North Central Airlines Annual Report 1976

NORTH CENTRAL AIRLINES
1soo northliner drive, minneapolis, minnesota
board of directors
Hal N. Carr *
Chairman of the Board
North Central Airlines
G. F. DeCoursin *
President
April Company
(manufacturer and distributor
of seasoned food products)
Eric Bramley
Retired Editor
Aviation Daily
(aviation industry news service)
Chan Gurney
Retired Member
Civil Aeronautics Board
John M. Lawrence Ill
Partner in law firm of
Lawrence, Thornton,
Payne & Watson
management
Samuel H. Mas Ion *
Partner in law firm of
Maston, Kaplan, Edelman,
Borman, Brand & McNulty
Theodore R. Miles
President and
Chief Executive Officer
Stange Co.
(manufacturer and distributor
of food products)
Jay Phillips
Chairman of the Board
Ed. Phillips & Sons Co.
(wholesale beverage distributor)
Morton B. Phillips
Chairman of the Board
Westland Capital Corporation
(sma ll business investment
corporation)
Joseph E. Rapkin
Partner in law firm of
Foley & Lardner
Henry M. Ross
President
Ross Industries, Inc.
(ma chinery manufacturer)
H. P. Skoglund
In vestments
Bernard Sweet *
President and
Chief Executive Officer
North Central Airlines
Kenneth B. Wil lett*
Chairman of the Board
First Financial Savings and
Loan Assn. of Stevens Point
Executive Committee
Hal N. Carr ...... . ... . . . .... .. .. . .. Chairman of the Board T. M. Needham ... ........ Vice President-Ground Operations
Bernard Sweet ........ . President and Chief Executive Officer J. F. Nixon . . ...... ......... .. Vice President and Treasurer
John P. Dow . . ..... . . ..... .. . . Vice President and Secretary G. F. Wallis ...... . ........ Vice President-Flight Operations
John W. Dregge . .. . ... .. ... . . Vice President-Federal Affairs Charlotte G. Westberg . .............. .. Staff Vice President
Robert L. Gren . . . ........... . . Vice President-Maintenance
and Engineering
Joseph W. Ettel. ............ . ... . .... . Assistant Secretary
George J. Karnas .. .... .. .. .. Vice President-lnflight Service Raymond J. Rasenberger . ............. Assistant Secretary
Daniel F. May .. ... . . ... .. . ....... . Vice President-Finance Ralph Strang is . . . .... . ........ ... .... . Assistant Secretary
Gowan J. Miller .... . . .. .. Vice President-Industrial Relations Walter E. Nielsen . ............ .. .... .. Assistant Treasurer
David E. Moran . . ..... .. . ... Vice President-Traffic and Sales Michael D. Meyer . . ... ..... ................... Controller
STOCK TRADING: ANNUAL MEETING :
REGISTRARS AND STOCK
TRANSFER AGENTS:
First National City Bank
New York, New York
Common stock and warrants
traded under symbol NCA
First Wednesday in April
(April 6, 1977)
Wausau, Wisconsin
Northwestern National Bank
of Minneapolis
Minneapolis, Minnesota
New York Stock Exchange
Midwest Stock Exchange
AUDITORS :
Alexander Grant & Company
highlights
1976 1975 Change
OPERATING REVENUES $ 191 I
108,000 $ 163,584,000 16.8%
OPERATING PROFIT .... . .... .. .. . ........ . ...................... . $ 14,028,000 $ 7,221 ,000 94.3
NET EARNINGS .... . .. . ... .. ... . .................... . ......... . $ 7,447,000 $ 5,224,000 42.6
NET EARNINGS PER SHARE ..... . . . . .. ..... .. .. . ................ . . . 61 43 41.9
DIVIDENDS PER SHARE ... . ..... . . . .. . .................. . ..... . . .. . 10 10
WORKING CAPITAL FROM OPERATIONS ......... . .................. . $ 19,026,000 $ 12,868,000 47.9
WORKING CAPITAL AT YEAR-END .......... . .. . .. . ........ . .. . .... . $ 3,952,000 .$ 1,803,000 119.2
RETAINED EARNINGS ......... . ... . . . ... . . .. ......... . ....... .. .. . $ 37,288,000 $ 31 ,039,000 20.1
STOCKHOLDERS' EQUITY ..... . ........ . . . ........................ . $ 57,033,000 $ 50,565,000 12.8
PASSENGERS .. ..... . . .. . . . .. . ... . .. . .. . .. . .......... . ..... . .. . . . 4,969,000 4,581 ,000 8.5
PASSENGER MILES .. ... . . . . .. .. . .. .. . ... . ............ . .... . ..... . 1,179,144,000 1,071 ,638,000 10.0
CARGO TON MILES .... . ........ . ........... . ....... .. .. . .... . .... . 13,052,000 11 ,703,000 11.5
about north central
North Central Airlines is a regional scheduled carrier linking
intermediate-sized cities with major metropolitan areas.
Its principal function is to provide safe, dependable air
transportation.
The company has operated profitably for 22 years since 1954,
when present management was brought in. Its fleet of 54
jet-powered aircraft makes 640 departures- a day over the
10,900-mile route system. Efficient passenger handling
Incorporated as Wisconsin Central Airlines in 1944, the company
received its Federal operating certificate three years later.
Scheduled service was inaugurated on February 24, 1948. When
headquarters were moved to Minneapolis/St. Paul in 1952,
the name was changed to North Central Airlines. Traffic grew
steadily, setting a regional industry record by 1960 with
one million passengers, and then doubling every six years to
reach four million in 1972.
uses computerized reservations and automated ticketing.
Now in its thirtieth year, the airline serves 90 cities-in 14
states and two Canadian provinces- including Chicago, Detroit,
Cleveland, New York, Boston, Toronto, Milwaukee, Winnipeg,
Minneapolis/ St. Paul, Omaha, Kansas City, and Denver.
North Central's 3,600 dedicated employees offer the traveling
public the finest type of regional airline service.
2
to our stockholders, employees and friends:
Excellent results were achieved by North Central in
1976. Net earnings totaled $7,447,000-among the
highest in the company 's history - and showed a
43 percent increase over 1975. Records were set with
revenues approaching $200 mi llion , and nearly
five million passengers carried.
North Central 's earnings have averaged over $6 million
for the last five years, and the airline has operated
profitably for 22 years since 1954 when present
management was brought in. This steady financial
success has enabled the company to accumulate
$37,288,000 in retained earnings- more than any
other regional carrier.
After evaluating the airline's financial strength , the
Board of Directors declared a cash dividend fo r the
fifth consecutive year. Stockholders of record
February 15, 1977, received 12 cents per share of
common stock, 20 percent over 1976.
Traffic and fare increases in 1976 helped push revenues
ahead 17 percent to $191 ,108,000. With operating
expenses of $177,080,000, up 13 percent, operating
profit virtually doubled to $14,028,000. Other expenses,
primarily interest on loans to finance new aircraft,
rose 56 percent to $3,641 ,000.
Equipment purchased during 1976 entitled North Central
to an investment tax credit. Some of this was used to
reduce current income taxes, and the balance will be
available for 1977. With $2,940,000 of taxes payable
in 1976, the resulting net earnings reached $7,447,000,
or $.61 per share. A year earlier, the company had
a net tax credit of $340,000 and earned $5,224,000,
or $.43 per share.
Stockholders' equity jumped 13 percent to $57,033,000,
boosting the book value per share to $4.68. After
borrowing $32 million for flight equipment, the airline's
debt/equity ratio of 1.35 to 1 is still one of the best
in the industry.
Passenger traffic gained 8.5 percent in 1976 as
North Central set records by carrying 4,969,000 people,
479,000 in August and over 21 ,500 on December 23.
Passenger miles flown jumped 10 percent to 1.2 billion .
Cargo ton miles, improving 12 percent, exceeded
13 million. North Central also achieved the best
operating performance in its history. The airline
completed 99.4 percent of the 29.4 million scheduled
miles, and 86.6 percent of its 223 ,656 scheduled
arrivals were on time.
The company was awarded a new Detroit-Boston
nonstop route in 1976 by the Civil Aeronautics Board.
Service was inaugurated January 3, 1977, with eight
daily flights. Passenger and cargo traffic has been at
a profitable level from the start. This segment is
expected to produce a $3.2 million operating profit
the first year.
North Central is continuing to pursue other route
applications involving eight new cities and 8,629 miles.
Proceedings are nearing completion in several cases,
and CAB action should be forthcoming this year.
The airline serves 90 cities in 14 states and two
Canadian provinces on its 10,900-mile route system.
Five new 125-passenger DC-9-50 fan jets featuring the
wide-body look were received in 1976, and all are now
in scheduled service. Three are being delivered in 1977.
By the end of this year, North Central will have 29 DC-9s
and 25 Convair 580s in its 54-aircraft fleet. In 1978,
another DC-9-50 is available, and the company has
an option to buy six more then.
To conserve natural resources, the airline is constantly
modifying aircraft operating procedures to reduce fuel
consumption. A recently-developed program is
designed to save one million gallons of jet fuel in 1977.
To protect the environment, North Central has
implemented quieter take-off and descent procedures.
Through government-approved Affirmative Action and
Equal Employment Opportunity plans , the company
is making better use of human talents. Members of
both sexes are working in virtually every job category,
and more women are in management positions. The
airline also conducts several personal development
programs.
The company has again benefited from the support of
its stockholders, dedicated employees, and loyal
passengers and sh ippers. Their efforts and confidence
have significantly contributed to the airline's success.
Prospects for the future are excellent. With new Boston
traffic, and the national economy showing moderate
growth, revenues should increase substantially.
By maintain ing strict cost control and capitalizing on
the very favorable terms of the 1976 Tax Reform Act,
North Central expects to earn record profits in 1977.
Hal N. Carr
Chairman of the Board
March 7, 1977
Sincerely,
Bernard Sweet
President and
Chief Executive Officer
3
4
financial review
North Central dramatically improved
its financial performance in 1976
as net earnings jumped 43 percent to
$7,447,000. Revenues reached
$191 ,108,000 to set an all-time record .
For the last five years, earnings have
averaged over $6 million. The
company has operated profitably
for 22 years since 1954 when present
management was brought in.
