Northwest Airlines Annual Report 1962

NORTHWEST AIRLINES; INC ~~ f!J2e/w;tl 4962
NORTHWEST AIRLINES, INC.
1962 IN REVIEW
Total Operating Revenues
Operating Income
I\ et Earnings for the Year
Per Common Share0
.
Stockholders' Equity .
Per Common Share0
Dividends Paid . . .
Operating Expenses-
Per Available Ton-Mile
Per Revenue Ton-Mile
Revenue Traffic-
Passengers Carried . . . . . . .
Passenger-Miles Flown . . . . .
Ton-Miles, Mail, Freight and Express
Number of Employees at Year End
'Kumber of Common Shares at Year End
( Includes equivalent shares to reflect February
1963 conversion of preferred stock)
1962
$150,453,420
19,206,051
7,230,392
$3.97
$ 59,711,883
$32.79
$ 1,701,743
23.9
50.2
2,437,342
1,904,112,000
68,814,000
5,788
1,820,781
1961
$111,052,512
9,721,886
3.661,139
$2.01
$ 54,176,525
$29.76
$ 1,700,766
27.6
54.2
1,723,667
1,361,790,000
49,990,000
5,803
1,820,281
... the President's Letter
TO O R STOCKHOLDERS:
1962 was an excellent year for :'.\orthwest Airlines.
The total operating revenues exceeded 8150,000,000 for the first time
in the history of the Company. The net earnings for the year reached
a record high of $7,230,392. This is almost double the net earnings of
1961.
All expenses were rigidly controlled during the year. nit costs in
1962 were less than the unit costs in 1961. The cost per available ton-
mile was reduced by 13.4 per cent and the cost per re enue ton-mile
was reduced by 7.4 per cent. The break-e en passenger load factor
for the combined domestic and international operations was 45.5 per
cent-one of the lowest in the airline industry. Reduced unit costs were
the result of the increased efficiency in all departments and divisions
of :'.\ orthwest irlines and the increa ed use of the productive capacity
of jet airplanes.
In 1962, K orthwest placed into service four additional 720B fan-jets.
In 1963, Northwest will take deli ery of fi e Boeing Intercontinental
707-351B jets. The first deli ery will be in June and deliveries will
continue through October. These long-range jet transports are being
manufactured to I\ orthwest's specilications. They \"\ ill have seating for
112 passengers and approximately 2,800 cubic feet of cargo and baggage
space, with a 91 by 134-inch cargo door to accommodate the largest
items of freight.
The year 1963 has started well for I\ orthwest Airlines. Gross revenues
for the first two months are up approximately 19 per cent. Historically,
I\ orthwest has shown a loss for the first quarter of the year because of
reduced travel over its routes during the winter period. It is expected
that the first quarter of 1963 will show a modest profit. Assuming that
the national economy remains furn, 1963 should be another good year
for your Company.
\ e are grateful to our customers, shareholders and employees for
their continuing support in 1962.
Sincerely,
March 27, 1963
c4~d
~7?~
36th annual report
to stockholders
1962 financial results
Northwest Airlines' financial performance in
1962 was exceptionally good in comparison with
prior years and with results attained by other
airlines. After revenues of $150,453,420 and
total operating expenses of $131,247,369, there
remained operating income of $19,206,051, or
12.8 per cent of 1962 revenues. Interest expense
was $5,040,266 in 1962 compared with $4,352,-
867 in 1961. Gain from disposal of property was
not a large factor in your Company's profit in
1962, amounting to $346,352 before taxes con-
trasted with $1,518,535 for 1961-the latter also
before taxes.
After taxes on income, net earnings for 1962
amounted to $7,230,392 or almost twice the net
earnings of $3,661,139 reported for 1961. This
is a record high for annual earnings and repre-
sents the fourteenth consecutive year in which a
net profit has been earned by Northwest Airlines.
Earnings Per Share and Dividends
In terms of the 1,388,459 common shares which
were outstanding at the end of 1962, and after
preferred dividends of $592,187, net earnings for
1962 reflect $4.78 per common share compared
with $2.21 in 1961. In January, 1963, your
Company called for redemption all outstanding
shares of the Cumulative Preferred Stock, 57i%
Convertible Series. This call resulted in virtu-
ally complete conversion of this issue to common
stock at the rate of .9615 share of common stock
for each share of preferred stock. Thus net earn-
ings for 1962, reflecting this conversion and
elimination of the preferred dividend require-
ment, are $3.97 per common share ( on the equiv-
alent of 1,820,781 total shares after conversion).
During 1962, regular quarterly dividends total-
ing $.80 per share were paid to holders of com-
mon stock. In February, 1963, your Directors
voted to increase the quarterly dividend from
20 cents to 25 cents per common share-or at
the rate of $1.00 per share per year. Regular
quarterly dividends also were paid in 1962 on
the Cumulative Preferred Stock, 5% Convertible
Source
Net Earnings $ 7,230,392
Depreciation and Amortization . 18,445,190
Deferred Taxes 5,821,500
Other Sources . 227,160
Total $31,724,242
Series, then outstanding.
Stockholders' Equity
Net worth of the Company increased by $5,-
535,358 in 1962-from $54,176,525 to $59,711,883.
