Northwest Airlines Annual Report 1955

Northwest Airlines, Inc.
NORTHWEST
NORTHWEST 0-ii,etit AIRLINES
SYSTEM MAP
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CHINA
AIRLINES, I N C . , ~ ~
TO SHAREOWNERS OF NORTHWEST AIRLINES , INC
The report of the independent auditor and the
financial statement for 1955 are presented herev,ith.
EARNINGS
The total net income for 1955 was $2,116) 80. Pre-
ferred dividends amounted to $387,031, lea\ing
$1,729,149 or $1.80 per share for the 963,135 out-
standing shares of common stock. In 195+ total net
income was $2,415 524, which after preferred di\'idends
of $429,554 left $1,985,970 or $2.38 per share for each
of the 834.933 shares of common stock then outstand-
mg.
Net income from operations after taxes and before
property disposal amounted in l 955 to $2,027,319 com-
pared with $2,203,144 in 1954.
The net income shown above for 1955 \Vas developed
without any subsidy payments from the . S. Govern-
ment- whereas in 1954 ubsidy payments totaled
$3,035,000.
Net income from property disposals wa but $88,861
after taxes, the lowest amount in several years. In 195+
such net income was $212 380, while in 1953 it totaled
$605,190.
Operating re\'enues reached a new high of $71 363,+9+
for a gain of 12.2% over 1954. Passenger revenue of
$57,252,957 was up 12.1 % ; mail revenue of $7,090,229
increased 4.5%, while revenue from express, freight
and excess baggage of $6,123,606 exceeded last year by
15.6%. Due to reduc
ed yield primarily due to the
increase in coach business and lowered mail rates, the
revenue per available ton mile declined 7.2% from 195+.
During 1955, 1,343,337 revenue passengers were
carried on the system ( domestic, Orient and Honolulu
routes), an increase of 12.0% over the previous high,
1954. Revenue passenger miles totaled 1,017,400,H3,
an increase of 11.8% over the previou year. This is
the first time that we have flown more than one billion
passenger miles.
Operating expen es rose 13.7% over 195+. Available
ton miles flown increased 20.9% over the previous
year, thus our operating cost per available ton mile
declined.
During 1955 the company negotiated a new bank
credit agreement, dated a of June 30, 19.55, and which
became fu lly effective on July 15, 1955, lo provide
credits which may aggregate $29,500,000. This agr e-
ment uperseded the bank credit agreement dated as of
Tovember 30, 195+ which extended credit of $18
million and under which the company was obligated
to commence payment on any loans out tanding, be-
ginning June 30, 1955. The new redit agreement doe
not require any cheduled repayment until June 30,
1958 and permits the company to borrow and prepay
within the limit of a "Loan Value Schedule' e tablished
therein at it option until June 30, 1958. The maximum
amount which may be out tanding on December 31,
195 7, i $29,500,000. The additional line of credit and
different repayment requirement were necessary be-
cause of the ordering of Dougla DC-6 and Dougla
DC-7 type aircraft.
NET WORTH
The net worth of the company at the end of 195.5
was $28.228,-1-8+, of which $21.60 per share wa appli-
cable to the common rock. Thi compares with
$26,829, l 07 at the end of 1954, of which $21.11 was
applicable to common stock. Our earned surplus wa
$7,453,305 at the end of the year compared with
$6,275.889 at the end of 195-1.
DIVIDENDS AND STOCK CONVERSION
Dividend on the +.60Cr umulatiYe Preference
Stock were paid regularly on the quarterly due date ..
An NW A Plane Arriving af Honolulu
The February 1. 1956, quarterly dividend wa 1 o
paid on that date. On May 1, 1955. your ompany for
the fir t time since 19+6 paid a dividend on common
stock. On May 1 and on Atiau t 1 and O\ember 1,
19.55. dividends of '.20c p r hare wer paid. A similar
di\idend was also paid on February 1, 1956 on com-
mon shares.
During the year 71,135 share of 4.60% Cumulative
Preference Stock were converted into comm.on stock
at the conversion rate of one and one-half common
hare for each hare of Preference Stock. All conver-
sion rights of Preference Stock into common stock
terminate as of December 31, 1956.
ROUTES
During the year the Civil Aeronautics Board renewed
all of your company's international route authorizations.
ervice over the Great Circle route to Japan was re-
newed for even years while en-ice to point beyonci
The Old and New in Alaska
Japan to Okinawa, Formo a, Hong Kong and the
Philippine , was renewed for five year . Service between
Japan and Korea, between Seattle/ Tacoma-Portland
and Honolulu, as well as between the Twin Cities of
Minneapolis and St. Paul and Anchorage, Alaska, \ia
Edmonton, Alberta, was renewed for three vears. Local
service between Seattle/ Tacoma and An~horage '!Va.
renewed under a permanent certificate.
The Ci\il Aeronautics Board also authorized your
company to provide direct service between Chicago and
~ew York, as well as between Chicago and Detroit.
