Southern Airways Annual Report 1973

CHICAGO
Midway
MON
NEW YORK-
NEWARK
LaGuardia Airport
WASHINGTON, D.C.
CHARLESTON
JACKSONVILLE
Financial and Operating Highlights
Southern Airways, Inc.
Years ended December 31 , /
Passenger revenues
Operating revenues
Operating income
Net income
Primary earnings per share
including extraordinary credit
Yield per passenger mile
In scheduled service:
Revenue passenger miles
Available seat miles
Passenger load factor
Revenue passengers carried
Revenue plane miles flown
1973
$ 65,949,000
$ 83,570,000
$ 1,489,000
$ 417,000*
$ 0.23
$ 0.091
721,135,000
1,643,569,000
43.9%
2,494,000
25,492,000
1972
$ 52,052,000
$ 68,637,000
$ 2,893,000
$ 1,600,000
$ 1.06
$ 0.087
596,197,000
1,279,175,000
46.6%
2,101,000
20,844,000
Number of employees 2,493 2,084
*Includes gains totaling $1 ,968,000 from the sale of aircraft.
The Front Cover
12
--1 ~ EMPHIS, TENN ./ Here
, ~ Mississippi flows gently.
2. ST. LOUIS , MO. /
Continuing as.the Gateway
to the West.'
3. WASHINGTON , D.C. /
A visitor's city, day or evening .
4. MIAMI BEACH , FLA./
America's playground -
year-round.
5. SOUTHERN flies where
the fun lies.
6. ATHENS, GA. / Football
in Dixie: Georgia-Old Miss.
7. BILOXI , MISS. / Sun ,
Sand , Surf, Sailing.
8. MOBILE, ALA. / Trolling
is exciting on Mobile Bay.
9. HUNTSVILLE, ALA. /
A Space Center in a
Space City.
10. ATLANTA, GA. / Football,
Basketball, Hockey, Henry
Aaron.
11 . COLUMBUS, GA. / Gary
Player wins the Southern
Open .
12. CHICAGO, ILL. / The
Financial District: First
National Bank of Chicago.
Background/ATLANTA, GA.
Contents
Route Map/ inside front
cover
Financial Highlights/ page 3
Report to Stockholders/ page 4
Form 1 0-K / special insert
Directors, Officers, and
General Information/ inside
back cover
3
I
"The service we offer must be of
superior quality . . . "
- Frank W. Hulse
4
Report to Stockholders
This year, we are expanding our annual report to include the most easily
interpreted corporate analysis available-the Form 10-K, a document
required to be filed annually with the Securities and Exchange Commission.
Although Southern has always made this information available to those
requesting it, we believe the many complexities facing the airline industry
require broader explanations and interpretations than a conventional report
normally provides. Additionally, we believe that stockholders, the financial
comrnunity, and the customer public will benefit from this form of
tactual reporting.
The program announced a year ago to significantly increase and improve
our service now has been completed . Our jet fleet has been expanded by
more than 50 per cent and today more than 85 per cent of Southern's
passengers are served with DC9 aircraft.
The past year had a strong beginning - a healthy economic outlook
prevailed . Passenger travel forecasts indicated continued growth, justifying
our decision to add 13 DC9 aircraft.
The growth trend held until mid-year when we observed a softening in
travel patterns. By August, there was a definite decline. Although Southern's
gains were well ahead of the previous year, we were behind in our projected
expansion rate.
Concurrent with the traffic decline was a rapidly increasing shortage of
fuel with an uncertain outcome. As a result, we believed immediate action
was necessary. Staffing reductions were made during September and
October and schedules were revised effective October 28 and December 1.
By the time the airline industry was faced with the full effect of the energy
problem and the massive layoffs and major schedule reductions that
followed, Southern had pared its schedules in orderly stages and minimum
employee reductions were necessary. These schedule reductions, keeping
us within limitations of fuel allotments and the reduced needs of our
customers, led to our decision to withdraw from service four of the jets we
had acquired earlier in the year.
Sale results in profit
When Southern entered an agreement in August 1972 to purchase the 13
DC9s, we recognized there would be a ready market for any of these aircraft
that might prove surplus to our requirements. We were able to sell the four
aircraft removed from our service at an aggregate profit of $1 ,968,000.
This enabled us to offset what would otherwise have been a loss of
$1 ,539,000 for the year 1973, producing a net profit of $417,000 after taxes.
Even after reducing operations below the planned level, we generated
record revenues of $83.6 million. Revenue passenger miles increased 21
per cent and reached a record 721 million . This was made possible by
available seat miles rising 28.5 per cent to 1.6 billion, a new high.
Another result of our jet expansion has been the continued reduction of
our piston fleet . At the beginning of 1973, 13 Martin aircraft were being
used and by May 197 4 only eight will be scheduled . As we have phased out
these aircraft, we have found markets for them and they have been disposed
of at a profit .
With a current jet fleet totaling 24 DC9s, Southern has become the
dominant carrier in new key markets. In Mobile, Ala., Southern has extended
service to New York, N.Y., via Washington , D.C., and has expanded other
Mobile service to become the primary carrier in that city. Memphis, Tenn .,
now second only to Atlanta, Ga., in passenger boardings for Southern , has
seen the Company emerge as the number two carrier among 10 airlines. In
the Orlando-Miami, Fla., market, Southern leads in passengers carried .
Nashville, Tenn ., has become a major focal point on the Southern system .
At the same time, we have greatly improved our pattern of service to many
other system points.
More importantly, however, even with restrictions imposed as a result of
fuel shortages and the corresponding rising fuel costs, we have maintained
service adequacy throughout our system . This has been accomplished by
scheduling to meet the demands of the cities and communities we serve.
It is anticipated that our growth in the near future will occur primarily on
our existing system . The Civil Aeronautics Board has indicated that no new
routes will be awarded in the immediate future except in very unusual
circumstances. In the meantime, we are diligently pursuing our applications
currently pending before the Board including authority between Nashville
and Detroit, as well as between Atlanta on the one hand and both Detroit
and Cleveland on the other.
Another matter of considerable importance emanating from the Civil
Aeronautics Board is public service revenue. The Congress continues to
recognize the importance of scheduled airline service to small
communities, many of which could not justify such service without Federal
subsidy. The Board has realistically acknowledged that a $2 million ransom
paid by Southern in a hijacking in 1972 should be considered a necessary
operating expense and should be reflected in the amount of public service
revenue Southern receives in ensuing years, or until the funds are returned
by the Republic of Cuba. The accounting treatment being accorded this
item is explained on page 20A of the Form 10-K.
Our efforts to recover this ransom from the Republic of Cuba continue
and any payment received under the subsidy formula will be returned to the
United States Government when the funds are recovered .
As a result of this hijacking , security measures have been introduced
throughout the airline industry and the Republic of Cuba has agreed to
return subsequent hijackers for trial . Accordingly, no successful hijacking
has occurred in the United States in more than a year, removing one of the
most significant threats to a viable domestic airline system .
Fuel shortage faced
During 1973 we were still faced with the previously mentioned industry-wide
fuel shortage. Localized fuel shortages were experienced from time to time
at various cities on our system . Through the schedule reductions referred
to previously and operating economies adopted by our flight division to
conserve fuel , we were able to obtain sufficient fuel to cover our
reduced needs.
Our greatest problem today is inf lat ion led by accelerating fuel prices. The
average price of jet fuel has soared from 11 .6 cents a gallon in January 1973
to approximately 21 cents in March 197 4. Each one cent a gallon increase
costs Southern an additional $750,000 annually. Clearly, these costs could
not be absorbed and Southern asked the Civil Aeronautics Board to approve
a six per cent fuel surcharge. Other carriers asked for corresponding
amounts and the Board acted quickly and wisely in approving a six per cent
fuel surcharge to be effective April 16, 197 4. This will go far toward solving
the immediate problem. Nevertheless, as contracts expire, fuel prices are
expected to rise and, in turn , additional adjustments in fares may be
necessary. The Board had earlier granted a five per cent fare increase
New York City's Lincoln Center for an evening
performance, Washington 's cherry blossoms
during an afternoon stroll, or a fly-over view of
Manhattan await business or pleasure travelers
from Southern 's South.
7
effective December 1, 1973, to compensate the carriers for earlier fuel and
other cost increases.
The result of final Board orders in the Domestic Passenger Fare
Investigation which requires adjustments in fares to become effective
July 16, 197 4, has yet to be determined . Nevertheless, it appears there will
be some increase of yields in short-haul markets where Southern provides
the greatest amount of its service.
Also contributing to the outlook for the year is greatly improved traffic,
both present and anticipated . Some of this gain is attributed to maturity of
routes under development over a long period . Obviously, our expansion
during the past year has enabled us to improve ourselves and in turn our
image in the eyes of the public. Our growth has attracted more pleasure
travelers, a market that we were not previously able to penetrate. Certainly,
we can attribute gains to more travelers turning to the airways and off the
highways. While future availability of additional automotive gasoline may
slow this trend , we expect to retain a large portion of this added traffic as
more people become aware of the benefits of our services.
Maintenance base under way
Supporting our future growth will be a $25.6 million maintenance base and
training facility located at Hartsfield Atlanta International Airport . Local
airport expansion requires us to vacate present hangar and service buildings.
Additionally, these facilities are inadequate to maintain our jet fleet
effectively. The City of Atlanta is building the new facility and funding it
with airport revenue bonds. Southern has a 30-year lease and an additional
20-year option on what we believe will be one of the most efficient facilities
in the industry.
The hangar will occupy 86,000 sq . ft . and can house four jet aircraft .
Maintenance, supply, office, and related support areas will utilize an additional
Teeing off on a Grand Hotel course
at Point Clear, Ala., watching the
sun set at Biloxi, Miss., dining on
Gulf Coast seafood, or trying to
catch it, is Southern 's way from
Mobile Bay to Gulfport.
9
224,000 sq . ft . In addition to services now performed , we will have greater
engine rebuilding capability, enabling us to substantially reduce outside
support costs . Construction is scheduled to begin in mid-summer with
occupancy early in 1976.
Ground facilities improved
Other physical improvements across our system , such as our modern
terminal facilities in Birmingham , Ala., Jacksonville, Orlando, and Miami , Fla.,
New Orleans, La., and Pinebelt Regional Airport serving Laurel-Hattiesburg ,
Miss., are permitting us to offer greatly improved service and convenience
to our passengers. This also is making a substantial impact in our program
to heighten our public image.
In this area, our new corporate identity program , implemented last year,
has been highly successful. All of our newly-acquired aircraft now bear the
new color scheme and our original jets are acquiring this as we refurbish
them . The program has carried over to our ground equipment and airport
facilities and has given us a very positive identity that has been well received
by the public and a morale booster for our personnel .
Because we are seeking a more varied passenger market than before and
to improve public awareness of our service, we have selected a highly
qualified advertising agency to direct our account . We expect them to inject
a new creativity into our advertising and marketing concepts. The agency
was selected from among more than 200 considered qualified .
We are quick to realize, however, that the service we offer must be of
superior quality to attract and retain public support. With this in mind , we
have improved an already successful reservations system . More than 97
per cent of our passenger reservations calls now are answered in our
Consolidated Reservations Office in Atlanta. Additional leased lines, greater
Southern 's Florida extends from
Miami Beach to the Panhandle,
offering the serenity of
Tallahassee's Wakulla Springs and
the excited laughter emerging at
Orlando 's Walt Disney World.
11
The French Quarter of New Orleans,
a pilgrimage in Columbus, Miss. , a
home-place in the Bayous, street
music during Mardi Gras: this is a
Southern way of life.
use of Wide Area Telephone Service (WATS) lines, and continued use of a
computer that enables us to meet peak load staffing requirements has
permitted us to greatly reduce answering time as well as the time needed
to assist the calling customer.
Similarly, we have continued to upgrade our inf light service and have
remained innovative in serving on both short and long flights . Southern
recognizes that travelers prefer a tasty snack to a hurriedly served meal .
