North Central Airlines Annual Report 1969

ANNUAL REPORT 1969
NORTH CENTRAL AIRLINES
GENERAL OFFICES: 7500 Northliner Drive, Minneapolis, Minnesota 55450
BOARD OF DIRECTORS
Hal N. Carr* Chairman
D. E. Crooker
G. F. DeCoursin*
MANAGEMENT
Chan Gurney
Samuel H. Maslon *
Jay Phillips
Hal N. Carr ....... . .... . ..... . ..... . Chairman of the Board and
Chief Executive Officer
Bernard Sweet ......... . ......... . .................. President
John P. Dow ......... . ............ Vice President and Secretary
Leslie J. Keely ..... .. ........ Vice President-Maintenance and
Engineering
Daniel F. May ... . ... . ... . ........ Vice President and Treasurer
REGISTRARS AND
STOCK TRANSFER AGENTS
Northwestern National Bank of Minneapolis; Minneapolis, Minnesota
First National City Bank; New York, New York
Morton B. Phillips
Joseph E. Rapkin
H. P. Skoglund
Bernard Sweet
Kenneth B. Willett
Robert G. Zeller
Executive Committee
David E. Moran . .. ..... . ..... Vice President-Traffic and Sales
T. M. Needham ... . ........ 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
March 6, 1970
TO OUR STOCKHOLDERS, EMPLOYEES ANO FRIENDS:
North Central Airlines has completed another year of progress and a decade of impressive growth.
Revenues for 1969 increased by a record $13,202,000 to reach $68,428,000-a 24 percent gain
over 1968. For the second consecutive year, the company carried more than three million passengers,
up 229,003 to 3,242,819. Revenue passenger miles advanced 18 percent to 609,973,000. Daily and
monthly traffic highs were also established as 13,619 passengers flew August 1, and 353,907 were
carried in August.
With operating expenses of $68,035,000, including depreciation of $5,606,000, the airline achieved
a $393,000 operating profit in 1969. The company's extensive equipment modernization program
caused the substantial increase in depreciation, as well as the rise in interest expense of 56 percent
to $4,830,000. After income tax credits, the net loss for 1969 was $2,378,000. However, no capital
gain was recorded in 1969, while the net income of $70,000 in 1968 included a $1,184,000 gain on
disposition of equipment.
In perspective, the year was one of the most difficult the airline industry has yet experienced. During
the second half of 1969, all the carriers suffered from an unanticipated slowdown in their traffic
growth. This was attributed largely to the influence of anti-inflationary measures enacted by the
Federal Government. The result of the softening of traffic was magnified by the continued rising costs
of labor and material. All nine of the regional airlines incurred losses in 1969, and the total loss mounted
to approximately $60 million.
Despite the present adverse economic conditions, the 1970 outlook is encouraging for North Central.
The full 12-month effect of fare increases granted by the Civil Aeronautics Board in February and
October 1969 has not yet been realized, and will generate greater revenues in 1970. Besides this, two
recent actions by the Board will strengthen the 1970 earnings picture even more-the distribution of
a larger share of interline fares to the regional carriers and the elimination of public service revenue
reductions with new routes.
During 1969, North Central was awarded 1,760 additional route miles. The C.A.B. approved a
Minneapolis/St. Paul-Denver route, and nonstop fan jet service was inaugurated in June. The com-
pany also received authority for Twin Cities-Chicago nonstop flights. In November 1969, North Central
was granted Milwaukee-Ohio service to Cincinnati, Columbus, and Dayton. Flights started March 1,
1970.
The airline has applied for over 16,000 new route miles to serve another 22 communities in nine
states, the District of Columbia and two Canadian provinces. A C.A.B. Examiner has recommended
North Central for nonstop authority from both Minneapolis/St. Paul and Milwaukee to New York/
Newark. The Board's final decision is expected in 1970.
At a special meeting in September, the company's stockholders approved an increase in the author-
ized shares of common stock from 10,000,000 to 16,000,000. A portion of the additional shares were
offered to the general public in October through a group of underwriters.
The airline's new $15-million general office and main operations base at the Minneapolis-St. Paul
airport was finished during 1969, and the dedication program was held in October.
The era of introducing jet service to all North Central communities represents an investment of
$93 million over the past 30 months. The company's fleet now consists of thirteen 100-passenger
DC-9 fan jets and 34 Convair 580 prop-jets. Two more DC-9's are available for use during the year.
The 1970's will be a decade of challenge for North Central. The company's effective cost control
program will continue, major investments required for jet equipment and new facilities have been
completed, and increased revenues are anticipated from new routes, fare increases, and a more
favorable allocation of interline fares. Management believes that these developments will produce a
substantial improvement in earnings for 1970. North Central looks forward to a rewarding year sup-
ported by the efforts of its dedicated employees and its loyal stockholders and passengers.
