North Central Airlines Annual Report 1973

NORTH CENTRAL AIRLINES
7soo 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
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
George J. Karnas .. ... . ... . . Vice President-lnflight Service
highlights
OPERATING REVENUES
1973
$127,392,000
OPERATING PROFIT ......... .. . . .. . . .. ... .. $ 12,001,000
EARNINGS
Before out-of-period/ extraordinary items .. . . . $ 6,447,000
Out-of-period items . ....... . ........ . . . .. .
Extraordinary item .... . .. . ... . ... . . .. .. .. .
NET EARNINGS . . . . .. . . ... . ........ . . $ 6,447,000
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . . 52
CASH FLOW FROM OPERATIONS . . . . .... .... $ 14,176,000
WORKING CAPITAL . . . .. . ..... . . .. . .. .. ..... $ 4,654,000
STOCKHOLDERS' EQUITY . .. . . . .. ... ... . .. . . $ 40,611 ,000
PASSENGERS CARRIED . . . . . . . . . . . . . . . . . . . . . 4,263,000
REVENUE PASSENGER MILES .. . . .. . . .. . . . .. 1,011 ,525,000
CARGO TON MILES . . . . . . . . . . . . . . . . . . . . . . . . 13,394,000
Joseph E. Rapkin
H. P. Skoglund
Bernard Sweet
Kenneth B. Willett
* Executive Committee
Daniel F. May ........... . .. .... .. Vice President-Finance
Gowan J. Miller ....... . . Vice President-Industrial Relations
David E. Moran . .. . .. ...... Vice President-Traffic and Sales
T. M. Needham . . . ....... Vice President-Ground Operations
G. F. Wallis . . . . . ...... . ... Vice President-Flight Operations
J. F. Nixon .. . ....... . . .. ....... .. .. . ......... Treasurer
Charlotte G. Westberg ...... . .... ..... . Assistant Secretary
1972
$120,627,000
$ 12,355,000
$ 5,837,000
656,000
1,043,000
$ 7,536,000
60
$ 14,263,000
$ 5,439,000
$ 34,787,000
4,319,000
1,029,193,000
12,181 ,000
Change
5.6%
- 2.9
10.5
- 14.5
-13.3
-0.6
- 14.4
16.7
-1.3
-1.7
10.0
ANNUAL MEETING:
First Wednesday in April
(April 3, 1974) in
Wausau, Wisconsin.
REGISTRARS AND STOCK
TRANSFER AGENTS:
First National City Bank,
New York, New York;
Northwestern National Bank
of Minneapolis,
Minneapolis, Minnesota
AUDITORS :
Alexander Grant & Company
March 4, 1974
to our stockholders, employees and friends:
Revenues reached a record $127,392,000, and earnings totaled $6,447,000 in 1973-as
North Central carried over four million passengers and flew one billion passenger miles for
the second consecutive year.
The company continues to rank first in the regional airline industry based on its financial
performance. Revenues have increased every year since scheduled service began in 1948,
and profits have been earned for 19 of the 20 years under present management. North
Central leads the regionals with retained earnings of $20,086,000 and the best debt/equity
position. Stockholders' equity has risen to $40,611,000.
The airline's excellent results in 1973 and its strong financial condition led the Board of
Directors to declare a cash dividend of $.10 per share to stockholders of record February 8,
1974. North Central is the only regional carrier currently paying a cash dividend.
In 1973, revenues of $127,392,000 were six percent above the $120,627,000 realized the
year before. Operating expenses rose seven percent to $115,391,000, producing an operating
profit of $12,001,000 compared with $12,355,000 in 1972. After interest and taxes, the air-
line achieved net earnings of $6,447,000 or $.52 per share.
Since these net earnings did not include any special or out-of-period items, they represent a
$610,000 gain over the comparable $5,837,000 ($.47 per share) in the previous year. (The
$7,536,000 net earnings reported for 1972 were boosted by two out-of-period adjustments
totaling $656,000 plus an extraordinary item of $1,043,000 from disposition of equipment.)
Traffic, revenues and expenses in 1972 were increased by a third-quarter strike against
another airline serving some North Central cities. The strike had little effect on earnings since
$1,734,000 was paid to the struck carrier under terms of the airlines' Mutual Aid Agreement.
Some 4,263,000 passengers were flown 1,011,525,000 passenger miles last year-four and
six percent over normalized 1972 figures. Cargo ton miles established a new high with
13,394,000 flown, a normalized gain of 23 percent. The airline maintained its outstanding
performance record by completing 99 percent of the 28,381,000 scheduled miles.
Seeking further growth, North Central applied to the Civil Aeronautics Board for a Milwaukee-
Philadelphia nonstop route. The Board was also asked to consolidate the company's existing
route segments into one, permitting greater scheduling flexibility in the future.
North Central earned the distinction of being the first regional airline to have its stock listed
on the New York Stock Exchange. The symbol "NCA" appeared on the Big Board May 22,
1973. The company's common stock is also traded on the Midwest Exchange.
To improve passenger service, the "Quick Ticket" was introduced at Minneapolis/St. Paul
and Milwaukee. This automated on-demand system, a first for the regional carriers, cuts
ticketing time to eight seconds for passengers with advance reservations. By the end of 1974,
most of the company's ticketing activity will be automated. Five DC-9 fan jets were purchased
in 1973. Nineteen of the 100-passenger jets and 33 Convair 580 prop-jets are now flying the
Route of the North liners. Two additional DC-9s are on order for delivery in the Spring of 1975.
North Central is in a strong position for expansion and continued profitability. Passenger and
cargo traffic in the new year th us far is encouraging, despite the recent five percent reduction
in schedules because of the fuel shortage. The fuel situation is expected to stabilize at
present levels, and consequently have little impact on earnings.
With the continued support of stockholders, employees, and the people North Central
serves, 1974 should be another excellent year for the company.
HAL N. CARR
Chairman of the Board and
Chief Executive Officer
Sincerely,
BERNARD SWEET
President
2
financial review
North Central achieved record
revenues of $127,392,000 and
earnings of $6,447,000 for 1973.
Again this year, the company
maintained its financial leadership
in the regional airline industry with
consistent profits, the highest
retained earnings, and strongest
debt/equity position.
Revenues were up $6,765,000-six
percent over 1972. The gain is
attributable to traffic growth on long-
haul routes, a year's benefit from
the 2.7 percent fare increase granted
in September 1972, and the phasing
out of most promotional discounts.
Fares were raised an additional five
percent on December 1, 1973. Of the
$127,392,000 total revenues, public
service revenues accounted for
$9,631,000. This compares with the
$9,090,000 for 1972 in which a
retroactive payment of $765,000
was received for the period July 1
through December 31, 1971.
Operating expenses-including
depreciation and amortization of
$7,350,000-were $115,391,000 in
1973, or 6.6 percent over the
$108,272,000 of the previous year.
Both revenues and expenses in 1972
were inflated by a third-quarter
strike against another carrier serving
some North Central cities.
The company realized an operating
profit of $12,001,000, compared
with $12,355,000 in 1972. Despite
a steady climb in prime lending
rates, other expenses (primarily
interest-offset by interest income)
The ticker tape in the New York Stock Exchange announced
the listing of North Central Airlines on May 22, 19 73.
were reduced $169,000 in 1973 to
$2,791,000. Taxes declined by
$592,000 to $2,763,000.
The net earnings of $6,447,000,
equal to 52 cents per share, are the
second highest in the company's
26-year history. However, the record
$7,536,000 profit reported in 1972
included $1,043,000 from disposition
of equipment (net of taxes) plus
$656,000 (net of taxes) in out-of-
period adjustments to public service
revenues and deferred taxes. Without
these items totaling $1,699,000,
earnings from operations in 1972
would have been $5,837,000.
