/ NORTHEAST AIRLINES ANNUAL REPORT 1967 - - I a I I I 1 - 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I With thirty-five planes in service, twenty-two new in 1967 and 1968, and none more than 29 months old, the Northeast fleet is one of the industry's most modern. Northeast received the first Boeing 727-200 delivered to any airline, and six of the first twelve such aircraft to go into service. Addition of the 141-passenger super-jets on its long-haul routes greatly improves the Company's competitive position and operating efficiency. With these additions in 1967 and early 1968, Northeast accomplished an almost complete turnover of flight equipment. The Company introduced twenty-two new aircraft and phased out eighteen, In addition to its six Boeing 727-200's, the Yellowbird fleet now numbers eight regular Boeing 727's, fourteen Douglas DC-9's and seven Fairchild-Hiller FH-227 propjets. With retirement of the final DC-6 and Convair 880 aircraft, Northeast now has one of the most modern fleets in the industry. 1 2 1967 AT A GLANCE Highlights CAB awards Northeast permanent Florida cer- tificate. Northeast gets Montreal - Florida non - stop service. CAB examiner recommends Northeast for Ba- hamas service.* Northeast resumes service to Tampa, Jackson- ville and Hartford. Northeast launches major new advertising pro- gram. *Non-stop Bahamas-Boston and Bahamas-New York routes were confirmed by CAB in February, 1968. Operations Passengers carried .. . . .. ............ ....... . .. .. . Revenue Passenger Miles . ....... ........ ... ... .. . Revenue Plane Miles ...... .......... .. . .. .. . . . .. . Available Seat Miles .. ..... ....... . . . . ..... ..... . Operating Revenues F. C. Wiser, Jr., President 1967 1966 Change 2,399,015 2,047,384 +17.2% 1,186,300,000 940,300,000 +26.2% 23,536,200 19,546,100 +20.4% 2,234,200,000 1,614,600,000 +38.4% $78,580,301 $62,271,610 +26.2% The overall strength of our Company at the be- ginning of 1968 is the greatest in its history, reflecting a year of widespread activity and sub- stantial advances during 1967. Our route structure was expanded and consoli- dated. In March the Civil Aeronautics Board granted Northeast its long-awaited permanent authority to serve Florida. The non-stop route between Montreal, Miami and Tampa was awarded to the Company, and service was in- augurated in November. The Company also scheduled new services between Washington and Miami, Boston and Tampa, New York and Tampa, New York and Jacksonville, and Hart- ford and Miami. With these schedules, the Company, at the end of 1967, was competing in every market for which it held certificates. Ad- ditionally, in early 1968, the CAB awarded the Company non-stop routes between Boston, New York and the Bahamas, and this service is expected to be operational in May, 1968. The ultimate objective of our intensive route development plan, discussed in detail later in this report, is to compete for any new route which, when combined with our present sys- tem, will give us a better balance between short-haul markets and high density medium- to-long-haul markets, and between routes of a highly seasonal nature and those with more stable characteristics. During 1967 and early 1968, Northeast virtu- ally completed its fleet transition program, as detailed earlier in this report, and in record time. Climaxed by addition of our six Boeing 727-200's, the Yellowbird fleet is now one of the most modern in the industry. Of course, there were delays and disappoint- ments, attributable largely to "growing pains." Aircraft delivery delays prevented much of our new equipment from being fully effective dur- ing the important Florida winter season. Delays in delivery of Douglas DC-9 equipment im- paired our profit potential in the Boston-New York "commuter" service, but by year's end we had recovered our share of this market lost to a competitor who entered it earlier in the year. In addition, the constant rescheduling of air- craft and personnel resulting from the above delays made it impossible to realize the full efficiency of our new equipment. Under the circumstances our reduction in operating cost per available seat mile from 3.83 to 3.65, and increase in seat miles offered from 1,614,600,000 to 2,234,200,000 must be considered very satis- factory. Operating revenues were improved substan- tially from $62,271,000 in 1966 to $78,580,000 in 1967. However, the adverse factors noted above and the costly final phases of the overall rehabilitation program resulted in a net loss of $6,527,000. This loss included an extraor- dinary loss of $1,300,000 resulting from esti- mated loss on disposal of aircraft retired from service and spare parts. Although substantial losses were inevitable in 1967, the major steps necessary to prepare our airline for a profitable future have been taken and the outlook is bright both from the standpoint of improved opera ting efficiency and increased revenues. During the year there were some important executive appointments. Mr. D. A. Colussy was named Vice President-Sales. Mr. P. J. Dunphy was named Vice President-finance. Major General Lewis E. Lyle joined the Com- pany in August as Vice President-Operations Administration and was named Senior Vice President-Operations on January 15, 1968. With the award of permanent Florida route authority, Northeast has finally acquired a route base which can support expansion. Cur- rently, the Company is an applicant for six ad- ditional major routes, and is prepared to pursue any and all other suitable opportunities which may develop. Aggressive advertising and pro- motional programs during 1967 set the stage for further broadening of the Company's sales and marketing activities during 1968. It is management's sincere belief that, while there will continue to be problems, the major and most costly phases of our rehabilitation program are behind us. With continued excel- lent performance by all of our employees, we feel justified in now expressing cautious opti- mism for 1968 and the years ahead. Respectfully submitted, March 15, 1968 F. C. Wiser, President TO OUR STOCKHOLDERS 3 4 Marketing-The Yellowbirds Corne of Age. New sales and promotional programs during 1967 have set the stage for further broadening the Company's revenue sources in 1968. The Yellowbird theme, which has captured the pub- lic fancy as one of the industry's most effec- tive, took on a strong new personality late in the year, with advertising emphasis on a whole new " package" of passenger comfort items and improved food service. The challenging theme, with subtle suggestions of route expansion, as- sures the prospective customer, "You'll wish we flew everywhere!" In support of this effort, Northeast placed all catering under a single contract to the highly regarded Marriott Corporation in October, 1967. Formal training programs were imple- mented in the area of reservations, ticketing, tour sales and other public contacts. Reserva- tions capacity was considerably expanded, and an IBM 360 Model 20 computer was put into service to provide greatly improved seat con- trol. A computerized sales information system was developed and implemented to provide ac- curate and timely data on sales performance in all markets. A sales quota system was devel- oped so that sales productivity could be mea- sured in all sales districts. Meanwhile, imaginative innovations were in- troduced to further broaden revenue sources. Beginning in October, a full time aircraft was committed to charter service in an effort to maximize revenues during the off-peak periods. Other programs were developed to focus at- tention on convention, military, credit, travel agent, package tours and interline sales. Addi- tional emphasis was placed on developing cargo sales by combining the sales and service func- PHOTOS-Top Left: Flight personnel is care- fully selected, thoroughly trained, completely responsible. Top Right: Passenger handling fa- cilities have been modernized and streamlined at all terminals. Center: Improved equipment aids ground personnel in matching increased efficiency of fl.ight operations. Lower Left: Ex- panded schedules require expanded facilities for processing reservations. Training of new per- sonnel in proper handling of public contacts is a continuing concern. Lower Right: New com- puter center at Andover, Mass. not only helps in financial matters, scheduling, operations, mar- ket analysis and similar functions, but speeds the fl.ow of information essential to fast and effective management decisions. tions under one department. In addition, plans were made to commence late night cargo flights both north and southbound in the Florida mar- kets for implementation early in 1968. A special effort was made to stimulate weekend