North Central Airlines Annual Report 1972

NORTH CENTRAL AIRLINES
7500 northliner drive. minneapolis. minnesota
board or directors
Hal N. Carr* Chairman
G. F. DeCoursin*
Chan Gurney
management
Samuel H. Maslen*
Jay Phillips
Morton B. Phillips
Hal N. Carr .... . . . ... . ...... . . Chairman of the Board and
Chief Executive Officer
Bernard Sweet .. . .. . .. . .. . ...... . . . .. . .... . ... President
John P. Dow .. . .. .. .. . . . .. . . Vice President and Secretary
Robert L. Gren .. .. . . . ... .. . ... Vice President-Maintenance
and Engineering
Daniel F. May . .. . . . .. . . . ..... . .... Vice President-Finance
REGISTRARS AND STOCK TRANSFER AGENTS :
First National City Bank, New York, New York
Joseph E. Rapkin
H.P. Skoglund
Bernard Sweet
Kenneth B. Willett
"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
J. F. Nixon ............ . ....... . .. . .... . . ..... Treasurer
Gowan J. Miller ...................... Assistant Secretary
Charlotte G. Westberg .......... . ..... Assistant Secretary
ANNUAL MEETING:
Northwestern National Bank of Minneapolis, Minneapolis, Minnesota
First Wednesday in April (April 4, 1973)
Wausau, Wisconsin
highlights or growth
1972 1971 Gain
OPERATING REVENUES .................................. $120,627,000 $100,865,000 19.6%
OPERATING PROFIT ..................................... $ 12,355,000 $ 5,815,000 112.5
NET EARNINGS ......................................... $ 7,536,000 $ 1,225,000 515.2
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 11 445.5
CASH FLOW FROM OPERATIONS .......................... $ 13,933,000 $ 9,204,000 51.4
WORKING CAPITAL ...................................... $ 5,109,000 $ 3,900,000 31.0
STOCKHOLDERS' EQUITY ................................ $ 34,787,000 $ 27,192,000 27.9
PASSENGERS CARRIED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,319,000 3,793,000 13.9
REVENUE PASSENGER MILES ............................ 1,029,193,000 865,736,000 18.9
March 2, 1973
to our stockholders,, employees,, and riends:
Earnings of $7,536,000-largest in North Central's 25-year history-highlight the many rec-
ords set by the company in 1972. Revenues reached $120,627,000, and over four million
passengers were carried.
While revenues gained 20 percent, operating expenses rose only 14 percent to $108,272,000.
The operating profit of $12,355,000 more than doubled the $5,815,000 of 1971. After interest
expense of $3,216,000 and income taxes of $2,903,000, up because of increased earnings,
the company had record operating earnings of $6,493,000. Disposition of aircraft added
$1,043,000 for total net earnings of $7,536,000.
Earnings per share reached $.60 in 1972 compared with $.11 the previous year. Based on
the company's impressive performance and strong financial position, a cash dividend of
$.05 per share of common stock ($623,000) was declared by the Board of Directors on
January 26, 1973.
North Central retaif"'led the distinction of having the best financial record in the regional
airline industry. The company has operated profitably for 18 of the 19 years under present
management. Stockholder equity has reached a record $34,787,000, including $14,262,000
in retained earnings.
Traffic records were set in 1972 as North Central carried 4,319,000 passengers and flew one
billion revenue passenger miles for the first time in its history. Passenger traffic was 14 per-
cent ahead of 1971, while revenue passenger miles gained 19 percent to 1,029,193,000. The
12,181,000 cargo ton miles represented a 29 percent increase.
Operations in 1972 were favorably affected by passenger gains on long-haul routes, the
improved general economy, and greater public service revenues .for providing transporta-
tion to smaller communities. A strike against another airline serving some North Central
cities added to revenues, but no significant financial benefit resulted as $1,734,000 was re-
turned to the struck carrier under the airlines' mutual aid agreement.
Again this year, the airline maintained an excellent operating performance by completing
99 percent of its 27,840,000 scheduled miles. This is one of the best completion records in
the entire airline industry.
Seeking to further expand operations, North Central applied to the Civil Aeronautics Board
for nonstop service between Detroit and Boston. The 632-mile route is the largest passen-
ger market in the nation with nonstop flights by only one carrier. The company also refiled
its request for an expedited hearing on the 908-mile Milwaukee-Denver nonstop route. On
service to Atlanta, the Board reopened proceedings, and North Central proposes flights from
Detroit and Cincinnati.
Concern for passengers and the environment led to several new programs. Effective-screen-
ing procedures tightened security at every station, and special "non-smoking" sections on
the aircraft increased passenger comfort. All jet engines are converted to the low-smoke
configuration, and noise-abatement flight techniques have been improved. The airline is
evaluating and testing methods of further reducing noise levels on the ground.
Under its flight equipment program, three new 100-passenger Douglas DC-9 fan jets were
ordered for delivery in April, May and October 1973. Two others were acquired this Janu-
ary from another airline as replacement aircraft. After October, the company will have a fleet
of 19 DC-9s and 33 Convair 580 prop-jets to accommodate continuing growth, improve
service and expand charter operations.
North Central looks forward to growth and prosperity rivaling that achieved in its first 25
years. With the continuing support of stockholders, passengers and employees, the com-
pany is confident the dramatic progress will be maintained.
HAL N. CARR
Chairman of the Board and
Chief Executive Officer
Sincerely,
BERNARD SWEET
President
trafic growth and perlormance
For the first time in its history, North
Central carried over four million
passengers and flew one billion
revenue passenger miles in a year.
The 4,318,643 passengers for 1972
represented an impressive 14 percent
increase, 525,310 passengers more
than the 3,793,333 served the previous
year. The 18,156 passengers boarded
on June 30 set a single-day high.
