Northwest Airlines Annual Report 1959

NORTHWEST AIRLINES, INC.
ANNUAL REPORT
NORTHWEST AIRLINES, INC.
GEN E RAL OFFICES
1885 UNIVERSITY AVENUE
ST. PAUL 1, MINNESOTA
OFFICERS* DIRECTORS*
DONALD W. NYROP
President
GORDON M. BAIN
Vice President--Sales
FRANK C. JUDD
Vice President--Maintenance
and Station Operations
PAUL L. BENSCOTER
Vice President--Orient Region
A. E. FLOAN
Vice President and Secretary
C. L STEWART
Vice President--Plans
WM. J. EIDEN
Treasurer
DALE MERRICK
Assistant Vice President--Properties
A. D. PIEPGRAS
Assistant Comptroller
D. H. HARDESTY
Assistant Treasurer
FRA.NK J. SCOTT
Assistant Secretary
CROIL HUNTER
Chairman of the Board
1885 University Avenue, St. Paul 1, Minn.
JAMES H. BINGER
Vice President, Minneapolis-Honeywell Regulator Co.
2753-4th Avenue South, Minneapolis, Minn.
HADLEY CASE
President, Case, Pomeroy & Company, Inc.
285 Madison Avenue, New York 17, New York
MORTON H. FRY, SR.
Partner, Riter & Company
40 Wall Street, New York 5, New York
TED R. GAMBLE
President and Director, Mt. Hood Radio and Television
Broadcasting Corp.
140 S.W. Columbia, Portland 1, Oregon
JOSEPH T. JOHNSON
President, The Milwaukee Company
Mitchell Building, 207 E. Michigan. Milwaukee,
Wisconsin
MALCOLM S. MACKAY
President, Foothills Company
Roscoe, Montana
CLYDE B. MORGAN
Chairman of the Board, Rayonier, Incorporated
161 East 42nd Street, New York 17, New York
DONALD W. NYROP
President, Northwest Airlines, Inc.
1885 University Avenue, St. Paul 1, Minn.
ALONZO PETTF.YS
Vice President, Farmers State Bank
Brush, Colorado
C. FRANK REAVIS
Partner, Hodges, Reavis, McGrath & Downey
26 Broadway, New York 4, New York
ALBERT G. REDPATH
Partner, Auchincloss. Parker & Redpath
2 Broadway, New York 4, New York
WILLIAM STERN '
President, Dakota National Bank
Fargo, North Dakota
LYMAN E. WAKEFIELD, JR.
Vice President, First National Bank of Minneapolis
5th Street and Marquette Avenue, Minneapolis 2, Minn.
ALBERT J. WEATHERHEAD, JR.
President, The Weatherhead Company
300 East 131st Street. Cleveland 8. Ohio
REGISTRAR: The Chase Manhattan Bank, New York, N. Y.
TRANSFER AGENTS: Bankers Trust Company, New York, N. Y.
As of February 25, 1960
PRESIDENT'S LETTER
March 1, 1960
TO OUR STOCKHOLDERS:
1959 was a year of record net profits and record revenues. The earnings
per common share were down slightly, due primarily to non-recurring jet
training costs and because of the substantial increase in Preferred Stock
dividend iequirements.
During the past year your Company put ten advanced-design. 400
mile-an-hour Lockheed Electras in service on its domestic route system. It
inaugurated service to Atlanta, Georgia, and to Ft. Lauderdale, Florida.
It carried an all-time record of 2,138,970 passengers on its domestic and
international route systems. This marks the first time Northwest has carried
more than 2,000 000 passengers in a single year.
Freight and express revenues increased from $7,437,000 in 1958 to
$10,531,000 in 1959. This is an increase of 42% and was the result of all cargo
schedules in both the domestic and international route systems. Freight rates
have been reduced, during the past three months, in the Pacific Internationa]
area. However, increased volumes should result for 1960 and Northwest
expects I960 to be another year of substantial growth for freight and
express revenues.
During 1959 organizational realignments of duties and responsibilities
were made to handle traffic and revenue growths and also to efficiently handle
the technological changes resulting from the introduction of jet airplanes.
The Operations Department was divided into two departments; namely,
Flight Operations, and Maintenance and Station Operations.