Sincerely,
-/;f,,p~_
HAL N. CARR
Chairman of the Board and
Chief Executive Officer
BERNARD SWEET
President
REV ENUE S
$55 - - - - - - ------1
$511 - - - - - - - - - - -
$4~- - - - - - - - - - - - 1
$3:>-- - - <
$30-
$25-
1965 '66 '67
2
'68
ANNUAL REPORT 1969
'69
FINANCIAL REVIEW
North Central Airline's 1969 revenues reached a record
high of $68,427,923. The company closed the decade
of the 1960's with a $13,201,997 increase over 1968, the
largest revenue gain in its 22-year history.
Operating expenses, including depreciation, advanced
26 percent to $68,035,034 in 1969, and the company
achieved an operating profit of $392,889, compared with
$1,025,833 the previous year.
Depreciation and amortization expense continued to
rise in 1969-from $4,356,893 to $5,605,500-due large-
ly to the acquisition of DC-9 fan jets and the completion
of the Convair 580 conversion program. Related interest
expense increased sharply to $4,829,814, up 56 percent
compared with $3,092,015 in 1968. The resulting net
loss for 1969 was $2,378,395 after income tax credits
of $1,934,888. In 1968 the company's net income of
$70,216 included a $1,183,588 gain from disposition of
equipment, while no capital gain was realized in 1969.
The actions taken by the Federal Government to com-
bat inflation reduced the rate of traffic growth which the
airlines have experienced in recent years. The downward
trend in the economy for the last six months of 1969 had
a double effect on the industry because traffic did not
meet anticipated forecasts while inflation boosted the
rising cost of labor, material, fuel, insurance, and interest.
To improve the financial condition of the company,
$9,760,832 was raised in October through a public
offering of North Central stock and warrants, the addi-
tional shares required having been authorized at a special
stockholders' meeting in September. Revenues from
traffic growth, new routes, recent fare increases, and a
greater share of interline fares will also strengthen the
airline's ability to emerge from the present period of
economic weakness, when coupled with the company's
expanded cost control program.
North Central enters the 1970's with a strong potential
for increased growth and improved earnings.
TRAFFIC
GROWTH
North Central Airlines continued its record traffic growth
in 1969 as 609,972,627 revenue passenger miles were
flown for an increase of 18 percent over 1968. Some
3,242,819 passengers were carried during the year, a
gain of eight percent compared with 1968.
This was the second consecutive year the company
boarded over three million passengers, and the passen-
ger total was the highest in the airline's 22-year history.
In addition, a monthly record was set in August with
353,907 passengers carried, 13 percent ahead of the
same month of 1968. On August 1, 1969, a new single-
day mark was reached as 13,619 passengers flew on the
"Route of the Northliners."
The conversion to an all jet-powered fleet early in 1969
contributed significantly to traffic increases as North
Central's 100-passenger DC-9 fan jets and Convair 580
prop-jets provided greater capacity, speed and comfort
to the traveling public.
During peak periods, North Central added 1,018 "extra
sections'' to its regular flights. These carried 31,552
passengers and flew 250,553 miles. The airline also
operated 168 charters to 32 states and Canada, covering
246,921 miles and accommodating 18,302 passengers.
To promote North Central service in the local communi-
ties, the company's 202 scenic flights introduced the ad-
vantages of jet-powered transportation to 11,625 people.
North Central flew 1,543,706,426 seat miles in 1969,
an 18 percent increase over the previous year, and avail-
able ton miles reached 209,475,981, up 32 percent.
A record 82,744,459 pounds of cargo (air freight,
express, and mail) were carried on the airline's 90-city
system in 1969. Total cargo ton miles rose to 8,293,640,
an increase of 14 percent compared to 1968. Air freight
was up a substantial 18 percent to 4,599,580 ton miles
-and mail increased 15 percent to 2,466,849 ton miles
flown.
Since inaugurating service in 1948, the airline has
carried 22,338,592 passengers and flown 3,785,433,524
passenger miles.
North Central Airlines opened its new second-level pas-
senger boarding gates at Minneapolis-St. Paul International
Airport in 1969. Passengers can now board and deplane jet
aircraft completely sheltered from the weather. Additional
upper-level facilities were also installed at Milwaukee and
Green Bay during the year.
OPERATING
PERFORMANCE
North Central's operating performance for 1969 was one
of the most outstanding records in the airline industry.
In spite of an unusually severe and prolonged Midwest
winter, the company achieved a completion factor of
over 98 percent. Of its 23,018,925 scheduled miles,
22,577,216 were flown.
One of the major reasons for this impressive perfor-
mance was the airline's exacting and continuous main-
tenance program. In 1969, less than one-tenth of one
percent of North Central's 209,755 actual departures
were cancelled for mechanical reasons, and less than
one and one-half percent were delayed for mechanicals.
North Central's "Operation Cold Front" again empha-
sized winter operating techniques. This regular seasonal
program covers refresher training of personnel and the
preparation of ground equipment for adverse winter
weather.