A new monthly mark came in August
when 473,955 passengers flew on
jet-powered Northliners. Traffic in
each month exceeded the corres-
ponding month of 1971 as steady
growth developed on the longer
nonstops-particularly Milwaukee-
New York, Milwaukee-Detroit-
Toronto, and between the Twin Cities
and Denver/Chicago/Milwaukee.
Revenue passenger miles climbed
19 percent to 1,029,192,937, compared
with 865,736,212 in 1971. Available
seat miles rose only 4.5 percent to
2,048,133,449. The 50.3 percent
passenger load factor for 1972 is the
best since 1956 when 26-passenger
DC-3 aircraft were flown.
The 1972 records resulted from
increased long-haul traffic, an
upswing in the nation's economy,
and the extra service provided during
a strike against another carrier
which serves some cities on North
Central's system.
During the past 25 years, the
company's annual passenger increase
has averaged 25 percent over the
previous year. Starting with only
11,398 passengers in 1948, North
Central passed a half-million by 1956,
and one million in 1960. The two-
million passenger mark came just six
years later. Aided by the introduction
of jet aircraft and long-haul route
awards, the airline served three
million passengers during 1968 and
nearly four-and-a-half million in
1972. Since inaugurating service,
North Central has carried 34.2 million
passengers and flown 6.5 billion
passenger miles.
To provide more flights for the
traveling public in peak traffic periods,
the airline operated 2,385 "extra
sections" in 1972 that accommodated
80,054 passengers. A record 510
charters took 63,548 people to points
in 39 states, the District of Columbia,
Canada, Mexico, the Bahamas and
Puerto Rico. In addition, scenic
flights over North Central communities
introduced 7,125 persons to the
company's service.
Cargo ton miles jumped 29 percent
to an unprecedented 12,180,713
for the year. Air freight alone soared
37 percent. Mail gained 18 percent,
and express was up seven percent.
The 1,318,051 ton miles flown during
September is a cargo milestone.
social action programs
Corporate concern with air
pollution, noise abatement, waste
disposal, security, and employment
practices generated specific
programs to make North Central a
more compatible neighbor and
business partner in the communities
it serves.
The airline completed its $300,000
jet-engine retrofit project in 1972,
when the last of its JT8D engines was
converted to a low-smoke con-
figuration. North Central now flies a
"smokeless" jet fleet. The industry-
wide program will eliminate virtually
all of the particle air pollution caused
by aircraft.
Early in 1972, the airline also
modified its JT8D engines to
eliminate fuel venting during takeoff.
The project was undertaken after
tests indicated no adverse effect on
safety and final approval was re-
ceived from the engine manufacturer.
For passenger comfort, no smoking
sections are designated on all aircraft.
To minimize pollution from internal
combustion engines, electric-powered
tractors were introduced on a test
basis at several airports. The company
is continuing to purchase bio-
degradable products for cleaning and
the most disposable fluids for
de-icing. Solid wastes are removed
in accordance with the federal and
state standards, and the use of
recycled paper has been increased.
North Central successfully improved
its noise-abatement flight techniques.
Takeoff and landing procedures,
designed to "keep them high" over
populated areas throughout the
system, have reduced noise levels on
the ground as much as 50 percent.
Use of assigned preferential runways,
now standard procedure, restricts
traffic over residential districts. Again
this year, required engine run-ups
have been voluntarily curtailed by
North Central between 11 p.m. and
6 a.m. While investment in noise
abatement is difficult to estimate,
a considerable portion of the
increase in flight operating costs can
be attributed to implementing
environment-oriented procedures.
25 YEARS
North Central's operating perform-
ance, consistently one of the highest
in the entire airline industry, again
reached 99 percent, as the company
completed 27,523,043 of its 27,840,184
scheduled miles. This excellence
was attained although North Central
has the shortest average stage length
of any carrier, operates in severe
winter weather for many months
over most of its system, and in 1972
handled the greatest passenger
and cargo traffic in its history.
Strict adherence to the company's
exacting maintenance program
continues to be a significant factor in
achieving the high level of per-
formance. Of the 220,000 departures
scheduled in 1972, only one-tenth
of one percent were cancelled for
maintenance reasons, and less than
one and a half percent were delayed
by mechanicals.
North Central's steady growth and
enviable operating record pay tribute
to the company's 3,200 employees
and their dedication to the task of
providing dependable scheduled
airline service.
A system-wide airport security
program has been enacted in
accordance with Federal Government
directives. Experienced security
agents now screen each passenger
electronically and search all carry-on
luggage prior to boarding. Early
in 1973, airport operators are to add
armed guards to further improve
overall security.
During 1972, North Central expanded
its "equal opportunity" employment
program, with emphasis on jobs for
disadvantaged minority group
members and Vietnam veterans.
Employee participation in the
National Guard and Reserve is fully
supported by the company. The
company retained active membership
in JOBS, the manpower training
plan sponsored jointly by the U.S.
Department of Labor and the National
Alliance of Businessmen.
North Central is proud of its present
social action and environmental
efforts, and will pursue future
programs which are beneficial to
the community.
5
route development program
North Central expanded its route
development program in 1972 by
applying to the Civil Aeronautics
Board (CAB) for the first competitive
nonstop service between Detroit
and Boston. Th is passenger market is
the largest in the nation with only
one carrier providing nonstop flights.
The company proposes eight flights
daily, using 100-passenger DC-9 fan
jets, over the 632-mile route.
Forecasts show a first-year potential
of 162,000 passengers and a $1. 7
million operating profit.
Single-plane service would be
available for the first time between
Boston and Kalamazoo/Battle Creek,
Grand Rapids, Saginaw/Bay City/
Midland and Flint, Michigan; and
South Bend, Indiana. More than a
dozen other Michigan, Minnesota
and Wisconsin cities would benefit
from single-carrier connections
which are not available now.