North Central now has retained
earnings of $37,288,000- more than
any other regional airline.
The $191 million in revenues
represents a 17 percent gain from
the $163,584,000 in 1975. Operating
expenses, including depreciation
and amortization of $9,676,000, rose
13 percent to $177 ,080,000 from
$156,363,000.
By achieving an operating profit of
$14,028,000, the company virtually
doubled the $7,221 ,000 of the
previous year. Financing for the
purchase of six DC-9-50 jets raised
other expenses (primarily interest) to
$3,641 ,000 from $2,337,000. After
income taxes of $2 ,940,000, the net
earnings of $7,447 ,000, or $.61
per share, resulted . For 1975, a
$340,000 tax credit was realized ,
and net earnings were $5,224,000,
or $.43 per share.
With the purchase of new flight
equipment.in 1976, the company
generated investment tax credits of
$6,361 ,000. Of this amount, $2,638,000
reduced current and deferred income
taxes, and $3,723,000 can be used
to lower future taxes. The recent
Tax Reform Act permits airlines to
offset 100 percent of the tax liability
in 1977 with available tax credits,
instead of the 50 percent previously
allowed .
The $37.3 million in retained earnings
enabled North Central to finance the
new DC-9s with favorable interest
rates. Long-term debt was increased
by $32 million to $86 million ,
including a loan guaranteed by the
Federal Government which was
placed with several financial insti-
tutions. The airline sold five Convair
580s-two for delivery in 1976
and three in 1977-and the proceeds
are helping finance new aircraft.
Profitable operations for over two
decades, with higher earnings in the
last five years, have put the company
in the strongest financ ial condition
in its history. Considering these
factors, the Board of Directors raised
the annual cash dividend 20 percent
to $.12, payable to stockholders of
record February 15, 1977.
North Central is the only regional
airline that has paid a cas h dividend
in each of the last five years.
Some 12,177,718 shares of common
stock were outstanding at the end of
1976, and another 285,034 were
in treasury stock. With stockholders'
equity at a record $57,033,000, book
value has reached $4.68 per share.
North Central is capitalizing on
its expertise, equipment and facilities
to derive income from activities
other than airline service. This
diversification generated $2,000,000
in revenues for 1976. The company
leases computers and aircraft, sells
computer and flight simulator time,
and provides catering from the
Flight Kitchen .
Trends in financial performance
and traffic growth from 1972-1976
are summarized on Page 23.
Quarterly statements of earnings for
the last two years and stock
quotations are carried on Page 21 .
North Central is financially sound ,
and prospects for the future are
particularly good. Traffic gains and
fare increases should boost revenues.
The new DC-9-50s offer operating
economies, strict cost control will
hold down expenses, and a substan-
tial tax credit is available. With these
favorable conditions, the company is
anticipating record earnings for 1977.
MAJOR FACTORS OF CHANGE IN REVENUES AND EXPENSES
The Variance Analysis table below
summarizes the major changes in
reven ues and expenses which have
occurred in the company's operation
over the past two years.
The $27.5-million revenue gain
fo r 1976 is attributable to several
factors. The upturn in the economy
stimulated traffic and raised
passenger revenues by $11.4 million .
To meet rising costs, the Civil
Aeronautics Board granted fare
increases worth $10.1 million. A
revised formula for calculating public
VARIANCE ANALYSIS
Net Changes
NET EARNINGS 1976-1975 1975-1974
1976 ....... .. ................ .. . $ 7,400,000
1975 . . .. .. . . ...... . ..... .. . .. .. . 5,200,000 $ 5,200,000
1974 ...... . .. .. . . . ............. . 8,200,000
Change in net earnings ... . $ 2,200,000 $ (3,000,000)
MAJOR FACTORS OF CHANGE:
Operating revenues
Passenger miles ..... .. . .. . . .. . .. . $11,400,000 $ 1,400,000
Passenger fares . . .... ... .. . .. . . . . 10,100,000 10,300,000
Public service revenues .. . ... . .... . 1,100,000 100,000
Cargo and other revenues . . .. ..... . 4,900,000 300,000
Net revenue changes .... . . .. . . 27,500,000 12,100,000
Operating expenses
Labor and employee benefits ....... . 10,200,000 7,700,000
Cost of aircraft fuel .. .. .. .. .. .... . 3,400,000 9,200,000
Parts, supplies and services .. . .. . . . 2,300,000 1,700,000
Landing fees and rent . . . ... . . . .. . . 1,700,000 800,000
Passenger service and promotion .. . 1,300,000 600,000
Mutual Aid payments . ...... . .. .. . . (1 ,100,000) 800,000
Other expenses . .. ...... .. . . .. . .. . 1,400,000 1,900,000
Depreciation .................. .. . 1,500,000 200,000
Net expense changes ... .. . ... . 20,700,000 22,900,000
Change in operating profit .. 6,800,000 (10,800,000)
Nonoperating income and expense
Interest income and other ........ . . 300,000 (700,000)
Interest expense .. . ... . .... .. . ... .
Income taxes ..... ... . ... .. .... .. .
1,600,000 (700,000)
3,300,000 (7,800,000)
Net nonoperating changes .... . 4,600,000 (7,800,000)
Change in net earnings .. . . $ 2,200,000 $ (3,000,000)
service revenues, paid to the company
for providing air service to small
communities, added $1 .1 million.
The balance of revenue growth came
from cargo business, up 24 percent,
and charter activity, which jumped
48 percent.
Inflation escalated operating
expenses although not quite as
rapidly as in 1975. Total expenses
rose $20.7 million , compared with
$22.9 million the previous year.
Labor and employee benefits
increased $10.2 million , or 15 percent,
due mainly to higher wages and
greater pension and insurance costs.
The 3,600 people on the payroll
represent a five percent gain
over 1975.
Jet fuel costs were up another $3.4
million , after soaring $9.2 million the
year before. Inflation also raised
prices for landing fees , parts, services,
and supplies. Mutual aid payments
to other carriers dropped because
1976 was relatively free of strikes in
the airline industry.
The climb in depreciation and interest
is directly related to the acquisition of
six new DC-9-50 jet aircraft.
Even after utilizing maximum allow-
able investment tax credits, the
company incurred $3.3 million more
income tax expense in 1976. This
jump is due to increased earnings.
In 1975, the company had a net
tax credit.
The combined effect of all these
factors was the substantial $2.2-
million improvement in net earnings
for 1976.
5
6
traffic growth and performance
Passenger traffic reached record
levels in 1976. North Central carried
nearly five million people, with
almost a half-million in its busiest
month, and established a new
single-day high.
The airline boarded 4,969,264
passengers for the year, an 8.5 per-
cent gain over the 4,580,521 in
1975. Each month 's traffic bettered
the corresponding period in any
previous year. The 478,727 travelers
carried in August and the 21 ,520 on
December 23 broke company records.
The airline flew 1.2 billion passenger
miles in 1976, a 10 percent jump
from the 1.1 billion the year before.
On July 2, the company reached
another milestone by carrying its
SO-millionth passenger since
operations began on February 24,
1948. The event was marked with
ceremonies at Grand Rapids.
Charter business increased
48 percent with relaxed government
regulations and new reduced-rate
night charters. The 74,257 passengers
on 565 flights flew to such places as
the Caribbean , Mexico and northern
Canada. To accommodate 32,627
Captain Bill Hannon (left) g reets
Jack Parker (right) and his
fa mily at Grand Rap ids. Parker
was the 50-millionth passeng er
to fly North Central since the
airline began scheduled
operations in 1948.
passengers at peak demand travel
periods, the airline operated 1,012
extra sections of scheduled flights.
Cargo ton miles showed a substantial
rise after a two-year decline. The
13,052,226 ton miles flown in 1976
reflect a 12 percent improvement
from 11 ,703,151 a year earlier. Freight
and express increased 10 percent,
while mail was up 16 percent. The
number of shipments climbed
24 percent to 553,974 from 448,449.
North Central proved the depend-
ability of its service by completing
99.4 percent of the 29,392,907
scheduled miles- another record -
and the company has averaged 99
percent over the last 19 years.
This high level of performance ranks
near the top in the entire airline
industry, despite the adverse weather
conditions that plague North Central 's
operations for many months. The
airline also reached a new high with
86.6 percent of its 223,656 scheduled
arrivals on time.
Flight crews, ground personnel and
maintenance all contribute to th is
outstanding performance. Pilots
and Flight Control work closely with
maintenance, station and passenger
service people to insure the best
operation possible when weather,
air traffic control or other factors
prevent routine flights. Rescheduling
aircraft and crews, rerouting
passengers and luggage, and
communicating changes are among
the activities to be handled.
SCEPTRE, a new computerized
maintenance aid developed by
company personnel , helped
mechanics keep the fleet airworthy ;
only one-tenth of one percent of
departures were cancelled for
maintenance reasons , and 1.4 percent
were delayed by mechan icals.
Competence and sound judgment
are vital to the company's efforts to
provide safe, dependable airl ine
service. North Central is proud
of its employees who consistently
demonstrate their ded ication.
I
social action programs
By continuing to develop existing
programs and enacting new ones,
North Central again demonstrated
that it cares about its employees, the
cities it serves and the environment.
Working within Affirmative Action
plans approved by the Federal
Aviation Administration and the
Office of Federal Contract
Compliance, the company increased
its minority employee population by
nine percent in 1976, while total ranks
grew five percent. Women hold
39 management positions, 22 percent
over the previous year, and members
of both sexes are now working in
virtually every job category.
To insure that minorities and women
are aware of the airline's long-
standing policy of promotion from
within , these people were given an
opportunity to complete an
" Individual Profile" summarizing
education , training and work
experience. When job openings occur,
this data is compared with the
qualifications needed , and personnel
meeting them are referred to the
particular department for
consideration .
A booklet containing equal
employment and affirmative action
information was distributed to all
employees. It describes the company
policy and how it affects each person.
Recruiting is centered in communities
the airline serves. Industrial Relations
personnel have made appearances at
high schools and colleges, and career
counselors have toured North
Central facilities to gain a better
understanding of job requirements.
Conservation of natural resources
and protection of the environment
remain major corporate objectives.
For several years, North Central has
been implementing fuel-saving and
noise-abatement measures.