This growth resulted from net earnings for the
year less dividends paid. Book value per share
at year-end ( reflecting the early 1963 conversion
of preferred stock) was $32.79, an increase of
$3.03 over the comparable book value of $29.76
at the close of 1961. In the period of five years
ending December 31, 1962, your Company has
earned $23,844,495 and has paid $7,927,552 in
cash dividends. Stockholder equity has been
increased by $15,916,943 from net earnings re-
tained in the business during this period.
Financial Position
Long-term credit agreements made prior to
1962 continued in effect during the year and no
new debt was incurred. Regular payments in
the total amount of $2,786,013 were made under
the Conditional Contract of Sale for Lockheed
Electra II aircraft and 43 per cent of this debt
now has been repaid. During 1962, terms of our
$42,500,000 bank loan were amended to provide
a portion of the financing needed for aircraft
acquisition in 1963 by continuing the revolving
credit feature into 1963 and by moving repay-
ment dates forward one year.
Internal cash Bow, principally from net earn-
ings, depreciation and deferred taxes, totaled
$31,724,242 in 1962. These sources generated
ample funds to cover expenditures during the
year for operating property additions, equipment
deposits and other cash needs. In addition, the
year's cash Bow permitted interim repayment of
$13,000,000 in bank loans, pending the need to
draw such funds for aircraft purchases in 1963.
Capital expenditures committed for 1963 will
be made from funds available in present credit
arrangements and from internal cash Bow, with
no additional borrowing from outside sources.
Application
Advance Deposit on Aircraft . $ 6,327,901
Additions to Operating Property 6,485,922
Repayment of Debt . 15,786,013
Cash Dividends 1,701,743
Increase in Working Capital . 1,014,863
Other Applications 407,800
Total $31,724,242
SOURCE AND
APPLICATION
OF FUNDS,
1962
REVENUE
PASSENGER
MILES
MAIL
TON
MILES
FREIGHT
AND
EXPRESS
TON
MILES
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
. 1,904,112,000
. 1,361,790,000
. 1,653,966,000
. 1,738,138,000
. 1,408,743,000
. 1,205,765,000
. 1,094,121,000
. 1,017,400,000
909,675,000
851,175,000
33,635,000
26,955,000
24,424,000
24,436,000
21,892,000
17,803,000
16,780,000
15,407,000
6,990,000
5,003,000
35,179,000
23,035,000
32,480,000
31,377,000
22,285,000
19,714,000
18,825,000
16,341,000
12,970,000
13,222,000

revenues
and
expenses
Total revenues of the Company reached an
all-time high of $150,453,420 in 1962. The reve-
nue level of $76,479,526 achieved in 1956 has
been doubled in the past six years of growth.
In this period an average growth rate of 11.9
per cent per year has been realized despite the
setback from a lengthy strike which affected
revenues late in 1960 and in early 1961.
Passenger Revenue
Passenger traffic remains our primary reve-
nue source, producing $121,781,068 in 1962,
more than 80 per cent of total operating reve-
nues. This amount was derived from the car-
riage of 1,904,112,000 revenue passenger-miles
at a system average fare of 6.40 per passenger-
mile. Comparable figures for 1961 were 1,361,-
790,000 passenger-miles carried at an average
yield of 6.31 per passenger-mile for a total of
$85,970,900 in passenger revenues. These traffic
gains resulted in large part from the efficient
operation and aggressive merchandising of im-
proved schedules offering excellent competitive
service in all our markets.
A continuing trend toward greater passenger
us of coach and economy services is reflected
in the fact that 70 per cent of our total passenger
traffic was carried in the lower-fare services in
1962. Your Company has met this varied traffic
need by offering a combination of first-class and
coach accommodations in the same aircraft on
most of our schedules. Public reaction to this
type of service has been good.
It appears that the general level of passenger
fares will not be altered significantly in the near
future. Your Company enthusiastically supports
and offers those special promotional fares and
tariff features which are economically sound and
capable of developing additional traffic. We
have not regarded as sound a number of special
fares which are of doubtful promotional value
and serve to debase the general fare structure
by diversion of existing revenues.
CENTS
40
35
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:T~~ } NTERNATIONAL CARRIERS
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30
25
20
0
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TOTAL DOM ESTIC TRUNKS
1953 1954 1955 1956 1957
Cargo and Other Revenues
Freight and express re enues were $10 7 44 241
in 1962, earned by carriage of 35,179,000 ton-
miles of traffic. Both are new highs for ~orth-
west Airlines and demonstrate the growing im-
portance of air cargo in our o er-all re enues.
R_apid mo e~ent of goods both on passenger
flights and m aircraft equipped with special
freight capability has resulted in e er-increasing
awareness by shippers of the ad antages of air
transportation.
Air mail revenues, both . S. and foreign
origin, amounted to 814,228,416 in 1962, an in-
crease of 21.6% over 1961. Included in this total
is a growing olume of non-priority . S. mail
offered to the air carriers on a space-a ailable
basis at rates which are 10\ er than those for
regular air mail. Re enues of Sl,974,79 , ere
earned in our domestic and international services
during 1962 from thi type of traffic compared
with Sl,384,245 in 1961 and S593,984 in 1960.
