North Central Airlines Annual Report 1968

NORTH CENTRAL AIRLINES
ANNUAL REPORT
1968
NORTH CENTRAL AIRLINES
GENERAL OFFICES: 6201 Thirty-Fourth Avenue South, Minneapolis, Minnesota 55450
BOARD OF DIRECTORS
Hal N. Carr* Chairman
D. E. Crooker
G. F. DeCoursin *
Chan Gurney
Samuel H. Maslon*
A. James Mueller
Jay Phillips
Morton B. Phillips
Joseph E. Rapkin
H. P. Skoglund
Kenneth B. Willett
Robert G. Zeller
*Executive Committee
REGISTRARS AND
STOCK TRANSFER AGENTS
Northwestern National Bank of Minneapnlis;
Minneapolis, Minnesota
First National City Bank; New York, New York
MANAGEMENT
Hal N. Carr . . ...... Chairman of the Board and President
Bernard Sweet . . ....... Executive Vice President
John P. Dow . . ... Vice President and Secretary
Leslie J. Keely ... Vice President-Maintenance and Engineering
Daniel F. May .
David E. Moran .
T. M. Needham .
. .... Vice President and Treasurer
........ Vice President- Traffic and Sales
. Vice President-Ground Operations
Arthur E. Schwandt ......... Vice President-Industrial Relations
G. F. Wallis . . . ... Vice President-Flight Operations
Gowan J. Miller .
Charlotte G. Westberg .
. ........ Assistant Secretary
. . . Assistant Secretary
February 28, 1969
TO OUR STOCKHOLDERS, EMPLOYEES, AND FRIENDS:
The year 1968 was a period of dramatic growth for North Central Airlines. Northliners carried over
three million passengers for the first time, cargo ton miles gained 40 percent, and revenues reached
a record high of $55,226,000-an increase of $12,375,000 over 1967.
Operating expenses for the year were up 27 percent to $49,843,000, while depreciation and amorti-
zation expense rose 66 percent to $4,357,000. However, the company still achieved a $1,026,000
profit from operations-$137,000 more than in 1967. After interest expense of $3,092,000, con-
trasted with $680,000 the previous year, net income was $70,000 in 1968 compared to $1,520,000
the year before. Both income figures include gains from disposition of equipment-$1,184,000 for
1968 and $924,000 the prior year.
The substantial interest and depreciation increases are related primarily to North Central's conversion
to jet-powered aircraft. As a result of operating the more efficient planes, seat-mile costs declined
from 5.0 in 1967 to 4.2 in 1968. Even more significant was the reduction of the company's break-
even load factor, which measures earnings potential, from 54.4 percent to 45.3 percent.
Financially, 1968 was a difficult year for the entire airline industry, especially the regional carriers.
Net losses of the eight regionals, other than North Central, were approximately four times more than
their 1967 losses of $5,831,000. However, the granting of fare increases by the Civil Aeronautics Board,
effective February 20, should improve airline earnings for 1969 and subsequent years.
North Central set yearly, monthly, and daily passenger traffic records in 1968 as 3,013,816 passengers
were carried-an impressive 28 percent ahead of 1967. It took the airline 13 years to reach its first
million-passenger year. Six years later in 1966, two million passengers were recorded, and the three-
million mark was attained in just two more years. North liners flew 1.3 billion seat miles in 1968-a 55
percent increase over the previous year-and the company still achieved an outstanding operating
performance record of 98.5 percent. Cargo also gained substantially with 78 million pounds of air
freight, express, and mail transported.
Route development was accelerated in 1968. North Central is actively seeking authority for 17,000
more route miles to serve 29 additional cities in 11 new states, the District of Columbia, and Manitoba,
Canada. During the year, the C.A.B. approved a new Chicago-Sioux Falls route, and Rochester,
Minnesota, was added to the company's system. Nonstop DC-9 fan jet flights were inaugurated
between Minneapolis/St. Paul-Milwaukee and Milwaukee-Detroit, with single-plane service east to
Toronto and west to the Dakotas.
The transition to an all jet-powered fleet has been completed. North Central now operates 100-pas-
senger DC-9 fan jets and Convair 580 prop-jets exclusively. Five additional DC-9 fan jets will be avail-
able for use during 1969.
Construction is nearing completion on the airline's new $15-million general office and main operations
base at the Minneapolis-St. Paul International Airport. North Central's Maintenance and Engineering
Department moved to the new facilities early in 1969, and occupancy of the general office is expected
later this spring.
The company is aggressively building for the future and anticipates increased traffic and earnings
for 1969. With the continued support of stockholders, passengers, and employees, North Central
is prepared for the challenges and rewards of the jet-year ahead.
HAL N. CARR
Chairman of the Board and President
2
ANNUAL REPORT 1968
North Central Airlines in 1968 achieved the largest
gain in revenues in its entire history. Operating reve-
nues for the year were $55,225,926, an increase over
1967 of $12,375,449, or 29 percent, after the 11 per-
cent reduction in public service revenues of $581,924.