traffic in the commuter and New England mar- kets by the introduction of a promotional fare which consisted of one-way fare plus $5 for a round trip during off-peak weekend hours. Additionally, a fare adjustment in August re- sulted in an overall increase in New England fares to bring revenues in line with the cost of serving these short-haul markets. As a result of these considerable management efforts, substantial progress was made in 1967 in expanding our traffic in all markets. If the two strike months of July and August, 1966 are excluded from the totals, our Florida traffic grew by 60%, our commuter traffic by 4% and New England by 22%, for an overall passenger growth of 22%. We were pleased by the im- provement of our competitive position in our Florida markets. We were able to make signifi- cant gains in every Florida city we serve. Our performance in the commuter markets was hampered materially by delays in aircraft de- liveries. The major problem experienced in this area was in the Boston/ LaGuardia market. Due to the late deliveries of DC-9 aircraft, all-jet service was not started until May 15. Dur- ing this interim period, a third carrier entered the market with hourly jet service on Febru- ary 14, 1967 when Northeast was operating DC-6 equipment only. This new jet competi- tion caused Northeast to lose a large share of the market. It was not possible to provide com- petitive jet schedules until May 15. Since that time, we have made steady progress in improv- ing our competitive position. By the end of 1967, our share of the total market was greater than it had been prior to the entry of the addi- tional carrier. This achievement again illus- trates our improved competitive ability. Since the noted aircraft delivery delays and other factors prevented many of these activities from gaining momentum until the later part of 1967, it is expected that they will assure even better marketing performance for 1968. Maintenance cost improvements Maintenance cost factors for 1967 were sub- stantially below 1966 levels. Maintenance cost per available ton mile decreased from 6.35 in 1966 to 5.47 in 1967. This is particularly im- pressive in that it reflects only partially the full PROGRESS REPORT 1967 5 6 effects of the rehabilitation program. During a large part of the year the Company was still faced with the abnormal expense and ineffi- ciency of maintaining both piston and jet air- craft of seven different types. Maintenance personnel numbered 1128 as of December 31, 1967 compared to 1057 the previ- ous year, and maintenance cost per available seat mile was .70 for 1967 compared to.81 in 1966. Engine reliability on the basic engine in the fleet, the Pratt and Whitney JT8D, ex- ceeded anticipated standards. Phase-out of the DC-6B and CV880 aircraft should permit the Company to realize fully in 1968 the improved reliability and maintenance efficiency which are major objectives of the rehabilitation program. Management controls In keeping with the growth of its operations, the Company has brought in experienced man- agement and planning personnel and is supply- ing them with advanced equipment to imple- ment their scientifically designed management control program. Significant progress is being made in electronic data processing systems to improve efficiency in inventory control, crew planning and flight planning, as well as to speed the flow of essen- tial information to management. An extensive cost control program is also contributing sub- stantially to reduced operating expenses. The Financial Division has instituted compre- hensive planning programs designed to speed operations and facilitate management decisions, while two of the most advanced multi-purpose computers available are on order to fill the needs of a truly efficient real time reservation system. PHOTOS-Facing Page, Top Left: Detailed in- doctrination in new aircraft and, top right, "Ground School" for pilots parallel the com- plete modernization of th e Y ellowbird fl-eet. Center Left: Even qualified stewardesses under- go additional training to meet Northeast's high standards. Center Right, and Lower Left and Right: Maintenance crews have improved per- formance and help lower costs in every phase of operation. This Page, Right: New non-stop schedules between Florida and Montrec.l, above; and recently granted authority to serve the Bahamas, below, direct from New York and Boston, have materially strengthened the Com- pany' s route structure. 