Southern Airways Annual Report 1966

AIRWAYS,/NC
ANNUAL REP~RT- 1966
HERE'S OUR RECORD
RESULTS AT A GLANCE
Increase
1966 1965 (Decrease)
Passengers 1,064,315 866,648 23 %
Passenger Miles (000) . 203,342 163,484 24%
Avg. Passenger Load 18.0 15.4 17 %
Passenger Load Factor 48.8% 43.6% 12 %
Commercial Revenues (000) . $1 7,513 $14,688 19 %
Cash Flow (000) . $ 1,722 $ 1,632 6%
Net Income (000) $ 860 $ 938 (8)%
Stockholders' Equity (000) $ 4,979 $ 4,280 16 %
Common Shares Outstanding 1,005,000 1,005,0001
Book Value Per Share . $ 4.95 $ 4.261 16 %
Net Income Per Share . $ .86 $ .931 (8)%
1 Adju sted to reflect three-for-two stock split in May 1966
-
SOUTHE~RWAYS.JNC
YOUR PRESIDENT'S REPORT
For the record, let me report an-
other important year of growth and
development at Southern. Aside from
the fact that earnings were slightly
lower than last year, new records
were established in all areas. For the
first time, we boarded a million pas-
sengers in a single year- to be exact,
1,064,315 passengers. Net income
was $859,743, contrasted with $937,-
975 for 1965.
The company stock was split on a
three for two basis. Cash dividends
were increased by 20% to 16 per
share on the new basis. Additional
financin g was arranged by the sale
of debentures and th rough the use
of credit, to provide $25 million for
the purchase of six Douglas DC-9
FanJETS, support equipment and
spares.
June 1st will open a new era for
Southern Airways when five of our
cities will receive jet schedules. A few
days later, jet service wi II be extended
to seven additional cities. By Sep-
tember, three DC-9's will provide
service to eighteen cities throughout
our system.
The Civil Aeronautics Board, in
recent policy statements, has indi-
cated that Southern and the other
local airlines will be granted entry
into certain high density, long-haul
markets. To be prepared, we have
filed a number of applications to
connect our system with several
such markets in variou s parts of the
country. Indicative of new thinking
at the CAB, was the approval of non-
stop authority between Huntsville,
Alabama and New Orleans, Louisiana
which became effective June 1st. This
was the most important change in
our route structure for the year as
it permitted the operation of 388
mile long non-stop flights.
For 42 days during July and August,
we were called upon to provide a
substantial amount of extra service
when five of the major airlines were
grounded by a strike. Throughout this
emergency, our employees worked
far beyond the call of duty to ac-
commodate the public. During this
period, we made many new friends
and gained valuable experience in
the operation of longer flights both
within our system and beyond its
present boundaries.
The Douglas DC-9 has been en-
thusiastically received throughout
the world and I am confident the
Southland which we serve will be
no exception. With a combination
of the finest equipment available and
friendly, efficient Southern person-
nel, we have the greatest opportunity
ever to provide expanded service for
the public and in turn, to reward our
stockholders and employees.
I extend my sincere thanks to our
stockholders, customers, friends and
employees for the support given
management over our eighteen year
history.
March 15, 1967
Frank W. Hulse
President
TREASURER - Earnings,
Revenue, Financing

THOMAS F. GROJEAN
Your Company's
1966 net income
totaled $859,743 or
86 per share com-
pared to $937,975
or 93 per share
in 1965. This slight
reduction of 7 per
share was accom-
plished in spite of a significant reduc-
tion in public service revenue (subsidy)
and high first quarter costs resulting
from unseasonal weather throughout
much of the system. The 1966 rate of
return before the investment tax credit
is equal to the allowable maximum return
of 11 per cent on recognized investment
stipulated by the Civil Aeronautics
Board. Any additional operating profit
above that actually earned in 1966
would have been shared with the CAB
under provisions of the subsidy formula.
Cash flow (net income plus amortiza-
tion and depreciation) was at the highest
level in the Company's history, reaching
a record $1 ,721,569, or $1.71 per share
compared to the 1965 level of $1,631,-
661, or $1.62 per share.
Commercial revenue (revenue exclud-
ing public service revenue) increased
19 per cent to $17,513,123 up from the
1965 level of $14,688,462. Total revenue,
CASH FLOW*AND NET INCOME
CASH FLOW* NET INCOME
*Net income plus amortization and depreciation
SOUTHETRWAY.5,/NC
affected by the reduction in public
service revenue increased 11 per cent.
The revenue yield per passenger mile
was reduced 5 per cent as a result of
Southern's increased use of promotional
fares which offer significant savings to
the traveling public. Also, during the
strike against five trunk airlines the
length of passengers' trips increased, re-
su lting in lower revenue per mile.