The comparable 1973 earnings of
$6,447,000 show considerable
improvement, particularly in view of
the fuel shortage the last two
months of the year.
The company continued to achieve
outstanding performance in other
financial areas. Its long-term debt-to-
equity ratio is 1.04 to 1; and among
the nation's 19 scheduled airlines,
only two have more favorable ratios.
Of the eight regional carriers, North
Central ranks first. Working capital
at the end of the year was
$4,654,000, compared with
$5,439,000 in 1972. Net earnings
before extraordinary item,
depreciation, amortization and
deferred taxes generated substantial
cash flow over the past two years-
$14,176,000 in 1973 and $14,263,000
in 1972. This greatly improved cash
position has permitted the company
to make short-term investments
averaging $6,600,000 in 1973. It was
especially advantageous because
the prevailing high interest rates
produced $546,000 of interest
income for an average return of
8.3 percent.
North Central has operated profitably
for 19 of the 20 years under present
management. This consistent
financial success has enabled the
company to accumulate $20,086,000
in retained earnings-the highest in
the regional airline industry. Stock-
holders' equity has reached a record
$40,611,000, the equivalent of
$3.26 per share.
May 22, 1973 was an eventful day
for North Central when it became
the first regional airline to be listed
on the New York Stock Exchange as
the symbol "NCA" moved across
the tape. The company's stock is also
traded on the Midwest Exchange.
On the basis of the airline's overall
financial stability and excellent 1973
earnings, the Board of Directors
declared a cash dividend of ten cents
per share of common stock payable
March 1, 1974 to stockholders of
record February 8.
In looking forward to 1974, North
Central will continue its intensive
cost control program and anticipates
that fare adjustments will help to
offset inflation and a stabilizing fuel
supply will bolster the national
economy. The company is confident
that a high level of profitability
can again be achieved in 1974.
traffic growth and performance
In 1973, North Central carried over
four million passengers and flew
more than a billion revenue passenger
miles for the second consecutive year.
With passenger boardings of
4,263,231, revenue passenger miles
reached 1,011,524,922, for increases
of four percent and six percent-after
normalizing 1972 totals for extra
traffic generated by a third-quarter
strike against another airline serving
some North Central cities. Actual
1973 statistics in both categories
were less than 1.8 percent under
1972 when company highs of
4,318,643 passengers and
1,029,192,937 revenue passenger
miles were established.
North Central set a new record by
carrying 2,058,839 passengers in
the first two quarters of 1973.
Boardings in each month exceeded
the corresponding month for any
previous year. These gains are
partially attributable to expanded
DC-9 fan jet service between major
markets.
Traffic for the fourth quarter of 1973
was adversely affected by the fuel
crisis in November and December.
The Federal Government required all
airlines to implement fuel conser-
Engine shop mechanics contribute to
North Centra/'s 99 percent flight
completion record. The company's
main operations base is located at the
Minneapolis-St. Paul International
Airport.
vation measures that would reduce
fuel consumption by 10 percent,
effective November 1. To comply
with this directive, North Central was
forced to cut its planned schedule
by five percent, drastically curtail
non-scheduled flights, and revise
aircraft operating procedures on the
ground and in the air.
Some 65,037 passengers chose
North Central on 479 charters to
cities in the Bahamas, Jamaica,
Mexico and Canada-even Yellow-
knife in the Northwest Territories-
and domestically, to 40 states and
the District of Columbia. Another
45,030 people flew on extra sections
of scheduled trips, and 4,281 took
scenic excursions.
Since inaugurating service in 1948,
the airline has carried 38.5 million
passengers 7.5 billion revenue
passenger miles. North Central
serves 90 cities in 13 states and
Canada over a 9,900-mile route
system.
Cargo ton miles climbed dramatically
in 1973, jumping 23 percent to
a record 13,393,664 over normalized
1972 traffic. The actual increase was
10 percent. Air freight alone rose
14 percent; express and mail were
both up five percent.
North Central completed 99 percent
of its 28,381,385 scheduled miles
in 1973, attaining that superior level
of performance for the fourth
consecutive year. The airline
consistently ranks among the leaders
in the industry even though it
contends with severe weather longer
than any other domestic carrier.
A comprehensive, progressive .
maintenance program continues to
be a significant factor in North
Central's excellent flight completion
record. In 1973, only one-tenth of
one percent of the airline's 217,000
scheduled departures were cancelled
for maintenance reasons and less
than 1.3 percent were delayed
by mechanicals. This program has
proven so successful that it frequently
attracts inquiries and prompts visits
by maintenance personnel from
other airlines around the world.
These traffic and performance
achievements illustrate how well the
company's 3,200 employees have
succeeded in their continuing effort
to provide safe, dependable
scheduled airline service to the
traveling and shipping public.
new services/ facilities
North Central improved its service
to passengers by introducing the
regional airline industry's first
"Quick Ticket"-an on-demand
automated ticketing and computer-
ized fare quote system.
Only eight seconds are needed for
electronic equipment to type the
complete itinerary and fare calcu-
lations for a passenger with advance
reservations. The same procedure
requires about three minutes to
perform manually.
Airport counters at Minneapolis/
St. Paul and Milwaukee were the first
North Central locations to have the
Quick Ticket equipment. By the end
of 1974, nearly 85 percent of the
company's ticketing activity will
be automated.
The expedited process enables
passenger service personnel to spend
more time with the individual needs
of each traveler. Quick Tickets are
prepared by high-speed printers
connected to ESCORT, the airline's
$8-million electronic reservations
and communications system. Other
benefits include uniform fare
calculations, legibility, and expedited
billing and auditing.
A new downtown ticket office was
opened in New York City, and the
Toronto office was completely
remodeled. Numerous travel agencies
have direct access to ESCORT for
reservations and flight information.
To place more emphasis on the care
given to the passenger on board,
an lnflight Service Department was
created. It groups personnel whose
responsibilities relate to those
passengers, the food service, and
the appearance of the aircraft.
Included are flight attendants
(stewards and stewardesses) and the
staff involved in the airline's catering
operation, contract catering,
aircraft cleaning and cabin supplies.
Five DC-9 fan jets were added to
North Central's fleet in 1973. Three
were purchased directly from
Douglas Aircraft, and two from
a foreign carrier. The company now
has 19 of the 100-passenger jets
and 33 Convair 580 prop-jets.
Currently, 70 percent of the airline's
seat miles are flown with DC-9s.
Two more fan jets are to be delivered
in the Spring of 1975.
A $1.8-million DC-9 digital flight
simulator has recently been ordered
from CAE Electronics. Its six-axis
motion system is synchronized with
McDonnell Douglas VITAL 11 visual
equipment to duplicate actual flight
sensations. The major consideration
which led to this purchase was the
comprehensive training the simulator
can provide. Besides the many
routine maneuvers that are possible,
training in emergency procedures can
be more realistically accomplished.
Other factors in the decision to
acquire a simulator were the fuel
shortage, availability of aircraft for
training, ecology and safety. The
simulator will be operational in 1975.
Another safety feature is being added
to North Central 's fleet of DC-9
fan jets with the installation of
DeVore Tel-Tail supplemental lighting
equipment. Located on each wingtip,
the lights provide brilliant, full
coverage of the tail section. The
DC-9 aircraft will be conspicuous by
night as well as by day-to
passengers, pilots, traffic controllers,
and ground crewmen. The lights
also have an identity feature
because they illuminate the airline's
mallard duck insignia on the tail.