Competition in 1960 will be intensified because of the jet service that
will be inaugurated by several competitors. However, any diverted traffic
during the early part of this year will be quickly regained when your Company
inaugurates service with its fleet of Douglas DC-8C aircraft. These DC-8C's
will be equipped with the advanced model JT4A-9 Pratt & Whitney jet
engines. Your Company will be the first airline to receive DC-8G's with the
"A-9" engine, which will give improved "take-off" performance.
During- 1960 your Company also will place eight more Lockheed Flectras
in service. It will move stores, shops, overhaul and maintenance units
to its new $18,000,000 main base at the Twin Cities International Airport.
Its new and efficient Univac automatic reservations system will be
expanded to ten more major stations.
We are grateful to the stockholders, customers and employees of
Northwest Airlines for their continued support during 1959.
Sincerely,
President
33rd ANNUAL REPORT TO STOCKHOLDERS
NORTHWEST AIRLINES, INC.
EARNINGS
Profit for the year 1959 amounted to $5,713,512. com
pared with $5,613,687 for the year 1958. The figures for
both of these years include profit on disposal of prop
erty and equipment, after taxes, of $1,311,859 for the
year 1959 and $627,554 for the year 1958.
For 1959 this is equivalent to $3.68 per share of
common stock outstanding at the close of the year,
after provision for Preferred dividends in the amount
of $610,559. The 1958 net profit was equal to $4.06
per share with fewer shares outstanding, and after pro
vision for Preferred dividends in the amount of only
$36,003.
REVENUES
Operating revenues reached an all-time high in 1959
of $126,029,501. an increase of 23.6% above the pre
vious year 1958. Passenger revenues in 1959 were
$100,641,156, an increase of 24%. U. S. mail revenues
were $10,173,961, while foreign mail revenues in
creased 8% to $1,044,541. Air freight and express reve
nues continued to improve and rose 42% to $10,531,-
000. Charter and other revenues reflected gains.
To achieve this revenue volume, many factors were
prominent: (1) a full year of Florida service, (2) in
troduction of long-range jet-powered Lockheed Electra
aircraft, (3) improved service and schedules to virtually
every area your Company serves, and (4) increased
cargo lift, both domestic and international.
These factors, combined, again enabled your Com
pany to be among the leaders in the industry in per
centage increase in revenue passenger miles flown in
1959 over 1958. In the year under review your Com
pany flew 1,738,138,265 revenue passenger miles. This
was a 23.4% increase over the 1,408,742,516 revenue
passenger miles flown in 1958.
EXPENSES
The year's expenses totaled $115,120,583, compared
with $89,919,000 in 1958. The cost of providing 25%
more capacity was the principal factor in the increase.
Depreciation and amortizadon amounted to $10,935,-
000, an increase of 28.5% over 1958. This reflects the
addition of eleven new aircraft to the fleet--ten Lock
heed Electras and one DC-6A. The average number
of employees was 7,017, as compared with 6,146 in 1958,
an increase of 14%.
Charming Atlanta combines industry and good Hying. Georgia's capital city, served by Northwest, is the commercial,
industrial and transportation hub of the Southeast region. Its airport is the sixth busiest in the United States. It is a
billion dollar banking center and the nation's fifth largest insurance center. Rich in history, modern Atlanta is a city of
fashion and hospitality.
Every aircraft enqine overhauled
by Northwest at its new base will
receive thorough testing in this
engine test cell building before
being put back in service. Fore
ground is engine preparation room.
Concrete test cells are virtually
soundproof.
NET WORTH
The net worth of the Company at the end of the
year was $52,266,860. or $29.59 per share on each of
the 1,384,903 shares of common stock outstanding. Last
year's reported stockholders' equity was $48,224,344, or
$26.77 per share on 1,373,620 shares outstanding at
December 31, 1958. Earned surplus was $20,559,391
at the end of 1959, as compared with $ 16,560,267 at
the end of 1958.
DIVIDENDS AND STOCK CONVERSION
Regular quarterly dividends at $.20 a share were
paid on common stock on February 1, June 30. Sep
tember 30 and December 31, 1959. This is consistent
with the policy started in 1955. Dividends on the $25
par value 5 /\/o Convertible Cumulative Preferred
Stock were paid on the quarterly due dates of March
31, June 30, September 30 and December 31, 1959.
