--~~._,.,. -- ......... - ,,. - .... -<,, ':k, ~~ NORTHV\/EST AIRLINES, INC. ANNUAL REPORT 1957 NORTHWEST AIRLINES; INC. ~ ffle/wu CROIL HUNTER DONALD W. NYROP MALCOLM S. MACKAY FRANK C. JUDD LINUS C. GLOTZBACH GORDON M. BAIN PAULL. BENSCOTER A. E. FLOAN PHILIP T. DROTNING WM. J. EIDEN ALROY D. PIEPGRAS DONALD H. HARDESTY FRANK J. SCOTT DALE MERRICK C. L. STEWART OFFICERS* Chairman, Board of Direct10rs President Executive Vice President Vice President- O perations and Engineering Vice President-Personnel V ice President-Sales Vice President-Orient R egion Vice President and S ecretary Vice President-Public R elations T reasurer Assistant Com ptroller Assistant T reasurer A ssistant Secretary Assistant Vice President- Properties Assistant Vice President-Plans DIRECTORS* CR OIL HUNTER- Chairman, Board of Directors, Northwest Airlines, I nc. 1957 JAMES H. BINGER-Vice President, Minneapolis-Hone'ywell R egulator Co., 2753 4th A venue So., Minneapolis, Minn. HADLEY C ASE-President, Case, Pomeroy & Company, I nc., 285 Madison Avenue, New York, New York MORTON H. FRY- Partner, R iter & Company, 40 Wall Street, N ew York, New York T ED R. GAMBLE- President, Mount H ood R adio and Television Broad,;asting Corporation, 140 S.W. Columbia Portland, Oregon JOSEPH T. JOHNSON- President, T he Milwaukee Company, -207 E. Michigan, Milwaukee. Wisconsin MALCOLM S. MACK AY -Executive Vice President, Northwest Airlines, Inc., St. Paul, Minnesota CLYDE B. MORGAN- President, R ayonier, Incorporated, 161 East 42nd Street, New York, N ew York DONALD W. NYROP- President, Northwest Airlines, Inc., St. Paul, Minnesota ALONZO PETTEYS- Vice President and Director, Farmers State Bank, Brush, Colorado C. FRANK R EAV IS- Partner, Hodges, R eavi, McGrath & Dou1 ney, 26 Broadway, ew Y ork, ew York ALBERT G. R EDPATH- Partner, Auchincloss, Parker & R edpath 52 Wall Street, New York, New York WILLIAM ST ER N- President, Dakota National Bank, Fargo North Dakota LYMA E. WAKEFIELD, JR.- T-ice President First National Bank, AlinneaJJOlis, Minnesota ALBERT J. w EATHERHEAD, .JR.- Pr('sid('nt, The Weatherhead Co., 300 E. 131st Street, Cl('veland, Ohio R egistrar: THE CHASE MA HATTAN BA K, EW YORK, N. Y. Trans/ n Agents: BA -KERS TR ST COMPANY, EW YORK, N. Y. GEN ER AL OFFICES : 1 8 8 5 U N IVE.RS IT Y AVE N U E, ST. PAUL 1, MI N N ES OT A *.As of March 25, 1958 TO SHAREOWNERS OF NORTHWEST AIRLINES .. INC. The year 1957, our 31st year of operation, was a profitable year for orthwe t-a year completing ten years of successful international operations, record revenues and expanded services. The trend of rising cost'i>, as experienced across the nation, continued in 1957. However, in spite of this trend, the year under review produced a record profit from combined operat- ing profit and capital gains. During 195 7 orthwest was the fir t airline to fly Douglas DC-7C's across the Pacific, and also was the first domestic carrier to fly this equipment trans-contin- rntally. It was the year in which the public was first introduced to "Imperial Service." On January 24, 1958, the Civil Aeronautics Board announced that it would approve an interim increase in domestic passenger fares of 4% plus $1.00 per ticket. This increase-about 6.3% for Northwest- became ef- fective on February 10, 1958. While affording some mea ure of urgently required fare relief, the interim increa e granted by the Board is not adequate in view of rapidly rising co ts. Northwest is continuing to urge in the General Passenger Fare Investigation now in progres , that the Civil Aeronautic Board appro e, in lieu of the interim adjustment, a dome tic fare increase of 13% as the minimum upward fare adjustment re- quired in the intere t of sound air transportation in the . S. EARNINGS et profit for the year 1957 after taxes was $4 818,971, or 3.56 per share after preferred dividends of $42,345. et profit after taxes in 1956 was $3,225 595 or $2.18 per share after preferred dividends of $304,608. Profit from operations was $4,983,488 compared with $4,595,583 for 1956. otwithstanding increased in- terest expense, net income from operations after taxe but before profit.5 from disposals of property, was $1,889,876 for 1957, compared with $1,887,978 for 1956. et profits of $2,929,095, after capital gains taxes, were realized from the sale of airplane , spare parts and engines. In 