To accommodate North Central's
rapidly growing freight business,
construction has begun on a new
building at the Minneapolis-St. Paul
International Airport. The $800,000
air freight structure will be part of the
company's headquarters complex.
The regional airline industry's first
"Quick Ticket" is printed by electronic
equipment-in eight seconds-for
passengers with advance reservations.
In addition, a district cargo office
was opened at the Milwaukee Airport,
and an improved air freight facility
established in Detroit.
New terminals were completed at
Menominee and Grand Rapids, and
another at Thief River Falls is nearly
finished. Building plans are
progressing at Duluth/Superior,
Rochester and Marquette. A third
jetway has been added for Milwaukee
passengers, and Dayton has a new
ticket counter and baggage area.
Walk-th rough electronic screening
devices for security are now installed
at nearly every North Central station.
SCEPTRE, a computerized
maintenance data base system, was
designed in 1973. It will provide
"real time" information on inventory
control; service records for aircraft,
component parts and support
equipment; plus work schedules and
progress reports on all periodic and
overhaul maintenance. Information
will be readily accessible on individual
TV-type screens or hard copy printers.
Using the company's three I BM 360
computers, SCEPTRE is expected
to produce significant operational
economies by improving the reliability
and productivity of maintenance
and engineering functions. The first
phase of SCEPTRE will be completed
January 1, 1975. Applications can
then be developed for other
departments utilizing the SCEPTRE
data base system.
The financial strength of North Central
has enabled it to invest in programs
and facilities that improve the
airline's service and efficiency while
providing for long-term savings.
ESCORT, the company's $8-million
electronic reservations and communi-
cations system, is being used to
implement new services and programs.
route development
To further develop Milwaukee as a
Midwest aviation gateway, North
Centra l applied to the Civil Aero-
nautics Board for Milwaukee-
Philadelphia nonstop service. Two
daily round trips, with 100-passenger
DC-9 fan jets, have been proposed
on the 690-mile segment.
Company studies show a first-year
potential of 70,000 passengers and
a $1,150,000 operating profit. By
originating prime-time flights north
and west of Milwaukee, North
Central expects to attract air travelers
who now use other airports for
connections to Philadelphia. Eight
Wisconsin cities and two Minnesota
communities would have new
single-plane service.
Only one nonstop round trip is
operating between Milwaukee and
Philadelphia, although two airlines
are certificated on the route and a
1970 CAB decision recognized the
need for improved service. One carrier
has discontinued all its direct flights.
In another action, North Central has
asked the Board to designate its
nine existing route segments as one.
This would allow more flexibility in
scheduling between city pairs on the
airline's system.
Hearings and oral arguments in the
Detroit, Cleveland, Cincinnati-Atlanta
Investigation were completed in
1973. North Central is proposing
nonstop service to Atlanta from
Detroit and Cincinnati. A decision by
the Board is imminent.
A petition for reconsideration of the
company's request for an earlier
hearing in the Milwaukee-Denver
nonstop application has been filed.
(In July, the CAB had dismissed
North Central's motion to expedite
the case.) The 908-mile segment
would be the longest on the airline's
system.
United States and Canadian govern-
ment officials have decided, in an
amendment to the 1966 Bilateral
Air Transport Agreement, that a U.S.
carrier should be selected for
nonstop service between Winnipeg
and Duluth/Superior, and Winnipeg-
Milwaukee. The company has offered
to furnish the first single-carrier
service in this market. The amend-
ment, which becomes effective after
formal ratification, also authorizes
additional Detroit-Montreal flights
after 1978. The company has filed
to serve the Detroit-Montreal route
via Toronto.
While route development procedures
will continue, only a few cases are
likely to be acted upon by the CAB
until the fuel situation improves.
North Central has applications
pending for 6,121 new route miles,
with service to Philadelphia, Boston,
Atlanta, Montreal and Winnipeg.
Principal cases are summarized
below:
MILWAUKEE-PHILADELPHIA NONSTOP
New nonstop service has been proposed
between Milwaukee and Philadelphia,
providing single-plane service for 10 Minnesota
and Wisconsin communities. Although
two other carriers are certificated on the route,
only one nonstop flight is available in
each direction. (690 miles)
DETROIT-BOSTON NONSTOP
North Central would offer the first competitive
nonstop service between Detroit and Boston
and also the only single-plane service between
Boston and seven Michigan cities, plus
South Bend, Indiana, via Detroit. (632 miles)
MILWAUKEE-DENVER NONSTOP
North Central would provide the first
competitive service in this market, with flights
originating in cities east of Milwaukee. The
company has petitioned for reconsideration
of the CA B's order denying a request for
an expedited hearing. (908 miles)
DETROIT, CLEVELAND, CINCINNATI-ATLANTA
The CAB reopened the record in this
proceeding. The company has filed additional
exhibits in its efforts to serve Atlanta from
Detroit and Cincinnati. Hearings began in
February 1973, and oral arguments were
heard in October. A decision is expected soon.
(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 CA B'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 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. The amendment is awaiting
formal ratification. (315 miles)
DULUTH/SUPERIOR-WINNIPEG,
MILWAUKEE-WINNIPEG NONSTOPS
This route would allow nonstop service from
Duluth/Superior or Milwaukee to Winnipeg,
Canada , and also make available single-
carrier service between a number of Wisconsin
communities and Winnipeg. The route has
been approved for a U.S. carrier by
United States and Canadian officials under
the Bilateral Air Transport Agreement,
pending formal ratification. (314 miles)
NORTH CENTRAL ROUTE REALIGNMENT
In 1973, North Central requested that its
nine existing route segments be redesignated
as one. A decision by the CAB is expected
this year. Approval would allow future
scheduling flexibility between non-competitive
points currently served by the airline.
5
6
social action programs
Energy conservation became a
principal concern of North Central's
in 1973. The company has always
sought minimum consumption of
power and fuel for economic reasons,
but the national shortage neces-
sitated further action.
When the Federal Government
limited the fuel available to airlines
as of November 1, 1973, North
Central was required to reduce fuel
usage by 10 percent. The company
responded with a program that would
affect scheduled service the least.
Extra sections of regular flights and
scenic trips were eliminated. Where
traffic permits, Convair 580 prop-jets
were substituted for DC-9 fan jets.
Nearly all DC-9 pilot training is being
done in simulators since Federal
regulations now allow this. Opera-
tionally, slower en route cruising
speeds were set. Use of onboard
power units was cut in half, and
departure and landing procedures
were revised. These measures
produced fuel savings of five percent,
equal to about 300,000 gallons
a month.
The other five percent reduction
resulted from canceling selected
flights that would inconvenience
the fewest passengers and shippers.
From the onset of the fuel crisis,
North Central pledged to continue
serving all 90 cities on its 9,900-mile
system. That promise has been kept.
Although the airline has been
operating a "smokeless" jet fleet for
more than a year, fuel conservation
efforts have also lowered the
emission of other air pollutants that
current technology cannot eliminate.
On the ground, the company has
curtailed energy requirements.
Thermostats are turned down to 68
degrees during working hours, and
60 degrees at night and over week-
ends and holidays. Some 5,300
fluorescent tubes, drawing a quarter
of a million watts a month, have
been removed from fixtures in the
Twin Cities General Office and Main
Operations Base. Signs are
illuminated sparingly or not at all.
Employee car pools, set up with the
aid of North Central computers,
are commonplace.
Environmental considerations deter-
mine what products are used for
aircraft and plant maintenance
purposes. All materials are disposed
of in compliance with Federal and
State standards.
Airport security measures are in
accordance with Federal directives.