During the year under review 6,639 shares of 5J4%
Size of Northwest's $18,000,000
main base is evident. View shows
general office foundation area,
shipping and receiving area and
overhaul and maintenance hang
ars. Base is being built on a
75-acre tract.
Three high-pressure boilers, each capable of pro
ducing 50,000 pounds of sfeam an hour, will
produce heaf for Northwest's main base. Rafed
af 190 psi, fhey can be operafed with either gas
or oil. Ideating system of overhead hot air
blowers will be augmented in overhaul and main
tenance hangars with "radiant heat" from hot
water pipes imbedded in cement flooring.
Convertible Cumulative Preferred Stock were converted
into 6,383 shares of common stock under the conver
sion privileges of this issue.
ROUTES
Early in 1959 the Civil Aeronautics Board initiated
a comprehensive proceeding covering the entire Pacific
route complex for the purpose of determining whether
additional competitive service is required. Hearings
in the Trans-Pacific Route Case commenced in October
1959. They now are nearing completion. In this pro
ceeding Northwest has been heard on its applications
for new Central Pacific routes between Los Angeles,
San Francisco/Oakland and Hawaii and beyond to
the Orient. Northwest also is seeking extension of its
routes to Thailand, Burma, India, Vietnam, Singapore
and Djakarta. In addition, our applications involve re
quests for additional eastern kb S. co-terminals and
California terminals for our North Pacific route, as well
as permanent certification of existing route segments
which we now operate beyond Tokyo under tempo
rary certificates.
In a separate proceeding the Civil Aeronautics Board
now has before it for decision the application of North
west Airlines for permanent renewal of its Pacific
Northwest-Hawaii authority. In this case the Civil
Aeronautics Board Examiner and the Board's staff have
recommended that Northwest be renewed on a per
manent basis as the sole carrier on this route. North
west is also awaiting Board decision on its application
for a Spokane-Calgary route.
During the past year Northwest received authority
to serve Winnipeg and Edmonton on the same flight,
thus permitting a more flexible operation of our Cana
dian authority. Your Company's newly acquired Flor
ida authority also was improved in 1959 by the grant
of authority to serve Ft. Lauderdale as a co-terminal
point with Miami. We now have authority to serve five
cities in the rapidly growing Florida market.
In addition to the new route applications currently
under CAB consideration, your Company has on file
a comprehensive pattern of route requests awaiting pro
cedural action. These include:
1. Applications to serve Los Angeles and San Fran
cisco/Oakland by extension of existing routes from
Chicago, Milwaukee and Minneapolis/St. Paul via in
termediate points including Omaha, Denver and Salt
Lake City.
2. California applications aiso include the request to
provide service from Seattle/Tacoma and Portland to
San Francisco/Oakland and Los Angeles.
3. Northwest is awaiting action on applications for
service between Detroit and New York via Cleveland,
Pittsburgh a,nd Philadelphia, between Chicago and Bos
ton via Detroit and Toronto, between Detroit and
Boston via Buffalo and New York, and for service be
yond New York to Boston via Hartford/Springfield.
These applications and others on file with the CAB
comprise a sound and aggressive program for route ad
ditions to augment the traffic potential and revenue
growth of your Company.
Northwest's system-wide general office and overhaul base, now being constructed at the Minneapolis-St. Paul International
Airport, will be the most modern, efficient airline facility in the world. Aerial view shows five overhaul and maintenance
hangars which have a total frontage of 1,600 feet--more than five football fields. Finished structure, with more than
1,000,000 square feet of floor area, will be largest in entire Upper Midwest region.
EQUIPMENT AND SERVICE
Fleet modernization continued in 1959 when your
Company accepted delivery of ten long-range prop-jet
Lockheed Electras powered with Allison turbine en
gines. This aircraft was immediately placed in coast-
to-coast and Florida service.
Newly overhauled engines will travel between engine shop and engine test cells (back
ground) on this 400 foot monorail at Northwest s new overhaul base. Monorail does
away with need for special engine transport ground equipment.
During the year direct service to Atlanta was initiated
and Polar flights from New York to Anchorage to
Tokyo were started in June with Douglas DC-7C equip
ment. On September 8 we increased our weekly Seattle/
Tacoma-Tokyo DC-6B coach/freight combination flights
from two to five. Daily service to Hawaii was continued.
