North Central Airlines Annual Report 1971

NORTH CENTRAL AIRLINES
ANNUAL REPORT1971
NORTH ENTRAL AIRLINES
general office: 7500 northliner drive. minneapolis. minnesota
board of' directors
Hal N. Carr* Chairman
G. F. DeCoursin *
Chan Gurney
management
Samuel H. Maslon*
Jay Phillips
Morton B. Phillips
Joseph E. Rapkin
H.P. Skoglund
Bernard Sweet
Kenneth B. Willett
Executive Committee
Hal N. Carr . . .. . . .. . . . ... . . ... Chairman of the Board and Arthur E. Schwandt ...... Vice President-Industrial Relations
Chief Executive Officer
G. F. Wallis . ........ . ..... Vice President-Flight Operations
Bernard Sweet .. .. .. . . .. ... .. ... . .... . .... . .. President
John P. Dow .. . .. . .. . ... .. . .. Vice President and Secretary
Robert L. Gren ... . .. Director-Maintenance and Engineering
Daniel F. May .. . ... . ... . .......... Vice President-Finance
J. F. Nixon ............ . ..................... . Treasurer
David E. Moran ............ Vice President-Traffic and Sales Gowan J. Miller ...................... Assistant Secretary
T. M. Needham . ......... Vice President-Ground Operations Charlotte G. Westberg ..... . ........... Assistant Secretary
highlights or 1971
TOTAL OPERATING REVENUES ....... . ...... ........................ $100,795,581
OPERATING PROFIT ......... . .. ... ....... ............ ... ........... $ 5,815,406
NET EARNINGS ........... . . . ..... ....... ..... .................... . $ 1,224,708
EARNINGS PER SHARE ................................. ........... . 11
INCREASE IN WORKING CAPITAL .................................... $ 12,268,138
STOCKHOLDERS' EQUITY ........................................... $ 27,191,653
PASSENGERS CARRIED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,793,333
REVENUE PASSENGER MILES ....................................... 865,736,21 2
ANNUAL MEETING :
First Wednesday in April
(April 5, 1972) in
Wausau, Wisconsin.
REGISTRARS AND STOCK
TRANSFER AGENTS:
First National City Bank,
New York, New York ;
Northwestern National Bank
of Minneapolis,
Minneapolis, Minnesota
March 3, 1972
to our stockholders, employees, and riends:
For the first time in its 24-year history, North Central's revenues exceeded $100 million.
Total operating revenues for 1971 reached $100,796,000, a gain of $8,844,000 and an in-
crease of 10 percent over 1970. Net profit for the year was $1 ,225,000. The company has
operated profitably for 17 of the last 18 years since present management joined the airline.
This is the best financial record in the regional airline industry.
Effective internal cost control programs held operating expenses, including depreciation, to
$94,980,000, for the smallest annual increase in four years. Operating profit was $5,815,000.
The net profit of $1 ,225,000 was achieved after non-operating expenses of $4,047,000 and
taxes of $544,000. The 1970 profit of $2,178,000 included benefits from the strike against
a competitive carrier and an out-of-period accounting adjustment.
With the sale of $8,103,000 of stock and warrants in July and the net profit, stockholders'
equity rose from $17,823,000 in 1970 to $27,192,000. North Central has the unique distinc-
tion of being the only regional airline with retained earnings - $6,726,000 through 1971.
North Central and the other regional carriers receive public service revenue payments to
compensate for serving many small communities which do not generate sufficient traffic to
support profitable air service. At present, these revenues are being paid to the regional indus-
try at an annual rate of $60 million. The carriers have petitioned the Civil Aeronautics Board
for an increase in this amount, retroactive to July 1, 1971, and the CAB is expected to act on
this petition in the near future.
A new passenger traffic record was set when North Central carried 3,793,000 passengers in
1971. Revenue passenger miles gained 7.4 percent for a new high of 865,736,000. The airline
continued to maintain its outstanding operating performance again this year by completing
99 percent of its 27,267,000 scheduled miles, with 81 percent of 221 ,000 arrivals on time.
While traffic climbed steadily on recently awarded long-haul routes, North Central pursued
pending applications for 5,353 additional route miles. The company seeks to provide new
service to Winnipeg, Atlanta, Philadelphia, and Montreal.
The airline expanded its electronic reservations and communications system, ESCORT, in
1971. Two mini-computers were added for economical data processing of specialized jobs.
An automated input method called SCIP was activated to provide ESCORT with other airlines'
schedule changes. New teleticketing capability was extended to the offices of 300 commer-
cial accounts and travel agents. Other jet-age developments in 1971 included several new
terminals at North Central airports, improved gate facilities at major cities, increased in-plant
testing of jet engines, and use of DC-9 flight simulators for pilot proficiency checks.
Aware of its responsibility as a corporate citizen, the company continued its environmental
and social action programs. Revised hiring guidelines and training policies have enhanced
employment opportunities for disadvantaged people. Operationally, all jet engines will be
"smokeless" by July 1, 1972, six months ahead of schedule, and sound abatement pro-
cedures have reduced noise levels up to 50 percent without jeopardizing safety.
North Central views its accomplishments during the past year with pride and looks to the
future with confidence. Financial strength, capacity for growth, employee dedication, and
the support of loyal stockholders and passengers provide a firm foundation for making 1972,
the airline's 25th year, its most successful.
HAL N. CARR
Chairman of the Board and
Chief Executive Officer
Sincerely,
BERNARD SWEET
President
2
financial review
Revenues in 1971 exceeded
$100 million for the first time in North
Central's 24-year history. This
financial milestone was achieved
with record revenues of $100,795,581.
The $8,843,628 gain over 1970
represents an impressive 10 percent
increase, while the airline industry
as a whole showed limited growth for
the year. North Central's 1971 revenue
improvement resulted from the
development of traffic on its long-
haul nonstop routes, a general
fare increase effective May 1, and the
upturn in the economy during the
last months of the year.