Walk-through passenger screening
devices are installed at every North
Central station able to accommodate
these; otherwise, hand-held units
are used. The security equipment is
harmless to passengers and
employees. Armed guards add
further protection.
Stewards returned to North Central
flights in 1973. Those hired were
among the first to apply for flight
attendant positions in more than a
decade. The company's "equal
opportunity" employment policy
also placed emphasis on jobs for
disadvantaged minorities and
veterans of the Armed Services.
Employee membership in National
Guard and Reserve units has always
been supported.
North Central strives to fulfill its
responsibility as a corporate citizen
by willingly participating in human
dignity and environmental programs.
New uniforms are being worn by
stewardesses, stewards, captains,
first off ice rs, station agents and
fleet service personnel.
communications
" An airline is a corporate entity, but
it also is the living, breathing sum
of all the human parts that went into
it ... " Wit h those words, author
Robert Serling set the mood for his
colorful and lively work entitled
"CEILING UNLIMITED: The story of
North Ce ntral Airlines." The profusely
illustrated 250-page book was
published in November 1973, and is
now in its second printing.
Serling, who also wrote the best-
selling "The President's Plane is
Missing," is a former aviation editor
for United Press International and
has covered commercial aviation for
nearly 30 years.
In CEILING UNLIMITED, Serling
begins wit h the incorporation of the
compa ny in 1944. He traces the
hectic events prior to the start of
scheduled service in 1948, and
follows North Central through the first
25 yea rs to its current position of
leadersh ip in the jet-age regional
airline industry. The author, telling
t he story from the human angle,
provides a fascinating look behind-
t he-scenes of the airline's incredible,
frequent ly rollicking biography.
The book was the highlight of North
Central 's act ivities celebrating its
Silver Anniversary. Copies were
presented by sales and station
personnel to libraries and Chambers
of Commerce in the 90 cities the
airline serves. CEILING UNLIMITED
received extensive media coverage.
On February 24, 1973-exactly 25
years since scheduled service was
inaugurated-flights were reenacted
over the original 1,028-mile route
system that connected 18 Minnesota
and Wisconsin cities with Chicago.
Members of the first pilot group,
who now fly DC-9 jets for the
company, made the trip on North
Central's "728", the corporate DC-3
cited for having flown more hours
than any other aircraft in the history
of aviation. Plaques were presented
the future
Early trends in 1974 provide some
degree of optimism for the future.
The 82 million revenue passenger
miles flown in January set a new
record, up nine percent over 1973
although available seat miles rose
just two percent. The passenger load
factor in January 1974 increased six
percent over 1973, and advance
passenger bookings are running
considerably above last year.
The national energy situation shows
signs of stabilizing, which should
stimulate business activity in the
second half of 1974 and improve
the general economy. The Federal
Energy Office has allocated North
to officials at each of the "pioneer"
cities still served by the airline.
Special Twenty-fifth Anniversary
feature stories were carried in many
newspapers and magazines.
A 12-minute film, with the advertising
slogan "Good People Make Our
Airline Great" as its title, features
the service North Central offers and
the employees who make it possible.
Produced in 1973 from footage shot
for television commercials, the film
has already been shown to over
400 gatherings.
TV advertisements appeared on 36
stations, reaching an estimated six
million viewers. A highly successful
"Ski Tips" series attracted Denver-
bound winter sports enthusiasts.
Famous landmarks highlighted New
York TV spots, and " Canada This
Summer' ' was the theme encouraging
visits to Toronto. I nflight meals,
new DC-9 jet flights and compli-
mentary beverages were also
dramatized . Similar messages were
directed to nearly four million prime-
time radio listeners.
Advertisements ran in 57 newspapers
and magazines having a combined
circulation of over eight million. Full
color posters were displayed in
travel agencies and city ticket offices.
Brochures promoted tour packages
for Broadway shows and Colorado
skiing. Many requests were received
for the airline's "Ski Tips" booklet.
A financial public relations program
was instituted in 1973. Company
officers addressed financial analyst
groups at major cities across the
country, giving a current view of the
airline's operation. The listing of
North Central stock on the New York
and Midwest Stock Exchanges has
given investors immediate access to
market information.
Stockholders and the general public
were informed of company activities
through quarterly financial reports
Central 100 percent of its adjusted
1972 fuel usage. Assuming suppliers
can deliver the allocated quantities,
scheduled miles will be maintained
at 95 percent of 1973 levels. With
passenger traffic rising and less
seats available, the higher load
factor should offset any adverse
effect the flight cutbacks might
h;ave on earnings.
Judicious planning and effective cost
control have further strengthened
North Central's potential for growth
and profitability. Benefits from
major capital investments in the
late 1960s and early 1970s are now
being realized with vastly improved
and 60 news releases distributed to
media outlets. Sales representatives
made 25,000 personal calls on
customers and participated in sports
and travel shows. Company personnel
attended 420 industry meetings and
350 civic functions. Over 4,000
people toured the company's Twin
Cities headquarters during 1973.
Now in its fifth year, the Northliner
Magazine continues to entertain and
inform passengers in flight. The
32-page publiGation has articles
about places and events throughout
the airline's service area. An inside
look at one aspect of the company's
operation is given in each issue.
A new Northliner Gifts and
Accessories catalog is in the seat
pocket of all North Central aircraft.
Several of the items offered for sale,
including a scale model of the DC-9,
bear the company name and mallard
duck insignia. This merc_
handising
approach has been well received by
passengers.
North Central 's communications with
congressional delegations and
Federal officials were enhanced by
the creation of an executive staff
position in Washington, D.C. This
liaison activity also assists manage-
ment in expediting business with
industry and regulatory agencies.
Internal communications are
accomplished through The Northliner
newspaper, memos to all personnel,
and bulletin board announcements.
In addition, corporate officers and
managers meet with employees at
each station under a scheduled
visitation program to personally
exchange information and ideas.
The generous efforts of innumerable
friends and boosters again provided
the airline with favorable public
relations. North Central expresses
sincere thanks for their significant
contributions.
productivity and increased net
profits: the $13,983,000 earned in
the last two years is substantially
greater than the combined total
of all previous years. Virtually every
area of North Central's operation is
capable of expansion with com-
paratively small expenditures.
For the company's 3,200 employees,
the phrase "Good People Make Our
Airline Great" is more than a slogan.
Their dedication and ability enable
North Central to effectively meet the
needs of its air travelers and
shippers. With favorable develop-
ments in the economy, 1974 should
be another good year.
7
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FARGO
MOORHEAD
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KANSAS CITY
SAULT STE. MARIE
BOSTON
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- - - - - NEW YORK
NEWARK
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ND ---------RlULADELPHIA
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.... ---...:--...:=--- ------
----..:-...:----- .,,,..----
----=-------- ---.,,,,,,.
--C-C>LUMBUS - - - -
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-,
INCi if NATi
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PRESENT ROUTES -
PROPOSED ROUTES ---
10
NORTH
balance sheet
ASSETS
CURRENT ASSETS
Cash including certificates of deposit of $512,098 in
1973 and $5,050,327 in 1972 (note B) ... . ........ . .... . ..... .
Investment in commercial paper . ... ... . .. ..... . ..... . .... . .. .
Accounts receivable (note A) . . . .. .. . . .. ................ . . ... .
Flight equipment parts and operating supplies - less reserves of
$465,372 in 1973 and $443,447 in 1972 (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 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 .. . .... ... ..... . ....... . ....... . .. . . . . .
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 .... .......... .
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 B, 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 AIRLINES, INC.
statement of earnings
December 31
1973 1972
OPERATING REVENUES
$ 3,458,188 $ 8,897,276 Passenger (note A) . . . . . . .. . . . ...... . ... . ................ . .. .