The Detroit-Boston potential may
be even greater than projected since
traffic has exceeded estimates on
similar long-haul routes (Twin Cities-
Denver and Milwaukee-New York)
awarded in 1969 and 1970.
The company refiled its 1970 request
for an expedited hearing on the
Milwaukee-Denver nonstop appi ica-
tion. The 908-mile segment would
be the longest route on the airline's
system. CAB action will probably be
taken within a year.
North Central strengthened its
position in 1972 as the dominant
carrier serving Milwaukee. The
company carried 388,000 passengers,
accounting for 41 percent of all
boardings and 155,000 more
passengers than the next highest
of the four other airlines serving that
the ruture
Entering its second 25 years of
service, North Central is confident
that steady growth will continue.
An almost unlimited passenger and
cargo market exists. Although 55
percent of American adults have
flown on scheduled airlines at some
time, up from 33 percent ten years
ago, only 23 percent fly in a year.
The potential for cargo growth is
even greater.
With a fleet of 19 DC-9s and 33
Convair 580s for most of 1973, jet
flights will be added to many
communities, and charter activity can
be increased. Should new routes be
city. An even greater share of the
Milwaukee market is anticipated in
1973. To meet increased passenger
demand on the Milwaukee-New
York route, a fifth daily round trip is
being added this spring.
The CAB has reopened the record
in the Detroit, Cleveland, Cincinnati-
Atlanta Investigation. North Central is
proposing nonstop service to Atlanta
from Detroit and Cincinnati. Hearings
began in February 1973, and a
decision by the Board is anticipated
in 1974.
North Central started operations
in 1948 with a 1,028-mi:e system
connecting 19 cities. It had 2,400
route miles when present manage-
ment joined the company in 1954.
An aggressive route development
program was instituted, and the
system tripled by 1961. Today the
company serves 90 cities in 13 states
and Canada, spanning a 9,900-mile
route system.
Current filings with the CAB involve
5,431 new route miles, including
service to Atlanta, Boston,
Philadelphia, Winnipeg and Montreal.
Activity on route applications is
expected to increase in 1973, since
the virtual moratorium in 1970 when
the airline industry was encountering
adverse economic conditions.
The following is a summary of North
Central's principal applications
awaiting initial hearings or action
by the CAB :
DETROIT-BOSTON NONSTOP
North Central would provide the first
competitive nonstop service between Detroit
and Boston and also offer the only single-
plane service between Boston and seven cities
in Michigan plus South Bend, Indiana-
via Detroit. (632 miles)
awarded, aircraft are available to
start immediate service.
Astute scheduling, dependable
service and aggressive marketing
have a;ready stimulated travel,
particularly on the Milwaukee-New
York, Milwaukee-Detroit, Twin Cities-
Denver, and Twin Cities-Milwaukee
nonstops. Should the airline receive
the proposed Detroit-Boston,
Detroit-New York or Milwaukee-
Denver routes, similar programs
will be developed. The company
expects continued success on its
profitable, long-haul routes.
Investment in more efficient aircraft
and ground support equipment,
25 YEARS
MILWAUKEE-DENVER NONSTOP
A request has been refiled for an expedited
hearing on the company's application
for nonstop service between Milwaukee
and Denver. (908 miles)
DETROIT, CLEVELAND, CINCINNATI-ATLANTA
The CAB reopened the record in this
proceeding. The company has filed additional
exhibits to serve Atlanta from Detroit and
Cinc innati . Hearings began in February 1973.
(968 miles)
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 NONSTOP
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)
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)
DETROIT-MONTREAL, VIA TORONTO
Authority to serve Montreal from Detroit,
via Toronto, was requested under a proposed
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)
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 bei ng
considered by United States and Canadian
officials under the Bil ateral Air
Transport Agreement. (314 miles)
as well as electronic computers,
has enabled the airline to boost
productivity, although the number of
employees has remained virtually
constant during the last three years.
With a continuing gain in productivity,
the overall effect will be a greater
increase in revenues than in
operating costs.
North Central's financial strength,
from profitable operations in 18 of
the last 19 years, provides a firm
foundation for the airline to turn
opportunity into reality. With continued
improvement in the nation's general
economy and effective restraints
on costs, the company expects 1973
to be another record-breaking year.
7
RAPID CITY
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25 YEARS
Starting as a small subsidiary of a Wisconsin truck
manufacturer, North Central has become one of the nation's
leading regional airlines, serving 90 cities in 13 states and
Canada over a 9,900-mile route system.
The company was incorporated as Wisconsin Central
Airlines in 1944 by FWD Corporation of Clintonville (formerly
The Four Wheel Drive Auto Company) to carry its officials
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BOSTON
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NEW YORK
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PHILADELPHIA
PRESENT ROUTES
PROPOSED ROUTES
-
PROGRESS
and area businessmen between Clintonville and Chicago.
After complying with a Federal order to sever ties with
FWD, the airline received its operating certificate in 1947.
Scheduled flights were inaugurated on February 24, 1948,
with three nine-passenger Lockheed lOA Electras operating
over a 1,028-mile route system which connected Chicago
with 18 Wisconsin and Minnesota communities. Sixteen ot
these "pioneer" cities are still served by the airline.
Corporate offices moved to Madison before operations began.
The company's name was changed to North Central
Airlines in 1952 when headquarters were established at
the Minneapolis-St. Paul International Airport.
As traffic steadily increased, the airline upgraded its fleet
to meet passenger demands. Five types of aircraft have
been flown by the company in its first 25 years: the Douglas
DC-9 fan jet and Convair 580 prop-jet since 1967; the
Convair 440, introduced in 1959; the Douglas D
-
C
-3 which
debuted in 1951, and the original Lockheed l0A.
Highlighting its first quarter-century by carrying over
four million passengers and achieving record earnings,
North Central embarks on a new era of progress.