Operating expenses before depreciation were
$49,843,200, an increase of $10,507,503, or 27 per-
cent. Depreciation and amortization expense rose
sharply to $4,356,893 in 1968 from $2,626,251 in
1967, for a 66 percent increase. The profit from oper-
ations reached $1,025,833, up from the $888,529
reported for the previous year. However, interest ex-
pense increased to $3,092,015 from $680,134 in
1967, resulting in net income of $70,216 in 1968,
compared with $1,520,124 the previous year. Both in-
come figures include gains from the disposition of
aircraft-$1,183,588 in 1968 and $924,316 in 1967.
The substantial increase in depreciation and in-
terest is directly related to the airline's transition to
jet-powered aircraft. With the introduction of the new
planes, however, the break-even load factor has
been reduced significantly from 54.4 percent in 1967
to 45.3 percent for 1968. This emphasizes the in-
creased earnings potential of the jets.
Another result of operating more efficient airplanes
and continuing the company's cost control program
is the decline in seat-mile costs-from 5.0 in 1967
to 4.2 in 1968.
With this favorable cost trend, consistent revenue
gains from traffic growth, and the recent passenger
fare increase, greatly improved earnings can be ex-
pected in the years ahead.
FINANCIAL REVI E W
R E VEN u E s (MILLIONS OF DO LLARS)
$45--- - - - - - - - - - - - - -- --
I
I
$ 40 I
$ 35
$ 30
!
$25
1964 '65 '66 '67 '68
FINANCIAL REVIEW
TRAFFIC GROWTH AND
OPERATING PERFORMANCE
North Central Airlines attained the highest passenger
traffic levels of its 21-year history in 1968.
The company set yearly, monthly, and daily records as
3,013,816 passengers flew the'' Route of the North liners''
-an impressive 28 percent over 1967. The 666,445 pas-
senger-gain was the greatest annual increase the com-
pany has ever had. Some 518,423,519 passenger miles
were flown, 35 percent ahead of the previous year.
The 311,899 passengers carried in August established
a monthly record which was 30 percent above the same
month of 1967.
On December 20, the airline enplaned 12,752 passen-
gers for a new daily high. North Central transported 1,354
more passengers that day than for 1948, its first year of
operation.
Besides its regular flights, the company scheduled 1,016
"extra sections" to accommodate the traveling public
during peak traffic times. These flights carried 22,767
passengers, and 148,825 miles were flown. In addition,
239 charters and 320 scenics were operated, which added
261,002 more plane miles. The 17,521 charter pas-
sengers flew to 25 states, the District of Columbia, and
three Canadian provinces; 15,517 people took scenic
flights over cities on North Central's system.
Excellent cargo gains were made in 1968 with a record
78,062,794 pounds of air freight, express, and mail-up
38 percent over the previous year. A total of 7,244,860
cargo ton miles were flown, for a 40 percent improve-
ment. Air freight ton miles reached 3,899,090-34 per- .
cent ahead of 1967, and mail registered a tremendous
gain of 88 percent, with 2,152,755 ton miles flown .
The dramatic growth in all areas of traffic resulted from
additional aircraft capacity, efficiencies of the new jets,
and increased public reliance on air travel.
North Central established yearly,
monthly, and daily boarding
records in 1968 as 3,013,816
passengers were carried over the
airline's 90-city system in 11
Midwest states and Canada.
During 1968, 1,304,492,635 seat miles were flown, 55
percent over 1967, while available ton miles jumped to
158,168,526, a 76 percent gain. The airline becomes
jet-powered in March 1969, with a fleet of ten 100-pas-
senger DC-9 fan jets and 34 Convair 580 prop-jets. Five
additional DC-9's will be available for use during the year.
From the inauguration of service on February 24, 1948,
until December 27, 1968, North Central carried 19,061,314
passengers 3,166,122,812 passenger miles without a
single fatality or injury, and the entire airline deeply
regrets that its perfect safety record has ended. This
period is believed to be the longest any scheduled airline
in the country has ever operated without a fatal accident.
The safety of its passengers has always been North
Central's primary objective. As in the past, the airline
will continue to do everything humanly possible to insure
the welfare of its passengers and is firmly dedicated to
reestablishing a new airline safety record.
North Central's winterization program, "Operation
Cold Front," was initiated again this year by station and
maintenance personnel. This comprehensive prepara-
tory plan includes procedures for converting ground sup-
port equipment to winter conditions and the review of
cold weather techniques with personnel at all North
Central stations. The program contributes significantly
to the airline's impressive operating performance under
the severe, long-lasting winter weather conditions which
exist over most of the 7,500-mile route system.
North Central achieved an outstanding 1968 operating
performance. Of the 21,408,317 miles scheduled,
21,077,094 were flown, for a completion factor of 98.5
percent-one of the best records in the airline industry.
Exacting maintenance was one of the major factors in
this high level of performance. In 1968, North Central
made 214,533 actual departures. Of these departures,
one percent were cancelled for mechanical reasons, and
only one-tenth ofone percent were delayed by mechanicals.
The company's enviable performance record reflects
the dedication of North Central's employees and their
continuing efforts to provide dependable sched_
uled air-
line service.
3
4
ROUTE
DEVELOPMENT
New service inaugurated in 1968 included the addition of Rochester, Minnesota to
North Central's route system and nonstop flights between Minneapolis/St. Paul and
Milwaukee and Milwaukee-Detroit.