Healthy Trend
Public service revenue (subsidy) is
payment to the thirteen local service
airlines for services they render to cities
too small to support scheduled air serv-
ice. Effective January 1, 1966, the Civil
Aeronautics Board reduced the total
amount of these funds to be paid in
INVESTED CAPITAL
STOCKHOLDERS' EQUITY LONG TERM DEBT
CONVERTIBLE SUBORINATED DEBENTURES
1966 and implemented a new formula
placing more emphasis on the actual
needs of the in_
dividual airl_ines affected.
A
This resulted in a reduction over the.
previou s year for Southern amounting to
$658,240 or 12.7 per cent.
Southern's dependency on public
service revenue has progressively de-
creased during the last five years from
$10.32 per passenger to $4.27 per pas-
senger in 1966. The public service reve-
nue received in 1966 was only 20.6 per
cent of total revenue as contrasted to
38.1 per cent five years ago. You can
see this in more detail in the chart
to the right.
Service Increased
Total expenses in 1966, including in-
terest, increased 14 per cent to $20,635,-
385. The increase followed additional
service; an 11.2 per cent increase in seat
miles and a 12 per cent increase in
passenger load factor. To improve serv-
ice and increase revenues we continued
upgrading service from DC-3 to Martin
404 aircraft which resulted in greater
depreciation and interest expense.
Consistent with our previous report-
ing, the investment tax credit is deducted.
from tax expense in the year it is gen-
erated. In 1966 income taxes were re-
duced $91 ,417 by investment tax credits
compared to a $27,495 redu ction in
1965.
$11.00
10.00
9.00
8.00
700
6.00
5.00
4.00
3.00
2.00
1.00
PUBLIC SERVICE REVENUE
PER PASSENGER
PUBLIC SERVICE REVENUE
AS A % OF TOTAL REVENUE
Financing Completed
In order to provide a stronger finan-
cial base to support future expansion,
$5,000,000 was raised by your Company
through sale of convertible subordinated
debentures. These debentures are con-
vertible into common stock at a price
of $16 per share; 312,500 shares are re-
served for such conversion. These were
Asold on December 15, 1966, to a group
Wof underwriters headed by Alex. Brown
& Sons. The interest rate until conver-
sion is 5 per cent. These debentures
are due December 1, 1981 .
SOUTHETRWAY.S",/NC
To protect your interests, the conver-
sion price was approximately 15 per
cent .above the market price on the date
the underwriting agreement was signed.
Proceeds from the sale were imme-
diately invested in certificates of deposit
and are shown in the 1966 balance sheet
as investments. (On January 3, 1967
$4,200,000 of these proceeds were ap-
plied to required DC-9 predelivery de-
posits.)
On March 31, 1966 financing was
completed for the acquisition of the
three DC-9's then on order. A credit
agreement with six commercial banks
allowed the Company to borrow $12,-
155,000 until delivery of the third DC-9.
As of December 31, 1966 $6,055,000 has
been borrowed. Quarterly payments on
$9,155,000 begin late in 1967 and ex-
tend through 1975. Prepayments begin-
ning in 1968 are due on the remaining
$3,000,000 based upon earnings, with
final maturity on December 31, 1975.
Interest is payable at a rate per cent
above the lead bank's prime rate.
With the exercise of an option to
purchase three additional DC-9 FanJETS,
the above credit agreement was supple-
mented on November 15, 1966, increas-
ing the total number of banks to nine
and providing for an additional $7,000,-
000. This additional sum is to be avail-
able until the delivery of the last DC-9
which is expected in May, 1968. After
final delivery, repayment of the addi-
tional borrowing is on a quarterly basis
through 1974. Interest is payable at a
rate per cent above the lead bank's
prime rate. In addition, the manufacturer
is accepting $1,500,000 of notes matur-
ing December 31, 1975 with an interest
rate per cent above the prime rate
charged by the lead bank in the credit
agreement. These notes call fqr certain
prepayments based on earnings.
. Stockholders Benefited
In May the stockholders approved a
three-for-two stock split and increased
the authorized number of shares to
2,000,000 from the previous 1,000,000,
while reducing the par value from $3
to $2 per share. As a result of the re-
duction in par value the amount of out-
standing shares was increased from
670,000 to 1,005,000.
The semi-annual dividends paid in
1966 were 20 per cent higher than the
1965 level, reaching a total of 16 per
share, up from the 13.4 paid in 1965
(adjusted for the three-for-two stock
split) . The dividends paid on June 15 and
December 15 represented the fourth and
fifth cash dividends paid by your Com-
pany since it began cash payments De-
cember 15, 1964.