As reported in the 1958 Annual Report, our Boeing
Stratocruisers were sold to Lockheed Aircraft Corpora
tion upon delivery of the new Electras. Your Company
continues to rent two for service from Minneapolis/
St. Paul to New York. These will be removed frem the
fleet in June of 1960.
As of December 31, 1959 your Company operated
64 aircraft. Of this total 52 were company owned. The
balance were operated under lease agreements. DC-4
aircraft continue serving points with restricted airport
facilities and continue to be used in freight service.
On January 1, 1960 your Company inaugurated new
daily air service to Ft. Lauderdale, Florida, with
Lockheed Electra equipment.
Because of the fine operational record of the Electra,
and its proven passenger appeal, your Company has
ordered eight additional units of this aircraft for deliv
ery in May, June and July of this year. With a total
of eighteen Electras, Northwest will be one of the
largest operators of this aircraft in the industry, con
sidering your airline's size in relation to other Electm
operators. Northwest will provide Electra service for
all of its major domestic cities before the end of this
year.
Delivery of the first of five 600 mile-an-hour long-
range Douglas DC-8C aircraft is scheduled for this
spring. Deliveries will continue through October. The
first DC-8C's will be placed in service on your Com
pany's transpacific route. Additional units will go in
service on long-haul domestic routes. Northwest will be
the first carrier to receive delivery of a fleet of DC-8C's
equipped with advanced-model Pratt & Whitney JT4A-9
engines.
Construction work on the stores, shops and hangar
sections of Northwest's new main base at the Min
Sunny Fort Lauderdale, 30 miles north of Miami, is the newest
city on Northwest's system. When Northwest inaugurated Fort
Lauderdale service January 1, 1960, it became the first airline
to operate direct flights to the popular resort city from the
Upper Midwest. Northwest now originates flights at both
Fort Lauderdale and Miami.
neapolis-St. Paul International Airport has been com
pleted. In March your Company is moving its over
haul facilities from its former base at Holman Field.
St. Paul, to its new base. The General Office portion of
the main base now is scheduled for 1961 completion.
Construction work has been delayed because of the
recent steel strike.
By May of this year contracts will have been let
for underground work on your Company's new unit
terminal at Idlewild International Airport, New York,
and a general contractor will have been selected. It is
now estimated that this terminal will be ready for use
by the summer of 1961.
Our new hangar at O'Hare Field, Chicago, to be
occupied jointly with another major carrier, now is
in the design stage. Bids will be taken early this sum
mer. Construction work will start shortly thereafter.
According to estimates, the hangar should be com
pleted in about one year from the start of construction
work.
CREDIT AGREEMENTS
Your Company has two basic Credit Agreements.
Both were negotiated in the fall of 1958. I hey are
dated as of November 28, 1958 and became effective
December 30, 1958.
(1) Bank Agreement--This Agreement provides
credit in the amount of $32,500,000 among a group
of fifteen banks with Bankers Trust Company, New
York, as the lead bank. The notes issued carry a final
maturity date of December 31, 1965, but the Com
pany is obligated to make prepayments thereon at the
rate of $6,000,000 per year for the years 1961-1964
Ground soon will be broken for Northwest's new $7,000,000
passenger terminal at New York's Idlewild International Air
port. Northwest will share the building with two other major
United States airlines. It will be occupied in the summer of
1961.
and $8,500,000 in 1965. In addition to the fixed pre
payments, when net earnings plus flight equipment de
preciation exceed specified dollar amounts, the Com
pany is obligated to make further prepayments not ex
ceeding a maximum of $3,000,000 on each June 30
in 1961, 1962 and 1963 and a maximum amount of
$4,000,000 on June 30, 1964.
The first borrowing under this Credit Agreement was
made in November 1959. The amount outstanding as
of December 31, 1959 was $10,000,000.
(2) Insurance Company Agreement--This Agree
ment with a group of twelve insurance companies pro
vides long-term credit in an aggregate amount of $40,-
000,000. The final borrowing under this Agreement
was accomplished on January 15, 1959. Amortization
payments will commence in October 1966 with final
payment due October 1, 1978.
Both of these Agreements contain covenants with
respect to the relationship of debt to net worth, net
tangible assets and net depreciated value of the Com
pany's investment in flight equipment.
