A..NNLJA..L REPORT 1952 B CIFIC NORT_____,,._ LL :S ~~~.L~ Directors Officers PACIFIC NORTHERN AIRLINES, INC. R. A. Rowan G. P. O'Grady Washington, D.C. Los Angeles, California W. E. Boeing, Jr. Seattle, Washington M. B. Kirkpatrick Anchorage, Alaska A.G. Woodley Seattle, Washington A. G. Woodley President and General Manager H. A. Olsen Vice-President, Traffic and Sales C. A. DuRose Vice-President, Operations Clarence W. Nelson Secretary-Treasurer M. E. Diamond Assistant Secretary Dean B. Hart Assistant Secretary General Counsel: G. P. O'Grady General Of fices: 1025 Connecticut Avenue Washington 6, D.C. 1626 Exchange Building Seattle 4, Washington City Ticket Offices: Anchorage Cordova , Juneau Portland Transfer Agent Registrar: Auditors: Homer Kodiak Bankers Trust Company, New York, New York Manufacturers Trust Company New York, New York Lybrand, Ross Bros. & Montgomery Kenai Seattle 2 $183,000 OPERATING REVENUES 1946 1947 1948 1943 1944 1945 $258,000 $357,000 $1,061,000 $1,265,000 $1,471,000 1949 $1,535,000 1952 1951 1950 $1,602,000 TON MILES 1947 1948 1949 $2,364,000 $5,023,000 TOTAL 110,000 153,000 216,000 782,000 765,000 1,401,000 1,171,000 1,504,000 2,683,000 _____ 6_,735,000 CARGO MAIL To the Stockholders of PACIFIC NORTHERN AIRLINES its Customers and Personnel The year 1952 marked the period of greatest growth and development in Pacific Northern's twenty-one years of con- tinuous service to Alaska. New records were established in traffic, revenues, and earnings- growth of well over 100 per cent. Unit costs were reduced to an all time low- 25 per cent lower than last year. To keep pace with the rapid deveropment of the Territory of Alaska, the Company made effective preparation for still further expansion of its services. REVENUES AND EXPENSES Operating revenues during the year totaled $5,023,730, an increase of 112 per cent over 1951 and a new record for the Company. Operating expenses totaled $4,415,697, an increase of 89 per cent. The Company realized an operating profit of $608,033. After taxes of $298,500 and other charges, net profit amounted to $238,183, or $0.36 per share. The 89 per cent increase in expenses reflects primarily the expansion in operations required to accommodate the 208% increase in passenger miles, 157% increase in cargo traffic, and 139% increase in volume of mail flown during the year. It is noteworthy that a substantial reduction was achieved in unit costs. Total operating expenses per revenue ton mile of traffic were 66c in 1952 compared to 88c in 1951 , an improve- ment of 25 per cent. N N ~ ' If! ~ ~ - ~ CIO ~ It) ~ ~ - - ~ ~ 1943 1944 1945 1946 1947 It) C? - ~ 1948 UNIT COSTS Total operating expenses per revenue ton mile of traffic CW? - ~ "" C? ~ 1949 1950 1951 1952 ' . . ~ NATIONAL SAFETY COUNCIL 1952 i AVlATIO.N I SAFETY AWARD ~ , - 4 / I " SAFETY The Company can again point with understandable pride to another year of safe operation and to the completion of twenty-one years of air transport service in which it performed approximately 135 million passenger miles without a fatality. This excellent record of safety can be attributed to the skill and loyalty of both ground and flight personnel who have consistently demonstrated a sense of responsibility to the traveling public and who have faithfully adhered to the Com- pany's policy of providing the best in service consistent with safety. OPERATIONS AND MAINTENANCE Pacific Northern's operations and maintenance act1v1t1es in 1952 can best be described by results. Although traffic increased 151 per cent and revenue plane miles increased 88 per cent, the Company succeeded in equaling last year's performance factor of 96%. No scheduled flight was cancelled between Alaska and the United States during the entire year, thus preserving the unbroken record which dates back to the inauguration of overseas service on October 1, 1951. In January, 1952, the Company moved its main Alaskan operating base from the military airfield in Anchorage to the new Anchorage International Airport. Two daily round trips were scheduled on the 633 mile route from Anchorage to Juneau, serving Cordova and Yakutat en route; one daily round trip was operated from Anchorage to Bristol Bay via intermediate points, a distance of 290 miles; and two daily