PAGE FOUR
THE PIEDMONITOR
APRIL-MAY, 1967
Report To Our Stockholders
EDITOR’S NOTE: At the annual stockholders meeting April 19th, a complete transcript was made
of the proceedings. Since the meeting included a number of outstanding reports and additional in
teresting information, it occurs to us that our employees who were not able to attend might like to read
an actual account of the proceedings. Here it is, only slightly edited for greater clarity:
Mr. Davis: I call the meeting to
order. I believe this is the largest
turnout we have had and also the
largest number of proxies. I thank
all of you for coming. I would now
like to appoint the Proxy Committee:
Mr. Jim Smith of Ernst and Ernst,
Certified Public Accountants, and
Audree F. Long of Piedmont. They
will tally our proxies for us. Mean
while, we will have the reading and
approval of our last annual meeting
minutes by our secretary, Tom Mor
ton.
Mr. Morton: We have the minutes
of our last annual meeting and spe
cial meeting held in June of last
year. We will give an outline of the
minutes rather than the lengthy
reading of all the resolutions, and
if anyone would like to see them
after the meeting they are here for
their inspection. (Minutes of an
nual meeting were read in outline
form.)
Mr. Davis: Suppose we adopt these
first and then consider the special
meeting. Any question or comments
regarding the minutes? If not, is
there a motion to adopt the minutes?
(Motion made, seconded and passed.)
As Mr. Morton indicated, the spe
cial meeting was called, but in the
interest of time we will ask Mr.
Morton to outline the results. The
minutes will be available for any
body’s review after the meeting is
over. (Mr. Morton read the outline
of minutes.)
Mr. Davis: Are there any ques
tions, comments, additions or cor
rections to the minutes? (Motion
made, seconded and passed that they
be adopted.)
We intend to follow the procedure
that we have in the past with brief
reports from our vice presidents. We
sometimes wonder if we cover every
thing the stockholders are interested
in knowing, but we normally have a
question period or discussion period
at the close of the meeting to cover
anything that is not covered by the
various officers of the Company. If
you do have questions, please remem
ber them and hold them until the
formal part of the program is over
and we will have ample time to
cover anything you might have in
mind.
I think it would be an imposition
to cover what was covered in our
annual report, a copy of which you
have received. The year 1966 was a
pleasant and outstanding one in the
history of this company, earning a
net profit of $1,922,000, or I could
say just a little bit under $2,000,000
after taxes. It was a year that we
are extremely proud of. One of the
most encouraging events of last year
was that we were able to reduce
subsidy revenue, which is paid to the
local service airlines to provide ser
vice to smaller communities that
would not normally generate suffi
cient traffic for that service. We
made history again in being the
first local service airline to operate
at a profit before subsidy. That does
not say that we did not get subsidy
because we did in order to assure a
fair rate of return on our investment.
Without subsidy we made about one
million' dollars. We are grateful for
the employees and their efforts and
our stockholders and their efforts
and we will continue to try to pro
vide the best service to the public.
We could get rid of the subsidy by
being ruthless with the service —
reducing schedules or deleting small
cities — but v/e want to fulfill our
public service responsibilities and we
will continue to do it as economical
ly as we can. You will recall, and it
was in the minutes, we committed
ourselves to a new equipment pro
gram. Our traffic has grown so fast
that we thought we should get jet
equipment before the Boeing 737’s
arrive in 1968. We were able to work
out an arrangement with The Boeing
Company to lease two 727’s on an
interim basis. The 727 has three
engines versus two engines in the
737, and seating capacity is slightly
more: 92 passengers on the 727 and
90 on the 737. Some deliveries of the
FH-227B have been made. However,
I don’t want to cover too much of
Mr. Saunders’ operations since he
will speak later, but we are moving
forward with our equipment pro
gram.
As mentioned in the minutes, we
had a tremendous financing program
ahead of us but we are happy to
say that we have completed it very
satisfactorily, from the bank’s stand
point anyway, and very exnensive
from our standpoint, but under the
circumstances of tight money, etc.,
a good arrangement for all and we
are happy to have that worked out.
We are continuing to grow and
we see nothing on the horizon to
slow down that growth. We were
short of capacity on our aircraft
and we are short of space here at
home. Our office facilities are
horribly cramped with three, four
and five people in space designed
for one, and half our maintenance
work is being done on the outside
with resulting additional cost.
We have made plans for a new
larger headquarters facility for both
ereneral office and maintenance. The
building will be here on the Smith
Tievnolds Airport owned by Forsyth
County, built by them and leased to
Piedmont and amortized over the
life of the lease. Bids have been
asked from contractors to be turned
in the 26th of this month and we
hope to begin construction 45 days
thereafter. We believe the designs
that have been prepared for us
represent an extremely fine set of
plans for a new facility and I know
you will be proud, as we are.