Your Company continued its participation in
scheduled military contract service during the
past year. Re enues from this source amounted
to S1,964 832 in 1962 and we expect renewal of
our contract at a higher re enue le el for the
fiscal year starting Jul 1 1963.
Operati ng Expenses
Operating e;,.._'Penses ,rnre S131,247 369 in 1962,
including Sl 445,190 for depreciation and
amortization. Comparable figures for 1961 were
S101,330 626 total expense and Sl 7 117 959 for
depreciation and amortization.
Total expenses increased 29.5% o er the prior
year while operating revenues increased 35.5%
.
t the same time our unit operating costs , ere
reduced greatly reflecting the production of in-
crea ed alable capacity ,, ithout proportionate
cost increa e . Your Compan achieved a cost-
of-capacity rate of 23.9c operating expense per
arnilable ton-mile flown in 1962. This , as 3.7c
or 13.4 per cent le s than the unit co t rate of
1958
........
........
NORTHWEST AIRLINES
SYSTEM TOT AL
1959 1960 1961 1962
2'"'.6c experienced in 1961. Operating expense
per re enue ton-mile of traffic carried was 50.2
in 1962 a reduction of 4.0 from the 1961 rate
of 54.2~.
;,.._'Pressed another wa , Korthwest Airlines'
low operating cost level resulted in a break-even
passenger load factor. of only 45.5 per cent in
1962. This is calculated as the load factor re-
quired to co er operating expenses and interest
costs and is among the 10\ est in the airline
ind_:1 try. Our actual 1962 passenger load factor
of ol.5 per cent represents a margin of six per-
centage points O\er the load factor required to
break even.
"\"\ e v ill continue in the coming year to offer
a high standard of service to the public with
the best equipment a, ailable to de elop maxi-
mum total re enues. t the same time we will
c?ntinne to maintain careful management scru-
tiny of our operating costs to provide the best
margin of net profit attainable.
TOTAL
OPERA TING
EXPENSE
IN CENTS
PER
AVAILABLE
TON-MILE
equipment
and

services
orthwest Airlines during 1962 operated a
balanced fleet of jet, jet-propeller and piston-
engined aircraft that provided excellent flight
service throughout the carrier's domestic and
international route system.
Although a two-year program for acquisition
of modern, turbine-powered aircraft had been
completed in 1961, further changes in North-
west s fleet accomplished in 1962 and announced
for the future proved again that equipping a
jet-age air carrier is far from being a static
undertaking.
Northwest Orient Airlines air-ground radio com-
munications are consolidated into a single oper-
ation at the General Office.
During 1962, Northwest added four Boeing
720B fan-jet airliners to its fleet and sold one
of its Douglas DC-8 jets, making the year-end
total of pure jet equipment 13 720B's and four
DC-S's. There was no change, however, in
orthwest's total of 16 Lockhged Electra II jet-
prop airliners. orthwest also has seven DC-
7C's ( four of which have been converted to
DC-7C/ F cargo configuration, with large for-
ward cargo door and cargo floor ) and 11
DC-6B's.
Aircraft Acquisition Plans
Looking to future operations, orthwest in
1962 announced purchase plans for a fleet of
Intercontinental Boeing 707-351B fan-jets, five of
which will be delivered beginning in June, 1963.
These newest and most advanced of the Boe-
ing family of jetliners will have a first-of-a-kind
cabin configuration, designed especially to Iorth-
west's requirements for both passenger and cargo
capacity on the northern transcontinental and
North Pacific routes. Incorporated in the design
will be a large-door cargo compartment, with
space for nearly a thousand cubic feet or 10,000
pounds of cargo.
This compartment, in the forward left side of
the passenger cabin behind the forward passen-
ger entrance, will be 37 feet long, with an aver-
age floor width of 50 inches. It will be separated
from the passenger area by permanent, decora-
tive panels. Access will be from the exterior of
the aircraft, through a forward, upper deck
cargo door with an effective opening of 91 by
134 inches. Design will allow for the use of
Northwest's second-level passenger loading ramps
at the forward passenger entrance.
The new compartment, plus cargo capacity in
the aircraft's lower holds, will allow orthwest
to carry, on its longest flight segments, the cargo
tonnage now lifted aboard all-freight DC-7C/ F
planes and, at the same time, 112 passengers.
Increase in Jet Services
These ne\ fan-jet aircraft with v,hich sen ce
will be inaugmat d on Jul 1 1963 \\ill con-
tinu the ears-long trend of more and more of
ortlm est' s re\ enue passenger-miles being pro-
duced by modern, turbine-pm ered aircraft ( both
jet and jet-prop). In 1959 for example onl
4.9 per cent of tl1e airline's total s stem re enue
passenger-miles were produced b turbine air-
liners. This percentage has climbed steadily to
24.7 in 1960, 74.4 in 1961 and 88.9 per cent of
total re enue passenger-miles in 1962.
orth\, est' s jet ser ices \\ ere increased sub-
stantially during 1962. Polar jets-from ,-,.,,
York and Chicago to Tol70 a Anchorage-
" ere operated on a daily frequency. Jet service
bet\ een Seattle-Tacoma and Anchorage was
increased to t\ o round bips daily. orthv est
restored daily ser ice ben, een th Pacic orth-
west and Ha, aii witl1 the aircraft operating on
a tluough-plane basis bet\ een ew York Chi-
cago and Honolulu.