schedules were operated on the 265 mile route from Anchorage to Kodiak with en route stops at Kenai and Homer. Twice daily service was supplied to intermediate communities on the Kenai Peninsula. The Company maintained daily round trip schedules over the 1,580 mile route between Anchorage and the Seattle- Portland coterminals. Service was increased by 58 per cent during the month of August to accommodate peak seasonal demands. During the year the Company owned four DC-3 aircraft with Pratt & Whitney R-1830 engines, two DC-4B aircraft with Pratt & Whitney R-2000-13 engines, and one Lockheed 12 aircraft equipped with Pratt & Whitney R-975 engines. DC-4 maintenance is performed at the Company's operating base at Boeing Field, Seattle. All DC-3 and Lockheed main- tenance is performed at Anchorage In ternational Airport. The year's impressive record of on-time departures offers further proof of the competence and care exercised in the main te- nance and operations departments. TRAFFIC AND SALES New records were established in each class of traffic during 1952. Of the 72,885,000 available seat miles, 42,303,000 were utilized by 60,098 revenue passengers, the greatest number carried in the Company's history. Average distance flown per passenger increased from 401 miles last year to 704 miles in 1952. The effect of the increase in number of passengers and the greater average distance traveled per passenger resulted in an increase of 208% in revenue passenger miles. An increase of 157 per cent was achieved in the volume of air cargo and revenue baggage, from 702.000 ton miles in 1951 to 1,804,000 ton miles in 1952. The amount of U. S. mail carried showed an increase of 139 per cent, from 218,000 to 522,000 ton miles. Overall ton miles of revenue traffic increased from 2,683,000 last year to 6,735,000 in 1952, growth of 151 per cent. The total revenue load factor in 1952 was 64.34%- compared to 58.50% in 1951, 55.60% in 1950, and 50.65% in 1949. The Company's 1952 advertising program was conducted on a national scale and created widespread and favorable interest in Pacific Northern Airlines and in the Territory of Alaska. Sales facilities were also notably improved and enla.rged during the year. The new Portland sales office was completed. To accommodate the increase in cargo business a city cargo terminal was established in Juneau. Major improvements and modernization of the city sales offices at Kodiak, Anchorage, Cordova and Juneau have been completed and a new airport terminal established at Kenai. The record sales accomplishment for the year reflects intensified promotional and advertising campaigns in an ex- panding travel market. The Company's identity and unique reputation for safety and dependability are now established on a national scale. I TON MILES OF REVENUE TRAFFIC PER EMPLOYEE 18,105---- 12,596-------- 10,820-+----+----+-- .... ~ .... ~ .... ~ 1950 1951 1952 OF EMPLOYEES 6 COMMUNICATIONS During the year the Company completed installation of its radio teletype communication system. This private line teletype (PL T) network connects Seattle and Portland with Juneau, Yakutat, Cordova, Anchorage, Kenai, Homer, Kodiak and Bristol Bay. Totaling over 2,500 circuit miles, it is the largest private communications system in existence between the United States and Alaskan points. In operation 24 hours a day, PLT cuts the average round trip transmission time for messages from 3 hours to less than 10 minutes. PERSONNEL . During the year, Mr. M. B. Kirkpatrick of- Anchorage, Alaska, President of Alaska Sales and Service, Inc., was appointed a Director of the Company. Relations between Management and Personnel continued satisfactorily through the year. Contracts negotiated or re- newed in 1952 covering working agreements with four groups of employees are comparable to the average of the industry. The Company's staff of personnel increased from 213 during 1951 to 372 during 1952. It is significant to relate this increase of only 75 per cent in number of employees to the 151 per cent increase in revenue traffic flown during the year. The loyalty, skill, and individual effort of the Company's personnel are best evidenced by this comparison. In achieving over 18,000 ton miles of revenue traffic per employee in 1952, the Company not only improved upon its creditable record of last year by 44 per cent but also established a level of efficiency which ranks the Company among the leading carriers in the aviation industry. 