The Civil Aeronautics Board authorized the airline to begin Rochester service on
September 15 as an intermediate point on a new route between Chicago and Sioux
Falls, South Dakota. This route added 666 miles to the company's system.
On October 27, new Twin Cities-Milwaukee and Milwaukee-Detroit nonstops were
initiated, with through-plane flights east to Toronto and west to North and South
Dakota. The new schedule provides Milwaukee and the Twin Cities with single-plane
Northliner flights to Detroit and Toronto-center of a $6-billion Canadian-U.S. trade
market. It also offers the first single-plane service between Toronto and many North
Central communities in the Dakotas. The flights are designed to fill existing travel
gaps and operate at prime periods.
During the year, the C.A.B. issued its initial order in the North Central Route Re-
alignment Proceeding. The Board tentatively found that North Central's system of
16 segments should be consolidated into five, and certain operating restrictions elim-
inated. This realignment would enable North Central to operate longer flights, pro-
vide greater scheduling flexibility, and better utilize its fleet.
In response to the order, the airline agreed with the Board 's findings and also
asked for nonstop authority in several markets presently certificated for trunk car-
riers. If this request is granted, nonstop flights could be provided between Cleveland
and Grand Rapids, Lansing, Muskegon, Madison; between Minneapolis/St. Paul and
Grand Rapids, Lansing, Muskegon; and between Milwaukee and South Bend.
The new shortened Subpart M hearing procedures approved by the C.A.B. in 1968
have already benefited North Central. The Twin Cities-Milwaukee and Milwaukee-
Detroit nonstops were the first company applications approved under the ruling.
The new procedures relate to petitions by regional airlines for nonstop authority on
their existing systems. With this plan, administrative steps are reduced, and shorter
time limits are set for filing answers to requests.
North Central is committed to an ambitious and aggressive route development
program and has applications pending before the C.A.B. for 17,200 additional route
miles to serve 29 cities in 11 new states, the District of Columbia, and Manitoba,
Canada. If approved, these new routes would more than triple North Central 's system
and extend the airline north to Winnipeg; west to Denver; south to Dallas/Ft. Worth,
Houston, San Antonio, Atlanta, and Miami; and east to Boston, New York/Newark,
Philadelphia, Wash ington/Baltimore, and several North Carolina cities.
North Central presently serves 90 cities in 11 Midwest states and Canada over a
7,500-mile route system.
RECENT AWARDS:
Minneapolis / St. Paul-Milwaukee nonstop
(297 route miles)
Milwaukee-Detroit nonstop (238 route miles)
Chicago-Siou x Falls route, via Rochester
(666 route miles)
AWAITING CAB DECISION:
Denver-Twin Cities-Examiner has recom-
mended North Central . (694 route miles)
North Central Route Realignment Proceed-
ing-Examiner has recommended 16 seg-
ments be consolidated into five . North
Central has requested nonstop authority
in several markets.
Ozark Route Realignment Proceeding-North
Central is seeking nonstop Milwaukee -
Omaha and Milwaukee-Kansas City routes .
(865 route miles)
AWAITING EXAMINER'S DECISION:
Omaha and Des Moines Service Investigation
-New Omaha-Des Moines-Chicago author-
ity and Omaha-Des Moines-New York. Also,
nonstops from Omaha to Chicago, Minne-
apolis / St. Paul, Denver, St. Louis, and
Kansas City. (3,138 route miles)
Twin Cities-Milwaukee Long Haul Investiga-
tion-New routes from the Twin Cities and
Milwaukee to Boston , New York/ Newark,
Phi ladelphia , and Washington / Baltimore.
(3,941 route miles)
AWAITING HEARINGS:
Milwaukee Short Haul Investigation-New
routes from Milwaukee to Columbus,
Dayton , Cincinnati , Indianapolis, and
Lou isville. (1,413 route miles)
North Carolina Points Investigation-New
routes from Chicago to Charlotte, Greens-
boro / High Point / Winston -Salem, and
Raleigh / Durham. (1,688 route miles)
Southeast Points Investigation-New routes
from the Twin Cities and Milwaukee to
Miami, via Atlanta and Tampa . (1,283 route
miles)
APPLICATIONS PENDING:
Minneapolis/ St. Paul nonstop to Dallas/ Ft.
Worth, and one stop via Kansas City. Also,
nonstops from Dallas/ Ft. Worth to San
Antonio and Houston . (1,349 route miles)
Cleveland -Baltimore, via Pittsburgh .
(316 route miles)
Chicago-Saginaw/ Bay City/ Midland, via
Muskegon . (229 route miles)
Chicago-Saginaw/ Bay City/ Midland, via
Lansing. (235 route miles)
Minneapolis/ St. Paul-Chicago.
(334 route miles)
Duluth / Superior and Minot to Winnipeg.
(534 route miles)
Milwaukee-Denver nonstop.
(909 route miles)
Rapid City-Omaha nonstop.
(409 route miles)
Complementing North Central's jet "New Look" are the
colorful high fashion ensembles of its stewardesses.
The basic uniform and hat feature the corporate aqua
color, while the new classic gold raincoat completes
the costume.
