.ANNU.AL REPORT 1958 NORT::B: CENTR.AL .AIRLINES N ORTH CE NTRAL AI RLINES --1 NORTH . C ENTRAL - - ; ; ; ; , _.......... \ '; .. ~cs, t ii GENER.AL OFFICES : 6201 Thirty-Fourth Avenue South, Wold-Chamberlain Field, Minneapolis 50, Minnesota OFFICERS: ARTHUR E. A. M UELLER . .. ... . . Chairman of the Board H. N. CARR . . . .... .. . Preside t and General Manager FRANK N . BurroMER .. Vice Pre ident, Traffic and Sales R. H. BENDIO, SR ........ Vice esident, Maintenance and Engineering ALVIN D. NIEMEYER ...... Vice resident, Operations ARTHUR E. ScHW ANDT ......... . .... Vice President, ndustrial Relations A . L. WHEELER ... . ...... Vice Pre 'dent and Counsel BERNARD SWEET ............... S cretary-Treasurer R,EGI STR,AR, A STOCK T &ANSF E R, NORTHWESTERN NATIONAL BANK OF INNEAPOLIS MINNEAPOLIS, MINNESOTA DIRECTORS: H. N. CARR0 CHARLES R. Hoon WERNER L. CHRISTENSEN ARTHUR E. A. MuELLER0 G. F. DECOURSIN A. L. WHEELER H. N. CARR CHARLES R. Hoon K. B. WILLETT ALVIN D. NIEMEYER K. B. WILLETT 0 Executive Committee WERNER L. CHRISTENSEN ---- - ARTHUR E. A. MUELLER R.H. BENDIO, SR. ARTHUR E. SCHWANDT G. F. DECOURSIN A. L. WHEELER FRANK N. BUTTOMER BERNARD SWEET A]Y.[ERIOA!S LEADING LOCAL AIRLINE To Our Stockholders, ErnpJoYees and Friends: The events Which made 1958 th t t 1 I-Year history Will greatly influe :hou sanding Year in North Centra/'s Doring the Past 12 month t;ce e course of the airline's future growth. aircraft flew over 11 Ooo OOo s, e company's expanded fleet of 32 DC-3 Passengers. North C~ntr;, co:ten~et1/es and carried nearly 800,000 March 10, 1959 Vofurne of air rnaiJ air express inude ob/ead the loca/ airline industry in t t / ' an num er of Passenge A o a revenues exceeded $13,000,000. rs. s a reso/t, our As the Year drew to a close the c 1 . decision in the vast Seven Stat;s Are iv1 Aeronautics Board reached a fina/ Route of the North/iners tom th a Investigation Which increased the states. This Was the largest ore/ an 5,ooo miles With service to 65 cities in nine singe route award the compan h On January 9 19 59 $4 3 Y as ever received. ' a , 40,0oo financing the Purchase of five Convair 340 aircraft Program Was completed for These larger, faster more efficient a. 1 and other corporate Purposes. rn th J ' " 1ners Wi// be in sch d / on nauguration of Convair op t . e o ed service next earnings capacity, era ion W1// substantially increase our . Management takes this opportunit to h . _their contribution to the growth of the :o t ank its l,50o employees for its loyal Patronage and its t kh mpany, the traveling PLJb/ic for th . soc O/ders and Other f . d e,r continued confidence and support. rien s of North Centra/ for Our strengthened financial POsitio . Will rnake 1959 an even greater Y nf, new equipment, and extended routes ear o Progress. ~~ Arthur . A. MueJJer Chairman of the Board ~~ H. N. Carr President NORTH OENTRAL'S .....: ~~ year in revie-vv and forecast NOR . T.H . CENTRAL . ?, ; "&5fp; ' i] ' CERTIFIED lMClLEAGE 0--VV-TH 5,228 NmTH CENTRAL AIRLINES, for the fourth consecutive year, continued to lead the nation's local service industry in establishing new records in passenger, air mail, and air express traffic. In addition, a $4,340,000 financing program, completed January 9, 1959, placed the company in the strongest financial position in its history. Traffic generated over the nine-state system resulted in record commercial revenues of $9,360,416, an increase of 19 per cent over 1957. Total gross revenues for the year 1958 were $13,141,239, with a net profit of $108,184, com- pared to $80,791 in 1957. The operating profit in 1958 was $157,850, after depreciation charges of $583,174. Since November 23, 1956, North Central has been oper- ating under a temporary mail rate. Therefore, the amount of air mail revenue reported is somewhat less than the com- pany's claim with the United States Government. Since the former permanent rate set in 1954 did not anticipate ade- quately the company's rapid expansion, a petition for a new permanent rate was necessary. When this rate is established, it will be retroactive to November 23, 1956. At the request of the local service airlines, the Civil Aero- nautics Board in 1956 instituted an investigation to consider adequacy of the rate of return allowed in mail rate proceed- ings. Since this case has not been completed, the Board in the interim increased