Northwest Airlines Annual Report 1941

TO SHAREHOLDERS
NORTHWEST AIRLINES, INC.
Year Ended June 30, 1941
DIRECTORS
S. lVI. \.RcHEH, Chair1nan
GEOHGE E. GARDNER
R. 1\1. H ARDY
CROIT., H NTER
T. E. lH.VINE
Jo EPH T. JonNSON
L. [. LEFFI1 G\\'ELL
w ILLIAM STER J
CAMILLE L. STEIN
EDWIN WHITE
E. I. WnYAT'r
OFFICERS
CH.OIL H U NTER
GJW RGIC E. GARDNER
E. I. WHYATT
CAl\lILLE L. STEIN
L. S. HOLST.AD
Presiclent
Vice-Presiclent
Secretary ancl Treasi1,rer
Assistant Secretary
Assi tant Treasurer
General Office : L. Paul Munici1 al Airport. SL. Paul, 1\/IinnesoLa.
The Ju e Nalional Bank of The CiLy or Iew York. N ew York
iLy
Prin cipal R egi Lrar
Bankers Tru -L Company , N ew York CiLy
Principal Tran fer AgenL
ily Nalional Bank and Trust Company o[ Chicago, Chicago,
Illinois
o-R egislra r
onlinenlal Illinois Iational Bank and Tru t Company or
Ch icag-o, h icago. Ill inoi
Co-Tra.n l'er .A gen L
Annual meelin g of -)rnreholders la t Monday rn August.
NORTHWEST AIRLINES, INC.
To the Shareholders of Northwest Airlines, Inc.:
Financial Report
St. Paul, Minnesota
August 12, 1941
For the fiscal year ended June 30, 1941, your company earned a net income
of $327,495.42, after all charge and deduction of income, excess profits and other
taxes. This amounts to $1.39 for each common hare out tanding at the end
of the year after allowance for minor dividends on a small number of preferred
shares outstanding at the beginning of the year but later reacquired or con-
verted. At the end of the year your company had a surplus of $487,547.70.
There i included with the accompanying financial statement a report of
Ernst and Ernst, certified public accountant , covering the income tatement,
surplus statement and balance sheet.
The income statement compares the re ults of the year just ended with
those of the pl'evious year. Total operating revenue increa ed $698,2.49 over
the previou year, due largely to an increa e of $571,32.7 in pa enger revenue,
which represented a gain of 32..6o/o. In addition, a gain of $82.,478 wa hown
in mail revenue, a gain of $30,386 in expres , freight, etc., and $14,057 in other
operating revenues. The increa e in pas enger bu ine re ulted from the opera-
tion of more schedules, the fact that all operation except two branch line
servic s were operated with 2,1-pas enger equipment throughout the year
wherea a considerable amount of operation wa done la t year with 10-pa enger
ships, an increased load factor on this enlarged ervice, and from operation of a
ervice between the Twin Citie and Duluth which operated only during the
last month of the prior year. The increase in mail pay wa the re ult of bonuse
covering heavy mail loads over the greater part of your company's sy tern and
of mail pay for the Duluth operation.
It should be under tood that we do not receive bonus payments except
when, for any divi. ion, the mail load carried average more than 300 pound
per mile for the entire month for all trip . The receipt of approximately $46,400
in bonu e for the carriage of mail indicates clearly the importance of the mail
service rendered by your company. During the year the company flew
1,593,615,473 pound-rrule of mail, an increa e of 2.8% over the previou year.
The operation of more mileage and of larger hips and the carriage of more
passengers contributed to an increase of $549,464 in operating expen e . Thi
increase, however, wa not in proportion to the increa e in revenue and re-
sulted in an operating income of $436,908, which i $148,785 more than the
previous year. Other item tending toward increa ed cost of operation included
depreciation on enlarged inve tment in equipment, generally increa ing level
of salaries and wage , increa ed rent , inten ified ale promotion work and
heavier tax burdens.
1
The table below compare revenue, expen e and operating income figure
for two year on two ba e -cent per revenue mile and cents per seat mile.
