North Central Airlines Annual Report 1977

ANNUAL REPORT 1977
NORTH CENTRAL AIRLINES
} I
NORTH CENTRAL AIRLINES
1soo northliner drive, minneapolis, minnesota
board of directors
Hal N. Carr
Chairman of the Board
North Central Airlines
Eric Bramley
Retired Editor
Aviation Daily
(aviation industry news service)
G. F. DeCoursin*
President
April Company
(manufacturer and distributor
of seasoned food products)
Chan Gurney
Retired Member
Civil Aeronautics Board
John M. Lawrence Ill
Partner in law firm of
Lawrence, Thornton ,
Payne & Watson
management
Samuel H. Maslon
Partner in law firm of
Mas/on, Kaplan , Edelman,
Borman, Brand & McNulty
Theodore R. Miles
President and
Chief Executive Officer
Stange Co.
(manufacturer and d1stnbutor
of food products)
Jay Phillips
Chairman of the Board
Ed. Phillips & Sons Co.
(wholesale beverage d1stnbutor)
Morton B. Phillips
Chairman of the Board
Westland Capital Corporation
(small business ,nvestment
corporation)
Joseph E. Rapkin
Partner in law firm of
Foley & Lardner
Henry M. Ross
President
Ross Industries, Inc.
(machinery manufacturer)
Bernard Sweet*
President and
Chief Executive Officer
North Central Airlines
Kenneth B. Willett
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 Strangis . . ... .... ... . ....... .. . ... .. . 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
ANNUAL MEETING: REGISTRARS AND STOCK TRADING:
Wednesday, April 5, 1978
Wausau , Wisconsin
STOCK TRANSFER AGENTS:
Common stock and warrants
traded under symbol NCA
AUDITORS:
Alexander Grant & Company
Citibank, N.A.
New York, New York 10022
Northwestern National Bank
Minneapolis, Minnesota 55480
New York Stock Exchange
Midwest Stock Exchange
highlights
OPERATING REVENUES .... .. . . . . ... .. .......... . ... .... . .. . ... ... .
OPERATING PROFIT . .................. . .................... .... ... .
NET EARNINGS .. ....................... .. . .. .. .. .. .. ... . ..... .
NET EARNINGS PER SHARE ....................... .. .............. .
DIVIDENDS PER SHARE ............... .. ... ..... . . . ... ... .. ....... .
WORKING CAPITAL FROM OPERATIONS . . . ...... . .. .. ... .. ....... .
RETAINED EARNINGS .. .................. . ................ . . . . . ... .
STOCKHOLDERS' EQUITY ............ ..... ........ . .. . ............ .
PASSENGERS .... ................... . .... . . .. . ... ... ......... ..... .
PASSENGER MILES .......... . .. .. ..... . ........................ . . .
CARGO TON MILE S . . . . ...... .... . ... ......... .... . ................ .
thirty years of service
McDonnell Douglas DC-9
Loe kheed 1 0A
1948-1951
Douglas DC-3
1951-1969
North Central Airlines, a regional scheduled carrier linking
intermediate-sized cities with major metropolitan areas, has
completed thirty years of service . Its principal function is to provide
safe, dependable air transportation .
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.
1977
$ 229,123,000
$ 18,535 ,000
$ 13,696,000
$1 .11
$ .12
$ 28,505 ,000
$ 48,957,000
$ 69 ,280,000
5,547 ,000
1,392 ,406 ,000
13,998 ,000
1976
$ 191 ,148,000
$ 14,689,000
$ 7,679,000
$.63
$.10
$ 21 ,217,000
$ 36 ,740 ,000
$ 56 ,485,000
4,969 ,000
1,179,144,000
13,052 ,000
Convair 580
~
Convair 340 / 440
1959-1969
Change
19.9%
26.2
78 .4
76.2
20.0
34.3
33 .3
22.7
11 .6
18.1
7.2
The company has operated profitably for 23 years since 1954,
when present management was brought in. Its fleet of
53 jet-powered aircraft makes 650 departures a day over the
10,900-mile route system . Computerized reservations and
ticketing provide efficient passenger handling.
Now in its thirty-first 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 3,850 dedicated employees offer the traveling
public the finest type of regional airline service.
2
to our stockholders, employees and friends:
Net earnings of $13,696,000 highlight North Central's
many record accomplishments in 1977. The airline
generated $229,123,000 in revenues, carried 5.5 million
passengers 1.4 billion passenger miles, and flew
14 million cargo ton miles.
Bernard Sweet Hal N. Carr
Significant gains were attained in all areas. The
$13. ?-million net profit was 78 percent over the
$7,679,000 for 1976, and 66 percent greater than
the previous high of $8,250,000 in 1974. Revenues,
which have increased in each of the 30 years since
scheduled operations began, jumped 20 percent.
Passenger boardings were up 12 percent, and
passenger miles climbed 18 percent. Cargo ton miles
were seven percent ahead of 1976.
Several factors contributed to these outstanding
results. Traffic was stimulated by the national economic
growth, new Detroit-Boston nonstops, improved
scheduling , and the professional service provided
by North Central's employees. Financially, the company
benefited from fare increases, favorable provisions in
the 1976 Tax Reform Act, retroactive mail pay,
and disposition of equipment.
In the regional airline industry, North Central's consistent
financial performance is unmatched. The company
has operated profitably for 23 years since 1954, when
present management was brought in, and leads the
regional carriers with retained earnings of $48,957,000.
This achievement has permitted annual cash dividends
to be paid for six consecutive years. The Board of Directors
recently increased the dividend 33 percent, and
stockholders of record on February 16, 1978, received
$.16 per share of common stock.
While revenues reached $229,123,000, operating
expenses rose 19 percent to $210,588,000. The
$18,535,000-operating profit was 26 percent higher
than in 1976. Other expenses and other income,
primarily interest, were down to $3,835,000. The
$6,949,000 in interest expense, directly related
to financing new jet aircraft, was partially reduced by
a $2, 705,000-gain on disposition of equipment and
$409,000 of other income. Earnings before taxes
reached $14,700,000.
Investment tax credits, available to the company
because of equipment purchased in 1976 and 1977,
offset the current Federal income tax liability, while state,
local and deferred taxes amounted to $1,004,000.
Total income taxes for 1976 were $3,040,000. With the
1977 net earnings of $13,696,000, earnings per share
jumped to $1 .11 from $.63 in 1976.
The record year boosted stockholders' equity 23 percent
to $69,280,000 and raised book value per share to
$5.62. Even with $24,978,000 in additional loans to
finance new aircraft, the company's debt/equity
ratio is 1.21 to 1- still one of the best in the
entire airline industry.
Besides carrying record annual traffic of 5,547,065
passengers, new highs were set for a single month and
day. The airline flew 538,618 passengers in August
and 25,386 on December 23. Also, Chicago became
the first city at which North Central boarded one million
people in one year.
The company successfully introduced its Detroit-Boston
service in 1977, with traffic and revenues ahead
of projections.
The Civil Aeronautics Board recently announced that
a tentative decision is to be drafted granting North Central
permissive nonstop authority between Detroit and
Atlanta. In another decision, the Board awarded the airline
Cincinnati-Philadelphia nonstop service. The company
plans to inaugurate flights on these two routes in
the summer of 1978, and they should provide significant
operating profits. In addition, North Central has been
recommended for Detroit-Baltimore and Minneapolis/
St. Paul, Milwaukee-Memphis.
Further expansion is being sought through other
route applications involving 24,941 miles and 22 new
cities, plus broad authority between numerous Caribbean
destinations and U.S. points. The CAB may conclude
some of these cases in 1978. North Central presently
serves 90 cities in 14 states and two Canadian provinces
on a 10,900-mile route system.
Five DC-9-50s were added to the airline's jet-powered
fleet in 1977. Another seven will be received in 1978.
The company has ordered three more for delivery
in early 1979 and has an option on three for late that
year. Three Convair 580 prop-jets were sold in 1977, and
two others may be sold in the months ahead. By the
end of 1978, North Central plans to have a 58-aircraft
fleet- 35 DC-9s and 23 Convair 580s.
As a corporate citizen, North Central is aware of its
responsibilities to people and the environment. During
1977, the airline's Equal Employment Opportunity
and Affirmative Action programs placed members of
both sexes in virtually every job category and increased
minority employment 16 percent. In addition, energy
conservation efforts saved over four million gallons of
aviation fuel while producing smoother, quieter flights.
North Central gratefully acknowledges the valuable
contribution of H.P. Skoglund, a director since 1964.
This prominent Twin Cities business and civic
leader served the airline in that capacity until his
death in November 1977.
For three decades, the company's greatest assets
have been its dedicated employees and its loyal
stockholders, customers and friends. Knowing this
support will continue and encouraged by the prospect
of new routes, North Central looks forward to substantial
profits in 1978.
Hal N. Carr
Chairman of the Board
March 6, 1978
Sincerely,
Bernard Sweet
President and
Chief Executive Officer
3
4
financial review
Record net earnings of $13,696,000
were achieved by North Central in
1977. This exceeded the previous high
of $8,250,000 in 197 4 by 66 percent,
and was 78 percent ahead of the
$7,679,000 for 1976. Revenues jumped
20 percent to a record $229,123,000 .
North Central has now operated
profitably for 23 years since 1954,
when present management was
brought in . The company has retained
earnings of $48,957,000-highest
among the regional airlines .