On the other hand , there are some long flights at other than meal times and
the introduction of a wine tasting service has received countless comments
and letters of praise.
Good employee relations
Our employment level has increased in the past year by 409 people to a
new high of 2,493. Employee morale is higher than ever. We enjoy good
labor relations and our people work in a pleasant environment , earning
good pay and enjoying excellent fringe benefits.
Another area in which we have been fortunate is the support offered by
our Board of Directors.
It is with deep sadness that I report the death on March 13, 197 4, of
Alexander J . Brunini, a member of our Board of Directors since 1951 .
Southern Airways and all of us who were privileged to know him have lost
a valued friend who, not only as a member of the Board but also in every
respect , contributed immeasurably to Southern 's success. He will be
sorely missed .
Because of our mandatory retirement age, Director Francis D. Schas has
been elevated to senior director status. Fortunately, we will retain the
13
14
wisdom of his counsel. Mr. Schas has been a director for 14 years during
which time he never missed a board meeting , truly indicative of the loyalty
of our board members.
This year Southern celebrates its 25th anniversary - June 10. In th~ past
quarter-century we have emerged from a feeder airline with one flyable
DC3 and 36 employees into a major factor in air travel throughout , from ,
and to the South .
Southern competes favorably
Today, we are competing with the largest air carriers in the United States
in some of the most sophisticated air markets in the world . And , we are
competing favorably. The experience we have gained and innovations we
have implemented will go far toward our accomplishments in the future.
The current outlook for 197 4 is favorable. Revenue passenger miles
during the first three months of this year exceeded the similar 1973 period
by 38 per cent on a 25 per cent increase in capacity. Although traffic may
not continue to increase at this pace, as explained earlier, we expect to
show significant gains over 1973.
The continued dedication of our employees and the support given by the
traveling public cause me at the beginning of our 26th year to be optimistic.
It is with deep appreciation that I look back upon the support given
Southern by its loyal employees and customers during the past quarter-
century. Because of such support, it is with confidence that I look forward
to your Company's future.
April 8, 197 4
Southern 's F!ightMark and Chicago's Picasso:
the Deep South is linked with the Windy City. ,...
Frank W. Hulse
President
As filed with the Securities and Exchange Commission
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1973
Commission File Number 0-842
SOUTHERN AIRWAYS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
Hartsfield Atlanta International Airport
Atlanta, Georgia
(Address of principal executive offices)
58-0546353
(I. R. S. Employer
Identification No.)
30320
(Zip Code)
Registrant's telephone number, including area code: A.C. 404-766-5321
SECURITIES REGISTERED PURSUANT TO SECTION 12(h) OF THE ACT:
TITLE OF EACH CLASS
NONE
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock (Par Value $2.00)
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES~ NO
FORM 10-K
Report for the Year Ended December 31, 1973
ITEM 1. Business
Southern Airways, Inc. (the "Company") is engaged in scheduled air transportation of
persons, property and mail, serving cities in the states of Alabama, Florida, Georgia, Illinois,
Louisiana, Mississippi, Missouri, New Jersey, New York, North Carolina, South Carolina,
Tennessee, Virginia, and the District of Columbia pursuant to a permanent certificate of pub-
lic convenience and necessity issued by the Civil Aeronautics Board (the "CAB"). The Com-
pany is one of eight certificated scheduled airlines which operate in interstate commerce and
serve cities of small and intermediate size as well as major metropolitan areas (hereinafter re-
ferred to as the "Local Service Carriers"), as distinguished from the ten major domestic air-
lines, herein referred to as "Trunk Carriers." In common with other Local Service Carriers,
the Company receives a subsidy from the Federal Government for rendering service to small
and intermediate size cities on its routes. There were no material changes in the Company's
route structure during 1973.
At December 31, 1973, the Company had a fleet consisting of twenty.:four Douglas DC-9
twin fanjet aircraft and fourteen Martin-404 piston-powered twin engine aircraft. Due to the
uncertainty as to the long-term availability of sufficient fuel to carry out expanded schedules
and a less-than-anticipated traffic growth rate in 1973, in November and December 1973, the
Company sold, at a gain, four of the thirteen DC-9-14 jet aircraft purchased earlier in 1973
from another airline (see Item 3 and Note H of Notes to Financial Statements). Also, in late
1973, the Company-laid off 150 employees, including 42 pilots. At December 31, 1973, the Com-
pany had 2,493 employees.
2A
Effective December 27, 1973, the Federal Energy Office issued Mandatory Fuel Alloca-
tion Regulations, which were implemented on January 15, 1974. These regulations provide that
the Company, as a Local Service or Regional Air Carrier, is to receive an amount of fuel equal
to 100 % of its base period consumption. The base period for aviation fuels is the corresponding
month in calendar year 1972, or as may be adjusted by the Federal Energy Office. This alloca-
tion, if obtainable, would be sufficient to enable the Company to provide the reduced level of
schedules now programmed for 1974. While the Company presently has contracts for the sup-
ply of its fuel requirements from major oil companies, which run through May 31, 1975, there
can be no assurance that the Company will be able to obtain its required fuel in the future, or
be able to obtain fuel at the prices provided for in its contracts. Gulf Oil Company has an-
nounced that it does not intend to supply fuel pursuant to its existing contracts with various
airlines, and will make sales in the future only at spot prices considerably in excess of the
price per gallon the Company has been paying. Any reductions in fuel supplies and/ or in-
creases in fuel prices could have a material adverse effect on the operations and earnings of
the Company.
The Company is subject to competition in varying degrees between all of the points served
by it either by surface carriers or other air carriers. There are a number of Trunk Carriers op-
erating over certain of the Company's route segments. All of these Trunk Carriers are substan-
tially larger than the Company in size and financial resources and some use newer and larger
aircraft over these route segments. The Company is also subject to competition over certain of
its route segments from Local Service Carriers and from small aircraft operators such as "air
taxi" services. The Company's traffic levels evidence a significant degree of seasonality, gener-
ally reaching their highest levels in mid-summer and their lowest levels in mid-winter.
Compliance with statutory requirements respecting environmental quality, and settlements
of related actions, may necessitate significant capital outlays, may materially affect the earn-
ings power of the airline industry and the Company and may cause material changes in the
business.
3A
ITEM 2. Summary of Operation~
STATEMENTS OF OPERATIONS
The following statements of operations of Southern Airways, Inc. for the five years ended
December 31, 1973 and the related statements of stockholders' equity for the same period have
been examined by Ernst & Ernst, independent accountants, whose report thereon (which is sub-
ject to the recovery of the hijacking payment as explained in Note B of Notes to Financial
Statements) appears elsewhere in this Form 10-K Annual Report. These statements should be
read in conjunction with the related financial statements and notes thereto included elsewhere
in this Form 10-K Annual Report.
Year Ended December 31,
1969 1970 1971 1972 1973
(In Thousands of Dollars Except Per Share Amounts)
OPERATING REVENUES
Passenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,050
Mail, express and freight . . . . . . . . . . . . . . . . . . . 2,163
Public service revenue (B) . . . . . . . . . . . . . . . . . 3,580
Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,358
Other operating revenues - net . . . . . . . . . . . . 684
OPERATING EXPENSES (J)
Flying operations .......................... .
Maintenance (F) (2) ....................... .
Aircraft and traffic servicing ............. .
Passenger service .......................... .
Promotion and sales ....................... .
General and administrative ................ .
Depreciation and amortization (A) (F) (2)
OPERATING INCOME (LOSS) ..... .
OTHER DEDUCTIONS AND INCOME
Interest on long-term debt - net
of interest capitalized ( 4) ............... .
Gain on disposal of aircraft (H) ........... .
Miscellaneous deductions
(income) - net (5) ..................... .
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY CREDIT ...... .
INCOME TAXES (CREDIT) (A) (D)
Current:
Federal .................................. .
State .................................... .
Deferred (6) ............................... .
Investment credit .......................... .
37,835
12,659
6,111
9,079
1,875
3,003
2,286
2,396
37,409
426
1,719
16
(1,309)
( 487)
INCOME (LOSS) BEFORE
EXTRAORDINARY CREDIT . . . . . . . ( 822)
TAX BENEFITS OF NET OPERATING
LOSS CARRYFORWARD (D) ........... .
NET INCOME (LOSS) .................. $( 822)
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (7)
Primary:
Income (loss) before
extraordinary credit .................... $( .80)
Extraordinary credit .................... .
Net income (loss) ........................ $( .80)
Fully Diluted:
Income before extraordinary credit ...... .
Extraordinary credit .................... .
Net income .............. .. .............. .
RATIO OF INCOME TO
FIX-ED CHARGES (8) . . . . . . . . . . . . . . . . . . . . .58
4A
$37,187
2,866
4,823
3,835
736
49,447
18,072
9,045
11,351
2,661
4,274
3,192
2,632
51,227
(1,780)
1,789
( 236)
1,553
(3,333)
(3,333)
$(3,333)
$( 3.25)
$ ( 3.25)
.18
$45,302
3,090
6,974
4,067
901
60,334
20,950
10,808
13,523
3,774
4,774
3,461
2,637
59,927
407
1,678
23
1,701
(1,294)
( 235)
~ )
(1,059)
$(1,059)
$( 1.02)
$( 1.02)
.70
$52,052
3,531
7,138
4,839
1,077
68,637
22,431
11,890
15,433
4,343
5,304
3,784
2,559
65,744
2,893
1,362
( 110)
1,252
1,641
762
81
( 393)
450
1,191
409
$ 1,600
$ .77
.29
$ 1.06
$ .60
.20
$ .80
1.39
$65,949
4,320
6,814
5,358
1,129
83,570
26,227
15,171
20,009
5,678
6,713
4,610
3,673
82,081
1,489
3,083
(1,968)
55)
1,060
429
194
24
109)
109
320
97
$ 417
$ .15
.08
$ .23
1.07
NOTES TO STATEMENTS OF OPERATIONS
( 1) Alphabetical references ref er to the Notes to Financial Statements appearing elsewhere
in this Report.
(2) During 1970 the Company redetermined the estimated economic useful life of Martin-
404 aircraft and related equipment. (See Note A of Notes to Financial Statements). This
change had the effect of increasing the provision for maintenance approximately $206,000,
increasing the provision for depreciation approximately $74,000, and increasing the net
loss approximately $280,000 ($.27 per share) for the year ended December 31, 1970.
During 1970 the Company changed its pension plans from deposit administration plans
to trustee self-administered plans, increased employee benefits payable under one plan,
and changed actuarial assumptions used in computing pension costs. This change had the
effect of decreasing pension costs and the net loss approximately $340,000 ($.33 per share)
for the year ended December 31, 1970.
(3) Pension expense, including amounts paid under a defined contribution plan, were as
follows:
1969
$774,638
1970
$661,734
Year Ended December 31,
1971
$868,779
1972
$1,211,687
1973
$1,540,017
Effective July 1, 1972, the Company modified one of the plans to provide for improved
benefits, with a related increase in annual pension expense of approximately $230,000.
( 4) Interest capitalized aggregated $102,894 in 1969 and $80,289 in 1973. Amounts in other
years have been insignificant.
( 5) Includes, in 1970, insurance proceeds (net of applicable expenses) of $286,609 from loss
of leased aircraft.
(6) The Company has completed a previously planned change in the depreciation method
and lives applicable to certain assets for income tax purposes. Because of these changes
and the carry-forward of the 1971 operating loss, deferred taxes ($235,000) provided in
a prior year. will not be paid and, accordingly, were recognized as an income tax credit
in the Statement of Operations for 1971.
