Northwest Airlines Annual Report 1939

NORTHWEST AIRLINES, INC.
ANNUAL REPORT
TO STOCKHOLDERS
YEAR ENDED
JUNE 30, 1939
NORTHWEST AIRLINES, INC.
To THE TOCKHOLDER OF j_
ORTHWEST ArnLINES. INC.
Saint Paul, Iinnesota
ptember 30. 1939
Following is the .-\nnual tatement of your company for the fiscal year ended Jun 30.
1939. You will find that the company u tained a lo of 123,315. 4, but notwithstanding
thi the financial po ition of the company at the end of the year '"a greatly improved.
The Profit and Lo tatement indicates con iderable increa e in the volume of bu incss
clone in all department . The increa e of 338,732 in mail revenue re ult mostly from a
change in our rate of mail pay. \Ve applied to the Civil Aeronautic Authority for an in-
crea e in mail pay on ovember 22, 1938 and a decision was rendered in June, 1939, fixing
new mail rate retroactive to the elate of our petition. During the fi cal year this increa e
amounted to approximately $208,000 and for the corning year i e timated at $350,000.
Passenger revenues increased $202,850 due to the introduction of Douglas D -3 21-
pa senger airplane in the pring of 1939, to the increased popularity of air travel and to
general improvement in our ervice and facilities.
The increa e of $750,906 in operating expenses wa cau eel by improvement of our serv-
ice, by continued high maintenance co ts, and by the increa ed co t of operatino- Douglas
hip in the latter part of the year.
l lthough the year' operation resulted in a net lo s, thi lo wa only about 32 % oE
our depreciation, a a re ult of which the current position of the company bowed consider-
able improvement. Both the co t and depreciated value of the company's physical property
increased a a re ult of the replacement of Lockheed Zephyr planes with Douglas DC-3s.
Early in the year it became evident that, with the trend in air travel, it wa imperative
that we put ourselve in a po ition to carry the increa ed load expected. The Lockheed 1 r-
cra ft Corporation, which wa experiencing a heavy demand for the Zephyr type of ship, en-
tered into a very fair arrangement with us to rept rchase our entire fleet of 10-pa senger
Zephyr plane , and, with the proceeds and a , -l-80,000 loan from the Recon truction Finance
Corporation, we were able to purcha e ix Douglas DC-3 , three of which were put into
ervice in April and three more in June. A even th hip of this type was on order at the
end of the year and wa received early in eptember, 1939. The e new hip are of the
late t type, complete with the late t in in trument and equipment, and are powered with
Pratt & Whitney Twin-Row Wa p Engine , which give moother operation and a gr ater re-
=,erve power than any engine previou ly u eel in thi type of ship.
[ 2 ]
Th re pon e of the traYelina public to the intr du ti n ship~ ha_ been '" ry
:ati_factorY. Pa. s no-er r Yenu _ in ~fay. June. July. and . u LLt. 1 3 _hawed an in-
crease 1f -i-7c---c. oc-~. 71 ~. and 71 ~. re -pectiY ly. OY r th corre -p nding month, f the pre-
Yiou - year. The r suits of the:e 111 nth, make it eYident that pa- enaer reYenue_ for the ne,Y
fi:cal : ar ,Yill exce cl the year jLLt nded by a co,riderable amount.
In additi 11 to the eYe11 D - airplanes 11 ,Y o,Yne I. the - mpany aL p r-
at -.:; seYen 1 -passeng r Lockh 1 ctra. . om of these ar 111 LLe n one dail: round
trip sch dule h ''" en hi ag -...eattle-P rtland. It i_ our int nt t repla e the. small
:hi1 s on thi_ sch clule with D ugla_ -3_ and for that purp se " . haY rder d f ur m re
DC-3 -. three t b deliYerecl in January and on in ~lay. 1 -1-0.
During the year your company made application to the iYil . \ r nauti . \ uthorit, f r
~ertificates of - om nience and -e :sity n three prop :ed r ute . . and hearinas haYe been
helcl on all appli -ati ns. n pr po:ecl route is from ~IihYauk e Yia ertain "\Yiscon in points
and Duluth to th Twin ities. .-\nother is from hi aao Yia certain \Yi c nsin p int- t
~larquette. ~Iichi an. .\nother is fr m the T,,in 'i ties to t. ui Yia R h ster and De_
~ [oin s. . t the pre:ent nm ,,e d not kn ''" " hen cl i ions ,,ill be rea hed n th _e
application -.
