bSb! jermuy 7.0m f GENERAL OFFICES: 6201 Thirty-Fourth Avenue South, Wold-Chamberlain Field, Minneapolis 50, Minnesota DIRECTORS: H. N. Carr* Werner L. Christensen C. F. DeCoursin* Charles R. Hood A. L. Wheeler Arthur E. A. Mueller* K. B. Willett **Executive Corjiniittee OFFICERS: Arthur E. A. Mueller Chairman of the Board H. N. Carr President and General Manager Frank N. Buttomer Vice President, Traffic and Sales R. H. Bendio, Sr Vice President, Maintenance and Engineering Alvin D. Niemeyer Vice President, Flight Operations Arthur E. Schwandt Vice President, Industrial Relations Bernard Sweet Vice Preside7it, Secretary-Treasurer A. L. Wheeler Vice President and Counsel John P. Dow Assistant Secretary REGISTRAR AND STOCK TRANSFER AGENT: Northwestern National Bank of Minneapolis, Minneapolis, Minnesota NORTH CENTRAL AIRLINES, INC. 6201-34 AVENUE SOUTH WOLD-CHAMBERLAIN FIELD MINNEAPOLIS 50, MINNESOTA March 16, 1960 To Our Stockholders, Employees and Friends; North Central has completed another year of progress-the greatest growth year in the company's history. During 1959, record revenues of $18,500,000 were attained with the addition of over 2,000 route miles and the inauguration of service with new, larger Convair 340 Super Northliners. The five Convairs were added to the fleet of 32 Douglas DC-3's in April, increasing the company's earnings capacity as well as the number of seats available to the traveling public. During the past 12 months. North Central offered its airline patrons nearly 350,000,000 seat miles, a 35 per cent increase over 1958. A record 958,000 revenue passengers were carried over the Route of the Northliners. North Central also continued to lead the local airline industry in volume of air mail and express. In June, the company began air freight operations. By the end of 1959, 14,000,000 pounds of cargo had been carried, including freight, air mail, express and expedited surface mail. Air freight volume alone was more than 2,000,000 pounds for the seven-month period. Service was inaugurated during 1959 to 16 cities certificated by the Civil Aeronautics Board to North Central in the Seven States Area case. More than 2,000 route miles, the largest award in the company's history, were added to the system by this decision. It extended North Central's service in Minnesota, Wisconsin, Illinois, Nebraska, North Dakota and South Dakota. North Central issued and paid its first dividend this year. A five per cent stock dividend was authorized by the Board of Directors on November 20. Management expresses its sincere appreciation to North Central's nearly 2,000 employees for their enthusiastic contribution to the company's greatest year of progress; the traveling public for its loyalty and patronage; and its stockholders and other friends for their confidence, suggestions and continued support. We look to 1960 as another outstanding year. The anticipated addition of more Convair equipment, expansion of routes in Michigan, and inauguration of inter national service to Canada will assure our company's continued position as America's leading local airline. Sincerely, Arthur E. A. Mueller Chairman of the Board H. N. Carr President OXJFl OPIE3-A.TH3ST YE-A.Fl OE GnOWTH I^ORTH Central Airlines in 1959 experienced the greatest growth in its 12-year history, attainiiag record revenues with the addition of more than 2,()00 route miles to its nine state system and the inaiigi^ration of Convair Super Northliner service. j Revenues for the year rose to a high of $1^501,121, a 41 per cent increase over 1958. The com]|iany's ex panded route network and the new, large^ aircraft generated substantial increases in all classes! of traffic --passengers, mail, and cargo. j Operating expenses were $18,099,083, resulting in an operating profit of $402,038 and a net profit of $150,641. However, a non-recurring expens^i item of $134,673, recorded in 1959, reduced the figure to a net profit of $15,968, after depreciation charges of $859,102. This item consisted of route development costs in pro cessing the Lake Central Acquisition case and the Chicago-Twin Cities case, both of which wdfe settled in 1959. Some $104,834 in expenses were! incurred from 1952 to 1959 in the Lake Central