The $229 million in 19-77 revenues
surpassed the previous record
of $191 million set a year earlier.
Operating expenses, including
depreciation and amortization of
$14,590,000, were up 19 percent
to $210,588,000 from $176,459,000 .
The operating profit increased
26 percent to $18,535,000 from the
$14,689,000 in 1976.
Other expenses, primarily interest,
dropped three percent to $3,835,000
from $3,970,000 in 1976. The
$6,949 ,000 in interest expense,
directly related to financing new jet
aircraft, was partially reduced by
a $2, 705,000-gain on disposition of
equipment and $409,000 of other
income.
Under provisions of the 1976
Tax Reform Act, North Central is
entitled to investment tax credits of
New York City tours, available through North Central and travel
agents, feature sightseeing, elegant dining and Broadway shows.
$10,298,000 as a result of equipment
purchased in 1976 and 1977.
Most of these credits were used to
offset 100 percent of the current
Federal income tax liability. State ,
local and deferred taxes were
$1,004,000 . For 1976, total income
taxes were $3,040,000.
The 1977 net earnings of
$13.7 million , or$1 .11 per share,
are significantly better than the
$7. 7 million, or $.63 per share, the
previous year. For the period 1973
through 1977, earnings have exceeded
$5 million each year, and average
annual earnings are $8.3 million.
Stockholders' equity climbed
23 percent to a record $69,280,000.
With 12,328,158 shares of common
stock outstanding , book value has
increased to $5.62 per share,
from $4.64 in 1976. The company's
debt/equity ratio of 1.21 to 1
continues to be one of the best in the
entire airline industry.
In January 1978, the Board of Directors
declared an annual cash dividend .
Stockholders of record February 16,
1978, were paid $.16 per share,
up 33 percent from $.12 per share
in 1977. North Central is the only
regional carrier to have paid a cash
dividend in each of the last six years.
Diversified activities in 1977
generated $4 million in revenues
not related to airline service. This
income was derived primarily from
leasing aircraft and computers to
other companies and from the sale
of surplus time on North Central
equipment.
A summary of trends in financial
performance and traffic growth from
1973 through 1977 appears on
Page 23 . Supplemental stockholder
information, including quarterly
statements and stock quotations for
the last two years, is carried on
Page 21 .
Planning ahead , the company
arranged for equipment trust
certificates to finance six DC-9-50
fan jets scheduled for delivery in
1978. The new DC-9-50s will increase
capacity to accommodate anticipated
traffic gains and make other jets
available for possible route awards.
A new CAB policy permits known
future costs to be used when
calculating requested fare increases.
This change will help the airline
recover most costs as they occur,
and minimize regulatory lag.
North Central's excellent financial
condition strengthens its prospects for
future development. New routes ,
fare adjustments, and traffic growth
should boost revenues. With continuing
cost control and the availability of
investment tax credits, the company
expects to attain a substantial profit
in 1978.
A Colorado Summer tour offers a variety of
leisure activities -from backpacking to authentic
ranch vacations -and North Central
can make all arrangements.
MAJOR FACTORS OF CHANGE IN REVENUES AND EXPENSES
The Variance Analysis table below
summarizes the major changes
in revenues and expenses which have
occurred in the company's operation
over the past two years .
The $38-million jump in revenues
for 1977 was due largely to record
traffic. Passenger revenues
accounted for $29.5 million , which
included $10 million from the new
Detroit-Boston route and $5.1 million
from fare increases. Cargo and
other revenues rose $8.7 million. Of
that amount, the company derived
$2.6 million from higher mail pay rates,
(of which $1 .9 million relates to
prior years) , $2.5 million in new air
freight business , $2 million in
additional charter operations, and
VARIANCE ANALYSIS
Net Changes
1977-1976 1976-1975
MAJOR FACTORS OF CHANGE:
Operating revenues
Passenger miles ................... .
Passenger fares ................... .
$24,400,000 $11 ,400,000
5,100,000 10,100,000
Public service revenues ............ . (200,000) 1,100,000
Cargo and other revenues .......... . 8,700,000 4,900,000
Net revenue changes ........... . 38,000,000 27,500,000
Operating expenses
Labor and employee benefits ..... ... .
Cost of aircraft fuel . ................ .
14,300,000 10,200,000
7,700,000 3,400,000
Parts, supplies and services .... ..... .
Landing fees and rent .. . ..... ... ... .
Passenger service and promotion ... .
Mutual Aid payments . .............. .
Other expenses ............ . ...... . .
Depreciation .... ... .......... .. .... .
2,800,000 2,300,000
1,400,000 1,600,000
3,400,000 1,300,000
(100,000) (1 ,100,000)
1,700,000 1,400,000
3,000,000 1,500,000
Net expense changes .......... . 34,200,000 20,600,000
Change in operating profit . 3,800,000 6,900,000
Other expenses (income)
Gain on disposition of equipment .... .
Interest income and other ... ... ..... .
2,500,000 200,000
(100,000)
Interest expense . ....... . ...... .. .. .
Income taxes .............. . . .... .. .
2,200,000 1,300,000
(2,000,000) 3,400,000
Net other changes .............. . (2,200,000) 4,500,000
Change in net earnings .... . $ 6,000,000 $ 2,400,000
$1.6 million from miscellaneous
activities.
Operating expenses rose
$34.2 million in 1977, compared
with $20.6 million the previous year.
The introduction of Detroit-Boston
nonstop service, the acquisition of new
aircraft, and the impact of inflation
accounted for the rise in expenses.
Labor and employee benefits
increased $14.3 million , or
18 percent, as total employment rose
seven percent, and both pay scales
and pension requirements were up.
The company has 3,850 employees.
Aviation fuel expenses were boosted
$7.7 million by rising prices and
the increase in plane miles flown .
Inflation affected landing fees and
the cost of parts, services and
supplies. The climb in depreciation
and interest is directly related to the
addition of new DC-9-50 jets.
Under other expenses (income) , the
sale of aircraft was the principal
reason for the increase of $2.5 million
in the gain on disposition of equipment.
Interest expense, up $2.2 million,
reflects the cost of financing new jets.
Terms of the 1976 Tax Reform Act
permitted the company to offset the
current Federal income tax liability
with investment tax credits generated
by the purchase of new equipment.
This provision accounts for the
$2-million decrease in income taxes,
even though earnings before
taxes rose significantly in 1977.
The combined effect of all these
factors was the substantial $6-million
improvement in net earnings.
5
6
Boston's "Freedom Trail" is one of
the many historic attractions included
in North Central's tours of New England.
Canadian Wilderness adventures highlight
North Central's many fishing tours.
traffic growth and performance
Numerous passenger and cargo
traffic records were set by
North Central in 1977. Foremost
were the 5.5 million passengers,
1.4 billion passenger miles and the
14 million cargo ton miles flown
for the year.
These accomplishments are
attributable to an improving national
economy which stimulated business
and leisure travel , greater capacity
from new DC-9 fan jets, improved
scheduling,and first-year business on
the Detroit-Boston route.
Passenger traffic for 1977 was
the best in North Central's history.
Boardings increased 12 percent
to 5,547,065. Passenger miles jumped
18 percent to 1.4 billion - about
the same as taking each person in the
cities of Boston, Detroit and Chicago
on a 250-mile flight. In 1976, the
airline carried 4,969,264 passengers
and flew 1.2 billion passenger miles.
The company achieved its best
single day and month with 25,386
passengers on December 23
and 538,618 in August. Chicago
became the first city at which
North Central boarded one million
passengers in one year. The airline
carried 122,709 Boston-Detroit
passengers in 1977 - 12 percent
more than estimated by the
Civil Aeronautics Board. Of the 90 cities
North Central serves, 47 produced
traffic records in 1977.
For the first time in the company's
history, over 100,000 passengers rode
on charter flights in one year, a
4 7 percent gain compared with 1976.
The airline operated 796 charters
for 108,802 people. Although the
DC-9-50s increased capacity
on scheduled flights, 720 extra
sections were needed during peak
travel periods to accommodate
24,446 passengers.
Cargo ton miles - including freight,
express and mail - improved
seven percent in 1977, reaching
13,998,000, to set another company
record. Freight and express climbed
eight percent, while mail rose
four percent. The 588,620 actual
freight and express shipments were
six percent ahead of 1976.
For the past 20 years, North Central
has ranked among industry leaders in
operating performance with a
completion record averaging
99 percent. In 1977, North Central
completed 99 percent of its 31 .8 million
scheduled miles. This dependability
is particularly significant since
North Central contends with more
adverse weather for a longer period
of time than any other U.S. carrier.
Concerted efforts by pilots,
ground personnel and flight control
people contribute to this high
level of operating excellence. A
comprehensive and progressive
maintenance program also helps
assure reliability. Of North Central's
220,000 departures in 1977, only
one-tenth of one percent were
cancelled for mechanical reasons,
and 1.5 percent were delayed.
North Central's consistent traffic
growth and outstanding operating
performance attest to the efforts of
the company's 3,850 employees.
Their talents and dedication are the
keys to providing safe, dependable air
transportation.
Capt. Charles Clawson follows the
company's noise abatement procedures
for making a landing approach
over a densely-populated area.
environmental and social action programs
Through its environmental and
social action programs, North Central
is using natural resources efficiently,
developing employee potential,
and increasing customer satisfaction.
Three enterprising energy programs
in 1977 enabled the airline to
conserve over four million gallons
of vital aviation fuel worth $1.6 million.