As pointed out iii the annual
report, 1967, while extremely
encouraging from a growth stand
point, offers difficult hurdles to
overcome. In that connection our
first quarter earnings are down from
first quarter earnings last year. Con
solidated net earnings for the first
quarter of 1967 were $141,000 after
taxes, compared to $293,000 for the
first Quarter of last year, a $150,000
reduction. The General Aviation
activities of the company were
responsible for a large part of
that profit with the Airline profits
being the smaller portion. This is
attributable to several things. Sub
stantial wage increases placed into
effect the first of the year for all
employees are beginning to be absorb
ed, interest cost on the extremely
large debt in connection with
the re-equipment program is
with us, and we are having non
recurring indoctrination expenses in
putting this new equipment into use.
In addition, the CAI? has changed
its system of subsidy or public ser
vice payments this year as compared
to the system that was used last
year, so that our payments this year
will be on a constant level
throughout the year, whereas
last year payments were high during
the first of the year and toward the
last of the year we were refunding
more than we were billing. That
created some inbalance in the picture
of first quarter last year versus this
year. We hope to conduct our affairs
so that we will have a very satisfac
tory 1967 and the stockholders' earn
a reasonable return on investment.
At this time Mr. Saunders, vice
president, will give his report.
Mr. Saunders: Our operation per
formance was equal to, and particu
larly in completion of flights, or bet
ter than in 1966. Our airframe and
engine overhaul times are about the
same which is about the limit of
the Martin and F-27 except that the
Dart increased to 4800 hours between
overhauls. On new equipment, we
completed training on one 727 and are
in the process of completing transi
tion training to put the second air
plane into service April 30. As for the
FH-227B, we have two in service and
we are installing the interiors and
electronic equipment on others. As for
the 737, we have six on order and
the first 737 was test flown by Boe
ing a week ago. It is exceeding the
engineering data so far. We will
begin training on this aircraft in
October or November of this year
for delivery in March, 1968. We wiU
eliminate a lot of the flight time,
about 50 per cent, with the simula
tor — time that otherwise would have
to be in flight.
Mr. Davis: Thank you, Mr.
Saunders. Now a report from Vice
President Brown.
Mr. Brown: I am always happy
to be in a position to report a good
year and I know you realize that
from a traffic and sales standpoint
1966 was especially good.
I will cover just a few items. I
think the annual report gave you a.
complete picture of 1966 over 1965 ■—
plane mileS' up 20 per cent, capacity
up 24 per cent due to larger equip
ment flown over more miles and
revenue passenger miles up 22 per
cent, an increase in load factor of
7 per cent 1966-1965, from 55% in
1965 to 59% in 1966. This is an ex
tremely high load factor for local
service airlines.
In 1966 our passengers traveled an
average of 15 miles further on Pied
mont. The 1965 average' trip was
222 miles while in 1966 it was 237
miles. This may not sound like much
but in dealing with large numbers
it is important. Our passengers paid
$1 more per ticket in 1966 than in
1965. In cargo and miles of air mail
flown we exceeded 1 million ton
miles. One million ton miles of air
mail is quite a bit — quite a few
letters to quite a few destinations to
quite a few people. In 1966 I am
happy to report that we inaugurated
service over the route to New York.
We started off with five round trips
using Martin 404 and F-27 aircraft,
and on March 15 we increased that
to seven round trips, two with 727
jets and others with FH-227’s, F-27’s
and Martin 404’s. I hope that you
noticed in our advertising what I
regard as one of the cleverest ideas
ever developed by our adver
tising agency. “We’ve Put New
York City On The Map — Ours.”
We have gotten a lot of mileage
out of this ad and in New York
it has been particularly effective.
Our agency deserves quite a bit of
credit.
In 1967 traffic has been growing
at about the rate of growth in 1966:
Jan. revenue pass, miles up 38%
Feb. revenue pass, miles up 28%
March revenue pass, miles up 34%
Average 33.7% for first quarter.
As indicated, we put the Boeing
727 into service March 15. A fair
portion of that service is on the New
York run and I have personally been
delighted at the passenger appeal
and acceptance of this service. The
load factor on these jet flights so
far is about 50 per cent and I hope
that when we put the second 727 on
the line April 30, the two units will
improve scheduling and make possi
ble an even better load , factor.
We were successful in our efforts
to obtain authority for Greenville-
Spartanburg service. We inaugurated
service there April 1, 1967, and we
have been quite pleased with the
traffic and response. I believe it
will be an improvement not only to
existing routes but an asset in other
route plans in other areas.
I am happy to report that the
Memphis-Nashville case is well under
way. Exhibits were exchanged early
this month and the Examiner’s
hearing is set for May 23 of this
year. I would be hopeful that under
the new atmosphere at the CAB, if
we can obtain a favorable Examiner’s
decision in this case, it might well
be that it could be finalized in 1967.
That, I believe, brings us up to date
with the applications on file with the
Board. With New York, Greenville-
Spartanburg and Nashville and
Memphis, I believe we have reason
to be pleased with our program in
this area.
Mr. Davis: In connection with
our growth you may be interested
to know that we are flying the
equivalent of two and one-half times
around the world each day.
We will now have our report on
General Aviation — Mr. Northington.
Mr. Northington: I am like Mr.
Brown in that I am happy to tell
you about the General Aviation Di
vision since 1966 was our best year:
Sales up 12 per cent over last year
which was itself a record year; net
income up 34.8 per cent over 1965.