8,987,036 6,500,000 Freight and express ...... . .. . ........ . .. . .. . ... . .. . ..... . . . .
13,910,158 11 ,085,569 Public service revenues (note G) . . . .... .. .... . ..... .. ... . . .. . .
3,330,969 2,734,408
Mail . ..... . . . . . . . ....... . ..... . . . ... .. . .. . . ............ . . .
Non-scheduled service and other .. . .. . . . ........ . . . . .. ....... .
4,477,350 4,588,388
Total operating revenues .. . . . ........... . ........ . .. . ... .. .
34,163,701 33,805,641
OPERATING EXPENSES
93,852,896 71 ,681 ,797 Flying operations . . ... . .. ....... . .... . . . . ...... . ..... .. . . . . .
7,622,458 6,458,707 Maintenance . ...... . .. . .. . ...... . .... . ..... . . . . . ..... . . . .. .
3,612,256 3,258,633 Aircraft ancf traffic servicing . . .... ... ... . . . ...... . .. .... . .... .
105,087,610 81 ,399,137 Passenger service . ......... . .. . ........ . ... . .. . .. . . . .... . . . .
(31 ,025,962) (25,501 ,845) Promotion and sales .. ... . .... . . . . . ..... . . . . . . . . . . . ....... . . .
74,061 ,648 55,897,292 General and administrative .... . .. . .. . ...... . . . . ... ..... . . ... .
2,262,644 3,246,103
76,324,292 59,143,395
Depreciation and amortization (note A) . ... . . . .. . . . . . ... . .. .. .. .
Mutual Aid payments (note H) . ...... .. . . ... . ....... . . . . .... .. .
Total operating expenses . ...... . .. . ... .. . .. .. . ..... . .. . . . .
1,814,1 39 2,332,898 Operating profit . . .. ... ... ........ . ... . ..... . . .. .. . . .
172,055 234,104
4,300,000
2,587,079 2,230,945
4,573,273 9,097,947
OTHER (INCOME) EXPENSES
Interest expense (note A) .. . .... . ......... . . .... .. .. .. . ... . .. .
Other - net ... . ..... . .... . ........ ... . . .. . ....... .. ....... .
$115,061 ,266 $102,046,983 Total other expenses .... .. . .. ..... . ..... ... . . ..... . .. . .. . .
Earnings before income taxes and extraordinary item .... .
$ 8,096,644 $ 7,075,237 INCOME TAXES (notes A and I)
12,885,221 10,344,324 Currently payable - less investment tax credits of $2,275,000
848,782 810,338 in 1973 and $2,019,000 in 1972 . .. . . .............. . ....... . ..
7,362,676 7,856,898 Deferred - less investment tax credits of $200,000
316,406 2,280,000 in 1973 and $381 ,000 in 1972 ..... . .................... . .. ...
29,509,729 28,366,797 Total income taxes . . ..... .. .... . ..... .. .. . .... . .......... .
Earnings before extraordinary item .................. . .
42,172,264 36,327,040
2,504,087 2,320,762 EXTRAORDINARY ITEM
263,910 245,100
Gain on disposition of flight equipment - less related
44,940,261 38,892,902 deferred income taxes of $452,000 ....... . ... . . . .. .. .. . . . . . ..
NET EARNINGS . .... . . ...... . .. .. ..... ... . . .... . ...
2,492,550 2,492,550
EARNINGS PER SHARE (note J)
18,032,384 18,032,384
Earnings before extraordinary item .......... .... ........... . ..
20,086,342 14,262,350
Extraordinary item .......... . . ... . . . . . .... . . . .. . .. . .. . .. .. . .
40,611 ,276 34,787,284
NET EARNINGS PER SHARE .. . . . . .. .. .. . ... . . ... .. . .
$115,061,266 $102,046,983
The accompanying notes are an integral part of this statement.
Years ended December 31
1973
$102,574,337
7,122,921
9,630,565
1,789,404
6,275,017
$
127,392,244
30,929,021
17,551 ,371
32,035,917
8,539,637
11 ,865,871
6,592,217
7,350,182
526,892
115,391 ,108
12,001 ,136
3,480,535
(689,579)
2,790,956
9,210,180
2,530,400
232,650
2,763,050
6,447,130
6,447,130
$ .52
$ .52
- -
1972
$ 99,259,565
6,448,217
9,089,650
1,308,575
4,521,435
$
120,627,442
28,829,706
18,580,600
27,371,970
7,681,173
10,788,628
6,234,750
6,990,351
1,794,947
108,272,125
12,355,317
3,215,696
(256,124)
2,959,572
9,395,745
2,280,000
623,049
2,903,049
6,492,696
1,043,182
7,535,878
$ .52
.08
--
$ .60
--
11
12
statement of changes in financial position
SOURCES OF WORKING CAPITAL
From operations
Net earnings before extraordinary item . . .. . .. ... .. .. . . . .... .. .
Charges to earnings not using working capital
Depreciation and amortization (note A) .... . . ..... .. .. ... .
Deferred income taxes (note I) . . . ......... . ... . ... . ..... .
Other .. . ................. . . . ... .. ... . . .. .... .. ... . .. .
Working capital provided from operations
exclusive of extraordinary item .. ... . .. . .. .. .. . ... . .
Extraordinary item ..... . ........ .. ... . .. .... . . . .. ........ .
Charges not using working capital - deferred income taxes (note I)
Working capital provided from operations . .. ... ...... .
Proceeds in excess of the gain from disposition of
property and equipment ..... .. ... .. ....... . . . ... ... .. .. . .. . .
Proceeds from sale of common stock . .. .. .... .. ... .... .. .. . . . . .
Increase in long-term debt . ... .... .. .. .... .. .. . .. .. .. ... . .. . . .
Reduction of insurance receivable .. ... ... . . . . . . ... . .. .. . .. . . . .
Other .... . . ... . . ..... .. . . .... ... .. . . . ........ . . .. .. . .. . ... .
APPLICATIONS OF WORKING CAPITAL
Additions to property and equipment ... ... .. . .. ..... . . ... .. . .. . .
Additions to deferred charges ... .... .. . . . .... ... .. . . .... .. . . .. .
Reduction of long-term debt ......... ... . . . ... ...... .. . .. ..... .
Increase in insurance receivable . .... .... ...... . . . ... .. .. ... .. .
Payment of cash dividend .. . ...... . ... .. ..... .. . ... . .. .... . . . .
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) in current assets
Cash and certificates of deposit .... ..... . ... .. ..... .. .. .. ... .
Investment in commercial paper . .. . . ..... . . . . . . .... .. .. . . ... .
Accounts receivable . . . . . .... .............. . . . .. .... ....... .
Flight equipment parts and supplies ....... . ...... . . . .... .. .. .
Prepaid expense and sundry deposits .............. ... .... . .. .
Increase (decrease) in current liabilities
Current maturities of long-term debt . . .... ....... . .. .. . . . . . . . .
Accounts payable and tickets outstanding .. . . .... ...... . . ..... .
Accrued liabilities . . .. .. . . .. .. .... . ...... . . . . .. .... . ..... . . .
Income taxes ........... . .. .... . . .... .... . ... .. ... .. . .... . .
INCREASE (DECREASE) IN WORKING CAPITAL . . . . .. .