AjBquisition case, while the balance of $29,839 is a wnte-off of costs during the past five years in the Chicago-Twin Cities case. North Central's aggressive route developpient pro gram has more than doubled the airline's system since 1954. The company's system included only 2,399 miles in 1954, while today it has grown to 5,366 miles. Still pending before the Civil Aeronautics Board are ap plications which would add another 3,442 route miles. North Central has been operating under a temporary mail rate since November 23, 1956 and, as a result, the amount of air mail revenue reported is somewhat less than the company's claim with the United States gov ernment. The permanent rate set by the Board in 1954 did not anticipate adequately the vast expansion of the company's route system, and a petition for a new per manent rate was necessary. When the final rate is es tablished, it will be retroactive to November 23, 1956. On December 10, 1956, the Civil Aeronautics Board instituted an investigation to determine whether or not the rate of return--or profit element--for the local air lines was fair and reasonable. On July 13, 1959, the C.A.B. examiner in the Rate of Return case found that the "rate of return heretofore used to fix the profit element. . . has not been sufficient," and recommended a rate of 12.25 per cent for future periods. This com pares with 9.5 per cent which the Board is now using during the investigation. A final decision in the case will probably be reached this year. The company's Board of Directors on November 20, 1959 declared a five per cent stock dividend to be issued December 21 to holders of record on December 7. This was the first dividend paid by North Central. The highlight in North Central's fast-paced route de velopment program came March 1, 1959 when new Northliner service was extended to 12 of the 18 cities certificated to the airline under the Civil Aeronautics Board's vast Seven States Area decision. More than 2,000 miles were added to the system by the order which extended the company's routes in Minnesota, REVENUES 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 Wisconsin, Illinois, Nebraska, North Dakota, and South Dakota. ! Cities included in the March 1 jinaugural were: Minot, Devils Lake, and Bismarck/M4ndan, North Da kota; Aberdeen, Huron, Mitehell, Rapid City, Pierre, and Spearfish, South Dakota; and Mankato and Wor thington, Minnesota. Added to the Route of the Norihliners under the same order were Appleton and Ashland, Wisconsin; and Rockford, Illinois. Operations to these cities were inaugurated July I. Fairmont, Minnesota, reeeived new North Central service beginning December 1, following completion of an airport development project. Still pending before the C.A.B. is apother important case, the Great Lakes Area Investigation, which covers extensive service in Michigan. Otijer applications under consideration include routes; from Detroit to Cincinnati, Omaha to Kansas City, Ki^nsas, and to five Canadian provinces. A summary of tifie latest develop ments in these cases follows: Oreat -A.rea Inv-estigation An initial decision September 29 by Civil Aeronautics Board Examiner Barron Fredericks would increase North Central's system by approximately 1,200 route miles, extend service to 19 additional cities in Michi gan, and add II new airports to the lication On October 5, 1959, the company filed an applieation with the Board for a route between Omaha, Nebraska, and Kansas City, Kansas, with two intermediate stops at Falls City, Nebraska, and Atehison, Kansas. The route would add 169 route miles and three new cities to the North Central system. A hearing date has not yet been set in the case. Preliminary action is expected late in 1960. Canadian -A.iDiDlications During 1959 North Central moved closer to becoming the first local airline to operate international routes. On October 21, Civil Aeronautics Board Examiner Herbert K. Bryan issued his initial decision recom mending that North Central be certificated to provide service to Regina, Saskatchewan, Canada, from Minot, North Dakota, with an intermediate stop at Williston, North Dakota. The eompany also has applied for a nonstop segment between Minot and Regina. Bryan's deeision