Operating expenses of $94,980,175,
including depreciation, showed
the smallest annual increase since
1967, an indication of the effectiveness
of the company's cost control
program. Also, the available seat
mile cost of 4.8 was only five
percent ahead of the 4.6 in 1970.
The company realized an operating
profit of $5,815,406, compared with
$8,164,752 last year. However, the
1970 figures include benefits from a
five-month strike against another
carrier serving some North Central
cities.
Depreciation and amortization
charges rose to $7,240,431, from
$6,700,175 the previous year.
Interest expense declined sharply
to $4,228,541 in 1971 from $4,899,094.
The company's net profit for 1971
reached $1,224,708, after taxes of
$544,000. The profit of $2,177,615
in 1970, after taxes of $451,000,
reflects strike benefits and an
earnings reduction of $617,000 due
to an out-of-period accounting
adjustment. The regional airlines
are being paid public service
revenues at an annual rate of $60
million. The industry has petitioned
the CAB for an increase in this
amount, retroactive to July 1, 1971.
The company enhanced its overall
financial position substantially during
the year. Working capital showed
a major increase of $12,268,138.
Significantly, $9,204,148 of this was
provided directly from operations
through cash flow from earnings,
depreciation, and deferred taxes.
Cash and commercial paper
investment gained $4,176,832, while
accounts payable declined
by $3,469,226.
In July 1971, North Central
successfully marketed a public
offering of stock with warrants
which provided $8,102,730 of capital.
These additional funds, together
with cash provided from operations
and the finalization of a long-term
lease of $6 million of computer
equipment, permitted a $16,155,111
reduction in total indebtedness.
Stockholder equity also rose from
$17,823,215 to $27,191,653 in 1971.
Of the nine regional airlines,
North Central is the only one with
retained earnings- $6,726,472 through
1971 - and has earned a profit in 17
of the last 18 years since present
management joined the company
in 1954.
As a result of this outstanding
progress, the airline has attained
the strongest financial position
in its history.
traf'f'ic growth and operating perf'ormance
For the 24th consecutive year,
North Central set new traffic records.
Jet-powered Northliners flew
865,736,212 revenue passenger miles,
a 7.4 percent increase over 1970.
A record 3,793,333 passengers were
boarded in 1971. This was particularly
significant compared with 1970
when the company benefited from
a five-month strike against another
carrier serving some North Central
cities. Contributing substantially
to the 1971 growth was the increased
traffic generated on the long-haul
nonstop routes between Milwaukee-
New York, Milwaukee-Dayton/
Columbus/Cincinnati, Twin Cities-
Denver, Twin Cities-Chicago, and
Twin Cities-Milwaukee-Detroit-
Toronto.
North Central's 1971 gains are
considerably better than the airline
industry average which showed a
two percent increase in revenue
passenger miles and only slight
growth in passenger boardings.
A single-day high was posted on
November 28 when 16,776 passengers
flew the "Route of the Northliners."
By comparison, 47 percent more
people were transported that day
than in all of 1948, the airline's
first year of operation. Since
inaugurating service, North Central
has carried 29.9 million passengers
and flown 5.5 billion passenger miles.
During 1971, the company welcomed
107,378 people aboard 1,746 extra
sections of scheduled flights and 459
charters to such points as Acapulco,
Mexico City, Montreal, San Juan,
Nassau, Miami, San Francisco,
Seattle and Washington, D.C. Some
9,667 people were introduced to
jet-powered Northliner service on 153
scenic flights over the airline's
system.
North Central set an additional record
in 1971 by offering 1,960,563,482
seat miles - 8.3 percent above the
previous year.
Cargo - including air freight,
express, and mail-reached 9,473,014
ton miles flown for the year. Total
ton miles were 96,046,635, a
5 percent gain over 1970 and an
all-time record.
North Central maintained its
excellent operating performance
despite the severe winter weather
conditions which prevail for many
months over most of its 9,900-mile
route system. For 1971, the airline
established a completion record
of 99 percent as 26,895,322 of its
27,267,213 scheduled miles were
flown. In addition, an on-time
performance of 81.4 percent was
achieved. Of the company's
220,614 scheduled arrivals, 179,601
were routine.
Contributing to this outstanding
operation was the airline's exacting
and progressive maintenance
program. In 1971, less than one-tenth
of one percent of North Central's
scheduled departures were cancelled,
and less than one-and-a-quarter
percent were delayed for mechanical
reasons.
Providing dependable scheduled
airline service is the continuing
objective of all North Central
employees. The company's
consistently impressive operating
performance is a tribute to their
dedicated efforts.
revenues
(MILLIONS OF DOLLARS)
$100
90
80
70
30
1967 '68 '69 '70 '71
4
route development program
North Central Airlines and the 90
communities it serves continued to
benefit from long-haul, nonstop
route awards received in the 1967-
1970 period. Particularly important
to future growth are nonstops
between the Twin Cities and Denver,
Omaha, Milwaukee, Chicago;
between Milwaukee and Detroit,
Dayton, Columbus, Cincinnati,
New York; and Detroit-Toronto.
These long-haul routes were awarded
to North Central on a subsidy-
ineligible basis and contributed
substantially to profits in 1971
which the company used to maintain
increasingly costly air service to
its smaller communities. The nonstops
also provide increased frequency
and first single-plane service from
12 Midwest cities to New York;
from 11 communities to Denver;
and from 14 cities to Dayton,
Columbus, and Cincinnati.
The development of Milwaukee as a
Midwest aviation gateway has been
North Central's objective for some
time. In 1971 , with increased traffic
from new route awards, the company
achieved the distinction of being
the dominant Milwaukee carrier by
boarding more passengers than
any trunk or regional airline serving
that city.
jet- age f'acilities
North Central's $8-million electronic
reservations and communications
system, ESCORT, was expanded in
1971. Two "IV Phase" mini-computers
were added to provide economical
data processing of specialized jobs.
