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