Pre-inaugural DC-9 scenic
flights were conducted
during 1968 to introduce
North Central's new jet
service to 24 cities.
Exacting maintenance is one of the major contributing factors in the impressive
operating performance record achieved by the airline in 1968.
NORTH CENTRAL'S JET-AGE OPERATION
Classroom instruction is part of the intensive
training program new stewardesses receive
before flying the "Route of the North liners."
5
6
BUILDING FOR THE FUTURE
North Central Airlines undertook a wide range of
activities during 1968 to keep pace with the dramatic
rate of traffic growth it experienced and anticipates
for 1969.
Programs involving the introduction of jet service
and the inauguration of new routes received major
promotional emphasis. At the same time, facilities
planning was accelerated at a record pace to prepare
the airline for the surging traffic increases expected
in the near future.
The main part of the construction work on North
Central's new $15-million general office and main
operations base at the Minneapolis-St. Paul Interna-
tional Airport was finished in 1968. The headquarters
North Central's new $15-million general office and
main operations base at the Minneapolis-St. Paul
International Airport.
complex is designed to provide the finest in main-
tenance and service facilities, enabling Northliner
personnel to better serve the traveling public. The
main base is being occupied in February, with the
general office scheduled for completion this spring.
Terminal building improvements are in progress
throughout the system. North Central personnel in
Mitchell, South Dakota recently moved into the new
Municipal Airport terminal which provides greatly ex-
panded passenger service areas. Second-level board-
ing gates at Green Bay will be completed in 1969, and
a new terminal at Sioux Falls is under construction.
Enlarged facilities at Kansas City and Traverse City
are in the planning stages.
Construction is well underway on the company's
$2.5-million passenger boarding facility at
Milwaukee's General Mitchell Field.
Construction is on schedule for the June completion
of the company's second-level gates at Minneapolis-
St. Paul International Airport. These will permit more
efficient handling of jet operations and accommodate
projected passenger increases. In Milwaukee, a unique
$2.5-million boarding terminal, designed exclusively
for North Central, is well underway. The eight passen-
ger gates, located in a circular concourse, will provide
expedited ticket and baggage handling to relieve con-
gestion at the main counter during peak travel periods.
Current plans call for occupancy of this south pier
addition by the summer of 1969.
A new regional airport, which has been under de-
velopment for several years, will soon be a reality for
Wisconsin travelers. Known as the Central Wisconsin
Regional Airport, this facility will allow the company to
offer improved service and increased flight frequen-
cies to the Wausau, Marshfield, Stevens Point, Wis-
consin Rapids area.
First class service is provided to all passengers on North Central aircraft. Stewardesses
offer dinner, lunch, snacks, and the continental breakfast on selected flights.
Seven more 100-passenger DC-9 fan jets were acquired in 1968, increasing
the airline's fleet to 10 DC-9's and 34 Convair 580 prop-jets.
The most important development in the airline's
equipment program was the July announcement that
five additional DC-9's would be available for 1969
delivery. Two of the fan jets will be used in the second
quarter of the year. The company's jet transition pro-
gram, begun in April 1967, is being completed ir:i March
1969. The airline's fleet will then be all jet-powered
and consist of 100-passenger DC-9 fan jets and 48-
passenger Convair 580 prop-jets.
During 1967 and 1968, North Central received $67
million in DC-9 and Convair 580 equipment, and an-
other $29 million of jet aircraft is scheduled for 1969
delivery.
North Central is entering its 22nd year of operation
with a jet-powered fleet, increased service facilities,
and anticipated new routes. The airline now looks
forward to realizing the rewards of this extensive
expansion program, and 1969 promises to be a year
of exciting and dramatic growth.
7
ROUTE OF THE NORTHLINERS PRESENT ROUTES
PROPOSED ROUTES
10
ASSETS
CURRENT ASSETS
Cash .. . ... .
Accounts receivable
United States Government (Notes 1 and 4) .
Traffic . . . .
Other (Note 2)
Flight equipment parts, at average cost (less reserves of
$338,954 and $473,493 in 1968 and 1967, respectively) .
Maintenance and operating supplies ..
Prepaid expenses and sundry deposits .
Total current assets ... .
OPERA Tl NG PROPERTY AND EQUIPMENT-at cost
Flight equipment (Note_
s 2 and 3)
Ground equipment .....
Improvements to leased property
Furniture and office equipment . .
Less accumulated depreciation (Note 5) . . . .
Advance payments on flight equipment (Note 3) . . . . . . .
DEFERRED CHARGES
Unamortized development and pre-operating costs .
Unamortized discount and expense on debt
Rentals and other . . . . . . . . . . . .
OTHER INTERLINE RECEIVABLES (Note 6) . ..... ... . ....... .
The accompanying notes to financial statements are an integral part of this statement.
1968 1967
$ 1,248,250 $ 2,805,304
1,671,347 2,282,556
4,274,625 3,361,710
2,053,072 832,918
7,999,044 6,477,184
1,824,159 1,539,505
468,319 433,710
2,107,083 1,838,491
13,646,855 13,094,194
66,603,743 38,975,904
3,413,424 4,530,332
2,898,522 991,421
518,868 484,294
73,434,557 44,981 ,951
8,516,412 9,857,492
64,918,145 35,124,459
4,515,570 6,454,617
69,433,715 41,579,076
3,111,666 1,666,093
194,888 176,475
772,739 277,947
4,079,293 2,120,515
450,000
$87,609,863 $56,793,785
Comparative Balance Sheet-December 31,1968 and 1967
LIABILITIES
CURRENT LIABILITIES
Short-term borrowing .