139 213 372 THE YEAR AHEAD A $2 million expansion program is the keynote of the Company's 1953 operations. At the special stockholders' meet- ing in January, you were advised that the Company planned to finance this expansion by stock subscriptions and collateral banking arrangements. On March 3, 1953, the Company made a public offering through Emanuel Deetjen & Co. and Hayden Stone & Co. of New York of 360,000 shares of its common stock at $3 per share which was fully subscribed with nation- wide distribution. Concurrently, credit arrangements were negotiated with three West Coast banks for $1,000,000. In addition, the Company issued 41,665 shares of stock at $3 per share in part payment of a loan previously made by three Directors in the amount of $250,000 and extended the balance by notes subordinated to the bank credit. The Company designated the Bankers Trust Company of New York as Transfer Agent and the Manufacturers Trust Company of New York as Registrar. The bank loan was arranged through The Pacific National Bank of Seattle. Participating in this credit were The Farmers & Merchants National Bank of Los Angeles and The United States National Bank of Portland. These funds will be used to expand the Company's system- wide services and to inaugurate a new overseas route between Seattle and Portland direct to Juneau, Y aku tat and Cordova. The Company has completed purchase arrangements for two additional DC-4B aircraft and it is expected that the new services will be inaugurated on or about May 15, 1953. With this program of expansion the Company stands to participate in a fuller degree in the development of Alaska and to keep abreast of the increasing economy of the Territory which has been substantial and has had a healthy growth in the postwar period. As a partner in the progress of Alaska1 Pacific Northern's sole responsibility is the continuing develop- ment of air transportation service for the Territory. This will continue to be the aim of the Company. Because Pacific Northern is not burdened by considerations and problems of unrelated world routes, the Company is in an enviable position to devote its entire energy toward the development of this service. Respectfully submitted, April 3, 1953 General Ma nag er 7 PACIFIC NORTHERN AIRLINES and the Territory of A laska grew up together. In 1932 Anchorage was still a log cabin village with approximately 2,400 inhabitants. The Territory's economy, such as it was, related mostly to mining, fishing and trapping, with weather determining when these activities could be pursued. Dog teams were a basic means of travel, for aviation was still in its infancy. The vast Territory of Alaska - truly America's last great frontier- lacked only development, not resources. Pacific Northern's president, A. G. Woodley, started an aviation business in Alaska in 1932, offering air service to virtually every village in the entire Territory. Early flying was performed in single engine five passenger planes, generally on pontoons, since modern airfields did not exist and landing areas of any nature were Jew and far between. Weather reporting facilities were nonexistent and flights destined over the vast stretches of wilderness depended on the ingenuity and resourcefulness of the pilot. B From the outset Woodley Airways mirrored the progress of aviation and the growth of Alaska.Because of its demonstrated speed and efficiency the airplane soon won mail contracts from the dog teams, and a pattern of scheduled service was in the process of developing. New air trails were blazed from Anchor- age to Juneau, Kodiak, Kenai Peninsula, and Bristol Bay areas, and to the interior of Alaska- trails that became permanently certificated air routes of Woodley Airways under the Civil Aeronautics Act of 1938. World War II gave tremendous impetus to the progress of aviation and the Territory. New airfields, comparable to the largest in the Continental United States, were built along the 10,000 miles of air routes in Alaska, and a modern network of airway facilities, second to none, was established by the Civil