With these well developed plans,
the company was able to maintain its
full service commitment to the
90 cities on its system.
Following the company's fuel
management procedures, North
Central pilots make adjustments in
fuel loads, taxi routes, flap settings,
cruise speed, and altitude of the
aircraft. The cumulative result was
a 2.2-million gallon reduction in fuel
consumption for 1977.
By conducting pilot training and
proficiency checks in its $2-million
DC-9 digital flight simulator, the
company conserved another
two million gallons of fuel - enough
to add one DC-9 jet to North Central's
schedule for 346 days.
Some 200,000 gallons were saved
through procedures based on
the computerized Fuel Inventory
Management System (FIMS)
introduced two years ago. In 1977,
FIMS was programmed to provide
real-time data which permits better
use of aircraft auxiliary power units,
lower takeoff weights through fuel
load control , and identification of
engines with high " burn" rates .
Multiple benefits are derived from
aircraft noise-abatement procedures
for takeoff and descent. Minimum
power and flap settings produce
a smoother ride for passengers,
quieter flights over densely-populated
neighborhoods, and greater fuel
efficiency. Noise is also suppressed
by preferential runway selection,
which means final landing approaches
are made over least-populated areas
when weather conditions permit.
New equipment for deicing aircraft
with hot water has reduced the
use of petroleum-based fluids.
Six stations now have this company-
designed equipment.
During 1977, employees at the
airline's headquarters collected
128,000 pounds of used office
paper which was suitable for recycling.
Since the " Waste Not" theme was
adopted four years ago, North Central
has recovered 623,000 pounds of
paper and "saved" an estimated
5,300 trees.
Investing in human resources
is one of the company's prime
concerns. The Affirmative Action
program resulted in a 16 percent
increase in minority employment.
The total workforce grew seven
percent. Minorities were recruited
at 30 colleges and trade schools.
Members of both sexes are now
employed in virtually every job
classification. Women are in pilot,
mechanic and sales positions, while
men are working as flight attendants,
reservationists, and clerks.
The Federal Aviation Administration
conducted an on-site inspection at
Detroit this past year and found
North Central in compliance with
Affirmative Action program standards.
The FAA considered the company's
female and minority representation ,
employee morale, and community
involvement.
Flight attendant training, which
includes first aid, was credited with
saving a passenger's life in 1977.
While in flight, Attendant Anne
Odenwald successfully used the
prescribed Heimlich Maneuver when
a passenger was choking on food .
Conscientious concern for the
traveling public has produced
outstanding results for North Central
and the air transportation industry.
American consumers gave airlines the
highest rating among 21 industries
evaluated in a 1977 survey for
U.S. News & World Report.
The public considered value received ,
concern for health and safety,
and information to customers about
products and services. In the aviation
industry, North Central consistently
ranks among those airlines which
have the fewest consumer complaints
filed with the Civil Aeronautics Board.
Preserving the environment,
developing human resources, and
serving the traveling public are
essential elements of North Central's
daily operation. The company
continually seeks to fulfill its
responsibilities as a corporate citizen.
7
new facilities and services
Accelerating its flight equipment
program, North Central added five
new DC-9-50 fan jets in 1977 which
improved service to 17 communities.
Twin-engine jets accounted for
80 percent of the 2.9 billion seat miles
flown by the airline in 1977.
The new DC-9s carry 130 passengers.
Interiors feature the wide-body
look with enclosed overhead luggage
compartments, and comfortable
two and three-abreast seating.
Corporate colors , aqua and royal
blue, dominate the cabin decor.
North Central's 53-aircraft fleet
of 28 DC-9s and 25 Convair 580
prop-jets is being expanded again
in 1978. Seven DC-9-50 jets are to be
delivered during the year. The
company has ordered another three
due in early 1979, and has an option
on three more. These airplanes will
accommodate anticipated growth
and help reduce operating cost
per seat mile. Three 48-passenger
Convair 580s were sold in 1977, and
several more may be disposed of
in the months ahead . By the end of
1978, the fleet will have grown to
Flight Attendants
(from left) Carole Darin,
Terry Hogan and
Audrey Burton model
the versatile new
uniform ensemble.
8
. Inside the company's OC-9 digital flight
s1mulat~r, Captains William Hunchis (left) and
Len Dolny discuss new VITAL IV visual equipment.
It displays airport runways, taxiways
and surrounding terrain in daylight,
twilight and night settings.
58 aircraft - 35 DC-9s and
23 Convair 580s.
To improve the convenience,
comfort and appearance of ground
facilities, the airline is remodeling
passenger service areas throughout
the system. In 1977, carpeting ,
seating and accessories were
standardized in boarding lounges
at the terminals in Denver, Omaha,
Chicago, Cleveland, Columbus,
Dayton, and Cincinnati. New
passenger service counters have
been completed at the Omaha,
Milwaukee and Grand Rapids airports.
A new downtown office was opened
in Boston, and the Chicago City
Ticket Office was redecorated.
Civic and community cooperation
has led to improvements in airport
facilities at many North Central cities.
The new terminal at Iron Mountain/
Kingsford has a spacious lobby and
boarding area, new passenger service
counters, administrative offices,
drive-in air freight, and a convenient
baggage claim arrangement.
New terminals are being built at
Hibbing/Chisholm and Huron .
An enlarged ramp at Alpena has aided
aircraft operations, and the runway
extension at Kalamazoo/Battle Creek
permitted introduction of DC-9 jet
service. Airport security was simplified
at terminals in Duluth/Superior,
Green Bay/Clintonville and Grand
Rapids with the installation of
luggage X-ray equipment.
Jet bridges were installed at Boston,
Detroit, and Grand Rapids. At
Cleveland, construction is nearly
finished on new airport passenger
service counters, baggage claim
space and offices.
Substantial construction took place
in 1977 at the Milwaukee terminal.
A new main entrance, escalator, and
second-level corridor shorten the
distance to newly-decorated boarding
lounges. The addition of a jet bridge
was also a major improvement.
By enlarging the passenger service
counter, more check-in locations are
now available. The air freight and
office areas were also remodeled .
Another " new look" in 1977 was the
change in attire of flight attendants and
station personnel. A new wardrobe
of beige and brown apparel gives flight
attendants a distinctive appearance
and a variety of coordinated ensembles.
Station agents at larger cities are
wearing blue slacks and light blue
shirts. Navy blazers and blue slacks
are worn by all senior agents and
by the agents and managers at smaller
stations.
Faster and more efficient reservations
service has resulted from refinements
to ESCORT, the airline's electronic
reservations and communications
system. (ESCORT is a major user of
the company's $13-million data
processing facility.) North Central led
the industry by developing a computer
program to handle travel agent and
commercial account transactions
in 50 percent less time. Also,
computerized flight information was
doubled so that immediate confirmation
of space can be given on connecting
flights to any North American city
with scheduled airline service.
In another new application, ESCORT
compiles real-time information on
passenger boardings and the amount
of mail, freight and baggage carried
on each flight segment. Station
personnel now plan flight loads
with greater accuracy. Also, this
daily operations data establishes a
statistical base for company-wide use.
North Central has over 700 TV-like
display units and printers linked
to ESCORT - up from 380 in 1970.
A new Computer Network department
was created to manage this extensive
communications system.
In the area of flight crew training ,
North Central became the first airline
to install new McDonnell Douglas
VITAL IV visual equipment on its DC-9
digital flight simulator. This unit
displays airport runways, taxiways
and surrounding terrain in restricted
daylight, twilight and nighttime settings.
(Previously, only nighttime environment
was depicted .) Its 11 ,000 colored
lights and 450 geometric surface
planes are computer-generated
to create all the visual sensations
of natural flight. Fog, haze, rain and
other weather can also be produced.
The company's pilots " fly" over
2,200 hours annually on this simulator
for DC-9 proficiency checks and
training . Surplus time on the $2-million
cockpit module is sold to outside
organizations, such as the Federal
Aviation Administration, the U.S.
Air Force, and other airlines. For 1977,
this amounted to 1,000 hours.
The addition of new shop equipment
is cutting costs and time required for
aircraft maintenance and parts
fabrication. Overall, maintenance
department personnel reduced
expenses for special parts fabrication
in 1977 by an average of 45 percent.
During 1977, several new functions
were added to SCEPTRE, the
company-developed computer system
for corporate data. Clerical personnel
and agents throughout the company
now orderoffice and ticket supplies
by simple computer entries, and
vendor addresses are available for
correspondence and equipment orders.
Aircraft parts routing and aircraft
cleaning schedules have been
included. SCEPTRE stores real-time
and historical information on hundreds
of thousands of aircraft parts, and
these records can be retrieved through
350 receivers at stations and
maintenance bases.
By prudent investments in more
efficient equipment and by implementing
innovative programs, North Central
is providing greater reliability and
service to the traveling public.
New uniforms for Ground Operations
personnel are worn by Rochester Station
Agent Leroy Johnson (left) and
Manager Vernon Beyer.
North Central's Milwaukee airport facility features an enlarged passenger service
counter, a new main entrance, escalator, and newly-decorated boarding lounges.
9
10
route development
New Detroit-Atlanta and Cincinnati-
Philadelphia nonstop service by
North Central is planned for the summer
of 1978. These routes, which add
two cities and 1,102 miles to the
company's system, resulted from
Civil Aeronautics Board action
in February 1978.