Current maturities of long-term debt (Note 2)
Accounts payable . .
Tickets outstanding
Taxes withheld or collected as agents
Accrued liabilities
Salaries and wages . . . .
Payroll and property taxes
Other .
Total current liabilities
LONG-TERM DEBT -less current maturities (Note 2) . .. .
DEFERRED FEDERAL INCOME TAXES (Note 4) ........ .
COMMITMENTS (Notes 3, 7, and 8) ....... . . .
STOCKHOLDERS' EQU ITY
Common stock-authorized, 10,000,000 shares of $.20 par value;
issued and outstanding, 8,776,763 and 8,775,513 shares, 1968 and
1967, respectively (Notes 2 and 9)
Paid-in capital (Note 2) . . . . . . . . . . . . . . .
Retained earnings (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . .
1968
$ 540,000
6,409,940
7,432,386
211,409
546,299
1,465,384
209,670
1,204,370
18,019,458
59,611,269
1,994,000
1,755,353
527,239
2,282,592
5,702,544
7,985,136
$87,609,863
1967
$ 475,000
600,565
6,069,137
178,797
435,794
1,134,387
163,873
909,343
9,966,896
37,726,617
1,245,352
1,755,103
467,489
2,222,592
5,632,328
7,854,920
$56,793,785
11
12
Comparative Statement of Income
Years ended December 31, 1968 and 1967
OPERATING REVENUES
Passenger ..... .
Freight and express
Mail
Public service revenue (Note 1) .
Non-scheduled transport service
Other ..
Total operating revenues
OPERATING EXPENSES
Flying operations
Maintenance .
Passenger service . . .
Aircraft and traffic servicing
Promotion and sales
General and administrative
Depreciation and amortization (Note 5)
Total operating expenses .
Operating profit
OTHER EXPENSE (INCOME)
Interest expense (less capitalized interest for advances on flight equipment and
pre-operating costs of $559,013 in 1968 and $840,223 in 1967) .
Other (net) . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense . .
Income (loss) before income taxes and gain on disposition of aircraft
INCOME TAXES (Note 4)
Deferred . . . . . . . . . . . . . . . . . . . . . ..... .
Credits
Income (loss) before gain on disposition of aircraft .
GAIN ON DISPOSITION OF AIRCRAFT, NET OF TAXES (Notes 4 and 10)
NET INCOME . . . ..... .
INCOME (LOSS) PER SHARE* (based upon average number of shares outstanding)
Before gain on disposition of aircraft
Gain on disposition of aircraft
NET INCOME PER SHARE
*Proforma per share (based upon conversion of debentures and the exercise
of stock options and warrants) would not materially differ.
The accompanying notes to financial statements are an integral part of this statement.
1968
$44,628,769
3,460,728
1,183,809
4,667,639
534,308
750,673
55,225,926
16,594,647
8,930,353
2,922,485
13,902,654
4,741,168
2,751,893
4,356,893
54,200,093
1,025,833
3,092,015
(83,810)
3,008,205
(1,982,372)
(869,000)
(1,113,372)
1,183,588
$ 70,216
$(.12)
.13
$ .01
COMPARATIVE STATEMENTS OF RETAINED EARNINGS AND PAID-IN CAPITAL
Years ended December 31, 1968 and 1967
RETAINED EARNINGS (Note 2)
Retained earnings-beginning of year .
Net income for the year . . . .
Retained earnings-end of year
PAID-IN CAPITAL
Paid-in capital-beginning of year . . ... .
Premium in excess of par value applicable to stock purchase warrants (Note 2)
Excess of proceeds over par value of common stock issued
upon conversion of debentures (Note 2) . . . . . . . . . . . . . . .
Excess of proceeds over par value of common stock issued under option .
Paid-in capital-end of year . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes to financial statements are an integral part of this statement.
1968
$ 5,632,328
70,216
$ 5,702,544
$ 467,489
50,000
9,750
$ 527,239
1967
$33,482,371
2,648,883
781,501
5,249,563
327,224
360,935
42,850,477
11,061,431
8,750,455
2,325,151
11 ,294,923
3,871 ,818
2,031 ,919
2,626,251
41,961,948
888,529
680,134
(51,403)
628,731
259,798
134,000
(470,010)
595,808
924,316
$ 1,520,124
$ .07
.10
$ .17
1967
$ 4,112,204
1,520,124
$ 5,632,328
$ 410,447
57,042
$ 467,489
DECEMBER 31, 1968
1. PUBLIC SE~VICE REVENUE-Public service revenue received from the Federal Government is subject
to review by the Civil Aeronautics Board . Settlement has been made through 1965. Provision has been
made for all known adjustments for subsequent years.