To accommodate heavy winter travel to Flo-
rida, Iorth, est operated Bve jet round trips
daily bet\:veen the Mid\, est and Miami an in-
crease of t\vo-tl1irds over I "\ A's pure jet fre-
quencies in the market during the height of
the 1961-62 ,-,.,,inter acation season. There were
comparable increases in jet frequencies in other
domestic markets, including banscontinental
Bights to ser e the traffic generated by tl1e
Seattle ~lorld's Fair.
Schedule Performance
orthwest established new standards of excel-
lence in its operations in 1962, in terms of on-
time performance. Maintenance & Engineering,
Flight Operations and Transportation Services
Departments combined forces to keep 1orth-
west among tl1e industry leaders in performance
during most of the year.
In flights operated in the nation's top 100
city-pair markets-category utilized by the Civil
Aeronautics Board to determine carrier perform-
ance-I orth,;
vest had the best record in the
industry, April through T
o ember for percent-
age of Bights completed to scheduled destination.
"\ A , as in second place in December, reflect-
ing the onslaught of bad winter weatl1er on tl1e
airline's northern routes.
T orthwest ranked among tl1e top four trtmk
carriers for 10 montl1s of the year in "on-time
performance" in the top 100 city-pairs and was
among the top three June tlrrough December.
100%
60%
Turbine Aircraft
40%
20%
1959 1960 1961 1962
Per cent of total revenue passenger-miles.
Ground Facilities
I e, $10 000,000 lll1it air terminal at Idlewild
International Airport ey-; York, was completed
and open d b ortl1\ est and its co-occupants,
Northeast and Braniff in member.
lso, in accord ,vitl1 ortlrn est's continuing
polic of providing the utmost in passenger con-
venience, new terminals or e.x-panded facilities
\\ ere occupi d at 1 finneapolis-St. Paul; 0 Hare
Airport Chicago Dulles International, "\;\ ashing-
ton D. C. Butte, Mont., and Honolulu. orth-
west installed second-level jet passenger loading
ramps at ew York, Chicago, 1
!iami, :Minne-
apolis-St. Paul and Seattle-Tacoma.
All domestic air-grolll1d radio communications
,:vere consolidated into a single operation located
at the General Office. Four domestic radio net-
works working via remote radio transmitter sites
and landlines from four control consoles at
company headquarters, maintain en route radio
communications \, ith Vv A flights. The consol-
idation has resulted in increased operating effi-
cienc .
Fifty-eight hundred skilled and well-trained
emplo es using modern procedures and tech-
niqu s provided continuous, efficient and cour-
teous service to 2,437,342 passengers and to our
shippers and other customers. These men and
women vvere insbumental in maintaining Iorth-
v est's reputation for service of the highest qual-
ity.
GROWTH
IN
TURBINE
SERVICE
Northwest
707-351B's will
have large
cargo door.
LASKA
ANCHORAGE
HONG KONG
THE PHILIPPINES
HAWAII
HONOLULU
SYSTEM MAP
NORTHWEST ~.~t~N"!!
CANADA
UNITED STATES
NEW YORK
NEWARK
MIAMI
There were no significant changes in or addi-
tions to the routes of orthwest Airlines in 1962.
However, orthwest was authorized to suspend
service to Edmonton, Alberta, and Baltimore,
Maryland.
Still pending before the Civil Aeronautics
Board are petitions of various airlines for recon-
sideration of the Board's and the President's
decisions of January 19, 1961, in the Transpacific
Route Case. Among these petitions is North-
west's for reconsideration of the failure to cer-
tificate Northwest Airlines over the Central Pa-
cific route from California to Tokyo via Hawaii,
and between California and Hawaii.
Public hearings were held in 1962 in the
United Air Lines Competitive Service Investiga-
tion, to consider authorizing competition in the
ew York-Cleveland, Cleveland-Chicago, Cleve-
land-Philadelphia and Detroit-Philadelphia mar-
kets. United acquired monopoly status in these
markets through its 1961 merger with Capital
Airlines. orthwest vigorously pursued its appli-
cations for authority to serve all of these markets,
which would contribute significantly to offsetting
the competitive imbalance in favor of United
created by the merger. An initial decision by
the Hearing Examiner is awaited.
Early in the year, American Airlines and East-
ern Air Lines asked CAB approval of a merger.
orthwest, most of the other trunkline carriers
and the Department of Justice opposed the
merger, which if approved would create a giant
carrier controlling nearly 35 per cent of domestic
trunkline business, with consequent adverse im-
pact on the ability of medium-sized airlines to
compete effectively. The Examiner has recom-
mended that the merger be denied. The matter
now is pending before CAB.

route
development
The CAB during the year began an investi-
gation of possible correction of alleged excessive
competition among airlines operating between
the Pacific Northwest and Alaska and reduction
of the resulting subsidy paid to Pacific Northern
and Alaska Airlines by revising the route struc-
ture. One issue was possible restriction of
orthwest's authority to conduct local turn-
around services between Seattle-Tacoma and
Anchorage. Your Company believes that there is
no valid basis for restricting its existing authority
and that there are other, more economically
sound solutions for such difficulties as other car-
riers may be encountering in these markets. The
proceeding still is in its preliminary stages.