Other Long-Term Credit--The terms of the condi
tional sales contract for an additional eight Lockheed
Electras require a down payment of 12/2% of the orig-
Northwest will be the first airline to operate DC-8C s equipped
with the new, improved Pratt and Whitney JT4A-9 turbojet
engine. The "A-9" develops 16,800 pounds of thrust, about 6
percent more than earlier JT4 models. Additional thrust pro
vides improved take-off performance. Engine is more widely
known by its military designation, J-75.
inal agreed purchase price of the aircraft. 1 he final
installment on the purchase price on each of these ad
ditional eight aircraft is payable in sixty equal monthly
installments, the first of which is payable on the tenth
day of the month following the month in which each
aircraft is delivered.
PERSONNEL AND LABOR RELATIONS
Through the use of new and improved recruiting
and selection techniques and procedures, all units of
Northwest's organization were assigned qualified and
skilled personnel. Flight and ground training throughout
the Company system made the transition to Electra
equipment one of the most effective in the industry, and
arrangements are being made to continue the program
into 1960 to accommodate integration of the DC-8C into
the fleet. Good employee relations and industrial peace
Typical of Northwest s neat and modern ticket counters is
this one at Milwaukee's General Billy Mitchell Field.
Counter and scale units are easily removable from a
mounted floor track. This enables units to be swiftly re
arranged to meet changing passenger check-in requirements.
Idea was developed by Northwest. It is protected by a patent.
were maintained through cooperation between man
agement and eight labor organizations representing
seventeen different classes or crafts of personnel. Your
Company's continued growth and progress in 1959 was
primarily due to the quality, lovalty and efficiency of
the employees in all work classifications and at all
stations in the United States and seven foreign coun
tries.
STATEMENTS OF INCOME
NORTHWEST AIRLINES, INC. and SUBSIDIARY
Year Ended
December 31,
OPERATING REVENUES 1959
Passenger
United States mail...
Foreign mail
Charter and other transportation.
OPERATING EXPENSES
Passenger service
Provision for depreciation, less amounts charged to other accounts
OTHER DEDUCTIONS AND INCOME
Interest on long-term debt
Other income, less miscellaneous deductions.
INCOME BEFORE TAXES AND PROPERTY DISPOSALS
NET INCOME FROM OPERATIONS
come taxes $510,000--1959, $200,000--1958.
NET INCOME FOR THE YEAR
1958
10,173,961
1,044,541
1,349,086
10,531,400
526,166
$ 81,115,900
9,264,889
963,319
1,230,217
7,437,293
1,237,053
708,501
$126,029,501 $101,957,172
$ 37,610,259
21,770,715
8,464,743
15,511,064
14.011,037
6,817,864
$ 29,747.029
17,089,570
6,033,929
12,207,269
10,753,489
5,573,021
t
10,934,901 8,514,515
$115,120,583 $ 89,918,822
$ 10,908,918 $ 12,038,350
$ 1,794.940
307,675
$ 1,418,715
31,498
$ 1,487,265 $ 1,387,217
$ 9,421,653 $ 10,651,133
>9,
5,020,000 5,665,000
$ 4,401,653 $ 4,986,133
in-
1,311,859 627,554
$ 5,713,512 $ 5,613,687
See notes to financial statements.
STATEMENTS OF
NORTHWEST AIRLINES,
ASSETS
Decern ber 31,
CURRENT ASSETS 1959 1958
Cash
United States Government securities--at cost which approximates
..$ 10,206,460 $ 8,967,724
market price .. 4,443,794
Trade receivables, less allowance of $100.000 .. 13,804,267 11,721,181
Maintenance and operating supplies--at average cost .. 3,012,417 2,145,817
Prepaid expenses 655,598 411,630
TOTAL CURRENT ASSETS $ 27,678,742 $ 27,690,146
INVESTMENTS AND OTHER ASSETS
Related industry investments and advances--at cost ..$ 145,107 $ 272,858
FLIGHT EQUIPMENT at cost ..$109,542,617 $ 96.156.766
Less allowances for depreciation and obsolescence .. 28.979,487 36,344,795
$ 80,563,130 $ 59.811,971
Advances on purchase contracts--Note E .. 11,442,896 10,438,765
$ 92,006.026 $ 70.250.736
OTHER EQUIPMENT AND PROPERTY at cost ..$ 18.889,956 $ 15,728.646
Less allowances for depreciation .. 10.653,805 9,912,334
DEFERRED CHARGES
L namortized training and other costs in connection with aircraft
$ 8.236,151 $ 5,816,312
fleets and routes ..$ 1,357,729 $ 619.031
Other 673.561 411.586
$ 2,031,290 $ 1,030,617
8130.097.316 $105,060,669
See notes to financial statements.