The majority of the increase in sales
of this division were aircraft sales,
accessories and fuel. As in the past.
Central Piedmont Aero received
awards from Piper and did General
Aviation from Beech for outstanding
sales achievement. Last year our
sales were $8% million and hope to
do $9 million in 1967. The first
quarter has been quite good and we
hope the rest of the year will be the
same way. I would like to introduce
to you two people here today that
have been very much a part of this
success. I introduce Tom Ferguson,
manager of our Norfolk operations
and also L. P. Wrenn, general man
ager of Central Piedmont Aero, who
have done an outstanding job. Mr.
President, thank you.
Mr. Davis: We will proceed with
the report of the Proxy Committee
and take care of the matters of
business. Mr. Jim Smith:
Shares outstanding 1,835,845
Shares represented in person 212,025
Shares represented by
proxy 1,235,789
Shares not represented 388,031
Total represented 79% of the
total shares outstanding.
Mr. Davis: We have a quorum and
will continue the remaining portion
of the business. Your Board
of Directors has recommended a
stock option plan for key employees.
A little history is in order. We had
a plan adopted a number of years
ago which has long since been allo
cated. As indicated in the Proxy
Statement, we are convinced this is
one of the most beneficial and de
sirable methods of showing those re
sponsible for the development of the
Company appreciation for their ef
forts and we recommend this
plan. If there are any questions,
please ask them. I can discuss this
objectively because under the gov
ernment regulations I cannot partici
pate in it. We are extremely
anxious to have It for the key em
ployees of the Company. Any com
ment? Is there a motion? (Motion
made, seconded and passed.)
(Mr. Smith read the Proxy vote
on Stock Option Plan:
In favor of 1,378,945 75.11%
Negative 37,677 2.05%)
Mr. Davis: Second, we will con
sider a resolution to purchase stock
for two needs, the first being to
purchase stock for reallocation under
the Stock Option Plan, the second
being to fund our deferred compen
sation plan. This would give the
Directors the authority to purchase
from time to time of up to 10,000
shares. Of course this is permissable
only during this year. It would have
to be re-approved if this plan is con
tinued. The Directors recommend ap
proval of this resolution to you.
(Motion for approval and seconded.)
Any discussion or questions? (Motion
voted on and passed.)
Mr. Smith: (Proxy vote on motion:
In favor of 1,378,207 75.07%
Negative 38,415 2.09%)
Mr. Davis: A two-thirds vote is
required and we have well over two
thirds.
The next order of business is
election of Directors. As indicated in
the proxy statement, the management
nominated the following to serve dur
ing the coming year as Directors.
(Names read.) All have served pre
viously with exception of Mr. Charles
Myers who is President and Chief
Executive Officer of Burlington In
dustries and who is one of the most
capable businessmen in the world. He
will make a tremendous contribution.
He would not accept without fulfill
ment of his obligations and getting in
there and being a working director.
We are extremely happy he has
agreed to serve. Are there
other nominations? If not, a
motion. (M6tion made and seconded
to elect the directors nominated.
Motion passed.)
Mr. Smith: (Proxy vote on election
of Directors:
In favor of 1,412,900 76.9%
Not voting 3,722 .02%)
Mr. Davis: Are there any ques
tions, criticisms or comments on the
operation of the business that have
not been covered?
Stockholder: Has Piedmont given
any consideration to the student
rates which I understand other air
lines give?
Mr. Davis: Mr. Brown will an
swer.
Mr. Brown: We have given it
consideration. Quite honestly, our
situation is that throughout the last
year we have been pinched capacity-
wise and we need more seats and
you don’t discount a product when
in short supply. It may well be that
in the next year when we phase in
the 737 that we find ourselves in
the situation beneficial to ourselves
and students to explore students
rates, but I don’t think at this point
it would be wise.
Stockholder: Have you given con
sideration to listing Piedmont on the
stock exchanges?
Mr. Davis: The Directors are con
tinuing to review that matter from
time to time, in fact at each of our
meetings. Frankly, we have recently-
been making a rather thorough in
vestigation in order to have enough
information to make an intelligent
decision as to whether it is
in the best interest of the stockhold
ers. First, we need to know how
much “floating” stock is available and
things of that sort. We are asking
our Transfer Agent to assist in this.
There has been no decision to list
or not to list at this point. We are
waiting for further information to
come up with the right answer. Any
other questions?
Stockholder: You mentioned earlier
that your planes fly 2% times
around the world each day. That
would leave them half way around
the world! How do you get them
back? (Laughter)
Mr. Davis: At the rate we are
getting the jets — they cover a
lot of miles in' a short time — by
the middle of next summer we’ll
get them back home again! (Laugh
ter) Any other comments?
In closing, let me say that we are
deeply grateful for your coming and
your support. We arranged to have
one of our 727’s now used for train-
mg to be here. The boys training on
it are taking a break and you can
take a thorough tour of the jet. It
is just outside. If you would like to
take a good look at it, Mr. Britt and
Mrs. Allen will be your hosts and
you may contact them immediately
after adjournment. (Meeting ad
journed.)