In the ame decision we were granted the right to
operate "turn around" or huttle service between De-
troit and New York. These authorizations allow us to
make our service more effective in these heavily traveled
markets by providinu improwd one-carrier service to
the public. ervice between Chicago and ev,, York
was inaugurated on October 30.
During the vear your company filed with the Ci\il
Aeronautic Board a number of applications for route
expansion and to enable your company to rendtsr im-
proved sen'ice. The following applications for the right
to provide additional ervice were filed:
Twin Cities of Minneapoli and t. Paul to Los
Ang-ele and to an Franci co \ia Denver and
Sal~ Lake City
Billina to an Franci co via Salt Lake City
Chicago to Miami via Cincinnati, Loui ville.
Atlanta and Tampa
Detrnit to Miami v1a Cleveland, Pittsburgh anca.
Tampa
Chicago to Washington, D. C. via Dayton,
Columbus and Pittsburgh
Chicago to New York via Dayton, Columbus
and Pittsburgh
Detroit to New York via C1eveland, Pittsburgh
and Philadelphia
Chicago to Boston via Detroit and Toronto
Anchorage to Fairbanks
Request for authority to service Winnipeg and
Edmon ton on same flight
Other applications filed with the Civil Aeronautic
Board prior to 1955 include our application to fly from
New York to Boston via Hartford and Springfield, as
v:ell as a request that Chicago be designated as an
intermediate point between Milwaukee and Detroit on
the Detroit-Washington, D. C. route. This latter would
permit Chicago_
-Cleveland, Chicago-Pittsburgh and
Chicago-Wahington nonstop service.
,ve also asked for the removal of restrictions to allow
us to carry local traffic between Great Fall and Butte
or Helena and to permit 'turn around" or shuttle
sen-ice o\er our Detroit-Cleveland-Pitt burgh-\Va hing-
ton, D. C. route segment.
'We believe that the expansion of our sen,ice to the
citie Ii ted above, not presently erved, and in par-
ticular to tho e southern sections of the country which
form vinter vacation areas, will improve our financial
Hong Kong-Where Easf Meefs W esf
re ult by minimizing our pre ent winter easonal
traffic decline.
In it opinion dated December 15, 195+ in the Tran. -
Pacific Certificate Renewal Case, Docket 5031 the Ci\'il
Aeronautic Board recommended to the President of
the United tate that your company be granted a
permanent certificate for operation between eattlc
:md Tokyo and al o r ommended the denial of Pan
.--\merica1~ \\'orld Airway r que t t perate oyer the
Great Circle route bet\\een attle and Toho. The
,A B. howeYer. tated that. .. ur deniai' of Pan
.--\merican reque t to operate o\ r the Great ,ircle
route i without pr judice to iL ren \ml at u h time
Cherry Blossom Tim e in Japan
a nowtop operati ns between Calif rnia and T kyo
may become pr::tc ti able." n Febru::try 1. 1 5 .... , the
Pre-ident returned the prop -ed ord r of the ,A B and
-rat d ...... I belie\e thL t permanent errification of
. Torth\,e' t Airline i prern:Hure :r I n:::- a' ub. idy pa~-
menr- re ne - . ry f r it operati n . A temp rary
ertifi ate ,, ill prmide the carrier with the opp rtunity
to d 111011 ' trate it ' ability to operate \\ ith ut ub idi
within a rea onable period of time ...... H e further
stat d that. "I desire to h Id in abeyan e 111\ ' de i_i n
n erning the u e of the reat ,i;cle route by P~rn
AmericL n I ending further -cudy and later report on the
economic and te !mi :.11 fea-ibilit, and the miliu1rv and
for ign p Ii y impli ation- f n~n. t p . eIYi e 1 etween
the we t .oa:t and the rient."
On J :rnuary 18. he P r id nt :ent a letter to
1airman of requ ting that it r con icier
om dati erning ch; u e f the r :it
1 b\' cri Lm \ \' rid .-\ in,:1,, and.
" ... to id r in the light of am new and
rele\ ~ nt 1111-t clc,elopn;ent. that i - tu
exi t. . . a the P lent' lett t-
. o- , to r Pan eri an u 1e
r utc. rhe C.--\B rcop the Tra c
em'", I Ca e. 031. H o\\'ever. in
v the c;-1:e. the n t th
~n w cc mid rati f era tion
T
i1~ le route bet,, lifo1 ni
wa propo ed by the Board in ic earlier p1mom of
De ember 15 195+. The A B reopened the proceed-
in0 for further hearin<Y on the i- ue of granting 0r
denying Pan American appli ation to operate, ... be-
t\\Ten L Angele and an Fran i c . ,alifornia. Port-
I nd. regon.--- eattle, \ \'a hingt n. and T kyo. Japan.
o\erthe reat .ircl route ...... nFebruarY6.19~6.
your ompany filed a motion reque ting a m~difi ation
f the , B' order f F bruary 2 s , " to:
1. ,onfine the pr eeding to the i . ue of a dire 't
route bet\\'een .alifornia ::ind T k\'o whi h ,, :1
the nh i- ue held in ab \ ,rnce b .- the Pr ident
in hi. i'tter dated brua1'.\ l= 1955: or
2. Amend the orde1 to in lude the foll \\'ing issue
A .