The excellent 1969 performance record is the result
of the dedicated efforts of all North Central employees
to their job of keeping the Northliners flying.
3
4
ROUTE DEVELOPMENT
In 1969, the Civil Aeronautics Board awarded North
Central Airlines 1,760 additional miles which increased
its route system by 24 percent.
In April, the Board authorized the company to operate
Denver-Minneapolis/St. Paul nonstop service. This is the
airline's longest nonstop route. Daily prime-time DC-9
flights were inaugurated June 15. Already Denver has
become the eighth most important revenue-generating
station on North Central's system.
The C.A. 8. lifted its operating restrictions on the Twin
Cities-Chicago route in August, and nonstop fan jet flights
started October 26. The direct service with 100-passen-
ger DC-9's is in addition to the multi-stop flights North
Central operates between these two metropolitan com-
munities. The company also received permanent au-
thority to provide nonstop service between Sioux Falls
and the Twin Cities, and Sioux City-Kansas City.
A decision in the Milwaukee Short Haul route case was
made in November. North Central was certificated to
serve three new cities in Ohio-Columbus, Dayton, and
Cincinnati. The Milwaukee -Ohio flights are starting
March 1, 1970. North Central will provide improved new
service to this important market area.
In the Twin Cities-Milwaukee Long Haul Investigation,
the C.A. 8. Examiner recommended North Central to
operate nonstop service to New York/Newark. A final
decision in this case is expected in 1970.
North Central currently has applications pending be-
fore the C.A.B. for 16,327 additional route miles to serve
22 new communities in nine states, the District of Co-
lumbia, and the Provinces of Manitoba and Quebec,
Canada. If approved, these new routes would more than
double the airline's present system and extend its service
area as far north as Winnipeg, south to Dallas/Ft. Worth,
Houston, San Antonio, Atlanta, Miami, Tampa, and east
to Montreal, Boston, New York/Newark, Philadelphia,
Washington/Baltimore, and several North Carolina cities.
The company is continuing to pursue this ambitious
route development program in the 1970's. The airline
presently serves 90 communities in 12 states and
Canada over a 9,200-mile route system.
1969 AWARDS:
Denver-Twin Cities nonstop (694 miles)
Milwaukee-Columbus one-stop via Dayton, and
nonstop (355 miles)
Milwaukee-Cincinnati one-stop via Dayton, and
nonstop (348 miles)
Milwaukee-Dayton nonstop (284 miles)
Minneapolis/St. Paul-Chicago nonstop (334 miles)
Sioux Falls-Minneapolis/St. Paul nonstop
(permanent authority)
Sioux City-Kansas City nonstop
(permanent authority)
AWAITING CAB DECISION:
Twin Cities-Milwaukee Long Haul Investigation-
New routes from the Twin Cities and Milwaukee
to Boston, New York/Newark, Philadelphia, and
Washington/ Baltimore (3,941 miles)
North Carolina Points Investigation-New routes
from Chicago to Charlotte, Greensboro/ High
Point/Winston-Salem, and Raleigh/Durham
(2,116 miles)
Omaha and Des Moines Service Investigation-
Nonstops from Omaha to Chicago, Minneapolis/
St. Paul, Denver, and Kansas City(l,350 miles)
North Central Route Realignment Proceeding-
The Board's staff has recommended combining
a number of segments to permit gr.eater opera-
ting flexibility.
AWAITING CAB EXAMINER'S DECISION:
Southeast Points Investigation-New routes from
Minneapolis/St. Paul and Milwaukee to Miami,
via Atlanta and Tampa (1,283 miles)
Atlanta-Detroit, Cleveland, Cincinnati Investiga-
tion (1,527 miles)
Chicago-Baltimore Nonstop Service Investigation
(622 miles)
APPLICATIONS AWAITING HEARING:
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 miles)
Minot-Winnipeg and Duluth/Superior to Winnipeg
(534 miles)
Milwaukee-Denver nonstop (909 miles)
Columbus, Dayton, Cincinnati and Indianapolis-
Philadelphia nonstops (1,977 miles)
Toronto-Montreal nonstop (315 miles)
Minneapolis/St. Paul-Kansas City nonstop (406
miles)
LOOKING TO THE 187O's
NEW FACILITIES
North Central Airlines officially opened its new $15-million general office
and main operations base in October. Located at the Minneapolis-
St. Paul International Airport on a 100-acre site, the headquarters
combines the company's major corporate and operational functions
into one massive 516,000-square-foot complex.
The main base has three huge hangar bays and can service nine
100-passenger DC-9 fan jets at one time, or 15 Convair 580 prop-jets.
Behind the bays are related shop areas, and nearby is the $900,000
jet-engine test cell. The general office is housed in the adjoining two-
story building. North Central also operates an employee cafeteria and
Flight Kitchen, becoming the first regional carrier to cater its own air-
craft. Over 1,200 of the company's 3,100 emplQyees are based in the
Twin Cities.