was followed by a recommendation from Examiner Ferdinand D. Moran that the company be authorized to provide serviee to Fort William/Port Arthur, Ontario, on two new routes. One would oper ate from Duluth, Minnesota/Superior, Wisconsin; the other, from Houghton/Hancock, Michigan. North Central is unopposed in both Canadian ap- plieations. The deeisions require approval of the Presi dent of the United States before becoming final. The recommendations of Examiners Bryan and Moran would add nearly 750 route miles and four new cities to the company's system. Other Canadian applications on file by North Cen tral include nonstop service linking Minneapolis/St. Paul and Winnipeg, Manitoba; International Falls, Minnesota, and Winnipeg; and Detroit and Toronto, Ontario. No action to reopen the Bilateral Treaty be tween the United States and Canada is anticipated during 1960. Detroit--OincinneLti Early in 1959, the Civil Aeronautics Board made North Central a party to the Detroit-Cincinnati Suspension Investigation case which originated as an application by a trunk airline to transfer the route to another trunk line. Intermediates on the segment are Toledo, Dayton, and Columbus, Ohio. Examiner Paul Pfeiffer issued his initial decision in November 1959, recommending that a loeal airline be certificated to serve the segment. Briefs have been submitted subsequent to Pfeiffer's decision, and the Board is expected to set an early spring date for the oral argument. 4 Twin Cities--Qiaaci Cities In this proceeding, North Central appealed to the United States District Court of Appeals the C.A.B.'s order in the Seven States Case awarding two routes in Iowa, Illinois and Minnesota to another airline in the Seven States decision. These consist of a route from Minneapolis/St. Paul to Davenport, lowa/Rock Island/ Moline/East Moline, Illinois, via Rochester, Minnesota, and Cedar Rapids, Iowa; and from Madison, Wiscon sin, to Omaha, Nebraska, via Des Moines, Cedar Rapids and Dubuque, Iowa. The Court of Appeals has heard the case, and a decision is expected in the spring of this year. TRAFiniC CROW^TH North Central again led the nation's local airline in dustry in 1959 by setting new records in passenger, mail, and cargo volume for the greatest growth in the company's 12-year history. The 957,751 revenue passengers enplaned in 1959 was the largest number ever carried by a local airline and nearly one-fifth the total transported by the entire local industry during the year. It was a 23 per cent increase over North Central's own passenger traffic record of 1958, and exceeded the passenger volume on the second-ranking local airline by 61 per cent. Northliners carried 4,856,740 pounds of mail during 1959, an increase of 29 per cent over 1958, and which was 137 per cent ahead of the second-place local car rier. This includes the expedited surface mail carried by the airline. Cargo volume reached a record 9,195,960 pounds. This was 18 per cent ahead of the second-ranking local airline. Air freight service was inaugurated on June 1, 1959 and in September, North Central ranked third among the local airlines. By the end of the year, the company had carried 2,112,294 pounds of air freight. August was North Central's best traffic month. The company enplaned 95,409 revenue passengers, setting a new monthly high for the local airline industry. The eompany held this traffic leadership and also maintained its perfect safety record. Since inaugurat ing service in 1948, the airline has flown 662,648,213 passenger miles without a fatality to passengers or crew members. REVENUE MILES FLOWN 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 5 E-A.OILITIEIS North Central added to its physical plant facilities, created a new operating department, improved pas- smger handling'^jrocedures at hlTs^ CTncago Mfdway Airport, streamlined its system of interline reservations requests, and increased its sales staff during 1959. Three buildings were added to the company's phy sical layout in the General Office area of Wold-Cham berlain field, Minneapolis/St. Paul. A new $.350,000 Convair maintenance hangar and office building was completed in March. Located here are Convair line maintenance, inspection dispatch, the automotive