In .\ugu t ,Ye filecl ,Yith th iYil . r nauncs .-\uth ntY n t1ce of ur intenti n t ap-
ply for a l ertificat mern n e and Xe es-.:;itY het,Yeen hi ago and X w Y rk in hY
''"a" of Toronto. This filino- ,Yas made about th tim that the goYernments f the -nitecl
.-tat : and Canada c mpletecl arrangem nt for re iprocal int rnational air senice.
"\Yhil th audited fiaure - ,Yhi h f 11 \\. are for the fis al year ended June "O. the st k-
hnlders "ill he inter ste I t kn ". that for the firs t\\ months f th new fi cal :ear July
and .\u ust the company mad a pr fit of l "1.77 . as c mpared " itb a los of 2S.9r f r
the same peri cl f the preYi us year. This irnprmement r sult fr m an in rea -e in reYe-
nue..: of ,:-_o .1-t and an in reas in exp ns - f onh :: 1. 17 f r the rn m mlr' peri cl.
During the past t\\o years y ur c 1111 any ;--; o rati on - ha Ye been brOLiaht up to a high
;--;randarcl ur pr - nt fleet f hips. t gether \\ith th se nO\Y n order. place
us in a good PreYiou- htTure clearl: sh w th ri_ing trend in pa_ ~en-
ger r Yenues. m year ahead '"ill l pend largel: n the extent t whi h
the improy rnent in pas-e112er busine ~ ntinu s.
, -ery truly your_,
[
, I
'-) J
CR IL H :--TER
Pr ident
BALANCE SHEET
NORTHWEST AIRLINES, INC.
June 30, 1939
l.:RREJ'\' T . \ SSET .
ash:
ASSETS
Demand deposit ................................................................. ..... .
For clepo it .................................................................................... .
Agent working funds ..................... ....................... .
Accounts receivable:
Due from U. . and anadian Governments:
Mail ....................................... .
Ticket , etc . ............................................. .
Other ticket account :
Other airlines and agencie ................. .
crip account ....................................................... .
undry ..................................................................... .
387,284.62
5,905.31
96,073.68
3,990.31
879.05
- - - - -
Ga oline tax refund claim .......................................... .
Other current account :
For ervice and upplie ............... .
In urance claim ( paid in July, 1939)
$ 19,193.85
22,870.09
Les reserve for doubtful accounts, adj u tments, tc ....... .
Inventorie - at lower of co t or market:
Repair part and upplies .................................................... .
Gasoline and oil ............................................................................ .
0TIIER ASSET.
Marketabl e ecuritie on depo it- T
ote A.'. .... : .................... .
\.ccounts receivable:
E1nploy e .................................................................................... .
Officers . ............................ .. . .............................................. .
' unclry ............................................................................................. .
'und ry securiti e and deposits ....................................................... .
PROPERTY, PLA ' T AND EQUIP:i\11-: T-at co t t the Company
or it predecessor le s depreciation and amortizati on
Land .. .......................... . .............................. ...... .
Airplane and engin e - Note B .............................................. .
Building and other equipment ( including ~178,268.05 repre-
senting the co t of buildings ituated on 1 a eel ground) ...
Les resern fo r depreciati on and amortization ....... .
Imprnv~ments to leased buildings Jes amortizat:Gn
!;\'TANGIBLE
Co t of U. . Government air mail route ..................... .
DEFERRED CH ARGE
Prepaid insurance ......................................................... .
Prepaid rent ............................. .................. . ..................... .
unclry prepaid and deferred item .................... . ................. .