By using its $1 .8-million DC-9
digital flight simulator for pilot
training , the company saved 600,000
gallons of jet fuel in 1976. Also, the
U.S. Air Force, Federal Aviation
Administration and another airline
buy time on the simulator, keeping it
busy over 13 hours a day.
For 1977, company pilots hope to
save one million gallons of jet fuel.
Flight Operations has prepared a new
Fuel Management manual which
emphasizes that minor adjustments in
cruise speed , altitude, taxi time, fuel
loads and flap settings have a
cumulative effect on fuel consumption .
Revised noise-abatement take-off
and descent procedures, which also
Flight Superintendent Mike Carew reviews weather conditions
with pilots . From left are Captain Bill Banks, First Officer
Joe Moore , Captain Chuck Timberg , First Officer Barbara Wiley.
save fuel , were recently implemented
by member-carriers of the industry's
Air Transport Association. North
Central actively participated in
the development of these techniques
and others involving lower power and
flap settings, which produce quieter
flights with operational economies.
The company has invested in
aircraft deicing equipment offering
more efficient use of petroleum-base
fluids. To conserve heating oil ,
building thermostats are turned down
to 60 degrees in off-hours. Since 1973,
more discriminate use of lighting at
the airline's headquarters has
curtailed electricity requirements by
three million watts yearly.
Over 146,500 pounds of used paper
were salvaged for recycling in 1976.
In less than three years, the
company's " Waste Not" program has
recovered 495,000 pounds of paper.
Demonstrating concern for its
personnel, North Central is helping
chemically dependent employees and
family members through professional
education and treatment under
company-paid insurance. Reaction
to the program is very favorable,
and direct benefits have been
far-reaching.
Active corporate and individual
memberships are maintained in many
civic and social development
organizations. North Central people
are involved in such groups as the
National Urban League, National
Alliance of Businessmen, Kiwanis,
Lions, Better Business Bureau and
the National Society of Consumer
Affairs Professionals.
A new management development
program was begun in 1976 to
achieve better communications and
more effective leadership. Group
meetings were designed to build
understanding between people and
departments. Special training is also
provided for newly-promoted
supervisors. Future seminars will
expand the initial series of lectures
and workshops.
North Central is constantly seeking
new and improved ways to be a
sensitive employer and responsible
corporate citizen.
7
8
new facilities and services
The introduction of DC-9-50 fan jets
on April 25, 1976, marked another
major step in North Central 's
continuing flight equipment
modernization program.
Passengers found a completely new
decor with a wide-body look,
featuring enclosed overhead
compartments for carry-on items,
more legroom, dramatic cabin
lighting, and a coordinated aqua,
blue and gold color scheme.
The first three 125-passenger jets
initially served 19 cities on the
airline's system. Later in the year,
two more DC-9-50s were delivered,
and flights started on January 3,
1977. The five new aircraft reduce
operating cost per seat mile, and also
permit the company to substantially
upgrade service by using 100-
passenger DC-9-30 jets to replace
Convair 580 prop-jets at 26 cities.
North Central has 54 aircraft in its
fleet, including 26 DC-9s and
28 Convair 580s. Three additional
DC-9-50 jets will be received in
1977, replacing three Convairs sold
for delivery this spring . In 1978,
the DC-9-50 leased to another
carrier will be returned , and the
company has an option to purchase
six more that year.
Many of the company's facilities
throughout the system were
improved during 1976. At Detroit
Metropolitan Airport, passenger
comfort and convenience were
greatly enhanced by major -
remodeling and expansion. North
Central now has three new jetways,
a larger passenger service counter,
and seven spacious, fully-carpeted
gate areas to accommodate more
travelers. Operations and administra-
tive offices were renovated , and a
commissary was added.
Detroit now has spacious,
fully-carpeted gate areas . In
the foreground are Passenger
Service Agents Preston
Bilberry and Karl Mercer.
In Milwaukee, walking distance to
the gate area is being cut in half with
construction of a pedestrian
overpass. In addition , the expansion
program includes new and larger
passenger service counters,
another jet bridge, and improved air
freight and office areas.
Gate and counter facilities were
remodeled at Minot, Sioux City,
Columbus and Traverse City. New
counters were installed at Boston ,
Lacrosse and Saginaw/ Bay City/
Midland. Airport terminal construc-
tion was completed at Sault Ste.
Marie, Iron Mountain/Kingsford ,
and is planned for Rhinelander/
Land O'Lakes. Thunder Bay is
considering enlarging its
passenger area.
Greater identity for North Central
skycaps at Chicago was achieved
with new blue uniforms, highlighted
by easily-recognized blue and green
hats. A suit is worn by men, while
women have slacks with matching
jacket, vest and complementary
blouse. Each skycap has a portable
paging receiver for direct
inter-terminal communication .
Passengers are now receiving
faster ticketing service and fare
quotes. Over 85 percent of this
activity is handled automatically by
the computerized " Quick Ticket."
Flight Attendant Carolyn
Anderson puts carry-on items 1n
the enclosed overhead
compa rtm ent, one of the
convenience features on the
new DC-9-50 fan jet.
Any passenger with advance
reservations can have a machine-
printed ticket in ten seconds.
Priority air express service,
introduced by North Central in 1976,
enables shippers to send goods on
a specific flight of their choosing .
For " VIP" (Very Important Package)
pickup and delivery of small
packages, a new toll-free phone
number is now available.
I
Through ESCORT, the airline's
$8-million electronic reservations
and communications system ,
preparation of complicated travel
itineraries was simplified by an
improved display of flight schedules
for reservationists.
At the Milwaukee airport, a new
" Mini-Co mputer" is serving as an
information center for North
Central passengers. The TV-like
console gives travelers access to
ESCORT's weather and flight arrival
data for Milwaukee.
A Fuel Inventory Management
System , designed for ESCORT, was
developed to monitor the use of
jet fuel-which costs about $77,000 a
day. The data aids analysis of aircraft
and schedu le characteristics that
produce higher than normal fuel
consum ption . Also, availability of
fuel at North Central cities is quickly
determined so refueling stops
can be planned efficiently.
A unique deicing system conceived
by company personnel is being
field-tested in Grand Rapids. From
hydrants connected to a 2,000-gallon
supply tank in the terminal , an
electrically-heated and pumped
solution is sprayed on aircraft by
one agent working from a lift basket
he alone controls. Compared with
other methods, this approach costs
less initially, is more reliable, saves
fluid and reduces man-hours.
The airline has purchased deicing
vehicles at Minneapolis/St. Paul and
converted other units at Detroit,
Milwaukee and Chicago.
Working with manufacturers, North
Central modified the autopilot
system on all DC-9-30s to match
that on the DC-9-50. Also, new
computerized equipment was
acquired for testing overhauled
autopilots. In addition , installation
of improved solid-state electronic
distance measuring equipment for
navigation has been completed
on the entire DC-9 fleet.
Maintenance economies were
realized with the expansion of
SCEPTRE, the company-developed
computer system with corporate
information as its base. Hundreds of
thousands of supplies and aircraft
parts were cataloged into SCEPTRE
so ordering from inventory can now
be accomplished with a computer
entry. SCEPTRE also provides
real-time data on components and
parts, maintenance forecasts , work
completed , aircraft flying times, and
pilot reports on aircraft.
Maintenance information, which is
continually updated, can be
Agent Darlene Lalich assists a passenger in using the
flight information "Mini-Computer" at Milwaukee .
displayed on TV-style receivers or
hard-copy printers. A mechanic,
inspector, pilot, flight superin-
tendent, or engineer can extract
aircraft information from SCEPTRE
at any of 150 locations-line
maintenance bases, overhaul shops,
stock rooms, and station operations
offices.
In 1976, the company initiated a
program to issue an Individual
Benefit Statement to each
employee annually. The Industrial
Relations Department produces the
statement from personnel data
within SCEPTRE. The system
allows continuous updating of
employee information.
To feature the nation 's Bicentennial ,
favorite dishes of " Great Colonial
Inns" were offered on selected
flights. Recipes came from
restaurants dating back 200 years
or more.
Employees helped reduce costs and
increase efficiency through the
company's incentive suggestion
program . Cash awards totaling
$4,200 were made to 72 people for
ideas implemented during 1976.
In its efforts to provide quality
service to passengers and shippers,
North Central constantly strives to
improve every phase of its operation.
National advertising by IBM featured
SCEPTRE, the company's computerized
maintenance program. Th is photo of
Supervisor Jim Jilek was in the ad.
9
10
route development
Boston is the newest city on North
Central 's system. Nonstop Detroit-
Boston service was inaugurated
January 3, 1977, and the airline
is operating eight daily flights with
100-passenger DC-9 fan jets.
The Detroit-Boston route was
authorized by the Civil Aeronautics
Board in a decision issued October 4.
The 632-mile segment is the most
significant addition since Milwaukee-
New York nonstops began in 1970.
The CAB estimates that the
company will carry 110,000 Boston
passengers the first year, and
realize an operating ,profit of
$3.2 million.
All eight flights originate or terminate
in cities west and north of Detroit.
Passengers from Lansing , Grand
Rapids, Saginaw/Bay City/Midland ,
Alpena, Escanaba, Marquette,
South Bend , Green Bay/Clintonville,
and Chicago can fly to Boston
without changing planes. Thirty
other Upper Midwest cities have
convenient Boston connections
on North Central .
Including Boston , North Central
serves 90 cities in 14 states and two
Canadian provinces on its
10,900-mile route system.
CHICAGO-NEW ORLEANS NONSTOP
In March 1976, a Civil Aeronautics
Board administrative law judge
selected North Central to provide new
Chicago-New Orleans nonstops.
In October, the Board instituted a
discretionary review without oral
argument. The CAB order issued
February 11, 1977, favored another
carrier, and North Central is
appealing that decision.
The company is proposing six daily
nonstops, with each flight originating
or terminating in cities north of
Chicago. Eight would have direct
service to New Orleans, and 31 would
have single-carrier connecting
flights. North Central would carry
115,000 Chicago-New Orleans
passengers and earn a $2.2-million
operating profit the first year. The
837-mile route is nearly 100 miles
longer than any segment now flown
by the airline.
DETROIT-BALTIMORE NONSTOP
The State of Maryland and North
Central have jointly asked the CAB
for a Show Cause order permitting an
early introduction of Detroit-
Baltimore nonstops by the airline.