shop, overhaul maintenance, and the welding, fabric and paint shops. The second floor houses offices for the Maintenance and Engineering department, and the Industrial Relations department. Across from the Convair hangar is a new one-story building which provides office space for the chief en gineer and his staff. The third addition was that of the Training Center. This building is located near the airport and is leased from the Minneapolis-St. Paul Metropolitan Airports Commission. The facility was required for the extensive Convair training program which the company instituted early in 19.59. At that time, all training activities for stew ardesses, pilots, maintenance and station personnel were centralized in this building. More than 750 North Central employees spent 20,500 ground school man hours and 1,500 in-flight man-hours of Convair train ing before the new aircraft went into service in April. A management training program has also been es tablished covering such subjects as personnel super vision, administration, and human relations. In June, a new company department -- Ground Op erations -- was established to provide broader, more direct supervision of stations, fleet service, telecom munications, and such ground services as security, lost North Central's careful inspection and maintenance of flight equipment resulted in remarkably few maintenance delays and cancellations. and found, and claims. These functions formerly were included in the Traffic and Sales and Flight Operations departments. The new department is headquartered in the Training Center and headed T. M. Needham as Director of Ground Operations. The growing volume of passenger traffic at Chicago Midway airport has made it necessary to increase the company's ticket counter staff by about 40 per cent to insure more efficient handling of air travelers. In ad dition, North Central instituted an intensive on-the-job training program for all Midway ticket agents covering schedules, tariffs, and ticketing procedures. The company has also introduced a new, streamlined check-in system for the convenience of Chicago-board- ing passengers. Agents can now check in passengers with confirmed reservations at about 60 per minute, pro viding more time for the customer with an unusual travel problem. "White-glove" treatment of passengers was inaugu rated by North Central at Midway in 1959 when three specially-trained passenger relations agents were placed in front of the ticket counter to handle uncon firmed reservations, standbys, elderly or incapacitated persons, and travelers with small children. This system allows the company to give individual attention to such persons and alleviates confusion at the counter. The company has centralized control of all com munications (local phones and leased facilities) under a Telecommunications section in the Ground Opera tions department. One of the major improvements in handling interline reservations requests has been the installation of a "Z" circuit teletype at the Chicago reservations center. This has resulted in faster, more efficient processing of interline reservations. In addi tion to other improvements in communications and telephone procedures. North Central plans to expand its private line teletype system to handle interline reservations exclusively at certain larger cities. Downtown ticket offices were opened at Green Bay and Madison, Wisconsin, during the year. City ticket offices also are maintained at Minneapolis and Duluth and shared with other airlines at Milwaukee, Chicago, Detroit, and St. Paul. During the year, district sales offices were opened at Chicago and Sioux Falls, South Dakota. The company established the positions of Military Sales Representative and Agency and Interline Sales Representative in 1959. Both are located in the Minne apolis District Sales office. During: l:959rNorth Centtai's staff: of trafficrandrsaies" representatives made nearly 16,000 personal sales calls in addition to their other duties. SERVICE IlSTCRE^SEID North Central continued to provide more service to the traveling public than any of the 13 other local 6 airlines. The company oflFered airline patrons nearly 350,000,000 seat miles, a 35 per cent increase over 