Pacific Northern Airlines Annual Report 1958

PACIFIC NORTHERN AIRLINES
FINANCIAL
Operating Revenues :
Passenger
Mail ..
Property
0th r .
Total Operating Revenues
Operating Expense :
Other than Depreciation
D preciation . . . . .
Total Operating Expenses
Operating Profit
Other Expenses .
Income Taxes . .
Net Income.
Net Income P r Share
Stockholder Equity- et.
TRAFFIC
Number of Revenue Passengers Carried
Revenue Ton-Miles of Traffic:
Passenger
Mail.
Property
Total Reven ue Ton-Miles
HIGHLIGHTS
1958
$ 6,262,000
2,890,000
1,054,000
162,000
$10,368,000
$
$
$
$
$
8,849,000
714,000
9,563,000
805,000
11,000
400,000
394,000
374
2,934,000
132,000
11,302,000
1,248,000
3,387,000
15,937,000
1957
$ 5,920,000
2,997,000
965,000
148,000
$10,030,000
$
$
$
$
$
8,713,000
644,000
9,357,000
673,000
152,000
260,000
261,000
24
2,584,000
126,000
11,323,000
1,121,000
3,120,000
15,564,000
PRESIDENT'S REPORT
To the Stockholders of Pacific Northern Airlines:
1958 was one of the best years in the Company's history. The steady and
substantial growth of prior years was continued, and during the year total
revenues reached an all-time high of almost ten and one-half million dollars.
New records were established in all classes of traffic which greatly strengthened
Pacific Northern's position as the leading airline of the nation's largest state.
The number of passengers carried showed an increase of 5% over last year.
Cargo and express ton-miles were up 9% over 1957 and the volume of mail
increased 11 % . The improved efficiency with which the Company handled
this additional volume of traffic is reflected in the 4% increase in revenue
ton-miles of traffic per employee.
Operating profit in 1958 amounted to $805,218 after depreciation of $714,003.
Deductions for non-operating expenses and income taxes of $411,402 resulted
in net income for the year of $393,816, the equivalent of 37 a share. This
level of earnings represents a gain of 51 % over last year's net income of 24
per share.
Statehood for Alaska was one of the most noteworthy events of 1958.
Although the significance of statehood is essentially political rather than
economic, it nevertheless has far-reaching implications with respect to the
accelerated growth of air traffic. The sustained publicity attending the creation
of the 49th State has focused nationwide interest on Alaska's vast resources
and opportunities. Business and industrial representatives are now visiting
Alaska in unprecedented numbers to appraise these resources and opportunities,
and they are being accompanied by an influx of tourists who are exploring the
new state's exceptional recreation facilities. This widespread interest has
created a surge of new air traffic which gained impetus in the closing months
of 1958 and no doubt will have significant growth impact for years to come.
Because of these factors, Pacific Northern's traffic during the first quarter of
1
2
1959 refl cts a gain of more than 13 0
over the same period in 1958. This
sub tantial growth r suited in the Company' decision to place two additional
Lockheed onstellations in servi e during 1959, pursuant to the financing
arran r ments des ribed in the section of this report entitled, "Financial
omments.''
l\Iany other noteworthy events occurred during the year. The Company
again received the ational Safety ouncil award in re ognition of its un-
broken r cord of 27 years of operation without a passenger fatality. An act of
on -ress liminated th 3 0
tax on air cargo eff ctiv August 1, 1958, an
action which should ncourage further growth in the air cargo market. The
Company adjusted its passenger fare during i\Iay and June of 1958, and these
changes have result din an increased yield of approximately 10 0
per revenue
passenger mil . These tariff adjustments, which were also adopted by other
airlines erving Alaska, apparently did not affect the continued growth of the
Alaskan air traffic market.
During the year, several orders of the Civil Aeronautics Board strengthened
and extended the rout s served by Pacific Northern. The Board made effective
on January 28, 1958, a permanent certificate for the Company's routes
between the Pacific orthwest and Alaska. This action resulted from special
legislation of the 85th ongress in 195 7 which directed the Board to award the
permanent franchise. In another case, the C.A.B. on January 14, 1959,
awarded Pacific orthern a new route direct from the Pacific orthwest to
Kodiak, Alaska, which is the headquarters of the 17th Naval District and an
important center of op rations for the canned salmon industry. Inauguration
of service over this new route will commence May 1, 1959. The Board also
made minor adjustments to the Company's certificate within Alaska, per-
mitting the termination of service to several small communities whose traffic
potential did not justify the use of multi-engine equipment. Since \Yorld
\Var II, the Company had subcontracted service to these communities to
op rators of small aircraft.