7 Seattle Portland San Francisco 8 ROUTE DEVELOPMENT Minneapolis St. Paul Milwaukee The ability of Northeast Airlines to fulfill its public service obligations, to provide a high standard of service to its markets, and to realize its profit opportunities depends on a strong network of route authority. Permanent certi- fication for Florida, the new Miami-Montreal service and the Bahamas routes are major improvements. However, the Company faces a continuing task in fully developing its present routes and ob- taining new route authority. The new authority is needed to provide a market opportunity of sufficient size to enable Northeast to earn a re- turn on investment consistent with that of other trunk carriers. As of January 1, 1968, Northeast is an applicant in six major route expansion opportunities de- signed to give the Company a better balance in such essentials as route length, market dens- ity, seasonality and competitive pressure. Hearings have been held and exhibits presented on the Bermuda, Great Lakes and Southern Tier services. Others are in preliminary stages : Bermuda The application proposes to provide new service between Bermuda and Chicago, Detroit, Boston, Baltimore, Washington, and Philadelphia. Presque Isle Montego Bay Kingston Northern New England-Great Lakes Northeast proposes to provide new service needed be- tween Maine, New Hampshire, and Vermont in the East, and Albany, Cleveland, Detroit, and Chicago. Twin Cities-Milwaukee Long Haul Services Application has been made to provide service from Boston, New York, Philadelphia, Wash- ington, D.C. and Baltimore to Milwaukee, Minneapolis, St. Paul, Seattle, and Portland, Oregon. Southern Tier Service Authority is being sought to provide competitive service between Miami, Tampa, New Orleans, Houston, Dallas/ Fort Worth, Los Angeles, and San Francisco. Caribbean Service Northeast is proposing to provide competitive vacation market service be- tween Boston, Philadelphia, Washington, D.C., Baltimore and such points in the Caribbean as Jamaica, Puerto Rico and the Virgin Islands. East Coast Points to Europe Application has been made to provide new trans-Atlantic ser- vice between Miami and London and between other East Coast cities and points in Europe. / London / /VORT~/.:AST ROUTE DEVELOPMENT New England/ Great Lakes Service - - - T wir:ities/ Mdwaukee Long Haul Service Southern Tier - - - Bermuda - - - London/ Florida Bahamas - - - Caribbean _ _ _ Barbados SOURCE AND USE OF FUNDS (WORKING CAPITAL) Y ears Ended December 31, 1967 and 1966 5-YEAR COMPARISON Passenger Revenue Other Revenue % Increase 1967 vs. 1966 + 26.81% + 20.23% - -- 1967 $71,491,586 7,088,715 Total Revenue + 26.19% $78,580,301 Revenue Passengers Carried Revenue Plane Miles Available Seat Miles (000) Load Factor + 17.17% + 20.41% + 38.37% + 26.15% + 4.78% 2,399,015 23,536,165 2,234,209 53.09% 1,186,321 50.40 Revenue Psgr. Miles (000) Average Psgrs. per Mile Available Ton Miles Revenue Ton Miles Operating Cost per + 39.34% 287,920,297 + 24.56% 120,374,899 Available Ton Mile Operating Cost per Available Seat Mile -5.30% -4.70% 28.34 3 .65 Payroll Total Wages & Salaries + 29.01% $31,514,927 Number of Personnel + 17.94% 3,629 Source of funds: Operations: Net income (loss) Charges not requiring funds currently: Depreciation and amortization Other Disposal of property and equipment, and transfer to current assets of certain items held for sale (note A) Issuance of: Long-term debt, net Common stock Use of funds: Property and equipment: Aircraft and parts, including deposits Ground property and equipment Jet aircraft integration costs Route development costs Other, net Increase (decrease) in working capital 1966 1965 1964 1963 $56,375,713 $41,708,467 $36,819,403 $39,888,763 5,895,897 6,500,982 5,884,572 4,026,042 $62,271,610 $48,209,449 $42,703,975 $43,914,805 2,047,384 1,648,788 1,411,783 1,371,030 19,546,134 15,856,856 14,290,315 16,948,778 1,614,615 1,235,933 1,128,659 1,291,063 58.23% 54.50% 52.77% 50.21% 940,337 673,648 595,634 648,362 48.10 42.48 41.68 38.25 206,632,468 155,544,052 142,770,650 160,835,808 96,634,219 69,034,617 61,193,858 66,754,323 29.939' 31.10 30.60 32.689' 3.83 3.92 3.87 4 .07 $24,428,640 $18,766,007 $16,282,843 $18,196,945 3,077 2,341 2,062 2,025 1967 1966 ($ 6,526,541) $ 127,402 