It should be noted that the expen e per revenue mile increa ed, partly as a
direct re ult of the substitution of large equipment for mall, but that the co t
per seat mile went down 4.7o/o. Thi latter figure i important becau e it repre-
ents a decrea e in the co t of producing our principal ale item-a pas enger
eat.
Year Ended 6/ 30/ 41
Cents per
Revenue Mile
Operating Revenue ______________ 71.4
Operating Expen e ________________ 64.2
Operating Income __________________ 7 .2
Cents per
Seat Mile
3.57
3.21
.36
Year Ended 6/30/40
Cents per
Revenue Mile
65.5
60.3
5.2
Cents per
Seat Mile
3.66
3.37
.29
It should be noted that only a minor part ($1,187) of thi year's profit i
from disposal of capital as et ( equipment retired), wherea in the previous
year nearly $98,000 of the net profit came from this source.
In ,addition to the improvement of $326,071 in the total surplus of your
company, it should be noted that the balance heet shO\v an improvement of
$143,918 in the net current a set . At the end of the year total current as ets
exceeded total current liabilities by $207,293.
Equipment
During the year your company took delivery of two Dougla DC-3 21-
passenger airplanes. No aircraft were disposed of during the year, and at its close
the company operated 13 Douglas DC-3' and four Lockheed Electra 10-
pa enger airplanes. The Electras were operated only between the Twin Cities
and Duluth and between Fargo and Winnipeg. Dougla equipment was u ed
exclu ively on all other operations. In addition, the company owns a Stinson
Reliant airplane for pilot training and a Hamilton monoplane u ed only for
special purpo es.
In July, 1941, in re ponse to an official request, your company sold to the
nited States Government one DC-3 airplane. Thi does not leave as much
flexibility of operation a i desirable and may result in some curtailment of
ervice during the winter. However, the management believes that it i the
opinion in Washington that the national defen e requires the maintenance of a
trong and adequately equipped commercial air transport sy tern, and it is
hoped that the company will not be required to give u any other unit from
it fleet.
All flying equipment ha been maintained at a high degree of afety, re-
liability, efficiency and modernization. Our program calls for con tant im-
provement and acquisition of hangar, shop and service facilitie a necessary
for the operation of a afe, dependable and efficient airline. It i anticipated that
increased investment in uch facilitie will be required. Your management i
atisfied that a total of $132,381 was well pent during the year in acquiring
additional and replacement ground equipment of all kinds.
Your company ha an enviable operating reputation for high maintenance
tandards, dependable operation of on-time chedule , and for keeping abreast
~
of ound development in operating technique . -n intend to maintain thi
po ition in the indu try.
Listing of Shares
On Februar3 H . 19-H. the common tock of your company wa li t d on the
Chicago tock ExchanO'e and on J\Iarch 30 wa li ted on the ~ ew York tock
Exchange.
Applications for Extension
T he CiYil Aeronautic Board heard your company application to rt nd
it operation from hica0
o to X ,, York ity. and on March , 19-H, denied
the application. It i de:finitel b li nd that the exten ion of our operation
to New York ity i a proper and nece ary denlopm n t of the air tran port
y tern of the nited tate . and on July -5 . 1941. we :filed a n w appli ation
with the Board by a more direct route. Our ne,, appli ation r qu t a route
beb,een 1\linneapoli~ and New York City Yia ::.\Iikaukee and Wind or. anada.
No hearing date ha been et for thi application.
On February 3. 1941, we applied for a rout exten ion north from i\Iinne-
apoli by way of Fargo. R eoina. Edmonton. Whitehor e and other inter-
mediate point to Fairbank , .Ala ka. A route over thi territory '"'ould b of
oTeat advantaoe to the nited tate and anada. particularly in th matter
of national defen e. It Yrnuld horten travel b, air from ew York ity or
\\ a hington. D . C .. to ~
-\la ka by OY r 00 mil~ a compared with the ~nly
exi ting throuoh enice from the nited tate to Ala ka. Further. our pro-
po ed route follo" relatively fa Yorable terrain w-ith good meteorological condi-
tion . No date ha been et for a hearino on thi appli ation.