1958. This increase was due largely to the addition of Con- vair equipment. North Central flew 153,893,721 passenger miles in 1959, a 22 per cent increase. Of the 167,922 scheduled arrivals during the year, more than 68 per cent were on time, a remarkable achievement considering the addition of new equipment and the short-haul nature of the operation. In February, the company established a fleet service section in the newly-created Ground Operations de partment. Meal service and snacks were added on cer tain long-haul, Convair segments. Last year. North Central's customer correspondence section answered more than 3,450 customer letters from the nearly 1,000,000 passengers carried over the Route of the Northliners. Every passenger letter goes first to President Hal N. Carr and then to the Traffic and Sales department for investigation and reply by the customer correspond ence section. Compliments are acknowledged and forwarded to the employee or station mentioned. Complaints are in vestigated, and the passenger is advised of the results. Deliciously-prepared meals are served on selected Super Northliner flights. Experience during the first eight months of Con vair operation indicates that the new equipment not only improves service to the traveling public but also generates new business. The Convairs are more effi cient than the relatively high-cost DC-3 because of a lower seat-mile cost. EQXJIT=1MCE]^TT FROO-RAIM: FORECAST North Central launched its third major equipment change April 26 with the inauguration of service with Convair Super Northliners, bringing the fleet to 37 aircraft, including five Convair 340's and 32 Douglas DC-3's. Delivery of the 44-passenger, radar-equipped Con vairs began in January 1959, after the Civil Aeronautics Board approved a government guarantee of 90 per cent of the $2,340,000 equipment loan for purchase of the five aircraft and related spare parts. During the remaining eight months, the Convairs were integrated into the operation with speed and efficiency. Average daily aircraft utilization for the year was 6 hours, 32 minutes. The company's DC-3 utilization rate of 7 hours, 20 minutes a day is the highest in the local airline industry. The Convairs flew 95.6 per cent of their 1,659,183 scheduled miles in 1959. The company's DC-3's oper ated 97.4 per cent of their 11,963,522 miles to produce a system performance factor for the year of 97.2 per cent. Initially, Super Northliner service has been reserved for the long-haul, high density segments. Future equip ment plans call for the addition of five more Convairs during 1960. Service with the larger, faster airliners will then be extended to other segments and additional cities as rapidly as traffic demands and airport develop ments permit. North Central looks forward to the new decade as a period which will bring unprecedented opportunity and progress. The dynamic record of the local airlines and the company's emergence as the leader in this im portant segment of the nation's transportation system will be reflected in North Central's continued growth during 1960. The next year will see North Central become the first local airline to operate international routes when the final approval is given to the company's applica tions to serve points in Ontario and Saskatchewan, Canada. The system also will be expanded to include new cities in Michigan. This strengthened route structure in the midwest and Canada will be augmented by the addition of more Convair equipment to serve the growing air transportation needs of this vital section of the nation. The company has for some time been evaluating avail able turbo-prop engines with a view toward convert ing its Convair aircraft within the next three to five years. a million passengers will board^ North Central airliners in 1960, and the new air freight serv ice will be further developed to match the company's leadership in mail and express volume. The inereased traffic potential, new equipment, and an expanded route system will result in record revenues to North Central during the coming years. 