An initial use in Revenue Accounting
permits information to be entered
from ticket coupons into the com-
puter for auditing and billing purposes.
Another valuable application
is the ability to receive continuous
transmittal of real-time weather
data directly from the National
Weather Service to ESCORT for
immediate retrieval by station,
flight, and reservations personnel.
" SCIP", an automated method of
putting other airlines' schedule
changes into ESCORT, was activated.
Instant display of the most direct
routings to 800 destination cities is
now available to North Central's
agents. In addition, ESCORT provides
availability status of 12,000 domestic
and international flights, making
possible prompt, accurate
construction of interline itineraries.
ESCORT agent sets were recently
installed at travel agencies and
commercial accounts in the Twin
Cities area, enabling their personnel
to easily obtain immediate airline
North Central's route development
program includes applications to the
Civil Aeronautics Board for 5,353
more miles. New Northliner service
would be provided to Philadelphia,
Atlanta, Winnipeg, and Montreal,
adding Pennsylvania, Georgia, and
the Canadian Provinces of Quebec
and Manitoba to North Central's
system. However, route case activity
declined sharply in 1971 from the
high level of preceding years.
Because the soft economy has
affected overall industry growth,
the CAB's present policy is to
minimize the number of route awards.
In line with this Board position, the
company is concentrating its efforts
on those applications already on
file. The following is a summary of
principal applications awaiting
initial hearings or further action
by the CAB.
MICHIGAN POINTS-DETROIT-NEW YORK
This proposed authority would enable
North Central to provide new, single-plane
service through Detroit to New York City
from ten Michigan cities. (501 miles)
COLUMBUS, DAYTON, CINCINNATI-
PHILADELPHIA NONSTOPS
The company's request to serve Philadelphia
from Columbus, Dayton, and Cincinnati
has been consolidated into the CAB 's Ohio/
Indiana Points Nonstop Service Investigation.
(1 ,389 miles)
routings and confirmed reservations.
The program will be extended to
other principal markets. The company
also added teleticketing equipment
at its Reservation Center to permit
automatic printing of tickets in the
offices of 300 commercial and travel
agency accounts. Both these extra
services to North Central's major
users should generate additional
traffic in 1972.
The computer has become an
effective management tool. Extensive
flight and traffic data is accessible
for use in evaluating North Central's
present air service and determining
future needs. To utilize ESCORT more
fully, data processing is being
performed on a contract basis for
other companies when time permits,
providing extra revenues.
Since ESCORT was activated on
February 1, 1970, its performance has
been " near perfect." For 1971,
uptime of over 99 percent was
achieved on a seven-day-a-week
basis - with unscheduled downtime
averaging only two minutes every
24 hours.
Major improvements in facilities
were made at several airports on
North Central's system, with new
terminals at Yankton, South Dakota,
TWIN CITIES-KANSAS CITY NONSTOP
This application would permit North Central
to operate nonstop flights . in addition to the
present two-stop service. (404 miles)
MILWAUKEE-DENVER NONSTOP
North Central has applied to the CAB to
provide nonstop service between Milwaukee
and Denver. (908 miles)
DETROIT-MONTREAL, VIA TORONTO
Authority to serve Montreal from Detroit,
via Toronto, was requested under an
amendment to the 1966 Bilateral Air Transport
Agreement between the United States and
Canada. With this route, North Central could
also offer convenient single-plane service
from Minneapolis/St. Paul and Milwaukee to
Montreal. Action on this application is
awaiting further discussions between officials
of the United States and Canada. (315 miles)
DETROIT, CLEVELAND, CINCINNATI-ATLANTA
The Oral Argument on proposed nonstop
service to Atlanta from Detroit, Cleveland, and
Cincinnati was heard February 24, 1971 .
The CAB examiner recommended that another
carrier provide the service by lifting its
existing operating restrictions. North Central
has asked that the decision be reviewed
and is awaiting Board action. (1 ,522 miles)
DULUTH/SUPERIOR-WINNIPEG NONSTOP
This route would allow nonstop service
from Duluth/Superior to Winnipeg, and also
make available single-carrier service
between a number of Wisconsin communities
and Winnipeg . The application is being
considered by United States and Canadian
officials under the Bilateral Air
Transport Agreement. (314 miles)
and Pellston and Flint, Michigan.
Two large second-level gate areas
with jet-walks were added at Chicago
O'Hare. North Central also secured
new upper-level gates at Omaha,
Minneapolis/St. Paul, Dayton, and
Toronto. To promote its long-haul
air freight service to New York,
North Central acquired freight
facilities in 1971 at LaGuardia Airport.
North Central substantially expanded
its in-plant jet engine repair program
during 1971. Significant economies
were realized because of the
airline's modern operations base and
completion of the jet engine test
cell and the related training program
for maintenance personnel.
North Central began using DC-9
flight simulators in 1971 for the semi-
annual Captains' proficiency checks
required by the FAA. This resulted in
a 25 percent reduction of training
costs and an improvement in aircraft
availability. Also, some DC-9
transition training of pilots was
conducted with simulators.
The company has been increasingly
able to boost productivity of
employees and improve services as a
result of its previous investment in
major jet-age facilities and its
continuous upgrading of equipment.
6
social action programs
North Central Airlines continued
to emphasize its social action
programs in 1971.
The company's fleet of 15 DC-9
aircraft are all operating with
" smokeless" jet engines. The
$300,000 program of retrofitting 37
JT8D engines is virtually completed,
with 36 converted to low-smoke
configuration. The last engine will be
modified by July 1, 1972, six months
ahead of schedule. In addition,
according to a recent Air Transport
Association report of industry
testing, 23 percent of the invisible
emissions from jet engines - mainly
hydrocarbons and carbon monoxide
- are also removed in the
conversion process.
North Central expanded its voluntary
program of jet noise abatement.
Revised takeoff procedures over
noise-sensitive areas throughout
the system have decreased noise
levels on the ground as much as
50 percent without jeopardizing the
airline's high safety standards.