1956 uch profits were $1,337,617. REVENUES Operatino- re\enue howed continued growth and de\'elopment for ~ orthwest. Total operating revenues were , 83 432 404, a gain of 9.1 over 1956, which had total r venues of 76 479,526. Passenger revenue of , '66 674,383 wa up 10.6 . mail revenue of :'7.586 599 incr a ed 5.5 c, while foreign mail revenue or' $763,436 rose 14.6 c. Expre- freight and exce: baggage r venue of $7 541,410 increased 5.4 o. R eve- nue of , 866,576 from charter and other transportation ervice declined 27.9 % due to termination of a go\ern- m nt airlift contract in the Orient. Factor afiecting the a-rowth were the inaua-uration of Douala DC-7C ervice, both internationally and DC-7C engine cylinders move through over- haul base af Sf. Paul on new conveyor system. domestically, and increa e of the Douglas DC-6B fleet providing 17.6 more available eat miles and enabling your Company to carry 1 574,035 revenue passenger., an increase of 10.3 o. Revenue pa enger miles totaled 1,205,764 597, an increase of 10.2 o o er 1956. The system passenger load factor was 56. 7 c . EXPENSES Total operating expen e during 1957 were '78,448,- 916 compared with $71,883 943 in 1956, an increase of 9.1 . Notwithstanding the rising cost of labor and materials, and the expansion of ervice, by rigid expense control your Company was successful in reducing the cost to 27.43 cents per availab.le ton mile. This i a reduction of 2.6 fc; from 28.15 cent in the y ar 1956. BANK CREDIT AGREEMENT The Credit Agreement dated November 15 1956, between the Company and fift:een bank , all of which are located in citie we erve, continued in effect during the year 195 7. Banker Tru t Company ew York, is the lead bank. nder this agreement the Company is permitted to borrow to a maximum amount of 38 500,- 000 during the period through September 29 1958, and to a maximum amount of $35,000,000 through De- ember 30, 1958. The loans out tanding thereunder on December 31, 1957, were $27,000,000, an increase of :S13;200.000 for the year. While th borrowings under the agreement are not directly related to specific aircraft purcha e payment by the Company, all of the 1957 borrowing was used as part of the total payments due on the seven DC-6B and eight DC-7C aircraft de- livered in 195 7. Borrowing under the agreement i limited by coven- ants which relate loan to net flight equipment values (including deposits with manufacturer ) and to net worth. The loan outstanding on December 31, 1958, may not exceed $30,000,000, and the actual balance outstanding on that date is payable at the rate of an aggregate amount of 20% per year for five years. None of the property of the Company is specifically pledged in support of loans but, upon request of the banks, the Company is obligated to provide a chattel mortgage on such flight equipment a may be designated by the banks. Interest on outstanding loans is at the rate of 4 % per annum, and on the unused balance of the commit- ment, the fee i at the rate of one-half of 1 % per annum. NET WORTH The net worth of the Company at the end of 195 7 was $33,065,292, of which $24.05 per share was ap- plicable to each of the 1,343,120 shares of common tock outs tan ding a of December 31, 195 7. This compare with a net worth of $30,171,714 at the end of 1956 of which $21.79 per share was applicable to each of the 1,341,620 shares of common stock out- standing as of December 31, 1956. Earned surplus was $12,057 070 at the end of 1957, compared with 9,569,339 at the end of 1956. DIVIDENDS AND STOCK CONVERSION Di\idend on the 4.60 o Cumulative Preference Stock were paid regularly on the quarterly due dates of February 1 M ay 1, Augu t 1 and ovember 1. T he February 1, 1958 quarterly dividend on the Preference Stock was also paid on that date. Quarterly dividends of 20c per hare of Common Stock also were paid on the same quarterly dates. T he February 1, 1958 quarterly Common Stock dividend of 20c was paid on that date. All conver ion right of Preference Stock into Com- mon Stock terminated a of December 31, 1956. Con- \er ion of Preference Stock in prior years, combined with Preference hare retired in pa t years and those retired in the year under review, has reduced the original 390 000 shares of stock issued in M ay 194 7 to 30 527 a of December 31 1957. Preference shares v,ill continue to be