Northwest Airlines Annual Report 1942

DIRECTORS
S. M. ARCHER, Chairman
R. l\I. H ARDY
CROIL H NTER
T . E. !Rvnrn
J OSEPH T. J OHN ox
L. J\I. L EFFINGWELL
J oH E. P ARK ER
"
W ILLIAM STERN
EmnN W HITE
CR OIL H UNTER
E. I. W HYATT
K. R. FERG ON -
\.. E. F LOAN
L. S . H oL TAD
CAl\IILLE L . STEIN
E. I. W HYATT
OFFICERS
President
Vice President and Treasurer
Vice President-Operations
Secretary
Assistant Treasurer
Assistant Secretary
General Office : St. P aul l\Iunicipal Airport, St. Paul ::Yiinnesota.
The Chae National Bank of The City of New York, ew York
City
P rincipal Reai trar
Banker Tru t Company, New York City
Principal T ransfer Agent
ity National Bank and Trust Company of hicago, Chicaao,
Iilinoi
Co-Regi trar
ontinental Illinoi National Bank and Tru t Company of
hicaao. hicago, Illinoi
Co-Tran fer A 0
en t
nnual m eting of hareholders last :Monday in eptember.
NORTHWEST AIRLINES, INC.
To the hareholders of :\ ortlnce t Airlines,. Inc.:
Financial Report
t. Paul. :i\Iinne ota
eptember 10. 19..J,2
For the fi cal year ended Jun 30. 19L. your company earned an t income
of 430.100.01 aft~r deduction of income. xce profit and oth r taxe . Thi
amount to 1. 3 for each common hare out tandino. ~
--H the end of the .. ar
your company urplu \rn 917.6..J,7. 11.
Th re i included with the ac ompanyino finan ial tatement a i port of
Ern t & Ern t. c rtified public accountant . coYerino the incom tatement. ur-
plu tat ment and balance heet.
The income tatement compare the re ult of the year ju t ended ,Yith
tho e of the preYiou year. There are ome ionificant compari on ,Yhich hould
be clearly under tood. (1) The curtailment of en-ic ,Yhich your company expe-
rienced in common ,Yith all other air carrier o curred o n ar the end of the
fi cal year that the lo of reYenue and profit i not obYiou in the rep rt.
(:z) The non-recurring item of profit from di po al of aircraft and oth r depre-
ciable a et i th larO'e amount of 39 ,6..J,6.00. Part of thi fiO'ur is th book
profit on airplane old for Yrnr purpo e at th requ t of the Unit d tat
Government. and the balance i the xce 0Yer depreciated Yalue of in uran e
collected for aircraft lo t in accid nts. (3) The proYi ion for taxe n income i
2..J,7,513.75 higher than la t year. ..J,) Both reYenue and expcn ar affe ted
b J our company' ,Yar contract in ,yay which make it impo ~ible to exactly
compare operating expen e for the brn year .
Total operating revenue incr a ed 5 5.5..J,5.-l oYer the preYiou year due
to gam of H .6o/o in pa enO'er reYenu . 6.-J,~ in mail reYenue and 79.0o/o in
expr reYenue. The increa eel pa enger bu ine wa the re ult of ellinO' a
higher proportion of the at a Yailable: the increa eel mail pay re ulted from
oTeater bonu e cov rinO' hca Yier mail load : the increa ed expre mcome ame
from much heavier carriaoe of air expre .
Operating expen ,Yere high r. partly a th r ult of con idcrably in-
er a eel bu ine , but al o bY r a on of hioher alarie and ,Ya0e . in rea d co t
of material and upplie a;1d increa eel aO'e of flying equipm nt. The incr a e
w re off et to ome ext nt by the elimination of d preciation charO'e on air-
plan di po ed of during the year and ome xp n e charoed ,rnr
contract .
Th mo t important change in the balan e heet ar of c m e. th in-
er a eel urplu and the improYed n t urrent a et po ition of your company.
On June 30, 1942. curr nt a t d d urrent liabiliti by 1.06 .Jl - .-6.