2,625,733 923,772 805,402 432,729 (3,095,406) 1,483,903 2,650,800 781,796 15,055,732 22,459,874 44,633 171,525 14,655,759 24,897,098 13,337,879 14,703,807 9 1,696,324 2,327,588 4,575,937 1,878,224 146,368 241,498 10,871 621,186 19,767,379 19,772,303 ($ 5,111,620) $ 5,124,795 The accompanying notes are an integral part of these statements. ASSETS 10 NORTHEAST AIRLINES, INC. BALANCE SHEET DECEMBER 31, 1967 and 1966 Current assets: Cash Certificates of deposit Note receivable Accounts receivable Inventories of aircraft parts and supplies, at cost, and items held for sale (note A) Prepaid expenses Total current assets Deposits under equipment program Property and equipment, at cost (notes A and B): Flight equipment and related spare parts Ground property and equipment Less allowances for depreciation and amortization Leased flight equipment (note A) Deferred charges and other assets: Jet aircraft integration costs (note A) Route development costs Unamortized debt expenses Other 1967 1966 $ 7,443,301 $ 1,172,002 6,033,840 3,000,000 8,809,803 6,166,259 4,247,514 3,070,796 1,492,557 1,007,153 21,993,175 20,450,050 2,239,701 3,549,653 26,713,300 27,156,462 8,055,031 7,028,953 34,768,331 34,185,415 6,228,759 16,470,647 28,539,572 17,714,768 6,443,289 2,357,288 471,799 325,431 865,450 725,485 445,198 467,306 8,225,736 3,875,510 $60,998,184 $45,589,981 LIABILITIES STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt Accounts payable Accrued s~laries and wages Accrued vacation pay Contributions to employee pension plans Unearned transportation Collections as agent Total current liabilities Estimated employee termination liability Convertible subordinated debentures and long-term debt, less current maturities (note B) Commitments and contingencies (notes A and F) Common stock, par value $1.00 per share Authorized 7,500,000 shares (notes Band D) Issued 6,369,283 shares and 6,364,783 shares including 500 and 1,004 treasury shares Additional paid-in capital Retained earnings (deficit) since January 1, 1966 (note B) Total stockholders' equity The accompanying notes are an integral part of these statements. 1967 1966 $ 2,556,155 7,024,039 $ 5,291,462 1,111,236 577,953 1,448,598 1,213,784 885,349 640,993 2,851,600 2,035,604 2,692,522 2,154,958 18,569,499 11,914,754 556,292 560,249 38,439,323 23,200,000 6,369,283 6,364,783 3,462,926 3,422,793 (6,399,139) 127,402 3,433,070 9,914,978 $60,998,184 $45,589,981 11 STATEMENT OF Operating revenues: 1967 1966 INCOME Passenger $71,491,586 $56,375,713 Express, freight and baggage 1,918,059 1,901,883 Y ears Ended Mail 597,916 762,971 December 31, 1967 and 1966 Federal subsidy (note E) 2,823,000 2,200,000 Other, net 1,749,740 1,031,043 Total operating revenues 78,580,301 62,271,610 Operating expenses: Flying operations, including direct maintenance of flight equipment 34,030,772 26,346,276 Other maintenance and repairs 7,319,588 5,499,458 Aircraft and traffic servicing 14,367,303 11,669,158 Promotion and sales 11,547,241 8,979,832 Depreciation and amortization 2,625,733 923,772 Passenger service 7,217,308 5,400,979 General and administrative 4,505,679 3,023,407 Total operating expenses 81,613,624 61,842,882 Operating income (loss) (3,033,323) 428,728 Nonoperating charges: Interest expense 1,778,729 599,850 Other, net 414,489 (298,524) Net income (loss) before extraordinary item (5,226,541) 127,402 Estimated loss on disposal of aircraft and parts (note A) 1,300,000 Net income (loss) ($ 6,526,541) $ 127,402 STATEMENT OF Balance at beginning of year $ 127,402 RETAINED Net income (loss) per statement of income (6,526,541) $ 127,402 EARNINGS Balance at end of year ($ 6,399,139) $ 127,402 STATEMENT OF Balance at beginning of year $ 3,422,793 $ 3,143,859 ADDITIONAL Amounts applicable to stock issued under employee stock PAID-IN CAPITAL option plans (note D) 16,250 119,375 Fair market value of stock distributed to employees as bonus 103 142,209 Amount applicable to stock sold to an officer with resale restrictions 23,780 17,350 Balance at end of year $ 3,462,926 $ 3,422,793 The accompanying notes are an integral part of these statements. 