In December, Pan American World Airways
and Trans World Airlines applied to the Civil
Aeronautics Board for approval of a merger.
Northwest will oppose approval of a PAA-TWA
merger, which would have a significant. impact
on the Trans-Pacific route picture. The Board
has deferred indefinitely all further procedural
steps because of internal complications relating
to stockholder control of TWA, which is the
subject of current litigation.
There are several other proceedings pending
before the CAB in which orthwest Airlines has
an interest and is a participant, none of which
have an importance comparable with those men-
tioned above. orthwest also has on file several
applications for route authorizations to strength-
en its route structure, which are awaiting pro-
cedural action.
STATEMENT OF EARNINGS
NORTHWEST AIRLINES, INC. and SUBSIDIARY
Year Ended December 31,
OPERATING REVENUES
Passenger . . . .
United States mail
Foreign mail . . .
Excess baggage . .
Freight and express .
Charter and other bansporta tion .
Mutual Aid Agreement-net- ote G .
Other . . . . . . . . . . .
OPERATING EXPENSES
Flying operations
Maintenance . . .
Passenger service
Aircraft and traffic ser icing
Reservations, sales and ad ertising
Adminisbati e and general .
Depreciation and amortization . .
OTHER INCOME AND (DEDUCTIONS)
Interest on long-term debt . .
Gain from disposals of property
Other income . . . . . .
EARNINGS BEFORE TAXES
TAXES ON EARNINGS (including deferred tax s$5, 12900- 1962
$2,868,900-1961 ari ing principally from accelerat d d preciation
methods )- ote H . . . . . . . . . . . . . . . .
NET EARNINGS FOR THE YEAR
1962
121,781,06
12,904,069
1,324,347
1 083 96
10,744,241
2,646,207
858,402 )
827,922
$150 453,420
$ 38,947,732
23,243,505
9 5 6 053
17,29 ,393
15,030 749
8 695 747
18,445,190
$131,247 369
19 206,051
5,040,266 )
346 352
116 555
1961*
$ 5 970 900
10,473,605
1,227,259
914 423
7,528,793
1481,883
2,563,150
892,499
$111,052 512
29,268,829
17 252,807
7 178,262
12 445 830
11,973 343
6,093,596
17,117 959
101330 626
9,721,886
4,352,867)
1518,535
6,385
( $ 4,577 359 ) ( $ 2, 27,947 )
$ 14 628 692 6,893,939
7 39 300 3 232,800
7 230 392 3 661139
0 Operation wer curtail d in th fir t quart r of 1961 a a re ult of a flight ngin r trik .
See notes to financial statements.
ASSETS
CURRENT ASSETS
Ca h .. ...
Trade receivable , l allowanc of $105,000 .
Flight cquipm nt parts, at average cost, less allowance for
d pr ciation ( 1962-$2,529,171; 1961-$1,793,568 )
faint nanc and operating supplies-at average cost . .
Pr paid e pens s . . . . . . . . . . . . . . .
TOT AL CURRENT ASSETS
INVESTMENTS AND OTHER ASSETS
R lat d indu try in tments and advanc s-at cost
PROPERTY AND EQUIPMENT -at cost
Flight quipm nt . . . . . . . . . . . .
L ss allowances for d preciation an l obsole c nee
d anc on purchas contracts . . . . . . .
0th r prop rty and quipm nt .
Les allowanc s for d pr ciation
DEFERRED CHARGES
namortiz d haining and oth r co t in connection with aircraft
B et
R ntal
Other
See notes to financial statements.
STATEMENT OF FINANCIAL POSITION
NORTHWEST AIRLINES, INC. and SUBSIDIARY
December 31,
1962
$ 16,371,029
14,037 703
6,475,526
2,181,111
2,414,788
$ 41,480,157
$ 320,332
$169,413,299
46,433,719
$122 979,580
6,327,901
$129,307,481
$ 21,103,687
10,751,430
$ 10,352,257
$139,659,738
$ 4,461,405
890,756
74,214
$ 5,426,375
$186,886,602
1961
$ 15,991,175
12,532,949
5,880,199
2,377,424
2,064,721
$ 3 ,846 468
$ 154,890
$170,772,136
37,286,701
133,485,435
$133,485,435
$ 21,429,995
10,919,266
$ 10,510,729
$143,996,164
$ 4,930,453
1,057,525
117,716
$ 6,105,694
$189,103,216
------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . .
Salaries, wages and vacations
Air travel card deposits . .
Unredeemed ticket liability .
Income taxes-estimated
Curr nt maturities of long-term debt
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT, less curr nt maturities- ote A
Notes payable to insurance companies
Notes payable to banks .
Subordinated notes payabl
Conditional sales contracts .
DEFERRED CREDITS- ote H
Incom taxes-arising principally from accelerated depreciation
method
Other
STOCKHOLDERS' EQUITY
Cumulative Preferred Stock, $25 par value:
Autboriz d 1,000,000 bar s issuable in series: 5}4% Convertible
Seri s; authorized 457,873 bar ; is ued and out tanding 1962
-449,615 shares; 1961-451,234 shares- ot B . . . . . .