2. LONG-TERM DEBT-Long -term debt consists of the following:
Terms Total Long-Term Current
Quarterly installment notes due from January, 1969 through
April, 1973; interest at% above prime rate . . . . . ... . $26,000,000 $21,000,000 $5,000,000
7% quarterly installment notes due f rom July, 1973
through October, 1978. . .... 36,000,000 36,000,000
Acceleration of above notes due to insura nce proceeds received
from conversion o f mortgaged properties, $1,285,823 less cur-
rent maturities of $103,695. Insura nce proceeds of $1,300,000
are reflected in the balance sheet as other receivables .
Total due banks and insurance com pan ies (a) . .
7 % subordinated notes due in semi-annual installm ents
from September, 1971 through March, 1976 (b) . .
5 % subordinated convertible debentures due in 1978 (c) ..
Various ....
. $62,000,000
3,000,000
753,000
268,209
$66,021,209
(1,182,128)
$55,817,872
3 ,000,000
753,000
40,397
$59,611,269
1,182,128
$6,182,128
227,812
$6,409,940
(a) The total $62,000,000 loan is collateralized by substantially all flight equipment owned or to be owned
by the company. Two equipment manufacturers are partially gua ranteei n g these loans. Among other things,
the loan agreement contai ns certai n restrictions on th e payment of dividends, capital expend itures, and
additional borrowings and requirements re gardin g working capital and net worth .
(b) Stock purchase warrants attached enable the holders to purchase an aggregate of 200,000 shares of
common stoc k at $6.00 a share through March 1, 1976. Unamortized Discount and Expense on Debt has
been c harged and Paid -tn Capital c redited for $50,000 representing the valu e of the warrants issued . This
amount ts being amortized over the life of the loan .
(c) Convertible into common shares at $8.00 a share to 1971 and $10.00 a share thereafter to maturity.
Durin g the year, $10,000 of debentures were co nverted into 1,250 shares of common stock, resulting in
increases in Common Stock of $250 and Paid-in Capital of $9,750.
3. COMMITMENTS Amount
(a) Purchase commitments exist for the co nversions of nine Convair 440's to Convair 580
turbo -props in 1969 and other equipment ($4,515,570 has been deposited in advance)
(b) Annual m inimum obligations exist for:
(1) New office and operational facilities at the Minneapolis-St. Paul Intern ational
$6,806,000
Airport for 30 years beginning approximately Jun e 1969 . . .. .. ....... .. .... $1,100,000
(2) Terminal and other facilities (including land in g fees) . 1,500,000
(3) Nine Conva1 r 580 aircraft for 10 years . 1,750,000
(4) Minimum commitment on two DC-9 aircraft at $50,000 each per month on a short term
basts, and app rox. $40,000 f or 12 continuous months or more. Scheduled delivery in July .
(5) Data processing equipment-to 1974 .
100,000
140,000
$4,590,000
4. INCOME TAXES-Timing differences in repo rting depreciation and certain deferred expenses for book
and tax purposes produced a net operating tax loss of approximately $9,500,000 in 1968. The carry back
of approximately $2,200,000 of this amount against prior years' taxable income resulted in an income tax
refund receivable of approximately $900,000, and a related provision for deferred income taxes. The re-
maining net operating tax loss of $7,300,000 is available as a deduction against future taxable income
through 1973-due to the timing differences, a provision for deferred income tax es wtll be required as this
d eduction ts used. Deferred Federal and State income taxes of $1,994,000, representing tax benefits
derived from timing differences to date, may become payable in future years when depreciation and de-
ferred ex penses for tax purposes are less than for financial reporting purposes.
The company uses the flow-through method of accounting for the jnvestment credit. The 1968 invest -
m ent credit of $2,569,000 had been used in part ($28,000) to reduce the current year deferred income tax
provision. The unused investment credits available for future years total $3,378,000 and expire in 1974
($837,000) and 1975 ($2,541,000).
5. DEPRECIATION-For financial reporting purposes, the company depreciates its fixed assets on the
straight-line method based on estimated useful lives ranging from seven to fifteen years for flight equip-
ment and three to ten yea rs for other equipment and property. Accelerated m ethods, used for income tax
purposes, resulted in a $7,714,000 excess of tax depreciation over book depreciation for the year.
6 . OTHER INTERLINE RECEIVABLES-Accou nts with other airlines are determined by the application of
statistical methods because of the large volume of interline tickets and the small dollar amount of each
ticket. The Other Interline Receivables of $450,000 represent amounts which the Company believes to be
due from other airlin es but cannot allocate to specific accounts at this time. The ultimate disposition of the
Other Interline Receivables may require a charge to operations if some or all of these receivables prove not
to be due and collec ttble. It is estim ated that su ch a c h arge co uld result in a reduction in net ea rn in gs of up
to $300,000 after tax consideratio ns.
7. VACATION PAY-Th e com p any records vacation pay when paid. Th e unrecorded obligation at December
31, 1968 approximated $550,000, net of prospective income tax c redits.
8. PENSION PLANS-The company has non -co ntributory pension plans covering substantially all of its
employees. Pensions, based on length of service and average salary, are provided for retirem ent of p ilots
at age 60 and all other employees at age 65. The plans coveri n g pilots are fully funded for past se rvice cost,
while the company pays the normal cost and interest only on the past service cost of the other plans. The
cost to the compa ny in 1968 was $1,100,000 com pared with $819,000 in 1967.