the allowable return on investment in all future rates for local airlines from 8 per cent to m~ per cent. A final decision in the rate of return investigation is expected this year. Financial arrangements were completed early in 1959 for the purchase of five Convair 340 aircraft and for other corporate purposes. The program consists of two loans-the first, a $2,000,000 working capital loan at 5}~ per cent for 3}~ years, and the second, a $2,340,000 equipment loan to yield the lenders 5.13 per cent interest over seven years. Ninety per cent of this loan is guaranteed by the Federal Government. This financial program is in accordance with a resolution adopted at the annual stockholders' meeting of April 2, 1958. At that time, North Central stockholders authorized two loans totaling $7,500,000. However, the actual borrowing involves $3,000,000 less than was author- ized, largely because the new aircraft were acquired under an extremely favorable purchase agreement. AGGRESSIVE ROUTE DEVELOPMENT North Central's extensive route development program, in- itiated in 1954 and actively pursued since then, kept pace with the company's physical growth during 1958. The year saw a final decision in the Seven States Area Investigation - one of the most important route cases con- cerning the local service industry. Because the original ap- plications by the various airlines were combined into this far-reaching Seven States Area Case, the C.A.B. decision directly or indirectly affected every community in the West and Midwest. Another important case before the Civil Aeronat1tics Board- is the- Great Lakes Area Investigation which could ad and Huron; while W estem was suspended at Brookings, Spearfish, and Mankato. Two of these cities, Brookings and Watertown, were already on the North Central system. At the same time, North Central inaugurated service to Devils Lake, North Dakota; Pierre and Rapid City, South Dakota; and Worthington, Minnesota. Great Lakes Area Investigation The recommendation issued in December 1957 by counsel of the Civil Aeronautics Board's Bureau of Air Operations would increase North Central's system by 1,067 route miles and 10 additional cities in Michigan. Included is a route between Sault Ste. Marie, Michigan, and Chicago via Cheboygan, Traverse City, Manistee, Grand Rapids, and Benton Harbor, Michigan. Another segment would be added between Sault Ste. Marie and Detroit by way of Cheboygan, Traverse City, Saginaw, Flint, and Pon- tiac. A further recommendation would permit service by North Central between Sault Ste. Marie and Detroit via Cheboygan, Alpena, Saginaw, and Port Huron. The com- pany also would be authorized to serve Detroit and Mil- waukee on a route including Lansing, Grand Rapids, and Muskegon. The case is now before the C.A.B. hearing examiner, and his report is expected soon. This will be followed by a final order from the Board in the Great Lakes Area Case later this year. Lake Central Acquisition The most recent action, in the program which began in October 1952 to purchase 96 per cent of the outstanding Lake Central Airlines stock, came in January 1959 when the U.S. Circuit Court of Appeals, Washington, D. C., up- held the Civil Aeronautics Board's refusal to allow the North Central-Lake Central merger. The Board, in its decision, had said the combined area would be too large for the type of concentrated local serv- ice desired for so-called "feeder" carriers. Generally, the Lake Central system serves an area southeast of Chicago- Detroit, including Cleveland, Buffalo, and Cincinnati, as well as smaller cities in Pennsylvania, Ohio, and Indiana. North Central has petitioned for a Writ of Certiorari in an effort to appeal the case to the U. S. Supreme Court. The writ, if granted, would require the Supreme Court to call up the records in the case for review. Canadian Applications In February 1958, North Central filed applications with the Civil Aeronautics Board to extend its service on three more routes into Canada, totaling 828 miles. The new applications propose nonstop service between the Twin Cities and Winnipeg, Manitoba; Detroit and Toronto, Ontario; and Minot, North Dakota, and Regina, Saskatchewan. Already on file are applications for routes linking Duluth/ Superior and Houghton/Hancock, Michigan, with Fort Wil- liam/ Port Arthur, Ontario, and International Falls, Minne- sota, with Winnipeg. These segments would total 463 miles. Steps are being taken to reopen the Bilateral Treaty be- tween the United States and the Dominion of Canada. This is necessary before any action can be taken on the North Central applications. 