Common Stock, $10 par value; authoriz d 4,500,000 shares; issued
and outstanding 1962-1,388,459 hares; 1961-1,386,403 shares
- ates B and D
Capital surplus . . . .
Retained arnings- ote C
COMMITMENTS AND CONTINGENT LIABILITIES-Note E
See notes to financial statements.
December 3 I,
1962
$ 13,101,908
5,584,258
1,187,875
1,038,843
1,464,362
11,053,845
$ 33,431,091
$ 40,000,000
21,000,000
7,500,000
6,467,528
$ 74,967 528
$ 17,450,100
1,326,000
$ 18,776,100
$ 11,240,375
13,884,590
6,612,905
27,974,013
$ 59,711,883
$186,886,602
1961
$ 12,021,592
5,416,706
1,176,400
1,012,669
663,338
11,521,560
$ 31,812,265
$ 40,000,000
34,000,000
7,032,285
9,253,541
$ 90,285,826
$ 11,628,600
1,200,000
$ 12,828,600
$ 11,280,850
13,864,030
6,586,281
22,445,364
$ 54,176,525
$189,103,216
ST A TEMENTS OF CAPITAL SURPLUS
AND RETAINED EARNINGS
NORTHWEST AIRLINES, INC. and SUBSIDIARY
Year Ended December 31,
CAPITAL SURPLUS
Balance at beginning of year
Additions arising from:
Sale of shares of Common Stock under option agreements, in
excess of par
Conversion of shares of Preferred Stock into shares of Common
Stock .
Balance at end of year
RETAINED EARNINGS
Balance at beginning of year
Add net earnings for the year
Deduct cash dividends on:
SJ~% Preferred Stock-annual rate of $1.3B4 a share
Common Stock-$.80 a share
Balance at end of year
See notes to financial statements.
ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors
Northwest Airlines, Inc.
Saint Paul, Minnesota
1962 1961
$ 6,586,281 $ 6,577,695
1,710 8,512
24,914 74
$ 6,612,905 $ 6,586,281
$ 22,445,364 $ 20,484,991
7,230,392 3,661,139
$ 29,675,756 $ 24,146,130
$ 592,187 $ 592,245
1,109,556 1,108,521
$ 1,701,743 $ 1,700,766
$ 27,974,013 $ 22,445,364
We have examined the statement of consolidated financial position of orthwest Airlines, Inc. and
subsidiary as of December 31, 1962 and the related statements of con olidated earnings, capital surplus
and retained earnings for the year then ended. Our examination was made in accordance with gen-
erally accepted auditing standards, and accordingly included such tests of the accounting records as
we considered necessary in the circumstances. We have made similar examinations for prior years.
In our opinion, the accompanying statements of financial position, earnings, capital surplus and retained
earnings present iairly the consolidated financial position of orthwe t Airlines, Inc. and subsidiary at
December 31, 1962 and the consolidated results of their operations for the year then ended, in conform-
ity with generally accepted accounting principles applied on a basis consistent with that of the preced-
ing year. Further, it is our opinion that the five year summary of earnings presents fairly the informa-
tion stated therein.
Saint Paul, Minne ota
February 14, 1963 Certified Public Accountants
NOTES TO FINANCIAL STATEMENTS
NORTHWEST AIRLINES, INC. and SUBSIDIARY
December 3t 1962
ote A-Long-Term Debt
T
ote Purchase Agreements \ ith twel e insurance
companies provide for aggregate borrowings of $40,-
000,000 at 6% \ hich are payable $3,000,000 annually
commencing October 1, 1966 \ ith the balance of $4,-
000,000 due October 1, 1978. Certain optional prepay-
ments at par are permitted. The Agreements contain
other provision with re pect to redemption a a \ hole
( but not from borrowed funds) at premiums ranging
from 7% to 1%
.
The Amendatory Credit Agreement with fifteen banks
provides for a term loan of $42,500,000 at 5% payable
$8,500,000 each year 1963 through 1967. Optional pre-
payments at par are permitted except from borro\ ed
funds in which e ent a premium of % is required.
The $7,500,000 Promissory ote \ a issued in con-
nection with the purchase of six Boeing 720B turbojet
aircraft and is subordinate to the notes payable to in-
surance companies and to bank . This note bear intere t
at 6% and is payable $1,500,000 annually 1968 through
1972. Certain prepayment are pro ided for based on
"net earnings" as defined for 1963 and ubsequent
years.
Conditional sales contract for the purchase of se en
Lockheed Electra prop-jet aircraft bear interest at 5%
and are payable over sLxty monthly period ending in
1966.
The Company has agreed, among other things, that
it will not permit: (a) its working capital at any time
to be le s than certain specified amounts and ( b ) it
funded debt to exceed certain percentages of net tangi-
ble a ets, net worth and depreciated value of flight
equipment, as these terms are defined in the Agree-
ments. At December 31, 1962 the Company had com-
plied \ ith the co enant then in effect.