retired under the sinking fund prov1 10n . ROUTES International and Overseas-During the past y ar two of orthwe t's temporary international routes were made permanent. On Augu t 2, 1957 the Pre ident apprO\ed an order of the Civil Aeronautic Board which made permanent Northwe t's Seattle/ Tacoma-Anchor- ao-e-Tokyo route. In addition the "inside route" from ew York to Anchorage via Chicago, Minneapolis/ St. Paul and Edmonton, was also made permanent in 1957, a a result of legislation passed by the Congress. In another important decision the Civil Aeronautics Board and the President, in February 1958, reaffirmed their earlier decision which denied another U. S. air car- rier the right to duplicate Northwest's Portland-Seattle- Tokyo route. Domestic-The Civil Aeronautics Board heard oral argument in January 1958 on Northwest's applica- tions in the Great Lakes-Southeast Service Case, which includes our request to serve the Florida cities of Tam- pa/ St. Petersburg and Miami via Chicago, Indianapolis, Louisville, Cincinnati and Atlanta on one routing and via D etroit, Cleveland and Pittsburgh on another. This proceeding also includes our application to add a new egment from Chicago to Washington, D. C., yia Day- ton, Columbus and Pittsburgh, as well as a request to Mechanic completes inspection of $20,000 propeller used on Boeing Sfrafocruiser. conduct operations between Chicago-Cleveland Chica- ~o-Pittsburgh and Chicago-Washington. Also included m the Great Lakes-Southe~st . Service Ca e i a request for the removal of the restnct10n on Iorthwe t's service which prevents "turnaround" service between Detroit and ~ashington, D. C., either nonstop or via Cleveland and Pitt burgh. A deci ion i expected at an early date. During the year. the Chi ago-::.Iilwaukee-Twin me Ca e wa heard bv an Examiner of the Ci,il Aeronau- tic Board. Thi ~a e inrnhed the i ue of competitive _en-ice between hica(Yo and the Twin Citi a ,,ell a the i "Ue of en-ice betwe n the Twin Citi / Mil- "aukee and laroe traffic center in the ouchea t. Con- solidated for hearin(Y in thi proceedino w"-re applica- tion by rorth\\'e t to prmide the :fir t dire t en-ice bet-ween N onhwe t citie and Indianapoli ~ in innati. Loui ,ille. Nash,ille. Atlanta. Jack omille~ Tampa/ St. Peter bur(Y and ::\Iiami. The Company' appli ation in both proceeding received acti,e upport from the itie alon(Y our route. .Yeu. Applications and Appli ations on File-Durino- the pa t year. the Company :filed new application re- que tino: 1. Permanent authority for our tate -Hawaii route. 2. Permanent authority to erYe eoul, Korea. 3. A route egment from Spokane to Calgar '. +. Addition of Grand Rapid and Flint a intennedi- ate point" between Chicago and Detroit. In addition, certain applicatioD" :filed prior to 195 7 al o are awaiting CAB action. The e include: 1. Minneapoli-/ St. Paul to Lo" Angel and an Franci co ,ia Dennr and Salt Lake Cit, . 2. Billing to an Franci co ,ia alt Lake City. 3. Detroit to e\\' York \ia Clew-land. Pitt burgh and Philadelphia. +. hica(Yo to Bo ton \ia Detroit and Toronto. 5. New York to Bo ton via Hanford/ Springfield. Your Compan) is continuing an a ti,e pro0 -ram to imprme it route tructure b) eekirw the addition of new market" \,hich will R ure further growth of re,enue . EQUIPMENT AND SERVICE Eight Dougla DC-7 and even Dougla DC-6B air- craft were deli,ered to onhwe t and placed in ervice during the year, both in the nited State and the Orient. Four additional DC-7C' and two DC-6B' ha,e b en delinred and placed in enice thu far in 1958. Your Com pan ,, program of fleet modernization will continue throu(Yh :\fay of 19-8. by which time an addi- tional two DC-7C' and one DC-6B \\'ill ha\e been delinred. to gi\ your Company a pre urized fleet of +3 aircraft. The e ,,ill continue to pro,ide Top FliP"ht' Imperial en-i e b t\\een all major citi on our y tern. he aircraft dcli,er d in 193 7. combined with thrn;e deli, red and to be deli,ered in 1958, together with related pare part and engine will co t approximately , 38.000.000. The aircraft ha,e r plac d _ome of our non-pr urized Be t and the fl t of Lo khccd Con- tellation 10-+9 . T n -+ and fi\'e DC-3 air raft ar r\'ing point at whi h pr ent airport fa ilitie \\ill not ac ommodate the laroer. more modem aircraft and are proviclin(Y freight er~:ice. During the , ear your