10
NORTH
balance sheet
ASSETS
CURRENT ASSETS
Cash including certificates of deposit of $5,050,327 in
1972 and $1,410,845 in 1971 ................................ .
Investment in commercial paper (note D) ..................... .. .
Accounts receivable (note A) ................................. .
Flight equipment parts and operating supplies - less reserves
of $443,447 in 1972 and $345,848 in 1971 (notes A and B) ........ .
Prepaid expenses and sundry deposits (note A) ................. .
Total current assets ................................... .
PROPERTY AND EQUIPMENT - at cost
Flight equipment (note B) ............. . ..... .. : .............. .
Ground property and equipment .............................. .
Improvements to leased property .............................. .
Less accumulated depreciation (note A) ...................... .
Advance payments on flight equipment (note D) ... ..... : ....... . . .
DEFERRED CHARGES AND OTHER ASSETS
Unamortized development and preoperating costs (note A) ........ .
Unamortized discount and expense on debt (note A) . ......... ... . .
Insurance receivable (note D) ................................. .
Rentals and other ........................................... .
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (note B) ......... ........... .
Accounts payable (note A) .................................... .
Tickets outstanding (note A) .............. : ...... ............. .
Accrued compensation, taxes and other expenses (note A) ........ .
Income taxes (notes A and I) .................................. .
Total current liabilities ............. ............. ....... .
LONG-TERM OBLIGATIONS
Long-term debt - less current maturities (note B) ................ .
Deferred income taxes (notes A and I) . . . .... . .................. .
Warrant obligation (note B) . . ............... . ..... ............ .
COMMITMENTS (note D)
STOCKHOLDERS' EQUITY (notes 8, E and F)
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.
CENTRAL
December 31
1972 1971
$ 8,897,276 $ 4,436,930
6,500,000 2,000,000
11,085,569 10,959,872
2,734,408 2,703,047
4,588,388 5,624,890
33,805,641 25,724,739
71,681,797 74,684,520
6,458,707 6,303,069
3,258,633 3,008,130
81,399,137 83,995,719
25,501,845 21,104,499
55,897,292 62,891,220
3,246,103
59,143,395 62,891,220
2,332,898 3,117,984
234,104 298,984
4,300,000
2,230,945 2,241,049
9,097,947 5,658,017
$102,046,983 $94,273,976
$ 7,075,237 $ 7,088,609
10,344,324 8,596,991
810,338 543,715
7,856,898 5,595,541
2,610,000
28,696,797 21 ,824,856
. )
36,327,040 43,407,267
1,990,762 1,621,000 ~
245,100 229,200
38,562,902 45,257,467
2,492,550 2,489,170
18,032,384 17,976,011
14,262,350 6,726,472
34,787,284 27,191,653
$102,046,983 $94,273,976
AIRLINES, INC.
25 YEARS
statement or earnings
Years ended December 31
OPERATING REVENUES
1972 1971
Passenger (note A) ......................................... . $ 99,259,565 $ 83,820,866
Freight and express ............ . ............................ . 6,331,095 5,113,178
Public service revenues (note G) .............................. . 9,089,650 6,884,964
Mail ...................................................... . 1,308,575 1,214,895
Non-scheduled service and other ... . .......................... . 4,638,557 3,831,441
Total operating revenues ............................... . 120,627,442 100,865,344
OPERATING EXPENSES
Flying operations ........................................... . 28,51 2,471 27,380,498
Maintenance ............. ....... ............................ 18,219,258 15,979,974
Aircraft and traffic servicing .................................. . 26,690,000 23,580,1 40
Passenger service ........................... ............... . 7,579,386 6,269,080
Promotion and sales ......................................... . 10,646,128 8,366,053
General and administrative .......... ....... ..... ........ ..... . 7,839,584 6,163,999
Depreciation and amortization (note A) ........... .... .. ........ . 6,990,351 7,240,431
Mutual Aid payments (note H) ................................ . 1,794,947 69,763
Total operating expenses .............................. . 108,272,125 95,049,938
Operating profit .................................. . 12,355,317 5,815,406
OTHER (INCOME) EXPENSES
Interest expense (note A) . . ................................... . 3,215,696 4,228,541
Other - net ............. . .................................. . (256,124) (181,843)
Total other expenses ...................... ...... ...... . 2,959,572 4,046,698
Earnings before income taxes and extraordinary item ... . 9,395,745 1,768,708
INCOME TAXES (notes A and I)
Currently payable - less investment tax credits of
$2,019,000 in 1972 ......................................... 2,610,000
Deferred - less investment tax credits,
$231,000 in 1972 and $470,000 in 1971 ............... ..... .... . 293,049 544,000
Total income taxes ..................................... 2,903,049 544,000
Earnings before extraordinary item ................ ... 6,492,696 1,224,708
EXTRAORDINARY ITEM
Gain on disposition of flight equipment -
less related deferred income taxes of $452,000 (note A) ........... 1,043,182
NET EARNINGS .................................. $ 7,535,878 $ 1,224,708
EARNINGS PER SHARE (note J)
Earnings before extraordinary item ............................. $ .52 $ .11
Extraordinary item ........................................... .08
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NET EARNINGS PER SHARE ..................... ... $ .60 $ .11
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The accompanying notes are an integral part o_t this statement.
11
12
statement of' changes in f'inancial position
SOURCES OF WORKING CAPITAL
From operations
Net earnings before extraordinary item ....................... .
Charges to earnings not using working capital
Depreciation of property and equipment (note A) .......... .
Amortization of deferred charges (note A) ................ .
Deferred income taxes (note I) .......................... .
Loss on disposition of property and equipment ............ .
Working capital provided from operations
exclusive of extraordinary item ................... .
Extraordinary item providing working capital - gain on
disposition of flight equipment (note A) ..................... .
Proceeds in excess of the gain from disposition of
property and equipment ................................... .
Proceeds from sale of common stock ........................... .
Increase in long-term debt ................................... .