1
An item not ~hown on th balance heet is worthy of comment. The com-
pany has commitled it lf a a I arlicipant in the con truction of a new ter-
mina 1 building at Chi ago, Illinoi , for 9% of the maximum co t or $108,000.00.
A depo. it in e crow of '9,000.00 ha been paid and additional payment to be
made thereunder will be recovered in future perio] a r n tal on pace
occupied.
A dividend of fifty cent per hare, aggreoating $117,460, wa declare l on
Augu t 11, 194'2, payable pt mb r 1, 1942-.
Equipment
During the year your company old four Dougla DC-3 2-1-pa senger plane
and four Lo kheed El ctra 10-A 10-pa enoer plane for ,var purpo es at the
reque t of the :f cl ral Government. lso during the year two DC-3's were lo t
in accident , and an ob ol te Hamilton plane wa old. The only airplane
acquired durino- the year wa a Gull-vVing Stin on.
Financing
o additional financing ,va required during the year. $2-42-,500 wa paid
on pr viou bank loan, , reducing the balance to $142-,500. This balance ha
be n reduced to $30,000 a of the late of this letter.
Personnel
Development during the year, particularly ince January 1, 1942, have
made extraordina0T demand upon the loyalty, energy and ability of employee
of all cla e . The willing and effective r span e to the. e heavy demand, ha
carried fonrnrd the company' operation in a way not only to the company's
own b ne:fit but ha contributed to tbe country' ,var effort to a high degre
of which '" are all incercly proud.
The company ha three labor aoTeement in effect-one with pilot , one
with radio op rator , and one with maintenance and other mechanical per onnel.
R lations ,Yith employee of all clas i:fication continue to be harmonious.
E:ff ect of War
The character of ~
T
om company' bu, ine ha been changed to a tremen-
dou e--tent. The effect of the ,Yar and of government policie fall into everal
categorie :
1. Effect upon volume of comm rcial operation
~- P r onncl alled to military erv1ce.
3. "ar contract .
Th compan~T,_ commercial bu ine ha been affected to an important
degr e by the war. both in wa~' which are favorable and in other \Vay ,vhich
ar acl,T
er . Tnwcl re ulting from war production and from the mov m nt of
military pe1"011n I. together with increa eel u e of the mail and air expre s for
war purpo, e , onlributed 0-reatly to imprO\ed revenue . On the other hand, the
requi, itioning by the govemment of airplane , with con equent curtailment of
service, cut hort thi, reYenue improv ment during the latter part of the .Y ar.
Thi ~ requi. i tioning amou11 ted to a1 proximat h' half of the company' flying
2
equipm nt, making nee ary n arly a -:bOo/o cmtailrn nt of schedule, . includino
the complct elimination of ervice b twc n Portland and pokan and elimina-
tion of pa eng r ervice bchve n the Twin ities and Duluth. on which only
mail and expr are no,v flo,vn.
The eff ct of thi curtailment dming the )'car ju t nded wa not ver)
eriou , but th cmrcnt year is cntere i into ";th a greatl)' reduced Yolume of
commercial operation . H weycr_ it i b li v c1 that irnproYecl load factors and
better utilization of quipmcnt will. with th ornpan/ - oth r projects. t nd
to off-et the r du ed Yolume of ommer ial operation .
lthough the gov rnment ha recognized the Yital natur of air tran,port
s nice and local draft board ha v cooperated in deferring many of om tech-
nical and k y per onnel. neverth le - w ha v found it nee , sary to replace
a larg number of m n. In all. a total of 17-:b h,wc left to join the armed rvices.
includin four of our ex cutive ta:ff. The c fonr are George E. Garc1n r. ,vho
erved the company a , ice Pre, idcnt in Charge of Operations. now a Colonel
in the Air Corp : ,, . Fi k IarshalL former Operations ::\Ianager. now a Lieu-
tenant Colonel in the . S. Iarin : A. Robert J\Icn ing. Jr.. who - rv d a~
" e tern Divi ion Superintendent, and W. D. Inne -s, our Sup rintcndcnt of
Communication . both of wh rn ar now l\Iajors in th Army Air Corp . I bclieYe
it i a real tribut to the hara t r of the N ortlrnest Airline - oroanization that
the heavy re pon ibilitie placed on the men m Ycd into th vacanci, so
cau ed and into po ition newly crcat c1 have been admirably met. ,Ye have
had to overcome the lo of all of th e employees nncl at the same time expand
our per 01111 1 from 8 1 to appro_
imately 3.600 ince January 1. 19-:b2. Present
indication are that the job ,ve have b en giYen to do may require nn organir.a-
tion of 000 to 10.000 people. \nticipatino- uch higher 1 vel of cmplo~'mcnt.