The petition , filed in February 1977,
noted that the Board first cited the
need for service 17 years ago. Since
then , traffic has increased , and only
one nonstop operates in each
direction. The parties requested an
expedited hearing as an alternative to
the Show Cause order.
North Central is proposing four
flights daily with DC-9 fan jets. The
airline estimates it would carry more
than 70,000 passengers on the
409-mile route and earn a $1 .2-million
operating profit the first year. Ten
Midwest cities would receive single-
plane service, and over 25 others
would have convenient, single-carrier
connections.
MIDWEST-ATLANTA
North Central is asking for Detroit-
Atlanta and Cincinnati-Atlanta
nonstops. The two routes , totaling
968 miles, would generate $20 million
in revenues and produce a
$5.8-million operating profit. In
January, 1977, the law judge issued
an initial decision recommending
another carrier for both routes.
North Central will appeal the matter
to the Board .
MINNEAPOLIS/ST. PAUL-MEMPHIS,
MILWAUKEE-MEMPHIS NONSTOPS
Hearings were held in October 1976,
and an initial decision is pending .
North Central is proposing the first
direct service between Minneapolis/
St. Paul and Memphis, a 699-mile
route. Initially, flights would stop at
Milwaukee and go nonstop the
556 miles to Memphis. As traffic
increases, Twin Cities-Memphis
nonstops would be operated.
Benefiting a potential 71 ,000
passengers the first year, North
Central would realize a $1-million
operating profit.
MILWAUKEE-DENVER ONE-STOP
North Central is asking for single-
plane authority between Milwaukee
and Denver, via Minneapolis/St. Paul
or Madison. Passengers are now
required to change planes in the
Twin Cities. The CAB denied the
company's 1976 request for expedited
hearings on nonstop service. The
Madison-Denver segment would add
828 new route miles.
OMAHA-DALLAS/FT. WORTH,
KANSAS CITY-DALLAS/FT. WORTH
NONSTOPS
In February 1976, the company
applied for two new nonstops to
Dallas/Ft. Worth from Omaha and
Kansas City (1 ,043 miles). By adding
these segments, single-carrier service
would be provided through Kansas
City or Omaha from 19 cities in Iowa,
Nebraska, Minnesota and the
Dakotas. The CAB law judge has
recommended another carrier on the
Kansas City route, and Board action
is pending on the Omaha case.
MILWAUKEE-PHILADELPHIA NONSTOP
New nonstop service has been
proposed providing single-plane
service for 10 Minnesota and
Wisconsin communities. Although
two other carriers are certificated ,
only one nonstop is available in each
direction. (690 miles)
MICHIGAN POINTS-DETROIT- NEW YORK
This application would enable North
Central to provide new, single-plane
service through Detroit to New York
City from ten Michigan cities.
(501 miles)
COLUMBUS, DAYTON, CINCINNATI-
PHILADELPHIA NONSTOPS
The company is awaiting the CAB
administrative law judge's initial
decision based on hearings held in
October 1976. As part of the
Ohio/Indiana Points Nonstop Service
Investigation , North Central asked
to serve Philadelphia from Columbus,
Dayton and Cincinnati . (1 ,389 miles)
TWIN CITIES-KANSAS CITY NONSTOP
This application would permit North
Central to operate nonstop flights , in
addition to the present two-stop
service. (394 miles)
DETROIT-MONTREAL, VIA TORONTO
This authority was requested under
an amendment to the 1966 Bilateral
Air Transport Agreement between
the United States and Canada, and
a hearing is expected in 1977. North
Central could also offer single-plane
service from Minneapolis/St. Paul
and Milwaukee to Montreal. The
amendment authorizes Detroit-
Montreal flights by a U.S. carrier
after 1978. (315 miles)
MILWAUKEE, DULUTH/SUPERIOR-
WINNIPEG NONSTOPS
North Central is seeking permanent
authority to Winnipeg , with certain
restrictions lifted from its temporary
certificate. If approved , the airline
could fly nonstop from Duluth/
Superior and Milwaukee. In addition ,
one-stop service could be offered
from the Twin Cities, Chicago and
several other points with no change
of planes. Hearings are scheduled
for March 15.
SUMMARY
Pending applications would add
eight new cities and 8,629 miles to
North Central 's route system.
the future
North Central sees real opportunities
for further growth and development in
1977-its 30th year of scheduled
operation. The three most significant
factors affecting the future will be
route development, the national
economy and regulatory reform .
New Detroit-Boston nonstops began
January 3, 1977. These have been
operating profitably since service was
inaugurated, and traffic should
increase in the coming months. This
route is expected to generate
$10 million in revenues and produce
an operating profit of $3.2 million
the first year.
Boston is an international gateway
to Europe. It is a good business
market and also offers attractions for
th e lucrative, leisure-travel field .
Th e company's passenger traffic
is now 27 percent pleasure-oriented,
and efforts are being made to boost
that share while still attaining
growth in business travel.
The airline also feels it has an
excellent chance of being awarded
other routes now under consideration
by the Civil Aeronautics Board.
According to most leading indicators,
the national economy should have
moderate growth in 1977. On that
assumption , and adding traffic from
new routes, North Central anticipates
passenger and cargo gains of
approximately eight percent. Any fare
increases will be closely tied to rising
costs- particularly fuel and wages.
Two labor contracts are to be
negotiated in 1977, and the four
others extend into the next year or
North Central flights to Boston-Logan International Airport arrive at the
North Terminal (center), and passengers use the left concourse. Service
began January 3, 1977. The city of Boston is in the background.
beyond. The company has never
had a work stoppage, and expects
to reach equitable agreements with
all unions.
While Congress is considering some
degree of regulatory reform in the
airline industry, the end result
cannot be predicted . The company
favors more flexibility in setting
fares and expedited procedures for
granting routes.
The success of any company
ultimately hinges on its ability to
maintain strict cost control and
achieve maximum productivity. North
Central will continue to meet these
requirements, while providing safe,
dependable airline service. The
company forecasts a substantial
profit again in 1977.
11
DEVILS LAKE
FARGO
MOORHEAD
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14
NORTH CENTRAL AIRLINES, INC.
balance sheet
ASSETS
CURRENT ASSETS
December 31
1976
Cash (note B) . . .. . . . .. .. .. . ....... . ... . ......... . . . ........ $ 9,034,000
19,045,000
5,500,000
8,433,000
42,012,000
Accounts receivable, less allowances .... . .. . . . .. .. ..... . .... .
Flight equipment parts and supplies (notes A and B) ........ .. .. .
Prepaid expenses and other (note A) ... .. .. ... . . .. . . . ... . .. . . .
PROPERTY AND EQUIPMENT - at cost (notes A, Band E)
Flight equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,815,000
Ground property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,258,000
Improvements to leased property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,388,000
Less accumulated depreciation . . ... . .... . .. .... . ... . .. .. . . . .
Advance payments on equipment .. . .. . .. .. .... ... . ... ..... .. .
DEFERRED CHARGES AND OTHER ASSETS
Unamortized development and preoperating costs (note A) . .. . . . .
Rentals and other (notes A, C and D) ..... . . .. .... ... .. . . .. . .. .
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
178,461 ,000
51 ,440,000
127,021 ,000
4,919,000
131 ,940,000
1,585,000
2,136,000
3,721 ,000
$177,673,000
Current maturities of long-term debt (note B) ...... . .... . .. . ... . $ 9,068,000
Trade accounts payable ... .. .... . .. . ....... . .. . . .. .. ...... . .
Interline payables and tickets outstanding (note A) ............. .
Accrued compensation and other expenses .. . . . . . ..... ... ... . .
Income taxes (notes A and J) .... .... . . . ............ . .. . .... .
LONG-TERM OBLIGATIONS
Long-term debt - less current maturities (note B) .. .. . .... .. . .. .
Deferred income taxes (notes A and J) . . . . . .. ... .... . . . ..... . . .
Other .. . ......................... . ... . ... . .............. .
COMMITMENTS AND CONTINGENCY (notes D, E and F)
STOCKHOLDERS' EQUITY (notes B and G)
Common stock - authorized 16,000,000 shares of $.20 par value . . .
Additional paid-in capital . . .. . ... . . . .. . . .. . .. . . .. . ....... . .. .
Retained earnings ...... .... .... .. .. .... .... . . ... .. ..... . .. .
Treasury stock- at cost . . ..... .. .... . ... .. ... ... .. . ...... . . .
The accompa,nying notes are an integral part of this statement.
7,825,000
10,039,000
10,850,000
278,000
38,060,000
76,976,000
4,705,000
899,000
82,580,000
2,493,000
18,056,000
37,288,000
(804,000)
57,033,000
$177,673,000
1975
$ 3,555,000
19,277,000
4,791 ,000
7,610,000
35,233,000
104,192,000
17,648,000
5,145,000
126,985,000
44,005,000
82,980,000
11,154,000
94,134,000
1,473,000
3,303,000
4,776,000
$134,143,000
$ 7,581 ,000
5,472,000
9,370,000
10,754,000
253,000
33,430,000
45,909,000
3,939,000
300,000
50,148,000
2,493,000
18,032,000
31 ,039,000
(999,000)
50,565,000
$134,143,000
statement of earnings
Years ended December 31
1976
OPERATING REVENUES
Passenger (note A) . ... .... . ... . ......... . . . .. .... .... . .. . .. $157,159,000
Freight and express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ,200,000
Public service revenues (note H) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,296,000
Mail (notes A and F) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,347,000
Non-scheduled service and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,106,000
OPERATING EXPENSES
Flying operations ... . . . .. . ............. . .. . ... . . .. .. . . .. ... .
Maintenance .. . ....... . .... . . . . .. . . .... . .... ..... ........ . .
Aircraft and traffic servicing . .. . . .. .... . ........ .. . . .. . ..... .
Passenger service ..... . . ... .... ...... . . .. ... . . .... . . . . . ... .
Promotion and sales ....... . . . .... . . .. ... . . . ..... . ... . ... . . .
General and administrative ... . .... .. . . .. . . .. . ... . .......... .
Other transport-related expenses ... . .......... . ............. .
Depreciation and amortization (note A) . . .. .. .. .. .. ........... .
Operating profit . . . . . . ... . ............... .... ........ .