Note B-5 % Com ertible Curnulati e Preferred
Stock
This Stock Series was called for redemption or con-
version by February 14, 1963 and 449,545 share were
converted into 432,254 Common Share .
ote C-Re triction on Stockholder 'Equity
The ote Purcha e Agreements and the Bank Credit
Agreement e tabli h an aggregate dollar maximum for
the declaration and payment of ca h di idend on
Common Stock, and for the di tribution on, redemption
purcha e or other acqui ition of hares of any cla of
Capital Stock. The amount of retained earning a ail-
able for uch purpo e at December 31, 1962 was
$5,977,426.
ote D-Common Stock Option
At year-end 10,500 Common Share were ubject to
options held by Company officers at price not !es than
95% of market at date of grant. Option for 500 hare
at $13.42 a hare and for 3,000 hares at S27.45 a
hare ( granted in 1962) expire in 1965; o~tion for
7,000 share at $27.45 a share (grant d m 1962 )
expire in 1966. Options for 500 shares at Sl3.42 a
share , ere exercised during the year. An additional
100 shares are re er ed for future options.
ote -Commitment and Contingent Liabilities
The Company has purchased for deli ery in 1963
four Boeing 320B turbojet aircraft for an aggregate of
$26,094,460. Depo its on purcha e aggregated $6,-
327,901 at December 31, 1962.
Annual payment of approximately S3,000,000 are
required under ariou rental agreements for lea e
from 5 to 40 ear of airport facilities, ticket office , et
cetera.
The Company wa contingently liable at December
31, 1962 in the amount of S731, 84 for di counted note
recei able arising from the ales of assets. Other con-
tingent liabilities include tho e inherent in the Com-
pany's operation. \ hile the amount of the e contingent
liabilitie i not now determinable, the management of
the Company is of the opinion that it is not material
with re pect to the Company's financial po ition.
ote F-Mail Tran portation Compensation
-o final determination of total mail com pen ation
ha e been made by the Ci il Aeronautics Board on in-
ternational and dome tic route for 1951 and on inter-
national route for 1954. The ultimate effect of any
redetermination are not known at thi time.
In January 1957, the Board i sued an order asking
the Company to ho\ cau e \ h temporary compen a-
tion for 1954 hould not tentati ely be reduced Sl,-
406,000 pending final hearings. The Company ha re-
funded this amount and recorded the adjustment in
prior year .
In January 1960, the Board i sued an order propo -
ing to establish a final subsidy-free mail rate for 1954
and a king the Company to show cause why the re-
maining $1,833,000 of mail compensation subsidy should
not be refunded. o effect has been gi en in the ac-
companying financial tatement to thi proposed reduc-
tion which , ould approximate $843,000 net after income
taxes of $990,000.
The Company is conte ting both of the above action .
ote G-Mutual Aid Agreement
The Company is party to a ~Iutual Aid Agreement
with certain airlines under which any party to the agree-
ment uffering a trike a defined therein i to recei e
from the other airlines amount as determined under
the agreement. The Ci ii Aeronautic Board i inve ti-
15ating the agre ment and in the e ent of it di appro al,
).futual Aid payments are to be refunded to the paying
airlines to the extent affected by such disapproval.
ote H-ln e tment Credit
The Company' 7% inve trnent credit under the Reve-
nue Act of 1962 approximate S300,000. Of thi amount
$156,000 ha been added to deferred income taxes and
$144,000 ha b en included in other deferred credit to
be r porte<l a earned income o er the e timated pro-
clucti e lifo of the equipment.
FIVE YEAR SUMMARY OF EARNINGS
(Amounts Shown in Thousands)
NORTHWEST AIRLINES, INC. and SUBSIDIARY
1962 1961 1960 1959 1958
OPERATING REVENUES
Passenger . $121,781 $ 85,971 $ 97,680 $100,641 $ 81,116
United States mail . 12,904 10,474 9,680 10,174 9,265
Foreign mail . 1,324 1,227 1,031 1,045 963
Excess baggage . 1,084 914 1,183 1,349 1,230
Freight and express 10,744 7,529 10,185 10,532 7,437
Charter and other transportation 2,646 1,482 823 526 1,237
Mutual Aid Agreement 858) 2,563 922
Other 828 893 1,858 1,763 709
$150,453 $lll,053 $123,362 $126,030 $101,957
OPERA Tl NG EXPENSES
Flying operations $ 38,948 $ 29,269 $ 37,606 $ 37,610 $ 29,747