On July 24, 19-
H . a hearino ,rn held befor an examiner of the iYil ero-
nautic Board on the company' application. filed Auou t 31. 19-!0. for a route
between Chicago and the Twin iti b way of ::.\Iilwauke . Green Bay, \\ au au
and Eau Claire all in the tate of "Wi con in. Thi operation would furni h
air ervice to actiYe indu trial and agricultural communitie which have a
clo e bu ine s a ociation with the Twin Citie and with Chicago. No deci ion
ha been reached in regard to thi application.
The Ci,il Aeronautic Board ha announced that in con idering application
for new route . it ,nll con ult Armv and ~av, authoritie . and the o-rantinO' of
er ice and the authority to comme.nce operadon under an.> certificate granted
will be dependent upon the need of the national defen e.
Financing
Although your ompany acquired b,o D ougla airplan and 132.3 1 in
other equipment during the year, no additional financing wa required. Bank
loan out tanding durino the year were reduced to 3 5 000. and thi i the onlJ
amount remainino unpaid of equipment borrowfog totalino 900.000 made
between l\Ia 1939, and eptember, 19-!0.
Personnel
T he xten ion and improY ment of th companv op<nation and the m-
er a ed traffic d , elopment ha Ye increa ed the number of employee to .., at
3
the end of the year. We have felt the result of competit10n, particularly by
government and national defense work, although to date we have made suitable
and ati factory replacements.
The ational Selective Service Act ha had only a light effect because we
have been fortunate in obtaining deferment of workers es ential to the operation
of the company, in line with official rulings that the national defense requires
the continued afe and efficient operation of the nation' air transportation
erv1ce .
The company ha three labor agreement in effect-one with its pilot , one
with it radio operator , and one with it mechanics of variou cla es. Changes in
the latter agreement, including increa e in compen ation, are under negotiation.
Your company' relation with employee of all classification are har-
momou.
Fifteenth Birthday
On October 1, 1941, your company will celebrate its fifteenth birthday anni-
ver ary. It i one of the olde t air transport operators and enjoys the benefit
and experience of fifteen year of uninterrupted operation. This experience,
when combined with fonvard-looking policie , should add to the company's
future pro pect .
Annual Meeting
The annual meeting of the hareholder will be held on August 25, 1941.
A eparate notice of this meeting is being sent to each shareholder, and all are
urged by the management to attend in person if possible. This will be the
fir t annual meeting ince the listing of the corporation's shares on national
exchange , and the per onal interest of its many new shareholders will be wel-
comed by the management.
Objectives
It is the aim of your management to operate the finest air transport service
in the interest of the country's commerce, the postal service, and the national
defen e, and at a rea onable profit to its owner ; to maintain and improve your
company' position in the indu try; and to take advantage of and make its con-
tribution to improvement in the art and science of flying. To the end that
these objective be attained, the management of your company will cooperate
with the government and the aviation indu try, will anticipate and seek to fill
demand for improved and increa ed service, and will trive to keep its em-
ployee ' ability and morale at a high point. Much of the future of your com-
pany depends upon energetic development of pas enger traffic and express, and
continued effort for such development will be maintained.
Very truly yours,
President
4
ERNST & ERNST
ACCOUNTANTS AND AUDITORS
SYSTEM SERVICE
ST. PAUL, MINN.
BOARD OF D IRECTORS,
NORTHWEST AIRLINES, !Ne.,
Saint Paul, Minnesota.
August ~, 1941
We have examined the balance heet of OR THWEST AIRLI ES, I C.,
a of J une 30, 1941, and the tatements of income and urplu for the year then
ended, have reviewed the system of internal control and the accounting pro-
cedures of the Company and, without making a detailed audit of the tran -
actions, have examined or te ted accounting record of the Company and other
supporting evidence by methods and to the extent we deemed appropriate. Our
examination wa made in accordance with generally accepted auditing tandard
applicable in the circum tances and included all procedure which we con-
sidered necessary.
Ca h funds were independently confirmed. We te ted account receivable
balances by direct correspondence with debtor and by reference to record
of collections and other data, ob erved procedure employed by the Company
in taking the physical inventorie and made te t count of elected item . Long
term debt was confirmed by direct corre pondence. Other liabilitie were tested
by direct correspondence, computation, in pection of statement from vendors,
vouchers, pay rolls, etc.