The shares of common stock outstand-
ing are held by more than 3900 stock-
holders in 44 states and many foreign
countries. Stockholders' equity increased
16 per cent in 1966 to the record level
of $4,978,876, or $4.95 per share, from
the 1965 level of $4,279,933, or $4.26
per share. This is a 2750/o increase over
the value five years ago.
DISTRIBUTION OF THE 1966 REVENUE DOLLAR
SALES - Records,
Expansion, Service
GRAYDON HALL
For the sales de-
partment, 1966 was
a year of intensi-
fied effort and in-
creased results.
Service between
high density mar-
kets was expanded
and longer flights
scheduled, while continuing to maintain
a good level of service in our inter-
mediate cities.
Significant passenger growth in 1966,
shown in the chart, resulted in new rec-
ords - for a single day, 4,317 on July
1; a single month, 98,516 in July; and
for a single year, 1,064,315.
And for the first time, your Company
boarded a half-million passengers in less
than six months, achieving this by June
28. Then on December 12, a serviceman
on leave boarded Flight 175 in Colum-
bia, S.C. to become our one millionth
passenger of 1966-the first time this
milestone has been reached in a single
year.
Not only were more passengers
boarded in 1966 but also each passen-
ger flew a greater distance. Our average
length of haul rose to 187 miles and
load factor reached 48.8 per cent, each
a new record . Both passenger miles and
available seat miles reached new highs.
You can see the five-year comparison of
these in the chart on your right.
Empty Seats Filled
Through expanded promotional fares,
used by 229,475 passengers, your Com-
pany produced $2,385,113 revenue, much
of this from otherwise "empty" seats.
Thousands of military standby passen-
gers and countless college students with
youth cards took advantage of the re-
duced fares offered them . The Discover
America program was actively promoted
throughout the year and we became a
participant in numerous tours to key
touri st areas throughout the United
States.
SOUTHETWAYS.INC
In 1966, Southern sold $10,270,834 in
tickets on other airlines, and other air-
lines in turn sold $7,512,203 in ti kets
on Southern; an indication of the im-
portan e your Company plays in th e
plans of the nation's ai r trav lers when
they vi it the Sou th.
Air freight reached new highs during
the year. Beginning in March, the Com-
pany boarded over a million pounds a
month and continued at this rate for
the remainder of the year. Some stations
boarded more air frei ght during the year
than in the ight-year p riod since your
Company began this service. To speed
ground handling, additional loading and
unloading equipment was installed at
many stations.
Credit Use Encouraged
As a convenience to our passengers, a
" Ticket By Mail" program was instituted,
enabling passengers to receive their
tickets by mail, with payment to be sent
after receipt. And during the year, agree-
ment was reached for use of three addi-
tional credit card plans, Diner's Club,
C & S National Bank and Carte Blanche.
These are in addition to already ac-
cepted American Express, th Universal
Air Travel Card and Southern's own air
travel card.
Another promotion resulting in bene-
ficial publicity and additional passengers
was the selling of Atlanta Braves home
200,000,000
100,000,000

36.2%
I
- 1962 1964
PASSENGERS BOARDED*
r~ % INCREASE OVER PRIOR YEAR
"THESE FIGURES INCLUDE CHARTER
game tickets. Southern's ticket counters
offered this convenience in sixty cities
to the many basebal I fans who flew
Southern to the games.
At the beginning of the year, a con-
centrated public relations program was
A
commenced, taking the Southern story .
to national as wel I as regional news
media.
At our annual sales meeting in April ,
the "New Southern Accent On Service"
was introduced as the advertising theme
to precede the DC-9 arrival and accom-
pany its first year of operation. By Oc-
tober, the new logotype, which you saw
on the cover of this report, began ap-
pearing; the ACCENT " S", the sign of a
new Southern.
The ACCENT "S" is becoming your
Company's identity symbol. By the end
of 1966 it began appearing in newspaper

AVAILABLE SEAT MILES PASSENGER MILES
CARGO REVENUE
11,500,000
AIRFREIGHT AIR EXPRESS AIR MAIL
and magazine adve rti sing. Al I printed
items used throu ghout the Company-
literally millions of individual items-
will bear the ACCENT " S". And, so will
our aircraft.
Department Expanded
Plans were completed and imple-
A mented for reorganization of the sales
W department, including in many jobs and
job titles a new word that w ill parallel
Southern's entry into the jet age -
SERVICE. New positions were created
that wi 11 strengthen the department.
More emphasis was given to long-range
sales plannin g, sales promotion, field
personnel training and community and
civic affairs. Realignment of the field
sales force was accomplished and city
sales managers were established in
eleven key market and geographic
centers.
