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 $3.2 million the first year. Boston is an international gateway to Europe. It is a good business market and also offers attractions for th e lucrative, leisure-travel field . Th e company's passenger traffic is now 27 percent pleasure-oriented, and efforts are being made to boost that share while still attaining growth in business travel. The airline also feels it has an excellent chance of being awarded other routes now under consideration by the Civil Aeronautics Board. According to most leading indicators, the national economy should have moderate growth in 1977. On that assumption , and adding traffic from new routes, North Central anticipates passenger and cargo gains of approximately eight percent. Any fare increases will be closely tied to rising costs- particularly fuel and wages. Two labor contracts are to be negotiated in 1977, and the four others extend into the next year or North Central flights to Boston-Logan International Airport arrive at the North Terminal (center), and passengers use the left concourse. Service began January 3, 1977. The city of Boston is in the background. beyond. The company has never had a work stoppage, and expects to reach equitable agreements with all unions. While Congress is considering some degree of regulatory reform in the airline industry, the end result cannot be predicted . The company favors more flexibility in setting fares and expedited procedures for granting routes. The success of any company ultimately hinges on its ability to maintain strict cost control and achieve maximum productivity. North Central will continue to meet these requirements, while providing safe, dependable airline service. The company forecasts a substantial profit again in 1977. 11 DEVILS LAKE FARGO MOORHEAD NORFOL.$- __. ---=--- -- - ----- ---- -- - - -- ---- ---- ---- ---- --- --::::..-- --~-- ---:::.-- -- ~-.:::,.,~--- I I I KANSAS CITY \ \ ' ' ' \ \ ' \ \ ' \ \ ' \ ' \ \ CHIC I I I I I I I I I I I I SAULT STE. MARIE ROUTE OF THE NORTHLINERS / / / / / / / / / / MONTREAL ... / / / --------- BOSTON NEW YORK NEWARK ............ __ ...... ~~--- ........ ' ------------- ...... ...... ----- PHILADELPHIA .................. __;;.-e """~--:::::::~--- _,,.- -- -- -- ;; .:;,-r- ............... -- - - - - :: - - - -- ' , BALTIMORE ---- --- -- ...... ~ TON .CGLt1Mt3US- ------ --+-- - I ______ .,,.,,..,,,,.. I --- --1- \CINCINNATI \ I \ I \ I PRESENT ROUTES - PROPOSED ROUTES --- \ \ I ', \ I L.__ ____________ ___ ____________ 7 \ - l-~1----------, ~~r------------- ---,;,;__--t-;--------.L...--__.___,,... \ I I \I I I " I \I I I MEMPHIS e I .ATLANTA I / I I I 1 I/ I I/ DALLAS ' l : FT. WORTH . I NEW OR .EANS. 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