we ha, e already hired larg number f women, not onl~T in office job but in
variou kind of m chanical ,York, in ,-rhich th ~
, hav -hown excell nt aptitude.
and in all po ition for which w b Ii ve they can qualih'. Further. we are
employing mor and mor men ,vho e draft tatu make them mo t r mote
from Sel cti, e Sen ice.
The mo t important in -1 government poli )' aff cting yom company's
tatu in war tim wa the dcci ion by the . \rmy ir orp: to utilize
the ervic of the ountry commer ial airline to th fullest pos-ible xtcnt.
ucc ful air tran portation involve not onl)' :flyi11t; airplane from plac to
place but al o involve a hiohly trained ground organization and cxtcn -ive main-
tenance. rvi ing and ommuni ation fa ilitie . For year th airlin have
trained uch p rsonn l and develop d uch facilitic and ha YC a quired a va , t
amount of exp ri nee. not only in the operation. maintenan and c1Ti ing of
aircraft. but nl o in the trainino of per onncl and de,, loping of the many aids
n d d in uch operation. Fortunat ly, at thi riti ell tim . th y arc in a po i-
tion to be of im aluable a i tance to th Army.
The eff ct of thi policy arc not con:fin d to the :financial pr t - tion
offered, although thi feature in it elf i of great importan e. ina mu h a the
government a tion in req11i itionin~ airplan and reducing , chedulc lrn l th
-ff ct of 0 T atly r ducin . if not omplet l,'lr liminating, any han for profi l-
abl ommer ial operation . Iuch more important than thi i' th fn t that
thi allow your ompany and oth r airline l chaw upon Lh ir nccurnulalecl
xp ri nee, rnanao rial ability, and man pow r lo mak a oT 'at ancl dire t on-
tribution to the ountry' war ffort.
3
The full tory of our vital war contract cannot now b - told, but thi part
of the company' operation far exceed in volume it normal airline bu ine s
and i growing rapidly.
Objectives
For the duration of the war the objective of your company are:
1. To bend every effort to do succe fully every job given us by our gov-
ernment.
2-. To operate a good commercial airline ,, ithin the restriction of wartime
economy.
3. To eek to gain from it wartime experience the maximum value to be
applied to po t-war activitie .
The tremendou extent to which the airline are operating military con-
tract "ill be a factor of prime importance in the development of po t-war
aviation. The problem being met and mastered and the volume of operations
being conducted will put air tran port in a position to be an important factor
in u taining the po t-war economy of the country. The opportunity to train
and develop large number of new per onnel, the experience gained in the opera-
tion of new and larger type of flying equipment, and the technical pioneering
work being done will be of incalculable benefit to your company and your
nation when the pre ent ,rnrld conflict end in ultimate victory for the
nited ation .
Very truly your ,
President
ACCOUNTANTS'REPORT
Bo RD OF DIRECTOR ,
N ORTR\VE T IRLIXE ' I NC.
aint P aul, Iinne ota
We ha, e examined the balance heet of NORTH\'\ E T IRLI~E , I~C.
a of June 30, 1942, and the tatement of income and urplu for the year th n
ended, ha, e revieY,ed the y tern of internal control and the accounting proce-
dur s of the Company and, without making a detailed audit of the tran action
have examined or te ted accounting record of the Company and other upport-
ing evid nee, by method and to the ext ent ,,,e deemed appropriate. Our examina-
tion wa made in accordance with generally accepted auditing tandard applic-
able in the circum tance and included all procedure which ,,e con idered nece -
ary.