Modernization of our Central Reserva-
tions Office in Atlanta was commenced
and by mid-year 1967 we will have
direct computerized connections with
all other airlines, established through
hook-up with the sophisticated com-
puter of a major trunk airline. Our Cen-
tral Reservations Office, serving 16 high-
density cities, in 1966 answered 1,008,-
548 telephone calls. This averaged 1.3
calls per passenger boarded in the cities
served by this office. The advent of the

new system will make this office eve'n
more functional.
Service Provided
Our most serious problem during the
year resulted from the strike again st five
SOUTHETRWAYS.JNC
trunk airlines. As a result of the strike our
regular passengers traveling to and from
the South had to curtail thei r travel and
we we re deprived overn ight of a majo r
source of bu siness. Sou thern immedi-
ately augmented its existing schedule to
provide as much service as possibl e to
the cities on our system most seriously
affected by the stri ke. Southern asked
fo r and immediately received Civil Ae ro-
nautics Boa rd emergency au th ori ty for
non-stop service between majo r system
cities, as we ll as fo r additional se rvice
fro m th e nation's space ce nter, Hunts-
vill e, Ala., to W ashington, D. C., St.
Lo uis, Mo., Tai lahassee, Fl a. and O r-
lando, Fla. Thi s re-scheduling eliminated
potentially staggerin g passenger losses
and enabled us to mee t previously pro-
jected traffi c goals. During th e 42-day
strike your Company was abl e to pro-
vide a pub I ic servi ce to many cities th at
would o th erw ise have been with out any
scheduled airline transpo rtati on o r wh ich
would have had only token fli ghts. At
the same time, Southern proved its abil-
ity to serve the " long-haul market. '
The immediate results achieved during
the year interlaced with programs pl an-
ned for the inauguration of jet-servi ce.
Much of the anticipated success of 1967
will emanate from these efforts. Your
Company's sales department has become
o ri ented to FanJET thinking!
ADMINISTRATIVE SERVICES-
Applications, Information, Data
The admin istrative
servi cs depart-
ment fil ed a num-
ber of route appli -
cation s during
1966, reque sting
authority for
J. KENNETH COURTENAY Southern to pro -
vide service in new
markets ideally suited fo r FanJET aircraft.
Expansion was proposed to include New
Yo rk, Washington, Dallas / Ft. W orth,
Chi cago, Detroit, St. Louis, Louisvi lle,
Ci ncinn at i, Green sbo ro / Hi gh Point/
Win ston-Salem, and Raleigh/ Durham.
In addition, a new route was asked fo r
al ong the Gulf Coast linking ou r opera-
tions in Jacksonville w ith New Orleans
and proposing to add Pensacola and
Tall ahassee to our system. Hea rings were
completed during the yea r on Southern's
proposal to operate between M iami and
Key W est and a CAB decision is ex-
pected by mid-1967. Th e Company has
on file other appli cations fo r a compre-
hensive pattern of local service for the
State of Fl o rida and these wou ld provide
a li nk between our current operations
and the Miami-Key West market.
Capacity Doubled
Du rin g the yea r, the memo ry capacity
of our compu ter was doubled, substan-
tially improving info rm ati on services
provided to other Company depa rt-
ments. One advancement now avai labl e
to maintenance and enginee rin g is 13
w eeks advance pred iction of aircraft
overhaul and parts requirements. This
assures imp roved schedul ing and uti liza-
ti on of skill s, toolin g and equipment.
Your Company became the first local
service airl ine to provide its own opera-
tions research capabilities. With com-
puter assistance, the operati ons research
area constructs mathemati cal models of
simulated operations in order to de-
termine the optimum performance from
parts and equipment investment.
OPERATIONS-
Flying, Equipment
W. S. MAGILL, JR.
Recognizing the
changes in South-
em's fleet, in prep-
aration for the
FanJET transition
and the phasing
out of DC-3 air-
craft, a program
was completed up-
grading all Company pilots to Martin
" Aristocrat" requirements. Preparations
were made to advance senior flight per-
sonnel to DC-9 service.
The technical training department pro-
vided over 20,000 hours of instruction.
Company captains and first officers un-
derwent 10,270 hours of training, aver-
aging 51 .3 hours per man. Each steward-
ess received an average of 47.7 hours
instruction, totaling 4,533 hours.
Southern's executive training program
offered to private and corporate aircraft
pilots was extended, and, for the fourth
consecutive year the Company was se-
lected to provide a training service for
classroom and flight instruction for FAA
inspectors.
Procurement plans were completed
for a DC-9 procedures trainer, the actual
size of the FanJET's cockpit. This sophis-
ticated equipment will simulate normal,
emergency, and radio navigation pro-
cedures for use in qualifying our flight
crews to fly the new aircraft.