FINANCIAL POSITION
INC. and SUBSIDIARY
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
CURRENT LIABILITIES
Accounts payable, collections as agent, etc $ 1 1,026,752 $ 9,334,518
Salaries, wages and vacations 4,291,033 3,773,082
Air travel card deposits 1,170,875 1,164,500
Unredeemed ticket liability 989,138 1,048,609
Income taxes--estimated 2,023,888 2,060,616
TOTAL CURRENT LIABILITIES $ 19,501,686 $ 17,381,325
LONG-TERM DEBT-Note A
Notes payable to insurance companies $ 40,000,000
Notes payable to banks 10,000,000
$ 50.000,000
$ 34,250,000
$ 34,250,000
DEFERRED INCOME TAXES
arising generally from accelerated depreciation methods $ 8,328,770 $ 5,205,000
STOCKHOLDERS' EQUITY- -Note C
Cumulative Preferred Stock, $25 par value;
authorized 1,000,000 shares issuable in series:
5lAcyc Convertible Series; authorized 457,873 shares; issued ar.d
outstanding shares 451,234--1959, 457,873--1958--Note B $ 11,280,850
Common Stock. $10 par value; authorized 4,500,000 shares; issued
and outstanding shares 1,384,903--1959, 1,373,620--1958--
Note D 13,849,030
Capital surplus 6,577,589
Earned surplus 20,559,391
$ 52,266,860
COMMITMENTS AND CONTINGENT LIABILITIES--Note E
$130,097,316
$ 11,446.825 '
13,736.200
6,481,052
16,560,267
$ 48.224,344
$105,060,669
See notes to financial statements.
STATEMENTS OF SURPLUS
NORTHWEST AIRLINES, INC. and SUBSIDIARY
Year Ended
December 31,
CAPITAL SURPLUS
Balance at beginning of year
Additions (deductions) arising from:
Sale of shares of Common Stock under option agreements, in excess
of par value
Cost of issue of 5%% Convertible Series, Cumulative Preferred Stock.
Conversion of shares of Preferred Stock into shares of Common Stock.
Redemption of shares of 4.6% Series Preference Stock
Balance at end of year
EARNED SURPLUS
Balance at beginning of year
Add net income for the year
Deduct:
Cash dividends on:
5%% Preferred Stock--annual rate of $1.31% a share
4.6% Preference Stock--annual rate of $1.15 a share
Common Stock--$.80 a share
Balance at end of year.
1959
.$ 6,481,052
1958
$ 6,813,847
27,808
.( 33,409)
102,138
109,188
( 435,488)
( 6,495)
.$ 6,577,589 $ 6,481,052
.$16,560,267
. 5,713,512
$12,057,070
5,613,687
$22,273,779 $17,670,757
.$ 610,559
. 1,103,829
$
36,003
1,074,487
$ 1,714,388 $ 1,110,490
.$20,559,391 $16,560,267
See notes to financial statements.
ACCOUNTANTS' REPORT
To the Stockholders and
Board of Directors
Northwest Airlines, Inc.
Saint Paul, Minnesota
We have examined the consolidated financial statements of Northwest Airlines, Inc. and subsidiary for
the year ended December 31, 1959. 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. We had made similar examinations for prior
years.
In our opinion, the accompanying statement of financial position and statements of income and
surplus present fairly the consolidated financial position of Northwest Airlines, Inc. and subsidiary at
December 31. 1959 and the consolidated results of their operations for the year then ended, in conformitv
with generally accepted accounting principles applied on a basis consistent with that of the preceding
year. Further, it is our opinion that the five-year summary of income presents fairly the information stated
therein.
Saint Paul, Minnesota ERNST & ERNST
February 12, 1960 Certified Public Accountants
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC. and SUBSIDIARY
December 31, 1959
Note A--Long-Term Debt
For the purpose of equipment financing (Note E) the Com
pany, as of November 28. 1958, entered into Note Purchase
Agreements with twelve insurance companies and a Bank
Credit Agreement with fifteen banks.