1948 1949 1950 2,050,946 1951 1,977,815 1952 2,868,727 1953 4,290,409 1954 1955 1956 1957 1958 19 % OF GAIN FL 7,893,532 9,495,624 11,260,865 Chicago-Mil""V'v"aukee- T""V'v"in Cities Case The company's applications to operate nonstop flights be- tween Minneapolis/ St. Paul and Chicago, Twin Cities and Madison, Twin Cities and Milwaukee, and Madison and Chicago were filed with the Civil Aeronautics Board in 1955. The Board, in a press release issued late in 1958, indicated it has reached a decision which denied the company's appli- cations. A final order, however, has not been issued. Erie-Detroit Service Case This 173-mile route is still under investigation by the Civil Aeronautics Board, despite C.A.B. action in 1956 awarding the mileage to two other local service airlines. To maintain its status as an applicant, North Central has filed a Petition to Intervene in this case. A decision is expected in 1959. IMPROVED FACILITIES North Central added many refinements in its service to the traveling public during 1958. Major changes were insti- tuted in baggage-handling, passenger check-in procedures, communications, and reservations. A systemwide telephone courtesy program was implemented, and several airport de- velopment projects were completed during the year. Improved methods of baggage-handling at various inter- line connecting cities brought about a considerable saving of expenses in the delivery of mishandled and misconnected luggage and a greater convenience to the traveling public. New passenger check-in procedures at Chicago Midway Airport and General Mitchell Field, Milwaukee, now pro- vide a faster, more efficient way of handling the thousands of passengers who pass through these terminals monthly. These procedures have materially increased the Row of traf- fic and decreased passenger complaints. The company expanded its private line telephone system by adding more stations to the network, as well as a supple- mental circuit in several cities. The new communications facilities have greatly speeded reservations and operations messages. Various changes in North Central' s reservations system have increased the number of passengers who can be effi- ciently handled to approximately 125,000 a month. The no-show penalty plan was dropped by all scheduled airlines during 1958 because procedures proved costly to administer and resulted in considerable inconvenience both to the airlines and the passengers. However, two features of the plan - the minimum time limit for ticket pick-up and the reconfirmation rule -were retained. The airline industry will review the entire program during 1959 and consider further modifications of it. A telephone courtesy program, unique in the airline in- dustry, was designed to improve North Central's "voice of service." Two speech experts were hired to instruct public contact employees in proper speech, voice techniques, and telephone courtesy. These instructors traveled over North Central' s system, working with personnel of the general office, the stations, and the three reservation centers. They concentrated on improving the diction, enunciation, voice modulation, and language of these employees. Individual evaluation, group instruction, check calls, tape recordings, and movies were used in the program which attracted national attention. SER.VICE INCREASED North Central continued to pace the nation's local airlines in service offered to the traveling public. In 1958, the com- pany's 32 DC-3 Northliners flew 11,260,865 revenue miles- a 19 per cent increase over 1957. Service was inaugurated between Duluth/ Superior and Sault Ste. Marie April 1. Intermediate points on this seg- ment are Ironwood, Houghton/ Hancock, and Marquette, Michigan. The new service links the two campuses of the Michigan College of Mining and Technology at Houghton and Sault Ste. Marie. The company continued to maintain one of the best per- formance records in the airline industry. During 1958 North Central operated with a performance factor of 98.2 (per cent of scheduled miles flown). This is the highest operat- ing performance the company has achieved in any year