In addition to filling job vacancies
resulting from normal industry turnover,
your Company's personnel department
selected 115 new employees for posi-
tions created by expansion and growth,
SOUTH_E+RWAYS,JNC
much of which is attributed directly to
our forthcoming FanJET service .
Primary activity of the operations de-
partment during 1966 centered around
early stage preparation for our DC-9's.
FanJET Pre-planning
While the Douglas DC-9 FanJET is a
sophisticated aircraft, it possesses many
design features that simplify the r~-
quired maintenance techniques. _
It Is
ideally suited to our general operational
and maintenance requirements, but your
company found that its effectiveness on
Southern's system would be optimized if
certain modifications were made to the
basic Douglas configuration. After
thorough evaluation by our engineering
department, these modifications were
incorporated in the six aircraft being de-
livered to your Company. Without ques-
tion, our aircraft are being provided
with the latest, most reliable equipment
available, representing the most ad-
vanced "state-of-the-art" in aircraft en-
gine and equipment design. In addition
to determination of the airplane's final
configuration, selection was made for
interior trim and decoration. Then began
a very complex pre-delivery program.
On January 27, 1966, the maintenance
and engineering department submitted
to the President the "DC-9 Technical
Project"-detailed plans for all of the
activities that are preceding our FanJET
service.
This synchronized schedule of activi-
ties established the pattern for the entire
company's technical efforts during 1966,
assuring smooth and programed transi-
tion to jet service.
MAINTENANCE ENGINEERING -
Preparation and Training
GEORGE M. GROSS
A program for
the planning, pro-
visioning , and
management of in-
ventories was in-
stituted. Detailed
evaluations were
made of needed
parts, components,
tooling, test equipment, and system-
wide ground handling equipment. The
provisioning cycle was implemented and
orders placed immediately upon com-
pletion of each analysis; delivery times
were often crucial. This action assured
timely availability of critical items.
More refined manual systems were
A
established for controlling . FanJET_ parts.
and tooling. Care was exercised to insure
that the manual systems were com-
patible with the computerized inventory
management system concurrently under
development. Arrangements for pooling
of parts with other airlines was com-
pleted, and a DC-9 parts catalog and
cross reference guide for Company use
was published. As a result of this de-
tailed approach, your Company effected
a lower investment of approximately
$300,000, relative to the original esti-
mates which were based on the experi-
ence of other airlines instituting similar
aircraft service.
An airplane reliability 'program was
established, using advanced statistical
methods, which will provide continuous
measurement of the functional perform-
ance of the DC-9 and its subsystems.
Through this program we will be able
to extend the life of costly components
and refine our product improvement
programs, thereby providing improved
levels of service at lower cost.
Data Developed
The engineering department prepared
data concerning DC-9 operations over
our route system for flight, stations, and
maintenance personnel. That your Com-
pany was able to develop this data and
corresponding instructions " in house",
rather than buying it from larger carriers
as others have done, is the result of
preparation and competent staff build-
ing programs in which we have been
engaged over the past several years. In
addition, engineering prepared the route
application ; a very comprehensive docu-
ment required by the Federal Aviation
Agency which specifies in detail exactly
how we will operate and maintain the
airplane. Based on this document, plus
our demonstration of actual flights over
the system, the FAA will issue approval
for our operation of the DC-9.
Maintenance Preparation
Concurrently with the engineering
A work, the maintenance department be-
W gan preparation of programs to provide
detailed work specifications, defining
each maintenance task to be performed
on the airplane and its components.
Many special tools and test equipment
were manufactured within our shops.
We began modification of existing main-
tenance facilities to accommodate the
SOUTHETRWA>S,/NC
DC-9. We began preparation for fueling
the .aircraft, provided for administration
of the manufacturers' warranties, and es-
tablished programs of quality assurance
at Dou glas' factory. Experienced South-
ern maintenance and inspection person-
nel have been on-site with each aircraft,
from the beginning of the manufacturing
process, to insure that our quality stand-
ards are met and that any deviations
requiring our decision are handled
promptly.
To augment its present work force,
during 1966 the maintenance depart-
ment added thirty new employees, en-
abling senior employees to be elevated
to greater responsibilities.
Extensive Training
Early in the year, the maintenance de-
partment began training programs for
the employees who would be directly
involved with the day-to-day mainte-
nance of the new aircraft. From our own
instructors we selected the most ex-
perienced and knowledgeable, and these
men were given special DC-9 training at
Douglas Aircraft Company's plant in Long
Beach, California, and at plants of the
manufacturers who are supplying the
engines and major component parts for
the aircraft. Under the direction of this
group, training manuals were prepared
for our maintenance and ground person-
nel - over a million sheets of printed
materials went into the hundreds of
copies of this manual, all printed in your
Company's print shop. Our continuing
detailed training is being conducted by
this highly qualified group.