Years ended December 31
1973 1972
$ 6,447,130
7,350,182
183,325
195,257
14,175,894
14,175,894
798,324
15,105,200
4,300,000
71,323
34,450,741
24,355,130
729,434
9,259,976
623,138
267,935
35,235,613
(784,872)
5,438,844
$ 4,653,972
$ {5,439,088)
2,487,036
2,824,589
596,561
(111,038)
358,060
1,021,407
2,579,341
(494,222)
(1,963,594)
1,142,932
$ (784,872)
$ 6,492,696
6,990,351
569,762
210,149
14,262,958
1,043,182
452,000
15,758,140
2,827,735
59,753
18,645,628
5,278,910
447,530
7,080,227
4,300,000
17,106,667
1,538,961
3,899,883
$ 5,438,844
$ 4,460,346
4,500,000
125,697
31,361
{1,036,502)
8,080,902
(13,372)
2,013,956
2,261,357
2,280,000
6,541,941
$ 1,538,961
statement of changes in stockholders' equity
Years ended December 31, 1973 and 1972 Common Stock Additional Retained
Shares Paid-in Earnings
Outstanding Amount Capital (note B)
Balance at January 1, 1972 . .. ... . .. . . ..... 12,445,852 $2,489,170 $17,976,011 $ 6,726,472
Exercise of stock options (note F) .. ...... 16,450 3,290 53,988
Exercise of stock warrants (note F) . . . .... 450 90 2,385
Net earnings for the year .. . . . . . .. . ... . .. 7,535,878
Balance at December 31, 1972 ... .......... 12,462,752 2,492,550 18,032,384 14,262,350
Payment of cash dividend ($.05 per share). (623,138)
Net earnings for the year .... . ........... 6,447,130
Balance at December 31, 1973 ....... . . . ... 12,462,752 $2,492,550 $18,032,384 $20,086,342
The accompanying notes are an integral part of these statements.
notes to financial statements
December 31, 1973 and 1972
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 doubtful 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 costs attributable to overhaul
which will expire during the next operating cycle ($2,175,000 in
1973 and $2,338,000 in 1972). 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 equipment,
construction of ground facilities and expenditures for route devel-
opment 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 in-
come 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 its current expense of normal costs and
interest on unfunded prior service cost. Asset appreciation reduces
the unfunded prior service cost.
Revenues: Revenues are recognized when the related services are
rendered. Tickets outstanding at December 31 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
accounting for investment tax credit which reduces income tax
expense when the related liability is reduced. The company recog-
nizes deferred income taxes resulting from differences in financial
and income tax reporting (note I).
Note B - Long-Term Debt - Long-term debt at December 31 con-
sists of: 1973 1972
Quarterly installment notes (al . .. .. ... . . .... $31,247,304 $35,253,393
Quarterly installment notes (bl ........... . . . 2,937,783
Semi-annual installment notes (cl .. . . ........ 1,704,401 2,350,226
Semi-annual installment notes (dl . ........... 15,000,000
Total due banks and
insurance companies (el . . . . . . . . . . . . . 47,951,705 40,541,402
Semi-annual subordinated notes (fl ..... . . .... 1,500,000 2,100,000
Subordinated convertible debentures (gl . . . . . . 692,500 721,500
Sundry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,703 39,375
Total long-term debt . . . . . . . . . . . . . . . . . . 50,268,908 43,402,277
Less current maturities (hl . . . . . . . . . (8,096,644l (7,075,237l
$42,172,264 $36,327,040
(a) Payable in quarterly installments of $1,420,332 plus interest,
from July 1973 through April 1976 and alternating quarterly install-
ments of $1,420,332 and $1,893,776 plus interest, from July 1976
through October 1978; interest at 7%.
(b) Fully paid in April 1973; effective interest rate at December 31,
1972 was 6%.
(c) Payable in semi-annual installments of $284,067 plus interest,
from April 1972 through October 1976; interest at 1 % above bank's
prime rate; effective interest rate at December 31, 1973 was 11 %.
(d) Payable in semi-annual installments of $600,000 plus interest,
from January 1974 through July 1978 and quarterly installments of
$2,250,000 plus interest, from January 1979 through October 1979;
interest at % above bank's prime rate; effective interest rate at
December 31, 1973 was 10%.
(e) Total loans are collateralized by substantially all flight equip-
ment and spare aircraft parts owned by the company. Two equip-
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 at $1.50 per
warrant within 30 days after the expiration date of October 31, 1979
for any of these warrants not then exercised. These warrants were
issued to loan holders in consideration of deferring certain debt
repayments. The obligation is being accrued as additional interest
expense over the remaining term of the loan.
It is the policy of the company to maintain compensating cash
balances at various banks for general operating purposes and in
connection with arrangements for lines of credit it has established.
The average balances maintained during the year were $1,964,000
or 17% of the related amounts borrowed; however, these are not
legally restricted as to withdrawal by the company.
(f) Payable in semi-annual installments of $300,000 plus interest,
through March 1976, interest at 7%. Stock purchase warrants
issued in connection with this debt enable the holders to purchase
a total of 200,000 common shares (note F).
(g) Convertible into common shares at $8.55 a share to maturity,
June 1, 1978; interest at 5%.
(h) Curr~nt maturities of all long-term debt due in each of the next
five years following December 31, 1973 are as follows:
1974 .... ..... . .. ..... ...... .. .. . ......... $8,097,000
1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,097,000
1976 ..... ... .. .. ......... . . . .. ... .... .. .. 8,727,000
1977 . ... . . .... .... ....................... 7,828,000
1978 ......... .. ........... . .. .... . .. .. .. . 8,521,000
Note C - Pension Costs - Total pension expense was $3,014,000
for 1973 and $2,553,000 for 1972. At the 1973 actuarial valuation
date, the company had funded in excess of vested benefits for all
plans by approximately $566,000.
13
14
notes to financial statements
December 31, 1973 and 1972 { continued}
Note D - Commitments - Rental expense under noncapitalized
financing leases and various operating leases was $8,793,000 in
1973 and $8,239,000 in 1972. In addition, landing fees, which are a
form of ground facilities rental under various operating leases, were
$3,403,000 in 1973 and $3,035,000 in 1972.
The company has lease commitments for various airport facilities
based upon usage and landings, subject to adjustment depending
upon the needs of the airport operating authority. The 1973-related
expense is included above. These leases expire over varying periods,
and future annual lease commitments are not determinable due to
the usage and adjustment factors.
The estimated minimum commitments for major leases expiring
after December 31, 1974 are as follows (in thousands of dollars):
DC-9-30 CV-580 Computer
Period Aircraft Aircraft Equipment Facilities Other Total
- - - - - - -- - -
1974 $2,088 $1,764 $1,236 $1,634 $297 $7,019
1975 2,088 1,715 1,227 1,634 297 6,961
1976 2,088 392 1,227 1,634 297 5,638
1977 2,088 1,227 1,634 229 5,178
1978 2,088 1,227 1,634 48 4,997
1979-1983 6,133 1,019 8,170 56 15,378
1984-1988 8,170 8,170
1989-1993 7,611 7,611
1994-2000 9,151 9,151
The lease commitments for CV-580 aircraft and various facilities
included in the above tabulations reflect both the current period
expense and the rental prepayment required under the terms of
the leases. Since the DC-9-30 leases are related to the prevailing
prime interest rate, the 1973 expense was approximately $260,000
in excess of the minimum commitment. Nearly all leases contain
renewal or extension options which are to be negotiated within
specified periods prior to the expiration of the lease.