At Milwaukee, the new $2.5-million boarding terminal, designed for
North Central, was operational in December. Eight gates provide expe-
dited check-in service and on-line transfers. At Minneapolis-St. Paul,
Green Bay, and Milwaukee, second-level boarding facilities were added,
and a new terminal was dedicated at Escanaba. The new Central
Wisconsin Regional Airport, serving Wausau, Stevens Point, Wisconsin
Rapids, and Marshfield, was opened in October with increased jet
flights and more direct air service.
ESCORT COMPUTER SYSTEM
Early in 1969, North Central announced its agreement with International
Business Machines for an $8-million Electronic System Combining
Operations, Reservations, Telecommunications-known as ESCORT.
Located in the new computer center at the company's Twin Cities
headquarters, the basic equipment includes two I BM 360-65 and two
Sanders 200 computers. The system is designed to expedite passenger
reservations, message-switching, and flight information inquiries.
Research and planning for North Central's entry into the computer-
ized reservations age started in 1967 with an evaluation of specifications
and the economic feasibility of completely automating reservations.
During 1968 and 1969, key personnel from the Traffic, Ground Opera-
tions, and Treasury Departments implemented the ESCORT project;
and extensive programming modifications tailored the I BM system to
North Central's requirements. The 1,315 separate programs of ESCORT
then underwent intensive testing, and a sophisticated self-instruction
course was developed to train North Central employees at all locations
simultaneously.
ESCORT's 380 remote agent sets, with attached keyboards, consist
of TV-like units and typewriter devices. Linked with the four computers
by 18,500 miles of telephone lines, the sets are installed at 160 loca-
tions over the airline's 12-state system-reservations centers, city
ticket offices, all airport operations, and strategic passenger service
positions. North Central is the first carrier to provide visual display sets
at passenger gate areas.
A major advantage of ESCORT is that every North Central agent at
every location has direct access to all stored reservations records. He
can make, change, or reconfirm a reservation "instantly", and passen-
ger records can be retrieved by name or flight number. The agent
enters the inquiry into ESCORT and receives a response within three
seconds.(ESCORTwfll remind him of missing information.) Data can be
secured on seat availability, fares, arrival/departure times, and the op-
erating status of all North Central's 1,300 daily flight segments, as well
as seat availability and fares for 3,800 connecting flight segments of
21 major airlines. ESCORT also maintains an inventory of all "sold out"
flights for these airlines, and reservations can be confirmed on every
other flight in their entire schedule. ESCORT's overall capacity permits
storage of passenger records for 340 days, including name, telephone
number, flight itinerary, fare, ticketing information, and special ser-
vices required.
North Central is the first airline to install electronic equipment system-
wide which will transmit reservations, message-switching, flight infor-
mation, and weather inquiries to a single computer system for com-
mon retrieval. In addition, ESCORT is used for processing payroll,
accounting, crew scheduling, maintenance planning; and inventory
control data.
ESCORT provides significant operating economies which will increase
as the company's volume of business grows. The system is a vitally
important part of North Central's expansion program and assures im-
proved, high-quality reservations service for future traffic growth on
present and anticipated new routes. Early in 1970, the message-
switching function of ESCORT was activated, and during March the
the entire system will be operational.
THE FUTURE
In addition to the airline's acquisition of new facilities and passenger
service equipment, North Central has also completed its jet moderniz-
ation program during the past 30 months, representing an expenditure
of $93 million for 13 DC-9 fan jets and 34 Convair prop-jets.
These major investments give North Central a strong foundation for
implementing new route awards and achieving record growth in the
decade of the ?O's.
ESCORT provides North Central's agents with "instant" responses to all inquiries
(photo above), and the basic equipment is located in the new Computer Center (below)
at the airline's Twin Cities headquarters.
5
ROUTE OF THE NORTHLINERS PRESENT ROUTES
PROPOSED ROUTES
8
ASSETS
CURRENT ASSETS
Cash . . . . .. .
Accounts receivable
United States Government .
Traffic
Other
Flight equipment parts, at average cost (less reserves of
$260,152 and $338,954 in 1969 and 1968, respectively)
Maintenance and operating supplies .. . .. .
Prepaid expenses and sundry deposits (Note 1)
Total current assets . ... ... .
OPERATING PROPERTY AND EQUIPMENT-AT COST
Flight equipment (Note 2) . .
Ground equipment .
Improvements to leased property-
Furniture and office equipment ..
Less accumulated depreciation (Note 3) .
Advance payments on flight equipment .....
DEFERRED CHARGES
Unamortized development and pre-operating costs (Note 4) .
Unamortized discount and expense on debt .
Rentals and other .. . . . .. . .. ... .
OTHER ASSETS
Other interline receivables
The accompanying notes to financial statements are an integral part of this statement.