Additionally, over 40 selected super-
visors and mechanics were given exten-
sive training at Douglas', at the com-
ponent system manufacturers' and at the
engine manufacturer's plants. Many men
received a month or more of such in-
struction, in addition to that afforded by
our own extensive program .
Once the aircraft is in operation the
real measure of success of these pro-
grams will be evident. It is believed
that every contingency has been pro-
vided for. Commencement of FanJET
service is being awaited with a great
deal of satisfaction.
8

SOUTHERN AIRWAYS INC
ASSETS
CURRENT ASSETS
Cash
Certificates of deposit - at cost and accrued interest
Accounts receivable :
U. S. Government - for transporta tion
and public service - Note A
Airline traffic and other receivables .
Maintenance and other operating supplies -
principally at average cost, less allowances
of $179,621 in 1966 and $143,107 in 1965 for
obsolescence
Prepaid expenses .
Total Current Assets
INVESTMENTS AND OTHER ASSETS- Note F
PROPERTY AND EQUIPMENT - Note B
Cost:
1966
1965
Flight
Equipment
$9,844,375
8,077,526
Ground
Property
and Equipment
$2,176,477
1,729,783
Less allowances for depreciation and maintenance:
1966 3,442,955 1,144,926
1965 3,200,786 965,240
Deposits on new equipment- Note F .
DEFERRED CHARGES
Unamortized preoperating , route extension, and
development costs
Unamortized long-term debt expense . .
Dec. 31, 1966
$
$
$
3,661 ,329
212,447
1,171,422
1,706,973
2,878,395
750,161
74,852
$ 7,577,184
4,814,555
$12,020,852
4,587,881
7,432,971
524,573
$ 7,957,544
$ 272,297
229,370
$ 501 ,667
$20,850,950
Dec. 31, 1965
$ 1,817,155
1,900,994
$ 1,070,610
1,629,793
$ 2,700,403
507,966
162,767
$ 7,089,285
29,339
$ 9,807,309
4,166,026
5,641 ,283
150,000
$ 5,791,283
$
$
40,700
17,642
58,342
$12,968,249

BALANCE SHEET


LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses:
Trade accounts . . . . . . .
Collections and withholding as agents
Salaries, wages, and vacation pay . .
Accrued taxes, advertising, and other expenses
Unearned transportation revenue . . . . . . . .
Air travel plan deposits . . . . . . . . . . .
Estimated federal and state taxes on income - Note E
Current maturities of lo ng-term debt - Note B .
Total Current Liabilities
LONG-TERM DEBT (exclusive of current maturities) - Note B
Notes payable to banks . . . . .
5 % Convertible Subordinated Debentures . . .
STOCKHOLDERS' EQUITY - Notes A, B, and C
Common Stock, par value $2 a share:
Authorized - 2,000,000 shares
Issued - 1,005,000 shares
Other paid-in capital
Retained ea rnings .
COMMITMENTS - Note F
See Notes to Financial Statements.
Dec. 31, 1966
$ 1,536,164
1,805,156
565,084
281,202
$ 4,187,606
39,135
114,725
475,608
312,500
$ 5,129,574
$ 5,742,500
5,000,000
$10,742,500
$ 2,010,000
525,246
2,443,630
$ 4,978,876
$20,850,950
Dec. 31, 1965
$ 896,345
1,310,987
492,250
302,679
$ 3,002,261
35,125
105,400
715,530
550,000
$ 4,408,316
$ 4,280,000
$ 4,280,000
$ 2,010,000
525,246
1,744,687
$ 4,279,933
$12,968,249
9
10
SOUTHERN AIRWAYS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
Years ended December 3'1, 1966 and
O PERATING REVENU ES
Passenge r and excess baggage
Mail, express, and freight ..
Public servi e revenue - Not A
Charter .
O ther operating revenues - net .
OPERA Tl NG EXPENSES
Flying operations .
M ain tenance
Aircraft and traffic serv icing
Passenger servi ce .
Promotion and sales .
General and administrative
Am ortization and provision fo r depreciati on
O TH ER DED UCTI O NS AN D INCOME
December 31, 1965
1966
$15,183,956
1,397,345
4,540,945
518,951
412,871
$22,054,068
$ 6,116,730
4,492,599
5,506,885
926,301
1,518,177
1,005,671
861,826
$20,428,189
$ 1,625,879
Inte rest on long-te rm debt - net of interest cap italized $ 250,038
O ther income, less miscellaneous deductions 42,842
$ 207,196
$ 1,418,683
TAXES ON INCOME - No te E 595,485
$ 823,198
PRO FIT FROM D ISPOSA L OF PROPERTY
Less app li cable income taxes 36,545
NET INCOME $ 859,743
RETA INED EA RNINGS
Retai ned earnings at begi nning of yea r -1 ,744,687
$ 2,604,430
Cash dividends paid (1966 - $.16 per share;
1965 - $.134 per share) 160,800
Retained earnin gs at end of yea r $ 2,443,630
See Notes to Financial ~tatem enl~.