The present value of the noncapitalized financing leases and the
related interest rates are (in thousands of dollars):
Interest December 31
Rate 1973 1972
Five DC-9-30 aircraft .... . ...... . . . .. 6 % ...... $12,828 $13,878
NineCV-580aircraft ..... . .. . . . ..... 5% .. . . . . 3,611 5,132
Computer equipment ...... . . ...... . . 8 % . . . . . . 5,628 6,341
Facilities .. .. . ... . . . .. .. .. . . . . . .. . 4% .. . . . . 16,909 17,364
Other ... . ....... .. . . . . .. . . . .... . . 6 % . . . . . . 1,029 ~
TOTAL .... . . ... . . ..... . ......... . . ..... $40,005 $43,957
The impact on net earnings of capitalization of such leases would
have been immaterial. The company, regulated by the CAB, is unable
to determine what impact the above capitalization might have on
the rate base and any consequent rate adjustments.
At December 31, 1973, the company had purchase commitments on
two new DC-9-30 aircraft for which it has advanced $2,225,000.
An additional $9,901,000 will be expended by the company in ful-
filling these commitments prior to the scheduled delivery dates of
April and May 1975. The total purchase price of $11,126,000 could
be adjusted upwards since it is based upon an agreement which
allows for changes in specifications.
At December 31, 1973, the company had a purchase commitment
for a Digital Flight Simulator and visual system for Douglas DC-9-30
series aircraft which amounted to $1,749,000, of which approxi-
mately $87,000 had been paid in advance deposits. The scheduled
delivery date is March 1975.
The company also had a commitment for the construction of an
air freight facility in the amount of approximately $800,000 and
for the development of additional computer programs in the amount
of approximately $200,000.
Note E - Stockholder Disclosure of Ownership - The company is
required by 245.16 of the Civil Aeronautics Board Economic R
egu-
lations to include in its annual report to stockholders the follow-
ing notice:
(1) Any person who either owns, as of December 31, of the year
preceding issuance of such annual report, or subsequently ac-
quires, beneficially or as trustee, more than 5 percent, in the
aggregate, of any class of the capital stock or capital of the
air carrier, shall file with the Board a report containing the
information required by 245.12, on or before April 1, as to the
capital stock or capital owned as of December 31, of the pre-
ceding year, and in the case of stock subsequently acquired, a
report under 245.13, within 10 days after such acquisition or
ownership;
(2) any bank or broker covered by (1), to the extent that it holds
shares as trustee on the last day of any quarter of a calendar
year, shall file with the Board, within 30 days after the end of
the quarter, a report in accordance with the provisions of
245.14; and
(3) any person required to report under this subpart who grants a
security interest in more than 5 percent of any class of the
capital stock or capital of the air carrier shall within 30 days
after granting such security interest file with the Board a report
containing the information required in 245.15. The notice shall
also state that any stockholder 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 Aero-
nautics Board, 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 em-
ployees. When options are exercised, the excess of the option price
over par value of the shares is credited to additional paid-in capi-
tal. The company makes no charges to income in connection with
the shares issued under the stock option plan.
Options outstanding Option Price and Fair Market Value at Date of Grant
which were granted
December 31 , 1973 December 31, 1972
and became Per
exercisable in: Share Shares Total Shares Total
- - - - - -
1968 (expire 1973) $5.61 - $ 5,000 $ 28,050
1969 (expire 1974) 4.125 18,000 74,250 18,000 74,250
1970 (expire 1975) 4.125 47,500 195,937 47,500 195,937
1970 (expire 1975) 3.25 105,000 341,250 105,000 341,250
1971 (expire 1976) 3.1875 38,050 121,284 38,050 121,284
1972 (expire 1977) 6.375 2,500 15,937 2,500 15,937
1973 (expire 1978) 4.25 7,500 31,875
Total 218,550 $780,533 216,050 $776,708
Options exercised 131,450 131,450
Options available to grant 2,500
350,000 350,000
At December 31, 1973, and 1972, there were outstanding war-
rants to purchase 2,649,061 shares of common stock. These war-
rants resulted from public offerings prior to 1972 and from financial
transactions as discussed in note B(e) and (f). All warrants enable
the holder to purchase common stock at $5.50 per share and must
be exercised by October 31, 1979.
During January 1974, the Board of Directors declared a $.10 per
share dividend payabl'e on March 1, 1974 to shareholders of record
on February 8, 1974.
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. The CAB adopted Class
Rate VII on January 24, 1974 for the period beginning July 1, 1973,
from which the company has determined amounts includable in
1973 operations.
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
receive such payments in the event of a strike by its employees.
Note I - Income Taxes - Income tax expense is made up of the
following components: Years ended December 31
1973 1972
Currently payable income taxes
Federal ...... . ........ .. .. ..... .. ... .. $2,138,400
State and local . . . . . . . . . . . . . . . . . . . . . . . 392,000
Def erred income taxes
Federal ..... . ....... . .. . .. . .... . .. . .. .
State and local ...... . ... . ...... . ..... .
2,530,400
196,000
36,650
232,650
$2,763,050
$2,000,000
280,000
2,280,000
925,000
150,049
1,075,049
$3,355,049
The 1972 amounts include a deferred provision of $452,000 which
reduced the reported extraordinary item.
Total tax expenses amounted to $2,763,050 for 1973 (an effective
tax rate of 30%), a total less than the amount of $4,421,000 com-
puted by applying the Federal income tax rate of 48% to income
before tax. The reasons for this difference are:
Amount
(in thousands)
Computed "expected" tax expense .. ... . .. . .. . . $4,421
Increase (decrease) in income taxes
Investment tax credit used during 1973 . ... (2,475)
State and local income taxes . . . . . . . . . . . . . 429
Adjustment to previously deferred taxes . . . . . 322
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Actual tax expense .... . ... . ... . .. . ... . .. . . .. $2,763
auditors' report
Alexander Grant
& COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
North Central Airlines, Inc.
% of pretax
income
48.0%
(26.9)
4.7
3.5
.7
30.0%
We have examined the balance sheet of North Central
Airlines, Inc., (a Wisconsin corporati'on) as of December 31, 1973
and 1972, and the related statements of earnings, changes in
stockholders' equity and changes in financial position for the two
years ended December 31, 1973. Our examination was made in
accordance with generally accepted auditing standards and ac-
cordingly included such tests of the accounting records and such
other auditing procedures as we considered necessary in the
circumstances.
Deferred tax expense results from timing differences in the recog-
nition of revenue and expense for tax and financial reporting pur-
poses. The sources of these differences in 1973 and the tax effect
of each were:
Increase (decrease) in deferred income tax expense
Excess of tax over book depreciation .. . .... . . . . . .. . . .. . . . $ 71,200
Interest capitalized on books and expensed on tax return . . . . 42,500
Vacation expense on the tax return previously
expensed on the books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,300
Amortization of extension and development
on the books previously expensed on the tax return . . . . . . (39,600)
Amortization of capitalized interest on the books
previously expensed on the tax return . . . . . . . . . . . . . . . . . (30,100)
Amortization of training and development costs on the
books previously expensed on the tax return . . . .. . . . . ... (140,200)
Gain on sale of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,500)
Adjustment to previously deferred tax . . . . . . . . . . . . . . . . . . . 322,050
$232,650
The unused investment tax credits at December 31, 1973 total
$2,500,000, of which $2,000,000 has been recognized as a reduc-
tion of reported deferred provision for income tax expense, and are
available to reduce future income taxes payable as follows:
Expiration dates Amount
1978 ... . .......... . ........... . .. . .. .. ....... ... .. $ 89,500
1979 . ........ ,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553,000
1980 . . . . . . . . . . . ... . . .... . .. . . . . ........ . ... . .. .. .. 1,857,500
$2,500,000
Note J - Earnings Per Share - Earnings per share is based on the
weighted average number of shares outstanding for the year
(12,462,752 in 1973 and 12,455,348 in 1972). 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, 1973 and 1972.