9. STOCK OPTION PLAN-A total of 250,000 shares of unissu ed common stock was rese rved for off icers
and key employees und er a qualified plan in 1965. Options granted are: 1965-220,000 shares at $3.05;
1967-5,000 shares at $6.81; and, 1968-5,000 shares at $5.60. Options for 30,000 shares were exe rcised
in prior yea rs, leaving 190,000 shares expi rin g in 1970 and 5,000 shares expirin g in each 1972 and 1973.
10. GAIN ON DISPOSITION OF AIRCRAFT-During 1968 the compa ny sold eight Douglas DC-3's and four
Convair 440 ai rc raft and related spare parts for a gai n of $2,055,588 before income taxes. Allocable incom e
taxes totaled $872,000, resultin g in a n et gain of $1,183,588.
C E SUMMARY
OPERATING REVENUES 1968 1967
Passenger . . . $44,628,769 $33,482,371
Public Service Revenue 4,667,639 5,249,563
Other .. . . . . . 5,929,518 4,118,543
TOTAL . . . . . . . $55,225,926 $42,850,477
OPERATING EXPENSES
Direct Expenses . . $25,525,000 $19,811 ,886
Indirect Expenses 24,318,200 19,523,811
Depreciation and Amortization 4,356,893 2,626,251
TOTAL . . . $54,200,093 $41,961 ,948
Operating Profit 1,025,833 888,529
Non-operating Income and (Expenses), Net (3,008,205) (628,731)
Income Before Taxes . . . . . . . . . $ (1,982,372) $ 259,798
Income Taxes .. . . . . (869,000) (336,010)
Income Before Gain on Disposition of Aircraft $ (1,113,372) $ 595,808
Gain on Disposition of Aircraft, Less Income Taxes 1,183,588 924,316
Net Income . ... . .. . .. .... . . . $ 70 ,2 16 $ 1,520,124
ALEXANDER GRANT & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Directors
North Central Airlines, Inc.
We have examined the balance sheet of
NORTH CENTRAL AIRLINES, INC. (a
Wisconsin corporation) as of December
31, 1968, and the related statements of
income, retained earnings and paid-in
capital for the year then ended. Our exam-
ination was made in accordance with gen-
erally accepted auditing standards and
accordingly included such tests of the
accounting records and such other audit-
ing procedures as we considered neces-
sary in the circumstances. We made a
similar examination for the preceding year.
In our opinion, subject to the ultimate
effect from the disposition of the other
interline receivables discussed in note 6,
the accompanying balance sheet and
statements of income, retained earnings
and paid-in capital present fairly the finan-
cial position of North Central Airlines, Inc.
at December 31, 1968, and the results of
its operations for the year then ended, in
conformity with generally accepted ac-
counting principles applied on a basis
consistent with that of the preceding year.
Alexander Grant & Company
Minneapolis, Minnesota
February 12, 1969
1966 1965
$30,261,479 $23,720,203
5,767,888 7,199,418
3,583,304 2,971,410
$39,6 12,671 $33,891,031
$17,980,535 $15,356,876
17,062,543 13,970,237
2,253,361 1,997,488
$37,296,439 $31,324,601
2,316,232 2,566,430
(464,974) (442,894)
$ 1,851,258 $ 2,123,536
720,647 1,006,520
$ 1,130,611 $ 1,117,016
24,000 21 ,736
$ 1,154,611 $ 1,138,752
1964
$20,002,281
7,274,370
2,438,126
$29,714,777
$13,666,142
12,303,601
1,712,800
$27,682,543
2,032,234
(348,305)
$ 1,683,929
873,304
$ 810,625
33,939
$ 844,564
13
14
MILLIONS
30-------->:::::c;...-
2.6 - -- ---"--,-
2.2 ~
1.8--i-r
1.4---------'--~
Every year since North Central began scheduled op-
erations in 1948, new passenger traffic records have
been achieved. In 1968, the 3,013,816 passenger
total was 28 percent greater than in 1967 and 223
percent over five years ago. The 666,445 passenger-
gain in 1968, compared with the previous year, was
the largest annual increase in the company's 21-year
history.
North Central carried 78,062,794 pounds of cargo
in 1968, including air freight, express, and mail. This
was a 38 percent improvem.ent for one year and 249
percent for five years.
The 1,304,492,635 seat miles flown during 1968
showed a 55 percent increase over 1967 and a 254
percent gain in the five-year period.
The addition of seven 100-passenger DC-9 fan jets
and 13 Convair 580 prop-jets during 1968 substan-
tially increased available seat and cargo capacity.
North Central will be operating an all jet-powered fleet
in March, with ten DC-9's and 34 Convair 580 prop-
jets. Five more DC-9's are available for use this year.
As a result of the increased capacity, speed, and
efficiencies of the jet aircraft, 1969 should be another
year of exceptional traffic growth for the airline.
L\l=lr ,r 1
MILLIONS (POUNDS)
7 0 - -- - -.........,....