SOUTHERN AIRWAYS, INC.
STATEMENT OF SOURCE AND APPLICATION OF FUNDS
YEA R ENDED DECEMBER 31 , 1966
FUNDS PRO VIDED BY
Net income . . . . .
Add items not requiring the outlay of fund s:
Provision fo r depreciation . . . . . .
Amo rtization of deferred charges
Increase in long-term debt . . . . . . . . . .
Decrease in miscellaneous investments and other asse ts
Total Funds Provided . . . . . .
FUNDS APPLI ED TO
DC-9 jet aircraft program - No te F:
Equipment and spares . . . . .
Equipment purchase deposits . .
Certi fica tes of deposit held fo r equipment purchases
Preoperating expenses . . . . . . . .
Net increase in other property and equipment
Payment of cash dividends ($ .16 per share)
Increase in deferred fin ance and other costs
Total Funds App lied . .
DECREASE IN WORKING CAPITAL . . .
WORKING CAPITAL, DECEMBER 31, 1965
WORKING CAPITAL, DECEMBER 31, 1966
$ 859,743
803,765
53,659
$1,599,210
374,573
4,800,000
251,392
1965
$12,723,017
1,160,467
5,199,185
507,663
297,315
$19,887,647
$ 5,385,499
4,037,161
4,798,675
822,371
1,395,025
879,776
693,686
$18,012,193
$
$
$
$
$
$
$
$
1,875,454
213,779
52,660
161 ,119
1,714,335
803,300
911 ,035
26,940
937,975
940,712
1,878,687
134,000
1,744,687
$1,717,167
6,462,500
14,784
$ 8,194,451
$ 7,025,175
996,243
160,800
245,592
$ 8,427,810
$( 233,359)
2,680,969
$ 2,447,610
SOUTHERN A I RWAYS, INC.
NOTES TO FINANCIAL STATEMENTS
Note A- During the eighteen-month period ended Decem-
ber 31, 1960, the Company received public service revenue
under a temporary rate which is subject to adjustment upon
determination by the Civil Aeronautics Board of a final rate
for that period. In the opinion of management, such final
determination by the Board will not result in a reduction in
public service revenue for that period, and may result in
additional public service revenue for that period and for
subsequent years in amounts which are not presently
determinable.
Since January 1, 1961, the Company has received public
service revenue under a Class Rate which provides for profit-
sharing refunds when stipulated returns on investment are
exceed d. The Civil Aeronautics Board has completed audits
for the years 1961 through 1964, and adequate provision has
previously been made for the required refunds for those
years. In the opinion of management, the amounts stated
for public service revenue for the years 1965 and 1966 will
not be significantly affected upon final determination by the
Civil Aeronautics Board.
Note B - The notes payable to banks (for which all aircraft,
engines, and related equipment are pledged as collateral),
together with additional borrowings of $14,600,000 for which
the Company has commitments, will be payable generally in
installments extending through 1975. The interest rate (6%
at December 31, 1966) is of 1% above the lead bank's
prime rate.
The 5% Convertible Subordinated Debentures due De-
cember 1, 1981, are convertible (until maturity or prior
redemption) into Common Stock at $16.00 per share; are sub-
ordinated, generally, to all existing and future indebtedness
for borrowed money; are callable on or after June 1, 1968, at
premiums ranging from 5.75% downward; require annual
sinking fund payments beginning December 1, 1976, in an
amount equal to 10% of the principal amount outstanding
at December 1, 1975, with additional voluntary sinking fund
payments equal to the mandatory amount.
The agreements relating to the notes payable and to th e
5% Convertible Subordinated Debentures place certain re-
quirements and restrictions upon, among other things, (1)
net current assets, (2) net worth, (3) capital expenditures, and
(4) payments relating to capital stock, including dividends.
The Company has met all of these requirements, and ap-
proximately $304,000 of retained earnings were free of such
restrictions at December 31, 1966.
Note C- In 1966, the authorized Common Stock of the
Company was increased to 2,000,000 shares; the par value
per share was reduced from $3 to $2; and a three-for-two
stock split was effected. For comparative purposes, 1965
figures have been revised to give effect to the split.