since it started service in 1948. North Central's on-time performance during the year was also outstanding in the industry with 78.7 per cent of all flights arriving on sched- ule. This record is especially significant because of the ad- verse flying conditions encountered over the North Central system. TRAFFIC LEADERSHIP North Central maintained its lead over the 12 other local airlines in all classes of traffic during 1958. A total of 777,140 revenue passengers were carried on North Central's system during the year, for a 14 per cent increase over 1957 and 59 per cent above the second-rank- ing local service airline. Plane miles flown increased 19 per cent and passenger miles totaled 125,905,671, for an in- crease of 18 per cent. North Central also led the other local airlines in charter revenue. This revenue totaled $384,957 in 1958, a 41 per cent increase over 1957. Northliners carried 2,900,313 pounds of air mail during 1958, an increase of 9 per cent over the previous year. This was 70 per cent ahead of the second-place local carrier. In addition, 878,986 pounds of regular surface mail were boarded, a 31 per cent increase over 1957. Air express volume reached a record 5,319,426 pounds, surpassing 1957 by 9 per cent and the second-ranking local by 89 per cent. August was North Central' s best traffic month. The com- pany boarded 76,011 revenue passengers, setting a new rycord for the local airline industry. The three-millionth Northliner passenger boarded a flight on August 26. The company's tremendous growth can be easily shown by the fact that the first million passengers were carried during the first 7}f years of operation, while the second million were carried in the next two years, and the third million in just 16 months. EQUIPMENT FR.OGRAM The Civil Aeronautics Board, in January 1959, approved a government guarantee of 90 per cent of the $2,340,000 equipment loan for the purchase of five Convair 340 air- craft and related spare parts. The first Convair was delivered to North Central's main operations base at Minneapolis/ St. Paul on January 9. Pres- ent plans call for delivery of one Convair each month until April when the last two are expected. This will bring the company's fleet to 32 DC-3 Northliners and five Convair Super N orthliners by April 26 when service with the larger aircraft will be inaugurated. The Convair 340 is a twin-engine, 44-passenger airliner, equipped with radar to seek the smoothest routes and avoid rough weather. The pressurized cabin insures passenger comfort at high altitudes and also when the plane is ascend- ing or descending. A tricycle landing gear keeps the cabin level when the plane is on the ramp. An integral air-stair door, forward of the left wing, is another feature of the Convair. The door folds into the fuselage when not in use. A spacious carry-on baggage rack is located on the left side, just ahead of the passenger compartment. The Convair is the fastest aircraft ever operated by North Central. Cruising speed is 284 miles an hour at 20,000 feet, compared with 160 miles an hour for the DC-3, which oper- ates at lower altitudes. The flight range of the Convair 340 is 2,200 miles, while the DC-3 is limited to 900 miles. Present equipment plans call for the use of Convairs on the long-haul, high density segments of Minneapolis/ St. Paul-Chicago via Eau Claire, Wausau, Green Bay, Oshkosh, and Milwaukee, Wisconsin; Duluth/ Superior-Chicago non- stop; Duluth/ Superior-Chicago via Green Bay and Milwau- kee; Milwaukee-Chicago commuter flights; Minneapolis/ St. Paul-Duluth; Madison-Chicago via Janesville/Beloit, Wisconsin; and Detroit-Chicago via South Bend, Indiana, and Battle Creek, Michigan. Convair service will be extended to other segments as rapidly as traffic develops and airports are made adequate for Convair operation. The new Convairs will make DC-3' s available for service on the segments granted in the Seven States Area decision. Currently, the present fleet is adequate to serve the ex- panded system, but future route awards in pending cases may necessitate the acquisition of additional DC-3's, as well as Convairs. FORECAST North Central's progress in 1958 and the important events which increased the company's capacity for growth should enable it to carry one million passengers in 1959. This would further extend its leadership in the local service industry