In our opinion, the accompanying balance sheet and related tatements of
income and surplus present fairly the position of ORTHWEST AIRL ES,
INC., at June 30, 1941, and the result of it operations for the year in con-
formity with generally accepted accounting principles which, except for the
change in provi ion for depreciation on propeller outlined in ate A to the
income statement, which we approve, have been applied on a basis con i tent
with that of the preceding year.
5
ER TST & ER ST,
Certified Public Accountant .
BALANCE SHEET
NORTHWEST AIRLINES, INC.
June 30, 1941
ASSETS
Current a set :
Cash -------------------------------------------------------------------------------------------------
Marketable securities:
U. S. Treasury bonds-at amortized cost (aggregate quoted
market price $34,650.00) -------------------------------------- ___ _
Accounts receivable:
U. S. Government and agencies ------------------------------------------------------
Canadian Government account (U. S. exchange)
Other tran portation accounts _________________ _
For ervices, upplies, etc. ----------------------------------------------------------------
Le reserve
Inveotorie :
Repair material
or market
Other assets:
and operating supplies at the lower of cost
T OTAL CURRENT ASSETS -------------------
$ 311,081.83
8,021.43
424,000.47
38,159.29
$ 781 ,263.02
1,000.00
Insurance rebates (estimated) and deposits --------------------------------------------- $ 48,027.00
Accounts receivable:
Employees ---------------------------------------------------------------------------- $ 16,158.14
Officer ________ ------------------------------------ 2,189.32 18,347.46
Sundry 'investments (at cost), deposits, etc. ------------------------------------------
Property, plant and equipment- at cost to the Company or its
predece sors less reserves for depreciation and amortization:
Land -------------------------------------------------------------------------- $
Airplanes --------------------------------------------------------
Airplane engine --------------------------------------
Buildings on leased ground ------------------------------------ __ _
Other building and equipment ---------------------- _
_____ _
Improvements to leased property _________________________ _
Cost
5,082.47
1,567,625.48
598,301.48
257,236.14
671,121.45
51,646.73
.~3,151,013.75
Intangible:
Cost of . S. Government air mail route ---------------------------------
Deferred charges:
Prepaid in urance ------------------------ -----------------------------
Other prepaid and deferred expense , supplies, etc. -----------------------------
6
3,020.00
Reserves Balance
$ 5,082.47
$ 614,512.51 953,112.97
357,118.51 241,182.97
161 ,632.33 95,603.81
390,430.99 280,690.46
7,191.16 44,455.5'7
$1,530,885.50 $1,620.128.25
$ 64,893.09
30,382.70
$ 142,973.83
33,938.90
780,263.02
302,464.78
$1,259,640.59
69,394.46
1,620,128.25
48,736.69
95,275.79
$3,093,175.78
BALANCE SHEET
NORTHWEST AIRLINES, INC.
June 30, 1941
LIABILITIES
Current liabilities:
Accounts payable:
Trade accounts ----------------------------------
Air travel contract deposits (gross) --------------------------
SaJaries, wages and bonuses
AcC!rued liabilities
-----------------------------------------
Federal, state and Canadian taxes on income-estimated ___ _
Current maturitie of long term debt --------------------------------
TOTAL CURRENT L IABILITIES - - - -
Long term debt:
Bank loans secured by chattel mortgage on equipment carried at
$911,365.21 payable in installments to November 1, 1942 ----------
Deferred income:
Unused transportation, etc.
Reserve for possible inventory obsolescence
Capital stock and surplus:
P referred stock, 5% cumulative convertible, par value $100.00
per share:
Authorized, 6,000 shares; unissued, 500 shares; redeemed or
converted, 5,500 shares; outstanding, none
Common stock, no par value:
Surplus:
Authorized, 300,000 shares; un,issued, 65,080 shares (of which
10,000 shares are reserved for option at $14.00 per share);
outstanding, 234,920 share at aggregate stated capital
amount -----------------------------------------------------------------------
P aid-in surplus
Earned surplu -------------------------------------------------
7
$ 41,798.86
445,748.84
$ 472,003.95
128,813.64
48,017.16
$1,359,200.00
487,547.70
$ 648,834.75
49,012.02
112,000.00
242,500.00
$1,052,346.77
142,500.00
37,181.31
14,400.00
1,846,747.70
$3,093,175.78
COMPARATIVE STATEMENT OF INCOME
NORTHWEST AIRLINES, INC.