B.
rn e by
and an Fran
J apan. o\e1 the
et\, een Lo Angeles
!if rnia. and Tok o
ir le route
enice b, , ' rth,,e::.-t bet\\'een H n lulu and
okyo
Permanent certifi ation of .. rthwe t' tran -
Pa ifi certificate.
The , B con id red 'orth\\'e:r m tion and on
. far h 1. 1956, i . ued an rder granting _ orthwest\
motion with respe t to th i .. ue of , ~ rthwe t' 1Yi e
A Japan ese T ourisf Attraction
to L - An;ell' :rnd an F1 .1nci~ o and . orthwe t' re-
que t f r ,1 p rrnL nent cenifi ,'llt'. Foll "ing the ord 1
f 1far h I. the C.-\ H .l " ig1wd the re pened p1 oceeding
for prehe, ring onferen e to lw held on ~L rch 19. 195
n M arch '.L before the conft'I l'I1Ct' could he h Id.
th AB ,, a dire red. b, a \\'hite Hou e letter, t
e lud ' rt h,,e t pp !i , t ion. fr m r he p1 o eeding
and to confine the i sue to Pan American'. use of the
Great Circle route.
Following re~eipt of the letter the CAB on March 7
issued an order reversing its previous decision- it vacated
its order of March 1 and denied 1 orthwest's motion of
February 6. The result of this order is to deny orth-
west the opportunity to present to the CAB any alterna-
tive application of it own which would make possible
some semblance of competiti\e balance in the Pacific
Ocean area.
The re tricted case i. nmv assigned for hearing before
the CAB on May 8, 1956.
EQUIPMENT AND SERVICE
Early in the year four new Lockheed 1049G Con-
stellation aircraft were put into ervice in international
operations. These luxuriou planes enabl your company
to off er its customers the finest and fastest service be-
tween the United States and the Orient and to H awaii.
All of these aircraft off er a choice of fir t cla s and
tourist accommodation .
By midsummer the Lockheed Constellation aircraft
were pro\idi11g five weekly flights between Seattle/ Taco-
ma and Tokyo. In addition we operated two weekly
A Formosan Rural Village
cargo and mail flight with Doug la DC--!- and Douglas
DC-6B aircraft to the Orient. thu prmicling daily
ervice to Tokyo.
Our present en i e between eat tie / Tacoma and
Ha\ aii i. operated with Dougla DC-6B aircraft on
a thrice weekly ba i .
Boeing tratocrui er are being u ed on many seg-
ment of our dome tic route in Er t cla luxury ser\'ice.
Thi include operation from coa t to coa t \ ia the
Twin Cities of Minneapolis and St. Paul, between the
Twin Cities and Chicago, as well as via our newly
certificated direct route between Chicago and ew York.
Your company also offers low fare tourist ervice on
practically all of its flight segments, both domestic and
international.
Our interchange agreement with Eastern Air Lines,
which became effective December 15, 1954, has provided
daily through service between Minneapolis/ St. Paul and
Miami via Chicago. During winter months our aircraft
manned by your company's crews on the Twin Cities-
Chicago segment and by Eastern Air Lines' crews on
the Chicago-Miami segment are flown one round trip
a day from the Twin Ci ties to Miami. During the sum-
mer months Eastern Air Lines' Con tellation equipment
is used on the interchange service.
During the year your company put into service two
additional Douglas DC-6B aircraft and has on order
for delivery in 1956 195 7 and 1958 thirteen more
Douglas DC-6B's and eight Douglas DC-7C's. When
this program is completed, we will have a pres urized
fleet of forty-four aircraft including our ten Boeing
Stratocruisers. On January 1 1955 we had seventeen
pressurized aircraft.
\ 'our company is conducting technical studies and
making economic analyses of turbo prop and jet air-
craft. It is expected that decisions concerning the pur-
cha e of such aircraft will be made during the next
several months so that this equipment can be placed
in operation on our routes in 1960.
On March 5, 1956, your company entered into a
long-term agreement with the Minneapolis-St. Paul
Metropolitan Airports Commission to provide a com-
plete overhaul, operations and general headquarters
facility at Wold-Chamberlain Field.
The structure will contain completely modern engine
and airframe overhaul facilities, line maintenance hang-
ars and a general office building. It is estimated that
the "ba e" will contain approximately 800,000 quare
feet of floor area and will cost about $15 million.
Financing will be accomplished by the sale of Metro-
politan Airports Commission bond5 to be amortized by
the rental payments to the Commission over a thirty
year term, commencing upon completion of the building.