12 NOTES TO FINANCIAL STATEMENTS A-Equipment program and lease commitments: At December 31, 1967 Northeast is leasing or is committed to lease twelve Boeing 727 and ten Douglas DC 9-30 aircraft and related spare parts from Storer Leasing Corporation (a subsidiary of Storer Broad- casting Company, majority owner of Northeast's stock) for a thirteen-year pe- riod from dates of delivery of respective equipment. All aircraft have been received and are in operation except for three Boe- ing Model 727-200 aircraft. Lease rental expense, which approximated $4,400,000 in 1967, is expected to approximate $9,600,000 in 1968 and $9,800,000 aruwally thereafter. Northeast has contracts to purchase three Douglas Model DC 9-30 aircraft and re- lated spare parts which are scheduled for delivery in 1968 at an approximate cost of $10,000,000. At December 31, 1967 approxi- mately $2,200,000 had been deposited by Northeast with Douglas in conjunction with these contracts. The balance of the purchase price will be financed, in part, by the aircraft manufacturers and in part through borrowings from institutional lenders for which Northeast has commit- ments of up to $7,700,000 at December 31, 1967. Training and other aircraft integration costs incurred in conjunction with the pres- ent equipment program are being amor- tized over a ten-year period. In 1967, Northeast disposed of five Douglas DC-6B aircraft, and in 1968 anticipates dis- posing of its two remaining DC-6B aircraft, terminating its lease of four Convair 880 aircraft, and disposing of related spare parts. The two DC-6B aircraft, spare en- gines and parts relating to these owned and leased aircraft have been included in cur- rent assets at their estimated realizable value. Rentals under long-term leases in effect at December 31, 1967 for hangar, terminal and reservations facilities approximate $2,000,000 on an annual basis. B-Convertible subordinated debentures and long-term debt: Long-term debt at December 31, 1967 was as follows (excluding installments due in 1968): Series A Secured Notes, 6J~% , due quarterly through 1973 Series B Secured Notes, 7% , due semi-annually from 1974 through 1979 Subordinated Notes to Air- craft Manufacturers, 6)~% and 6?-t% , due quarterly through 1979 Convertible subordinated debentures, 63f% (no change since December 31, 1966) $11,647,770 2,299,000 2,492,553 22,000,000 $38,439,323 The 63f% convertible subordinated deben- tures due August 1, 1986 are convertible into common stock at $25 per share, sub- ject to adjustment in certain events, and 880,000 shares of common stock are re- served for such conversion. The debentures are redeemable in whole or in part on and after August 1, 1968 at 105Jl% during the year beginning August 1, 1968 and at de- creasing prices thereafter. Northeast is re- quired to provide $1,100,000 annually from 1976 to 1985 for sinking fund redemptions. The debentures impose certain restrictions on cash dividends and stock repurchases, but these are less restrictive than those provided under certain loan agreements, which are noted below. So long as certain indebtedness (with ma- turities extending to 1979) is outstanding under loan agreements between Storer Broadcasting Company and Northeast Air- lines, respectively, and certain banks and institutional investors in conjunction with financing the acquisitions of jet flight equipment leased to or purchased by Northeast, the Broadcasting Company and Northeast have respectively warranted that, without prior consent of the lenders, Northeast will not pay dividends in excess of 25% of net earnings from January 1, 1966 to December 31, 1968 and 50% of net earn- ings thereafter. Substantially all of Northeast's owned flight equipment and related spare parts are pledged as collateral for the secured notes and the subordinated notes to air- . craft manufacturers. C-Retirement plans: Northeast's policy is to accrue in its ac- counts and to fund the current service cost of the noncontributory trusteed retirement plan for employees and supplementary contributory retirement plan for pilots which approximated $1,300,000 in 1967. Amounts so funded and accrued exceed the actuarially estimated present value of vested benefits. 