1969
$ 1,382,932
1,112,204
5,896,338
929,433
7,937,975
2,212,636
666,251
5,126,936
17,326,730
71,774,524
4,090,219
3,116,950
747,538
79,729,231
10,875,534
68,853,697
68,853,697
3,830,379
189,997
1,084,329
5,104,705
$91,285,132
1968
$ 1,248,250
1,671,347
4,274,625
2,053,072
7,999,044
1,824,159
468,319
2,107,083
13,646,855
66,603,743
3,413,424
2,898,522
518,868
73,434,557
8,516,412
64,918,145
4,515,570
69,433,715
3,111,666
194,888
772,739
4,079,293
450,000
$87,609,863
Comparative Balance Sheet-December 31, 1969 and 1968
LIABILITIES
CU RR ENT 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 5) ....... . .... .... .
COMMITMENTS (Notes 6, 7, and 8) ..... . .. . . .. . .. . . ... . .
STOCKHOLDERS' EQUITY (Notes 2, 9 and 10)
Common stock-authorized, 16,000,000 shares of $.20 par value;
issued and outstanding, 10,462,824 and 8,776,763 shares, 1969 and
1968, respectively
Paid-in capital ..... . .... . ............. .. ... .
Retained earnings ............. . .......... . .... .
1969
$ 690,000
6,086,920
10,136,122
265,933
979,181
2,138,173
361,033
1,272,765
21,930,127
53,719,506
2,092,565
10,218,785
12,311,350
3,324,149
15,635,499
$91,285,132
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
9
10
COMPARATIVE STATEMENT OF OPERATIONS
Years ended December 31, 1969 and 1968
OPERATING REVENUES
Passenger .. .... .
Freight and express . .
Public service revenue .
Mail ......... .
Non-scheduled service and other
Total operating revenues .
OPERATING EXPENSES
Flying operations . . .
Maintenance (Note 1)
Passenger service . .
Aircraft and traffic servicing
Promotion and sales ...
General and administrative .
Depreciation and amortization (Note 3)
Total operating expenses .
Operating profit . . . . . .
OTHER EXPENSE (INCOME)
Interest expense-net of interest capitalized (Note 11) .
Other (net) . . . . . . .
Totalotherexpense .
(Loss) before income taxes and gain on disposition of equipment .
INCOME TAXES (Note 5)
Deferred .
(Loss) before gain (loss) on disposition of equipment
GAIN (LOSS) ON DISPOSITION OF EQUIPMENT, NET OF TAXES (Note 5) .
NET INCOME (LOSS)
INCOME (LOSS) PER SHARE (Note 12)
(Loss) before gain (loss) on disposition of equipment
Gain (loss) on disposition of equipment, net of taxes
NET INCOME (LOSS) PER SHARE
The accompanying notes to financial statements are an integral part of this statement.
1969
$57,073,369
4,153,106
4,016,386
1,501,786
1,683,276
68,427,923
20,960,004
10,687,242
3,849,181
17,421,674
5,966,402
3,545,031
5,605,500
68,035,034
392,889
4,829,814
(152,722)
4,677,092
(4,284,203)
(1,934,888)
(2,349,315)
(29,080)
$ (2,378,395)
$(.26)
$(.26)
COMPARATIVE STATEMENTS OF RETAINED EARNINGS AND PAID-IN CAPITAL
Years ended December 31, 1969 and 1968
RETAINED EARNINGS (Note 2)
Retained earnings-beginning of year
Net income (loss) 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 (Note 9)
Excess of net proceeds over par value of common stock issued as a result
of a public offering (Note 10) . . . . . . . . . . .
Paid-in capital-end of year .. ................ . .. .. .
The accompanying notes to financial statements are an integral part of these statements.
1969
$ 5,702,544
(2,378,395)
$ 3,324,149
$ 527,239
8,287
242,427
9,440,832
$10,218,785
1968
$44,628,769
3,460,728
4,667,639
1,183,809
1,284,981
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
1968
$ 5,632,328
70,216
$ 5,702,544
$ 467,489
50,000
9 ,750
$ 527,239
NOTES TO FINANCIA.L STATEMENTS DECEMBER 31, 1969
1. ENGINE OVERHAUL-In 1969, th e company changed its method of acco unting for jet engine overhaul
costs from the reserye method to the d irect_ charge-off method. In the opInIon of the company, th e c hange
has not h:ad a material effect on the operatin g results of the co mpany.
Prepaid overhaul expenses total in g $3,5 22,000 and $1,353,000 are included in prepa id expenses as of
December 3 1, 1969 and 1968, respectively.
2. LONG-TERM DEBT-Lon g-term debt at December 31, 1969 co nsists of the followin g:
Terms Total Long-term Current
Quarterly installment notes due from January, 1969 through
April, 1973; interest at% above prime rate ................. $ 20,564,480 $14,688,914 $5,875,566
7% quarterly installment notes du e from July, 1973
throu gh October, 1978 .