~OTE. -
93,105.68
20,185.32
2,158.99
$ 393,189.93
100,943.04
20,370.96
42,063.94
556,567.87
2.500.00
66,854.19
13,291.87
8,652.04
3,731.90
.145.44
: l.-+49,747.54
646,531.04
2,096,278.58
941.042.06
$ 115.449.99
554,067.87
80,146.06
33,792.63
12,729.3
2,605.00
$ 5,082.47
1,155,236.52
1,160,318.99
17,150.50
$ 37.187.60
19,795.35
4,597. 14
749,663.92
49,127.01
1.177,469.49
48,736.69
61.580.09
2,086,577.20
,\ - The C mpany i defendant in la\\' uits ari lllg from the acc;dental death s of se\'eral persons. J 11 th e
one ca e whi ch ha been tri cl, damage of $37,500.00 were awarded the plaintiff but the ca e has
be n appealed by th Company. In connection with th appeal , th ompany ha filed a urety bond
and has depo ited mark tabl e ecuriti e carried at $33,792.63 \Yith the bonding company pending clis-
po. ition of the ca e. A second uit for 10.000.00 ari ing from the ame death ha been fit cl but
ha not come to trial. The nnximum cuYerage in thi death i 10,000.00.
Four other cla im involving arrgrerrate damage of 63,000.00 in xce of in uranc e cov rag are in
litigation or in proce of ettl ement. The management i of the opinion the fo ur clai111 ref rrecl to
will be ettl ecl without lo to the Co111pany.
1
3- Six D ouglas D '-3 airplanes compl ete \\'ith engines, propeller , radi o in. tallation and gyro pilot:,
sc, 11 spare Pratt and \ \ 'hitn ey twin -row \ Vasp engines and ix . pare Hamilton . tandard hyclro-
111atic prop II r_ are a: igned under a chattel morto-age a. security for the long term cl ht of , 476,-
214.19. The cost of the equipment 111ortgao-ecl i . 70,719.54.
BALANCE SHEET
NORTHWEST AIRLINES, INC.
L'L.RRENT LI.\BILITIES
rote payable:
June 30, 1939
LIABILITIES
To bank .......................................................................................... .
To hareholder
. \ccounts payable:
For equ:pment, , uppli ' , etc . ..................................................... .
Fortran portation old o,er other lin , ..................................... .
Scrip cl po, it ................................................................................ .
Pa, roll taxe, ................................................................................ .
Saiaries and \\"age .............................................................. .
Employee accounts . ... . .................................................. .
. \ccrued:
T
"ocal taxe, ..................................................................................... .
Federal ca11ital stock tax ............................................................... .
Legal fees ( estimated) ................................................................. .
Int rest ............................................................................................. .
Federal ancl state laxe on incom -e timatecl :
Prmision for po sible additional as es ments for prior
year .............................................................................................. .
Current maturities of long term debt-estimated ..................... .
LONG TERM DEBT-Note B
5% note , ecured by chattel morlgao-e on 1uipment carried
at 70,719.5--l- principal and intere t payable in in. tall-
rnents of 12,400.00 monthly be0 inning NoYemh r 3, 1939,
balance clue Mav 3, 19-l3 ..... . ....................................... .
Less: Balance of i)roceed received in Augu t, 1939 ............... .
Portion included in current liabilitie ............................. .
DEFERRED lNCO:'IIE
l Tnusecl tickets ..................................................................................... .
CAPLTAL
Preferred slock-5% cumulatiYe, 100.00 par value, con-
n~rtible into common . tock on the ba i of ten hares of
common for each hare of preferred, redeemable at 103.00
per . hare plu unpact accumulated diviclencl :
. .\uthorized-6,000 hare ..................................................... .
Le Retired ...... ......................... . ............. ~501.000.00
Uni sued .................... ................... 50,000.00
ommon tock- no par value:
Authorized-300,000 hares
Unissued-69,940 share of which 4,900 hare are re ervecl
for conversion of out tanding preferred shares
Out tanding-230,060 hares-a0 gregate stated capital
amount ........................................................................................... .
Deficit:
Paid-in urplu ............................................................................... .
l~arned urplus deficit* ............................................................... .
ONTH,GE TT LIABILITY
35,000.00
20.000.00 $
173,233.57
51,155.61
27,56 .05
14,201.92
8.015.16
2.681.47
17,347.50
2.800.00
15,000.00
2.102.30
Ci00.000.00
551.000.00
$ -11,810.86
184,091.44*
55,000.00
276,855.7
37.2-l9.80
2,462.10
80.432.72
-l 0,000.00
( -l.218.53
49,000.00
1,310,600.00
452,000AO
395,7 1.-l7
21,475.91
l-l2,280.58* 1,217,319.42
$2,086,577.20
A. endor er on note payable is, ued by Lockh eel Aircraft
orporation in conn ction with the purcha e of a portion
of the Company's aircraft ........................................................... . ' 4,320 .00
XOTE -(Continued)
C- npaicl accumulated divicl nds on pref rrecl tock at June 30, 1939, amount cl to %.25 per share or an
aggregate of 3,062.50 on the 490 hare ut lanclino-.