MAIL RATES
I nternational- In 1955 your company oecame the
first U. . air carrier to operate without Government
. ubsidy support on tran -Pacific and States-Ala ka routes.
Thi action, made effective January 1, 1955. by rate
order of the Civil Aeronautic Board, means that total
compen ation from th Government is fixed at the com-
pen atory or ' ervice" rate. per ton mile of . mail
actually carried. The. e rat ha\e been made final by
the CAB. The merall yield hould average about
+6.32c per ton mile of . mail carried.
In 195-l- we recei\ed ub idy pay of 3 035,000 from
the lJ. . Government for international operations,
whereas in 1955 we receiYed no sub idy. De pite elimi-
nation of sub idy and reduction of sen-ice rates, inter-
national mail pa)' in 1955 totaled $4,937,556, or $24,556
more than the 1954 subsidy and senice amount of
$4.913,000. The additional mail re,enue was developed
by, increased flight frequencie and greatly increased
,.-olume of mail. In 1955 we carried 10,487,204 ton
miles in international operations compared v-.rith
3)258,539 ton miles in 1954.
Domestic- During 1955 the dome tic mail rates. of
all trunk carriers were finalized after an open-rate penod
which began on April 1, 1954. The new multi~element
rate formula which provides eparate rate for lme haul
and terminal charge result in a net yield to - orthwe t
of about 36.62c per ton mile compar~d to the pri?r
rate of 45c per ton mile. HoweYer; carnage. of ~omest1c
mail increased 33% from 3,394,416 ton Illlles m 1954
to 4.521.522 ton miles in 1955 re ulting in a net
incre~se in mail re\enue de pite the rate reduction.
Your company ha continued it par~icipation in thP
Post Office experimental program of fl mg 3c first cla,
mail by air. In addition to the Seattle-Po_rtland egme~t
erYed last year, we ha,e now added th1 type of m1.il
traffic on the ne\vly acquired Chicago-_ e\, York route.
Continuation of thi program has been a sured and w"
can expect increasing mail re,enues from this ource.
Prior Years- Domestic and international mail rate
for 1951 and international rate for 1954 are still ope:1
and subject to ettlement with the CAB. Rate for all
other prior period are closed.
PERSONNEL
The progre made by your company in the pa t
thirty year i in a large part the re ult of the loyalty}
skill, experience, and thorough trammg of it ground
and flight personnel and the upen'isory staff.
On December 31, 1955, your company had 5,452
employee , of which 5,044 were located _in the Gnited
tates and anada. Four hundred and eight emplo ee
were located in Orient tation \\est of Shemya of which
82% were foreign national . :--fore than 1.600 employee
ha~e oHr ten year of_ enice ,,ith _ orth;\e t irlin.e~,
24 of that number hanng been a\,arded 2J-year service
pin at a pecial dinner held in their honor.
The ingenuity and intere t of employee in the grov.:th
of your company are manife red in par~ by employ~e
uggestion submitted during t~e year whic~ re ulted m
potential company co t reduction and savmgs of. o\er
$183 000 for which approximately S10,000 wa paid to
303 employee in the form of awards under the sug-
gestion and award plan.
Contract negotiation \\ith Yariou labor organizations
were concluded in 1955 in a harmoniou. and coopera-
ti,e atmo phere. \\'age increa e and fringe bene_fits
were extended to employee in line \\'ith compensat~on
change made by other air carrier of comparable 1ze.
MANAGEMENT CHANGES
lbert F. Tegen, Pre ident of General Public ~tilitie-
orporation, ::\"ew York City, who had bee~ a d1~ector
of ... orthwe t Airline . Inc.> since _ fay 18, l 9.'J3} resigned
a- of December 30. 1955. due co the pre of other
bu ines . Albert E. Floan, \ ice Pr idem and , ecretary,
,\'a nominated on the panel of Director propo ed for
election at the annual meeting of hareholder to be
held on :--fay 21. 1956. Gordon- :\1. Bain wa appointed
\'ice Pre id~nt- -ale~ as of _ farch 1} 1956) filling the
,acancy created by a re ignation.
B authority of the Board of Director-
hairrnan of the Board President
:--farch '.26, 195
aint Paul, :-.finne ota
STATEMENTS OF FINANC.
IAL POSITION
NORTHWEST AIRLINES, INC.