(7) Primary earnings per share for the year ended December 31, 1973 were computed by
dividing net income, after reduction for the preferred dividend requirement, by the
weighted average number of common shares outstanding during the year - 1,314,016
shares. For the three years ended December 31, 1971 losses per share were computed
by dividing net loss by the weighted average number of common shares outstanding each
year - 1,024,871 (1969 and 1970) and 1,035,048 (1971). During these three loss years,
there were no preferred dividend requirements. Common equivalent shares and adjust-
ments resulting from their assumed exercise were excluded from the above computations
since their inclusion would have increased earnings per share in 1973, and would have de-
creased losses per share during the three years ended December 31, 1971. Primary earn-
ings per share for the year ended December 31, 1972 were computed by dividing net
income (adjusted as described below and reduced by the preferred dividend requirement)
by the weighted average number of common shares and common equivalent shares out-
standing during the year - a total of 1,439,517 shares. Common equivalent shares for
1972 comprise that number of common shares issuable upon exercise of stock options
and warrants (exclusive of warrants for 126,000 shares issued prior to June 1, 1969 and
cancelled July 25, 1973) in excess of 20% of the number of common shares outstanding
5A
ITEM 2. Summary of Operations - Continued
at the end of 1972. rocee s from t e assumed exercise of the options and warrants in
excess of the amount which would have been required to purchase 20 % of the outstanding
common stock at the average market price during the year were assumed to have been
applied to debt reduction and the related interest (net of income tax effect, where appli-
cable) was added to income for purposes of the calculation.
Primary earnings per share for 1973 would have been $.25 had the 24,772 shares of
Series A Convertible Preferred Stock converted during the year and the $1,167,000 of
6 % Convertible Subordinated Debentures converted on October 1, 1973 been converted
on January 1, 1973.
Fully diluted earnings per share for the year ended December 31, 1972 were determined
on the assumption that the weighted average number of common and common equivalent
shares for that year was further increased from the beginning of the period by conver-
sion of outstanding convertible debentures and convertible pref erred stocks and by exer-
cise of the warrants for 126,000 shares issued prior to June 1, 1969 and cancelled July
25, 1973 - a total of 3,098,588 shares. This calculation also assumes no preferred dividend
requirement, and interest (net of income tax effect, where applicable) related to the de-
bentures assumed converted and debt assumed to be retired from the proceeds of exer-
cising the additional warrants was added to income for purposes of the calculation. The
assumed conversion of convertible securities in years other than 1972 would not have been
dilutive.
(8) For purposes of this ratio: (a) income was determined before reduction for income taxes
and fixed charges; (b) fixed charges comprise total interest expense, amortization of
long-term debt expense, and one-third of the total rentals and landing fees.
6A
ITEM 2. Summary of Operations - Continued
STATEMENTS OF STOCKHOLDERS' EQUITY
Five Years Ended December 31, 1973
Pref erred Stock Common
$1 Par Value Stock
Series A Series B $2 Par Value
Balance, January 1, 1969 ................... $ $ $2,049,742
Net loss ..................................
Balance, December 31, 1969 ................ 2,049,742
Net loss .... .......... . .. . ................
Balance, December 31, 1970 ............... . 2,049,742
Net loss .... . .............................
Preferred Stock sold ..................... 290,781 166,667
Common Stock issued upon
conversion of Preferred Stock ......... (36,895) 73,790
Balance, December 31, 1971 ................ 253,886 166,667 2,123,532
Net income . ... ...........................
Common Stock issued upon :
Conversion of Preferred Stock ......... (63,783) 127,566
Conversion of $1,000,000
principal amount of 6 %
Convertible Subordinated
Debentures, less $53,692
def erred finance cost ................ 200,000
Conversion of $337,000 principal
amount of 5 % Convertible
Subordinated Debentures, less
$8,144 deferred finance cost ......... 62,046
Exercise of stock purchase warrants .. 29,238
Balance, December 31, 1972 ................ 190,103 166,667 2,542,382
Net income ...............................
Common Stock issued upon:
Conversion of Preferred Stock ......... (24,772) 49,544
Conversion of $1,167,000
principal amount of 6 %
Convertible Subordinated
Debentures, less $54,876
deferred finance cost ................ 233,400
Balance, December 31, 1973 ................ $165,331 $166,667 $2,825,326
7A
Other Retained
Paid-In Earnings
Capital (Deficit)
$1,229,523 $ 1,790,484
( 821,928)
1,229,523 968,556
(3,333,212)
1,229,523 (2,364,656)
(1,058,784)
2,179,931
(36,895)
3,372,559 (3,423,440)
1,600,317
(63,783)
746,308
266,810
116,076
4,437,970 (1,823,123)
416,748
(24,772)
878,724
$5,291,922 $(1,406,375)
ITEM 3. Properties
Aircraft
On December 31, 1973, the Company's fleet consisted of twenty-four DC-9 jet aircraft
(including nine aircraft acquired in 1973) and fourteen Martin-404 piston aircraft. Some of
the Company's aircraft are owned and some are leased. The Company is engaged in a program
of permanently reducing the use of the Martin-404 aircraft. Aircraft removed from service
have been sold or dismantled. The Company recently sold four of the thirteen DC-9-14 jet air-
craft acquired by it during 1973 (see Note H of Notes to Financial Statements). The follow-
ing table lists the aircraft owned and leased by the Company as of December 31, 1973:
Type of
Aircraft Owned
DC-9-14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DC-9-15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DC-9-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
M-404 .................... . ........... 14
Average
Age (Years)
7.5
6.5
4.7
24.0
Average Passenger
Leased Age (Years) Capacity
5(b) 7.5 75
3(a) 5.7 75
3 (c) 4.4 95
40
(a) These aircraft are leased for 12-year terms ending in 1980 at an annual rental of ap-
proximately $363,465 each.
(b) These aircraft are leased under long-term leases terminating in 1979 at an annual rental
of approximately $390,000 each.
(c) One of these aircraft is leased for a 12-year term ending in 1981 at an annual rental of
approximately $470,735. The remaining two aircraft were leased in June 1971 for 12-
year terms ending in 1983, at annual rentals of approximately $605,538 each.
All of the Company's aircraft, engines, propellers, and spare parts are mortgaged to col-
lateralize notes payable to banks.
All of the aircraft of the Company and other airborne equipment are in good condition,
and are deemed appropriate and adequate for present operations.
Other Property
The general offices of the Company in the International Office Park adjacent to the
Hartsfield Atlanta International Airport occupy 45,700 square feet of space at an annual rental
of $164,000 under leases having between 2 and 5 years to run, and approximately 18,100 square
feet in a nearby office building at a current annual rental of approximately $96,000. These
facilities house the Company's general offices and reservations, communications and flight
dispatch departments for the entire system.
The Company leases various hangar and shop facilities at the Hartsfield Atlanta Inter-
national Airport occupying approximately 140,542 square feet, plus adjacent land of approxi-
mately 500,000 square feet, for annual rentals aggregating approximately $55,800. Most of the
operational facilities at Atlanta are leased from the City of Atlanta, and the majority of the
space leased is under agreements with from 1 to 20 years to run.
On January 2, 1974, the Company entered into an agreement with the City of Atlanta to
lease a 310,000 square-foot jet base and maintenance center to be constructed at the Hartsfield
Atlanta International Airport. Estimated costs, annual rentals, and occupancy (rental com-
mencement) dates are as follows :
8A
Estimated
Costs
Land ................................ . ......... $ 1,506,285
Phase One Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . 7,511,000
Phase Two Facilities .......................... 16,608,000
$25,625,285
Estimated
Annual
Rental
$ 120,503
545,665
1,214,120
$ 1,880,288
Approximate Occupancy
(Rental Commencement)
Dates
January 2, 1974
October 1, 1975
April 1, 1976
Cost of the Phase One and Phase Two Facilities is to be financed by the City through the
issuance of Airport Extension and Improvement Revenue Bonds. The lease extends for a period
of 30 years from October 1, 1975 or the date of beneficial occupancy of the Phase One Facil-
ities, whichever occurs first, and may be renewed at the Company's option for an additional
term extending to January 1, 2024.
The Company leases office and ticketing space at the different airports from which it
operates, and in downtown locations in some of the cities which it serves. The aggregate an-
nual rental for such facilities, including the premises and facilities at the Hartsfield Atlanta
International Airport not related to the general operations of the Company, is approximately
$1,037,000.
The Company leases computer and message switching equipment at an annual rental of
approximately $700,000 and has contracted to receive passenger reservations services through
1977. Charges for the reservations services exclusive of related computer and message switch-
ing equipment rentals ($490,000 in 1973) is based upon the number of unduplicated passen-
gers.
The Company owns ramp, passenger service and ground communications equipment, shop
tools and equipment, automobiles and trucks, furniture and fixtures and underground fuel
storage facilities located at various airports. All the Company's ground equipment and other
property is in good condition, and is deemed appropriate and adequate for present operations.
ITEM 4. Parents and Subsidiaries
The only person who owned of record or, to the best knowledge of the Company, owned
beneficially more than 10% of the Common Stock of the Company as of December 31, 1973
was Frank W. Hulse, President and a Director, Hartsfield Atlanta International Airport, At-
lanta, Georgia. On that date, Mr. Hulse and members of his immediate family owned of record
and beneficially 144,164 shares or 10.2 % of the total shares of Common Stock outstanding.
In addition, Mr. Hulse is a trustee and beneficiary of a pension trust of a company controlled
by him which owned 2,000 shares or .1 % of the Common Stock, and 2,000 shares of Series A
$0.36 Convertible Preferred Stock, representing 1.2 % of the outstanding Series A shares,
with 2,000 Common Stock Purchase Warrants attached. Mrs. Hulse owns $1,000 of 5% %
Convertible Subordinated Debentures of the Company. Mr. Hulse also owns 8,333 shares of
Series A $0.36 Convertible Preferred Stock, representing 5.0 % of the outstanding Series A
shares, with 8,333 Common Stock Purchase Warrants attached, and $661,000 of 6 % Con-
vertible Subordinated Debentures convertible into 66,100 shares of Common Stock.
As executor of the Estate of Richard A. Trippeer, Richard A. Trippeer, Jr., a Director of
the Company, owned as of December 31, 1973, 26,505 shares of $0.36 Series A Convertible
Preferred Stock or 16.0 % of the Company's outstanding Series A Convertible Preferred Stock.
As of December 31, 1973, Mr. Trippeer also owned $661,000 of the Company's 6 % Converti-
ble Subordinated Debentures convertible into 66,100 shares of Common Stock of the Company,
and individually and as executor of the Estate of Richard A. Trippeer, owned 32,793 shares of
Common Stock of the Company and $60,000 of the Company's 5% % Convertible Subordinated
Debentures convertible into 5,524 shares of Common Stock of the Company.
9A
As of December 31, 1973, the Officers and Directors of the Company and their associates,
as a group, owned beneficially 330,140 shares of Common Stock, representing 23.4% of the
outstanding shares of Common Stock; 73,886 shares of Series A $0.36 Convertible Preferred
Stock, representing 44. 7 % of the outstanding Series A, with 73,886 Common Stock Purchase
Warrants attached; $169,000 principal amount of the 53/1, % Convertible Subordinated Deben-
tures, representing 3.9% of the outstanding 53/4 % Debentures; and $4,436,000 principal amount
of the 6% Convertible Subordinated Debentures, representing 76.1 % of the outstanding
6 % Debentures.
The Company has no subsidiaries.
ITEM 5. Pending Legal Proceedings
On July 9, 1970, the United States Court of Appeals for the District of Columbia Circuit
held unlawful the fare increase effective October 1, 1969 of some 6.35 % for all domestic sched-
uled air carriers including the Company. Subsequently, several suits (in some of which the
Company is a named defendant) were filed as class actions by individuals in California, Illi-
nois, and the District of Columbia seeking "reparations" in the amount of the increased amount
of the fares paid during the period October 1, 1969 to October 15, 1970 when new carrier tar-
iffs became effective. These suits, consolidated for pretrial proceedings in the United States
District Court for the Northern District of Illinois, Eastern Division, by the Judicial Panel on
Multi-district Litigation, were stayed until further order of the Court pending decision by the
CAB in a proceeding called Reasonableness of Passenger Fares Charged by Domestic Trunk-
line and Local Service Carriers From October 1, 1969 Through October 14, 1970 as to the
reasonableness of the fares during the period in question. On July 13, 1973, the CAB issued
an order finding that fares in effect during the period at issue were not unjust or unreason-
able. On December 10, 1973, the United States District Court for the Northern District of
Illinois dismissed with prejudice the "reparations" suits as being moot in view of the CAB
decision. Petitions for review of the CAB order have been filed in the U.S. Court of Appeals
for the District of Columbia, and the dismissal of the "reparations" suits has been appealed to
the United States Court of Appeals for the Seventh Circuit.