and Hlake it possible for the airline to realize record earnings. The Convair 340, North Centrars third major equip- ment change in 11 years of scheduled operation, fea- tures weather radar to seek the smooth routes and pressurization to insure passenger comfort at high altitude and when ascending or descending. More than 20 cubic feet of fresh air per minute, conditioned for temperature, is supplied to each passenger through individual controls. The hydraulically- operated stairway folds into the fuselage after load- ing. A spacious carry-on baggage rack is located ahead of the passenger compartment on the left side. The increased wingspan-105 feet, 4 inches-coupled with a new flap system, gives the Convair outstanding per- formance for operation into smaller airports. North Central' s special exhaust system modification reduces the Convair engine noise level by more than 40 per cent. 0 0 0 " 0 Q 0 0 0 Main passenger cabin, richly furnished with 44 wide, upholstered seats, thick carpeting, individual controls for air conditioning. AMERICA'S REGINA MONTANA NORTH DAKOTA SOUTH DAKOTA ""'"' ' IAPID CITY WYOMING NEBRASKA PRESENT ROUTES---- PROPOSED ROUTES~--- LEADING MISSOURI LOCAL . ,on AUNUI . o' DAYIIPOIT IOCII ISLAND MOLINE I. Ollll ILLINOIS AIRLINE STE. HIE PENN, 1958 1957 1956 1955 1954 1953 1952 1951 1950 1949 1948 11 .A. ]Y.[ E :RIC .A.' S LE.A.DIN""G LOC.A.L R.EVENUE PASSENGERS 48,797 - 2,625 11,398 777,140 680,930 549,654 430,445 283,556 217,663 153,047 96,265 AIR. MAIL : . . in pounds 2,900,313 2,666,408 2,174,801 1,840,458 1,461,090 1,324,693 1,172,620 761,030 503,235 263,696 - 144,358 AIR. EXPRESS ... inpounds 5,319,426 4,884,429 4,959,925 4,298,169 2,584,160 1,963,886 1,762,488 1,612,602 - 638,915 - 294,244 201,367 YEARS OF CONTINUOUS PROGRESS NORTH CENTRAL .A.IRLIN"ES A.IRLIN""E REVENUE PASSENGERS North Central 777,140 Allegheny 488,597 Mohawk 485,981 Piedmont 448,005 Ozark 426,188 Pacific 375,718 West Coast 294,200 Frontier 260,582 Trans- Texas 248,571 Southern 225,175 Lake Central 186,617 Bonanza 180,770 - Central 136,752 I ~ * -FIR _J AIR MAIL AIR, EXPRESS ... in pounds ... in pounds North Central 2,900,313 North Central 5,319,426 Allegheny 1,705,028 Ozark 2,818,897 Ozark 1,427,211 Allegheny 2,784,902 Pacific 1,397,455 Lake Central 2,362,720 Trans- Texas 1,379,961 Mohawk 1,785,027 Piedmont 1,250,396 Piedmont 1,565,126 Southern 1,192,109 Southern 1,305,513 Mohawk 1,028,754 Trans- Texas 965,353 Frontier 943,608 Pacific 824,498 Central 768,304 Frontier 595,772 - lake Central 660,760 Central 493,345 1111 West Coast 571, 111 Bonanza 374,872 - - Bonanza 377,775 West Coast 357,342 ]Y.[.A.IL, 1958 .A.IR EX:PRESS, 1958 NORT:H: CENTRA.L I A.IRLINES, INC. - - - - - - - - - -1 E.A..L.A..NCE .ASSETS CURRENT ASSETS Cash .................................................... . Accounts receivable Mail .................................................. . Mail - additional claim (Note 1) ......................... . Traffic ................................................. . Other ....... ...................... .. ..... ........ ..... . Inventories - at the lower of cost ( determined by the first-in, first-out method) or market Parts and supplies .... .. . .... . ...... .................... . Gasoline and oil ........................................ . Prepaid expenses and sundry deposits ............. ........ .. . Total current assets ........ .. . . ..................... . INVESTMENTS - AT COST ................................ . OPERATING PROPERTY AND EQUIPMENT Flight equipment (Note 4) ................................ . Ground equipment ........................................ . Hangar buildings and improvements to leased property . .. ..... . Furniture and fixtures ..................................... . Total - at cost ..................................... . Less depreciation to date ................................... . DEFERRED CHARGES Route q.evelopment expense ............................... . Other . . ........... . ........... . ........ . ................ . DECEMBER $ 314,260 475,232 1,255,154 181,104 253,615 16,943 4,595,893 495,059 155,032 160,721 5,406,705 3,110,292 295,895 28,873 $ 178,508 2,225,750 270,558 83,357 2,758,173 10,601 2,296,413 324,768 $5,389,955 l I i' S:H:EET 311858 LI.ABILITIES CURRENT LIABILITIES Notes payable 5~f% note to bank payable on demand (Note 4) ........ ..... . Current maturities of long-term notes ..................... . 5~f% unsecured notes ( Note 5) . ........ . ....... ... ........ . Accounts payable Trade . .................... ... ...... ..... .... ... ....... . Traffic ................................................. . Unearned transportation revenue ....... ...... ..... ..... .... . Income taxes withheld and other employee payroll deductions .. Accrued liabilities Salary and wages .. . .............. ........... . ..... ..... . Taxes ( other than income taxes) .......................... . Other . . ....... ..... .... ..... . .... .. .. ................. . Total current liabilities ... .. ....... ... .. . . ........ ... . NONCURRENT LIABILITIES 5% notes payable to bank, due in monthly installments to December 10, 1960 ( Note 4) ............................. . Other notes payable, secured by pledge of certain equipment, due in monthly installments ................................. . Less current maturities ... .. ... ..... .. ........... ...... ... . Deferred rent payable ..................................... . Total noncurrent liabilities .................... . ...... . CAPITAL Common stock - authorized, 3,750,000 shares of $.20 par value; issued 1,998,070 shares ... ... . . ................... ........ . Paid-in in excess of par value of stock issued ..... .. .. , ......... . Retained earnings ....................................... .. . Less 13,250 shares of common stock reacquired and held in the treasury - at cost ....................................... . $ 100,000 287,926 162,500 1,210,279 1,016,189 469,272 31,347 251,078 485,000 129,888 614,888 287,926 326,962 14,600 399,614 817,518 1,217,132 142,794 1,359,926 7,225 $ 550,426 2,226,468 71,793 95,308 751,697 3,695,692 341,562 1,352,701 $5,389,955 The accompanying notes are an integral part of the financial statements. STA.TE1V.J:ENT OF EARNINGS Year ended December 31, 1958 TRANSPORTATION REVENUE Passenger ....... . ....... . .......... .. .................... . ~1ail . . . ................. .. . . ..... . ..................... . . Express ................. . ..... . .. .. .............. .. ..... . Excess baggage ......... . .... . .... .. . . ............ . ....... . Non-scheduled transport service . .... . ...... . .. . ...... .. ... .. . Other ... ... . . ........ . .... . ...... .. . . ....... . ........... . OPERA TING EXPENSES Flying operations ............ . ... . ...... . . . ............ . . . . Flight equipment maintenance ......... . . . ..... . .... . . . ... .. . Other maintenance ............... . .. .. .... . ........ ... . . .. . Passenger service ...... . . . ........ .. . . . . .. . . . ..... ... ... . . . Aircraft and traffic servicing .... ... ... . . ... . .. . . .. .. ........ . Promotion arid sales . . . ..... . .. . .. . ... . .. . ... . .......... . .. . General and administrative ... .. .......... . .. ..... .......... . Depreciation (Note 2) . ............. . . . . .. . ....... ... . ..... . Operating profit OTHER DEDUCTIONS Interest .. . ... ... . . ... .. .. ... ....... .... .. . ... . ... . . .. .... . Extension and development .... . ..... . . . .. .. . .. .. . . . . ... .... . INCOME TAXES (Note 3 ) . ... . . . . . ... . . . . . . . ...... . ........ . NET EARNINGS .. . . . ..... .. . ...... ....... .. ... .... ... . The accompanying notes are an integral part of the financial statements. $8,702,455 3,780,823 164,615 73,455 384,957 34,934 4,191,826 1,657,479 815,676 703,598 3,629,142 839,866 562,628 583,174 43,472 6,194 STA.TE1V.J:ENT OF RETAINED EARNINGS Year ended December 31, 1958 Retained--earnings - January 1, 1958 . ... . . . .. ... .. . . . .. . . . ..... . Net earnings for the year ended December 31, 1958 .. ... .. . ...... . RETAINED EARNINGS- DECEMBER 31, 1958 ... ... . . .. .. .. . The accompanying notes are an integral part of the financial statements. NOTES TO FINANCIAL STATEMENTS $13,141,239 $ 12,983,389 157,850 49,666 108,184 $ 34,610 1-08,184 $142,794 1. It is the policy of the Civil Aeronautics Board to provide a scheduled Aryiong other things, the loan agreement provides that the company main- a_irline on a temporary mail rate (the company has been on such rate tam current assets (excluding unapproved mail pay claims) that are at since November 23, 1956) with sufficient mail pay to meet its break-even least equal to current liabilities excluding any liability to the