Total due banks and insurance co mpanies (a) ......... .
7 % subordinated notes due in sem i-annual installm ents
from September, 1971 through March, 1976 (b) .......... . . .
e~~~uss~bo_
rd_
i~at_
e~ _con_
v_
~rt_
ible _
deb_
ent~~es_ d~e _; n _
1_
~78_ ~c) :.
35,253,393
55,817,873
3,000,000
744,500
2 44,053
$59,806,426
35,253,393
49,942,307
3,000,000
744,500
5,875,566
32,699 2 11,354
$53,719,506 $6,086,920
(a) The t_
ota l $55,817,873 loan is collateral ized by substantially all flight eq uipm ent owned by the company.
Two equipment manufactu_
rers are partially guaranteeing these loa_
ns. Among other things, th e loan agree-
ment contains certain restrictions on the payment of dIvIdends, capital exp end itures, and additional borrow-
ings and requirements regarding working capita l and n et worth .
(b) Stock purchase warrants attached enable th e holders to purchase an aggregate of 200,000 shares of
commo n stock at $6.00 a share through March 1, 1976. Un am ortized discount and expen se on debt has
been charged and paid -in capita l credited for $50,000 representin g the valu e of the warrants issu ed . This
amount is being amortized over the life of th e loan.
(c) Convertible into co mmon shares at $7.59 a share to _
l971 and $9.50 a sh are thereafter to maturity.
During the yea r, $8,500 of d ebe ntures were converted into 1,061 shares of co mmon stock, resultin g in
increases in common stock of $212 and paid-in ca pital of $8,287.
3. DEPRECIATION-For financial reporting purposes, the company depreciates fixed assets on th e straight -
line method based on est1mat_
ed useful lives ran gin g from seven to fifteen years for fl igh t equipm ent and
three_ to ten years for other equipm ent and property. Th e compa ny has followed the practice in previous yea rs
of using accelerated methods for income tax purposes. Th e co ntinu ed use of this m ethod will result in an
excess of tax depreciation over depreciation used for financial reporting purposes of $8,884,000 (see Note 5).
4. DEVELOPMENT AND PREOPERATING COSTS-Expenditu res for route development costs are deferred
by the company and amortized over the life of the temporary certificates or five yea rs for permanent certi fi-
cates. Aircraft preoperating costs are amortized over approximately eight years.
5 . INCOME TAXES-The compa ny's loss was used primarily to reduce deferred incom e taxes previously
provided (including reducing the loss on sale of equipment by $22,000). Approximately $150,000 of the loss
is available to offset income in future years used in computin g th e inco m e tax provisio n.
Th e company has additional net operating loss carryovers available as a reduction against future taxable
income arIsIng out of tim in g differences in reporting depreciation and ce rta in deferred expenses for f1n an -
cIa l reporting and income tax purposes. There are several options for reporting depreciation for income ta x
purposes (see note 3) under co nsider ation by th e company which will affect th e ca rryover to future years;
under no circumsta nces, however, will the decision result in taxable income for 1969 nor will it red uce the
ca rryover privilege below th e $150,000 available for financial reportin g purposes.
Earned but unused investment c redi ts available for r ed uctio n of future years' inco me ta xes for both f inan -
cial reporting purposes and inco m e tax purposes total $4,876,000. These unused investment credits expire
as follows : 1974-$1,528,000 1975-$2,545,000 1976-$803,000
6 . VACATION PAY-Th e company r ecords vacatio n pay when paid . The unrecorded obligation at December
31, 1969 and 1968 approximated $1,130,000 and $1,100,000, respect ively, before inco m e tax cr edits.
7. PENSION PLANS-Th e company has noncontributory pension plans covering substantially all of its
employees. Pensions, based on length of service and average salary, are provided for retirement of pilots
at age 60 and all other employees at age 65. Th e plans coverin g pilots are fully funded for past service cost,
while the company pays the normal cost and interest only on the past service cost of the other plans. The
cost to the company in 1969 was $1,075,000 compared with $1,100,000 in 1968.
In 1969 the compa ny began fund in g th e bargaining units and supervisory pension plans on a current
basis which had the effect of red ucin g th e c urrent year's net loss by $180,000 or $.02 per share.
8. COMMITMENTS-Approximate m in imum annual co mm itments exi st for:
(1) New office and operational facilit ies at the Minneapolis-St. Paul Internation al
Airport for the periods ending in 1996 ............. . ... .
(2) T erm inal and other fa ci lities (including landing fees) .. .
(3) Nine Convair 580 aircraft for eight to ni n e years ........ .
(4) Three DC-9 aircraft, cancel able upon six months' notice ... . ..... . ... . ..... . .... .
.. $1,050,000
1,900,000
1,760,000
1,440,000
650,000
260,000
(5) Data processing equipment-1970 (increasing to $1,050,000-1971 to 1978) .