OTHER EXPENSES (INCOME)
Interest expense . . . ... ....... . .. . .... . .... . ............... .
Less interest capitalized (note A) ... . .. ..... .. .. . ........... . .
Interest income and other - net . . . .......................... .
Earnings before income taxes ...... .. .. . . .. . ........ . . .
INCOME TAXES (notes A and J)
Current .. . . . ..... . ..... ... ... . ................... . ....... .
Deferred .... . .. .. . . .... .. ... ... . .... .. ..... . ... . .... . .... .
191 ,108,000
57,363,000
27,392,000
43,893,000
10,979,000
17,178,000
9,638,000
961 ,000
9,676,000
177,080,000
14,028,000
5,174,000
843,000
- - -
4,331 ,000
(690,000)
3,641,000
10,387,000
2,169,000
771 ,000
-----
2,940,000
NET EARNINGS . ... .......... .. .. .. .. . . .. .. . . . ....... $ 7,447,000
= = =
NET EARNINGS PER SHARE (note K) . . . .. . . . . .. . ... .. . . $ .61
- -
The accompanying notes are an integral part of this statement.
1975
$135,664,000
8,531 ,000
12,225,000
1,996,000
5,168,000
$
163,584,000
50,342,000
24,330,000
38,481 ,000
9,873,000
14,933,000
8,322,000
1,910,000
8,172,000
156,363,000
7,221 ,000
3,611,000
757,000
2,854,000
(517,000)
2,337,000
4,884,000
172,000
(512,000)
(340,000)
5,224,000
$ .43
15
16
statement of changes in financial position
SOURCES AND APPLICATIONS OF WORKING CAPITAL
SOURCES
From operations
Net earnings .. . ........... .. .... .. . ... ... . .. ... . . .. ... . . ...... .
Charges (credits) to earnings not using (providing) working capital
Depreciation and amortization .. . ..... . ...... . .. . ... .. ...... . .
Deferred income taxes .. . ....... . .. . .................. . . . . .. .
Other . . . .. . ..... .. .. ... ..... . .... ...... . . . .. .. . .. . .. ... . .. .
Working capital provided from operations . . ..... . .... ... . .. .
Proceeds in excess of gain from property and equipment dispositions . .. .
Increase in long-term debt . .. . . . . . ..... . . . .. ...... . . . .. ...... . ..... .
Reduction of rentals and other . .. . . .. . ... . .... . . .. ...... . .... . . . . . . .
APPLICATIONS
Additions to property and equipment . ...... . ... . .. . . . . .. . .. ... . . .. . . .
Reduction of long-term debt ..... .. ... ..... . .. . . ... .... . .. . ... .. . .. . .
Payment of cash dividend . .... .. . . . .. . .... . . .. ........ . .. .. . . . . . .. .
Additions to deferred charges ....... .. . . . .... . . . .. . ....... .. . . . .. .. .
Purchase of treasury stock . .... .... .. . ..... ... .. .. ... . . . .. ... . . . . . . .
INCREASE (DECREASE) IN WORKING CAPITAL . . . .. .. . . .. . .
Working capital at beginning of year ..... . . .. . .. .... . ... ... . ... . .. . . .. .
Working capital at end of year . .. ... . .. . .. . . . .. .. .. .. ....... . .... . ... .
NET CHANGE IN WORKING CAPITAL ELEMENTS
Increase (decrease) in current assets
Cash and short-term investments .... ... . . . .. . ... . . . ..... . .. . . ... . .
Accounts receivable ..... . . . . . .......... .. ........ . . . ... . . . .. . .. .
Flight equipment parts and supplies .. .. .. .... . . ...... . ...... . . .... .
Prepaid expenses and other ... . ... ... . . ... . .... . ... . . . ...... . . . . . .
Net change in current assets ...... .. . . . . . . . . .. .. ... .. . . . . .. .. .
Increase (decrease) in current liabilities
Current maturities of long-term debt .. . . . . ... .. ..... .. . .. ... . . . . . . .
Trade accounts payable .... ... .... ..... . . . ...... . .. . .. . .. .... . .. .
Interline payables and tickets outstanding . ... . . ... .. .. . . ... . ... . . . .
Accrued compensation and other expenses .... ... . . . . ... ..... . .. . . .
Income taxes . . . . ...... ..... .. .... ... . . ....... . .... . ..... ... .. . .
Net change in current liabilities . . . . . . . . . . .. . .. .. .. ... ..... . . . . .
I NCR EASE (DECREASE) IN WORKING CAPITAL . . .. .. . . . . .. .
The accompanying notes are an integral part of this statement.
$
$
$
$
Years ended December 31
1976 1975
7,447,000 $ 5,224,000
9,676,000 8,172,000
766,000 (928,000)
1,137,000 400,000
19,026,000 12,868,000
1,675,000 51 ,000
41 ,102,000 34,531 ,000
1,488,000 1,138,000
63,291 ,000 48,588,000
49,283,000 28,051 ,000
10,035,000 21 ,255,000
1,198,000 1,229,000
626,000 527,000
582,000
61 ,142,000 51 ,644,000
2,149,000 (3,056,000)
1,803,000 4,859,000
3,952,000 $ 1,803,000
5,479,000 $ (11 ,250,000)
(232,000) 4,513,000
709,000 768,000
823,000 2,580,000
6,779,000 (3,389,000)
1,487,000 (819,000)
2,353,000 (1 ,116,000)
669,000 1,180,000
96,000 2,601 ,000
25,000 (2,179,000)
4,630,000 (333,000)
2,149,000 $ (3,056,000)
statement of changes in stockholders' equity
Years ended December 31, 1976 and 1975
Common Stock
Additional Retained
Treasury Stock
Shares Paid-In Earnings Shares
Issued Amount Capital (note B) Held
Balance at January 1, 1975 . . .. ... 12,462,752 $2,493,000 $18,032,000 $27,044,000 150,900
Cash dividend (note G) . ....... (1,229,000)
Purchase of treasury stock . . .. . 213,900
Net earnings for the year . . ..... 5,224,000
Balance at December 31 , 1975 . . .. 12,462,752 2,493,000 18,032,000 31,039,000 364,800
Cash dividend (note G) ........ (1,198,000)
Disposition of treasury stock ... 24,000 (79,766)
Net earnings for the year .. .. ... 7,447,000
Balance at December 31 , 1976 .... 12,462,752 $2,493,000 $18,056,000 $37,288,000 285,034
The accompanying notes are an integral part of this statement.
auditors' report
Alexander Grant
& COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
North Central Airlines, Inc.
INTERNATI ONAL FIRM
ALEXANDER GRANT TANSLEY WITT
We have examined the balance sheet of North Central Ai rlines, Inc. (a Wisconsin
corporation) as of December 31 , 1976 and 1975, and the related statements of earn-
ings, changes in stockholders' equity and changes in financial position for the years
then ended. Our examination was made in accordance with generally accepted audit-
ing standards and accordingly included such tests of the accounting records and such
other auditing procedures as we considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the financial
position of North Central Airlines, Inc., at December 31 , 1976 and 1975, and the results
of its operations and changes in its financial position for the years then ended, in con-
formity with generally accepted accounting principles applied on a consistent basis.
Minneapolis, Minnesota
February 11 , 1977
Amount
$417,000
582,000
999,000
(195,000)
$804,000
17
18
notes to financial statements
December 31, 1976 and 1975
Note A-Summary of Significant Accounting Policies- The company
is regulated by the Civil Aeronautics Board (CAB) and uses the
Uniform System of Accounts and Reports for Certified Air Carriers
as required by the CAB. The significant policies consistently fol-
lowed by the company are:
Flight Equipment Parts and Supplies: These are priced at average
cost. An allowance for obsolescence ($873,000 in 1976 and $675,000
in 1975) is provided for repairable parts by allocating their cost
over the life of the related aircraft.
Prepaid Expenses - Engine Overhaul: The company reclassifies to
a current prepaid expense the estimated portion of the purchase
price of flight equipment attributable to its overhaul expected to be
consumed within the next twelve months ($3,890,000 in 1976 and
$3,010,000 in 1975). Actual overhaul costs are charged to expense
as incurred.
Capitalized Interest: To properly reflect their total cost, major
additions to flight equipment, ground facilities and expenditures
for deferred charges include capitalized interest based on the
weighted average interest rate of debt outstanding. Capitalization
of interest ceases when projects become operational. The capital-
ized interest is amortized over the useful lives of the related assets
for financial reporting purposes. If capitalized interest had been
expensed as incurred for financial reporting purposes, net earnings
would have been reduced by approximately $461,000 in 1976 and
$317,000 in 1975. For income tax reporting purposes, interest is
expensed in the current period.
Capitalized Leases: The company capitalizes, for both financial re-
porting and tax purposes, leased facilities where the terms of the
lease result in the creation of a material equity in the property
accruing to the company. In November 1976 the Financial Account-
ing Standards Board issued its Statement No. 13 entitled "Account-
ing for Leases" which establishes new standards of financial
accounting and reporting for leases to be effective for years ending
after December 31, 1976. While this statement is not effective for
1976, management is currently examining its lease obligations to
determine what effect, if any, this statement might have on future
financial statements of the company.
Depreciation: Depreciation is provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their esti-
mated service lives on a straight line basis for financial reporting
purposes. The straight line method of depreciation is also followed
for substantially all assets for tax reporting purposes, but acceler-
ated methods are used for selected assets acquired in 1976. Flight
equipment is being depreciated to residual values (15% of cost):
Convair 580 based on a common retirement date of June 1979 and
DC-9 based on 15-year lives.
Deferred Charges: Expenditures for route development are deferred
and amortized over the life of temporary certificates, or from five
to eight years for permanent certificates. Major computer software
development is deferred and amortized over a five-year period.
Certain of these expenditures are expensed when incurred for tax
reporting purposes.
Passenger Revenues: Passenger revenue is recognized when the
transportation service is provided. Unused ticket sales are included
as a current liability.
Pension Costs: The company has pension plans for substantially
all of its employees, and funds its current expense of normal costs
and amortization of prior service costs over 40 years. Pension fund-
ing is determined under the unit credit and aggregate frozen liability
methods (note I).