Compan completed the in- "tallation of Bendix Dual X -Band radar on the entire pre urized fleet, thu prmiding pa n(Yer with n { tandard of comfort and afet ' during difficult w ather condition . Thi equipment enable the pilot to ee \,eather up to 150 mile ahead and a,,oid area of probable turbulen e. The ompan i e,aluatin(Y the te hnical and eco- nomic a-pect of jet and turbo-jet aircraft. Good de- li\ery po ition for medium and long-ran(Ye jet are available to the Compan , in 1960. Turbo-jet aircraft delivery po itions are a\'ailabl in 1959. pproximate- ly two year ago an order wa placed , ith Pratt & \\ hitne for twenty-one J-75 jet en(Yine . The e engine \,ill be required for the long-range jet aircraft to be u-ed in the trans-Pa i:fic route and for non- top and one- top tran continental flight . It i expected that jet equipment will be ordered in the econd quarter of 1958. Beginnin o- in February 195 7 all in tema.tional pa - enger flights a well as flights within the Orient, were flown with pre surized aircraft. This new and modern equipment i unparalleled in the Pa i:fic. not only being the fa te t equipment but providing the mo t luxuriou pa senger comfort and ervice. Dail pas enger ervice \ inaugurated between eattle and Tok o on April 28 1957; and. on thi Overhauled Sfrafocruiser engine moves along. Crankcase (right) is ready for 28 new cylinders. . ame date. pre urized ervice was tarted on the Min- nea poli -Edmonton-Anchorage "inside route." On Sep- tember 29, 1957. your Company became the first air- line to tart lu. urious DC-7C nonstop tran continental ervice; al o. on thi ame date, the Company tarted ew York-Edmonton-Anchorage through service with DC-6B equipment. Service between Seattle/ Tacoma and H awaii wa operated during 1957 with DC-6B aircraft four time per week. On J anuary 1, 1958, thi er\'ice was increased to five flights per week. Your Company continue to u e Boeing Stratocruiser in fir t-cla luxury ervice on many important domestic route egment including the New York-Twin Cities non top Wahington, D . C.-Twin Cities, Chicago-Twin Citie and coast-to-coast. The Eastern Air Line interchange continues to pro- vide dail through ervice between the Twin Cities and :viiami \'ia Chicago. Your Comp an is presently fur- nishing Boeing Stratocruisers on this segment. During the ummer months Eastern Air Lines' equipment i u ed. Durino- 1956 the Company reached an agreement by which the Minneapolis/ St. Paul Metropolitan Airports Commission will finance and construct a complete over- haul operation and general headquarters facility at Wold-Chamberlain Field. The new facility is being de igned and planned according to the needs of your Company and upon completion, will be occupied under a thirty-year lea~e. Because of unfortunate delays, no actual con truct10n has begun. Lawsuits contesting airport expansion have been settled in the courts, and future uits have been rendered improbable by legisla- tion enacted by the lv[innesota Legislature. In D ecem- ber of 1957 and .January of 1958, the Minneapolis/St. Paul Metropolitan Airports Commission old general obligation bond to certain investors at a composite average net interest cost of 2.7437 %. A substantial por- tion of these funds is now available for your Company's facility, and advertising for bids to start construction is in process. The facility, when completed in 1960, will be one of the finest of its type in the world. The realization of the full advantage of this facility is expected to create sub tantial economies and improved service. A long-term lease also was arranged in 1957 for hangar facilities at ew York International Airport, and negotiations continue with the New York Port Authority for terminal facilities at this same location. PERSONNEL The employees of the Company continue to display a sincere intere t in the welfare of the Company. At the end of 1957, your Company employed 5,933 men and women, of whom 5,523 were located in the continental United States, its territories and Canada. First ship of Northwest's DC-7C fleet completes 2,300 hours and gets fhorough inspection . A Radar on all NWA pressurized planes assures smoofh flying ,n cloudy weafher. In the Orient Reaion. 