banks under need and also to provide for a reasonable return on recognized invest- the working capital loan or the equipment loan mentioned in Note 5. ment. In accordance with this policy the company has determined that At the time of effecting the new loan, the balance of $585 000 due at for 1958 an amount of $287,505 of additional mail pay will be applica- December 31 to one of the participating banks was repaid. ' ble under th~se two categories. An amount of $475,232 is shown as an account receivable at December 31, 1958, which amount includes the 5. The company has contracted to purchase five Convair-340 a ircraft spare 1958 item and $187,727 which is the unpaid portion of the 1957 and 1956 engines, and other parts, with the total price not to exceed $2 325 000. Additional Convair spare parts will be acquired costing $275 000 re'sult- break-even need and return on investment. ing in a total expenditure of approximately $2,600 000. Th~se 'aircraft 2. The amount of depreciation included in the accompanying statement of will be del ivered during the first four months of 1959: As down-payment, earnings is approximately $33,000 greater than the related amount allow- the company gave the s,eller fivi; unsecure? 5% notes totaling $162,500. able for tax purposes because the change in useful lives of aircraft and Each note of $32,500 w1 II be paid at the time of delivery of each aircraft. engines was made on the company's books of account at a date later The company has arranged with two banks to borrow an amount not to than a similar change was made by the Internal Revenue Service. exceed $2,340,000 to finance the purchase of this equipment which is to 3. A net op~rating loss carry-over from a prior year is sufficient to eliminate be pledged as security for the indebtedness. In addition, the United States taxable income for 1958. Accordingly, no provision has been made for Government has guaranteed 90% of the loon with such guarantee not to exceed $2, l 06,000. The loan is repayable in semi-annual installments to Federal and State income taxes. January l , 1966 with interest at 5.125% and a guarantee fee of 0.375%. 4. On January 9, 1959 the company borrowed $2,000,000 from two banks 6. The Circuit Court of Appeals for the District ~f Columbia has determined for a working capital loan which is repayable with interest at 5% in that the compa~y shoul,d not be allowed to acquire 80,054 shares (96%) monthly installments totaling $480,000 per year, w ith a final payment of of the outstanding capital stock of Lake Central Airlines, Inc. The com.- $370,000 due on June 15, 1962. As security for the loon the company has pony's legal counsel is preparing a petition for certiorari to be filed in pledged twenty-three DC-3 aircraft including related flight equipment. the United States Supreme Court for a review of the above decision . NORTH FRO-FORMA BALANCE SHEET Decembe.r 31, 1958* ASSETS LIABILITIES CURRENT ASSETS CURRENT LIABILITIES Cash .... .. .. .. . . ..... . .. .... ... ... $1,593,508 Notes Payable . ... .. .......... . .... $ 710,426 Accounts Receivable .. . ..... .. .. .... 2,225,750 Accounts Payable ..... .. . .. ... . .... 2,226,468 Inventories . . ... . ... .. . .. . .. . ... . . . 270,558 83,357 Unearned Transportation . . . . . . . . . . . . 71,793 Prepaid Expenses .. . .. . ... .. . . . ... . Payroll Taxes Payable . . . . . . . . . . . . . . . 95,308 - - - - - Total Current Assets . ...... . ... . ... 4,173,173 Accrued Liabilities . . . . . . . . . . . . . . . . . 751,697 INVESTMENTS .................... . 10,601 2,296,413 324,768 Total Current Liabilities ........... 3,855,692 OPERATING PROPERTY AND LONG-TERM DEBT .. . ........... ... 1,581,962 EQUIPMENT (NET ) . .. . . . ... . ... . DEFERRED RENT . . . . . . . . . . . . . . . . . . 14,600 DEFERRED CHARGES . .. . . .. . . .. . . . CAPITAL .......... .. . ........ ... . .. 