0-Employee stock option plan: At December 31, 1967 111,000 shares of authorized and unissued common stock were reserved under Northeast's Qualified Stock Option Plan for key employees adopted in 1964 under which options are granted at prices not less than fair market value on dates granted. At December 31, 1967, options were outstanding and exer- cisable to purchase 4,750 shares at $4.125, 2,500 shares at $18.50, 15,000 shares at $18.6875, 12,500 shares at $32.875 and 22,500 shares at $20.1875, aggregating 57,250 shares and $1,211,313; and options were outstanding exercisable in 1968, to purchase 17,500 shares at $26.125 aggre- gating $457,188. Also at December 31, 1967 options were outstanding and exercisable for key em- ployees to purchase 500 shares of treasury stock at $4.375 per share (fair market value on date granted), aggregating $2,187. During 1967 options were exercised for 4,500 shares at $4.125 per share and 500 treasury shares at $4.375 per share, aggre- gating $20,750. I-Federal subsidy: The Civil Aeronautics Board has estab- lished a federal subsidy for Northeast of $5,023,000 for the two-year period ended December 31, 1967, of which $2,200,000 is reflected in the income statement in 1966 and $2,823,000 in 1967. The Civil Aero- nautics Board order places Northeast on a subsidy-free b-asis beginning January 1, 1968. F-Contingencies: Other assets include $200,000 deposited in connection with injunctions obtained by Northeast in 1964 against certain alleged illegal charter operations. Return of the de- posit has been deferred pending judicial determination of the proper scope of the injunctions. Hearings have recently been concluded on this issue in connection with which possible damages have been limited to the $200,000 deposit. Counterclaims alleging anti-trust violations and seeking substantial damages are pending, but in view of the rulings in favor of Northeast in the case to date, counsel for Northeast advise that, in their opinion, the counter- claims are without merit, but that the out- come of litigation cannot be predicted. LYBRAXD, Ross BROS. [,__ >'!ONTGOMERY CE RTIFIED PUBLIC ACCOUNTANTS Northeast Airlines, Inc. COOPERS C LYBRA:-D Boston, Massachusetts We have examined the accompanying balance sheet of Northeast Airlines, Inc. as at December 31, 1967 and the related statements of income, retained earnings and additional paid-in capital and the statement of source and use of funds (working capital) for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the financial statements of the company for the year ended December 31, 1966. In our opinion, the aforementioned financial statements present fairly the financial position. of Northeast Airlines, Inc. at December 31, 1967 and 1966, and the results of its operations and source and use of fund., (working capital) for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. ~ d / CJ ~~ Boston, Massachusetts ~ /Jirl /) February 19, 1968 13 EXECUTIVE COMMITTEE George B. Storer Chairman F. C. Wiser Leonard Dalsemer A. D. Davis Stuart W. Patton James W. Austin Bill Michaels DIRECTORS James W. Austin Chairman of the Board Jacqueline Cochran Leonard Dalsemer Executive Vice President International Paper Co. A. D. Davis, Chairman Executive Committee, Winn-Dixie Stores James F. Fitzgerald, J. F. Fitzgerald Construction Co. Robert C. Hill, Consultant Curtis Hutchins, Chairman, Dead River Co. Stanton P. Kettler, Vice Chairman, Storer Broadcasting Co. Bill Michaels, President, Storer Broadcasting Co. Stuart W. Patton, Vice President-Law Harry M. Stevens II, H. M. Stevens, Inc. George B. Storer, Chairman, Executive Committee George B. Storer Jr. Peter Storer, Executive Vice President, Storer Broadcasting Co. David A. Stretch, Chairman, Executive Committee, Texas Industries, Inc. Francis W. Sullivan, Attorney at Law Eugene L. Vidal, Consultant F. C. Wiser, President NORTHEAST AIRLINES, INC. LOGAN INTERNATIONAL AIRPORT BOSTON, MASS. 02128 OFFICERS F. C. Wiser President and Chief Executive Officer George B. Storer Chairman, Executive Committee James W. Austin Chairman of the Board James 0. Leet Senior Vice President- Marketing and Customer Services Lewis E. Lyle Senior Vice President- Operations Arthur A. Brennan Vice President- Industrial Relations Dan A. Colussy Vice President-Sales Paul J. Dunphy Vice President-Finance G. Ward Hobbs Vice President- Customer Services Roger J. Hoy Vice President- Operational Standards Wheaton W. Mies Vice President- T echnical Services Stuart W. Patton Vice President-Law Joseph W. Cannon Treasurer Arthur E. Fairbanks Vice President- Northern Region Edward E. Swofford Vice President- Mid-Atlantic Region Edwin H. Bishop Vice President- South ern Region Henry E. Foley Clerk Registrars Presque Isle/ Houlton o Augusla/Waler MONTREAL Ne~porl Ba, Ha,bor Burhn Be rim l