The Note Purchase Agreements provide for aggregate bor
rowings of $40,000,000 at 6% which are payable $3,000,000
annually beginning October 1, 1966 with the balance of
$4,000,000 due October 1, 1978. Certain optional prepayments
at par are permitted. The Agreements contain other provisions
with respect to redemption as a whole (but not from borrowed
funds) at premiums ranging from 7% to 1%.
The Bank Credit Agreement provides for a loan to the
Company of $32,500,000. on a revolving credit basis through
June 30, 1960 at 4)4% and thereafter as a term loan at
4Ya%. The loan is payable $6,000,000 annually in years
1961 through 1964 and $8,500,000 in 1965. The Agreement
may require additional sinking fund prepayments based on
income of the Company.
The Company has agreed, among other things, it will not
permit (a) its working capital at any time to be less than
certain specified amounts (excess amount approximated
$4,680,000 under the most restrictive provision of the Agree
ments at December 31, 1959) ; and (b) its funded debt to
exceed certain percentages of net tangible assets, net worth
and depreciated value of flight equipment.
Note B--5)4% Convertible Cumulative Preferred Stock
This Stock Series has voting rights; is entitled upon vol
untary liquidation to $25 a share plus accumulated unpaid
dividends; is convertible at any time on the basis of $25 a
Preferred Share into Common Stock at a conversion price of
$26 a share, subject to adjustment in certain events; and is
redeemable as a whole or in part at prices ranging from $26.25
a share before January 1, 1962 to $25 a share after December
31, 1973, together in each case with accrued dividends.
Note C--Restrictions on Stockholders' Equity
The Note Purchase Agreements and the Bank Credit Agree
ment establish an aggregate dollar maximum for the declara
tion and payment of cash dividends on Common Stock, and
for the distribution on, redemption, purchase or other acqui
sition of shares of any class of Capital Stock. At December
31, 1959 approximately $6,238,000 of earned surplus was
available for dividends on Common Stock and the other stock
provisions.
The Agreements do not prohibit the payment of stock divi
dends and do not restrict dividend payments on the 5)4%
Convertible Series, Cumulative Preferred Stock.
Note D--Common Stock Options and Reservations
At the end of the year 1,600 shares of Common Stock were
subject to outstanding options exercisable by Company offi
cers and employees not later than July 1, 1961 at $15,675 a
share, a price not less than 95% of market at date of grant.
During the year options for 4,900 shares were exercised. An
additional 11,000 shares are reserved for options which may
be granted in the future to officers and employees and 433,878
shares are reserved for issuance upon conversion of the 5)4%
Convertible Series, Cumulative Preferred Stock.
Note E--Commitments and Contingent Liabilities
At December 31, 1959 commitments for the purchase of five
Douglas DC-8C turbojet aircraft and eight Lockheed Electra
prop-jet aircraft (to be delivered in 1960) and other flight
and ground equipment amounted to approximately $61,309,000
after credit for five Douglas DC-7C aircraft to be traded on
aircraft purchases. Of this amount $11,442,896 was on de
posit with manufacturers at December 31, 1959, approximately
$33,949,000 becomes payable in 1960, and $15,917,104 be
comes payable over sixty month periods from dates of delivery
of the Lockheed Electra prop-jet aircraft under conditional
sales contracts.
Annual payments of approximately $1,190,000 from date of
occupancy will be required under the Company's agreements
for lease (from 25 to 30 years) of overhaul bases, hangars and
administrative facilities at Wold-Chamberlain Field, Minne
apolis, and International Airport, New York.
Federal income tax returns of the Company have been ex
amined through 1954 by the Internal Revenue Service. Ex
aminations for 1955 and 1956 are now in progress but final
determinations are not known at this time.
The Company was contingently liable at December 31,
1959 in the amount of $42,453 for the repurchase of travel
contracts sold.
Note F--Mail Transportation Compensation
No final determinations of total mail compensation have
been made by the Civil Aeronautics Board on international and
domestic routes for 1951 and on international routes for 1954.
The ultimate effect of any redeterminations are not known
at this time.