Aeronau- tics Administration. As larger airfields were built, Pacific Northern was the first of the Alaskan air carriers to employ new multi- engine aircraft of greater speed and range equipped for all-weather flying. Instrument flying was pioneered on the Anchorage- Kodiak and Anchorage-Juneau routes, making pos- sible the completion of flights on schedule which previously had been delayed several days waiting for clear flying weather. The Territory's economic development during the decade of the 1940's was swift and sure, clearly demonstrating the need for additional air service to the Pacific Northwest. Population increased by 77%, the most rapid rate of growth under the U. S. flag. Basic year-round industries took root and proved themselves economically sound. Agriculture grew apace. Hundreds of millions were expended on hous- ing throughout the Territory. Fourteen story apart- ment houses sprang up in Anchorage to replace yesterday's log cabins. Huge permanent military air bases were built and manned. Hydroelectric resources were inventoried and harnessed. A $47 million pulp m'ill was constructed with private capital and a $700 million aluminum plant was projected. Paved highways obliterated dog team trails. Matching the Territory's dynamic growth, Pacific Northern during the decade of the 1940's achieved well over a ten-fold increase in operating revenues and maintained its unbroken record of profitable operations. PNA was the first Alaskan air carrier to be awarded a scheduled air carrier operating cer- tificate by the CAA. Woodley remained Pacific Northern's chief executive, as he had been from the start and still is today. Convinced that bush flying could not be mixed with scheduled trunkline opera- tions, he focused his attention on developing his three mainline routes emanating from Anchorage to Kodiak, Bristol Bay and Juneau. Because he real1zed the desirability of having direct service between his Alaskan points and the United States, he petitioned the Civil Aeronautics Board for authority to establish an air route to the Pacific Northwest. This valuable franchise was granted by the CAB and service was inaugurated by October 19 51. Despite their impressive growth in recent years, both Pacific Northern and the Territory appear only now to have reached the threshold of significant expansion. P NA 's routes embrace the areas in Alaska where the bulk of the population is concen- trated and where most of the present and potential economt"c development is taking place. The nature of the terrain and the distances involved dictate that Alaskans must continue to rely upon flying as their basic mode of travel. Because they share the mutual confidence which stems from growing up together, Pacific Northern looks to the Territory for its future, and Alaskans turn to P NA for the best in service consistent with safety. a DC-3 FLAGLINER IN SERVICE ON ALASKA ROUTES t '- f.: \ ~ -::-=-_,.. PACIFIC NORTHERN DC-4 FLAGLINER IN STATES-ALASKA SERVICE 9 LOOK NORTH and GO WEST are two challenging by- words of American history with more in common than points of the compass. The growth of Alaska in the 20th Century parallels in many ways the settlement of the West in the last century. Alaska like so much of the West represents the same lure that caused previous generations of Americans to move long distances to build new cities in wilderness areas. Prairie schooners and river boats carried only the beginning of the flood tide of settlers. Until railroads linked the West with the eastern seaboard, the greatest period of the westward movement could not take place. In Alaska, airlines have provided the transpor- tation and communications required by a vast area one-fifth the si:ze of the U. S. Surface transportation by ship, rail, and dog team could do no more than create a mere fringe of settlements in the Territory in nearly a hundred years . The airplane in only one generation has given to Alaska /. F(ltf'banks '1. ~ / ~~\'- /. ~\, ./ . / ... Yak~t' ... not only the life-blood of commerce, but an identity and community of interest which now form the basis for the Territory's greatest period of development. World interest is now focused upon Alaska's vast resources and upon its strategic location astride the crossroads of world air routes. As a pioneer in the air age of Alaska, Pacific Northern Airlines stakes its future on the conviction that Alaska's progress will equal and eventually surpass the rate of growth of any other area in American history. PACIFIC NORTHERN AIRLINES Legend PNA scheduled service ...... .