The Company and nine other airlines are defendants in a class action suit brought in the
United States District Court for the Central District of California. Plaintiffs seek to recover
alleged overcharges resulting from the claimed improper calculation of interline fares, as well
as exemplary damages. A motion has been made to consolidate this suit with all other similar
actions pending in other federal courts.
The Company, along with twenty-three other air cargo carriers and handlers serving the
New York City area, is a party to a suit filed on February 10, 1971 in the Federal District
Court for the Southern District of New York by Breen Air Freight, Ltd. and Mercury Air
Freight, Inc., which alleges discrimination by defendants against the plaintiffs in restraint of
trade and seeks trebel damages for alleged discrimination. The Company and twenty-three
other air carriers have also been served with a similar complaint in an action in the same
Court by Airfreight Haulage Co., Inc.
The Company, along with nineteen other air carriers, is a defendant in a suit brought
early in 1973 in the Supreme Court of the State of New York, New York County, by three travel
agencies seeking injunctive and declaratory relief preventing the airlines from terminating
their agency status and from asserting pecuniary liability against the agents with respect to
certain airline tickets alleged to have been stolen from the premises of the plaintiffs and subse-
quently accepted by defendants for air transportation. On October 18, 1973, the Appellate Divi-
sion, First Department of the State of New York, affirmed the Supreme Court's ruling dis-
lOA
missing the suit and directing the parties to arbitrate the issue of whether the agency status
of the three travel agencies should be dismissed.
On July 11, 1973, J. H. Troutman and W. C. Troutman filed an action in Fulton County
Superior Court, Fulton County, Georgia, against the City of Atlanta and nine scheduled airlines
using the Hartsfield Atlanta International Airport, including the Company. The complaint al-
leges that maintenance of the airport by the City and use of the airport by the airlines has
caused damage to, diminution in value of, and loss of rental from their apartment complex lo-
cated nearby, in the amount of $640,000. The complaint also seeks punitive damages in the
amount of $100,000.
On November 14, 1973, Frank W. Scroggins, Trustee in Bankruptcy for Air Transfer, Inc.,
filed suit against the Company, and the other carriers serving the Hartsfield Atlanta Inter-
national Airport, along with Air Cargo, Inc. and Carolina Cartage, Inc., on the grounds that
they had engaged in acts violating the anti-trust laws of the United States by keeping Air
Transfer, Inc. from being able to fulfill contracts relating to domestic air freight at the At-
lanta airport. Plaintiff seeks from the various defendants the sum of $450,000.
On January 31, 1974, Charles V. Welden, Jr. filed a suit against the Company in the
United States District Court for the Northern District of Alabama, Southern Division, in which
he alleges that the Company refused him transportation on a flight from Birmingham to Mo-
bile on January 21, 1974 alleging that he held a confirmed reservation and that the flight was
full when he arrived at the airport and he was not furnished transportation. This plaintiff
seeks to recover compensatory and punitive damages in the sum of $100,000. He further seeks
to recover an additional $100,000 as compensatory and punitive damages for unjust discrimina-
tion or undue or unreasonable prejudice or disadvantage, and finally seeks to recover an ad-
ditional $100,000 of damages on the grounds that the representations of the defendant as to the
confirmation of the reservation were false and known by the defendant to be false at the time
made to the plaintiff. The Company filed its answer to this complaint on February 22, 197 4.
The Company has been named as a defendant in a suit brought in November 1973 in the
Los Angeles County Superior Court, State of California, against the Air Traffic Conference
and its individual carrier members seeking punitive and actual damages for alleged interference
with prospective and existing contractual relationships, intentional infliction of emotional dis-
tress and trauma and deprivation of and interference with civil rights.
The Air Transport Association, the Air Traffic Conference and most of its members, in-
cluding the Company, are defendants in a suit brought in the United States District Court,
Northern District of California, which seeks treble damages for alleged unlawful combina-
tion and conspiracy to restrain and monopolize interstate commerce and an injunction pro-
hibiting the suspension of plaintiffs as travel agencies.
The Company's tax returns for 1968 and 1969 have been audited, but not yet reported
upon, by the Internal Revenue Service. There have been no claims or adjustments proposed
for any years subsequent to 1967 which would have any material effect on the Company's fi-
nancial position or results of operations.
The foregoing summary of litigation and similar matters as of February 7, 1974 does not
include proceedings in which the Company is an applicant for additional route awards or
industry-wide rate hearings to determine future rates for various classes of service to which
the Company is also a party, nor does it include matters the defense of which is being handled
by the Company's insurance carriers or by others pursuant to contractual agreements. In the
opinion of management the foregoing suits will have no material effect on the Company's fi-
nancial position as of December 31, 1973 or results of operations for the years then ended.
llA
ITEM 6. Increases and Decreases in Outstanding Equity Securities
Preferred Stock Common
$1 Par Value Stock
Shares Outstanding, January 1, 1973 ...................... ...... . .
Common Stock issued upon:
Conversion of Preferred Stock, April 10 through
October 30, 1973 ........................................... .
Conversion of $1,167,000 principal amount of 6 %
Convertible Subordinated Debentures on October 1, 1973
Shares Outstanding, December 31, 1973 ........... ... ........... . .
Series A
190,103
( 24,772)
165,331
ITEM 7. Approximate Number of Equity Security Holders
Series B $2 Par Value
166,667 1,271,191
24,772
116,700
166,667 1,412,663
The following table sets forth the number of equity security holders of the registrant as
of December 31, 1973.
Title of Class
Convertible Subordinated Debentures :
Number of
Record Holders
5 %, due December 1, 1981................................................................... 608
6 %, due November 1, 1983 ........................ :.......................................... 401
Convertible Preferred Stock:
Series A, $.36 (Par value $1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478
Series B, $.36 ( Par value $1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Common Stock (Par value $2.00) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,495
Warrants:
Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552
Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 8. Executive Officers of the Registrant
Name and Year
First Elected
Officer
Frank W. Hulse (1943)
Graydon Hall (1961)
George M. Gross (1969)
J. Kenneth Courtenay ( 1961)
A. L. Maxson (1968)
Victor C. Pruitt (1972)
Frank H. Wheeler (1972)
Thomas A. Wiley, Jr. (1967)
Title
President and Director
Executive Vice President,
General Manager & Director
Vice President, Associate
General Manager & Director
Vice President-Economic
Regulations and Secretary
Vice President-Fiscal and Treasurer
Vice President-Technical Services
Vice President-Sales and Services
Vice President-Marketing
Age at
December 31, 1973
61
52
47
46
38
50
33
47
There is no family relationship between any of the above officers. All executive officers are
elected annually by the Board of Directors to serve until the next annual Board of Directors
meeting held following the annual stockholders meeting on the first Monday of May of each
year. There are no known arrangements or understandings between any executive officer and
any other person pursuant to which any of the above-named persons was selected as an officer.
12A
All of the executive officers have been in the employ of the Company for more than five
years, with the exception of Messrs. Pruitt and Wheeler.
Mr. Pruitt joined the Company in 1969 after serving 28 years in the Air Force, where he
attained the rank of Lieutenant Colonel and command pilot status and directed a major logis-
tics and material activity. With the Company, he held positions as Director-Systems Planning,
Assistant Vice President-Systems Planning and Assistant Vice President-Technical Services
before being elected Vice President-Technical Services in May 1972.
Mr. Wheeler held marketing supervision and corporate development positions with Hooker
Chemical Company in New York before joining the Company as Assistant to the President
in 1969. He subsequently became Director of Sales Development prior to being appointed to
head the Company's Sales Department in 1970. He was elected Assistant Vice President-Sales
in 1971 and became Vice President-Sales and Services in July 1972.
All of the executive officers have served during their entire terms as officers in the ca-
pacities indicated by their titles, with the exceptions of Messrs. Hall and Gross. Mr. Hall was
Vice President-Sales and Senior Vice President prior to being elected to his current position in
1969. Mr. Gross headed the Company's Maintenance Division prior to becoming Vice President-
Maintenance (now Technical Services) in 1969 and then Associate General Manager in 1970.
ITEM 9. Indemnification of Directors and Officers
Pursuant to the provisions of Section 145 of the General Corporation Law of the State of
Delaware, every corporation created thereunder has the power to indemnify any and all of its
Directors, officers, employees or agents, including former Directors or officers, against ex-
penses, judgments, fines and amounts paid in settlement actually and reasonably incurred by
any such person in connection with such action, suit or proceeding, if such person acted in good
faith and in a manner reasonably believed to be in or not opposed to the best interest of the
corporation. The Board of Directors of the Company on May 6, 1968 adopted a resolution
authorizing the Company to reimburse or indemnify each past, present or future Director, of-
ficer or employee of the Company, and each person who may have served, is serving or may
serve as a Director, officer or employee of any other corporation at the request of the Com-
pany because of the Company's interest in such corporation as a shareholder or creditor to the
extent and in the method, and as authorized by Section 145 of said law, and providing that the
standard of conduct for the Company's Directors, officers, employees or agents be the same as
that set out in Section 145 of said law. This resolution is still in full force and effect.
ITEM 10. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements and schedules are filed as part of this report:
Report of Independent Accountants
Balance Sheets - December 31, 1973 and 1972
Statements of Operations - For the five years ended December 31, 1973 (included in
Item 2)
Statements of Stockholders' Equity - For the five years ended December 31, 1973
(included in Item 2)
Statements of Changes in Financial Position - For the five years ended December 31,
1973
13A
Notes to Financial Statements
Schedule II - Amounts Receivable from Underwriters, Promoters, Directors, Officers,
Employees, and Principal Holders of Equity Securities for the year ended Decem-
ber 31, 1973
Schedule V - Property and Equipment for the years ended December 31, 1973 and
1972
Schedule VI - Allowances for Depreciation and Maintenance of Property and Equip-
ment for the years ended December 31, 1973 and 1972
Schedule VII - Part B - Preoperating Expenses and Similar Deferrals for the years
ended December 31, 1973 and 1972
Schedule XII - Valuation and Qualifying Accounts and Reserves for the years ended
December 31, 1973 and 1972
All other schedules (Nos. I, III, IV, VIII, IX, X, XI, XIII, XIV, XV, XVI, XVII,
XVIII and XIX) for which provision is made in the applicable regulation of the Securi-
ties and Exchange Commission are not required under the related instructions or are inap-
plicable, and therefore have been omitted.
(b) Exhibits
The following exhibits are filed as part of this report:
1. Computations of Earnings per Common and Common Equivalent Share.
2. Computation of Ratio of Income to Fixed Charges.
Items 11 through 15, constituting Part II of the Form 10-K, have been omitted from this
Report pursuant to the provisions of Instruction H to Form 10-K, since a definitive proxy
statement pursuant to Regulation 14A under the Securities Exchange Act of 1934 will be
filed within 120 days after the close of the fiscal year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 ( d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOUTHERN AIRWAYS, INC.
By A. L. Maxson, Vice President-Fiscal and Treasurer
Dated: March 31, 197 4
14A
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Southern Airways, Inc.
Atlanta, Georgia
We have examined the balance sheets of Southern Airways, Inc. as of December 31, 1973,
and December 31, 1972, the related statements of operations, stockholders' equity, and changes
in financial position for the five years ended December 31, 1973, and the schedules listed in
response to Item 10 (a). Our examinations were 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.