Ca h fund ,ver independently confirm cl. ccount rec ivable l alance
were te ted by direct corre pondence ,Yith elected debtor and by reference to
record of collection and other data. \\ e ob ened the proc dure emploved b}
the Company in taking phy ical inventorie and made te t count of lected
item . Note payable ,.._-ere confirmed directly by the bank. Other liabilitie were
te ted by direct corre pondence. computation, in pection of tatement from
vendor , voucher , pa roll , etc.
In our opinion, the accompanying balance heet and related tatement of
income and urplu pre ent fairly the po ition of :NORTH\'\ E T AIRLI ES,
INC. at June 30, 1942, and the re ult of it operation for the year, in con-
formity with generally accepted accounting principle applied on a ba i con-
i tent , ith that of the preceding :, ear.
ERx T & ERx T,
Certified Public ccountant
Saint Paul, Minne ota
eptember 8, 1942
5
BALANCE SHEET
NORTHWEST AIRLINES, INC.
June 30, 1942
ASSETS
Current asset :
Ca h -----------------------------------------------------------------------------
Marketable securitie :
. S. Treasury bond -at cot ----------------------------
Accounts receivable:
. S. and Canadian Government and agencies _______ _
Tran portation accounts ___________________ _
For en-ice , supplie . etc., less re erve of $2.500.00
Inventorie :
Repair material and operating supplies at the lower of cost or
market --------------------------------------------
ToTAL CURRENT AssET
Other assets:
Account recei, able from employees ___________ -------------------------------------------
In urance depo its, claims, and premium adj u tment ________________________ _
Sundry investments (at co t) and deposits ________________________ _
Property, plant. and equipment-at co t to the Company or its pre-
dece sors, le s re erve for depreciation and amortization:
Land
Aircraft and re erve equipment
Building on lea ed ground -----------------------------------
Other buildings and equipment ------------------------------
I mprovement to lea ed property ___ _
Intangible:
Cost
$ 5 082.47
1,352.565 .52
414.200.87
648,854.06
66,540.41
$2,487,243.33
Co l of U. . Government air mail route ------------------------------------------
Deferred charge :
Prepaid in urance ----------------------------------------------------------------------------------
Other prepaid and deferred expense , upplies, etc. ------------------------------
G
R eserves
$ 855,966.89
188,547.78
356,320.25
13,325.88
1,414,160.80
$ 952,075.69
522,658.35
34,139.80
$ 39,346.03
$
20,678.42
13,285.00
Balance
5,082.47
496,598.63
225,653.09
292,533.81
53,214.53
$1,073,082.53
$ 53,415.23
48 556.22
$ 897,255.86
25,000.00
1,508,873.84
306,019.63
$2,737,149.33
73,309.45
1,073,082.53
48,736.69
101,971.45
$4,034,249.45
BALANCE SHEET
NORTHWEST AIRLINES, INC.
Current liabilitie :
Note payable to bank
Account payable:
June 30, 1942
LIABILITIES
Trade accounts ____ ------------------------------------------------------------------------------------------------------------------------------------------
ir travel contract deposit (gros ) -------------------------------------------------------------------------------------------
alarie and wage ------------------------------------------------------------
Employees' war bond deductions --------------------------------------------------------------------------------------------------
Accrued liabilities
Federal. state, and Canadian taxe on income--estimated --------------------------------
TOTAL CURRENT LIABILITIES -----------------------------------
Deferred income:
nu ed tran portation, etc. -------------------------------------------------------------------------------
R eserve for possible inventory obsolescence ---------------------------------------------------------------------------------
Capital tock and surplus:
Preferred tock, 5% cumulative convertible, par value 100.00
per share:
Authorized 6,000 shares; unis ued 500 shares; redeemed or
converted 5,500 share ; outstanding, none
Common stock, no par value:
Authorized 300,000 hare ; uni sued 65,080 shares (of which
10,000 hares are re erved for option at $14.00 per hare);
outstanding 234,920 hare at aggregated stated capital
amount ---------------------------------------------------------------------------------------------------------------------
Surplu :
Paid-in urplu
Earned urplu ----------------------------------------------------------------------------------------------
41,798.86
875,84 .85
NOTE A-The Company ha been named defendant in law uit , which
have noL come to trial arising from Lhe accidental death of
thr e per on . " hile the amount of the e cla.irn i con ider-
ably more than th ma,-xirnurn in urance coverage thereon of
$225,000.00, it is the opinion of the Company's lecral coun el
thaL any damage which may be awarded \\'ill be ubslanlially
les than the amount of the in urance coverage.
