statements
December 31, 1958
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 Necessity issued by the Civil Aeronautics Board
effective January 24, 1956. On October 2, 1958, the Civil Aeronautics Board issued an order fixing permanent rates
for the transportation of mail (subsidy) for the period since April 6, 1956.
The amounts previously reported on statements of income for the years 1956 and 1957 have been changed
to allocate to the appropriate year, the effect of these new permanent rates, the adjustment of certain expense
accruals related thereto, and the applicable effect on taxes on income. These changes are summarized as follows:
AS PREVIOUSLY REPORTED
Add (deduct):
Allocation of 1958 transactions affecting income of
prior years:
Final determination of permanent mail rate
Adjustment of certain related expense accruals
Allocation of items reported in prior years as Special
Items:
Retroactive increase in temporary mail rate
Adjustment of certain related expense accruals
Restoration of over-provision for income taxes of
the year 1955
Applicable income tax effect of the foregoing alloca-
tions
AS ADJUSTED
Earned-Surplus
Deficit* at
January I, 1956
$ 80,411.88* $
-0-
-0-
-0-
4,040.00
5,338.86
-0-
$ 71,033.02* $
Net Income (Losses**) and
Special Items
Year Ended Year Ended
Dec. 31, 1956 Dec. 31, 1957
5,039.75** $ 57,739.04**
(50,505.96)
-0-
61,013.30
15,939.12
-0-
( 12,059.55)
224,121.80
18,785.94
(61,013.30)
(19,979.12)
(5,338.86)
(65,568.32)
9,347.16 $ 33,269.10
Note B-The notes payable for aircraft purchased were paid on January 19, 1959.
On January 17, 1959, the Company entered into a loan agreement with a bank providing for (I) a maximum
loan of $400,000.00, to be drawn any time prior to May 31, 1959; (2) the total amount borrowed to be evidenced
by a 51/.i % long-term note dated June 15, 1959, payable in monthly installments of $15,000.00 for the first 14 months,
with reduced monthly payments thereafter. As a part of this arrangement, the Company has executed a chattel
mortgage on all aircraft, engines, and related parts and flight equipment and has agreed, among other things, (I) to
maintain net current assets of $475,000.00 (computed without regard to the unpaid balance of the loan) or 10% of
operating expenses for the preceding twelve-month period ( exclusive of depreciation) whichever is greater, and
( 2) to pay no dividends or other payments relating to capital stock while the loan remains unpaid.
Note C-At December 31, 1958, restricted options to purchase 20,000 shares of Common Stock of the Com-
pany were held by officers; one option for I 0,000 shares at $6.05 a share expires May I, 1960, and options for the
other 10,000 shares at $4.671
/i a share expire on May I, 1965. These options were granted in 1955 and none has been
exercised.
Note D-ln January, 1958, the Company's employees completed subscription to 31,000 shares of the Com-
pany's $3.00 par value Common Stock offered to such employees in December, 1957, at $3.25 a share, the subscrip-
tion price plus interest to be collected through pay roll deductions over a thirty-six month period. Upon completion
of collection for these subscriptions, the Common Stock account will be credited with the par value of the subscribed
shares, and the balance of the proceeds will be credited to paid-in surplus.
Note E-ln an examination of the Company's federal income tax returns for the years 1955 and 1956, now in
progress, the representative of the Internal Revenue Service has indicated adjustments which would result in addi-
tional taxes of approximately $47,000.00. The Company is contesting these adjustments and no provision has been
made for any additional tax pending final settlement.
Note F-During the year 1956 the Company adopted employee retirement plans for a major 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 approximately $80,000.00. The Company has also
agreed to an additional plan to become effective on June I, 1959, under which annual cost will be increased by
approximately $15,000.00 for the first year.
Accountants' Report
ERNST & ERNST
FIRST NATIONAL BANK BUILDING
ACCOUNTANTS - AUDITORS
MANAGEMENT SERVICE:S
ATLANTA 3, GA.
OF'FICCS IN PRINCIPAL CITIES
ASSOCIATES IN FOREIGN COUNTRIES
Board of Directors
Southern Airways, Inc.
Birmingham, Alabama
We have examined the financial statements of Southern
Airways, Inc. for the period of three years ended December 31, 1958.
Our examination was made in accordance with generally accepted audit-
ing standards, and accordingly included such tests of the accounting
records and such other auditing procedures as we considered necessary
in the circumstances.
In our opinion, the accompanying balance sheet and
statements of income and earned surplus present fairly the financial
position of Southern Airways, Inc. at December 31, 1958, and the
results of its operations for the period of three years then ended,
in conformity with generally accepted accounting principles applied
on a consistent basis.
Atlanta, Georgia
March 19, 1959
Certified Public Accountants
Southern Airways, Inc.
10 Years of Progress
1949 1950 1951 1952 1953 1954 1955 1956 1957 1958
NON-MAIL REVENUE
PER REVENUE PLANE MILE

AVERAGE REVENUE PASSENGERS
PER REVENUE PLANE MILE
AVERAGE REVENUE TONS
PER REVENUE PLANE MILE
REVENUE SC
PLANE MILE
73c
10.23
1.06
4,041,246
10TH
YEAR
.
Pictorial Highlights---1949-1959
PERMANENT CERTIFICATION - December, 1955 AIRFREIGHT SERVICE - December, 1957
~
MILLIONTH PASSENGER -August, 1957 FIRST TEN-YEAR ScRVICE AWARD - January, 1959
SYSTEM SALES CONFERENCE- February, 1959