60--- - --1---'-
so-----....-+-
4 0 - - - - - i - , -
3 0 - - - - -"-l-
20-----,---i----
MILLION S
1300
1100
900
700
500
I
1964 '65 '66 '67 '68
ADVERTISING
North Central's 1968 advertising program continued
the "Take a New Look at North Central" theme, with
emphasis on new routes, improved service, and the
introduction of additional jet-powered aircraft.
Millions of people did take a new look at North
Central, and more than three million bought tickets,
setting an all-time yearly boarding record.
A new image was generated about the company-
its big jets, its expansions in routes and facilities, and
its dynamic future. The airline's advertising program
played a significant role in successfully translating
this enthusiasm into passenger boardings.
Each of the airline's markets is unique because of
its own flight schedule patterns, fares, and promo-
tional needs. North Central tailors its advertising to
promote the items which are of interest to the in-
dividual communities.
Most of North Central's advertising is in local news-
papers-an effective method of emphasizing the air
link which a growing, progressive airline provides to
"Main Street USA." In 1968, the company used more
than 60 newspapers to tell this North Central service
story. In addition, special commercials on 45 radio
and television stations reminded the traveling public
to fly North Central. These were scheduled in the
airline's major marketing areas.
An unusual display was developed in 1968 to pro-
mote the company's services and the tourist attrac-
tions on its extensive route system. Lighted color
photographs depict North Central equipment and fa-
cilities, and recreational activities. This attractive
exhibit appeared initially in the lobby of the Civil Aero-
nautics Board Building in Washington, D. C. It received
an enthusiastic response from members of the Board,
airline representatives, and the general public. The
"traveling" display will be used in 1969 for special
promotions throughout North Central's area.
To complete the advertising program, Northliner
service was highlighted by outdoor billboards, special
travel brochures, and ski-country material to encour-
age travelers to "Take a New Look at North Central."
Civil Aeronautics Board Chairman John H. Crooker, Jr. (center) and Director of
Community and Congressional Relations John W. Dregge (right),.stopped to view
the special North Central exhibit on display in the lobby of the CAB. Building
in Washington, D. C. Greeting these officials was David E. Moran, North Central
Vice President-Traffic and Sales.
nd Forks in :51 Fl
....
............
. ..................... ~
llrth Central
North Central's billboard and newspaper advertising promoted the airline's
jet-powered service in the local communities. Improved flight schedules and
new routes were also emphasized.
15
16
PROMOTIONS
Promotional activities in 1968 included introductory DC-9
scenic flights, sales calls, and local receptions to pub-
licize North Central's new jet service to 24 additional
communities on its system.
As part of the September 15 inaugural of the new
Chicago-Rochester-Sioux Falls route, a reception was
hosted in Sioux Falls for community representatives from
Rochester, Chicago, Sioux Falls, Mitchell, Huron, Rapid
City, and Pierre.
At Milwaukee, a similar reception in October promoted
North Central's new nonstop flights between Milwaukee
and the Twin Cities, and Milwaukee-Detroit. Prior to the
October 27 inauguration, members of the company's
sales department made 850 special calls on commercial,
travel agency, and interline accounts in Detroit, Milwau-
kee, and the Twin Cities to acquaint them with the bene-
fits of the new service. As a result of this concentrated
sales effort and related advertising, the first two months'
passenger traffic on these nonstop routes was even
greater than anticipated.
A dramatic aerial feat heralded North Central's 20th
Anniversary in February 1968. The five types of aircraft
which have been used by the airline since its beginning
in 1948 were flown in formation for newsmen and photog-
raphers. One of the company's original Lockheed lOA's
led the formation, followed by a DC-3, Convair 440, Con-
vair 580, and DC-9. This unique, promotional flight was
particularly significant because of the great variance in
speeds between the small Lockheed and the DC-9 fan jet.
The DC-3 used in the 20th Anniversary Flight was North
Central's corporate plane, "728," which holds the dis-
tinction of having flown more hours than any other air-
craft in the history of aviation. Known as The World's
High-Time Aircraft, it has now logged over 84,200 hours.
A new documentary film, The Plane That Refused to Die,
which features "728" and other North Central DC-3's
was completed in 1968. Radio and television personality
Arthur Godfrey narrates the production, based on Douglas
J. lngell's book, The Plane That Changed the World.
20th Anniversary Flight.
During the year, "728" was used for numerous flights
related to business and community promotions on North
Central's system and for company public relations pro-
grams.
Other local activities included speeches by company
officials to civic groups, meetings with chambers of com-
merce, and speaking participation by employees at high
school Career Days. Window displays and joint interline
efforts rounded out the special events picture.
An important continuing promotion is the placement
of "The North liner" on board all aircraft. In 1968, nearly
360,000 copies of this company publication were dis-
tributed to passengers. In addition, over 50 press releases
and 320 scenic flights told the North Central story to
thousands of people across the United States.
Taking a break during the filming of the DC-3 documentary film which
features North Central's "728" aircraft are (from left) Captain Julian Carr, Jr.;
Captain Arthur Hinke, Manager-Flight Crews; Arthur Godfrey; Stewardess
Carol Shanahan; and Hal Carr, North Central Chairman of the Board and
President.
--- NORTH CENTRAL AIRLINES, INC.
6201 THIRTY-FOURTH AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55450