7 DEVILS LAKE WILLiSTON GRAND FORK^ NORTH DAKOTA HIBBING-CHI HpUGHTON-HANCOCK BISMARCK MANDAN ASHLAND T^-j^IRON mountain LAND O LAKt^ X WIS^NSIN R^ELANDER FARGO UPPER MICHIGAN/ BRAINEI ESCANABA MINNESOTA \ r^amoYGAu roz p/;^PETOSKEY \ i 1^ PELSTON I HARBOR SPRINGS fMENOMINEE MARINETTE ^ABERDEEN 0( WAUSAU tLlMTONVILLE Oappleton OSHKOSH t> SOUTH DAKOTA EAU CfcAlRE Q JiKVINS j POINT \ I Wise. RAPIDi MINNEAPOLIS Watertown OREEN BAY SPEARFISH MICHI< TORONTO KSAGI^AW /*!|AY iCITY \^dl|lnd P HURJ5N SROOKINGS PIERRE \ A^NITOW^ \0 RAPID CITY lU^^N irthingtoh^ ' - 7^ Q FAIRMONT MITCHELL 10 MILWAUKEB^ LANSING; MADISOjH SIOUX FALLS MlON HARBOR .&EPH^ 0 1 Q JACi 0 BATTLE * ^KALAMAZOO rH BEND^nP^n I^AN-DEEJANOb I YANKTON SIOUX CITY ROCKFORD IOledo CEDAR RAPH)r- IOWA NORFOLK davenport ROCK ISLAND MOLINE E. MOLINE FORT WAYNE DES MOINES SANDUSKY ILLINOIS INDIANA :OLUMBUS MISSOURI ROUTE OF THE NORTHIINERS NORTH CENTRAL. REGINA WINNIPEG 0JNTERNATIONAL FALLS 0 YHIEF fiver FAL^;^ FT. WILLIAM-PORT ARTHUR NEBRASKA FALLS CITY ATCHISON \ KANSAS KANSAS CITY PRESENT rtOUTES ; EROEOSEE E.OXJTES STE. MARIE CLEVELAND OHIO 8 9 -A. ]M: E n, IO-Au'S ILi E-A. DI 3sr GS- J^inLINE FASSHI]SrC3rBK,S IlST FOXJnSTDS iisr FOUNDS 1959 ^Includes Air Mail, Surface Mail **lncludes Air Express, Air Freight 12 TTE-A-PIS OF OplSTTIlSrUOUS FFOOFIESS 1959: GREATEST YEAR OF GROWTH NORTH CENTRAL AIRLINES NORTH CENTRAL FASSDNOEF/S North Central 957,751 Mohawk 594,410 West Coast 407,894 Frontier 333,873 Trans Texas 294,034 Southern 256,599 Lake Central 228,964 Bonanza 227,349 Central 168,665 IN FOUNDS CA.F,0-0^^ IN FOUNDS North Central North Central Ozark 2,006,420 Trans Texas 1,955,980 Allegheny 1,941,240 Pacific 1,768,520 Piedmont 1,693,040 Southern 1,417,840 Mohawk 1,348,840 Central 1,200,060 West Coast 925,580 Lake Central 819,580 Trans Texas 4,413,140 Piedmont 3,504,800 Southern 3,227,800 Lake Central 2,816,900 Central 2,173,600 Pacific 2,044,720 West Coast 1,733,060 Bonanza 1,513,580 *lncludes Air Mail, Surface Mail ^ **lncludes Air Express, Air Freight FIFIST F-A.SSENPEI=i-S. 19S9 li^M^-A-IX-i, 1S9 'fifist insr ojlfigi-o, iss ASSETS CURRENT ASSETS Cash Accounts receivable Mail Mail -- additional claim (Note 1) Traffic Other $1,594,512 635,994 1,589,133 175,622 Maintenance and operating supplies -- at the lower of cost (determined by the first-in, first-out method) or market Prepaid expenses and sundry deposits Total current assets INVESTMENTS - at cost OPERATING PROPERTY AND EQUIPMENT (at cost) Flight equipment (Notes 2 and 3) Ground equipment Hangar buildings and improvements to leased property Furniture and fixtures 6,382,742 730,661 227,965 211,984 Total Less depreciation to date 7,553,352 3,633,485 DEFERRED CHARGES Route development expense. ; Other i 252,317 83,171 $ 545,845 3,995,261 611,434 365,188 5,517,728 10,821 3,919,867 335,488 $9,783,904 The accompanying notes are an integral part of the financial statements. 5 m^BILITIES CURRENT LIABILITIES Current maturities of long-term notes Accounts payable Trade Traffic Unearned transportation revenue Income taxes withheld and other employee payroll deductions.. Accrued liabilities Salary and wages Taxes (including $4,542 of income taxes) All other Total current liabilities P NONCURRENT LIARILITIES 5/2% notes payable to bank, due in monthly or semi-annual installments to January 1, 1966 (Notes 2 and 3) Other notes payable, partially secured by pledge of certain equipment, due in monthly installments Less current maturities Deferred rental Total noncurrent liabilities CAPITAL Common stock -- authorized, 3,750,000 shares of $.20 par value; issued and outstanding, 2,113,724 shares Paid-in in excess of par value of stock issued Retained earnings $ 875,613 1 $2,078,567 1,108,820 3,187,387 1 151,060 1 133,973 1 525,004 282,051 225,692 1,032,747 1 5,380,780 1 3,692,000 105,255 3,797,255 875,613 2,921,642 5,000 2,926,642 422,745 894,975 1,317,720 158,762 1,476,482 1 $9,783,904 1 13 STJLTEn^EISTT OE E KRISTI ITOS Year* endecl Decemloer* 31, 13 5^ TRANSPORTATION REVENUE Passenger $11,388,135 Mail 6,322,896 Express 216,725 Exeess baggage 95,039 Non-scheduled transport service 310,382 Freight 116,667 Other : 51,277 OPERATING EXPENSES Flying operations Flight equipment maintenance Other maintenance Passenger service Aircraft and trafhc servicing Promotion and sales General and administrative Depreciation (Note 5) Operating profit