Income Taxes: The company uses the flow-through method of ac-
counting for investment tax credit which reduces income tax-ex-
pense when the related liability is reduced. Investment credits not
applied on tax returns are offset against deferred income taxes to
the extent they are applicable to deferred taxes becoming payable
in the carryover periods. The company recognizes deferred income
taxes resulting from differences in financial and income tax report-
ing (note J).
Note B - Long-term Debt - Long-term debt at December 31 con-
sists of the following: 1976 1975
Quarterly installment notes (a) . ............. $12,096,000 $19,014,000
Quarterly installment notes (bl .............. 41,000,000 28,700,000
Quarterly installment notes (c) .. . . . ......... 27,212,000
Total due banks and insurance
companies (d) .. . . .. . .... . ... . ... . . 80,308,000
Lease obligation (e) . . . . . . . . . . . . . . . . . . . . . . . 3,636,000
Subordinated convertible debentures (f) . . . . . . 690,000
Semi-annual subordinated notes (g) .. .. . . .. . .
Sundry . . . .. . . . . .. . . . . . . . . . . .. . . . . . .. .. . 1,410,000
Total long-term debt . . . . . . . . . . . . . . . . . . 86,044,000
Less current maturities (h) . . . . . . . . . 9,068,000
$76,976,000
47,714,000
4,418,000
690,000
300,000
368,000
53,490,000
7,581,000
$45,909,000
(a) Payable in quarterly installments of $1,296,000 plus interest
during January and April and $1,728,000 plus interest during July
and October through 1978; interest at 7%. Two equipment manu-
facturers have guaranteed certain series of these notes totaling
$3,980,000.
(b) The company has established credit agreements with banks for
loan commitments in the amount of $58,000,000. At December 31,
1976 the company had borrowed $41,000,000 under the agreement
with interest only payable quarterly during 1977; principle is pay-
able in quarterly installments of $2,000,000 plus interest during
1978 and 1979 and $1,389,000 plus interest quarterly from February
1980 through May 1984; interest varies from to % above the
banks' prime rate; effective interest rate at December 31, 1976 was
6% (7% at December 31, 1975). The agreement requires a loan
commitment fee of% per year on the unused portion.
(c) Payable in quarterly installments of approximately $1,062,000,
including interest, during the period April 1, 1977 to October 1, 1986
with interest at 81/s% on the major portion of this debt; interest
on the balance of the debt at % above the banks' prime interest
rate; effective rate at December 31, 1976 was 7%. The notes are
guaranteed by the Department of Transportation as to 90% of the
unpaid principal and 100% of the unpaid interest.
(d) Total due banks and insurance companies is collateralized by
substantially all flight equipment and spare parts owned by the
company. Among the loan covenants are restrictions on dividend
payments, capital expenditures, lease obligations, investments, guar-
antees, additional borrowings and requirements related to minimum
working capital and net worth. The company has a commitment to
retire 259,511 warrants at $1.50 per warrant within 30 days after
the expiration date of October 31, 1979 for any of these warrants
not then exercised. These warrants were issued to loan holders in
consideration of deferring certain debt repayments (note G). The
obligations are being accrued as additional interest expense through
1979.
The company was required to maintain average compensating bal-
ances of approximately $3,500,000 and $2,900,000 during 1976 and
1975, respectively, related to borrowing arrangements. The arrange-
ments principally require the payment of interest at % over
prime rate on the average compensating balance shortfalls. Interest
paid on shortfalls was approximately $175,000 in 1976 and $100,000
in 1975. At D~cember 31, 1976 and 1975 the required compensating
balances (adJusted for float) were approximately $2,500,000 and
$3,500,000, respectively.
(e) Lease obligation payable in monthly installments of $99,000
including interest at 10% through July 1980.
(f) Convertible into common shares at $8.55 a share to maturity,
June 1, 1978; interest payable each June and December at 5%.
(g) Debt was retired in March 1976. Stock purchase warrants issued
in connection with this debt enable the holders to purchase a total
of 200,000 common shares through October 31, 1979 (note G).
(h) Current maturities of all long-term debt due in each of the next
five years following December 31, 1976 are as follows:
1977 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,068,000
1978 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,660,000
1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,401,000
1980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,801,000
1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,245,000
$56,175,000
At December 31, 1976, $4,500,000 of unused lines of credit were
available for short-term borrowing from several banks principally at
their prime lending rate.
Note C-Lessor Leasing Activities- Investments in leased equipment
accounted for under the finance method, including residual values,
totaled $958,000 and $1,338,000 at December 31, 1976 and 1975,
respectively.
In 1975 the company leased equipment which they capitalized at a
cost of approximately $4,700,000 (note B[e]). This equipment was
subleased and rentals are accounted for under the operating method.
In 1976 the company purchased an aircraft and spare engine at a
cost of approximately $8,900,000. This equipment has been leased
to another carrier and rentals are accounted for under the operating
method.
Note D - Lease Obligations - Total rent expense, including landing
fees, was $15,389,000 in 1976 and $13,642,000 in 1975, including
rentals under "financing leases" (as defined by the Securities and
Exchange Commission) of $6,193,000 in 1976, $6,421,000 in 1975.
The company has lease commitments for various airport facilities
based upon usage and landings, subject to adjustment depending
upon the needs of the airport operating authority. These leases ex-
pire over varying periods, and future annual lease commitments are
not determinable due to the usage and adjustment factors.
At December 31, 1976, the company's minimum rental commitments,
including rental prepayment requirements, under non-cancellable
leases with initial or remaining terms of more than one year are
as follows (in thousands of dollars):
DC-9-30 Computer
Period Aircraft Equipment Facilities Other Total
1977 $2,088 $1,569 $1,634 $24 $5,315
1978 2,088 1,398 1,634 5,120
1979 2,088 1,023 1,634 4,745
1980 2,088 1,634 3,722
1981 1,467 1,634 3,101
1982-1986 490 8,170 8,660
1987-1991 7,963 1,963
1992-1996 7,290 7,290
1997-2001 817 817
Because DC-9-30 leases are related to the prevailing prime interest
rate, the actual rent expense exceeded the minimum by $140,000
in 1976 and $344,000 in 1975. Nearly all leases contain renewal or
extension options which are to be negotiated within specified pe-
riods prior to the expiration of the leases.
The present value of the noncapitalized financing leases and the
related interest rates at December 31 are (in thousands of dollars):
Interest
Rate
Five DC-9-30 aircraft ....... ... ..... 6%
Nine CV-580 aircraft ............... 5 %
Computer equipment ... ... ......... 8%
Facilities ........................ 4%
Other ........................... 6 %
1976
$ 8,612
3,317
15,427
24
$27,380
1975
$10,113
434
4,220
15,942
467
$31,176
The impact on net earnings by capitalization of such leases would
have been immaterial. The company, regulated by the CAB, is un-
able to determine what impact the above capitalization might have
on the rate base and any consequent rate adjustments.
Note E - Commitments - At December 31, 1976, the company has
purchase commitments on three new DC-9-50 aircraft for which it
has advanced $4,735,000 and capitalized interest of $31,000. An
additional $19,363,000 will be expended by the company in fulfill-
ing these commitments. The purchase agreement calls for delivery
of these aircraft during the fourth quarter of 1977, although earlier
deliveries may be arranged depending upon the operating needs of
the company.
The company has advanced $150,000 on a purchase commitment,
which contains an option to cancel prior to September 1977, for
three additional DC-9-50 aircraft. If the option to cancel is not
exercised, an additional $23,527,000 would be expended prior to
delivery of the three aircraft in the fourth quarter of 1978.
Subsequent to year end, the company advanced another $150,000
on a purchase commitment, which contains an option to cancel
prior to March 1977, for three additional DC-9-50 aircraft. If the
option to cancel is not exercised, an additional $26,140,000 would
be expended prior to delivery of the three aircraft in the second
quarter of 1978.
During 1976, the company entered into a contract for the sale of
five CV-580 aircraft. Pursuant to the terms of the agreement, two
aircraft were delivered in 1976 and three are scheduled for delivery
in 1977. The total selling price is $3,975,000, which approximates
the company's undepreciated cost of these aircraft.
Purchase commitments for various other equipment total $382,000,
for which $87,000 has been advanced.
Under provisions of the Mutual Aid Agreement, the company would
pay struck carriers who are a party to this agreement. The com-
pany would receive such payments in the event of a strike by its
employees.
Note F - Contingency - The company, as well as all other sched-
uled domestic air carriers, is a party to the Domestic Service Mail
Rates Investigation by the CAB. Mail revenues received by the com-
pany for the period March 28, 1973 through December 31, 1976 are
subject to retroactive determination upon the conclusion of the in-
vestigation. An Administrative Law Judge has rendered an initial
decision in this proceeding which, if made final by the CAB, would
result in approximately $2,800,000 of additional mail revenue being
recognized by the company for the period from 1973 through 1976.
However, the initial decision has been appealed by the United States
Postal Service and is being reviewed by the CAB. Therefore, deter-
mination of the final rate is not possible at the present time and no
provision for any adjustment has been recorded.
Note G - Common Stock - At December 31, 1976, 87,450 shares
of unissued common stock are reserved for officers and key em-
ployees, under a qualified plan adopted in 1965. An additional
200,000 shares are reserved under a plan adopted in 1975. When
options are exercised, the excess of the option price over par value
of the shares is credited to additional paid-in capital. The company
makes no charges to income in connection with the shares issued
under the stock option plan.
19
20
notes to financial statements
December 31, 1976 and 1975 (continued)
Options Outstanding
Option Price and Fair Market Value at Date of Grant
Year Year Per
December 31, 1976 December 31, 1975
Granted Exercisable Share Shares Amount Shares Amount
1971 1971 $3.1875 - $ 36,100 $115,069
1973 1973 4.25 7,500 31,875 7,500 31,875
1974 1974 3.375 8,525 28,772 8,525 28,772
1974 1974 2.75 23,925 65,794 23,925 65,794
1974 1975 2.75 45,000 123,750 45,000 123,750
1974 1977 2.75 2,500 6,875 2,500 ~
87,450 257,066 123,550 372,135
1975 1979 2.50 95,000 237,500 95,000 237,500
1976 1979 3.875 36,100 139,888
131,100 377,388 95,000 237,500
218,550 $634,454 218,550 $609,635
All options granted expire five years after date of granting. There
were 68,900 shares under the 1975 plan available for granting at
December 31, 1976.