Other ..................................................... .
APPLICATIONS OF WORKING CAPITAL
Additions to property and equipment ........................... .
Additions to deferred charges ................................. .
Reduction of long-term debt ........................... . ...... .
Increase in insurance receivable .................. ........ ... . .
INCREASE IN WORKING CAPITAL (note K) ................. .
Working capital at beginning of year ........................... .
Working capital at end of year ................................ .
The accompanying notes are an integral part of this statement.
Years ended December 31
1972 1971
$ 6,492,696
6,178,603
1,001,500
239,762
20,397
13,932,958
1,043,182
3,279,735
59,753
18,315,628
5,278,910
447,530
7,080,227
4,300,000
17,106,667
1,208,961
3,899,883
$ 5,108,844
$ 1,224,708
6,438,279
986,182
544,000
10,979
9,204,148
6,024,583
8,102,730
2,995,024
134,400
26,460,885
2,353,857
872,184
10,966,706
14,192,747
12,268,138
(8,368,255)
$ 3,899,883
statement of' changes in stockholders equity
Years ended December 31, 1972 and 1971
Balance at January 1, 1971 ............. .. .
Proceeds of public stock offering -
less expenses ....... ... ........ . .. . .
Conversion of 5 % subordinated
convertible debentures into
common stock (note B) ............... .
Excess value of warrants issued
in warrant exchange ................. .
Net earnings for the year ... ............ .
Balance at December 31, 1971 ............ .
Exercise of stock options (note F) ........ .
Exercise of stock warrants (note F) ....... .
Net earnings for the year ............... .
Balance at December 31, 1972 ............ .
Common Stock
Shares
Outstanding
10,463,087
1,980,000
2,765
12,445,852
16,450
450
12,462,752
Amount
$2,092,617
396,000
553
2,489,170
3,290
90
$2,492,550
The accompanying notes are an integral part of this statement.
Additional
Paid-in
Capital
$10,228,834
7,706,730
20,447
20,000
17,976,011
53,988
2,385
$18,032,384
$
Retained
Earnings
(note B)
5,501,764
1,224,708
6,726,472
7,535,878
$14,262,350
25 YEARS
ten-year earnings summary
OPERATING REVENUES 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963
Passenger .... . ........................ $99,259.565 $83,820,866 $76,954,521 $57,073,369 $44,628,769 $33,482,371 $30,261,479 $23,720,203 $20,002,281 $18,064,524
Public service revenues .................. 9,Cf89,650 6,884,964 5. 131,306 4,016,386 4,667,639 5,249,563 5.767,888 7,199,41 8 7,274,370 7,644,080
Other . ............... . .............. . . 12.278,227 10,159,514 9,866,126 7,338,168 5,929,518 4,118,543 3,583,304 2,971.41 0 2,438,126 2,168,100
120,627.442 100,865,344 91 ,951,953 68,427,923 55,225,926 42,850,477 39,612,671 33,891,031 29.714,777 27,876,704
OPERATING EXPENSES
Direct expenses ......................... 46.731 ,729 43,360,472 39,207,293 31 ,647,246 25,525,000 19,811 ,886 17,980,535 15,356,876 13,666,142 13,076,180
Indirect expenses ....................... 54.550,045 44,449,035 37,879.733 30,782,288 24,318,200 19,523,811 17,062,543 13,970,237 12,303,601 11,812.690
Depreciation and amortization .... . .. . ..... 6,990.351 7,240,431 6,700.175 5,605,500 4,356,893 2,626,251 2,253,361 1,997,488 1,712,800 1,541,857
- - -
108,272.125 95,049,938 83.787.201 68,035,034 54,200,093 41 ,961.948 37,296,439 31 ,324,601 27,682,543 26,430,727
OPERATING PROFIT ..................... 12,355,317 5,815,406 8,164.752 392,889 1,025,833 888,529 2,316,232 2,566,430 2,032,234 1,445,977
Non-operating income and (expenses), net .. (2,939.175) (4,035.719) (4,875.788) (4,677,092) (3,008,205) (628,731) (464,974) (442,894) (348,305) (428,423)
EARNINGS (Loss) before taxes .. .. . . . ..... 9,416,142 1,779,687 3,288,964 (4,284,203) (1,982,372) 259,798 1.851,258 2,123,536 1.683,929 1,017,554
Income taxes ........ . .... .. .. . .. .. . . ... 2,903,049 544,000 451,000 (1,934.888) (869,000) (336,010) 720,647 1,006,520 873,304 514,497
EARNINGS (Loss) before gain (loss)
on disposition of equipment ............ 6,513,093 1,235,687 2,837,964 (2,349,315) (1,113,372) 595,808 1,130,611 1,117.016 810,625 503,057
Gain (Loss) on disposition of equipment,
less income taxes ... .. ............... . 1,022,785 (10,979) (43,349) (29,080) 1,183,588 924,316 24,000 21 ,736 33,939 18,656
Prior years' adjustment due to
change in accounting .. . ......... .. . .. . (617,000)
NET EARNINGS (LOSS) ...... . .. .. .... .. . $ 7.535.878 $ 1.224, 708 $ 2,177,615 $ (2,378,395) $ 70.216 $1 ,520,124 $ 1,154,611 $ 1,138,752 $ 844,564 $ 521.713
THIS SUMMARY DOES NOT INCLUDE ALL DETAILED INFORMATION CONTAI NED IN THE ANNUAL REPORTS FOR RELATED YEARS. AND IS NOT COVERED BY THE AUDITORS' REPORT HEREIN.
notes to financial statements
December 31, 1972 and 1971
Note A - Summary of Significant Accounting Policies - The com-
pany, regulated by the Civil Aeronautics Board (CAB), uses the Uni-
form System of Accounts and Reports for Certificated Air Carriers
as required by the CAB, which are consistent with generally ac-
cepted accounting principles. The principal policies followed by the
company are:
Accounts receivable: The company provides an allowance for cer-
tain uncollectable accounts receivable.