89 rc o{ our 410 mplo ere foreign national . During 195 7 coll ti, e baraaining negotiations i th variou labor oraanizations w r con lud d in a moniou and co-op ra ti,e tmo pher . and ring ben fit v,r r extended to mplo e ub- . tantially in line with compen ation han~e, made bY other air carrier of comparable ize. Th emplo p ration rat for th ar ,, as b low th a,eraa for th air tran portation indu try and far belov,' th eparation rate for indu tr in a n ral. Through pre- mploym nt. la room and on-the-job training, all departm nt of th Compan w re- provided with employee who ar amon th mo t skilled and proficient in th airline' indu try. Excell nt parti ipation ontinu d in th Company's twge tion and ward Plan, a indi atcd by th 600 wgge tions r i ed from cmplo e . During 195 7 nearly $9,000 wa. paid for . uga tion . which r ulted in tanp;iblc Company co. t rrduction. and . a,ing-. of mor than 75,000 p ear. Th . p~ ar mad v ur ompany 111 th pa t 31 ar 1 rn rg th r ult of the l alt . kill and xperien of its , md and Right p rs nnC'l. MANAGEMENT CHANGES Hadl y Ca and Cl de w York ,it ' , ere I rt d dir tor pan) at t~1c May 20. 195 7, annual sha ng. :Mr. a e is pre idcnt of ,a . y and , m- pany. Tnc .. and 1\1.fr. l\1organ i. pr of Ray mer, lnc. . re id nt f Mt. H ocl R c1dio and T n a rp., Portland. reg- n. w::is el dir 8. 1957. M. Hardy. pre,ident of un hine :Mining Comp::rny. akima. Wa -hingt n_ , and A. E . Floan, N\\ A vi e pre id<:>nt -1nd s r<:>tarY, resit'n<:>d from th Ro:1rd of Dirf'ctor . . Rv uthoritv of the Board of Director~ Chairman of thr Board March 25, 1958 , aint Paul. Minne ota ST A TEMENTS OF Fl ANCIAL POSITION NORTHWEST AIRLINES, INC. ASSETS December 31 , CURRENT ASSETS 1957 1956 Ca h .................................................................................................................. $ 8,002,747 role and account receivable, le s allowance of $85 000............................ 8,296,953 ~Iaintenance and op rating upplies- at average cost................................ 2,608,957 Prrpaid expense ............................................................................. .................. 394,910 TOT AL CURRENT ASSETS $19,303,567 INVESTMENTS AND OTHER ASSETS Rrlatrd indu try imestmrnt and advances-at cost.. ............................... $ 278 960 FLIGHT EQUIPMENT at co t.. ..................................................................... $77,176,315 Le allowan . for depre iation and obso1e cence- ate G ...................... 31,089,273 $46,087,042 . dvanc on purcha contract - Not E.............................. ..................... 4,552,067 $50.639 109 OTHER EQUIPMENT AND PROPERTY at co t... ................................ i14,587,498 Le. allowance for depreciation.. .................................................................. 9,136,373 $ 5,451,125 DEFERRED CHARGES namortized trainina and othPr co. t. in connection with aircraft fleets ..... ' 327,606 221 ,857 :-f i cellaneou. . ............................................................................................... . .. $ 549,463 $76,222,224 Sn notes lo financial statements. $ 7,432,277 7,636,567 1,896,061 452,416 $17,417,321 $ 226,973 $56,746,888 32,669,005 $24,077,883 10,565,169 .i34.643.052 $13,639,538 8,356,906 $ 5,282,632 $ 510,814 255,741 766,559 $58,336,537 LIABILITIES AND STOCKHOLDERS' EQUITY December 31 , CURRENT LIABILITIES 1957 1956 Accounts payable, collections as agent, etc ................................................... $ 8,J 44,099 Salaries, wage and vacation .......................................................................... 3, ] 39,606 Air travel card depo its.................................................................................... l ,121,5 75 Unredeemed tick t liability.............................................................................. 763,5] 7 Incom taxe - stimated.......................................... ........................................ 1,728,135 TOTAL CURRENT LIABILITIES $14-896,932 LONG-TERM DEBT ote A 4 % notes payable to banks........................................................................ 27,000,000 DEFERRED INCOME TAXES- arising from ace I rated depreciation m thods less mail pay in dispute............ ........... ........................................ J ,260,000 STOCKHOLDERS' EQUITY - Note c Cumulativ Preference tock, $25 par value; authorized 600,000 shares issuable in series: 4.6% eries; authorized 375,125 shares; outstand- ing share 30 527-1957, 37,577- 1956- ote B ...................................... $ 763,175 Common Stock, $10 par value; authorized 3,000,000 shares; issued and outstanding shares 1,343, 120- 1957, 1,341,620- '19-56- ote D ............ 13,431,200 Capital surplu ...................................................................................... ............ 6,813,847 Earned surplus ............................................................................. .................... 12,057,070 $33,065,292 COMMITMENTS AND CONTINGENT LIABILITIES - ote E $76,222,224 See notes to financial statements. $ 6,806,737 2,568,034 1,03 1,900 901,405 1,556,747 $12,864,823 13,800,000 J ,500,000 $ 939,425 J 3,416,200 6,246,750 9,569,339 $30,171,714 $58,336,537 STATEMENTS OF INCOME NORTHWEST AIRLINES, INC. Year Ended December 31 , OPERATING REVENUES 1957 1956 Pa no-er ......................................... .. ...................... ............................ ............. .. $66,674,383 nited tate mail. ............................................................................ ........... .... 7,586 599 For io-n mail............................... ...................................... ................................. 763,436 Expr fr ight and cxc bagga0 e.. ........................... .... ..... ........................ 7,541,410 harter and oth r tran portation.. ........... .. .......... .. .. .. .. . ... . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . 226,100 th r ......... ............... ............ ............ .. ................. ......... ..... ..... .... ..... .. ..... ............ 640,476 83,432,404 OPERATING EXPENSES Fl ing op ration ......................................... ..... ......... .................................. .. ... , 25,555,392 aintcnan c .................. ....... ........................ ..................... ........ ........................ 16,037,141 Pa ener r i e ............. ...... .............................. ................. ......... .. ............ ..... 5,060,805 ir raft and traffi erv1 mg........ .... . . .. . . . . . . . . . .. . . . .. .. . . . . . . . . . ... . . . . .. .. . . . .. . . . . . . . . . .. . . . . . l l 688,894 R e ervation , ale and adverti ing.............................................. ........... ......... 9 218,554 dmini trativ and general... .... .......... ................................ ........ ..................... 5,451,922 Pro i ion for dcpr iation le amounts charged to other account. 82 157- 1957, 140.439- 1956 " ......... ................... 5,436,208 $78 448,916 . 4.983,488 OTHER DEDUCTIONS AND INCOME Int r t on lono--term debt... .. .......... ............... .......... ........................... ........... $ 1,084,127 thrr incorn<'. le.. mi. crllaneou dedu tion ...... ..... ......... .......... ................. 90,515 993,612 INCOME BEFORE TAXES AND PROPERTY DISPOSALS ............ $ 3,989,876 TAXES ON INCOME (including def rred taxe 1,750,000- 1957. 81 .000- 1956. ari ino- from ac elerat d depr ciation method.) ....... . 2 100,000 NET INCOME FROM OPERATIONS....................................................... 1,889.876 PROFIT FROM DISPOSALS OF PROPERTY, le applicabl in- come ta. e 12,210 ( 1,550 000 le adju tm nt of deferred taxe. of . 1.237.790) 1957. +90.000- 1956 .......................................................... 2.929.09.i NET INCOME FOR THE YEAR.......... ... . .. . .. .. . . . . . ......... ... 4 818.971 . fr notf. t o finan cial ,tat em en ts. $60,264,291 7,192,138 666,287 7,154,612 815 773 386,425 $76,479,526 $22 665 450 14,095,105 4,501,951 10,846 508 8,169 060 4,833,918 6,771,951 $71,883,943 $ 4,595,583 582 745 60,140 522 605 $ 4,072,978 2 185 000 , 1.887 .978 1.337617 3,225.595 .NOTES TO FINANCIAL STATEMENTS NORTHWEST AIRLINES, INC. December 31 , 1957 ote A- Bank Credit Agreement For the purpose, of equipment financing ( ote E ) a Bank Credit Agreement dated ovember 15, 1956 and subsequent amendments establishes credits of which the outstandin~ amount may not exceed $38,500,000 through September 29, 1958, $35,000 000 thereafter through December 30, 1958 and $30,000,000 on December 31, 1958. Repayments aggregating 20% of the borrowings outstanding as of D ecember 31, 1958 are required during each year 1959 through 1963. The Company has agreed that, among other things, it will not permit (a) its working capital (computed as defined in the Agreement) at any time to be less than specific amount . ranging from $3,000,000 through J anuary 31, 1958 to $6,000,000 after J une 30, 1960 ; (b ) the unpaid principal balance of the notes outs tan ding to exceed certain percentage of net worth and certain percentages of the depreciated value of flight equipment; and (c) its net worth to be less than $34,000,000 after December 31 1958. ote B-4.6o/c Curnulati e Preference Stock This Stock eries is entitled upon voluntary liquidation or redemption to $25 a share plus accumulated unpaid divi- dends : and is ubject to retirement by the purchase, if prac- ticable. of such tock on the market : ( 1) at not exceeding $25 a hare from a non-cumulative market fund expiring March 31, 1958, and (2) thereafter from a oumulative sinkinp; fund at not exceeding $25 a share. At Y.farch 31, 1958 any balan e remaining in the non- cumulative market fund ($101.853 at D ecember 31. 1957 ) will revert to the general fund of the Company. On or before March 31 1958 and ea h y ar thereafter, the Company i required to et a ide a cumulative sinking fund for which $292,500 i required at March 31, 1958. Y.fonies of thi fund not expended by the Company by Decem- ber 31st of each year through pure ha e on the market of shares of this tock hall th ereafter be exhau ted by the Company' call for redemption. During any period whi le the Company i in clefaul t in the payment of dividends on Cumulative Preference Stock, the Company may not purcha e any of such tock except pursuant to an offer to all holder thereof and may not redeem !es than all of uch tock then out tanding. Dividends accruing to February 1, 1958 ha\'e been paid. Note - Re triction on Earned Surplu nder pro,i ion of the Bank Credit greement, the Com- pany i not permitted to de !are or pay any cash divi- dends on it capital tock during any fi cal quart r of 1958 unless net worth at the beginning of uch quarters i at least ,$31 700,000. 30,000,000 33.300.000 and 34,800,000, re- spectively. The total of such declarat:on and pa ments may not exc ed 700.000 prior to June 30, l 958 and 700,000 thereafter during su h year. Re tri tion in cliff rent amount will af)ply to futur year . Th Agrecm nt prohibits 1 epurc ha e capital tock except that -1-. o/r Cumulati may b retired through rxi ting inking (Note B) and out of procPcds of th ommon tock. of th t Company'. e Prefere nce to k fund requir ment ale of additional Th term of th 'umulativ Pr ferenc tock al o ont in p1ovi ions relaLing to di\'idend on and reput ha of ommon tock which arc le restricci,e than tho e abo e. Note D-Common Stock Option and Re ervations At the end of the year 39,000 shares of Common Stock were subject to outstanding options exercisable by Company officers and employees not later than J uly 1, 1961. 18,000 share were exercisable at $12.125 a share and 21,000 at $15.675, such option prices being 95 % or more of the fair market prices at the dates of grant. During the year, options for 1,500 shares were exercised and 1,000 were canceled. An additional 9,000 shares were reserved for options which may be granted in the future to officers and employee . ote E-Commitments and Contingent Liabilitie At December 31 1957 commitments for the purchase of three Douglas D C-6B and six D C-7C aircraft (to be delivered in 1958 ) and other equipment amounted to approximately $26,700,000 on which $4,552,067 had been depo ited with manufacturers and approximately 18,000,000 becomes payable in 1958. Annual payments of approximately $1 ,085,000 from date of occupancy will be required under the Company's agreements for lease (from 20 to 30 years) of overhaul bases, hangars and administrative facilities at Wold-Chamberlain Field, Minne- apolis, and I nternational Airport, 1 ew York. The Company was contingently liable at the end of the year for repurchase of travel contracts old of 267,639 and for other notes discounted of $2 30,250. ote F-Mail Tran portation Cornpen ation o final determinations of total mail compen ation have been made by the Civil Aeronautics Board on international and domestic routes for 1951 and on international route for 1954. For 1951 the Company has accrued income on the ba is of temporary rates set by the C ... B., the ultimate effect of any redetermination not being known at thi Lime. On