OTHER DEDUGTIONS Interest Extension and development Income taxes (Note 4) Net earnings before special charge SPEGIAL GHARGE Prior years extension and development costs (Note 6) Net Earnings 5,561,764 2,362,266 1,208,030 956,850 5,065,347 1,376,895 708,829 859,102 183,364 63,491 4,542 The accompanying notes are an integral part of the financial statements $18,501,121 18,099,083 402,038 251,397 150,641 134,673 $ 15,968 OF FET^iKTEiD EA.E,:isri:isra-s ipj^zid Year ended Deoemtoer* 31, 13 5^ RETAINED EARNINGS >I3Sr Retained earnings -- December 31, 1958 Net earnings for the year Retained Earnings, December 31, 1959 PAID-IN GAPITAL $142,794 15,968 $158,762 Paid-in capital, December 31, 1958 Excess of proceeds from sale of common stock j over par value thereof -- j Treasury stock j $92,150 Previously unissued stock j 5,438 Stock dividend -- 100,654 shares (1 share for each 20 outstanding) Paid-In Capital, December 31, 1959 The accompanying notes are an integral part of the financial statements! $817,518 97,588 915,106 20,131 $894,975 msro. isro*i'ES TO FiNA.nsrciA.rj sta^temients 1. It is the policy of the Civil Aeronautics Board to provide a scheduled air line on a temporary mail rate (t^e company has been on such rate since November 23, 1956) with sufTicitnt mail pay on settlement of its final rate to meet its break-even need ant^ also to provide for a reasonable retu.n on recognized investment. In accordance with this policy the company has determined that for 1959 an ambunt of $160,762 of additional mail pay will be applicable under these f^o categories. An amount of $635,994 is shown as an account receivable jat December 31, 1959, which amount in cludes the 1959 item and $475,232 which is the unpaid portion of the 1956-1958 break-even need andj return on investment. 2. On January 9, 1959 the company borrowed $2,000,000 from two banks for a working capital loan. It is .repayable, with interest at 5V2% on the unpaid balance, in monthly installments totaling $480,000 per year, with a final payment of $370,000 dup on June 15, 1962. As security for the loan the company has pledged twenty-three DC-3 aircraft including re lated flight equipment. Among other things, the loan agreement provides that the company maintain curient assets (excluding unapproved mail pay claims) that are at least equal to current liabilities, excluding any liability to the banks under thi^ working capital loan or the equipment loan mentioned in Note 3. | 3. The company has also borrowed $2,340,000 from the same two banks in order to complete the transaction* relative to the purchase of five Convair- 340 aircraft, spare engines and Darts. The loan is secured by the Convair aircraft, engines and parts as described above and is to be repaid, to gether with interest at 5V2% on the unpaid balance, in semi-annual in stallments of $167,000 to January 1, 1966. The U.S. Government has guar anteed 90% of the loan, with such guarantee not to exceed $2,106,000. 4. A net operating loss carry-over from prior years is sufficient to absorb taxable income for 1959 and accordingly no provision has been made for Federal and State income taxes. During 1959 the United States Treas ury and the Wisconsin Department of Taxation reviewed the company's tax returns through the year 1958. The examinations resulted in additional State of Wisconsin assessments totaling $4,542 but no additional Federal tax. 5. Depreciation deductions included in the accompanying statement of earn ings are approximately $28,000 more than the related amount allowable for tax purposes because of a redetermination of useful lives of aircraft and engines made by taxing authorities. 