Early that month, the CAB directed
its staff to prepare a tentative decision
granting the airline permissive
nonstop authority on the 595-mile
Detroit-Atlanta route, and an order is
due in April. Later, the Board awarded
the 507-mile Cincinnati-Philadelphia
route to North Central.
DC-9 fan jets would be used on
both segments. These flights will
provide new, direct or single-carrier
connecting service to the south and
east for numerous cities in the Dakotas,
Minnesota, Wisconsin , Michigan
and Canada.
In January 1977, the airline
inaugurated Detroit-Boston nonstop
service. The company carried more
than half the passengers in the market,
and exceeded first-year traffic and
revenue projections.
Permanent certification was granted
to North Central on the Winnipeg-
Duluth/Superior segment which the
airline has served since 197 4. In
the same order, the company received
permissive authority for Milwaukee-
Winnipeg service .
The CAB is processing many of
the airline's pending route applications.
Final decisions are imminent on
Minneapolis/St. Paul , Milwaukee-
Memphis and Detroit-Baltimore. In both
cases, the law judges recommended
North Central. These routes involve
two new cities and 1,664 miles.
Another eight cases could be resolved
later this year or in 1979.
This increased activity reflects
North Central's aggressive route
development program and the Board's
recent efforts to stimulate competition .
The company filed ten new
applications with the CAB during
1977, and already this year has asked
to be considered in the Florida-Atlanta
Nonstop Case. These routes could
add 18,354 miles and 20 new cities to
the airline's system . Also, the company
requested broad authority from
various North Central cities to the
Caribbean area.
The airline's applications are
summarized below.
MINNEAPOLIS/ST. PAUL-MEMPHIS,
MILWAUKEE-MEMPHIS NONSTOP$
An administrative law judge chose
North Central for both routes , and a final
CAB decision is expected this spring. The
airline 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 . Serving a potential
71 ,000 passengers the first year,
North Central would realize a $1-million
operating profit.
DETROIT-BALTIMORE NONSTOP
In February 1978, a CAB law judge chose
North Central for the route , and a final
decision is anticipated soon . The State of
Maryland and North Central had jointly
asked the CAB to permit the early
introduction of Detroit-Baltimore nonstops
by the airline. North Central is proposing
four flights daily with DC-9 fan jets.
The airline estimates it would carry
77,000 passengers on the 409-mile route
and earn a $1 .2-million operating
profit the first year. Eleven Midwest cities
would receive single-plane service ,
and 37 others would have convenient,
single-carrier connections .
CHICAGO MIDWAY LOW-FARE PROCEEDING
The CAB expedited proceedings in this
case , and a hearing has been held.
A final decision is expected by the fall
of 1978. North Central is requesting
authority for low-fare, high-frequency
nonstops between Chicago Midway Airport
and the following cities : Cleveland ,
Detroit, Kansas City, Minneapolis/St. Paul ,
Pittsburgh and St. Louis. The company
proposes up to 26 daily flights in each
market, using DC-9 jets with 139-passenger
seating. (1 ,594 miles)
BISMARCK/MANDAN-FARGO/MOORHEAD-
TWIN CITIES-CHICAGO
Hearings have been held on North
Central 's request to remove certain
operating restrictions from its certificate
to permit improved service to Chicago from
Bismarck/Mandan and Fargo /Moorhead.
Single-plane service could then
be offered from Bismarck/Mandan, via
Fargo/Moorhead and the Twin Cities, to
Chicago ; and one-stop service from
Fargo/Moorhead. In addition, Fargo/
Moorhead-Twin Cities nonstops would be
operated . (410 miles)
MINNEAPOLIS/ST. PAUL-SAN DIEGO,
LAS VEGAS, PHOENIX NONSTOP$
CAB hearings are set for June 1978.
North Central is proposing daily nonstops
between Minneapolis/ St. Paul and
San Diego, Las Vegas and Phoenix. These
three routes are among the largest in the
nation without competitive service.
(4,108 miles)
ATLANTA-FLORIDA NONSTOP SERVICE
In February 1978, the airline asked to
be considered for nonstop service from
Atlanta to Tallahassee , Daytona Beach ,
and Sarasota/Bradenton. These
routes , involving 1,034 miles, are part
of the Florida-Atlanta Competitive Nonstop
Service Case . Board hearings are
scheduled for July 1978.
CHICAGO-SYRACUSE/ALBANY-BOSTON
The Board has agreed to hear North
Central's proposal to operate six daily
flights with DC-9 jets between Chicago
and Boston-one round trip via Syracuse,
one round trip via Albany, and one round
trip serving both stops. Chicago-Syracuse/
Albany and Boston-Syracuse/Albany
are presently monopoly routes - each
served by a different carrier. This
case involves two of the largest monopoly
markets remaining in the United States.
A potential 156,000 passengers would
benefit from the new service, and
the airline would realize a first-year
operating profit of $2.1 million.
(1,858 miles)
TWIN CITIES-HOUSTON NONSTOP,
TWIN CITIES-DALLAS/FT. WORTH-HOUSTON
Board hearings in this case are planned
for 1978. North Central is proposing
new Twin Cities-Houston and Twin Cities-
Dallas/Ft. Worth nonstops, supplemented
by one-stop Twin Cities-Houston ser_vice,
via Dallas/Fort Worth . Only one carrier
presently offers nonstop service between
Minneapolis/St. Paul and these two Texas
markets. (2 ,110 miles)
DETROIT-MONTREAL, VIA TORONTO
This authority was requested under
an amendment to the 1966 Bilateral Air
Transport Agreement between the United
States and Canada. The amendment
authorizes Detroit-Montreal flights by a
U.S. carrier after 1978. A hearing is
expected this year. North Central could
also offer single-plane service from
Minneapolis/St. Paul and Milwaukee to
Montreal. (315 miles)
DENVER-SAGINAW/BAY CITY/MIDLAND,
DENVER-FLINT NONSTOP$
In February 1977, the airline requested
nonstop authority from Denver to Saginaw/
Bay City/Midland and from Denver to
Flint. Another carrier began service on
these routes under an exemption
certificate approved by the Board in July
1977. North Central 's application
is awaiting CAB action . (2 ,222 miles)
OMAHA-DALLAS/FT. WORTH NONSTOP
The company is proposing to extend its
Twin Cities-Omaha flights to Dallas/
Ft. Worth . Nine communities north and
east of Minneapolis/St. Paul would
receive single-plane service to Dallas/
Ft. Worth for the first time . Board action on
consolidation is pending . (583 miles)
MILWAUKEE, MADISON-DENVER NONSTOP$
In June 1977, the CAB authorized North
Central to provide single-plane service
between Milwaukee and Denver, via
Minneapolis/St. Paul , but did not act on
the application for nonstop flights. The
airline is also waiting for a Board decision
on its request for Madison-Denver
nonstops. (1 ,747 miles)
WISCONSIN, MICHIGAN, OHIO-FLORIDA POINTS
In February 1977, the company asked
to serve Tampa/St. Petersburg/Clearwater
and Orlando from Milwaukee, via Detroit.
Nonstop authority was also requested
to the same Florida destinations
from Dayton , via Cincinnati . (3 ,469 miles)
MILWAUKEE, CLEVELAND-ATLANTIC CITY
NONSTOP$
Board action is pending on the airline's
application , filed in February 1977, to
serve Atlantic City from Milwaukee and
from Cleveland . The two nonstop
segments would add 1,140 miles to the
company's route system .
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 presently
operated 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)
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)
CARIBBEAN AREA SERVICE INVESTIGATION
The company has applied for nonstop
service from 11 U.S. cities to numerous
locations in the Caribbean. A CAB
prehearing conference is expected in
1978. Originating points in the U.S. would
be Boston, New York, Baltimore, Atlanta,
Detroit, Cleveland, Cincinnati , Chicago,
Milwaukee and Minneapolis/St. Paul.
Some of the Caribbean destinations
include cities in the Bahamas, Barbados,
Cuba, Dominican Republic , Haiti, Jamaica,
Puerto Rico , Virgin Islands, the Antilles,
Trinidad and Tobago .
SUMMARY
North Central route applications total
24,941 miles and would add 22 new cities
to the system . In addition , the company
has requested service to Caribbean points.
the future
Having just completed the most
profitable year in its history, North
Central looks forward to excellent
results in 1978. Expansion from
route awards is expected this year.
The airline will also benefit from
continued traffic growth and more
realistic fare increases.
Service on the new Detroit-Atlanta
and Cincinnati-Philadelphia routes is
planned for this summer, and the
additional traffic should improve
operating profits. These two segments
will add 1,102 miles to the airline's
system. Also, North Central has been
recommended for Detroit-Baltimore
and Minneapolis/ St. Paul,
Milwaukee-Memphis nonstops. Final
decisions are due soon . Eight other
applications may be resolved later in
the year.
Passenger and cargo traffic is
already ahead of 1977's record pace,
and this growth should continue.
To meet greater demand on existing
routes and operate new service,
North Central is acquiring seven
DC-9-50 fan jets in 1978.
Under a new CAB policy, known
future costs can be included when
calculating requested fare increases.
This change will minimize regulatory
lag and allow the company to recover
most costs as they occur.
Some type of Federal legislation
affecting the airline industry is likely
North Central brings
snow and skiers
together with a variety
of tour packages
in Colorado and the
Upper Midwest.
to be passed by Congress during
1978. The company, with its financial
strength, will be able to adapt to
reasonable new regulations. However,
North Central believes no new laws
are necessary. The CAB's current
efforts to increase competition
and encourage innovative fares
indicate that changes can be
accomplished under the present
Federal Aviation Act.