7
$ 808,057.47
140,375.40
86,781.06
15,039.13
$1,359,200.00
917,647.71
$ 142,500.00
1,050,253.06
120,981.01
355,000.00
$1 ,668,734.07
46,667.67
42,000.00
2 276,847.71
-:1,,03--1:.2+9.-:1,:5
COMPARATIVE STATEMENT OF INCOME
NORTHWEST AIRLINES, INC.
Years Ended June 30, 1942 and 1941
1942
Operaling revenue :
Tran porla Lion:
P as en ge1 ----------------------------------------------------------------------- __ _
fail -------------------------------------------------------------------------
Ex pre s, freight, etc. ----------------------------
Repair and ervice income and fees, rent , eLc. ___________________ _
OperaLing expen e :
l\I ain ten a nee and repair ---------------------------------------------------------
P rovi ion for depreciaLion and amortization --------------------------
Com1 n aLion and expense of a,ircraft crew , radio oper-
alor , uperinlendent , clerk , airport and hangar em-
ployee ------------------------------------------------------
ircrafL fuel and uppli --------------------------------------------- ____ _
I nsurance ___________ _
OLh r tran porlation expen e --------------------------------------------- __ _
Traffic. ale , and adverti ing _________________________________________ _
Adminislrative and general __________________________ _
OPERATING I NCOl\IE
OLher income and credi L
s:
Profit from di po al of aircraft and olher depreciable
a ets ____________ _
D iscount and inLere t earned --------------------- _________ .
CrediL applicable to pi,ior year ----------------------------------------
undry ------------------------------------
Other deduction :
Addi Lion to re erve for po ible inventory obsolescence ----
I nLere t expen e -------------------------------- --------------------
eLLlement of litigation
undry ----------------------------------------------- --------------------
I NCOl\lE BEFORE TAXES THEREO
T axes on income:
P rovi ion for the year--estimated:
Federal income tax at 1941 rales ----------------------------------
Es Li mated add iLional liability under pending legisla-
tion -------------------------------------------------------
Declared value exce s profits tax --------------------------------
tate and Canadian income taxes ----------------------------------
Lo prior year adj us Lmen ts -------------------------------------------------
ET I co IE --
$2 663.126.51
1,971,213.71
209,137.23
79.976.94 $4,923,454.39
$ 815.620.91
461,587.37
1,254,511.37
493.1 1.95
313,186.07
301, 782.21
550,552.22
332.569.21 4,522.991.31
$ 400,463.08
$ 398.646.00
5,995.37
3,641.23
6.24 .14 414,530.74
$ 814,993.82
$ 27,600.00
5,648.38
3.829.15 37,077.53
$ 777,916.29
$ 250,000.00
55,000.00
35 000.00
15,000.00
355,000.00
7,1 3.72 347,816.28
$ 430,100.01
STATEMENT OF SURPLUS
NORTHWEST AIRLINES, INC.
Year Ended June 30, 1942
P aid-in urplu :
Balance at July 1, 1941, and June 30, 19-12 -----------------------------------
Earn <l urplu :
Balance at July 1, 19-1-1 ----------------------------------------- __________________
__________ _
:N'eL income for lhe year ___ ---- ------------------------------------------------------------------------------------------------------------
T OTAL RPLU&-J NE 30, l!H2 ------------------------------------------------------------------
8
19 4 1
$2,324,003.58
1,852,333.11
116,824.42
44,748.07
$ 645,350.44
499,212.96
1,100,735.06
446,416.38
262,369.43
266,225.30
402,936.48
277,754.37
------
$
$
$
$
1,186.60
6,785.87
17,429.60
5,808. 9
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
445,74 .84
430,100.01
$4,337,909.18
3,901 ,000.42
$ 436,908.76
31,210.96
$ 468,119.72
40,321.77
$ 427,797.95
100,302.53
$ 327.495.42
41,798.86
-----------
MINNE APO LI!