In January 1957, the Board issued an order asking the
Companv to show cause why temporary compensation for
1954 should not tentatively be reduced $1,406,000 pending
final hearings. The Company has refunded this amount and
recorded the adjustment in prior years ($653,790 net after
income taxes of $752,210).
In January 1960. the Board issued an order proposing to
establish a final subsidy-free mail rate for 1954 and asking
the Company to show cause why the remaining $1,833,000 of
mail compensation subsidy should not be refunded. No ef
fect has been given in the accompanying financial statements
to this proposed reduction which would approximate $843,000
net after income taxes of $990,000.
The Company is contesting both of the above actions.
FIVE YEAR SUMMARY OF INCOME
(Amounts Shown in Thousands)
NORTHWEST AIRLINES, INC. and SUBSIDIARY
Five years ended December 31, 1959
OPERATING REVENUES
Passenger
United States mail
Foreign mail
Excess baggage
Freight and express
Charter and other transportation.
Other--net
OPERATING EXPENSES
Flying operations
M aintenance
Passenger service
Aircraft and traffic servicing
Reservations, sales and advertising.
Administrative and general
Provision for depreciation
OTHER DEDUCTIONS, NET.
INCOME BEFORE TAXES AND PROPERTY DISPOSALS
TAXES ON INCOME
NET INCOME FROM OPERATIONS
PROFIT FROM DISPOSALS OF PROPERTY
Less applicable income taxes
NET PROFIT FROM DISPOSALS OF PROPERTY
1959 1958 1957 1956 1955
$100,641 $ 81,116 $66,674 $60,264 $57,253
10.174 9,265 7,587 7,192 6,513
1,045 963 763 666 577
1,349 1,230 1.004 728 585
. 10.532 7,437 6.537 6.427 5.539
526 1.237 226 816 111
1,763 709 641 386 510
$126,030 $101,957 $83,432 $76,479 $71,088
$ 37,610 $ 29.747 $25,555 $22,665 $21,694
21,771 17.090 16,037 14.095 12,707
8,465 6.034 5.061 4,502 4,139
15,511 12,207 11,689 10.847 9,718
14,011 10.753 9.218 8,169 7,761
6.818 5.573 5,452 4.834 4.447
10,935 8,515 5,436 6,772 6,205
$115,121 $ 89,919 $78,448 $71,884 $66,671
$ 10.909 $ 12,038 $ 4,984 $ 4,595 $ 4,417
1,487 1.387 994 522 250
$ 9,422 $ 10,651 $ 3.990 $ 4,073 $ 4.167
5,020 5,665 2,100 2,185 2,140
$ 4,402 $ 4,986 $ 1.890 $ 1.888 $ 2,027
$ 1.822 $ 828 $ 3,241 $ 1.828 $ 119
510 200 312 490 30
$ 1,312 $ 628 $ 2,929 $ 1,338 $ 89
.$ 5,714 $ 5,614 $ 4.819 $ 3,226 $ 2,116
NET INCOME FOR THE YEAR
NORTHWEST AIRLINES, INC ANNUAL REPORT
PROGRESS FOR THE LATEST 10 YEARS
Calendar
Year
Total
Operating
Revenue
Passenger
Revenue
Express
and Freight
Revenue
Revenue
Passenger
Miles
Mail
Ton
Miles
Total
Plane Miles
Flown
1959 $126,029,501 $100,641,156 $10,531,400 1,738,138,265 24,435,745 49,282,475
1958 $101,957,172 $81,1 15,900 $7,437,293 1,408,742,516 21,892,299 40,721,143
1957 83,432,404 66,674,383 6,537,452 1,205,764,597 17,803,356 35,629,289
1956 76,479,526 60,264,291 6,426,502 1,094,121,438 16,780,406 32,461,321
1955 71,088,043 57,252,957 5,539,095 1,017,400,443 15,407,054 30,909,610
1954 62,138,312 51,053,599 4,676,190 909,674,550 6,990,462 27,029,860
1953 66,042,488 48,652,465 4,890,153 851,174,754 5,002,605 27,816,827
1952 61,474,153 41,962,758 4,781,081 720,046,264 5,017,993 23,210,634
1951 54,593,420 35,192,765 4,371,533 602,220,853 4,571,276 19,531,632
1950 52,401,767 33,148,395 4,122,222 613,446,244 4,987,561 26,868,177
34 years of superior Airmanship
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