STATEMENTS OF PROFIT AND LOSS AND DEFICIT
NORTHWEST AIRLINES, INC.
Year ende<l June 30, ] 939
( )PERATI :::-(G RE\'EX \JE
-;\Jail ------------------------------------------------------------------------------------------
T)a enger ---------------------------------------------------------------- ________________ _
Other transportati 011 ------------------------------ _________________ _
OPERATING ExPE r sEs
::\Iain tenance ________________________________________
____ ____________________________
. ____ _
Depreciation and amortization ----------------------------------------------
Other tran portation -----------------------------------. _____ . __________
_________ _
Traffic and aclvertisi no -------------------------------- ___________________________ _
. \ clmini trative and general --------------------------- ------------------
0PERATIXG Loss ---- ----- ------ ------------- _______ __________ _
0TIIER INCOME
;s; et 1 rofit from di po al of ca1 ital a . ets __________________ . _
Profit from repair and upply ervices __________ . _________________ _
Di. count and interest earned ------------------------------ ________ _
_______ _
5 u n cl ry _____
_
________________________________________
___________ . ______
___ _
0TIIER DED CTIONS
In tere. t _
_____________________ --------_
_______ -------___ ----. ----. ----.. -----------.
. \clditional federal income and excess profits taxes
for fi cal year 1936 ------------------------------------------------------------ _
.~undry
DEFI IT*
PA 1D-l .'.\' URPLU
Balance at Tune 30. 1939
( no chan.ge during the year)
EARKED - URPLU -DEFICIT
~
~
Balance at Tune 30, 1938 ----------------------- _ _
_
_____________ _________ ___ $
Xet lo fo~- the year--------------------------- ___ ----------------------
BALAKCE .\T J U)l"E 30. 19.t)_ -----------------------------
DEFIClT- JU.'.\'E 30. 1939 __________ _
_______ --------------
[ 6 ]
5-1-7.630.7-1-
384.458.55
1,481,924.41
288.0:i7.30
166.479.23
152.--1-83.73
9.118.95
3.960.61
6.82--1-.88
3.03-1-.90
1.929.--1-9
3.022.--1-0
60.775.60
123.315.8-1-
$1Si0.875.~-I-
969,5 12. -1- 1
60.444.70
$2,580.833.01
2.868.550.23
$ 287,717.22
172,388. 17
$ 11 5,329.05
7.986 79
123.315.R--l-
41,810. 6
18-1-.091.-1--1-
$ 142,280.58*
ERNST & ERNST
ACCOUNTANTS AND AUDITOR S
SYSTEM SERVICE
~ r ORTH\YEST Arnu,. -Es, Ix .,
Satnt Paul, Minnesota.
ST. PAUL, MINN.
ugu t 28, 1939.
\Ye have made an examination of the balance beet of ); RTH"\\ E T AIR-
LI:'.\E . I:-(C., a of June 30. 1939 and of the tatement of profit and lo and
deficit for the year ended at that date. In connection there,~ith, we examined
or tested accounting record of the Company and other upporting evidence and
obtained information and explanation from officer and employee of the Com-
pany; ,_.e al o made a general revie,Y of the accounting method and of the operat-
ing and income account for the year, but we did not make a detailed audit of the
tran actions .
.--\.ccount receivable '"ere te ted by direct corre pondence ,yith debtor and
by reference to documents on file and other record . X ote payable, including
long term debt, ,Yere confirmed by direct corre pondence. Account payable \\'ere
te ted by direct corre pondence and by in pection of in-voice YOucher , record
of ub equent tran action , etc.
In our opinion, ba ed upon our examination. the accompanying balance heet
and related tatement of profit and lo and deficit fairly pre ent the po ition of
the Company at June 30 1939, and the re ult ot 1t operation fo r the year
ended at that date. Further. it i our opinion that the tatement ha e been pre-
pared in accordance \Yith accepted principle of accounting and on a ba i con-
j tent \Yith the preceding year.
[ 7 ]
ER_,. T - ER_ - T
Certified Public Accountants
PRINTED IN U ... A.