1,352,701 $6,804,955 $6,804,955 * After giving effect to $2,000,000 working capital loan from which proceeds were received on January 9, 1959. ( See footnote 4 to Financial Statements.) CHICAGO NE W YORK LO S AN G ELES Board of Directors North Central Airlines, Inc. ALEXANDER GRANT & COMPANY CERT I FIED PUBLIC ACCOUNTANTS 312 EAST WISCONSIN A V ENUE MILWAUKEE 2 , WISCONSIN OT HER PRINC I PAL CIT! ES We have examined the balance sheet of NORTH CENTRAL AIRLINES, INC. as of December 31, 1958 and the re- lated statements of earnings and retained earnings for the year then ended. Our examination was 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 c ircumstances. In our opinion, the accompanying balance sheet and statements of earnings and retained earnings present fairly the financial position of North Central Airlines, Inc. at December 31, 1958 and the results of its operations for the year then ended, in conformity with generally accepted accounting principles applied on a, basis consistent with that of the preceding year. Milwaukee, Wisconsin February 16, 1959 Alexander Grant & Company Operating Revenues 1951 1957 1956 1955 1954 1953 1952 1951 1950 1949 $ 8,702,455 $ 7,372,333 $6,137,216 $4,933,487 $3,351,782 $2,303,738 $1,470,536 $ 860,599 $ 427,278 $ 271,576 $ Passenger . Mail. . 3,780,823 2,925,645 1,522,211 1,689,890 2,328,921 2,468,685 1,681,542 1,181,596 1,355,145 1,036,243 Express .. 164,615 146,287 149,640 126,476 75,630 68,117 55,861 45,173 18,637 8,364 Excess Baggage . . .. .. . . . . .. .. 73,455 54,986 40,506 30,477 20,975 15,739 12,783 5,643 2,419 1,519 Non-scheduled Transport Service 384,957 273,077 119,419 28,711 46,734 25,436 -0 -0- -0- -0 Other Revenue . 34,934 29,667 15,345 8,964 5,283 5,682 2,982 5,781 2,953 8,301 .1941 113,648 580,968 5,963 1,012 -0- 2,133 TOTAL . . $13,141,239 $10,801,995 $7,984,337 $6,818,005 $5,829,325 $4,887,397 $3,223,704 $2,098,792 $1,806,432 $1,326,003 $ 703,724 Operating Expenses . $ 4,191,826 $ 3,455,867 $2,578,253 $2,007,381 $1,695,384 $1,413,489 939,931 $ 612,060 476,572 361,254 $ 200,030 Flying Operations . .. Flight Equipment Maintenance . 1,657,479 1,384,841 960,021 845,753 724,209 690,589 483,292 275,469 267,105 229,946 127,966 Indirect Maintenance .. 815,676 644,693 287,978 342,276 373,222 368,406 293,682 157,014 136,205 lll,736 '51,164 Passenger Service . . . . . . . . . 703,598 560,934 443,243 325,669 256,872 211,520 140,983 82,967 16,096 6,791 3,294 Aircraft and Traffic Servicing .. 3,629,142 3,095,105 2,400,946 1,866,574 1,485,796 1,320,671 898,372 575,368 458,618 347,628 218,162 Promotion and Sales 839,866 621,829 456,537 369,452 270,129 228,028 122,724 101,881 37,697 25,696 19,033 General and Administrative . 562,628 504,055 431,671 367,236 316,092 270,391 223,500 159,580 129,794 120,850 80,919 Depreciation . 583,174 452,993 301,161 470,169 535,557 428,308 205,192 143,722 120,329 99,599 54,645 TOTAL. . .. $12,983,389 $10,720,317 $7,859,810 $6,594,510 $5,657,261 $4,931,402 $3,307,676 $2,108,061 $1,642,416 $1,303,500 $ 755,213 Net Operating Profit (or Loss) . . 157,850 81,678 124,527 223,495 172,064 (44,005) (83,972) (9,269) 164,016 ~ (51,489) Amortization of Route Development Expense . . . . . .. . (6,194) (6,281) (8,566) (26,995) (5,227) (10,618) -0 -0- (65,015) (86,292) (73,525) Non-operating Income and Expenses, Net . (43,472) (M,709) (36.085) (50,051) (55,130) (59,965) (39,421) 15,536 (6,888) (12,094) (3,030) Net Profit'(or Loss) before Taxes . 108,184 20,688 79,876 .146,449 7TI]of (114,588) (123,393) -s;m- ~ (75,883) (128,044) Income Taxes -0 (60,103) 45,700 18,000 -0- -0 -0 -0- -0 O -0 Net Profit (or Loss) . $ 108,184 $ 80,791 $ 34,176 $ 128,449 f7TDOT $ (114,588) $ (123,393) $ 6,267 $ 92,113 $ (75,883) $ (128,044) CENTRAL .AIRLINES 1958 ANOTHER YEAR OF PROGRESS In 1958, we celebrated our l 0th anniversary at Clintonville . . . trained and graduated many new stewardesses ... welcomed new, modern terminals in severat cities on the Northliner system . . . extended our route from Duluth to Sault Ste. Marie . . . started construction on a Convair maintenance hangar at Minneapolis/St. Paul. _J I ~ ~ ~iliiiliii~~n Capacity: nine passengers, Captain, First Officer. Cruising speed: 145 mph. Range: 713 miles. Powerplant: Twin Pratt & Whitney Wasp 400-hp. engines. Gross weight: 10,500 pounds. TH CEN Capacity: 26 passengers, Captain, First Officer, Stewardess. Joined fleet 1950, replaced Lock- heed 1951. Cruising speed: 160 mph. Range: 900 miles. Powerplant: Twin Wright Cyclone l 200-hp. engines. Gross weight: 25,346 pounds. 1 NORTH CENTRAL . ~ ~ ~====~-- Capacity: 44 passengers, Captain, First Officer, Stewardess. Added to fleet 1959. Cruising speed: 284 mph. at 20,000 feet. Cabin pressurized and air conditioned. Radar-equipped. Range: 2,200 miles. Powerplant: Twin Pratt & Whitney R-2800 engines, 2,400-hp. each. Gross weight: 47,000 pounds. I -