ASSETS
December 31 ,
CURRENT ASSETS
1955 1954
Ca. h ................ . ................... ............................................................................... $ 6,042,984
Accoun ts rccrivable, le allowance of $75,000 1 g- 5, $70,000 1954........ 6,566,861
Maintrnance nd ope-rating upplies al average co t. ...... .... .... ... .......... .... .... 1,832,533
Prepaid in urancc, rent, taxe etc........ .. .................................................... ..... 379,793
TOTAL CURRENT ASSETS $14,822,171
INVESTMENTS AND OTHER ASSETS
R l,1tcd indu. try inve tments and advances- at cost.................................... 231 ,450
FLIGHT EQUIPMENT at cot. ..................................................................... $56 332,679
(Including fully amortized amount $9,765,835 1955,$9,061.323 19."d )
Le s allowances for depreciation and obsolescence ...................................... 29,564,507
$26,768, l 72
. d\t1nce<s on purchase contract. Note F ................. ........ .... ...... ..... ............. 7,509,182
$34,277,354
OTHER EQUIPMENT AND PROPERTY at co t. ................................. $12,584,570
Including fully amortiz d amounts $3,125.939 1955, $'.\004 022 l 954)
Lr . allowances for depreciation.............................. ......... ............................... 7,476,867
$ 5,107 703
DEFERRED CHARGES
Training and other cost in connrction with aircraft fleet , le . ac-
rnmulatcd amortization of $826,396 1955, $637,641 - 1954 .................. $ 709,761
Other ............. ............... ........................................................ ......................... .. 366,26.~
$ 1,076,030
$55,514,708
See notes t0 finanGial statements.
$ 8,263,775
5,219,396
991,327
395,348
$14,869,846
216,021
$41 ,357,394
2 ~.560,976
$16,796,418
t ,762, 140
$18,558,558
$11,688,676
6,773,507
$ 4,915,169
$
523,502
121,900
645,402
$39,204,996
I
l
LIABILITIES AND STOCKHOLDERS' EQU ITV
December 31 ,
1955 1954
CURRENT LIABILITIES
Accounts payable, collections as agents. etc .................................. ... ......... ..... $ 6,784,360
Salaries, wages, and vacations......................................................... ...... ... ...... 2,186,530
Air travel card deposits. ........................ .................. .. ............ ........................... 940,525
Unredeemed ticket liability............................................. ................................. 778,453
Accrued income taxc timated.......... ............................ ............................ 1,411,356
TOTAL CURRENT LIABILITIES $l2,101,224
LONG-TERM DEBT - Note A
3% Notes payable to bank - due after one year. .... ................................. 14,500,000
DEFERRED INCOME TAXES - Note B
STOCKHOLDERS' EQUITY - Note D
Cumulative Preference Stock, $25 par value authorized 600,000 share
issuable in series:
4.6% Series; authorized 375, l25 shares; out~tanding share 296,97
685,000
- 1955, 368 110- 1954- Not C ....... ............ .... ................................. $ 7,424,375
Common Stock, $10 par value; authorized 3,000,000 share ; is ued
and outstanding share 963,135 - 1955, 834,933- 1954- Note E........ 9,63 t,355
Common Stock ubs ripLion for 3,650 hare ...................... .................... ..
Capital surplu . after deduction of $560 625 in prior years for part of
dividends paid on 4.6% Cumulative Preference Stock.......................... 3 719,449
Earned urplus..... .... ............. .. ..................................... ......... .... ...... ................... 7,453,305
CONTINGENT LIABILITY
$228,938
COMMITMENTS- otc F
$28,228,484
for repurchase of travt"l contracts sold-
$55,514,708
See notes to financial statements.
$ 6,230,541
1,946,800
865,725
757,367
2,575,456
$12,375,889
$ 9,202,750
8,349 330
36,500
2 964,638
6,275,889
$26,829,107
$39,204,996
STATEMENTS OF INCOME
NORTHWEST AIRLINES, INC. Year Ended
December 31,
1955 1954
OPERA TING REVENUES
Passenger ............................................................................................................ $5 7,252,957
United States mail- Note G............................................................................ 6,512,846
Foreign mail........................................................................................................ 577,383
Express, freight, and excess baggage................................................................ 6,123,606
Charter and other transportation.................................................................... 111,127
Repair and service income, rents, etc., net. ................................................... 785,575
$71,363,494
OPERATING EXPENSES
Flying and ground operations .......................................................................... $35,056,409
Maintenance and repairs.................................................................................. 12,538,345
Provision for depreciation.................................................................................. 6,370,354
Traffic, sales, and advertising.......................................................................... 8,419,929
Administrative and general (including pay roll taxes, property taxes, e,tc.) 4,085,957
Employees' retirement plan.............................................................................. 475,866
$66,946,860
$ 4,416,634
OTHER DEDUCTIONS (INCOME), NET
Interest on long-term debt. ............................................................................. $ 350,651
10,886
112,222)
Other long-term delbt expense ......................................................................... .
Other, net ...................................................................................................... (
$ 249,315
INCOME BEFORE TAXES AND PROPERTY DISPOSALS ............ $ 4,107,319
TAXES ON INCOME, including deferred taxes of $685,000 for
1955- Note B.................................................................................................... 2,140,000
NET INCOME FROM OPERATIONS ...................................................... $ 2,027,319
PROFIT FROM DISPOSALS OF PROPERTY, less applica:ble in-
come taxes $30,000- 1955, $75,000- 1954 ................................................... . 88,861
NET INCOME FOR THE YEAR ................................................................. $ 2,116,180
S ee notes to finan cial statem ents.