# Connecting air carrier service .. - - - - - - - Cities served by PN A ................ * ,/ ,/ ALASKA 12 CIVIL AERONAUTICS BOARD On M ay 16, 1952, th ivil Aeronauti s Board established final mail pay for the ompany's operations from 1942 through 1951. All of the servic s operated by Pacific Northern during the entire ten year p riod were r cognized by the Board to be "of the character a nd quality r quired for the commerce of the United States, the Postal Service, and the national defense." Over 98 per cent of the Company's reported expen es w re recognized for rate making purposes, and the Board found no adjustments necessary to reported revenues. The establish- ment of final mail compensation for past operations is reflected in the financial statem nts which a company this report. In the same pro eeding the Board fixed a final mail rate for the ompany's future operations beginning January 1, 1952. The rate is designed to yield annual mail revenue of $1,701 ,924 if the Company su ceeds in maintaining a performance factor of 94% with reference to its base mileage. Total mail pay may be reduced or increased in dire t proportion to the Company's actual performance factor. With a performan e factor of 96% in 1952, the Company earned $1,740,436 in mail revenue. ROUTE EXTENSION APPLICATIONS All of th Company's routes within Alaska were permanently certificated by the Civil Aeronautics Board during the period from 1942 to 1946. In October 1952 the Company applied to the Board for renewal and extension of its temporary route between Alaska and the nited States. The application requested either permanent certifi- cation or renewal for an add itional period of ten years. Authorization was also requested to serve Kodiak, Ketchikan, Gustavus and Skag- way as additional intermediate points, and to add Fairbanks as a coterminal with Anchorage. Hearing on the application will be held during the summer of 1953. In view of the Territory's substantial growth during the past five years, the Company is firmly convinced that its present overseas route will be renewed. It is hoped that certification will be made permanent in order to eliminate further costly and time consuming proceedings before the Board. Prospects are good for extending the route into Ket hikan and Fairbanks and for including service to Gustavus, Skagway and Kodiak. - Principal services in operation Services not yet inaugurated Services suspended Services applied for CANADA Pacific Northern Airlines, Inc. STATEMENTS OF INCOME AND EARNED SURPLUS for the year ended December 31, 1952 OPERA TING REVENUES : Passenger .. . . . . . . ... ..... .. . . .. . .. . . . . ... . . . .. . .. . ....... . ... . . Air mail (Note 4) . . . . . ... . .. . . . .. . . . . . .. .. . . . . . . . . . . . ...... . .. . . Cargo . . ... .. .. . . . . . . ... ... . . ... .... . .. . ... .... . .. . .... ....... . . Excess baggage .... .. . ............ .. .. . .. . .... . ... ... .. ........ . . Other transport service . . . .... .. . .. .. . . .. . . . .. .... . . ... . . ... . . . .. . Incidental revenues, net. ... .. . .. . ... . . .. . ... .. .. . . .. . .. .. .. .... . . Total . . ... . ...... . ...... . .. . . .. . .... ..... . ... . . ... . .. . .. . OPE RATING EXPENSES: Flying operations . .. .... . ..... ... . . ... . . .. . . . .. .. . . Direct maintenance-flight equipment .. . .. ... ... . .. . . Ground operations . . . ... ... .. . .. .. . .. . ... . ........ . Ground and indirect maintena nce ...... ... .. . .. . . .. . . Passenger service .. . . . . . .. . . . .. . . . .. . . . . ..... . .. .. . Traffic and sales . ... .. .. .. . .... . ....... ... ........ . Advertising and publicity .. . . ... . . . . .. . .. . . .. .. . .. . . General and administrative . .. . . .... . ...... ....... . . . Depreciation: Flight equipment . . . .. . . ... . . .... .. .. . . ... . ..... . $1,141,590.34 618,158.19 515,754.77 543,323.79 329,992.33 436,857.40 57,303.77 382,634.30 303,931.66 $2,712,861.64 1,740,435.99 495,185.47 44,690.05 15,516.88 15,040.05 5,023,730.08 Ground equipment . ... . .. . ... ... . . . . . . . .. . . . .. .. . 