At major airports, the company has
cooperated with local authorities
by using preferential runway
assignments, thereby decreasing
the number of operations over
the most densely populated areas.
North Central continued its
participation in the Federal Aviation
Administration research project
on the evaluation of acoustically-
the ruture
North Central enters 1972 with the
capability of accelerating its growth
and improving profits, while holding
capital investments at present levels.
With its modern, jet-age facilities,
the airline is equipped to
handle substantial traffic gains
without incurring proportional
increases in costs. Recently awarded
long-haul nonstop routes afford
unprecedented opportunities for
profitable new business.
No major expenditures are anticipated
for aircraft or added facilities
during 1972. The company's fleet of
49 jet-powered Northliners - 15
treated jet engine nacelles.
At the airline's maintenance bases,
outdoor jet engine run-ups have been
practically eliminated between
11 p.m. and 6 a.m. The required
engine-testing program was revised
so that run-up noise could be
kept at acceptable levels in the
surrounding community during
daytime hours.
In 1972, North Central plans
to modify its JT8D jet engines to
eliminate fuel venting during takeoff,
presently required because of
the engine's design characteristics.
Operational tests made by the
manufacturer and several airlines
have shown that such modifications
will have no adverse effects.
Final approval by the engine
manufacturer is expected soon.
Wherever possible in day-to-day
operations, the company now
specifies cleaning and maintenance
products easily decomposed by
natural elements. For instance, only
approved chemicals are used to
purify water in heating-plant boilers;
emulsion-type biodegradable
soaps, for washing aircraft and
ground equipment; and the most
disposable spraying fluids, for
de-icing aircraft. North Central
personnel have worked closely with
pollution control agencies on
environmentally-oriented projects
DC-9s and 34 Convair 580s - offers
quality service and passenger
comfort, while maintaining excellent
operating efficiency. ESCORT, the
airline's electronic reservations and
communications system, provides
immediate passenger reservations
and flight information and has
the capacity to increase the number of
transactions and perform a variety
of other functions. The newest
in maintenance, ground, and fleet
servicing equipment is in operation
throughout the company's system.
Continued improvement in the
nation's economy will have a favorable
and are following the
recommendations established by
these agencies.
In the area of employment,
the airline is dedicated to the
principle of equal opportunity
for all individuals. During 1971 ,
an "affirmative action" program was
implemented at North Central.
Hiring guidelines were revised, and
training programs expanded to
provide more employment
opportunities for disadvantaged
minority group members. "Minority-
sensitivity" sessions were held for
management personnel to give them
a basis for understanding special
situations which may occur. A long-
range goal was set to increase
minority representation in the
company's work force.
Again in 1971 , the company
participated in JOBS, a manpower
training plan sponsored jointly by
the National Alliance of Businessmen
and the U. S. Department of Labor.
North Central is recognized as a
leader in developing programs to
minimize the effect of airline
operations on the environment and
has expanded its employment
opportunities for disadvantaged
groups. The Company is making
every effort to be a compatible
neighbor and business partner in
the communities it serves.
effect on North Central's future.
Increased traffic in the last quarter
of 1971 and early 1972 indicates
that business activity is accelerating.
Concerted efforts to generate
additional traffic over the entire
system will have even greater
impact in 1972.
Strengthened by the first full year
of benefits from the industry fare
increase of 1971 and the company's
continuing cost control program,
North Central's 25th year of operation
should be one of substantial
growth and prosperity.
10
NORTH CENTRAL AIRLINES, INC.
comparative balance sheet
ASSETS
CURRENT ASSETS
Cash including certificates of deposit of $1,410,845
in 1971 and $180,372 in 1970 ............................... .
Investment in commercial paper ............................... .
Accounts receivable ........................................ .
Flight equipment parts and operating supplies at average cost -
less reserves of $345,848 in 1971 and $293,454 in 1970 (note C} ... .
Prepaid expenses and sundry deposits (note A} ................. .
PROPERTY AND EQUIPMENT - at cost
Flight equipment (note C} .................................... .
Ground property and equipment .............................. .
Improvements to leased property .............................. .
Less accumulated depreciation (note K)
DEFERRED CHARGES
Unamortized development and preoperating costs (note B} ....... .
Unamortized discount and expense on debt ..................... .
Rentals and other ........................................... .
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings ...................................... .
Current maturities of long-term debt (note C) .................. .
Accounts payable .......................................... .
Tickets outstanding ......................................... .
Accrued compensation, taxes and other expenses (note D) ........ .
LONG-TERM DEBT - less current maturities (note C) ............. .
DEFERRED CREDITS
Income taxes (note E) ....................................... .
Warrant obligation (note C) .................................. .
COMMITMENTS (notes F and G) ................................ .
STOCKHOLDERS' EQUITY (notes C, H and I)
Common stock - authorized 16,000,000 shares of $.20 par value ... .
Additional paid-in capital ..................................... .
Retained earnings .......................................... .
The accompanying notes are an integral part of this statement.
December 31
1971 1970
$ 4,436,930
2,000,000
10,959,872
2,703,047
5,624,890
25,724,739
74,684,520
6,303,069
3,008,130
83,995,719
21,104,499
62,891,220
3,117,984
298,984
2,241,049
5,658,017
$94,273,976
$
7,088,609
8,596,991
543,715
5,595,541
21,824,856
43,407,267
1,621,000
229,200
1,850,200
2,489,170
17,976,011
6,726,472
27,191,653
$94,273,976
$ 2,260,098
12,614,067
2,940,534
6,791,030
24,605,729
72,998,698
12,815,652
3,810,524
89,624,874
16,586,469
73,038,405
3,901,572
440,732
1,409,710
5,752,014
$103,396,148
$ 3,284,312
11,966,726
12,066,217
521,041
5,135,688
32,973,984
51,399,949
987,000
212,000
1,199,000
2,092,617
10,228,834
5,501,764
17,823,215
$103,396,148
comparative statement or earnings
OPERATING REVENUES
Passenger ................................................. .