For the year ahead, the company
is projecting significant revenue gains
because it has the capacity and
ability to capitalize on the many growth
opportunities. With continued cost
control, 1978 should be highly
profitable for North Central .
11
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PROPOSED ROUTES ---
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'14
NORTH
balance sheet
ASSETS
CURRENT ASSETS
Cash (note C) . ... ........... . ...... .. ...... . .................. .
Accounts receivable , less allowances ....... . .......... . ... . . . . . .
Flight equipment parts and supplies (notes A and C) . . .. . . . .... .. .
Prepaid expenses and other (note A) ... ... ...... . .. .... . ....... .
PROPERTY AND EQUIPMENT - at cost (notes A, C, D and E)
Flight equipment . . . .. . ........ ..... . .. . ... . ... .. . .. ..... .... . . .
Ground property and equipment .. .. .. . . ............. .. . . . . ..... .
Improvements to leased property .. .. ... ... . .. . ..... . .... ... . ... .
Less accumulated depreciation and amortization .. . .. . . . ...... . . .
Advance payments on equipment . .. .. . .. ..... .. ... . . ... . .. .. ... .
DEFERRED CHARGES AND OTHER ASSETS
Unamortized development costs (note A) ...... . .... . .. .. . .. ..... .
Rentals and other (notes A and D) . . ... .. . . .. .... . ...... . ..... . . .
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (note C) ......... ..... .... .. .
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 C) . .. . .. .. . ....... .
Deferred income taxes (notes A and J) ... .. ..... .. . ... .......... .
Other .... ... . .... . . . ..... . . . . .. .. . .. ... . .. ... ... . .. ..... . .. . .. .
COMMITMENTS (notes D and E)
STOCKHOLDERS' EQUITY (notes C and F)
Common stock- authorized 16,000,000 shares of $.20 par value .. .
Additional paid-in capital .. . ...... . . . ..... .. ... .. . . .. .. . ... .. .. . .
Retained earnings . . ..... . . .. .. . . .... . . .. ... ..... . ..... .. . . ... . .
Treasury stock- at cost . . .. .. ...... . ... . . ... . . ....... . .. . .... . . .
The accompanying notes are an integral part of this statement.
CENTRAL
December31
1977
$ 12,243,000
25,696,000
6,233,000
7,570,000
51 ,742,000
185,307,000
30,914,000
6,052,000
222,273,000
75,835,000
146,438,000
12,413,000
158,851 ,000
1,876,000
1,982,000
3,858,000
$214,451 ,000
$ 20,410,000
10,028,000
12,198,000
13,249,000
441 ,000
56,326,000
83,635,000
4,816,000
394,000
88,845,000
2,493,000
18,210,000
48,957,000
(380,000)
69,280,000
$214,451 ,000
1976
restated (note 8)
$ 9,034,000
19,045,000
5,500,000
7,275,000
40,854,000
165,066,000
27,006,000
5,388,000
197,460,000
64,969,000
132,491,000
4,919,000
137,410,000
1,585,000
1,581,000
3,166,000
$181,430,000
$ 10,282,000
7,825,000
10,039,000
10,850,000
278,000
39,274,000
80,067,000
4,705,000
899,000
85,671,000
2,493,000
18,056,000
36,740,000
(804,000)
56,485,000
$181,430,000
AIRLINES, INC.
statement of earnings
OPERATING REVENUES
Passenger (note A) . . .. . ................................ . . . .... .
Freight and express . . . . . . .. . .............. .. .... . . . ... .... .... .
Public service revenues (note G) . .. .. .. .. ... ... .. .... . ... . .. . .. .
Mail (notes A and H) . .... .. .. .. . ........ ... . .... . . .. .. . . .. . .... .
Non-scheduled service and other .......... . .......... . ..... . .. . .
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 . ... ... . .. .... .... .. . .. . ... .. . ... .
Gain on disposition of equipment .... . . ... ... .. . . ..... . .... .. . .. .
Earnings before income taxes .. .. . . ...... . .......... . .... .
INCOME TAXES (notes A and J)
Current .... . .. ... .... . ... .... .. .. .. ..... ... ...... ... . . .. .... .. .
Deferred . ... . ... . . .. .... . . .. ........... ... ... . .. . . . ......... . . .
NET EARNINGS
NET EARNINGS PER SHARE (note K) ... . . . . . ... . .. . . . . .. .
The accompanying notes are an integral part of this statement.
Years ended December 31
1977
$186,641 ,000
13,680,000
13,079,000
4,932,000
10,791 ,000
229,123,000
68,348,000
29,337,000
50,978,000
14,605,000
20,999,000
10,801 ,000
930,000
14,590,000
210,588,000
18,535,000
7,781 ,000
832,000
6,949,000
(409,000)
(2,705,000)
3,835,000
14,700,000
745,000
259,000
1,004,000
$ 13,696,000
$1 .11
1976
restated (note B)
$157,159,000
11 ,200,000
13,296,000
2,347,000
7,146,000
191 ,148,000
55,970,000
27,321 ,000
43,603,000
10,979,000
16,428,000
9,562,000
961,000
11 ,635,000
176,459,000
14,689,000
5,503,000
843,000
4,660,000
(501,000)
(189,000)
3,970,000
10,719,000
2,169,000
871 ,000
3,040,000
$ 7,679,000
$ .63
'15
16
statement of changes in financial position
Years ended December 31
SOURCES AND APPLICATIONS OF WORKING CAPITAL
SOURCES
From operations
Net earnings .... . . . ... ..... . .... . .... ... . ...... ..... .......... .
Charges to earnings not using 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 ..... . .... .. .... ....... . . . .. ... .. . . . .
1977
$13,696,000
14,590,000
111 ,000
108,000
28,505,000
3,003,000
24,978,000
578,000
57,064,000
39,100,000
21 ,410,000
1,479,000
1,239,000
63,228,000
INCREASE (DECREASE) IN WORKING CAPITAL . . . . . . . . (6,164,000)
Working capital (deficit) at beginning of year. ... . . .... . .. .. . . ... . ..... 1,580,000
Working capital (deficit) at end of year ... . . . . .... . . . .. . .. . .. .. .. . . . .. $ (4,584,000)
NET CHANGE IN WORKING CAPITAL ELEMENTS
Increase (decrease) in current assets
Cash . .. ...... . . . ........ .. . .. . . . . .. .. .......... . ... .. .. . .. .. . .
Accounts receivable .. . . . .. ... . .. . .. . . .. . .. . . .. .... . .. . . ....... .
Flight equipment parts and supplies ...... ..... .. . .. .... . .... . . . .
Prepaid expenses and other . . . . ... . . .. .. ..... .. .. . ...... .. .. . . .
Net change in current assets .... . .. .. .... . ... . . . .... .. ... . . .
Increase in current liabilities
Current maturities of long-term debt ........ . .. .. .. ... . . ... ... . . .
Accounts payable ... . ... .. ..... . . . . . .. . .... ... .. . ... .... .. ... . .
Interline payables and tickets outstanding .. .... ... ......... .. . .. .
Accrued compensation and other expenses ....... ..... ..... ... . .
Income taxes . . .. . . .. . ... ... ... .......... . ... .... . .. . .... . .. . . .
Net change in current liabilities . . . . .. . . . .... .. ... . . .. ... . . .. .
INCREASE (DECREASE) IN WORKING CAPITAL .... .. . .
The accompanying notes are an integral part of this statement.
$ 3,209,000
6,651 ,000
733,000
295,000
10,888,000
10,128,000
2,203,000
2,159,000
2,399,000
163,000
17,052,000
$ (6, 164,000)
1976
restated (note B)
$ 7,679,000
11,635,000
766,000
1,137,000
21 ,217,000
1,675,000
41 ,102,000
447,000
64,441,000
49,283,000
11 ,160,000
1,198,000
626,000
62,267,000
2,174,000
(594,000)
$ 1,580,000
$ 5,479,000
(232,000)
709,000
723,000
6,679,000
1,362,000
2,353,000
669,000
96,000
25,000
4,505,000
$ 2,174,000
statement of changes in stockholders' equity
Years ended December 31, 1977 and 1976
Common Stock
Additional Retained
Treasury Stock
Shares Paid-In Earnings Shares
Issued Amount Capital (note B) Held
Balance at January 1, 1976
as originally reported . . . . ... .... 12,462,752 $2,493,000 $18,032,000 $31,039,000 364,800
Effect of change in accounting
for leases (note B) .. ... . . .. (780,000)
Balance at January 1, 1976
as restated ..... . . . .... . . .. .. .. 12,462,752 2,493,000 18,032,000 30,259,000 364,800
Cash dividend (note F) .... . . . (1 ,198,000)
Disposition of treasury stock .. 24,000 (79,766)
Net earnings for the year 1976 7,679,000
Balance at December 31, 1976 ... . 12,462,752 2,493,000 18,056,000 36,740,000 285,034
Cash dividend (note F) ..... . .
Disposition of treasury stock ..
Net earnings for the year 1977
Balance at December 31 , 1977 .... 12,462,752 $2,493,000
The accompanying notes are an integral part of this statement.
auditors' report
Alexander Grant
& CO MPANY
CERTIFIED PUBLI C ACCOU NTANTS
Stockholders and Board of Directors
North Central Airlines, Inc.