6. In 1959 the United States Supreme Court refused to review a decision of the Circuit Court of Appeals, which denied the company the right to purchase 96% of the outstanding stock of Lake Central Airlines, Inc. As a result the company has charged off against current earnings the ac cumulated costs applicable to this application. These costs were incurred from 1952 to 1959. CHICAGO NEW YORK LOS ANGELES Alexander Grant & Company CERTIFIED PUBLIC ACCOUNTANTS 312 EAST WISCONSIN AVENUE MILWAUKEE 2. WISCONSIN OTHER PRINCIPAL CITIES Board of Directors North Central Airlines, Inc. We have examrfied the balance sheet of NORTH CENTRAL AIRLINES, INC. (a Wisconsin corporation) as of December 31, 19591 and the related statements of earnings and retained earnings and paid-in capital 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 cilcumstances. In our opinionJ the accompanying balance sheet and statements of earnings and retained earnings and paid-in capital preient fairly the financial position of North Central Airlines, Inc. at December 31, 1959 and the results of its operations for the year then ended, in conformity with generally accepted accounting prin ciples applied on a] basis consistent with that of the preceding year. Milwaukee, Wisconsfn February 15, 1960 Alexander Grant & Company 001f/fl::FA.F,A.TIVE FI2SrA.nsrOIA.L SXJlvll^A.K.Y Operating Revenues Excess Baggage Non-scheduled Transport Service. Other Revenue. 1959 1958 1957 1956 1955 1954 $11,388,135 $ 8,702,455 $ 7,372,333 $6,137,216 $4,933,487 $3,351,782 . 6,322,896 3,780,823 2,925,645 1,522,211 1,689,890 2,328,921 216,725 164,615 146,287 149,640 126,476 75,630 95,039 73,455 54,986 40,506 30,477 20,975 310,382 384,957 273,077 119,419 28,711 46,734 116,667 -0- -0- -0- -0- -0- 51,277 34,934 29,667 15,345 8,964 5,283 $18,501,121 $13,141,239 $10,801,995 $7,984,337 $6,818,005 $5,829,325 Operating Expenses Flying Operations $ 5,561.764 Flight Equipment Maintenance 2,362,266 Indirect Maintenance 1,208,030 Passenger Service 956,850 Aircraft and Traffic Servicing 5,065,347 Promotion and Sales 1,376,895 General and Administrative 708,829 Depreciation 859,102 total $18,099,083 Net Operating Profit (or Loss) 402,038 Amortization of Route Development Expense (198,164) Non-operating Income and Expenses, Net (183,364) Net Profit (or Loss) before Taxes .. 20,510 Income Taxes 4.542 Net Profit (or Loss) $ 15,968 $ 3,455,867 1,384,841 644,693 560,934 3,095,105 621,829 504,055 452,993 $ 4,191,826 1,657,479 815,676 703,598 3,629,142 839,866 562,628 583,174 $12,983,389 $10,720,317 $2,578,253 960,021 287,978 443,243 2,400,946 456,537 431,671 301,161 $2,007,381 845,753 342,276 325,669 1,866,574 369,452 367,236 470,169 $1,695,384 724,209 373,222 256,872 1,485,796 270,129 316,092 535,557 1953 $2,303,738 2,468,685 68,117 15,739 25,436 -0- ^682 $4,887,397 $1,413,489 690,589 368,406 211,520 1,320,671 228,028 270,391 428,308 $5,657,261 $4,931,402 1952 $1,470,536 1,681,542 55,861 12,783 -0- -0- _ 2.98^ $3,22^704 $ 939,931 483,292 293,682 140,983 898,372 122,724 223,500 205,192 $3,307,676 1951 $ 860,599 1,181,596 45,173 5,643 -0- -0- 5,781 $2,098,792 $ 612,060 275,469 157,014 82,967 575,368 101,881 159,580 143,722 $2,108,061 1950 $ 427,278 1,355,145 18,637 2,419 -0- -0- 2,953 $1,80M32 $ 476,572 267,105 136,205 16,096 458,618 37,697 129,794 J20,329 $"1,642,416 1949 $ 271,576 $ 1,036,243 8,364 1,519 -0- -0- 8,301 "$U26,0^ $ $ 361,254 $ 229,946 111,736 6,791 347,628 25,696 120,850 99,599 $1,303,500 1948 113,648 580,968 5,963 1,012 -0- -0- 2,133 703^4 $ 200,030 127,966 51,164 3,294 218,162 19,033 80,919 54,645 $ 755,213 157,850 (6,194) (43,472) 81,678 (6,281) (54,709) 108,184 20,688 JT (60,103) $ T08,184 $ 80,791 l2"4,y2f 2,4"95 172,064 (44,005) (83,972) (9,269) 164,016 22,503 (51,489) (8,566) (26,995) (5,227) (10,618) -0- -0- (65,015) (86,292) (73,525) (36,085) (50,051) (55,130) (59,965) (39,421) 15,536 (6,888) (12,094) (3,030) 79,876 45,700 146,449 18,000 111,707 . -0- (114,588) -0- (123,393) -0- 6,267 -0- 92,113 -0- (75,883) -0- (128,044) -0- 34,176 $ 128,449 $ 111,707 $ (114,588) $ (123,393) $ 6,267 $ 92,113 $ (75,883) $ (128,044) 15 1959--A busy year for North Central. During the first few months, the company's entire training program was geared to the intro duction of the Convair 340's . . . . . . and on April 26 five of these 44-passenger, radar-equipped Convairs were added to the fleet's 32 DC-3's to bring the best in air service to the Northlifier system. New service was started to 16 cities in North Dakota, South Dakota, Illinois, Wisconsin and Minnesota. The 2,000 additional route miles constituted the largest award in the company's ' ' Throughout the year new employees were added to meet these rapid developments of the airline. At the year's end, employment figures approached the 2,000 mark. ... J y V V