Freight and express ......................................... .
Public service revenues (note J) ............................. .
Mail ...................................................... .
Non-scheduled service and other .......... .. .................. .
Total operating revenues .............................. .
OPERATING EXPENSES
Flying operations ........................................... .
Maintenance ............................................... .
Aircraft and traffic servicing .................................. .
Passenger service .......................................... .
Promotion and sales .......... ........... ......... ........... .
General and administrative .......................... .. ....... .
Depreciation and amortization (note K) ........................ .
Total operating expenses .............................. .
Operating profit .................................. .
OTHER (INCOME) EXPENSES
Interest expense ............................................ .
Other - net ................................................ .
Total other expenses ................................. .
Earnings before income taxes and cumulative effect
of a change in accounting for vacation pay ......... .
INCOME TAXES (note E)
Deferred - net of investment tax credits, $470,000 in 1971
and $823,000 in 1970 ...................................... .
Current credit .............................................. .
Total income taxes ................................... .
Earnings before cumulative effect of a change
in accounting for vacation pay .................... .
EFFECT OF ACCOUNTING CHANGE
Cumulative effect on prior years due to change in accounting for
vacation pay, less applicable income tax credits of $618,000 (note D)
NET EARNINGS .................................. .
EARNINGS PER SHARE (note L)
Earnings before cumulative effect of a change in
accounting for vacation pay ................................ .
Cumulative effect on prior years due to change in accounting
for vacation pay (note D) ................................... .
NET EARNINGS PER SHARE ....................... .
The accompanying notes are an integral part of this statement.
Years ended December 31
1971 1970
$ 83,820,866
5,113,178
6,884,964
1,214,895
3,761,678
100,795,581
27,380,498
15,979,974
23,580,140
6,269,080
8,366,053
6,163,999
7,240,431
94,980,175
5,815,406
4,228,541
(181,843)
4,046,698
1,768,708
544,000
544,000
1,224,708
$ 1,224,708
$ .11
$ .11
$76,954,521
5,700,315
5,131,306
1,475,073
2,690,738
91,951,953
24,869,382
14,337,911
21,068,686
4,770,272
7,326,275
4,714,500
6,700,175
83,787,201
8,164,752
4,899,094
20,043
4,919,137
3,245,615
890,000
(439,000)
451,000
2,794,615
(617,000)
$ 2,177,615
$ .27
(.06)
$ .21
11
12
NORTH CSENTRAL AIRLINES
statement of' changes in f'inanclal position
Years ended December 31
SOURCES OF WORKING CAPITAL
From operations
Net earnings ................. . ... . . . ......... . .. .. ....... .
Add expenses not requiring outlay of working capital
Depreciation and amortization of property and equipment
and route development expenses (notes B and K) . . . . . . . . .. .
Amortization of other deferred expenses . .. . . ... . ..... . . .. . .
Deferred income taxes (note E) .. ..... .... . .. . .. . .. . . .. ... .
Loss on disposition of property and equipment . ... . . ... . ... .
Total provided from operations . .... . . ... ... . . . .. . .
Proceeds from disposition of property and equipment ...... .. ... . .
Proceeds of public stock offering .. ......... ... ... ... ......... .
Increase in long-term debt ... . . .. ...... . ... . ............... . . .
Other . . ................... . ...... . . . ......... ... ... . ... . .. .
APPLICATION OF WORKING CAPITAL
Additions to property and equipment ... . . . .. . .......... . .. ... . .
Additions to deferred charges . .. . . . . ... .. . . . . ........ . .. .. . . . .
Reduction of long-term debt . . . ....... . ........ . . .. ...... . ... . .
Other .. . ..... ... ............. . .......... . . .. . . .... . ... . . . . .
INCREASE (DECREASE) IN WORKING CAPITAL ..... . .... .
Working capital at beginning of year ............ . ... . ..... . .... .
Working capital at end of year ........... . .. . . . . ..... . ... .. .. .
NET CHANGE IN WORKING CAPITAL ELEMENTS - increase (decrease)
Cash and certificates of deposit ... ............... . ... .. . .... . .
Investment in commercial paper . . . ....... . .. . ........ . . . ... .. .
Accounts receivable . . . . . . ...... . . .. . ............ . ... .. . .. .. .
Flight equipment parts and supplies .. ... .... . . ...... . .. .... . . . .
Prepaid expense and sundry deposits ... .... . ...... . ..... . . ... .
Short-term borrowings . ..... ..... . . ... . .... . . . . . ..... ... .. . . .
Current maturities of long-term debt .. . ..... ... .. . .... . .. . ..... .
Accounts payable and tickets outstanding . .. ... ... . .. .. . ...... .
Accrued liabilities ....... . ...... . . .. . .. .... . ........ . ....... .
INCREASE (DECREASE) IN WORKING CAPITAL .. ...... . .. .
The accompanying notes are an integral part of this statement.
1971
$ 1,224,708
7,240,431
184,030
544,000
10,979
9,204,148
6,024,583
8,102,730
2,995,024
175,400
26,501 ,885
2,353,857
872,184
10,966,706
41 ,000
14,233,747
12,268,138
(8,368,255)
$ 3,899,883
$ 2,176,832
2,000,000
(1 ,654,195)
(237,487)
(1 ,166,140)
3,284,312
4,878,117
3,446,552
(459,853)
$12,268,138
1970
$ 2,177,615
6,700,175
168,765
890,000
43,349
9,979,904
34,999
8,101
7,436,019
311,000
17,770,023
10,208,311
1,570,994
9,753,576
2,000
21,534,881
(3,764,858)
(4,603,397)
$ (8,368,255)
$ 877,166
4,676,092
61,647
1,664,094
(2,594,312)
(5,879,806)
(1,206,022)
(1,363,717)
$ (3,764,858)
statement or changes in stockholders equity
Years ended December 31, 1971 and 1970
Common Stock
Additional Retained
Shares Paid-in Earnings
Outstanding Amount Capital (note C)
Balance at January 1, 1970 ............... . 10,462,824 $2,092,565 $10,218,785 $3,324,149
Proceeds of public stock offering ........ .