(6) Other eq uipment . .
$7,060,000
9 . STOCK OPTION PLAN-A total of 250, 000 shares of unissued common stock was reserved for officers
and key employees under a qualified plan in 1965. Options granted are: 1965-220,000 shares at $3 .05;
1967-5,000 shares at $6.81; 1968-5,000 shares at $5.60; and 1969-20,000 shares at $4.12 5.
Options for 85,000 and 30,000 shares were exercised in 1969 and prior years, respect ively. Option s
granted but unexercised will expire in 1970 (105,000 shares), 1972 (5,000 shares), 1973 (5,000 shares),
and 1974 (20,000 shares) .
10. COM MON STOCK-During 1969, the company issued 1,600,000 shares of common stock with stock
purchase warrants attached wh ich enable the holders to purchase an aggregate of 1,200,000 shares of
common stock at $5.50 a share throu gh October 31, 1979.
Th e gross proceeds from this sale of common stock and warrants totaled $10,600,000 wh ich after reduc-
tion by $839,168 for underwriting commissions and expenses, resulted in $9,760,832 net proceeds to th e
company, accounted for as follows:
Increase in co mmon stock, 1,600,000 shares at $.20 par va lue ... .. . .
Inc rease in paid -in capital ......... .
. . $ 320,000
9,440,832
$9,760,832
11. CAPITALIZED INTEREST-The company recognizes the financin g costs associated with acquisition of
operating property and equipment and pre -operatin g and developm ent expenditures by capitalizing interest.
Capitalized interest reduced interest expense by $458,000 in 1969 and $559,000 in 1968.
12. INCOME (LOSS) PER SHARE-Income (loss) per share is based upon the weighted average number of
shares outstanding for the year. Conversion of debentures into common stock, exercise of stock options and
exercise of warrants to purchase stock would not result in material dilution (as d efined in Opinion 15 of the
Accounting Principles Board) of the net loss per share for the year ended December 3 1, 1969.
FIVE-YEAR OPERATING SUMMARY
0 PERA Tl NG REVENUES 1969 1968
Passenger ....... $57,073,369 $44,628,769
Public service revenue . 4,016,386 4 ,667,639
Other .... 7,338,168 5,9 29 ,518
TOTAL. .... . 68,427,923 55,225,926
OPERATING EXPENSES
Direct expenses . . . . 31,647,246 25,525,000
Indirect expenses ... 30,782,288 24,318,200
Depreciation and amortization . 5,605,500 4 ,356,893
TOTAL. . 68,035,034 54,200,093
Operatin g profit 392,889 1,025,833
Non-operating income and (expenses), net (4,677,092) (3,008,205)
Income (Loss) before taxes . .. . .... (4,284,203) (1,982,372)
Income taxes . . . . .. ..... . ... (1,934,888) (869,000)
Income (Loss) before gain (loss) on disposition
(1 ,113,372)
of equipment ............. (2,349,315)
Gain (Loss) on disposition of equipment,
1,183,588
less income taxes (29,080)
Net Income (Loss) . . . . . . .. . . $ (2,378,395) $ 70,2 16
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,
1969, and the related statements of
operations, 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 circumstances. We made
a similar examination for the preceding
year.
In our opinion, the accompanying bal-
ance sheet and statements of operations,
retained earnings and paid-in capital
present fairly the financial position of
North Central Airlines, Inc. at December 31,
1969 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, except for the
change in accounting for engine overhaul
costs discussed in Note 1, with which we
concur.
Alexander Grant & Company
Minneapolis, Minnesota
February 18, 1970
1967 1966 196 5
$33,482,371 $30,261 ,479 $23,720,203
5,249,563 5,767,888 7,199,418
4 ,118,543 3 ,583,304 2,971,410
42,8 50 ,477 39,6 12,671 33,891,031
19,8 11,886 17,980,535 15,356,876
19,523,811 17,062,543 13,970,237
2,626,251 2 ,253,361 1,997,488
41 ,961 ,948 37,296,439 31,324,601
888,529 2,316,232 2,566,430
(628,73 1) (464 ,974) (442,894)
259,798 1,85 1,258 2,123,536
(336,010) 720 ,647 1,006,520
595,808 1,::.30 ,611 1,117,016
9 24 ,316 24 ,000 21,736
$ 1,520,124 $ 1,154 ,611 $ 1,138,752
11
12
"GOOD PEOPLE MAKE AN AIRLINE GREAT"
ADVERTISING-PROMOTION
Highlighting North Central's 1969 advertising program
was the introduction of the theme, "Good People Make
An Airline Great." People-oriented newspaper advertise-
ments ran in major marketing areas on North Central's
system, while television and radio spots featured the
airline's new "Good People" jingle.
This corporate musical identity was particularly effec-
tive and appealing in emphasizing the new North Central
image-outstanding service by employees who care.