Flight equipment parts and operating supplies: These are priced at
average cost. Reserves are provided by allocating costs of repair-
able items over the life of related flight equipment.
Prepaid expenses - engine overhaul: The company includes in pre-
paid expense that portion of engine overhaul costs which will expire
during the next operating cycle ($2,338,000 in 1972 and $2,944,000
in 1971). Engine overhaul costs are charged to expense as incurred.
Capitalized interest: Interest is capitalized on funds associated
with major project expenditures such as acquisition of flight equip-
ment, construction of ground facilities and expenditures for route
development and preoperating costs. Capitalization of interest
ceases when projects become operational. The capitalized interest
is then amortized over the useful lives of the related assets for
financial reporting purposes but charged to current period expense
for income tax reporting purposes.
Depreciation: Depreciation is provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their esti-
mated service lives on a straight line basis for financial and tax
reporting purposes. Prior to 1968, accelerated depreciation methods
were used for tax purposes. Flight equipment is being depreciated
to residual values (15% of cost): Convair 580 based on a common
retirement date of June 1979 and DC-9-30 based on 15 year lives.
Deferred charges: Expenditures for route development are deferred
and amortized over the life of temporary certificates, or five years
for permanent certificates. Aircraft preoperating costs are amor-
tized over approximately eight years. Certain expenditures are
expensed when incurred for tax reporting purposes. Unamortized
discount and expense on debt are amortized using the "interest
method" over the term of the loan.
Pension costs: The company has pension plans for substantially all
of its employees, and funds current pension costs accrued and
interest on unfunded prior service cost.
Revenues: Revenues are recognized when the related services are
rendered. Tickets outstanding at December 31st represent tickets
sold for the company's flights but unused by passengers at that
date. Tickets sold for flights on other airlines, for which reimburse-
ment has not been made, are included in accounts payable. Tickets
sold by others and lifted at time of flight by the company are in-
cluded in accounts receivable until payment is received.
Disposition of property and equipment: To the extent allowable, the
company defers gains on disposition of property and equipment for
tax reporting purposes while recognizing them currently for finan-
cial reporting purposes.
Income taxes: The company uses the flow-through method of ac-
counting for investment tax credit which reduces income tax ex-
pense when the related liability is reduced.
The company recognizes deferred income taxes resulting from
differences in financial and income tax reporting of capitalized
interest, depreciation, deferred charges, December 31, 1971 vaca-
tion pay accrual and gains on disposition of property and equipment.
Note B - Long-Term Debt - Long-term debt at December 31 con-
sists of: 1972 1971
Quarterly installment notes (a) . . . . . . . . . . . . . $ 2,937,783 $ 8,813,348
Semi-annual installment notes (b) . . . . . . . . . . 2,350,226 2,937,783
7% notes, due in quarterly installments of
$1,468,891 and $1,958,522 from July, 1973
through October, 1978 . ....... .. ....... .
Total due banks and insurance companies (c) ..
7% subordinated notes (d) ............... .
5 % subordinated convertible debentures (e) .
Sundry . ..... . .. .. ............... . ..... .
Total long-term debt ..................... .
Less current maturities ................ .
35,253,393
40,541,402
2,100,000
721,500
39,375
43,402,277
7,075,237
$36,327,040
35,253,393
47,004,524
2,700,000
721,500
69,852
50,495,876
7,088,609
$43,407,267
(a) Due in quarterly installments of $979,261 and $1,958,522
through April, 1973; interest at% above bank's prime rate (effec-
tive rate was e% at December 31, 1972).
(b) Payable in semi-annual installments of $293,778 due from April
1972 through October 1976; interest at 1 % above bank's prime
rate (effective rate was 7% at December 31, 1972).
(c) Total loans are collateralized by substantially all flight equip-
ment and spare aircraft parts owned by the company. Two equip-
13
14
notes to f'inancial statements
( continued)
ment manufacturers partially guarantee these loans. Included in
the loan agreement provisions are restrictions on dividend pay-
ments, capital expenditures, additional borrowings and require-
ments related to minimum working capital and net worth.
The company has a commitment to retire 259,511 warrants, issued
to loan holders in consideration of deferring certain debt repay-
ments, at $1.50 per warrant that has not been exercised by Novem-
ber 30, 1979 (note F). The obligation is being accrued as additional
interest expense over the remaining term of the loan.
(d) Due in semi-annual installments of $300,000 from September
1971 through March 1976. Stock purchase warrants issued in con-
nection with this debt enable the holders to purchase a total of
200,000 common shares (note F).
(e) Due on June 1, 1978 and convertible into common shares at
$8.55 a share to maturity.
Note C - Pension Costs - Total pension expense was $2,553,000
for 1972 and $1,949,000 for 1971. At the 1972 actuarial valuation
date, the company had funded in excess of vested benefits for all
plans by approximately $950,000.
Note D - Commitments - Approximate minimum annual lease com-
mitments for five DC-9-30 and nine Convair 580 aircraft total
$3,876,000 at December 31, 1972 and $4,030,000 at December 31,
1971 expiring at various dates from 1978 through 1981. The amount
above includes the commitment resulting from the sale (upon which
no gain was recognized) and leaseback of one Convair 580 aircraft
finalized during January 1973. The company also leases office and
operational facilities, terminal facilities, computer and other equip-
ment under long-term agreements expiring on various dates through
1996 for which minimum annual rentals are approximately $7,077,-
000 and $6,460,000 at December 31, 1972 and 1971, respectively.
At December 31, 1972, the company had purchase commitments on
three new DC-9-30 aircraft for which they have advanced $3,246,000.