Under terms of a Qualified Stock Option Plan approved
by the Board of Directors in 1965, options (exercisable one-
third each year beginning in October, 1967) were outstanding
at December 31, 1966 for the purchase of 37,500 shares of
Common Stock of the Company at a price of $10.162/J per
share, and an additional 7,500 shares were reserved for op-
tions which may be granted under the Plan. An option for
the purchase of 3,000 shares was cancelled during the year.
In addition, 312,500 shares of Common Stock are reserved
for issuance upon conversion of the 5% Convertible Sub-
ordinated Debentures.
Note D - The cost to the Company of its employees re-
tirement plans amounted to $636,635 for the year ended
December 31, 1966 and the unfunded past service liability
at that date totaled approximately $670,000.
Note E - In accordance with the policy of reflecting the in-
vestment tax credit in income in the year in which it arises, the
provision for income taxes for the years 1966 and 1965 includes
investment tax credit of $91,417 and $27,495, respectively.
Note F - At December 31, 1966, the Company had on order
six DC-9 jet aircraft and related spares scheduled for delivery
in 1967 and 1968, which represents a commitment of ap-
proximately $21,520,000 in excess of the related deposits (See
Note B) . Certificates of deposit in the amount of $4,800,000
(the net proceeds from the sale of the 5% Convertible
Subordinated Debentures) are held for payments required
during the first half of 1967 under the DC-9 purchase con-
tract and are classified as non-current investments.
11
SOUTHETKWA>S,/NC
GENERAL OFFICES
Atlanta Airport, Atlanta, Georgia
COUNSEL : Bradley, Arant, Rose &
White, Birmingham, Alabama
Ballard & Beasley, Washington, D. C.
AUDITOR : Ernst & Ernst,
Atlanta, Georgia
STOCK TRANSFE R AGENT:
Tru st Company of Georgia,
At lanta, Georgia
- \/ERTISING COUNSEL: Harris &
~ einstein A ssociates, Inc.,
Atlanta, Georgia
SOUTHETRWAYS.JNC
EXECUTIVE COMMITTEE
Frank W. Hulse
G. Gunby Jordan
W. B. White, Jr.
OFFICERS
Frank W . Hulse
President
Graydon Hall
Vice Pre ident- Sales
W. S. Magill, Jr.
Graydon Hall
Elton B. Stephens
Vice President-Operation
J. Kenneth Courtenay
Vice President-Administrative
Services and Secreta ry
George M . Gross
Vice President-
Maintenance and
Engineering
Ike F. Jones
Vice President
Thomas F. Grojean
Treasurer
W. Bayne Grubb
Assistant Vice President-Flight
Operations
Thomas A. Wiley, Jr.
Assistant Vice President-
Sales
Everett L. Martin
Assistant Vice President-
Personnel
Ray W . Burden
Assistant Treasurer
A. L. Maxso n
Controller
Mrs. Mary C. Hayes
Assistant Secretary
Ceci l A. Beasley, Jr.
Assistant Secretary
W . B. White, Jr.
Assistant Secretary
DIRECTORS
Cecil A. Beasley, Jr.
Ballard & Beasley,
Washington, D.C.
Edward U. Beneke
The Beneke Corporation,
Columbus, Mississippi
Alexander J. Brunini
Brunini, Everett, Grantham & Quin
Vicksburg, Mississippi
Graydon Hall
Southern Airways, Inc.,
Atlanta, Georgia
F. Barton Harvey, Jr.
Alex. Brown & Sons,
Baltimore, Maryland
Frank W . Hulse
Southern Airways, Inc.,
Birmingham, Alabama
Alton F. Irby, Jr.
Irb y-Adams-Cates Co.,
Atlanta, Georgia
Henry P. Johnston
Radio and Television Consultant
Birmingham, Alabama
G. Gunby Jordan
The Jordan Company,
Columbus, Georgia
Sartain Lanier
Oxford Manufacturing Co., Inc.,
Atlanta, Georgia
R. Eu gene Orr
Knight, Orr & Company, Inc.,
Jacksonville, Florida
G. Frank Purvis
Pan American Life In surance Co.,
New Orleans, Louisiana
Francis D . Schas
Bullington-Schas & Co.,
Memphis, Tennessee
Elton B. Stephens
EBSCO Industries, Inc.,
Birmingham, Alabama
Richard A. Trippeer
Trippeer Organizations, Inc.,
Memphis, Tennessee
W . B. White, Jr.
Bradley, Arant, Rose & White,
Birmingham, Alabama
Gen . Ralph H. Wooten
(Honorary Director)
United States Air Force, Retired,
Memphis, Tennessee
SOUTHE~WAYS,/NC
General Offices : Atlanta Airport
Atlanta, Georgia 30320