Years Ended June 30, 1941 and 1940
Operating revenues: 1 9 4 1 1 9 4 0
Transportation:
Pas engers -----------------------------------------
Mail ------------------------
Exp res , freight, etc. _______ _
$2,324,003.58
1,852,333.11
114,615.54
$1,752,676.15
1,769,854.82
84,22-8.83
Other ----------------------------------------- 46,956.95 $4,337,909.18 32,899.65 $3,639,659.45
Operating expenses:
Maintenance and repairs __ --------------------------------
Provision for depreciation and amortization _______ _
Compen ation and expenses of airplane crews, radio oper-
ators, superintendents, clerks, airport and hangar
employee
Airplane fuel and supplies ____________ _
In urance -------------------------
Other tran portation e::frpenses
Traffic and advertising _____________ _
Admini trative and general
OPERATING INCOME ---
Other income and credits:
$ 645,3~0.44
499,212.96 (A)
1,100,735.06
446,416.38
262,369.43
266,225.30
402,936.48
277,754.37 3,901,000.42
$ 436,908.76
Adjustment of depreciation provision for prior years__________ $ 10,895.53 (A)
6,534.07
6,785.87
1,186.60
Additional mail revenue applicable to prior years _____________ _
Discounts and interest earned _______ _
et profit from disposal of capital assets ______________________________ _
Sundry --------------------------------
Other deductions:
Provision for possible inventory obsolescence ____________________ $
Interest expense ____________________________ _
Settlement of litigation ______________________ _
Sundry ________________________ _
INCOME BEFORE TA...-U:S THEREON ___ _
Taxe on income:
Provision for the year~timated:
Federal income tax ____ _____ $
Declared value excess profits tax ____ _
State and Canadian income and excess profits taxes __ _
Adjustments applicable to prior years _______ _
NET INCOME ---
*Indicates negative amount.
$
5,808.89 31,210.96
14,400.00
12,863.82
12,500.00
557.95
100,000.00
4,500.00
7,500.00
112,000.00
11,697.47*
$ 468,119.72
40,321.77
$ 427,797.95
100,302.53
$ 327,495.42
$ 592,562.07
383,852.34
896,259.32
399,845.13
270,744.77
240,183.50
328,246.68
239,842.57
$ 5,491.10
$
$
$
97,923.94
4,991.19
18,095.55
387.71
61,500.00
1,500.00
5,000.00
80,000.00
1,638.26
OTE (A) During the year the Company revised depreciation rates on propeller hubs and blades
as a result of study as to estimated life thereof, such adjustment resulting in decreased
provision in the amount of $10,600.45 for the current ycmr and $10,895 .53 applicable
to prior years, the latter amount having been included in other income and credits.
As a result of these changes, income for the current year before provision for taxes
thereon has been increased by the amount of $21 ,495.98.
Paid-in surplus:
SURPLUS
NORTHWEST AIRLINES, INC.
Year Ended June 30, 194 1
Balance at July 1, 1940 --------------------------------------------------------------------
Premium on preferred stock redeemed -------------------------------------------------------------------------------------
$ 41,810.86
12.00
Earned surplus: - - - - -
Balance at July 1, 1940 --------------------------------------
Net income for the year __________ _
$119,665.05
327,495.42
$447,160.47
3,351,536.38
$ 288,123.07
108,406.23
$ 396,529.30
18,483.26
$ 378,046.04
81,638.26
$ 296,407.78
$ 41,798.86
Dividends paid on preferred stock--$5.00 per share ------------------------ ________ 1,411.63 445,748.84
-----------
TOT AL SURPLUs--JUNE 30, 194L_________
__________________________________ $487,547.70
8
MIHNEAPOLI~