(1,479,000)
154,000 - (150,440)
13,696,000
$18,210,000 $48,957,000 134,594
INTERNATIONAL FIRM
ALE XANDER GRANT TANSLEY WITT
We have examined the balance sheet of North Central Airlines, Inc. (a Wisconsin
corporation) as of December 31 , 1977 and 1976, and the related statements of earnings,
changes in stockholders' equity and changes in financial position for the years then
ended. Our examination was made in accordance with generally accepted auditing
standards and accordingly included such tests of the accounting records and such other
auditing procedures as we considered 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, 1977 and 1976, and the results of
its operations and changes in its financial position for the years then ended, in conformity
with generally accepted accounting principles applied on a consistent basis after re-
statement for the change, with which we concur, in the method of accounting for lease
agreements as described in note B to the financial statements.
Minneapolis, Minnesota
February 13, 1978
Amount
$999,000
999,000
(195,000)
804,000
(424,000)
$380,000
17
18
notes to financial statements
December 31, 1977 and 1976
Note A- Summary of Significant Accounting Policies- The company,
as a regional airline providing scheduled service for passengers, mail
and property, 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
followed by the company are:
Flight Equipment Parts and Supplies: These are priced at average
cost. An allowance for obsolescence ($999,000 in 1977 and $873,000
in 1976) 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 ($4,530,000 in 1977 and $3,890,000 in
1976). 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 capitalized interest is amor-
tized 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 $565,000 in 1977 and $461,000 in 1976. For income
tax reporting purposes, interest is expensed in the current period.
Capitalized leases: The company accounts for leased property in ac-
cordance with Financial Accounting Standards Board Statement No. 13.
Accordingly, certain leases are capital leases for financial reporting
while others are treated as operating leases. Previously only leases
which resulted in the creation of a material equity in the leased
property accruing to the company were capitalized (notes B and D).
Depreciation: Depreciation is provided in amounts sufficient to relate
the cost of depreciable assets to operations overtheirestimated service
lives on a straight line basis for financial and tax reporting purposes.
Flight equipment is being depreciated to estimated 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 five years for
permanent certificates. Major computer software development is de-
ferred and amortized over a five-year period. Certain of these expen-
ditures 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 expense
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 carry-
over periods. The company recognizes deferred income taxes resulting
from differences in financial and income tax reporting (note J).
Note 8- Change in Method of Accounting for lease Agreements -
The Financial Accounting Standards Board, in Statement No. 13, has
issued new criteria for accounting for lease agreements.During Decem-
ber 1977 the company has applied the new lease accounting criteria to
their lease agreements and in accordance with Statement No. 13
restated the financial statements and data presented to reflect the
prescribed accounting methods. The restatement results from capital-
izing certain leases for financial reporting purposes which were pre-
viously accounted for under the operating method. The impact on
earnings was immaterial for all years presented and therefore recon-
ciliations of previously reported earnings are not presented (note D).
Note C- long-term Debt- Long-term debt at December 31 consists
of the following:
1977
Quarterly installment notes (a) ............... $ 64,000,000
Quarterly installment notes (b) . . . . . . . . . . . . 25,434,000
Quarterly installment notes (c) . . . . . . . . . . . . . . . 5,298,000
Total due banks and insurance
companies (d) . . .. . .......... . ..... . 94,732,000
Lease obligation (e) ...... .... ............. . 2,772,000
Lease obligation (f) ....................... . 2,029,000
Lease obligation (g) ....................... . 1,309,000
Subordinated convertible debentures (h) ....... . 690,000
Sundry ................................ . 2,513,000
Total long-term debt .................. . 104,045,000
Less current maturities (i) .......... . 20,410,000
$ 83,635,000
1976
restated
$41 ,000,000
27,212,000
12,096,000
80,308,000
3,636,000
3,092,000
1,212,000
690,000
1,411,000
90,349,000
10,282,000
$80,067,000
(a) Payable in quarterly installments, plus interest, of $2,041,000 during
1978 and 1979, $2,435,000 from February 1980 through May 1984 and
$1,921,000 in August and November 1984; interest at % above the
bank's prime rate; effective interest rate at December 31, 1977 was
8 % (6% at December 31, 1976). Through June 1979 the company
pays additional interest on 5% of the average quarterly borrowing at
the prime rate plus%. In January 1978, the credit agreement was in-
creased to a total of $72,000,000.
(b) Payable in quarterly installments of approximately $1,062,000,
including interest, during the period April 1, 1977 to October 1, 1986
with interest at 83/s% on the major portion of this debt; interest on the
balance of the debt at % above the bank's prime interest rate;
effective rate at December 31, 1977 was 8% (7% at December 31,
1976). The notes are guaranteed by the Department of Transportation
as to 90% of the unpaid principal and 100% of the unpaid interest.
(c) Payable in quarterly installments, plus interest, of $1,135,000 during
January and April and $1,514,000 during July and October 1978; interest
at 7%. Two equipment manufacturers have guaranteed certain series
of these notes totaling $1,743,000.
(d) Total due banks and insurance companies is collateralized by
substantially all flight equipment and spare parts owned by the com-
pany. Among the loan convenants are restrictions on dividend pay-
ments, 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 F). The
obligations are being accrued as additional interest expense through
1979.
The company was required to maintain average compensating bal-
ances of approximately $3,400,000 and $3,500,000 during 1977 and
1976, respectively, related to borrowing arrangements. The two major
arrangements require the payment of interest at% over prime rate
on the average compensating balance shortfalls. Interest paid on
shortfalls was approximately $5,000 in 1977 and $175,000 in 1976. At
December 31, 1977 and 1976 the required compensating balances
(adjusted for float) were approximately $3,700,000 and $2,500,000,
respectively.
(e) Lease obligation payable in monthly installments of $99,000
including interest at 10% through July 1980 (note D).
(f) Lease obligation payable in monthly installments of $102,000
including interest at 6% through September 1979 (note D).
(g) Lease obligation payable representing the present value of the
guaranteed residual values to be paid at the expiration of the lease
terms during 1978 and 1979 (note D).
(h) Convertible into common shares at $8.55 a share to maturity, June
1, 1978; interest payable each June and December at 5%.
(i) Current maturities of all long-term debt due in each of the next
five years following December 31, 1977 are as follows:
1978
1979
1980
198 1
1982
........ $20,410,000
12,970,000
13,355,000
12,800,000
12,950,000
$72,485,000
At December 31, 1977, $5,000,000 of unused lines of credit were avail-
able for short-term borrowing from several banks; all but one at their
prime lending rate.
Note D- Lessee Leasing- The following is a description and financial
summary of the company's lessee leasing activities:
Operating Leases: The company has lease commitments for various
airport facilities based upon usage and landings, subject to adjust-
ment depending upon the needs of the airport operating authority.
The annual lease commitments are not determinable due to the usage
and adjustment factors. The company leases its main operating base
facilities and various hangars from municipal authorities for varying
terms with renewal options.
The leases for five DC-9-30 aircraft are related to the prevailing prime
interest rate. The actual rent expense exceeded the minimum shown
below by $87,000 in 1977 and $140,000 in 1976.
At December 31, 1977, the company's minimum rental commitments,
including rental prepayment requirements, under non-cancellable
operating leases with initial or remaining terms of more than one
year are as follows (in thousands of dollars):
DC-9-30
Period Facilities Aircraft Total
1978 $ 1,805 $2,088 $ 3,893
1979 1,634 2,088 3,722
1980 1,634 2,088 3,722
1981 1,634 1,467 3,101
1982 1,634 490 2,124
1983-2002 22,606 22,606
$30,947 $8,221 $39,168
Total rent expense, including landing fees, was $14,186,000 in 1977
and $12,809,000 (as restated) in 1976.
Capitalized Leases: The company leases nine CV-580 aircraft and
various ground property and equipment which are capitalized for
financial reporting purposes. An agreement to acquire these aircraft
and certain of the ground property and equipment for $6,600,000 in
1978 was completed subsequent to year end.
The following is an analysis of leased property under capital leases
included in property and equipment at December 31:
Flight equipment ..... . ..... .
Ground property and equipment ..... . .. .
Less accumulated amortization ..... . ... .
1977
$11 ,250,000
12,449,000
23,699,000
16,437 ,000
$ 7,262,000
1976
$11 ,250,000
12,449,000
23,699,000
14,058,000
$ 9,641 ,000
At December 31 minimum lease payments under capital leases and
the present value of the net minimum lease payments are as follows:
1978 .
1979 ..
1980 .
Total minimum lease payments .... . . . . . ..... .
Less amount representing interest . .......... .
Present value of net minimum
lease payments ......... . .............. .
Flight
Equipment
$ 1,200,000
150,000
1,350,000
41 ,000
$ 1,309,000
Ground
Property and
Equipment
$ 2,41 5,000
2, 109,000
792,000
5,3 16,000
515,000
$ 4,801,000
Note E- Commitments- The company has purchase commitments on
nine new DC-9-50 aircraft for which it has advanced $11,981,000 and
capitalized interest of $432,000. An additional $73,229,000 will be
expended by the company in fulfilling these commitments. The pur-
chase agreement calls for delivery of six aircraft during 1978 and three
in 1979. The company has arrangements to sell $45,000,000 of 9%
Equipment Trust Certificates collateralized by the aircraft to be de-
livered in 1978.