At December 31, 1976 and 1975 there were outstanding warrants
to purchase 2,649,061 shares of common stock. These warrants
resulted from public offerings prior to 1973 and from financial
transactions as discussed in note B(d) and (g). All warrants enable
the holder to purchase common stock at $5.50 per share and must
be exercised by October 31, 1979.
During January 1977, the Board of Directors declared a $.12 per
share dividend payable on March 1, 1977 to shareholders of record
on February 15, 1977. The company paid cash dividends of $.10 per
share to its shareholders during the first quarter of 1976 and 1975.
Note H - Public Service Revenues - As a local service carrier, the
company receives public service revenues for serving small and
intermediate size communities which do not generate sufficient
traffic to fully support profitable air service. The amount of such
payments is determined by the CAB on the basis of its evaluation of
the amount of revenue needed to meet operating expenses and
provide a reasonable return on investment with respect to eligible
routes. The amount so determined is reduced by a portion of the
company's earnings on routes not eligible for public service reve-
nue, when these earnings exceed the prescribed maximum return
on investment as set by the CAB. The CAB adopted Class Rate VIII
effective as of July 1, 1976. It provides for semiannual review of
the company's public service revenue rate and has no specified
expiration date.
Note I - Pension Costs - Total pension expense was $5,282,000
for 1976 and $4,489,000 for 1975. At January 1, 1976, the latest
actuarial valuation date, the total market value of fund assets ex-
ceeded the actuarially computed value of vested benefits for all
plans by $885,000.
The Pension Reform Act of 1974 is not expected to have a signifi-
cant effect on the company's pension expense, funding or unfunded
vested benefits.
Note J - Income Taxes - Income tax expense for the years ended
December 31 consists of the following:
1976 1975
Current income taxes
Federal .. . .. ... ....... . .... . . . .. .... $3,489,000
Investment tax credit used in current year (1,757,000)
Investment tax credit carried back to
prior year . . .. . ............. .. . . ... __ _
State and local .. .. . .. .. . . ... . .. .. . .. .
Deferred Income taxes
Federal . ... . ... .. . . . . . . . . . ... . .. . . . .
Investment tax credit . ... . ........... .
State and local . . ...... . . . .. .. . .... . . .
1,732,000
437,000
2,169,000
1,471,000
(881,000)
590,000
181,000
771,000
$2,940,000
$1,675,000
(811,000)
(918,000)
(54,000)
226,000
172,000
418,000
(1,013,000)
(595,000)
83,000
(512,000)
$ (340,000)
Income taxes of $2,940,000 in 1976 and $(340,000) in 1975 (effective
rates of 28.3% and (7.0%) respectively) are less than those ex-
pected to result by application of the federal income tax rate of
48% to income before taxes. The reasons for these differences are:
1976 1975
Computed "expected" tax expense . . . . . . . . . . $4,986,000 $2,344,000
Increase (decrease) in income taxes
Investment tax credit utilized . . . . . . . . . . (2,638,000) (2,742,000)
State and local income taxes net of
federal income tax benefit ..... . .... .
Other ......... . .. . .......... . .... . . .
470,000
122,000
$2,940,000
161,000
(103,000)
$ (340,000)
Deferred incor.1e taxes arise from timing differences between finan-
cial and tax reporting. The tax effects of these differences follow:
Increase (decrease) in deferred income 1976 1975
tax expense
Capitalized interest .......... . ... .. .. . $ 324,000 $ 403,000
Lessor leasing activities ... .. .... . .. . . . 473,000 311,000
Depreciation ..... . ............ .. . .. . . 690,000 136,000
Pension . . ...... .. . .... .. .... ... .... . (306,000)
Training and development ............. . 70,000 (147,000)
Investment tax credit ... . ............. . (881,000) (1,013,000)
Other .. .. .. .. . ................. . . . . 95,000 104,000
$ 771,000 $ (512,000)
For federal income tax reporting purposes, investment tax credits
of $5,617,000 are available to offset future income taxes payable
through 1983. Of this amount $1,894,000 has been recognized for
financial reporting purposes as an offset to deferred income taxes
payable through December 31, 1976.
During the fourth quarter of 1975 the company generated more
investment tax credits than were anticipated earlier in the year.
Part of the additional credits were generated by establishing an
employee stock ownership plan. The company received an addi-
tional investment tax credit of approximately $580,000 in 1976 and
$250,000 in 1975 by contributing the same amount to the plan.
During the fourth quarter of 1976, the Tax Reform Act of 1976 was
enacted into law. The amount of investment credit that could previ-
ously be claimed was limited to approximately 50% of the com-
pany's tax liability through 1976. Beginning in 1977, a special
provision under the new law will allow the company to offset their
Federal tax liability by the following approximate percentages (sub-
ject to the availability of sufficient investment tax credits):
Maximum
Year Percentage
1977 .............. . .......... . . . .... . . . ... . .. 100%
1978 .......... . ... . ... . ...... . .... .. ......... 100
1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
1980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
1983 (and I ater yea rs) . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
The Internal Revenue Service has examined and cleared the com-
pany's federal tax returns through December 31, 1974.
Note K - Net Earnings Per Share - Net earnings per share is based
on the weighted average number of shares outstanding for the year
(12,164,423 in 1976 and 12,212,427 in 1975). Conversion of de-
bentures into common stock, exercise of stock options and warrants
to purchase stock would not result in material dilution of net earn-
ings per share for the years ended December 31, 1976 and 1975.
Note L - Selected Quarterly Financial Data (unaudited) - The un-
audited quarterly results of operations for each of the four quarters
ended in 1976 are presented on page 21 of this annual report and
are incorporated by reference into this note.
supplemental stockholder information
Quarterly Statement of Earnings
(unaudited - in thousands of dollars)
1976
Three Months Ended
December 31 September 30 June 30
OPERATING REVENUES
Passenger ... . .. . . . ...... ..... .. $41,229 $43,369 $38,677
Pub I ic service revenues ........ ... 3,151 3,415 3,410
Other .. . . . ... . .... . . .... . . . . ... 5,990 4,753 4,988
50,370
OPERATING EXPENSES
51,537 47,075
Flying operations and maintenance . . 22,287 21,464 20,817
Other operating expenses . . .. . ..... 21,744 21,032 20,323
Depreciation and amortization .... . . ~ 2,548 2,377
46,646 45,044 43,517
OPERATING PROFIT (LOSS) .. . . .... . . . 3,724 6,493 3,558
OTHER EXPENSES- net .. . . . . . ... . . . 1,077 932 ~
EARNINGS (LOSS) BEFORE TAXES .... .. 2,647 5,561 2,552
Income taxes (credit) ....... . .. . . . 702 1,628 701
NET EARNINGS (LOSS) . .. . ... . . . . ... . $ 1,945 $ 3,933 $ 1,851
NET EARNINGS (LOSS) PER SHARE .... . $.16 $.32
DIVIDENDS PER SHARE ........... .. .
STOCKHOLDER DISCLOSURE OF OWNERSHIP
The company is required by 245.16 of the Civil Aeronautics Board
Economic Regulations to include in its annual report to stockholders
the following notice:
(1) Any person who either owns, as of December 31, of the year
preceding issuance of such annual report, or subsequently ac-
quires, beneficially or as trustee, more than 5 percent, in the
aggregate, of any class of the capital stock or capital of the air
carriei, shall file with the Board a report containing the infor-
mation required by 245.12, on or before April 1, as to the
capital stock or capital owned as of December 31, of the pre-
ceding year, and in the case of stock subsequently acquired, a
report under 245.13, within 10 days after such acquisition or
ownership;
(2) any bank or broker covered by (1), to the extent that it holds
shares as trustee on the last day of any quarter of a calendar
year, shall file with the Board, within 30 days after the end of
the quarter, a report in accordance with the provisions of
245.14; and
(3) any person required to report under this subpart who grants a
security interest in more than 5 percent of any class of the
capital stock or capital of the air carrier shall within 30 days
after granting such security interest file with the Board a report
containing the information required in 245.15. The notice shall
also state that any stockholder who believes that he may be
required to file such a report may obtain further information by
writing to the Director, Bureau of Operating Rights, Civil Aero-
nautics Board, Washington, D. C. 20428.
FORM 10-K REPORT
For the Form 10-K report to the Securities and Exchange Commis-
sion, write to Mr. John P. Dow, Secretary, North Central Airlines,
7500 Northliner Drive, Minneapolis, MN 55450.
$.15
1975
Three Months Ended
March 31 December 31 September 30 June 30 March 31
$33,884 $35,587 $38,487 $33,066 $28,524
3,320 3,334 3,358 2,782 2,751
4,922 4,769 3,862 ~ 3,683
42,126 43,690 45,707 39,229 34,958
20,187 19,698 19,119 18,294 17,561
19,550 20,414 19,115 17,228 16,762
~ 2,074 2,148 ~ 1,983
41,873 42,186 40,382 37,489_ 36,306
253 1,504 5,325 1,740 (1,348)
626 719 695 471 452
- - - -
(373) 785 4,630 1,269 (1,800)
(91) (1,089) 939 490 (680)
$ (282) $ 1,874 $ 3,691 $ 779 $(1,120)
$(.02) $.16 $.30 ~ $(.09)
$ .10 $ .10
GENERAL DESCRIPTION OF THE IMPACT OF INFLATION
(unaudited)
The impact of inflation on the company's operating expenses has
been generally greater than the corresponding change in the gen-
eral price level, particularly in the areas of fuel and labor costs.
However, the company has historically been able to compensate
for cost increases by increased fares and improved operating effi-
ciencies in amounts sufficient to maintain profitable operations.
The company, regulated by the CAB, is unable to determine what
fare and rate increases might be approved in the future to keep
pace with rising costs.
Although the cumulative impact of inflation over a number of years
has resulted in higher costs for replacement of existing flight equip-
ment and property, such inflationary increases have partially been
offset by technological improvements and design changes which
often result in increasing the productivity of the newer asset
additions.
The company's annual report on Form 10-K (a copy of which is
available on request) contains additional quantitative information
with respect to the estimated replacement cost of inventories and
flight equipment and property at December 31, 1976, and the related
estimated effect of such replacement costs on depreciation expense
for the year then ended.