January 10, 195 7 the C.A.B. issued an order asking the Company to show cau e why temporary ompensation for 1954 should not tentatively be reduced $1,406,000 pending final hearings. The Company is onte ting the C ... B.' action but has recorded the liability at December 31, 195 7 ( 653,790 net after income taxes of $752.210), howin({ the adjustment as a charge to earned surplu . ote G- niform ystem of Account A new uniform system of account and report for air carrier wa prescribed by the Ci,il eronautic Board for 1957. To the extent practicable, the finan ial statem nts for 1956 pre- ented herein for compa1 i on were rcvi d to conform to th new classifications. In addition. the new rule and regulation of th , . .-\.B. made certain change in the arcountin pra tice of th om- pany, includino-: ( 1) di continuan e of providing for depr - ciation and obsole ence of flight equipment exp ndabl part : and (2) without retroactive effe t, incrca ing re idual \ alu" of four motored pre surized cabin airframe and no-ine pur- hased aft r 1954 from 10 r of the cot ba i to 150". plu. one-half the timated cost of a complete o, rhaul. a result of th for goin , th provi ion for depreciation and ob ole cencc for 1957 i approximate!) 630.000 le than what would hav b en charg d to op I ation n th ba i of previous y ar a counting practice . FIVE YEAR SUMMARY OF INCOME ( Amounts Shown in Thomands) NORTHWEST AIRLINES, INC. Five years ended December 31 , 1957 Per Cent Increase (Decrease) 1957 1957 to 1956 1956 OPERATI 1 G R EVENUES Passenger ....................... ....... .............. ... ............ .......... ........... $66,674 United States mail... ........ ........................ ....... ........... .. ........... 7,587 Foreign mail.. ............. .......................... .. .. .... .. ....... ........... ....... 763 Ex pre s, freight and excess baggage.... . . . . . . . . . . ... . . . . . . . . . . . . . ... . . 7,541 Charter and other transportation.. .. ...... ..................... ......... 22 6 Pacific Airlift for United States Governmen t ................... . Other-net ............... ............................................................. 641 $83,432 OPERATI G ExPENSES Flying operations ...... ..... .. ...... ........... ...................................... $25,555 Maintenance .................. .. .................... ..... ...... ............... ...... 16,037 Pas enger service..... .. ....... ................................ .. .. ............ .. .... 5,061 Aircraft and traffic servicing ... .... .. ............................... .. .. ... 11,689 R eservations, ales and advertising................. .. . .. .. .. .. ........ ... 9 218 Administrative and general. .... ..... ....... .. .. ...... ..................... ... 5,452 Provision for depreciation................... .............................. ..... 5,436 10.6% $60,264 5.5 7,192 14.6 666 5.4 7,155 (72.3) 816 66.] 386 9.1 $76,479 12.8 $22,665 13.8 14,095 12.4 4 502 7.8 10,847 12.8 8,169 12.8 4,834 (19.7) 6,772 1955 1954 1953 $57,253 $51,054 $48,652 6,51 3 4,876 6,869 577 504 496 6,124 5,296 5,373 111 50 180 4,1 85 510 358 288 $71,088 $62,138 $66,043 $21,694 $18,556 $19,868 12,707 11,794 14,120 4,139 3,596 3,944 9,71 8 8,205 8,491 7,761 6,868 6,677 4,447 4,227 4,159 6,205 5,575 5,727 - - - - - $78,448 $ 4,984 OTHER DEDU CTIO K , ET ....... .. .. ..... ..... , .. ,,,,., .. ,,,,,,.,., ... ... ,...... . 994 L 'COME BEFORE TAXE AND PROPERTY DISPOSALS ...... ........ $ 3,990 TA ' E ON I NCOME .. ...... 2 100 . ET I NCOME FROl\I OPERATI0 ............................ .................. $ 1,890 PROFIT FROM Dr PO ALS OF PROPERTY ............................ ....... $ 3,241 L e s applicable income taxe ................. ............................... 312 NET PROFIT FROM Dr PO AL OF PROPERTY .......... ................ 2,929 T ET I NCO IE FOR THE YEAR ............. .. .. ................... $ + 819 9.1 8.5 90.4 ( 2.0) ( 3.9) . 1 49.4 $71,884 $66,671 $ 4,595 $ 522 $ 4,073 $ 2,185 $ 1 888 $ $ 1,828 $ 490 - - - - - $ 1,338 $ $ 3,226 $ 4,417 250 4,167 2,140 2,02 7 119 30 89 2. 116 $58,821 $62,986 $ 3,317 $ 3,057 120 252 $ 3,197 $ 2,805 1,648 1,465 - - - - $ 1,5+9 $ 1,340 $ 287 $ 815 75 210 $ 212 $ 605 $ 1,761 1,945 i\ote : To the extt'nt pra ticable, the amount for prior years wer re,i ed to conform to ne, cla ification pre- cribe