In February 1959 the President of the United States directed the Civil
Aeronautics Board to initiate a comprehensive review of all existing and
prospective air routes in the Pacific Ocean area. On l\Iarch 27, 1959, the
Company filed applications for extension of its routes from points in Alaska
and the Pacific Northwest to Hawaii and to San Diego, California, via San
Francisco and Los Angeles. The Company has petitioned the Board to con-
solidate these applications in this Pacific route case if the case is to include
interstate service to alifornia and Hawaii.
Pacific Northern progressed during 1958 to the strongest position it has
ever enjoyed and the prospects for 1959 appear to be even more favorable.
The petroleum industry is currently investing $300 million in Alaska for
exploration and development, and the principal center of this act1v1ty are
located on routes served by P A. Iililary sp nding is approximat ly $400
million a year a nd will probably incr ase ub tantially und r a n w program
for th construction of missile det ction center . A new pulp and timber
enterpris entailing the outlay of morelhan \ 50 million is now und r onstruction
near Juneau, th capital of Alaska a nd a principal point on P ' rout s. The
vast hydroelectric pow r resources of Ala ka, a y t untapp d , Ii principally
along the routes of Pa ifi orthern . T h ompany serv s th major centers
of population of the n , state and the areas which offer the best potential for
touri t, agricult ural, and mining development . Thu , to a far gr at r extent
than any oth r airlin serving Alaska, Pacific orth rn will participate in the
fu ture rowth of the 49th State at virtuall y all of the present and potential
cent rs of major activily.
A. G. W OODLEY
President and General Manager
3
6
PACIFIC NORTHERN AIRLINES, INC.
BALANCE SHEET, .DECEMBER 31, 1958
Current :
Cash
Receivables:
Traffic balances .
United States Government .
Other .. ...
Less allowance for losses . .
Maintenance and operating supplies,
at average cost . . .
Prepaid expenses, mainly insurance
Total current assets . . .
Investments, mainly cash surrender value
of !if e insurance . . . . . . . . .
Property and equipment, at cost:
Flight equipment .
Ground equipment
Buildings and improvements
to leased property
Replacement parts for flight
equipment . . . . . .
Construction work in progress
Def erre1 charges, net of amortization:
ASSETS
Property acquisition adjustment .
Route extension and development
Preoperating expenses-Constellations .
Other .... . . . . . . . ... .
Assets
$6,889,109
583,461
509,867
611,990
29,100
$8,623,527
$ 628,264
605,577
62,070
1,295,911
38,210
Allowance
for
Depreciation
$2,578,520
401,488
240,353
264,287
$3,484,648
43,340
14,185
54,433
5,965
$ 7S2,S4S
1,257,701
336,768
126,206
2,473,220
34,379
5,138,879
117,923
$7,764,401
THE FINANCIAL COMMENTS ON PAGE 8 ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
(AN ALASKA CORPORATION)
Current:
Current portion of long-term debt
Accounts payable:
Trade
Airline traffic accounts
LIABILITIES
Collections, etc., as agents
Accrued property taxes, compensation
and other liabilities
Accrued income taxes .
Air travel plan deposits
Unearned transportation revenue
Total current liabilities
Long-term debt:
Chattel mortgage notes to bank, noncurrent portion.
STOCKHOLDER EQUITY
Common stock, authorized 2,000,000 shares,
par value $1 each, issued and outstanding
1,068,109 shares . . . . . . .
Paid-in surplus-no change during 1958
Retained earnings, all of which are restricted,
statement annexed . . . . . . .