STOCK MARKET QUOTATIONS
The following tabulation sets forth the price range for the com-
pany's common stock which is traded on the New York Stock Ex-
change and the Midwest Stock Exchange.
1976 1975
~h_ Low High Low
1st Quarter . . . . . . . . . . . . . . . . 4 23/s
2nd Quarter . . . .. .. ..... . .. . 3 31/s
3rd Quarter . . . .... .. .. . .. . . 41/s 31/s
4th Quarter .. .. .. .... . .. . .. 4 3
33/s 23/s
3 2%
3 2
2% 2
21
PASSENGER MILES
{MILLIONS) {BILLIONS) {BILLIONS) {MILLIONS)
130---
160 -
1972 '73 74 1972 '73 '74
five-year summary
EARNINGS
OPERA Tl NG REVENUES 1976 1975 1974 1973 1972
Passenger .... ..... .... . ...... ......... $157,159,000 $135,664,000 $124,007,000 $104,279,000 $ 99,260,000
Public service revenues .................. 13,296,000 12,225,000 12,126,000 9,631,000 9,090,000
Other ....................... ... ....... 20,653,000 15,695,000 15,357,000 14,073,000 12,903,000
191 ,108,000 163,584,000 151,490,000 127,983,000 121,253,000
OPERATING EXPENSES
Flying operations and maintenance ...... . 84,755,000 74,672,000 59,060,000 48,480,000 46,732,000
Other operating expenses ..... .......... . 82,649,000 73,519,000 66,419,000 60,152,000 55,176,000
Depreciation and amortization ............ 9,676,000 8,172,000 8,017,000 7,350,000 6,990,000
177,080,000 156,363,000 133,496,000 115,982,000 108,898,000
OPERATING PROFIT ...... ......... .. ..... 14,028,000 7,221 ,000 17,994,000 12,001 ,000 12,355,000
OTHER EXPENSES (INCOME)
Interest expense . .. ..... . .... .... ....... 5,174,000 3,611 ,000 3,868,000 3,623,000 3,229,000
Capitalized interest ..................... (843,000) (757,000) (341,000) (142,000) (14,000)
Interest income and other-net ............ (690,000) (517,000) (1,229,000) (690,000) (256,000)
3,641,000 2,337,000 2,298,000 2,791,000 2,959,000
EARNINGS BEFORE TAXES ................ 10,387,000 4,884,000 15,696,000 9,210,000 9,396,000
Income taxes .. .... . ... .. ............... 2,940,000 (340,000) 7,492,000 2,763,000 2,903,000
EARNINGS BEFORE EXTRAORDINARY GAIN. 7,447,000 5,224,000 8,204,000 6,447,000 6,493,000
Extraordinary gain on disposition of
equipment (net of income taxes) . ........ 1,043,000
NET EARNINGS . .. . .. . ... ..... . ..... ... .. $ 7,447,000 $ 5,224,000 $ 8,204,000 $ 6,447,000 $ 7,536,000
NET EARNINGS PER SHARE ....... $ .61 $.43 $.66 $.52 $.60
DIVIDENDS PER SHARE .. ...... ... $ .10 $.10 $.10 $.05
BALANCE SHEET ITEMS
Current assets .. . .... .... ................. $ 42,012,000 $ 35,233,000 $ 38,622,000 $ 34,164,000 $ 33,806,000
Working capital from operations ............ $ 19,026,000 $ 12,868,000 $ 18,784,000 $ 14,176,000 $ 14,263,000
Working capital at year-end ................ $ 3,952,000 $ 1,803,000 $ 4,859,000 $ 4,654,000 $ 5,439,000
Property and equipment-net ............... $131 ,940,000 $ 94,134,000 $ 73,892,000 $ 76,324,000 $ 59,143,000
Total long-term debt ....................... $ 76,976,000 $ 45,909,000 $ 32,633,000 $ 42,172,000 $ 36,327,000
Retained earnings ................... . .... $ 37,288,000 $ 31 ,039,000 $ 27,044,000 $ 20,086,000 $ 14,262,000
Stockholders' equity ... ... . ............... $ 57,033,000 $ 50,565,000 $ 47,152,000 $ 40,611,000 $ 34,787,000
Shares outstanding . . ............. ........ 12,178,000 12,098,000 12,312,000 12,463,000 12,463,000
Book value per share ...................... $4.68 $4.18 $3.83 $3.26 $2.79
STATISTICS
Passengers .............................. 4,969,000 4,581,000 4,546,000 4,263,000 4,319,000
Passenger miles (000) .... ...... ........... 1,179,000 1,072,000 1,061,000 1,012,000 1,029,000
Available seat miles (000) . ......... ........ 2,444,000 2,235,000 2,151,000 2,139,000 2,048,000
Passenger load factor ..................... 48.2% 48.0% 49.3% 47.3% 50.3%
Cargo ton miles .. . ....................... 13,052,000 11 ,703,000 12,585,000 13,394,000 12,181 ,000
Revenue plane miles ...... ................ 30,810,000 29,748,000 29,055,000 29,422,000 29,200,000
Number of employees ..................... 3,600 3,410 3,360 3,250 3,120
23
24
communications
An aggressive advertising and
promotion effort introduced North
Central 's new Detroit-Boston nonstop
service.
Millions of potential air travelers
were told of the airline's jet schedules,
inflight service, two and three-abreast
seating , and other benefits supporting
the theme, " You never had it so good."
The message was carried in full -
color newspaper, magazine and
billboard ads, TV/radio commercials,
personal sales calls, direct mail
pieces, colorful printed material , and
news releases plus promotional
flights and audio-visual presentations.
The campaign , centered in Detroit
and Boston , covered 24 cities.
News releases and promotional items
were distributed system-wide to
inform the general public in other
cities and company employees.
To stimulate recreational air travel ,
skiing dominated fall and winter
advertising in 1976. Primary emphasis
was placed on North Central 's
Denver service - including a new
interline connection from Buffalo via
the Twin Cities and special tour
packages in the Colorado Rockies.
Ski areas served by the airline in the
Upper Midwest and Canada were
also promoted .
The " Ski Tips " booklet and eight-
minute movie, offering advice from
professional skier Jake Hoeschler,
have both received extensive
distribution. Nearly three million
people have seen the film on TV or in
person since the movie was produced ,
and 50,000 copies of the booklet
were printed for the 1976-77 season .
Sales personnel appeared before
numerous ski and travel groups in
prime markets.
New films were prepared on fishing
in the northern lake country. Several
vacation packages were arranged
with tour operators, and ads
encouraged fishermen to fly to their
favorite spots.
As a test program , the company
developed a " City Profile" manual
for Milwaukee travel agents. A variety
of information on New York City
was assembled in one book, providing
easy references to assist the tourist
or business traveler. The approach
was well received and is being
expanded to other markets.
A major campaign announced the
inauguration of North Central 's new
125-passenger DC-9-50 jets in
April 1976. Newspaper, TV and radio
ads, brochures, familiarization
flights , and news releases publicized
the new aircraft.
The company's business progress
was reported to the news media
through 50 general and special
releases. Financial , passenger and
cargo statistics are given out monthly.
North Central was the subject of
feature stories in Barron 's, The Wall
Street Journal and several other
major newspapers, plus Better
Investing , Commercial West, and
Corporate Report magazines.
Company officers are also making
presentations to members of the
investment community in selected
cities each month.
The 1975 Annual Report, North
Central 's principal communication
with stockholders and potential
investors, received a Merit Award
from Financial World magazine for the
fourth consecutive year. Quarterly
reports provide interim financial
information and update
company operations.
Company sales people made over
25,000 personal calls on travel
agencies and businesses with
frequent air travelers. They were
also active as participants or guest
speakers at 1,500 civic, industry
and special-interest functions.
The airline's tour program attracted
over 5,700 visitors to the General
Office and Main Operations Base.
Events held in the employee cafeteria,
most of them catered by the Flight
Kitchen , gave an additional 15,500 a
look at North Central 's headquarters.
Civic and business leaders from
various cities on the system are
periodically flown to Minneapolis/
St. Paul to tour the company's
facilities and discuss air service to
their communities.
Employees receive company news
from The Northliner newspaper,
another award-winning publication ,
a weekly report called " The Message,"
periodic memos, bulletin boards,
and " instantly" through ESCORT, the
airline's communications system.
Company officers are continuing
their yearly visitation program of
informal meetings with employees
at each station.
Aboard the aircraft, the Northlin er
Magazine entertains and informs
passengers. Each issue carries a story
about the airline and corporate
advertising . The magazine has
recently been expanded to 48 pages
and is being published bimonthly in
1977, rather than quarterly.
Again the company wishes to
acknowledge the promotional
contributions of its many friends
and associates whose efforts provide
immeasurable benefits to North
Central Airlines.
Jim Palm, regional traffic and sales
manager, p resents North Centra/'s
new "City Profile" manua l to a
travel agent.
cNorth Central Airlines
Snonsq, jets between
Detroit and Bostoq,
(with direct or connecting service to over 40 other cities)
We'll steak our breakfast
against anyone's -
steak and eggs!
Good news! A
complimentary
morning
paper.
Explore our Explorer's Bill of
Fare dinners ... featuring
recipes from famous
Colonial inns.
orning eye-openin
rprise ... gigantic
yMary
In Boston, we're located
in the North Terminal
with DELTA, TWA and
UNITED.
Detroit to Boston
Lv. 8:05 a. m. Ar. 9:37 a. m.
2:20 p.m. 3:52 p.m.
5:15p.m. 6:47p.m.
8:30 p.m. 10:02 p.m.
Refreshing
hot towel service before
breakfast and dinner.
Nobody flies second class
either - just one kind of
service. The best!
Boston to Detroit
Lv. 7:50 a. m. Ar. 9:35 a. m.
10:25a.m. 12:10p.m.
4:35 p.m. 6:20 p.m.
7:30 p.m. 9:15 p.m.
That's our Custom
Jet Service .. . at
coach fares!
Call your travel agent
or North Central Airlines
NORTH CENTRAL AIRLINES
NORTH CENTRAL AIRLINES, INC .
7500 NORTHLINER DRIVE MINNEAPOLIS , MINNESOTA 55450