$51,053,599
6,282,057
504,334
5,295,694
50,406
409,761'
$63,595,851
$30,043,761
11,672,122
5,606,174
7,383,113
3,764,202
415,182
$58,884,554
$ 4,711 ,297
$
(
$
172,600
17,137
81,584)
108,153
$ 4,603,144
2,400,000
$ 2,203,144
212,380
$ 2,415,524
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC.
December 31, 1955
Note A-Bank Credit Agreement
Long-term loan made under a Bank Credit Agreement dated
June 30, 1955, permits the Company to borrow on or before
December 31, 1957, subject to certain conditions, an amount
not to exceed $29,500,000 for the purpose of equipment fi.
nancing ( ote F ) .
The Agreement requires repayments contingent on total
borrowings outstanding as of December 31, 195 7. Based on
$14,500,000 borrowed at December 31, 1955, repayments will
total $2,900,000 during each year 1958 through 1962. Pre-
payments, indeterminable in amount and dependent upon
other provisions of the Agreement, may be required.
The Company has covenanted that, among other things, it
will (a) maintain working capital computed as defined and
in amounts specified in the Agreement; ( b) maintain capital
and surplus of not less than $22,000,000; and ( c) execute and
deliver chattel mortgages upon such flight equipment as may
be designated by written request of the lending banks, if the
loans outstanding under the Agreement exceed $20,000,000 on
Janua ry 1, 1958.
Note B-Deferred Income T axes
The Company is claiming a greater deduction for depreci-
ation for tax purposes computed by permissible methods than
is reported in the accompanying Statement of Income. Ac-
cordingly, the provision for income taxes for the year includes
$685,000 to provide for income taxes which will become pay-
able in future years when amortization of these costs in the
books of account will not be deductible for tax purposes.
Note C-4.6% Cumulative Preference Stock
This Stock Series is entitled upon voluntary liquidation or
redemption to $25 per share plus accumulated unpaid
dividends; is convertible per share into one and one-half shares
of Common Stock to January 1, 1957; and is subject to re-
tirement through market or sinking fund provisions. 78,150
of the authorized shares at December 31, 1955, had been
redeemed through market fund purchases and conversion
and were not reissuable.
So long as any of this Stock Series is outstanding, the
Company is required to et aside on or before March 31 in
each year to and including 195 7 a non-cumulative fund ,
for the purchase on the market of shares of such Stock at
not exceeding $25 per share. On or before March 31, 1956,
$172,915 will be required to be set aside for this purpose
during the ensuing twelve-month period after which any unused
balance reverts to the general funds of the Company. After
195 7, other, and cumulative, sinking fund provisions become
applicable.
During any period while the Company is in default with
respect to payment of dividends on the Cumulative Preference
Stock, the Company may not purchase any of such Stock
except pursuant to an offer to all holders thereof and may
not redeem less than all of such Stock then outstanding.
Dividends accruing to February 1, 1956, have been paid.
ote D- R estrictions on Earned Surplus
At December 31, 1955, under provisions of the Bank Credit
Agreement and of the Cumulative Preference Stock, $6,232,358
of earned surplus was restricted as to payment of cash dividends
on capital stock. The Agreement prohibits repurchase of the
Company's capital stock, except that 4.6% Cumulative Prefer-
ence Stock may be retired through market fund purchases
(. ote C) and out of proceeds of the sale of additional Com-
mon Stock. The terms of the Cumulative Preference Stock
also contain provisions relating to repurchase of Common
Stock which are less restrictive.
ote -,Common Stock Reservations and Options
Of the unissued Common Stock at December 31, 1955:
(a ) 4+5,462 shares may be required for the conversion
of 4.6 % Cumulative Preference Stock;
(b ) 19,500 shares (of which 9,500 shares were exercisable at
December 31, 1955) were subject to an outstanding
option exercisable by a Company officer to October 15,
1959, at an option price of $12 1/s per share, the market
price at the date of grant. During 1955, options for
17,850 shares at prices of $11 and $14 % per share
( representing market or higher at date of grant ) were
exercised by other optionees. The market prices ranged
from $19 to $22 1/a per share at the times the options
were exercised.
( c) 30,000 shares were reserved for options which may be
granted in the future to officers and employees.
Note F-Commitmcnts
At December 31, 1955, the Company had contracted for
the purchase of thirteen Douglas DC-6 type and eight Douglas
DC..:-/ type aircraft. One of these aircraft will be delivered in
the spring of I 956, and the remainder will be delivered start-
ing in J anuary 1957. These aircraft, together with spare parts,
will cost approximately $42,500,000 on which advance pay-
ments of $7,509,182 had been made to December 31, 1955.
Future payments of approximately $3,740,818 will be required
in I 956, $24,500,000 in 195 7, and $6,750,000 in 1958.