Conversion of 5 % subordinated
convertible debentures into
common stock (note C) .............. .
Net earnings for the year ............... .
263
8,101
52 1,948
2,177,615
Balance at December 31, 1970 ............ . 10,463,087 2,092,617 10,228,834 5,501,764
Proceeds of public stock offering -
net of expenses .................... . 1,980,000 396,000 7,706,730
Conversion of 5 % subordinated
convertible debentures into
common stock (note C) .... .......... .
Excess value of warrants issued in
warrant exchange .................. .
Net earnings for the year ............... .
2,765 553 20,447
20,000
Balance at December 31, 1971 .. ......... . . 12,445,852 $2,489,170 $17,976,011
1,224,708
$6,726,472
The accompanying notes are an integral part of this statement.
auditors" report
Stockholders and Board of Directors
North Central Airlines, Inc.
We have examined the balance sheet of
North Central Airlines, Inc., (a Wisconsin corporation)
as of December 31, 1971, and the related
statements of earnings, changes in stockholders'
equity and changes in financial position 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 have previously examined and
ten-year earnings summary
OPERATING REVENUES 1971 1970 1969 1968
Passenger ........... . ............. $83,820,866 $76,954.521 $57,073,369 $44,628.769
Public service revenues .............. 6,884,964 5,131.306 4,016,386 4,667,639
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,089,751 9,866,126 7,338,168 5,929,518
100.795,581 91 ,951,953 68.427,923 55,225,926
OPERATING EXPENSES
Direct expenses ..................... 43,360,472 39,207,293 31.647.246 25,525,000
Indirect expenses ................... 44,379,272 37,879.733 30,782.288 24,318,200
Depreciation and amortization ......... 7,240.431 6,700,175 5,605,500 4,356.893
94,980,175 83,787,201 68,035,034 54,200,093
OPERATING PROFIT . ................ 5,815,406 8.164.752 392,889 1.025,833
Non-operating income and
(expenses). net .............. ..... .. (4,035,719) (4,875,788) (4,677,092) (3,008,205)
EARNINGS (Loss) before taxes ........ 1,779,687 3,288,964 (4,284,203) (1,982,372)
Income taxes ....................... 544,000 451,000 (1,934,888) (869,000)
EARNINGS (Loss) before gain (loss)
on disposition of equipment ........ 1,235.687 2.837.964 (2,349,315) (1,113,372)
Gain (Loss) on disposition of
equipment. less income taxes ....... (10,979) (43,349) (29,080) 1,183,588
Prior years' adjustment due
to change in accounting ............ (617,000)
NET EARNINGS (LOSS) .............. $ 1.224.708 $ 2,177,615 $ (2,378,395) $ 70,216
reported on the financial statements for the
preceding year.
In our opinion, the financial statements referred
to above present fairly the financial position of
North Central Airlines, Inc., at December 31, 1971,
and the results of its operations and changes
in financial position for the year then ended, in
conformity with generally accepted accounting
principles applied on a basis consistent with that
of the preceding year.
Alexander Grant & Company
Minneapolis, Minnesota
February 14, 1972
1967 1966 1965 1964 1963 1962
$33.482,371 $30,261.479 $23. 720,203 $20,002.281 $18,064.524 $16.750,086
5,249.563 5,767,888 7,199.418 7,274,370 7,644,080 8,286,733
4,118,543 3,583,304 2,971.410 2.438, 126 2,168,100 1,833,426
- - - - - -
42,850.477 39.612.671 33,891,031 29,714.777 27,876.704 26,870.245
19,811,886 17,980.535 15,356,876 13,666,142 13,076,180 12,858,386
19.523.811 17.062,543 13,970,237 12,303,601 11,812,690 11,561.629
2,626,251 2,253,361 1.997.488 1,712,800 1,541.857 1,183,464
- - -
41,961.948 37,296,439 31 ,324,601 27,682,543 26,430,727 25,603.479
888,529 2,316,232 2,566,430 2,032.234 1.445,977 1,266,766
~ (464,974) (442,894) (348,305) (428,423) (335,014)
259,798 1.851.258 2. 123,536 1,683,929 1,017,554 931.752
~ ) 720,647 1,006,520 873,304 514.497 491,812
- - - - - -
595,808 1.130,611 1,117,016 810,625 503,057 439,940
924.316 24,000 21,736 33,939 18,656
- - -
$ 1,520,124 $ 1,154,611 $ 1,138.752 $ 844,564 $ 521.713 $ 439,940
- - -
This summary does not include all detailed information. Reference should be made to the annual reports for the related years.
13
14
notes to f'lnanclal statements
December 31, 1971 and 1970
NOTE A - PREPAID EXPENSES - Prepaid expenses include prepaid
engine overhaul expenses of $2,994,000 at December 31 , 1971 and
$3,504,000 at December 31 , 1970.
NOTE B-DEVELOPMENT AND PREOPERATING COSTS-Expenditures
for route development costs are deferred and amortized over the life of
the temporary certificates or five years for permanent certificates. Air-
craft preoperating costs are amortized over approximately eight years.
Certain types of expenditures are expensed when incurred for tax pur-
poses; future income taxes payable have been provided in the deferred
income tax liability account.
NOTE C - LONG-TERM DEBT - Long-term debt at Dec. 31 consists of:
1971 1970
Quarterly installment notes (a) .. ..... . . .. .. $ 8,813,348
2,937,783
Semi-annual installment notes (b) . . .. . .. .. .
7% notes, due in quarterly installments of
$1,468,950 and $1 ,958,600 from July, 1973
through October, 1978 ... ... ...... .. ...... 35,253,393
Total due banks and insurance companies (c) 47,004,524
9 %-11 % equipment obligations .. .. ... . . .