In our opinion, subject to the recovery of the hijacking payment as explained in Note B
to the financial statements, the aforementioned financial statements present fairly the finan-
cial position of Southern Airways, Inc. at December 31, 1973, and December 31, 1972, and the
results of its operations, changes in stockholders' equity, and changes in financial position for
the five years ended December 31, 1973, in conformity with generally accepted accounting prin-
ciples applied on a consistent basis. Further, it is our opinion, subject to the recovery of the
aforementioned hijacking payment, that the accompanying schedules present fairly the infor-
mation set forth therein in compliance with the applicable accounting regulations of the Secu-
rities and Exchange Commission.
Atlanta, Georgia
February 25, 1974
ERNST & ERNST
15A
SOUTHERN AIRWAYS, INC.
BALANCE, SHEETS
ASSETS
December 31,
1973 1972
CURRENT ASSETS
Cash, including short-term investments of $3,900,000 in 1972 - Note C ....... $ 8,068,694
Accounts receivable
U. S. Government- Transportation and public service revenue 2,146,684
Trade receivables, less allowance for doubtful accounts
(1973 - $99,682; 1972- $28,945 - Schedule XII) . . . . . . . . . . . . . . . . . . . . . . 7,132,492
9,279,176
Notes receivable - Sale of aircraft - Note H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,845,895
Maintenance and operating supplies, at average cost less allowance
for obsolescence (1973 - $1,165,589; 1972 - $928,817) -
Note A (Schedule XII) ................................................... . 2,871,484
Prepaid expenses .......................................... . ................... ___
7_
2_
7,~
5_
0_
3_
Total Current Assets .............................................. . 25,792,752
OTHER ASSETS
Hijacking payment- Note B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
Equipment purchase deposits .... . ............................................ .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,337
PROPERTY AND EQUIPMENT - on the basis of cost -
Notes A, C, and F (Schedules V and VI)
Flight equipment ..... . .... . ............................................... .
Other property and equipment
..........................
2,198,337
51,108,291
4,829,154
55,937,445
Less allowances for depreciation and maintenance 19,470,533
----'--
DEFERRED CHARGES- Note A (Schedule VII)
Unamortized preoperating, route extension and development costs - Note I
Deferred lease costs
Unamortized long-term debt expense ......................................... .
16A
36,466,912
1,548,934
159,249
406,778
2,114,961
$66,572,962
$ 5,744,808
2,127,449
5,341,247
7,468,696
1,885,545
824,001
15,923,050
2,000,000
416,840
109,290
2,526,130
26,766,370
3,822,489
30,588,859
13,601,677
16,987,182
417,918
188,560
452,977
1,059,455
$36,495,817
SOUTHERN AIRWAYS, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1973 1972
CURRENT LIABILITIES
Accounts Payable ....................................................... .... .. . $ 5,772,648
Collections and withholdings as agent ....................................... . 5,847,769
Salaries, wages and vacations ...... . ........................................ . 2,302,950
Accrued interest payable ..................................................... . 285,884
Accrued taxes and other expense ............................................ . 376,402
Air travel plan deposits . .................................................... . 92,649
Current maturities of long-term debt- Note C ............ . .... ............ . 6,950,770
21,629,072
Total Current Liabilities ......................................... -----''------'---
LONG-TERM DEBT - Note C
Notes payable, less current maturities
Convertible subordinated debentures ......................................... .
DEFERRED CREDIT- Subsidy adjustment- Note B ............................. .
STOCKHOLDERS' EQUITY - Notes C and E
Preferred Stock, $1 par value, authorized 2,000,000 shares issuable in series:
Series A $.36 convertible - voting (liquidation value $6 per share
plus cumulative dividends - aggregate of $1,119,942 in 1973 and
$1,209,055 in 1972) issued and outstanding -165,331 shares
(1973) and 190,103 shares (1972) ....................................... .
Series B $.36 convertible - non-voting (liquidation value $6 per share
plus cumulative dividends - aggregate of $1,120,002 in 1973 and
$1,060,002 in 1972) issued and outstanding -166,667 shares ............ .
Common Stock, $2 par value:
Authorized- 7,500,000 shares
Issued and outstanding -1,412,663 shares (1973)
and 1,271,191 shares (1972) ............................................. .
Other paid-in capital ........................................................ .
27,523,019
10,178,000
37,701,019
200,000
165,331
166,667
2,825,326
5,291,922
(1,406,375)
Retained-earnings (deficit) ................................................... _....:......_;:.___
7,042,871
LEASES, COMMITMENTS AND CONTINGENCIES- Notes G and H
$66,572,962
See Notes to Financial Statements.
17A
$ 3,008,194
4,837,482
1,745,155
342,532
367,689
97,750
10,398,802
9,238,016
11,345,000
20,583,016
190,103
166,667
2,542,382
4,437,970
(1,823,123)
5,513,999
$36,495,817
SOUTHERN AIRWAYS, INC.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
Years Ended December 31,
1969 1970 1971 1972 1973
FUNDS PROVIDED
From operations
Income (loss) before
extraordinary credit .. . $( 821,928) $ (3,333,212) $ (1,058,784) $ 1,191,067 $ 319,748
Items not requiring outlay of
working capital in current period
2,160,358 2,090,915 2,094,991 2,039,695 3,193,436
Depreciation
Increase in allowance
for maintenance 49,356 519,349 322,946 544,721 1,705,604
Amortization of def erred
charges ..................... 376,638 551,944 484,478 382,153 362,813
Deferred income tax ( credit) .. 235,000)
Subsidy adjustment- Note B .. 200,000
Total from operations,
exclusive of extraordinary
credit ...................... 1,764,424 ( 171,004) 1,608,631 4,157,636 5,781,601
Extraordinary credit ................. 409,250 97,000
Long-term borrowings .. ...... ........ 140,000- 2,372,606 787,757 2,952,130 38,700,000
Sale of Preferred Stock .............. 2,637,379
Exercise of common stock purchase
warrants ........................... 145,314
Conversions to Common Stock
Debentures .......... ............... 1,337,000 1,167,000
Series A Preferred Stock ........... 36,895 63,783 24,772
Property and equipment sold or
converted to lease, less gain
included in operations .............. 219,784 274,976 588,915 92,368 8,771,567
Refund of equipment purchase and
lease deposits ....................... 3,179,958 490,000 416,840
5,304,166 2,476,578 6,149,577 9,157,481 54,958,780
FUNDS USED
Additions to property and equipment .. 6,363,077 2,134,662 1,409,959 925,261 33,150,337
Hijacking payment .................... 2,000,000
Equipment purchase and lease
deposits ............................ 210,000 280,000 416,840
Reduction of long-term notes payable . 2,465,085 1,520,442 3,008,041 2,249,146 20,414,997
Conversions to Common Stock
Debentures ....... .................. _
1,337,000 1,167,000
Series A Preferred Stock .......... 36,895 63,783 24,772
Increase in deferred charges ......... 707,356 412,012 6,459 13,887 1,473,195
Increase in other assets ............. . 15,735 15,552 11,879 18,669 89,047
9,761,253 4,362,668 4,473,233 7,024,586 56,319,348
INCREASE (DECREASE) IN
WORKING CAPITAL ..................... (4,457,087) (1,886,090) 1,676,344 2,132,895 (1,360,568)
Working capital at beginning of year .. 8,058,186 3,601,099 1,715,009 3,391,353 5,524,248
WORKING CAPITAL AT END OF YEAR ..... $ 3,601,099 $ 1,715,009 $ 3,391,353 $ 5,524,248 l_!,163,680
INCREASE (DECREASE) IN WORKING
CAPITAL BY COMPONENTS
Cash and short term investments ... $(5,374,005) $(1,629,817) $ 2,383,503 $ 686,959 $ 2,323,886
Accounts and notes receivable ...... 877,996 2,385,833 (1,084,513) 998,034 6,656,375
Maintenance and operating supplies. 451,233 179,325 373,621 ( 129,735) 985,939
Prepaid expenses ................... 598,264 ( 863,159) 282,946 32,236 ( 96,498)
Accounts payable ................... 370,520) (2,099,236) 807,803 24,944) (2,764,454)
Collections and withholdings as
agent .......................... ... ( 250,590) 82,452 ( 670,743) (1,539,077) (1,010,287)
Salaries, wages and vacations ...... ( 221,056) 289,032) ( 315,014) ( 97,887) ( 557,795)
Accrued interest, taxes and other
expenses .......................... ( 281,334) 448,535 280,782 588 47,935
Air travel plan deposits ............ 425 3,825 6,375 4,250 5,101
Current maturities of long-term
debt .............................. 112,500 104,816) 388,416) 2,202,471 (6,950,770)
INCREASE (DECREASE) IN WORKING
CAPITAL ............................... $( 4,457,087) $(1,886,090) $ 1,676,344 $ 2,132,895 $(1,360,568)
See Notes to Financial Statements.
18A
SOUfflERN AffiWAYS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1973
Note A- Summary of Significant Accounting Policies
PROPERTY, EQUIPMENT, DEPRECIATION AND OBSOLESCENCE
Provisions for depreciation of property and equipment are computed on the straight-
line method calculated to amortize the cost of the properties over their estimated useful
lives. For DC-9 flight equipment the lives are 15 years (new equipment and rotable parts)
and 10 years (used equipment), with a salvage value of 10 % ; for ground equipment, the
lives range from 3 to 10 years.
The Company is engaged in a program of permanently reducing the use of Martin-404
flight equipment. At December 31, 1973, the Company's investment in Martin-404 flight
equipment is fully depreciated except for $571,000 related to engine overhauls, which will
be charged to operations based on hours flown.
At the time properties are retired, the amounts of costs and allowances for deprecia-
tion and maintenance are eliminated from the accounts. Profits and losses on disposals of
DC-9 flight equipment (exclusive of rotable parts) are credited or charged to operations.
Proceeds from the disposal of DC-9 rotable parts are credited to the allowance for de-
preciation account. Prior to December 31, 1973 proceeds from the disposal of Martin-404.
flight equipment and rotable parts were credited to the allowance for depreciation ac-
count; subsequent to this date, profits and losses on disposals will be credited or charged
to operations.
Expenditures for ordinary maintenance and repairs are charged to expense. Expen-
ditures for major spare parts are capitalized and minor parts are recorded in inventory
accounts and charged to expense as used.
A provision for obsolescence of the investment in minor spare parts inventory for
DC-9 aircraft is made at an annual rate of 4 % .
DEFERRED CHARGES
Expenditures for preoperating and route extension and development costs are de-
f erred and are amortized over a period of five years from the dates operations of the
routes are started (see Note I). Costs associated with obtaining leased DC-9 aircraft are
being amortized over the lives of the leases. Deferred charges associated with long-term
debt are being amortized over the lives of the financing arrangements.
INCOME TAXES
Taxes are provided at current tax rates for all items included in the statement of op-
erations regardless of the years when such items are reported for tax purposes.
The Company uses the flow-through method of accounting for investment credit and
the available investment credit is recognized to the extent it can be realized or offset
against income taxes payable.
PENSION PLANS
The Company has several pension plans, including a defined contribution plan, cover-
ing substantially all of its employees. There are no unfunded past service costs. The Com-
pany's policy is to fund pension costs accrued.
19A
SOUTHERN AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1973
Note B - Hijacking Payment
In November 1972, the Company paid $2 million in ransom in connection with the hijack-
ing of one of its DC-9 aircraft. The aircraft, passengers and crew were returned to the United
States, but the ransom money has been retained by the Republic of Cuba. Negotiations between
representatives of the Company and the Cuban government are expected to result in the even-
tual return of the funds, although there can be no assurance of the return. The Company will
continue to reflect the hijacking payment as an asset until the funds are returned or there is a
determination that the funds will not be returned. Had the ransom money been deemed non-
recoverable and written off as an extraordinary charge to income in 1972, the Company would
have suffered a net loss of $359,433 for that year.