Note K - Reclassifications - Certain of the 1972 figures have been
reclassified where appropriate to conform with the financial state-
ment presentation used in 1973.
M IDWEST PLAZA BU ILDING M INNEAPOLI S, MN 55402
FIR ST NATIONAL BANK BU ILDING ST. PAUL , MN 55101
INTERNATIONAL FI RM
ALEXAN DER GRANT TANSLEY W ITT
In our opinion, the financial statements referred to above
present fairly the financial position of North Central Airlines, Inc.,
at December 31, 1973 and 1972, and the results of its operations
and changes in its financial position for the two years ended
December 31, 1973, in conformity with generally accepted ac-
counting principles applied on a consistent basis.
Minneapolis, Minnesota
February 15, 1974
4~'-tt~-' ~
15
fortune magazine Survey- 50 largest transportation companies *
EARNINGS PER SHARE NET INCOME AS PERCENT OF OPERATING NET STOCKHOLDERS'
YEAR GROWTH RATE 1962-72 OPERATING REVENUES EQUITY REVENUES INCOME EQUITY
AIRLINES 1972 1962 % Rank % Rank % Rank (ODD) Rank (ODO) Rank (ODD) Rank
North Central ........... $0.60 $0.06 25.89 6.2 21 .7 $120,627 13 $7,536 10 $34.787 13
Braniff . . ...... .. . .. .... 0.85 0.13 20.66 4.6 15.8 4 372,117 17,151 108,402 10
Delta ...... .. . . .... . .... 2.20 0.39 18.89 5.6 4 13.3 757,569 42,169 31 7,533
Frontier ... .. ... . . .. . . . .. 1.08 0.21 17.79 4 6.5 41.8 108,857 15 7,119 11 17,014 14
National ...... .. . . .. . .. . 2.34 0.58 14.97 5.9 14.0 339,265 11 19,874 4 141 ,895
Continental ... ........ .. 0.75 0.21 13.58 2.5 10 6.4 10 365,904 9.187 143,487
Piedmont ... . .... .. . . ... 1.49 0.73 7.40 3.0 33.3 111 ,756 14 3,323 14 9,976 15
Western . . .... . . . .. .. .. . 0.81 0.41 7.05 3.1 11.6 365,663 10 11.216 96,723 11
Allegheny ........... . .. . 1.01 0.70 3.73 2.3 11 11.5 264,961 12 6,068 12 52,724 12
Northwest ........ . ... . . . 0.83 0.60 3.30 10 4.5 3.6 12 392,501 17,682 492.837
United . ... .... . . .. . . . . . 0.80 0.61 2.75 11 1.1 13 3.1 13 1,828,357 20.376 666,533
American . .... . . . . . . ... . 0.20 0.41 (6.93) 12 0.4 14 1.0 14 1,353,808 5,635 13 589,388
Trans World . ... . . ... ... . 3.01 (0.85) 3.0 11.0 1,418,288 43,078 391 ,653
Eastern . ........ .. .. . . .. 1.02 (2.07) 1.7 12 5.1 11 1,160,919 19,760 384,899
Pan American ... . .... .... (0.72) 0.56 1,305,273 (28,892) 15 411.430 4
* FORTUNE Double 500 Directory, July 1973: Survey of the 50 largest transportation companies, pp. 66-67. ("Rank" restated for the 15 airlines in the survey. 1972 statistics unless otherwise indicated.)
16
ten-year earnings summary
OPERATING REVENUES 1973 1972 1971
Passenger ........... . . . .............. $102,574,337 $99,259,565 $83,820,866
Public service revenues .. . . . . . . . . . . . . . . 9,630,565 9,089,650 6,884,964
Other . . . . . .. . . . . . . . .. . . . .. .. . . . . . . . . 15,187,342 12,278,227 10,159,514
127,392,244 120,627.442 100,865,344
OPERATING EXPENSES
Direct expenses...... ... . . . . . . ........ 48.480,392
Indirect expenses . . . . . . . . . . . . . . . . . . . . . 59,560,534
Depreciation and amortization . . . . . . . . . . . 7,350,182
47.410,306
53,871.468
6,990,351
115,391.108 108,272.125
OPERATING PROFIT .. . .. . . . ... . ....... 12,001 ,136
Non-operating expenses. net . . . . . . . . . 2.790,956
EARNINGS (Loss) before taxes ......... .
Income taxes . . . . ... ..... . . . ... ...... .
EARNINGS (Loss) before gain (loss)
9,210,180
2,763,050
on disposition ofequipment.... .. ..... 6.447,130
Gain (Loss) on disposition of equipment,
less income taxes .................. .
Prior years' adjustment due to
change in accounting ..... . . . ..... . . .
12,355,317
2,959,572
9,395,745
2,903,049
6,492,696
1.043, 182
43,360.472
44.449,035
7,240.431
95,049,938
5,815,406
4,035,719
1,779,687
544,000
1,235,687
(10,979)
1970
$76,954,521
5,131,306
9,866,126
91 ,951,953
39,207,293
37,879,733
6,700,175
83.787 ,201
8,164,752
4,875,788
3,288,964
451 ,000
2,837,964
(43,349)
~ )
1969
$57,073,369
4,016,386
7,338,168
68.427,923
31 ,647,246
30,782,288
5,605,500
68,035,034
392,889
4,677,092
1968
$44,628.769
4,667,639
5,929.518
55,225,926
25,525,000
24,318,200
4,356,893
54,200,093
1,025,833
3,008,205
1967
$33,482,371
5,249,563
4.118,543
42,850.477
19,811 ,886
19,523,811
2,626,251
41 ,961 ,948
888,529
628,731
(4,284,203) (1 ,982,372) 259,798
(1 ,934,888) ~ ) ~ )
(2,349,315) ( 1. 113,372)
(29,080) 1.183,588
595,808
924,316
1966
$30,261.479
5.767 ,888
3,583,304
39,612,671
17,980,535
17,062,543
2,253,361
37,296.439
2,316,232
464,974
1,851 ,258
720.647
1.130,611
24,000
1965
$23,720,203
7,199.418
2,971.410
33,891 ,031
15,356,876
13,970,237
1,997.488
31,324,601
2,566,430
442,894
2.123.536
1,006,520
1.117,016
21,736
NETEARNINGS (LOSS) ............... . $ 6,447,130 $ 7,535.878 $ 1.224,708 $ 2,177,615 $(2,378,395) 70,216 $ 1,520,124 $1 ,154,611 $ 1,138.752
THIS SUMMARY OOES NOT INCLUDE ALL DETAILED INFORMATION CONTAINED IN THE ANNUAL REPORTS FOR RELATED YEARS AND IS NOT COVERED BY THE AUDITORS' REPORT HEREIN.
1964
$20,002,281
7,274,370
2,438,126
29,714,777
13,666,142
12,303,601
1,712,800
27,682,543
2,032,234
348,305
1,683,929
873,304
810,625
33,939
844,564
PASSENGERS
(MILLIONS)
425 - - - - -
400-- - - -
375-- - -
300 _ _ _ _ _ _ __,__~
1969 '70 '71 '72 73
Statistics in 1970 and 1972 were inflated
by strikes against another carrier serving
some North Central cities.
PASSENGER MILES
(BILLIONS)
8 -- -
- - - L
1969 '70 71 '72 '73
SEAT MILES CARGO TON MILES
(BILLIONS) (MILLIONS)
18-- -
1.6 --
1 4 - - - - - t-
25 - -
o--------~
1969 '70 '71 '72 '73 1969 71) '71 '72 '73
NORTH CENTRAL AIRLINES, INC.
7500 NORTHLINER DRIVE MINNEAPOLIS , MINNESOTA 55450