7% subordinated notes (d) . . . . . . . . . . . . . . . . 2,700,000
5 % subordinated convertible debentures (e) 721,500
Sundry . ... ... .. . .. . . . .... ... . ..... ..... __ 6
_9...:...,
8
_
5_2
Total long-term debt ........ .. . .. ..... . .. 50,495,876
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . 7,088,609
$43,407,267
$14,688,914
2,937,783
35,253,393
52,880,090
6,711,662
3,000,000
742,500
32,423
63,366,675
11 ,966,726
$51,399,949
(a) Due in quarterly installments of $979,261 and $1 ,958,522 through
April , 1973; interest at % above bank's prime rate (effective rate was
6% at December 31 , 1971 ).
(b) Previously due in October, 1971; terms renegotiated in 1971 to semi-
_annual installments of $293,778 due from April , 1972 through October,
1976; interest at 1% above bank's prime rate (effective rate was 6%
at December 31 , 1971).
(c) The total loans are collateralized by substantially all flight equip-
ment and spare aircraft parts owned by the company. Two equipment
manufacturers partially guarantee these loans. Included in the provisions
of the loan agreement are certain restrictions on dividend payments,
capital expenditures, additional borrowings, and certain requirements
related to minimum working capital and net worth.
Stock purchase warrants were issued to all loan participants during
1970 as consideration for deferral of payments originally due in 1970 as
discussed in (b) above. The warrant holders may purchase 259,511
shares of common stock for $5.50 a share through October 31 , 1979.
The company has a commitment to retire, at $1 .50 per warrant, all of
these warrants not sold or exercised by November 30, 1979. The pro-
vision for this commitment is being recognized as a deferred warrant
obligation. The related cost is being recognized as interest expense over
the term of the debt.
(d) Due in semi-annual installments of $300,000 from September, 1971
through March, 1976. Stock purchase warrants attached enable the
holders to purchase a total of 200,000 common shares for $5.50 a share
through October 31 , 1979.
(e) Convertible into common shares at $7.59 a share through June 1,
1971 and $8.55 a share thereafter to maturity.
NOTE D - CHANGE IN ACCOUNTING FOR VACATION PAY - In 1970
the company adopted the accounting method of accruing vacation pay
as the obligation for vacation pay is incurred. Previously, vacation pay
was expensed when paid. The effect of the change in 1970 was to in-
crease ~he accrued vacation pay liability $1,430,000 at December 31 ,
1970; th1_
s change reduced 1970 net earnings by $715,000 (after income
tax cre_
d1ts of $715,000). of which $617,000 applied to prior years. The
future income tax credits are reccgnized as a prepaid expense. For tax
purposes, vacation pay is expensed when paid (note E).
NOTE E - INCOME TAXES - At December 31 , 1971 the company had a
net operating loss carryover of $1,028,000 which expires in 1976 and
arose out of timing differences (notes B, D and K) . The company uses
the flow-through method of accounting for investment tax credit. Unused
investment tax credit totaling $5,526,000, of which $1 ,293,000 has been
recognized as a reduction of reported income tax exi:ense, is available
to reduce income taxes payable as follows:
Expiration dates
1977
1978
1979
1980
Amount
$1,528,000
2,635,000
792,000
571 ,000
$5,526,000
The 1970 current income tax credit of $439,000 was due the comp;my as
a result of a claim of right adjustment.
NOTE F - PENSION PLANS - The company has several pension plans
covering substantially all of its employees. The total pension expense for
1971 was $1 ,949,000 and $1,685,000 for 1970, which includes the normal
cost and interest on unfunded prior service cost. The company's policy
is to fund pension cost accrued. At the 1971 actuarial valuation date, the
ccmpany had funded in excess of the vested benefits for all plans by
approximately $519,000.
NOTE G - COMMITMENTS - Approximate minimum annual lease com-
mitments exist for: 1971 1970
Office and operational facilities at the
Minneapolis-St. Paul International Airport
through 1996 ........... . . ....... . .. .... $ 1,100,000 $1,000,000
Terminal and other facilities (including landing
fees) expiring on various dates . . . . . . . . . . . . 3,930,000
Nine Convair 580 aircraft expiring in 1978 . . . . 1,760,000
Three DC-9 aircraft expiring in 1981 (converted
in 1971 from short-term leases) . . . . . . . . . . . 1,250,000
Two DC-9 aircraft cancellable upon
six months' notice .. ........ . .... . .. . .. .
Computer equipment expiring in 1979 . . .. ... .
Other equipment .. . . ..... . . .. .. . ......... .
1,020,000
1,060,000
370,000
$10,490,000
3,460,000
1,760,000
1,440,000
1,020,000
370,000
$9,050,000
NOTE H - COMMON STOCK - A total of 250,000 shares of unissued
common stock was reserved for officers and key employees under a
qualified plan in 1965. During 1970 an additional 100,000 shares were
reserved by an amendment to the plan. Options granted expire five years
after date of grant and therefore options granted in 1965 for 105,000
shares expired during 1970. Those outstanding, and dates granted, at
December 31, 1971 and 1970 are: 1967-5,000 shares at $6.81; 1968-
5,000 shares at $5.60; 1969 - 20,000 shares at $4.125; 1970 - 50,000
shares at $4.125 and 115,000 shares at $3.25. Additionally, in 1971 options
to purchase 40,000 shares at $3.19 were granted and are outstanding.
Options for 115,000 shares were exercised in prior years.
At December 31, 1971 there were outstanding warrants to purchase
2,649,511 shares of common stock. Of these, warrants to purchase
1,200,000 shares of common stock resulted from a prior year's public
offering, and warrants were issued, as discussed in note C, which enable
the holders to purchase 459,511 shares of common stock and during
1971 , warrants to purchase 990,000 shares of common stock were issued
in connection with a public offering. All warrants enable the holder to
purchase common stock at $5.50 per share and expire October 31, 1979.