Effective July 1, 1973, the Civil Aeronautics Board implemented a subsidy revenue for-
mula in which the $2 million ransom payment is recognized. The new formula will result in
increased subsidy revenues; however, the Company must return to the Civil Aeronautics Board
a proportionate amount of the increased subsidy funds if and when the ransom payment or any
part thereof is returned. Accordingly, the estimated portion of subsidy payments subject to
such return provision is being deferred until such time as the recoverability of the ransom
payment is determined.
Note C-Long-Term Debt
At December 31,
1973 1972
Notes payable to banks under credit
agreement dated February 20, 1973
"A" Loans, payable quarterly through 1982 ............................... $22,873,789
"B" Loans, payable quarterly through 1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000
"C" Loans, payable quarterly through 1977 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000
Notes payable under prior credit agreement
(refinanced in 1973) ........................................................ .
Demand notes payable to banks (refinanced in 1973) ......................... .
Convertible Subordinated Debentures
5 %, due December 1, 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,345,000
6 %, due November 1, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,833,000
44,651,789
Less Current Maturities (Includes $4,490,644 to be paid
from proceeds of Notes Receivable - Sale of Aircraft -
see Note H) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,950,770
$37,701,019
$
7,238,016
2,000,000
4,345,000
7,000,000
20,583,016
$20,583,016
The "A" and "B" Loans bear interest at the lead bank's prime rate (9.9 % at December 31,
1973) plus 1 % and 2%, respectively, and are payable in quarterly installments beginning July
1, 1974 and May 1, 1974, respectively. Substantially all of the Company's assets are pledged as
collateral under the terms of the credit agreement. Additionally, the "A" Loan is 90% guaran-
teed by the Federal Aviation Administration. The "C" Loan bears interest at 155% of the
lead bank's prime rate. In addition to quarterly reductions of $100,000, the "C" Loan will also
be reduced by recoveries of the hijacking payment discussed in Note B.
In connection with the credit agreement, the Company maintains average compensating
balances, based on bank ledger balances adjusted for treasury tax contribution and uncollected
20A
SOUTHERN AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1973
funds, equal to 15 o/o of the average of the "A" and "B" Loans outstanding. Based upon out-
standing borrowings at December 31, 1973, the Company should maintain average compensat-
ing balances of approximately $4,931,000, which stated in terms of the Company's book cash
balances is approximately $4,019,000. The difference is attributable to average uncollected
funds and float. During 1973, the Company maintained average compensating balances of ap-
proximately $5,536,000, which was 103% of the average required amount. Compensating bal-
ances are not restricted as to withdrawals, serve in some instances as compensation to the
participating banks for their account handling function and other services, and additionally
serve as part of the Company's minimum operating cash balances.
The Company has a commitment to borrow, under certain conditions, $1,750,000, which ex-
pires September 30, 1974. Amounts borrowed under this commitment will bear interest at
135 o/o of the prime rate and will be due September 30, 1975.
The 5 o/o Convertible Subordinated Debentures due December 1, 1981 are convertible
(until maturity or prior redemption) into Common Stock at $10.86 per share; are subordi-
nated, generally, to all existing and future indebtedness for borrowed money; are callable at
premiums ranging from 3.25 o/o downward; and require annual sinking fund payments begin-
ning December 1, 1976 in an amount equal to 10 o/o of the principal amount outstanding at
December 1, 1975. Also, the Company may make additional voluntary sinking fund payments
equal to the required amount.
The 6 o/o Convertible Subordinated Debentures due November 1, 1983 are convertible
(until maturity or prior redemption) into Common Stock at $10 per share; are subordinated,
generally, to all existing and future indebtedness for borrowed money; are callable on or after
November 1, 1973 at premiums ranging from 6% o/o downward; and require annual pre-
payments beginning November 1, 1978 in an amount equal to 10% of the principal amount
outstanding at November 1, 1977, less credit for principal amount converted or called subse-
quent to November 1, 1977. Also, the Company may make additional voluntary prepayments
equal to the required amounts.
The terms of the credit agreements and both issues of Convertible Subordinated Deben-
tures place certain requirements and restrictions upon, among other things, (a) working cap-
ital, (b) indebtedness and lease obligations, (c) capital expenditures, (d) net worth and (e)
payments relating to capital stock, including dividends (no amount was available for the pay-
ment of dividends at December 31, 1973 or 1972).
A summary of minimum principal payments under the credit agreement loans and both
issues of Convertible Subordinated Debentures is as follows:
Credit Agreement Loans Convertible
Subordinated
Year "A" "B" "C" Debentures Total
1974 $ 5,250,770 $ 1,100,000 $ 600,000 $ $ 6,950,770
1975 2,220,252 1,000,000 600,000 3,820,252
1976 2,220,252 1,150,000 400,000 434,500 4,204,752
1977 2,220,252 1,200,000 434,500 3,854,752
1978 2,220,252 1,500,000 1,017,800 4,738,052
Thereafter 8,742,011 4,050,000 8,291,200 21,083,211
$22,873,789 $10,000,000 $1,600,000 $10,178,000 $44,651,789
21A
SOUTHERN AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1973
Prepayments equal to 25 % of net income in excess of $1,500,000 plus 50 % of net income in
excess of $3,000,000 earned in any fiscal year after 1973 will be required under the "B" Note.
The above summary of minimum principal payments does not reflect the possible effect of any
such prepayment.
Amounts due under the prior credit agreement and $2,000,000 of demand notes were re-
paid in February 1973 from "B" Loan proceeds. Accordingly, current maturities of indebted-
ness at December 31, 1972 were determined in accordance with the terms of the "B" Loan.
Note D - Income Taxes
At December 31, 1973, operating loss carryforwards to future periods for income tax pur-
poses aggregate approximately $2,952,000 and expire in 1977 ($1,298,000) and 1978 ($1,654,-
000). The operating loss carryforward for financial statement purposes at December 31, 1973
is approximately $1,792,000. Investment credit carryovers, which may be used to offset fed-
eral income taxes payable in future income tax returns, aggregate $1,508,000 and expire in
1976 ($66,000), 1977 ($810,000), 1978 ($38,000), 1979 ($310,000), 1981 ($26,000), 1982
($38,000), and 1983 ($220,000).
Note E - Capital Stock and Options
The Series A and Series B Preferred Stock are convertible into Common Stock on a share-
for-share basis, can be redeemed after July 1, 1976 at $6 per share plus accumulated dividends,
and is entitled upon liquidation to receive $6 per share plus accumulated dividends. The liqui-
dation preference for the 331,998 shares outstanding at December 31, 1973, including the
dividend requirements described below, aggregated $2,239,944, which is $1,907,946 more than
the aggregate par value of such shares.
Each share of Preferred Stock is entitled to receive annual dividends of $.36 per share,
cumulative only to the extent of annual net profits. The cumulative dividend requirements on
shares outstanding at December 31, 1973 and 1972 aggregated $247,956 and $128,437, respec-
tively. Payment of dividends is subject to the limitations prescribed by the indentures covering
the 5. % and 61/2 % Convertible Subordinated Debentures and to limitations contained in the
credit agreements (see Note C).
Authorized common shares include 1,842,620 shares and 2,110,092 shares reserved at De-
cember 31, 1973 and 1972, respectively, for issuance as follows:
For convertible securities conversions:
5 % Convertible Subordinated Debentures (Note C) ......................... .
6 % Convertible Subordinated Debentures (Note C) ......................... .
Series A Convertible Pref erred Stock ................ . ........................ .
Series B Convertible Preferred Stock .......................................... .
For exercise of outstanding warrants:
At $10 per share, issuable with 6 % Convertible Subordinated
Debentures - cancelled July 25, 1973 ....................................... .
At $6 per share, issued with Series A (290,562 shares) and
Series B (166,667 shares) Convertible Preferred Stock .................... .
For options under Qualified Stock Option Plan (45,000 shares)
and Employee Stock Option Plan (25,000 shares) ............................. .
22A
1973
400,093
583,300
165,331
166,667
1,315,391
457,229
457,229
70,000
1,842,620
1972
400,093
700,000
190,103
166,667
1,456,863
126,000
457,229
583,229
70,000
2,110,092
SOUTHERN AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1973
At December 31, 1973, there were outstanding options for 42,000 shares of Common
Stock under the Company's Qualified Stock Option Plan, of which options for 4,000 shares
(at $8.69 to $11.76 per share) expire in 1974, options for 33,000 shares (at $5.25 per share)
expire in 1976 and options for 5,000 shares (at $5.81 per share) expire in 1978. Option trans-
actions during the years ended December 31, 1972 and 1973 are summarized as follows:
Outstanding, January 1, 1972 .................. . ................ .
Granted ....................................................... .
Expired .............................. . .......... . .............
Cancelled ...................................................... .
Number
of Shares
44,000*
1,000
( 1,000)
( 6,000)
Outstanding, December 31, 1972 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000*
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 1,000)
Outstanding, December 31, 1973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000*
Option Price
Per Share Total
$5.25 - $19.18 $285,931
5.25 5,250
19.18 ( 19,180)
5.25 - 13. 75 ( 49,751)
5.25- 11.76
5.81
5.25
5.25 - 11.76
222,250
29,050
( 5,250)
$246,050
*Excludes options for 4,000 shares at $5.25 per share which become effective only after ex-
piration of previously issued options.
There were 3,000 shares and 7,000 shares, respectively, available for future grant at De-
cember 31, 1973 and 1972.
Options granted under the Plan are intended to constitute "qualified stock options" as
defined in Section 424 (b) of the Internal Revenue Code of 1954, as amended. Options are
exercisable at not less than 100 % of the fair market value of the stock on the date of grant,
terminate not later than five years after date of grant, and are not exercisable during the
first twenty-four months after date of grant. Each option is exercisable with respect to 1/a of
the number of shares at any time after 24 months following date of grant, with respect to an
additional 1/a after 36 months, and with respect to the balance after 48 months. No options
were exercised in 1973 or 1972. Options became exercisable during the years ended Decem-
ber 31, 1973 and 1972 as follows:
1973 1972
Number of Shares ............................................................. . 12,336 2,000
Option Price:
Per Share .................................................................... .
Total ........................................................................
$5.25 - $11. 76 $8.69 - $11. 76
72,363 21,403
Quoted Market Price at Date Exercisable:
Per Share .......................... . ..... . ................................... . 3.00 - 6.00 6.38 - 9.13
Total ......................................................................... . 39,430 15,336
Options for 15,000 shares (aggregating $101,500 at option prices) and 2,668 shares (aggregat-
ing $29,181) were exercisable at December 31, 1973 and 1972, respectively.
A total of 25,000 shares of Common Stock are reserved for issuance to participating em-
ployees under an Employees' Stock Option Plan (an employee stock purchase plan as defined
by Section 423 (b) of the Internal Revenue Code of 1954). This plan is currently inactive and
there are no participants.
The Company makes no charge to income with respect to options.
23A
SOUTHERN AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1973
Note F-1974 Accounting Change
Because of the increased size of its jet fleet, together with changes in engine maintenance
technology which permit a progressive maintenance program, the Company will change its
method of recording certain maintenance costs of DC-9 engines, effective January 1, 1974, to
the method of charging all such costs to operations as incurred. In 1973 and prior years, the
Company followed the "built-in-overhaul" method of providing airworthiness reserves for
certain maintenance costs of DC-9 engines. Under this method, the estimated cost of certain
specified maintenance operations was segregated from those engine costs to be depreciated
over the estimated useful life of the engine. A related maintenance reserve was then accumu-
lated through regular charges to operations based upon hours used. The reserve was reduced
when charges were incurred applicable to the maintenance operations provided for. A similar
method was used for leased engines. The cumulative effect of this change will result in a credit
to the statement of operations for 197 4 of $565,000.
Note G - Leases
Total rental expense for all leases amounted to:
1973
Financing leases (minimum rentals):
Flight equipment ..................................... .......... ...... .... . $4,759,488
Other financing leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,227,425
Landing fees (contingent rentals) . .. . . . .. . . . . .. .. . .. . .. . . .. .. .. .. . .. . . . . . . . 1,838,376
Other leases :
Minimum rentals .......................... ..... .................... ..... .