In January 1978, the company advanced $150,000 on a purchase com-
mitment, which contains an option to cancel prior to September 1978,
for three additional DC-9-50 aircraft. If the option to cancel is not ex-
ercised, an additional $30,890,000 would be expended prior to delivery
of the three aircraft in the fourth quarter of 1979.
Under provisions of the Mutual Aid Agreement, the company would
pay struck carriers who are a party to this agreement. The company
would receive such payments in the event of a strike by its employees.
Note F- Common Stock-At December 31, 1977, 87,450 shares of
unissued common stock are reserved for officers and key employees,
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.
Options Outstanding Option Price and Fair Market Value at Date of Grant
Year Year Per December 31, 1977 December 31 , 1976
Granted Exercisable Share Shares Amount Shares Amount
1973 1973 $4.25 7,500 $ 31,875 7,500 $ 31,875
1974 1974 3.375 8,525 28,772 8,52 5 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. 7 5 2,500 6,875 2, 500 6,875
87,450 257,066 87,450 257,066
1975 1979 2.50 95,000 237,500 95,000 237,500
1976 1979 3.875 36,100 139,888 36,100 139,888
131,100 377,388 131 ,100 377,388
218,550 $634,454 218,550 $634,454
19
20
notes to financial statements
December 31, 1977 and 1976 (continued)
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, 1977.
At December 31, 1977 and 1976 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 C(d). All warrants enable the holder to purchase
common stock at $5.50 per share and must be exercised by October 31,
1979.
During January 1978, the Board of Directors declared a $.16 per
share dividend payable on March 1, 1978 to shareholders of record on
February 16, 1978. The company paid cash dividends of $.12 and $.10
per share to its shareholders during the first quarter of 1977 and 1976
respectively.
Note G- Public Service Revenues-As a local service carrier, the
company receives public service revenues for serving small and inter-
mediate 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 reason-
able 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 revenue, 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 H- Mail Revenue- In December of 1977 the CAB issued an
order establishing new temporary mail rates in connection with its
Domestic Service Mail Rates Investigation. As a result of this order
the company has recognized $2,733,000 of additional revenue in 1977.
Approximately $1,932,000 of this retroactive amount applies to the
period March 28, 1973 through December 31, 1976. The company
anticipates the final rates will approximate the temporary rates.
Note 1- Pension Costs- Total pension expense was $6,346,000 for
1977 and $5,282,000 for 1976. At January 1, 1977, the latest actuarial
valuation date, the total market value of fund assets exceeded
the actuarially computed value of vested benefits by $4,270,000 for
all plans.
Note J- Income Taxes- Income tax expense for the years ended
December 31 (1976- as restated) consists of the following:
Current income taxes
Federal ....... .
Investment tax credit used in current year
State and local ........................ .
Deferred income taxes
Federal
Investment tax credit ................... .
State and local ..... . .
1977
$6,065,000
(6,065,000)
745,000
745,000
1,046,000
(898,000)
148,000
111,000
259,000
$1,004,000
1976
$3 ,489,000
(1,757,000)
1,732,000
437,000
2,169,000
1,631 ,000
(961 ,000)
670,000
201,000
871,000
$3 ,040,000
Income taxes of $1,040,000 in 1977 and $3,040,000 in 1976 (effective
rates of 6.8% and 28.4 % respectively) are less than those expected to
result by application of the federal income tax rate of 48% to income
before taxes. The reasons for these differences are:
Computed " expected" tax expense .............. .
Increase (decrease) in income taxes
Investment tax credit utilized ...
State and local income taxes net of
federal income tax benefit .. .
Other . . . ........... .
1977
$7 ,056,000
(6,963 ,000)
856,000
55,000
$1,004,000
1976
$5,145,000
(2,718,000)
485,000
128,000
$3,040,000
Deferred income taxes arise from timing differences between financial
and tax reporting. The tax effects of these differences follow:
Increase (decrease) in deferred income 1977 1976
tax expense
Capitalized interest .................... . $ 328,000 $ 324,000
Lessor leasing activities 278,000 473 ,000
Depreciation ........... . (80,000) 690,000
Capitalized leases ..................... . 195,000 180,000
Training and development .......... . 237,000 70,000
Investment tax credit .............. . (898,000) (961 ,000)
Other ............ ... ........ . 199,000 95,000
$ 259,000 $ 871,000
For federal income tax reporting purposes, investment tax credits of
$3,482,000 are available to offset future income taxes payable through
1984. Of this amount $2,792,000 has been recognized for financial
reporting purposes as an offset to deferred income taxes payable
through December 31, 1977.
During the fourth quarter of 1976, the Tax Reform Act of 1976 was en-
acted into law. The amount of investment credit that could previously
be claimed was limited to approximately 50% of the company's tax
liability through 1976. Beginning in 1977, a special provision under
the new law permits the company to offset their federal tax liability
by the following approximate percentages (subject to the availability
of sufficient investment tax credits):
Maximum
Year Percentage
1977 .. .. . . . . . . . . . . .. .. . . . .. ...... 100%
1978 . . . . . . . . . . . . . . . . . . . . . . . ..... 100
1979 . . . . . . . . . . . ......................... 90
1980 . . . . . . . . . . . . ........................ . 80
1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 0
1982 ... . ....................... 60
1983 (and later years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
The Internal Revenue Service has examined and cleared the company's
federal tax returns through December 31, 1974.
Note K- Net Earnings Per Share- Net earnings per share is based
on the weig~ted average number of shares outstanding for the year
(12,328,158 in 1977 and 12,164,423 in 1976). Conversion of debentures
into common stock, exercise of stock options and warrants to purchase
stock would not result in material dilution of net earnings per share
for the years ended December 31, 1977 and 1976.
Note L-Selected Financial Data (unaudited)-The unaudited quar-
terly results of operations for each of the four quarters ended in 1977
and 1976 and the unaudited asset replacement cost information 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)
1977 1976
Three Months Ended " Three Months Ended
December 31 September 30
OPERATING REVENUES
Passenger ........ . .............. $48,319 $51,970
Public service revenues 3,358 3,356
Other . ............ 10,250 6,607
61 ,927 61,933
OPERATING EXPENSES
Flying operations and maintenance . .. 25,752 25,432
Other operating expenses ... . .... . .. . 26,733 25,424
Depreciation and amortization ... 3,838 3,832
56,323 54 ,688
OPERATING PROFIT ... .. ......... 5,604 7,245
OTHER EXPENSES (INCOME)-net .. ~ 1,721
EARNINGS (LOSS) BEFORE INCOME TAXES . 3,618 5,524
Income taxes ............. . 297 337
NET EARNINGS (LOSS) .............. $ 3,321 $ 5,187
NET EARNINGS (LOSS
) PER SHARE $.27 $.42
DIVIDENDS PER SHARE .....
*All of the quarters for 1976 and the first three quarters of 1977 have been
restated for the change in accounting for lease agreements in accordance
with Financial Accounting Standards Board Statement No. 13 (note Bl.
STOCKHOLDER'S 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 acquires, benefi-
cially or as trustee, more than 5 percent, in the aggregate, of any
class of the capital stock or capital of the air carrier, shall file with
the Board a report containing the information required by 245.12,
on or before April 1, as to the capital stock or capital owned as of
December 31, of the preceding year, and in the case of stock
subsequently acquired, a report under245.13, within 10 days after
such acquisition or ownership;
(2) any bank or broker covered by (1), to the extent that it holds sh a res 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 Aeronautics Board, Washington,
D. C. 20428.
LABOR AGREEMENTS
Among the agreements the airline has with six labor unions, two are to
be negotiated in 1978 and four expire in 1979. The company expects to
reach equitable agreements with these unions.
June 30 March 31 December 31 September 30 June 30 March 31
$45,926 $40,426 $41 ,229 $43,369 $38,677 $33,884
3,231 3,134 3,151 3,415 3,410 3,320
6,302 6,244 6,000 4,763 4,998 4,932
55,459 49,804 50,380 51 ,547 47 ,085 42,136
23,684 22,817 21,921 21,098 20,451 19,821
23 ,825 22,331 21,465 20,753 20,044 19,271
3,595 3,325 3,104 3,037 2,867 2,627
51 ,104 48,473 46,490 44,888 43 ,362 41 ,719
4,355 1,331 3,890 6,659 3,723 417
1,401 (1 ,273) 1,159 1,014 1,088 709
- -
2,954 2,604 2,731 5,645 2,635 (292)
189 181 727 1,653 726 (66)
- - - - - -
$ 2,765 $ 2,423 $ 2,004 $ 3,992 $ 1,909 $ (226)
$.22 $.20 $.16 $.33 $.16 $(.02)
$.12 $ .10
FORM 10-K REPORT
For the Form 10-K report to the Securities and Exchange Commission,
write to Mr.John P. Dow, Secretary, North Central Airlines, 7500 North liner
Drive, Minneapolis, MN 55450.
STOCK MARKET QUOTATIONS
The following tabulation sets forth the price range for the company's
common stock which is traded on the New York Stock Exchange and the
Midwest Stock Exchange.
1977 1976
High low High Low
1st Quarter ..... .. .. .. ..... 41/s 35/s 4 21/s
2nd Quarter . . ... . ... ..... . 4 35/s 3 31
/s
3rd Quarter ................ 4 31/s 41/s 31/s
4th Quarter ........ . ... .. .. 5 31/s 4 3
ASSET REPLACEMENT COST (unaudited)
Replacing productive capacity of the airline with assets having equiva-
lent capacity has generally required greater capital investment than
was required to purchase the assets being replaced. The additional
capital investment principally reflects the cumulative impact of infla-
tion during the relatively long lives of the assets (10 to 15 years in the
case of flight equipment).