During 1969, over 60 television and radio stations and
some 40 newspapers promoted North Central's service
and its slogan, Good People Make An Airline Great.
In addition, billboard advertising in ten major cities
featured new service. Special "Good People" folders
spotlighted the new Minneapolis/St. Paul-Denver and
Chicago-Twin Cities nonstops, and travel brochures were
widely distributed.
Promotional activities in 1969 included over 200 DC-9
and Convair 580 scenic flights, introducing passengers
to the comfort and speed of jet transportation. Other
flights heralded important events, such as the opening
of the new Central Wisconsin Regional Airport and the
inauguration of DC-9 fan jet service at Iron Mountain/
Kingsford, Escanaba, Marquette and Muskegon in Mich-
igan and Hibbing/Chisholm, Minnesota.
April 23, 1969 represented a milestone in North Cen-
tral's history. That day the airline received special atten-
tion as the company's 20-millionth passenger, Patrick
Cannon of Sydney, Australia, boarded a DC-9 at Oshkosh/
Appleton's Wittman Field for Chicago.
Of major importance to North Central in 1969 was the
inauguration of Minneapolis/St. Paul-Denver nonstop
service. To acquaint Colorado communities and the Twin
Cities with the new fan jet flights, the airline's sales de-
partment made over 2,000 personal calls on commercial,
travel agency, and interline accounts. Following the
June 15 inaugural ceremonies the company held a
reception in the Colorado capitol for business and civic
leaders and news media personnel.
A special dedication program on October 16-17 officially
introduced the company's new $15-million headquarters
complex. A reception and banquet was held for Twin
Cities community leaders and news media representa-
tives, featuring the Honorable John G. Adams, Civil
Aeronautics Board member, as keynote speaker.
The next day's ceremonies began with the outdoor
dedication of the general office and main operations base
by Chairman of the Board Hal Carr. Following this, North
Central was given a Recognition Luncheon by the Minne-
apolis and St. Paul Chambers of Commerce and the
Minnesota Department of Economic Development. A
special award was presented citing the airline for its con-
tribution to the economic growth of the Twin Cities.
Pictorial brochures were distributed during the two-day
program, and news releases publicized the event through-
out the system. An Employee Open House was sched-
uled in November, and nearly 5,000 employees and
members of their families attended.
North Central's publication, The Northliner, reported
the company's news of interest to passengers and em-
ployees. Over 330,000 copies were placed on board the
aircraft and distributed by mail during 1969. In addition,
news media in the 12-state area served by North Central
received 60 press releases about the airline.
NEW FASHION LOOK
To enhance North Central's image, "Good People Make
An Airline Great," the company's stewardesses donned
eye-catching new uniforms-placing them among the
industry fashion leaders.
The ensemble uses a brilliant Apollo Blue as the basic
color. Designed for inflight versatility, the uniform fea-
tures a short-sleeved lightweight wool A-line dress with
white leather belt and tailored cardigan jacket. For out-
door wear, a horizontally striped tri-season coat, white
vinyl hat, and boots are added, along with a wool topcoat
for winter months.
North Central's colorful new stewardess ensemble features a brilliant Apollo
B_lue dr~ss and matching cardigan jacket. The uniform is accented by a silver
pin, wh1c~ uses _
North Central's mallard duck insignia, and the white vinyl
hat. A striped, tn-season coat of red, white and Apollo Blue complements the
new fashion look.
F IVE YEARS OF RECORD PROGRESS
PASSENGERS CARGO
Ml ON POI r>l
SEAT MILES
B
32
- 8 0 - - -
2R
,- -
70--------,-----
24 - -
- 60-------
-
20 -
-
50
- -----I--
16
lT -
1%5 66 67 '68 '69
HIGHLIGHTS OF DRAMATIC GROWTH
North Central achieved new records in all categories of
traffic during 1969, as it has each year since inaugurating
service in 1948.
The 3,242,819 passengers carried was an all-time
high and a gain of 229,003 passengers over 1968. The
increase for the last five years was 1,889,518 passengers
- a jump of 140 percent.
Air cargo, including air freight, express and mail, also
set records in 1969 when the company flew 82,744,459
pounds of cargo-up 164 percent compared with five
years ago.
The company's available seat miles rose 201 percent
in this five-year period, while the 1,543,706,426 seat miles
in 1969 represented an 18 percent increase over 1968.
The additional seats were of major importance in North
Central's efforts to provide improved service to the
traveling public. With the delivery of three more 100-
passenger DC-9 fan jets and the completion of the Con-
vair conversion program in 1969, the airline's all jet-
powered fleet now consists of 13 DC-9's and 34 Convair
580 prop-jets.
North Central looks forward to even greater progress
in the next five years as traffic growth continues and the
full impact of jet-operating efficiencies are realized.
NORTH CENTRAL AIRLINES, INC.
7500 NORTHLINER DRIVE
MINNEAPOLIS, MINNESOTA 55450