Contingent rentals ....................................................... .
975,173
370,910
$9,171,372
1972
$4,751,999
902,529
1,489,145
729,480
460,672
$8,333,825
Contingent rentals, other than landing fees, relate principally to charges for reserva-
tion services based upon the number of unduplicated passengers in excess (since November
12, 1972) of a specified minimum of $120,000 per annum.
Rentals received from subleases are immaterial.
Future minimum rental commitments as of December 31, 1973 for all non-cancelable
leases and for the proposed new maintenance center at the Hartsfield Atlanta International
Airport are as follows :
1974 ..................... .
1975 ..................... .
1976 ..................... .
1977 ..................... .
1978 .......... . .......... .
1979-1983 ............... .
1984-1988 ............... .
1989-1993 ............... .
Remainder . . ............ .
Flight
Equipment
$ 4,722,208
4,722,208
4,722,208
4,722,208
4,722,208
9,359,926
$32,970,966
Financing Leases
Proposed
Maintenance
Center
$ 120,503
256,919
1,576,761
1,880,288
1,880,288
9,401,440
9,401,440
9,401,440
22,093,381
$56,012,460
24A
Other
Financing
Leases
$ 1,336,983
1,264,028
1,029,199
898,444
610,681
2,740,340
2,406,648
1,440,198
392,670
$12,119,191
Other
Leases Total
$ 434,602 $ 6,614,296
363,117 6,606,272
229,212 7,557,380
162,243 7,663,183
49,323 7,262,500
45,683 21,547,389
1,716 11,809,803
886 10,842,524
22,486,051
$1,286,781 $102,389,398
SOUTHERN AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1973
The Company's rental obligations for the proposed new maintenance center, under its lease
agreement with the City of Atlanta dated January 2, 1974, commences upon the earlier of the
dates of beneficial occupancy or the dates shown below. Estimated costs, annual rentals, and
rental commencement dates are as follows:
Estimated
Cost
Land ................... . .............. . ..... $ 1,506,285
Phase One Facilities . . . .. . . . . .. . . .. .. . . . . . . . 7,511,000
Phase Two Facilities . . . . . . . . . . . . . . . . . . . . . . . . 16,608,000
$25,625,285
Estimated
Annual
Rental
$ 120,503
545,665
1,214,120
$1,880,288
Approximate Rental
Commencement Dat~
January 2, 1974
October 1, 1975
April 1, 1976
Cost of the Phase One and Phase Two Facilities is to be financed by the City through the
issuance of Airport Extention and Improvement Revenue Bonds in the principal amounts
needed to provide monies for the estimated costs shown above, which will be the City's maxi-
mum obligation. Cost of improvements in excess of the estimated amount must be borne by
the Company. The lease extends for a period of 30 years from October 1, 1975, or the date of
beneficial occupancy of the Phase One Facilities, whichever occurs first, and may be renewed
at the Company's option for an additional term extending to January 1, 2024.
Most of the Company's other leases do not contain formal renewal options. However,
consistent with the prevailing practice in the industry, leases with relatively short terms are
generally renegotiated and extended at the conclusion of their terms, and leases with rela-
tively long terms generally provide for renegotiation of their provisions at specified intervals
throughout their terms.
The estimated present values of the net fixed minimum rental commitments for all non-
capitalized financing leases are:
Flight equipment ...................... .
Computer and message switching
equipment ........................... .
Airport terminal facilities ............. .
General office and maintenance
facilities ............................. .
Miscellaneous ground equipment ...... .
Interest Rates Used
Weighted
Average
7.45%
11.89
5.09
5.02
6.22
Range
5.3%- 8.7%
6.8 -23.7
2.9 - 7.5
3.5 - 6.3
4.6 -10.0
As of December 31,
1973 1972
$25,021,221 $27,813,997
1,557,437 1,702,633
3,028,358 2,287,915
793,352 581,415
24,643 37,794
The present values were computed after reducing total rental commitments, where required,
by estimated or actual amounts applicable to lessors' payments of taxes, insurance, maintenance
and other operating expenses.
If all financing leases had been capitalized and it was assumed that the estimated present
values were amortized on a straight-line basis over the terms of the leases and that interest
expense was accrued on the outstanding lease obligations at the rates shown above, cost
and expenses for the years 1973 and 1972 would have been increased by $623,000 and $769,-
000, respectively; and, to the extent that such increased costs and expenses were not offset by
resultant increases in subsidy revenues, which are indeterminable as to specific amounts, net
income would have been decreased commensurately. The amounts included in the above com-
25A
SOUTHERN AIRWAYS, INC.
NOTES TO FINANCIAL STAT'
EMENTS (Continued)
DECEMBER 31, 1973
putation for amortization of leased property and interest expense were $4,038,000 and $2,265,-
000 in 1973 and $3,693,000 and $2,325,000 in 1972, respectively.
Note H - Other Commitments and Contingencies
In November and December 1973, the Company sold four of the thirteen DC-9-14 aircraft
acquired earlier in the year from another airline. The gains on the sales aggregated $1,967,-
630. Notes receivable in the accompanying balance sheet reflect the present value at Decem-
ber 31, 1973 ($4,845,895) of a non-interest bearing note ($4,930,000, collected in February
1974) which was received as partial consideration for the two aircraft sold December 27,
1973. $4,490,644 of the proceeds of this note are being applied to payment of notes payable
to banks under terms of the Company's Credit Agreement (see Note C). The sales agreement
related to the December sale provides that the Company will indemnify the purchaser against
loss to the extent of $350,000 in the event the third party to which the purchaser resold the
aircraft should default in payment to the purchaser.
Reference is made to Item 5 of this Report "Pending Legal Proceedings," for information
applicable to litigation.
The Company has an employment agreement with its Presi~ent providing for his em-
ployment to September 12, 1977 at an annual salary of not less than $55,000. In addition,
upon his retirement, the Company has agreed to pay $1,250 per month to him for life or in the
event of his death, to his lineal descendants for 180 months. No provision has been made in
the accompanying financial statements for amounts to be paid under the terms of these
agreements.
Nate I - Deferred Preoperating Costs
During 1973, the Company deferred certain training and other costs aggregating ap-
proximately $1,383,000 related to implementation of services of nine additional jet aircraft ac-
quired during the year. These costs are being amortized over a five-year period.
26A
SOUTHERN AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1973
Note J -Supplementary Information
1973
Depreciation and Amortization (Schedules VI and VII):
Depreciation of property and equipment .................................... $ 3,193,436
Amortization of def erred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362,813
Provision for inventory obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,772
3,793,021
Deduct-Amounts charged to other accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,584
$ 3,673,437
Taxes, other than income taxes, charged to operating expenses:
Payroll taxes ........................................................ . ....... $ 1,456,401
150,423
360,000
243,980
127,028
Fuel and oil taxes .......................................................... .
Property taxes ..................................... . ........................ .
Sales and use taxes .................................................... . .... .
Other .......................... . ............................................ .
$ 2,337,832
Rents and Landing Fees:
Rental expense under leases and landing fees (Note G) .................... $ 9,171,372
Portion of gross lease rentals not charged to rent expense in accordance
with CAB classifications and miscellaneous rentals, net . . . . . . . . . . . . . . . . . . ( 98,118)
$ 9,073,254
Advertising Costs .............................................................. $ 1,248,202
There were no royalties or research and development costs.
27A
1972
$ 2,039,695
382,153
233,030
2,654,878
95,849
$ 2,559,029
$ 1,017,480
176,755
340,800
166,254
103,528
$ 1,804,817
$ 8,333,825
( 6,316)
$ 8,327,509
$ 976,576
SOUTHERN AIRWAYS, INC.
SCHEDULE II - AMOUNTS RECEIVABLE FROM UNDERWRITERS,
PROMOTERS, DIRECTORS, OFFICERS, EMPLOYEES,
AND PRINCIPAL HOLDERS OF EQUITY SECURITIES
Column A ColumnB Column C Column D
Balance at Deductions
Name of Beginning Amounts
Debtor of Period Additions Collected
Year Ended December 31, 1973
SO ADO Venture .............. $ $60,637 $60,537
Column E
Balance at
End
of Period
$
Represents expenses paid by the Company in connection with a secondary offering of Company's securities to
stockholders of the Company as of June 22, 1973. Such amounts were repaid to the Company by the selling
group at the conclusion of the offering period.
SCHEDULE V - PROPERTY AND EQUIPMENT
Column A
Classification
Column B
Balance at
Beginning
of Period
Flight Equipment ........ . $27,237,131
Ground Equipment . . . . . . . . 3,625,547
$30,862,678
Flight Equipment ......... $26,766,370
Ground Equipment . . . . . . . . 3,822,489
$30,688,869
Column C
Additions
at Cost
Column D
Retirements
Column E
Other
Changes-
Add
(Deduct)-
Describe
Year Ended December 31, 1972
$ 723,266
201,995
$ 925,261
$ 1,194,027
5,053
$ 1,199,080
$
$
Year Ended December 31, 1973
$34,540,698 (A)
1,025,341
$35,565,939
$10,198,677 (A)
18,676
$10,217,353
$
$
Column F
Balance at
End
of Period
$26,766,370
3,822,489
$30,588,859
$51,108,291
4,829,154
$55,937,445
(A) See Note H of Notes to Financial Statements regarding DC-9 aircraft purchased and sold during 1973.
28A
Column A
Description
SOUTHERN AIRWAYS, INC.
SCHEDULE VI-ALLOWANCES FOR DEPRECIATION AND
MAINTENANCE OF PROPERTY AND EQUIPMENT
Column B Column C Column D Column E
Additions
Balance at Charged to Other Changes
Beginning Costs and Add (Deduct) -
of Period Expenses Retirements Describe
Year Ended December 31, 1972
Column F
Balance at
End
of Period
Flight Equipment ............ $ 9,333,934 $1,762,689
2,623,272(A)
277,006
$1,103,584
3,128
$(2,078,551) (B) $10,537,760
Ground Equipment . . . . . . . . . . . 2,790,039
$12,123,973 $4,662,967 $1,106,712 $(2,078,551)
3,063,917
$13,601,677
Year Ended December 31, 1973
Flight Equipment ....... . .... $10,537,760
Ground Equipment . . . . . . . . . . . 3,063,917
$13,601,677
$3,020,102
3,300,894 (A)
173,334
$6,494,330
(A) Provision for airframe and engine overhauls.
(B) Expenditures for airframe and engine overhauls.
$1,429,811
15,975
$1,445,786
$ (1,595,290) (B) $16,249,257
2,415,602 (C)
$ 820,312
3,221,276
$19,470,533
(C) Estimated accumulated maintenance cost at date of acquisition applicable to used engines acquired
during 1973 representing hours consumed on such engines by prior owner.
29A
SOUTHERN AIRWAYS, INC.
SCHEDULE vn - PART B - PRE-OPERATING EXPENSES AND SIMILAR DEFERRALS
Column A
Description
Unamortized preoperating,
route extension and
Column B
Balance at
Beginning
of Period
development costs . . .............. $ 691,245
Deferred lease costs .... .. .... . ..... 217,788
Unamortized long-term
debt expense .. ... .. ............... 580,524
$1,489,557
Unamortized preoperating,
route extension and
development costs ..... .. . ... . . . .. $ 417,918
Deferred lease costs ................ 188,660
Unamortized long-term debt
expense .. .. .. .