$
$ 897,307
550,508
472,862
105,668 1,129,038
257,199
262,300
20,400
142,452
2,708,696
2,121,360
1,068,109
584,905
1,653,014
1,281,331 2,934,345
$7,764,401
THE FINANCIAL COMMENTS ON PAGE 8 ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
FINANCIAL
COMMENTS
8
U. S. MAIL PAY:
The Company is a certificated air carrier
subject to regulation by the Civil Aeronau-
tics Board. Under provisions of the Federal
Aviation Act, the Company is entitled to a
reasonable return on investment after in-
come taxes. During 1957 the Board fixed
future mail compensation under final rates
which were in effect during 1958 and which
will remain in effect until action is taken
either by the Board or by the Company to
revise them prospectively.
LONG-TERM DEBT:
In December 1958 the Company acquired
an additional Lockheed Constellation air-
craft and disposed of one Douglas DC-4.
Early in 1959 the Company acquired an-
other Lockheed Constellation aircraft and
profitably disposed of one DC-3, its remain-
ing Douglas DC-4 and substantially all DC-4
parts. These acquisitions were financed in
part by new bank loans, which, together
with the borrowings previously made under
a loan agreement dated February 27, 1956,
are repayable in monthly installments with
interest ranging from 5 % to 6 0
(currently
6%). Of the December 31, 1958 note bal-
ances of $3,018,667 there has been shown as
a urrent liability $897,307 representing
principal payments due within one year.
Substantially all of the Company's flight
equipment is pledged as collateral under
chattel mortgages. The loan agreement and
amendments thereto contain certain restric-
tions and limitations including, among other
things, dividend payments.
DEFERRED INCOME TAXES:
In accordance with a requirement of the
uniform syst m of a counts for air carriers
prescribed by the Civil Aeronautics Board,
the Company has included in income re-
ported for 1958 gains aggregating about
$145,000 on the trade-in of flight equip-
ment. For income tax purposes, these gains
must be applied as a reduction of the cost
of flight equipment acquired in the related
purchase transaction. The Company has
adopted def erred tax accounting procedures
to give recognition to the resulting difference
between 1958 book and taxable income.
Accordingly, deferred tax of approximately
$36,000 at capital gains rates has been in-
cluded in income taxes shown in the state-
ment of income and an equivalent amount
has been added to the allowance for depreci-
ation on flight equipment, thus giving recog-
nition to the reduction in the tax deductible
value of the equipment acquired.
There have been differences in prior years
between book and taxable income as to
which deferred tax accounting procedures
were not required. Some of these differ-
ences, which are not significant in effect, will
carry into future years.
RETIREMENT PLANS:
The Company has two contributory re-
tirement income plans covering (1) employ-
ees whose employment is not subject to the
terms of collective bargaining agreements
and (2) flight officers. During 1958 the Com-
pany charged to operating expenses and
other accounts provisions totaling $144,729
of which $33,335 was for past service bene-
fits. The unfunded past service benefits of
both plans have been estimated by the Com-
pany's independent actuaries to aggregate
$283,000 at December 31, 1958.
CONTINGENT LIABILITIES:
As of December 31, 1958 the Company
was contingently liable for claims arising in
the normal course of business in which it is
or may be a defendant, but in the opinion of
legal counsel the ultimate liability, if any,
will not materially affect the financial state-
ments.
PACIFIC NORTHERN AIRLINES, INC.
DIRECTORS
G. P. O'GRADY
JOHN A. CUNNINGHAM
PAUL PORZELT
R.A. ROWAN
M. B. KIRKPATRICK
C. W. NELSON
A. G. WOODLEY
OFFICERS
A. G. WOODLEY
H. A. OLSEN
JOHN A. CUNNINGHAM
J. H. FOSTER
FELIX AUBUCHON
C. W. NELSON
M. E. DIAMOND
DEAN B. HART
GENERAL COUNSEL
GENERAL OFFICES
CITY TICKET OFFICES
AUDITORS
TRANSFER AGENT
REGISTRAR
COMMON STOCK LISTED
Washington, D. C.
Seattle, Washington
New York, New York
Los Angeles, California
Anchorage, Alaska
Seattle, Washington
Seattle, Washington
President and General Manager
Vice President- Traffic and Sales
Vice President- Operations
Vice President- Engineering and Maintenance
Vice President- Alaska Operations
Secretary-Treasurer
Assistant Secretary
Assistant Secretary
G. P. O1
GRADY, 1625 EYE STREET, N. W., WASHINGTON, D.C.
1626 EXCHANGE BUILDING, SEATTLE, WASHINGTON
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