An additional $11,340,000 will be expended by the company in ful-
filling these commitments. On January 5, 1973, the company final-
ized an agreement to purchase two used DC-9-30 aircraft for
$7,100,000. A portion of the insurance receivable included in other
assets is to be used toward payment on one of these aircraft.
Note E - Shareholder Disclosure of Ownership - The CAB requires
that any person who owns, as of December 31 of any year, or who
acquires ownership, as of ten days after acquisition, of more than
5% in the aggregate of the company's common stock, either bene-
ficially or as trustee, 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 may obtain further informa-
tion by writing to the Director, Bureau of Operating Rights, CAB,
Washington, D. C
. 20428.
Note F - Common Stock - Under a qualified plan, 350,000 shares
of unissued common stock were reserved for officers and key
e
mployees. Options expire five years after date of grant. Options
granted in 1967 for 5,000 shares expired in 1972. Those outstand-
ing and exercisable and dates granted, at December 31, 1972 are:
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, 1972, and the
related statements of earnirgs, changes in stockholders' equity and
changes in financial position for the year then ended. Our examina-
tion 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 neces-
sary in the circumstances. We have previously examined and reported
on the financial statements for the preceding year.
1968 - 5,000 shares at $5.61; 1969 - 18,000 shares at $4.125;
1970 - 47,500 shares at $4.125 and 105,000 shares at $3.25; 1971
- 38,050 shares at $3.19; 1972 - 2,500 shares at $6.375. Options
for 16,450 shares were exercised in 1972 and for 115,000 shares in.
previous years. Options for 2,500 shares are available for granting.
At December 31, 1972 and 1971 there were outstanding warrants
to purchase 2,649,061 and 2,649,511 shares, respectively, of com-
mon stock. These warrants resulted from public offerings prior to
1972 and from financing transactions as discussed in note B (c)
and (d). All warrants enable the holder to purchase common stock
at $5.50 per share and expire October 31, 1979.
Du-ring January 1973, the Board of Directors declared a $.05 per
share dividend payable March 1, 1973 for stockholders of record
on February 9, 1973.
Note G - Public Service Revenues - The CAB adopted Class Rate
VI on June 16, 1972 for the period beginning July 1, 1971 through
June 30, 1972. The company received in June 1972 $765,000 per-
taining to the period July 1, 1971 through December 31, 1971 in
excess of the estimate previously recorded.
Note H - Mutual Aid Payments - Under provisions of the Mutual
Aid Agreement effective January 1, 1971, the company pays struck
carriers who are a party to this agreement. The company would re-
ceive such payments in the event of a strike by its employees.
Note I - Income Taxes - Unused investment tax credit totals
$3,490,000, of which $1,688,000 has been recognized as a reduc-
tion of reported deferred provision for income tax expense. The
amount available to reduce income taxes payable expires: $1,958,000
in 1975; $791,000 in 1976; $571,000 in 1977; $93,000 in 1978;
$77,000 in 1979.
Note J - Earnings Per Share - Earnings per share is based on the
weighted average number of shares outstanding for the year
(12,455,348 in 1972 and 11,455,051 in 1971). Conversion of deben-
tures into common stock, exercise of stock options and warrants to
purchase stock would not result in material dilution of earnings
per share for the years ended December 31, 1972 and 1971.
Note K - Net Change in Working Capital Elements - Changes in
working capital elements consisted of: Years ended December 31
Increase (decrease) in current assets
Cash & certificates of deposit .. . .. . .. .
Investment in commercial paper .... . . .
Accounts receivable .. .... .. . ... . . . . .
Flight equipment parts & supplies ... . . .
Prepaid expense & sundry deposits ... .
Increase (decrease) in current liabilities
Short-term borrowings .. ...... . . .... .
Current maturities of long-term debt . . . .
Accounts payable & tickets outstanding . .
Accrued I iabil ities ........ . .. . .. . .. . .
Income taxes .... ... . . ........ ... . . .
Increase in working capital ... .. .. . .
1972 1971
$4,460,346
4,500,000
125,697
31,361
(1,036,502)
8,080,902
(13,372)
2,013,956
2,261,357
2,610,000
6,871,941
$1,208,961
$ 2,176,832
2,000,000
(1,654,195)
(237,487)
(1,166,140)
1,119,010
(3,284,312)
(4,878,117)
(3,446,552)
459,853
(11,149,128)
$12,268,138
In our opinion, the financial statements referred to above pre-
sent fairly the financial position of North Central Airlines, Inc., at
December 31, 1972, and the results of its operations and changes in
financial position for the year then ended, in conformity with gen-
erally accepted accounting principles appli_
ed on a basis consistent
with that of the preceding year.
Minneapolis, Minnesota
-4-I.. .n,
~
-'. ~./- /'
_._,,m,,.,1H/
February 16, 1973
~'U/lo ..
V
VV"?'-7
25 years or growth 25 YEARS
PASSENGERS PASSENGER MILES
4.5
(MILLIONS)
1100
/ I
(MILLIONS)
1J
4.0
3.5
3.0
2.5
2.0
1.5
1.0
.5
I
;
J
I
,
I
I
,.,,,--
/
V
/
___,,,.-
/
1000
900
800
700
600
500
400
300
200
100
I
/
I
I
I
I
I
/
vl
-----
~
1948 '52 '57 '62 '67 '72 1948 '52 '57 '62 '67 '72
SEAT MILES TON MILES
2200 110
(MILLIONS) (MI LLIONS)
2000
1800
1600
1400
1200
1000
I
I
I
(
I
,
100
90
80
70
60
50
I
I
I
I
I
I
800
600
400
200
J
I
/"""'
,/
~/
~
~
40
30
20
10
J
I
__
_/
/
--~
1948 '52 '57 '62 '67 '72 1948 '52 '57 '62 '67 '72
16
communications program
Important extras that entice
passengers to choose North Central
head I ined the 1972 advertising
program.