~
.................. 452,977
$1,059,455
Column C
Additions
at Cost
-Describe
Column D
Deductions
Charged to Charged to
Costs and Other Accounts
Expenses -Describe
Year Ended December 31, 1972
$ 12,979 $286,306 $
29,228
908 66,619 61,836(B)
$ 13,887 $382,153 (A) $ 61,836
Year Ended December 31, 1973
$1,418,184( C) $287,168 $
29,311
55,011 46,334 54,876(B)
$1,473,195 $362,813(A) $ 54,876
(A) Amortization is credited directly to the asset and charged to operations as follows:
1972
Depreciation and amortization .......... . . ~ . . ............................ . $286,306
Flying operations ........ . .................. .. ... . .... .. ........ . . .. ..... . 28,006
Aircraft and traffic servicing ................. .. ............... . ......... . 1,222
Interest on long-term debt .................. . . .. . . ..... . .. . ..... . .... .. . . . 66,619
$382,153
(B) Amount applicable to debentures converted, charged to Other Paid-In Capital.
(C) See Note I of Notes to Financial Statements.
Column E, Other Changes, has been omitted since there were no other changes.
Column F
Balance at
Close of
Period
$ 417,918
188,560
452,977
$1,059,455
$1,548,934
159,249
406,778
$2,114,961
1973
$287,168
28,089
1,222
46,334
$362,813
SCHEDULE XII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D
Additions
Balance at Charged
Beginning to Costs and Deductions
Description of Period Expenses -Describe
Year Ended December 31, 1972
Allowance for doubtful accounts ........................ $ 41,849 $ 78,050 $ 90,954 (A)
Allowance for obsolescence - maintenance
and operating supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695,787 233,030
Year Ended December 31, 1973
Allowance for doubtful accounts .......... ... ............ $ 28,945 $138,400 $ 67,663 (A)
Allowance for obsolescence- maintenance
and opera ting supp lies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 928,817 236,772
(A) Bad debts written off, net of recoveries.
30A
Column E
Balance at
End of
Period
$ 28,945
928,817
$ 99,682
1,165,589
EXHIBIT 1
SOUTHERN AIRWAYS, INC.
COMPUTATIONS OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(This Exhibit should be read in conjunction with Note (7) to the Statements of Operations)
Year Ended December 31, 1973:
Regular computation:
Income
Before
Extraordinary
Credit
Income amounts . ..................... . ...................... . $ 319,748
Pref erred dividend requirement .... . ....... . ........ .. ....... . 119,519
Available for common ................. . .. . ................... . $ 200,229
Divide by weighted average number
of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,314,016
Per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . =
$===
1=
52
Extraordinary Net
Credit Income
$ 97,000 $ 416,748
119,519
$ 97,000 $ 297,229
1,314,016 1,314,016
$ .074 $ .226
Pro forma computation, reflecting primary earnings per share as if Series A Convertible Pref erred stock
converted during 1973 and $1,167,000 of 6 % Convertible Subordinated Debentures converted on October 1,
1973 had been converted on January 1, 1973:
Amount available for common from above . . . ....................... . .. . ...... .. ....... . .... . . $ 297,229
Add - Interest applicable to debentures converted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,891
$ 354,120
Divide by common shares outstanding at December 31, 1973
( equal to weighted average if all conversions had occurred
as of January 1, 1973) .................................................... . ............... . 1,412,663
.251
Per share ........................................ . ..... . ...................................... $
======
Year Ended December 31, 1972:
Amounts Primary
Net income .......... .. ............ . . . ........... . ............. . ................ . $ 1,600,317
Imputed interest related to:
Options and warrants issued since June 1, 1969 . . .......................... . 58,760
Warrants issued prior to June 1, 1969 .......... . .......................... .
6 % Convertible Subordinated Debentures .............................. . .
5 % Convertible Subordinated Debentures ............................... .
58,760
Preferred dividend requirement .. . ........................................... . ( 128,437)
Amounts for "Net" Computations .................................... (A) $ 1,530,640
Extraordinary tax credit ........................... . ......................... . 409,250
Tax effect of imputed interest above at 25% ...... . .......................... . 14,690
Amounts for "Extraordinary" Computations ............ .. ........ . .. (B) $ 423,940
Amounts for "''Before" Computations .................. . .............. (C) $ 1,106,700
Shares
Common shares . .... .
== .................................................. . 1,194,426
Pref erred shares .. . ....................... . .................................... .
Options and warrants issued since June 1, 1969 .............. . ................ . . 245,091
Warrants issued prior to June 1, 1969 ................. . ..... .. .... .. .. . .. . ... . . .
6 % Convertible Subordinated Debentures .... . .... . ...... . . . ........ ... .... . . .
5 % Convertible Subordinated Debentures .................................... .
(D) 1,439,517
Per Share
Before extraordinary credit (C)
Extraordinary credit ( B)
Net income (A)
Computational Notes:
(D)
(D)
(D)
....................... . .............. $
...................................... $
.77
.29
=====
Fully
Diluted
$ 1,600,317
58,760
81,900
482,084
260,645
883,389
$ 2,483,706
409,250
220,847 (a)
$ 630,097
$ 1,853,609
$
$
1,194,426
374,004
245,091 (b)
126,000
741,667
417,400
3,098,588
.60
.20
.80
(a) Rate used (25%) is approximate overall effective tax rate after reduction for investment credit.
(b) Total shares issuable upon exercise (499,329), less 20 % of common shares outstanding at December 31,
1972 (254,238).
Years Ended December 31, 1969, 1970 and 1971:
1969
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $( 821,938)
Divide by weighted average number of common shares ... .. . . .. . 1,024,871
Loss per share $( .80)
31A
1970
$(3,333,212)
1,024,871
$( 3.25)
1971
$(1,058,784)
1,035,048
$( 1.02)
EXHIBIT 2
SOUTHERN AIRWAYS, INC.
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
(This Exhibit should he read in conjunction with Note (8) to the Statements of Operations)
Years Ended December 31,
1969 1970 1971 1972 1973
Income:
Net income (loss) .......... . . . ... $( 821,928) $(3,333,212) $(1,058,784) $ 1,600,317 $ 416,748
Income taxes (credit) ( 486,961) 449,500 109,000
Tax benefits of operating
loss carryforward ............ . . ( 409,250) 97,000)
Deferred Income Tax (credit) ... ( 235,000)
Fixed charges ( see below) ....... 3,091,394 4,050,556 4,311,639 4,204,224 6,154,142
Income .. . ......... . ...... . $ 1,782,505 $ 717,344 $ 3,017,855 $ 5,844,791 $ 6,582,890
Fixed charges :
Interest expense ............ . . . ... $ 1,719,541 $ 1,788,784 $ 1,678,112 $ 1,361,913 $ 3,083,390
Amortization of deferred
debt expenses .......... .... .... 90,709 93,026 99,293 66,475 46,334
One-third of rentals paid:
Rentals and landing
fees, as reflected in Note J
of Notes to Financial
Statements ................ .. 3,847,277 6,512,753 7,610,311 8,327,509 9,073,254
X 1
/2 X X X X
One-third of rentals
and landing fees . .. .. . ..... . . 1,281,144 2,168,746 2,534,234 2,775,836 3,024,418
Fixed Charges . . . .. .... . ... $ 3,091,394 $ 4,050,556 $ 4,311,639 $ 4,204,224 $ 6,154,142
Ratio of income to fixed charges ... .58 .18 .70 1.39 1.07
32A
Notice to Stockholders of
Southern Airways, Inc.
Any person who owns as of
December 31 of any year or
subsequently acqwres ownership
either personally or as a trustee of
more than five per cent (5%) in the
aggregate of any class of capital stock
or capital of Southern Airways Inc.
shall file with the Ctvil Aeronautics
Board a report contatntng the
tnformation reqwred by Part 245 12
of the Board's Economic Regulations.
This report must be flled on or before
Apnl 1 of each year as to the capital
stock or capital owned as of
December 31 of the precedtng year
and tn the case of capital subsequently
acqwred, a report must be filed wJthin
ten (1 OJ days after such acqwsJt1on,
unless such person has otherwise Nied
with the Civil Aeronautics Board a
report covenng such acqu1sitt0n or
ownership
Any bank or broker covered by this
prov1s1on. to the extent that 1t holds
shares as trustee on the last day of
any quarter of a calendar year. shall
file with the C1v1I Aeronautics Board
within thirty (30) days after the end
of the quarter, a report in accordance
with the provisions of Part 245 14 of
the Board's Economic Regulations
Any person reqwred to report
pursuant to these provisJOns who
grants a security interest in more than
five per cent (5%) of any class of the
capita/ stock or capital of an a,r carrier,
shall within thirty (30) days after
granting such secunty interest, flle
with the C1v1l Aeronautics Board a
report containing the information
reqwred in Part 245 15 of the
Economic Regulations
Any stockholder who believes that
he may be required to file such a
report may obtain further information
by wnting to the Director, Bureau of
Operating Rights. Civil Aeronautics
Board, Washington, D. C 20428
The Back Cover
There is more to an airline than places
and planes. Southern adds people.
People who please passengers. And
enjoy doing so. These people make the
Southern way the pleasant way.
Directors and Officers
Directors
IVAN ALLEN , JR.
Ivan Allen Company, Atlanta, Georgia
CECIL A. BEASLEY, JR.
Ballard & Beasley, Washington , D.C.
GEORGE M. GROSS
Southern Airways, Inc., Atlanta, Georgia
GRAYDON HALL
Southern Airways, Inc, Atlanta, Georgia
F. BARTON HARVEY, JR.
Alex. Brown & Sons, Baltimore, Maryland
FRANK W. HULSE
Sou thern Airways, Inc.,
Birmingham, Alabama
AL TON F. IRBY, JR.
A. F. Irby & Company, Atlanta, Georgia
HENRY P. JOHNSTON
Radio and Television Consultant,
Birmingham , Alabama
G. GUNBYJORDAN
The Jordan Company, Columbus, Georgia
SARTAIN LANIER
Oxford Industries, Inc., Atlanta, Georgia
R. EUGENE ORR
Orr & Company, Inc., Jacksonville, Florida
G. FRANK PURVIS, JR .
Pan American Life Insurance Company,
New Orleans, Louisiana
F. D. SCHAS*
Retired Investment Counselor
Memphis, Tennessee
ELTON B. STEPHENS
EBSCO Industries, Inc.,
Birmingham, Alabama
RICHARD A. TRIPPEER, JR.
R. A. Trippeer, Inc., Memphis, Tennessee
WM . BEW WHITE, JR .
Bradley, Arant , Rose & White,
Birmingham, Alabama
*Semor Director
Executive Committee
FRANK W. HULSE
GRAYDON HALL
G. GUNBY JORDAN
EL TON B. STEPHENS
WM . BEW WHITE, JR.
General Information
Officers
FRANK W. HULSE
President
GRAYDON HALL
Executive Vice President
and General Manager
GEORGE M. GROSS
Vice President and
Associate General Manager
J . KENNETH COURTENAY
Vice President - Economic Regulations
and Secretary
A. L. MAXSON
Vice President - Fiscal Division
and Treasurer
VICTOR C. PRUITT
Vice President - Technical Services
FRANK H. WHEELER
Vice President - Sales and Services
THOMAS A. WILEY, JR.
Vice President - Marketing
RAY W. BURDEN
Assistant Treasurer
JAMES H. ISHEE
Controller
OWEN L. McREE
Assistant Vice President -
Sales and Services
WILLIAM E. OAKES
Assistant Vice President -
Economic Research
J. R. PRICE
Assistant Vice President -
Contracts and Properties
CECIL A. BEASLEY, JR .
Assistant Secretary
MRS. MARY C. HAYES
Assistant Secretary
WM . BEW WH ITE, JR.
Assistant Secretary
SOUTH E RN AIRWAY S, INC. GENERAL OFFICES : Hartsfield Atlanta International Airport , Atlanta,
Georgia COUNSEL: Bradley, Arant , Rose & White , Birmingham , Alabama; Ballard & Beasley,
Washington, D .C . AUDITORS : Ernst & Ernst , Atlanta, Georgia STOCK TRANSFER AGENT:
Trust Company of Georgia, Atlanta, Georgia ADVERTISING COUNSEL : McDonald & Little, Inc.,
Atlanta, Georgia Printed by Stein Printing Co., Atlanta, Georgia
Southern