86,150.50 4,415,697.05 Operating income .... . .. . ... . . .. . . . . . . . .. . . :- . .. ..... . . ... . . DEDUCTIONS FROM INCOME: Interest on long-term notes . . .. ... . . ..... . .... . . .. .. . Other interest . . . .. .. .. .... ...... . .. .. . .... . . . . . . . . Amortization of route extension and development (Note 6) Miscellaneous, net (credit) . .. . . . ... . .. . . . . ... .. ... . . 38,807.11 14,731.67 20,975.04 (3,164.31) Profit before taxes on income . .... . . . . . . . . ... . . .. . . .. .. . . . .. . PROVISIONS FOR TAXES ON INCOME: Federal income taxes; no excess profits taxes payable . . . State and territorial ..... .. . . .. .. . .... . . . . ..... . . . . . 283,800.00 14,700.00 Net income ... .. . . ... . .... .. ... . ...... . . ....... , ....... . . EARNED SURPLUS, Jan. 1, 1952 . ..... .. . ..... . .. . .. . .. . Net additional mail pay revenues of prior years (Note 4). NET CHARGE resulting from adjustment of mail revenues 4,225.92 13,570.37 applicable to operations of predecessor (Note 4) . .. ... . . .. . . . .. . .. . EARNED SURPLUS, Dec. 31, 1952 ... . ....... . . . . . . .. .. .. .. . . .. . . . . .. . . $ The accompanying notes are an integral part of the financial statements 608,033.03 71,349.51 536,683.52 298,500.00 238,183.52 17,796.29 255,979.81 205,960.25 50,019.56 13 PACIFIC NORTHERN BALANCE SHEET December 31, 1952 ASSETS Current: Cash on hand and demand deposits in banks .... . ... . ................ ... ... . . . Receivables : Traffic balances, including $121,130.15 from governmental agencies United States Post Office Department ........... . .......... . Other .......... . ..... .. . . .. .... .... .. . ... . .. ............ . Less, Allowance for losses ... . ... . ... . . . . . . . ... . . . ........ . $ 374,527.25 301,432.02 7,863.37 683,822.64 27,489.74 Maintenance and operating supplies, at average cost ........ . ............. .. . . Prepaid expenses, mainly insurance ......... . . . . . . . . . ... . . . ........... .. ... . Total current assets . ....... . .... .. ....... . ... .. .. .. . ... . ... . . ... . . . . . Investments: Cash surrender value of life insurance .. . ... . .. . ... . . ... . . .. . .. . Aeronautical Radio, Inc. stock, at cost. ...... . ...... . . . ..... . . . Property and Equipment, most of which is pledged as collateral for debt; see Note 3 (at cost to the Company or predecessor): Flight equipment. .. . ...... . ........ . . . .. ... . . Ground equipment ............ . .. . . ... .. . ... . Buildings and improvements to leased property . . . Replacement parts for flight equipment ....... . . Construction work in progress (Note 2) ........ . Cost $1,641,904.60 333,624.15 168,779.12 126,985.58 23,833.33 $2,295,126.78 8,078.48 1,000.00 Allowances for Depreciation $1,029,594.25 109,252.47 47 ,985.11 68,027 .84 $1,254,859.67 Excess of Par Value of Common Stock issued at organization and amount of then recorded liabilities assumed over b:>ok amount of assets acquired, plus subsequent adjustment of assumed liabilities .......... . ... . .. . . . . . .... . ...... . .. ... . .. . . Unamortized Cost of Route Extension and Development (Note 6) ......... . . .. ... . Other Def erred Charges .................. . .... . .. .. ...... . ... .. .. . . . ..... .. . . The accompanying notes are an integral part of the financial statements. 14 $ 249,495.40 656,332.90 109,135.17 36,232.18 1,051,195.65 9,078.48 1,040, 2 6 7. 11 130,020.01 48,090.00 35,158.23 $2,313,809.48 AIRLINES, INC. (An Alaska Corporation) LIABILITIES Current: Current portion of long-term debt (Note 3) .. .... ...... . ............... . ..... . Accounts payable: Trade . . . . . . . . . . . . . . . . . ............. . Taxes withheld or collected for benefit of taxing authorities . . $ 316,300.51 48,072.92 Accrued liabilities: Salaries and wages ......... . .............................. . Insurance and miscellaneous . ..... . .................. . ..... . Interest .... . ..... .. ......... . .. . . . ............ .. ... . .... . Taxes other than federal income taxes . . ........... .. ........ . 85 ,634.03 49,261.01 11,293.38 27,833.52 Provision for federal income taxes ...... . ......... .. ..... . ..... . ............ . Provision for unpaid balance of mail pay refund to United States Post Office (Note 4) Air travel plan deposits ....... . ...... . .... . . . ........... .. ............... . . Unearned transportation revenue .. . ...... . ............ . ..... . .............. . Total current liabilities .......... . ....... . ............. . . . .... .. ..... . Long-Term Debt (Note 3): Chattel mortgage note to bank .................. . . . .... . .... . Chattel mortgage notes, others ........ . . .. .. .. ........ . .... . Demand notes payable to stockholders, subordinated to above mortgage note to bank .. .... . .. . ..... . .......... . .... . ..... . ... .. .. . 278,000.00 86,250.16 364,250.16 250,000.00 614,250.16 Less, Amount included in current liabilities . . . . . . . . . . . . . . . . . 191,761.48 Total liabilities .... . .. .. .. . .. . ....... . ...... . . . ....... . ... . Commitments (Note 5): CAPITAL AND SURPLUS Common Stock, authorized 2,000,000 shares, par value $1, each, issued and outstanding 6.66,444 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666,444.00 Earned Surplus, all of which is restricted; see Note 3 and statement annexed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,019.56 The accompanying notes are an integral part of the financial statements $ 191,761 .48 364,373.43 174,021.94 283,800.00 107,359.00 5,525.00 48,016.39 1,174,857.24 422,488.68 1,597,345.92 716,463.56 $2,313,809.48 16 NOTES TO FINANCIAL STATEMENTS 1 2 3 The Company is negotiating with underwriters for the purpose of selling approximately 360,000 shares of common stock at a price that will net the Company about $900,000, and is also negotiating with banks for loans that will provide about $750,000 of additional funds. It is planned that a large part of the funds from these sources will be utilized in the acqui- sition of two Douglas DC-4 aircraft needed to inaugurate additional service between certain Alaska points and Port- land-Seattle. The Company has instructed the vendor to sell a prefabricated hangar on which a deposit of $23,833.33, shown as con- struction in progress, was made during 1951. The deposit (on a structure estimated to cost about $71,500) is to be applied against the purchase price of another hangar, or the Company may elect to accept in full settlement a refund of one half of the deposit. Long-term debts, in connection with which substantially all of the flight equipment and $101,533.98 of ground property and equipment are pledged as ollateral, consist of the following: Chattel mortgage note lo bank, face amount $500,000.00 , payable $13,900.00 per month, in- terest 5% (or an amount equal lo 2% above the prime rate for unsecured loans charged from time to time by certain named banks, whichever rate is higher) maturing A ugusl 20, 195.J. Chattel mortgages for equipment purchases, payable Payable Within One Year Noncurrent Portion $166,800.00 $111,200.00 in monthly ins/allmenls, interest 5% . 24,961.48 61,288.68 Demand notes payable lo stockholders, dated Sep- tember 26, 1951, interest 6% payable quarterly subordinated lo above mortgage note lo bank . . . 250,000.00(a) $191,761 .48 $422,488.68 (a) If stock referred to in Note 1 is sold, one-half of these notes will be satisfied in shares of stock at the initial public offering price per share. 4 s 6 The chattel mortgage for the above bank loan contains certain restrictions and limitations, among which are the following: (1) the Company may not, without written consent, mortgage or pledge real or personal property owned on August 13, 1951, or pay any dividends on its presently outstanding capital stock, (2) capital expenditures after 1951 are limited to $300,000.00 annually, except those out of proceeds from sales of capital stock. The Company and its predecessors have carried mail for the United States Post Office Department since December 1942 at temporary rates. Permanent rate were established in May 1952, effective as of December 31, 1951. by the Civil Aeronautics Board, and as a result of th order fixing such rates the Company is required to make a net payment tentatively determined to be 192,389.88 for the period from December, 1942 to December 31, 1951 to the Post Office Department as