Note G-Mail T ransportation Compensation
Total mail compensation for all years through 1955 has
been settled and made permanent by the Civil Aeronautics
Board, except that no final determinations of rates have been
made on international and domestic routes for 1951 and on
international routes for 1954. For these unsettled periods the
Company has accrued income on the basi of temporary rates
set by the Board, the ultimate effect of any redeterminations
not being known at this time.
FIVE YEAR STATEMENT OF INCOME
(Amounts shown in thousands)
NORTHWEST AIRLINES, INC.
Five years ended December 31, 1955
OPERATING REVENUES 1955
Passenger .......................................................................... $5 7,253
United States mail .......................................................... 6,513
Foreign mail .................................................................... 577
Express, freight, and excess baggage .............................. 6,124
Charter and other transportation ..... ......................... .... .. 111
Pacific Airlift for United States Government.. ............... .
Repair and service income, rents, etc., net.. ................. . 785
$71,363
OPERATING EXPENSES
Flying and ground operations ........................................ $35,057
Maintenance and repairs ... ............ .... .......... .. .. .... .. .. .... ... 12,538
Provision for depreciation ........................................ :..... 6,370
Traffic, sales, and advertising ...... .................... ....... ....... 8,420
Administrative and general ( including pay roll taxes,
property taxes, etc.) .................................................... 4,562
$66,947
INCOME FROM OPERATIONS ................................................ $ 4,416
OTHER DEDUCTIONS, NET 249
INCOME BEFORE TAXES AND DISPOSALS OF PROPERTY ...... $ 4,167
TAXES ON INCOME ................................................................ 2,140
ET INCOME FROM OPERATIONS " .. ... $ 2,027
PROFIT FROM DISPOSALS OF PROPERTY ............................ .$ 119
Less applicable income taxes .......................................... 30
1 ET PROFIT (Loss) FROM DISPOSALS OF PROPERTY ........ $ 89
Per cent
Increase
(Decrease)
1955 to 1954 1954
(
(
(
(
(
(
(
12.1% $51,054
3.7 6,282
14.5 504
15.6 5,296
122.0 50
91.5
12.2
16.7
7.4
13.6
14.0
9.1
13.7
6.3
130.6
9.5
10.8
8.0
58.5
60.0
58.0
)
)
)
)
)
)
)
410
$63,596
$30,044
11,672
5,606
7,383
4,180
$58,885
$ 4,711
108
$ 4,603
2,400
$ 2,203
$ 287
75
$ 21 !
1953 1952 1951
$48,652 $41,963 $35,193
6,869 6,767 7,789
496 706 620
5,373 5,116 4,648
180 1,055 305
4,185 5,464 5,724
385 481 406
$66,140 $61,552 $54,685
$31,801 $28,371 $25,22.6
13,886 15,061 11,837
5,731 5,816 5,429
7,324 6,504 5,482
4,255 4,294 3,651
$62,997 $60,046 $51,625
$ 3,143 $ 1,506 $ 3,060
338 311 667
$ 2,805 $ 1,195 $ 2,393
1,465 640 601 (A)
- - - -
$ 1,340 $ 555 $ 1,792
$ 8 15 $ 1,709 $ 592
210 475 599 (A)
$ 605 $ 1,234 ($ 7)
- - - - - - - - -
ET I COME FOR THE YEAR ....................................... ...... $ 2,116 ( 12.4 ) $ 2,415 $ 1,945 $ 1,789 $ 1,785
Non: A- Taxes on income were reduced as a result of the carry-forward of the 1948 operating loss by $225,000.
Income from disposals of property during the years 1948 through 1950 reduced by $836,487 the operating loss carry-forward to
1951. Income taxes of $429,000 applicable thereto have been treated in 1951 as allocable to income from disposals of property.
STATEMENTS OF SURPLUS
NORTHWEST AIRLINES, INC.
Year Ended
December 31 ,
1955 1954
CAPITAL SURPLUS ( after deduction of $560,625 in prior years for
part of dividends paid on 4.6% Cumulative Preference Stock )
Balance at beginning of year ....................................... ... ................................ $2 964,638 $2,860,578
Add :
Excess of par value over co t of 4.6% Cumulative Preference Stock
retired through market fun d purchase ......................... ..................... .
Excess of proceeds over par value of Common Stock sold under
option agreement , le expense of issuance........................................ +3,46 L
Excess of par value of 4.6% Cumulative Preference Stock, upon
conversion, over par value of Common Stock................... ................ ... 711 ,0 50
Balance at end of year ...................................................................................... $3, 719,449
EARN ED SURPLUS
35,892
68)68
Balance at beginning of year ...................... ...................................................... $6 275,889
Add net income for the year:
Net income from operations ................. ........................................................ $2,027,319
Profit from disposals of property........... ..................................................... 88,861
4,289,919
$2,203)44
_____2g, 3 80
T otal ............... ........... ............................................. ......................................... $2,116,180
$8,392,069
Deduct cash dividends on :
4.6% Cumulative Preference Stock for the year ended N0vember 1-
$1.15 per S'hare ............................................................................................ $
Common Stock- 60 cents per share .......................... ................................. .