Denver-bound skiers are attracted by
ads announcing complimentary
"Frostbite" kits. A steak and eggs
breakfast is now served on the Twin
Cities-Omaha nonstop and other
major routes. Innovative "Magellan
Service" on luncheon flights features
Portuguese wine and a delicatessen
sandwich that satisfies even dis-
criminating gourmets. Cold Duck and
domestic wines are poured to
enhance steak dinners for Milwaukee-
New York and Twin Cities-Denver
passengers.
Attention was drawn in advertising
to extra conveniences, such as a
reserved section on the aircraft for
non-smokers and the free "Personal
Pak" container which allows carry-
on items to be checked as baggage.
Ads ran in 70 newspapers and
magazines with a combined
circulation of 6.5 million readers.
Television and radio spots on 72
stations reached an estimated
19.5 million viewers and listeners.
Reinforcing the advertising program,
North Central's field sales force
made over 23,250 personal calls on
travel agents, commercial accounts
and interline representatives.
Sales blitzes promoted new services.
northliner museum
Mementos dating back to the
company's pre-operational days are
among the hundreds of items
displayed in the Northliner Museum,
located at North Central's headquar-
ters. Most of these have been
contributed by employees and friends.
Significant events of the first
25 years of service are depicted by
the hundreds of photographs.
Comparative route maps and
schedules graphically illustrate the
airline's growth.
Extensive participation in sports
travel shows, 350 civic group
appearances, and 200 speeches
provided additional exposure for
the company. The ski season was
ushered in with seminars for
travel agents and equipment retailers,
acquainting them with schedules,
in-flight extras and the availability
of snow condition reports from
ski areas on North Central's system.
Near the company's headquarters
at the Minneapolis-St. Paul Inter-
national Airport, an impressive
electronic sign is beaming messages
about North Central-cities served,
flight frequencies, reservations
information, and civic events. The
sign, visible to motorists driving
both ways on Minnesota's most
heavily-used highway, has received
very favorable comments.
A guided tour program, conducted
at the general office and main
operations base, was initiated in July.
Some 2,000 members of 75 groups
have already seized the opportunity
for a "behind the scenes" look
at the airline. Over 100 tours were
given at other company locations.
Quarterly financial reports informed
stockholders and the investment
community of the company's
progress. Monthly traffic data and
noteworthy events were announced
by 32 releases to news media and
25 radio/TV appearances.
Some 27 scrap books contain news
clippings telling of events as they
happened over the years. One volume
documents the world-wide acclaim
given "728", North Central's
corporate DC-3, cited for having flown
more hours than any other aircraft
in the history of aviation. Other books
include old issues of the company
newspaper, The Northliner.
Stewardess uniforms, back to 1954,
highlight the changes in fashion.
Citations and award plaques adorn
the wall. Display cases hold adver-
Special articles ran in newspapers
and magazines.
Northliner Magazine, the airline's
quarterly inflight publication, enjoyed
a passenger audience exceeding
one million persons each issue.
The 32-page magazine contains
entertaining and informative features
about communities and activities on
North Central's system. Based on the
number of requests for more copies,
the publication is well-received.
To increase rapport with the cities
it serves, North Central continued its
program of appointing business
and civic leaders "Presidential
Advisors" to the airline. Selected in
recognition of their support of the
company and contribution to the
development of scheduled airline
service, Presidential Advisors serve
as a communications link between
North Central and its communities.
The program was instituted in
1954, and the group is limited to
100 individuals.
Employees keep abreast of company
developments through The North-
liner newspaper. Additionally, regular
visits are made to each station by
corporate officers and managers,
who hold informal discussions with
personnel.
North Central also benefited from
publicity initiated by countless friends
and supporters. Their efforts on
the company's behalf are
genuinely appreciated.
tisements introducing new service and
aircraft-even an early announce-
ment of the first Lockheed flight
to Janesville.
Flight operation records, initial
station plans, uniform insignia,
promotional items and stationery
from Wisconsin Central days are
also shown.
Pride in the company's first 25 years
of progress and a desire to preserve
its hi~tory have made the North liner
Museum a reality.
commemorating 25 years or service
An Anniversary Seal, featuring the corporate insignia,
is the focal point of the program commemorating
North Central's 25 years of scheduled service.
The distinctive mallard duck, dubbed " Herman"
by employees, is silhouetted against the moon by
night and the sun by day-just as it was when
the company started operations as Wisconsin Central
Airlines on February 24, 1948. The mallard,
prized for its speed in flight, is native to the region.
The special seal, printed in company colors on
" anniversary" silver, is being carried on
correspondence. Larger versions are displayed at
North Central passenger service counters and
gate areas, inside all aircraft, and on ground
equipment. An historical montage including the seal
appears on ticket envelopes.
North Central's first scheduled flights were
reenacted over the original 1,028-mile route
connecting 18 Wisconsin and Minnesota cities with
Chicago. Replacing the nine-passenger Lockheed
10A Electras, was the airline's corporate DC-3,
"728", which has flown more hours than any other
aircraft in aviation history. The captains at the
controls, members of the first pilot group, presently
fly the DC-9 fan jets. Commemorative plaques
bearing the anniversary seal were presented to
officials at each of the "pioneer" cities still
served by the airline.
Company personnel are participating in the
anniversary promotion by using automobile decals
noting the 25-year milestone. Personal checks,
with a color picture of North Central's DC-9, are
being purchased by employees.
Photos and news releases reviewing the history
of the airline were distributed to newspapers,
magazines and radio/television stations in the 90
cities on its 13-state system. The Winter 1973 issue
of the passenger-oriented Northliner Magazine
carries an article entitled, "25 and Still Growing",
which traces company progress.
The Anniversary Seal symbolizes North Central's
25 years of service to the traveling public.
The corporate insignia, a familiar sight to the first
11,000 passengers in 1948, still identifies the
airline to the more than four million people who flew
the Route of the Northliners in 1972.