NOTE I - SHAREHOLDER DISCLOSURE OF OWNERSHIP - The Civil
Aeronautics Board requires that any person who owns as of December
31 of any year, or who acquires ownership, either beneficially or as
trustee, more than 5% in the aggregate of the company's common
stock, or within ten days after acquisition, must file a report with the
Board containing information required by 245.13 of The Federal Aviation
Act unless the person has previously filed such a report. Any shareholder
who believes that he may be required to file such a report may obtain
further information by writing to the Director, Bureau of Operating Rights,
Civil Aeronautics Board, Washington, D. C. 20428.
NOTE J - PUBLIC SERVICE REVENUES - Public service revenues re-
corded for the period July 1, 1971 to December 31 , 1971 are based upon
the rate in effect for the year ended June 30, 1971 . The rate for the
period July 1, 1971 through June 30, 1972 has not yet been determined
by the Civil Aeronautics Board.
NOTE K - DEPRECIATION - Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives on a straight line basis for financial and tax
reoorting purposes.
Prior to 1968 accelerated depreciation methods were used for tax
purposes. Future income taxes resulting from accumulated differences
have been provided for in the deferred income tax liability account.
NOTE ~ - EARNINGS PER SHARE - Earnings per share is based upon
the weighted average number of shares outstanding for the year. Con-
versi~n of debentures into common stock, exercise of stock options and
exercise of warrants to purchase stock would not result in material
dilution of the net earnings per share for the years ended December 31 ,
1971 and 1970.
~--
highlights or growth
PASSENGERS TON MILES
(MILLIONS) (MILLIONS)
3.75 90
3.50 80
3.25 70
3.00 60
2.75 50
2.50 40
2.25 30
2.00 20
1967 '68 '69 '70 '71 1967 '68 '69 '70 '71
PASSENGER MILES SEAT MILES
(MILLIONS) (BILLIONS)
800 1.8
700 1.6
600 1.4
500 1.2
400 1.0
300 .8
200 .6
100 .4
1967 '68 '69 '70 '71 1967 '68 '69 '70 '71
15
16
communications program
The promotion of North Central's
" custom jet service" highlighted the
1971 communications program.
The airline focused attention on the
unique features of this quality service
- " steak and eggs" breakfast on the
Twin Cities-Denver and Milwaukee-
New York nonstops, gourmet wine
basket lunches and deluxe hot meals,
complimentary Broadway Cocktails
to New York travelers, and Frostbite
Kits for Denver skiers. Custom jet
service was publicized in over 70
newspapers and magazines and on
130 television and radio stations.
The company also emphasized
improved prime-time schedules and
its single-plane service from smaller
Midwest communities to Denver,
Omaha, Chicago, Cleveland,
Cincinnati, Columbus, Dayton, Detroit,
Toronto, and New York.
Supplementing the advertising
campaign, members of North
Central's sales department made
20,770 personal calls on travel agents,
commercial accounts and interline
representatives; conducted sales
blitzes to promote new services; and
participated in sport and travel
shows. Company personnel attended
550 civic meetings, made over 40
television and radio appearances,
operated 185 scenic " familiarization"
flights, and conducted 110 civic
and educational groups on tours of
the airline's headquarters. Special
promotions were developed to acquaint
travel agents with North Central's
custom jet service and group fares.
The airline introduced new uniforms
for its nearly 300 passenger service
agents in 1971. The eye-catching
persimmon and blue colors of the
attractively designed uniforms
(pictured below) enhance the jet-age
image of North Central at passenger
service counters and city ticket offices.
But what's behind the uniform counts,
too. In 1971 , a company-wide
training program, " Perceptive
Action", was started. Its purpose is
to develop a better understanding
of passenger needs and improve
employees' skill in solving problems
by recognizing the passenger's point
of view. Management, supervisors,
and all passenger service agents were
the first to participate.(Photo below)
Ticket envelopes took on a new look
in 1971. Favorite hunting scenes by
artist Sherm Pehrson were reproduced
on the folders. Prints suitable for
framing can be ordered by passengers.
The airline's inflight publication,
Northliner Magazine, was available
to almost four million passengers.
It features articles on communities
and activities in North Central's
cities. Some 10,000 employees and
friends received copies of the
company newspaper, The Northliner.
To help promote skiing in "North
Central Land" , professional skier
Jim Hoeschler was named a
consultant to the airline. Hoeschler,
a native of Lacrosse, Wisconsin, is
a former member of the U.S. Olympic
and Championship ski teams.
North Central continued its
community relations program of
recognizing the support which
outstanding business and civic leaders
have extended the company and
their valuable contribution to the
development of scheduled airline
service by appointing them
"Presidential Advisors." Instituted in
1954, the group of 100 prominent
individuals acts in a liaison capacity
between the community and the airline.
All news media throughout the system
received frequent news releases
in 1971. Special articles about the
company were given national coverage
in Forbes, Aviation Week and Space
Technology, and Aviation Daily.
Many regional publications ran feature
stories on the airline.
North Central gratefully acknowledges
the cooperation of the countless
individuals who helped publicize the
company's progress in 1971 .
Breaking records
is becoming
a habit.
1971. Another record year for North Central. We flew more passengers more miles than ever
before. And the only way we can keep breaking records is to continually give you better service.
For instance ... our Milwaukee-New York "custom jet" nonstops at coach rates. Many peo-
ple have told us they're the best flights to New York ... great food, better service, unusual extras
(like our complimentary after-dinner liqueur).
But our Twin Cities-Denver flights are just as great. And we also offer frequent nonstops to
Dayton, Cincinnati, Columbus, Milwaukee and Omaha, too, with improved service to many other
cities on our 13-state system.
See for yourself why we keep setting new records ... come fly with us!
,<)I(/
good people make }Ht' airline great
NORTH CENTRAL AIRLINES
'\...
~ NORTH CENTRAL AIRLINES, INC.
~ - - - 7500 NDRTHLINER DRIVE
~
MINNEAPOLIS, MINNESOTA 55450