$
387,031
551,733
938 764
Balance at end of year. .............................................. ....................................... $7,453,305
Board of D irectors
N orthwest Airlines, In c.
Saint Paul, M innesota
S ee notes to financial statements.
ACCOUNTANTS' REPORT
$2,415,524
$6,705,443
$ +29,554
$6 275,889
We have examined the financial statements of " ORT H WES T AmLINEii, ! Ne. for the year ended
D ecember 31 , 1955. 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.
I n our opinion, the accompanying statement of financial position and statements of income and
surplus present fairly the financial position of NORTHWE S T AmLINEs , ! Ne. at D ecember 31, 1955,
and the results of its operations for the year then ended, in conformity with generally accepted ac-
counting principles applied on a basis consisten t with that of the preceding year.
Saint Paul, Minnesota
M arch 26, 1956
ER ST & ERNST
Certified Public Acco un tan ts
NORTHWEST AIRLINES,
OFFICERS AND DIRECTORS*
OFFICERS
CROIL HUNTER, Chairman. Board of Directors
DONALD W. NYROP President
MALCOLM S. MACK.A Y, Executi2e Vice President
FRANK C. JUDD, T'icr Prfsidfnt-Operations and Engineering
LINUS C. GLOTZBACH, Vice President-Personnel
GORDO M. BAI \ Vice President-Sales
PA L L. BENSCOTER, T'ice President-Orient R egion
A. E. FLOAN, Vice President and Secretary
LEONARD S. HOLSTAD, Com ptroller
WM. J. EIDEN, Treasurer
ALROY D. PIEPGRAS, A ssistant Com ptrotler
DONALD H. HARDESTY, Assistant Treasurer
FRANK J. SCOTT, Assistant Sccretary
DALE MERRICK. Assistant Vice President-Propertzes
C. L. STEWART, Assistant Vice President- Plans
DIRECTORS
CROIL HUNTER-Chairman, Board of Directors, Northwest A irlines, I nc.
JAMES H. BINGER-Vice President, M inneapolis-H oneywell R egulator Co., M inneapolis, M inn.
MORTON H. FRY- Partner, R iter and Company, Nez.,c York City
ROBERT M. HARDY- President, Sunshine M ining Co., Y akima, Wash.
JOSEPH T. JOHNSON- President, The Milwaukee Co., M ilwaukee, Wis.
MALCOLM S. MACKAY-Executive T'ice President, Northwest Airlines, I nc.
DONALD W. NYROP- President ortluoest Airlines, I nc.
ALONZO PETTEYS-Vice President and Director: Farmers State Bank, Brush, Colo.
C. FRANK REAVIS-Partner, H odges, R eavis, McGrath_, Pantaleoni & Downey, New York City
ALBERT G. REDPATH- Partner Auchincloss, Parker & R edpath, New York City
WILLIAM STERN- President, Dakota National Bank, Fargo, J-.; . D.
LYMAN E. WAKEFIELD, JR.- Vice President, First National Bank of M inneapolis, M inneapolis, Minn.
ALBERT J. WEATHERHEAD, JR.- PTBsident, The Weatherhead Company, Cleveland, Ohio
WHEELOCK WHITNEY- Director and Member of Executive Committee, T ruax-Traer Coal Com pany, Chicago, Ill.
R eaistrar THE CHASE NATIONAL BANK OF THE CITY OF T
EW YORK, ~- Y.
Transfer Agent BA T
KERS TRUST COMPANY, EW YORK, N. Y.
* As of .\!arch 26. 1956
GENERAL OFFICES: 1885 UNIVERSITY AVENUE , ST. PAUL 1, MINNESOTA
PROGRESS FOR THE LATEST 10 YEARS
Calendar
Total
Passenger
Express Revenue Mail Total
Operating and Freight Passenger Ton Plane Miles
Year Revenue
Revenue Revenue Miles Miles Flown
1955 $71 ,363,494 $57,252,957 $5,539,095 1,017,400,443 15,407,054 30,909,610
1954 63,595,851 51,053,599 4,676,190 909,674,550 6,990,462 27,029,860
1953 66,140,027 48,652,465 4,890,153 85 I, 174,754 5,002,605 27,816,827
1952 61 ,552,380 41 ,962 ,758 4,781,081 720,046,264 5,017,993 23,210,634
1951 54,685,060 35,192,765 4,371 ,533 602,220,853 4,571 ,276 19,531,632
1950 52,456,700 33,148,395 4,122,222 613,446,244 4,987,561 26,868,177
1949 39,970,747 27,873 ,942 3,163,278 495, I 14,870 4,722,800 25,908,552
1948 34,369,835 24,074,778 2,072,362 386,509,809 4,026,074 22,288,002
1947 26,800,428 20,520,631 1,019,497 382,544,382 2,736,938 20,824,912
1946 19,976,204 18,062,492 553,875 385,858,473 2,049,659 19,304,234