Maintenance . 23,243 17,253 22,872 21,771 17,090
Passenger service 9,586 7,178 8,840 8,465 6,034
Aircraft and traffic servicing 17,298 12,446 15,422 15,511 12,207
Reservations, sales and advertising 15,031 11,973 13,789 14,011 10,753
Administrative and general . 8,696 6,094 5,926 6,443 5,450
Depreciation and amortization 18,445 17,118 14,413 ll,310 8,638
$131,247 $101,331 $118,868 $115,121 $ 89,919
$ 19,206 $ 9,722 $ 4,494 $ 10,909 $ 12,038
OTHER INCOME AND (DEDUCTIONS)-NET. 4,.578) ( 2,828) ( 1,882 ) 335 ( 559)
EARNINGS BEFORE TAXES $ 14,628 $ 6,894 $ 2,612 $ ll,244 $ ll,479
INCOME TAXES 7,398 3,233 986 5,530 5,865
NET EARNINGS FOR THE YEAR . $ 7,230 $ 3,661 $ 1,626 $ 5,714 $ 5,614
OTHER FINANCIAL STATISTICS
Cash dividends paid ( 000) $ 1,702 $ 1,701 1,700 $ 1,714 $ 1,110
Earnings per share 4

3.97 2.01 .89 3.14 4.06
Stockholders' equity ( 000 ) 59,712 54,177 52,193 52,267 48,224
Book value per share4

32.79 29.76 28.70 28.74 26.77
Cash ( 000 ) . 16,371 15,991 18,360 10,206 8,968
1 et working capital ( 000 ) 8,049 7,034 23,008 12,093 13,660
Flight property-at cost ( 000 ) 169,413 170,772 121,441 104,389 90,608
Flight property-at net book value ( 000) 122,980 133,485 86,957 76 647 56,461
Total assets ( 000 ) 186,887 189,103 148,698 130,097 105 061
Long term debt ( 000 ) 74,968 90,286 68 500 50,000 34 250
Opera ting expense-
Per available ton-mile 23.9 27.6 27.8 26.5 26.1
Per revenue ton-mile . 50.2 54.2 54.2 51.0 49.0
Break-even passenger load factor . 45.5% 48.9% 53.7% 51.1% 48.4%
( to cover operating expenses and interest)
Actual passenger load factor . 51.5% 52.1% 53.8% 55.2% 54.7%
Available seat miles ( 000 ) ,, 3 697 796 2 611,840 3,073,400 3 149 000 2,574 848
0 1959-1962 ba ed on total number of hares reflecting conver ion of preferred tock is ued in December, 1958, and
called in January, 1963; per share figure for 1958 ba ed on common share out tanding at end of that year.
Northwest Airlines, Inc.
General Offices
Minneapolis-St. Paul International Airport
Saint Paul 11, Minnesota
OFFICERS'~
DONALD W. NYROP
President
PAULL. BENSCOTER
Vice President-Transportation Services
ROBERT A. EBERT
Vice President-Personnel
A. E. FLOAN
Vice President and Secretary
DONALD H. HARDESTY
Vice President-Finance and Treasurer
Wi\I. E. HUSKINS, JR.
Vice President-Orient Region
FRANK C. JUDD
Vice President-Maintenance and Engineering
11. JOSEPH LAPENSKY
Comptroller
DALE 1ERRICK
Vice President-Properties
Ei\IORY T. NU NELEY, JR.
Vice President and General Coun el
C. L. STEWART
Vice President-Economic Planning
ROBERT J. WRIGHT
Vice President-Sales
DIRECTORS':,
CROIL HU TER
Chairman of the Board, Northwest Airlines, Inc.
St. Paul, 11innesota
JAi\,1ES H. BINGER
President, Minneapolis-Honeywell Regulator Co.
i\Iinneapolis, Minnesota
HADLEY CASE
President, Case, Pomeroy & Company, Inc.
ew York, ew York
i\IORTO H. FRY
Senior Partner, Riter & Company
New York, New York
JOSEPH T. JOHNSON
Chairman of the Board, The Milwaukee Company
1ilwaukee, Wisconsin
i\IALCOUI S. i\IACKAY
President, Foothills Company
Ro coe, i\,fontana
CLYDE B. MORGAN
Chairman of the Board, Rayonier Incorporated
ew York, New York
DONALD W. NYROP
President, Northwest Airlines, Inc.
St. Paul, Minnesota
ALO ZO .PETTEYS
President, Farmers State Bank
Brush, Colorado
C. FRANK REA VIS
Partner, Reavis and McGrath
New York, New York
ALBERT G. REDPATH
Partner, Auchincloss, Parker & Redpath
New York, e,v York
WILLIAM STER
Pre ident, Dakota ational Bank
Fargo, North Dakota
L YMA E. WAKEFIELD, JR.
Vice President, First ational Bank of i\Iinneapolis
tvlinneapolis, Minnesota
ALBERT J. WEATHERHEAD, JR.
President, The vVeatherhead Company
Cleveland, Ohio
0 As of March 1, 1963
REGISTRAR: The Chase Manhattan Bank, New York, N. Y.
TRANSFER AGENT: Bankers Trust Company, New York, N. Y.
STOCK LISTED: Common Stock listed on New York Stock Exchange
and Midwest Stock Exchange.
ANCHORAGE MIAMI
ATLANTA MILWAUKEE
BILLINGS MINNEAPOLIS
BISMARCK MISSOULA
BOZEMAN NEW YORK
BUTTE NEWARK
CHICAGO OKINAWA
CLEARWATER PITTSBURGH
CLEVELAND PORTLAND
DETROIT ROCHESTER
FARGO ST. PAUL
FT. LAUDERDALE ST. PETERSBURG
GRAND FORKS SEATTLE
GREAT FALLS SEOUL
HELENA SPOKANE
HOLLYWOOD TACOMA
HONOLULU TAIPEI
JAMESTOWN TAMPA
MADISON TOKYO
MANDAN WASHINGTON, D. C.
MANILA WINNIPEG
YAKIMA