adjustment of the temporary rates. Of the net payment ($107,359.00 of which remained repay- able at December 31, 1952) a credit of $13,570.37 has been computed to be applicable to the operations of the corpora- tion in 1951 and prior years, and a charge of $205,960.25 has been made directly to earned surplus for the portion applicable to operations of predecessors. Minimum annual rentals under leases of two or more years unexpired terms aggregate $34,778. Of this amount, $27,244 relates to leases which expire within two to five years. The operating expenses shown in the accompanying statement of income include amortization of the preoperating costs in connection with the Portland /Seattle-Alaska route, but exclude amortization of the development costs of that route which has been charged to income as a nonoperating expense, pursuant to the uniform system of accounts prescribed by the Civi l Aeronautics Board. These costs are being amortized over a period ending December 31, 1953. 17 18 FUNDS WERE PROVIDED BY: Operations: Net profits . . . . . . . . . . . . . . . . . . . . . ..... . Depreciation charged against profits .. . Route extension and development paid in prior years ...... . ......... . $238,184 390,081 48,098 Analysis of source ana se of Funds during 1952 Mortgage loan for purchase of equipment ...... . . .. .... .... . .... . ... . . . $676,363 82,083 30,462 $788,908 Sale of Merrill Field and other properties .. . ... . Total funds available .. .. . . . . . ......... . FUNDS WERE USED FOR: Purchase of additional equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $269,985 Payments on bank loans and equipment purchase contracts . . . . . . . . . . . . . . 183,466 Increase in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,970 Repayment to Post Office Department pursuant to final retroactive mail rate order .......... . .. . ........ . . . . . . . . .... . . . . .. . Payment of expenses in connection with issue of additional capital stock 85,031 10,456 Total funds used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $788,908 AUDITORS' CERTIFICATION LYBRAND. Ross BRos. & MONTGOMERY CERTIFIED PUBLIC ACCOUNTANTS SKINNER BUILDING SEATTLE I Pacific Northern Airlines, Inc. Seattle, Washington We have examined the balance sheet of PACIFIC NORTHERN AIRLINES, INC. NEW YORK PHtLADf:LPHIA CH1C.-,GO eoSTON CLEVr:LAN O CINCI N NAT I ST. LOUIS DALLAS HOUSTON S"N ,-A.-.NCISCO LOS ANGELES LON OOf',j PARIS as of December 31, 1952, and the related statement of income and earned surplus for the year then ended. It was not practicable to confirm the balances receivable from the United States Post Office Department and other governmental agencies . We satisfied ourselves as to these balances by means of other auditing procedures. 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 neces- sary in the circumstances. In our opinion, the accompanying balance sheet and statement of income and earned surplus present fairly the financial position of Pacific Northern Airlines, Inc. at December 31, 1952, and the results of its operations for the year then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Seattle, washington February 21, 1953 20 for business and pleasure trips ~ NON STOP SERVICE BY ~' 4 ENGINE PNA ~ ~ Now that another heavy travel year for Alaska has ended, it's wise to make definite plaRs for both business and pleasure travel to Alaska during 1953. From all indications it appears that the coming year will see the greatest number yet of Alaska-bound passengers, A glance at the map will convince you that some of the world's finest hunting and fishing _ country lies directly along Pacific Northern's extensive Alaska air system. You'll have every inclination to combine healthful outdoor recreation with the business opportunities created by Alaska's recent growth. Make your space reservations soon for your non stop flight by comfort- able 4 engine Pacific Northern Flagliner to Anchorage, Alaska's largest city. Convenient connections are maintained by Pacific Northern from Anchorage to Western and to Southeastern Alaska points. PACIFIC NORTHERN AIRLINES >, =-~z*= For reservations and information call your nearest Pacific Northern ticket office or see your travel agent. ONE OF THE SCHEDULED AIRLINES OF THE U. S.