The company's annual report on Form 10-K contains (1) additional
quantitative information with respect to the estimated replacement
cost of flight equipment parts and supplies and of property and
equipment on December 31, 1977 and 1976, and (2) the related
estimated effect of such replacement costs on depreciation expense.
21
PASSENGERS PASSENGER MILES SEAT MILES CARGO TON MILES
(MILLIONS) (BILLIONS) (BILLIONS) (MILLIONS)
5.5 - - - - - - - - 28 - - - - - - --
5.0 - - - - - - -- 1 25 - - - - - - - - 2.6 - - - - - -- -
4.5 - - 115 - -- -- - 2 . 4 - - - - - - 110 -
4.0 - 105-- 22 - - - - 95 -
3 .5- 95- 2.0- 80-
3
O 1973 74 75 76 77
85 - - - - - - - - - -
1973 '74 75 76 77
1.8 - -- - - - - -- -
1973 74 '75 76 77
65 - 19
_7_
3_ '7_
4 ___
75--7-
6- -
7-7-
five-year summary
EARNINGS*
OPERATING REVENUES
Passenger .................................
Public service revenues ....................
Other .......................... .. . ... .... ..
OPERATING EXPENSES
Flying operations and maintenance . ....... .
Other operating expenses ..................
Depreciation and amortization . .. ...........
OPERATING PROFIT ..... . .. . .. .. ... . .. .....
OTHER EXPENSES (INCOME)
Interest expense .......... .. ...... . . ... .. ..
Capitalized interest .................... . ....
Interest income and other-net ..............
(Gain) loss on disposition of equipment ......
EARNINGS BEFORE INCOME TAXES ........
Income taxes ..... . .... ...... ..............
NET EARNINGS ............. . ........... . ...
NET EARNINGS PER SHARE ..........
DIVIDENDS PER SHARE ...............
BALANCE SHEET ITEMS*
Current assets ..... .................. ...... . .
Working capital from operations .............. .
Property and equipment-net .. . .. ............ .
Total long-term debt ......... ... ....... ..... . .
Retained earnings ........................... .
Stockholders' equity ......................... .
Shares outstanding ... . ............... ... ... .
Book value per share ........................ .
*The years 1973 through 1976 have been restated for the change in
accounting for lease agreements in accordance with Financial
Accounting Standards Board Statement No. 13 (note B).
STATISTICS
Passengers ................................. .
Passenger miles (000) ....................... .
Available seat miles (000) .................... .
Passenger load factor .... . ...... . ........... .
Cargo ton miles .... ............... .......... .
Revenue plane miles .. .. ... ....... ... ..... . . .
Number of employees ....................... .
1977
$186,641,000
13,079,000
29,403,000
229,123,000
97,685,000
98,313,000
14,590,000
210,588,000
18,535,000
7,781,000
(832,000)
(409,000)
(2,705,000)
3,835,000
14,700,000
1,004,000
$ 13,696,000
$1.11
$ .12
$ 51,742,000
$ 28,505,000
$158,851,000
$ 83,635,000
$ 48,957,000
$ 69,280,000
12,328,000
$5.62
5,547,000
1,392,000
2,861,000
48.7%
13,998,000
33,343,000
3,850
1976
$157,159,000
13,296,000
20,693,000
191, 148,000
83,291,000
81,533,000
11,635,000
176,459,000
14,689,000
5,503,000
(843,000)
(501,000)
(189,000)
3,970,000
10,719,000
3,040,000
$ 7,679,000
$.63
$.10
$ 40,854,000
$ 21,217,000
$137,410,000
$ 80,067,000
$ 36,740,000
$ 56,485,000
12,178,000
$4.64
4,969,000
1,179,000
2,444,000
48.2%
13,052,0U0
30,810,000
3,600
1975
$135,664,000
12,225,000
15,735,000
163,624,000
73,358,000
72,402,000
10,131,000
155,891,000
7,733,000
4,084,000
(757,000)
(540,000)
23,000
2,810,000
4,923,000
(328,000)
$ 5,251,000
$.43
$.10
$ 34, 178,000
$ 14,854,000
$101,563,000
$ 50, 124,000
$ 30,259,000
$ 49,785,000
12,098,000
$4.12
4,581,000
1,072,000
2,235,000
48.0%
11,703,000
29,748,000
3,410
1974
$124,007,000
12,126,000
15,397,000
151,530,000
57,544,000
65,304,000
9,975,000
132,823,000
18,707,000
4,515,000
(341,000)
(1,213,000)
(16,000)
2,945,000
15,762,000
7,512,000
$ 8,250,000
$.67
$.10
$ 38,758,000
$ 20,788,000
$ 83,279,000
$ 38, 194,000
$ 26,236,000
$ 46,344,000
12,312,000
$3.76
4,546,000
1,061 ,000
2,151,000
49.3%
12,585,000
29,055,000
3,360
1973
$104,279,000
9,631,000
14,113,000
128,023,000
46,965,000
59,036,000
9,309,000
115,310,000
12,713,000
4,431,000
(142,000)
(639,000)
(51,000)
3,599,000
9,114,000
2,734,000
$ 6,380,000
$.51
$.05
$ 34,281,000
$ 16,068,000
$ 87,670,000
$ 50,154,000
$ 19,233,000
$ 39,757,000
12,463,000
$3.19
4,263,000
1,012,000
2,139,000
47.3%
13,394,000
29,422,000
3,250
23
24
Each year, over 23,000 people
visit North Central Airlines'General
Office and Main Operations
Base at Minneapolis /St. Paul.
communications
A new " Summer Sun Times"
advertising and sales program is
luring leisure travelers to North
Central's destinations. Vacationers
are invited to tour historical New
England via Boston, visit foreign-yet-
near Toronto, explore Denver and
the Rockies, fish in the Canadian
Wilderness, and enjoy exciting
New York City.
Brochures, movies and advertisements
are telling about special tours and
activities in these markets. All
materials show that North Central
or any travel agent can make
complete arrangements.
The summer program is patterned
after the highly successful winter
promotion that has been in effect for
several years. For the 1977-78 ski
season , the company produced a new
series of TV commercials, a movie
entitled " Skiing - Colorado Style",
and print ads noting "there's more to
Colorado than just skiing". The
airline's sales staff again participated
in winter sports shows and distributed
brochures describing North Central's
tour packages and special fares.
To assist travel agents, the company
prepared a Denver and Colorado
Profile manual containing all
the information needed for vacation
arrangements. This sales aid, similar
to that designed earlier for New York
City, is being expanded to include
year-round data.
The airline also worked with resorts
in the Ironwood/ Ashland area to
promote skiing. Jointly published
brochu res extolled the winter wonders
of Michigan's Upper Peninsula and
North Central's reduced fares
from Minneapolis/St. Paul.
For the first time, North Central
publicized snowmobiling. In coopera-
tion with a major manufacturer, special
package tours were arranged
to the "Great American Snowplaces"
near Brainerd, Rhinelander and
Traverse City. Each location has
marked trails, and visitors can rent
snowmobiles and suitable clothing.
An extensive and comprehensive
advertising campaign introduced the
airline's new Detroit-Boston nonstop
flights. From December 1976
through March 1977, the quality
of North Central's service was
highlighted. This message appeared
in full-color newspaper, magazine
and billboard ads, TV /radio
commercials, colorful mail pieces
and news releases. Personal sales
calls, promotional flights and
audio-visual presentations were made.
The initial campaign-centered in
Detroit and Boston-covered 24 cities.
It was followed by a series of ads
emphasizing scheduled departure
times and convenient direct or
connecting flights to destinations
west and north of Detroit.
Other major nonstop routes were
promoted in Denver, Omaha,
Minneapolis/St. Paul and Milwaukee.
For intermediate-sized cities, ads
pointed out the financial advantage of
new "joint fares"-available to
passengers who travel with North
Central and a connecting airline.
Through 34 news releases to
the media in 1977, the general public
received timely information about
the airline and its service. Monthly
statistics were issued on financial and
traffic progress ; corporate officers
held quarterly meetings with the
investment community.
For five consecutive years, North
Central's annual report has received
a citation from Financial World
magazine. The 1976 edition of this
stockholder publication was chosen
for a Merit Award . The company also
distributes quarterly statements that
summarize financial performance
and major developments.
Sales personnel made 25,000 calls
on travel agencies and corporate traffic
offices in 1977 to emphasize the
airline's service and encourage
suggestions for improvements.
Employees participated in 1,800 civic,
industry and community functions.
In May 1977, North Central hosted the
quarterly meeting of the Association
of Local Transport Airlines.
The company cafeteria was the site
of public events attended by
16,000 persons. A new display
area near the cafeteria entrance
shows the airline's route system and
offers promotional literature to
these visitors. Another 7,000 people,
including business and civic leaders
from various communities, were
given guided tours of the company's
Twin Cities headquarters.
The Northliner newspaper, a perennial
award-winner, is produced monthly
for employees. Each issue contains
information about the company, its
people, and the aviation industry.
Supplements to this publication are
news briefs in the weekly Message,
posted bulletins, and communiques
sent via ESCORT, the company's
electronic communications system.
Now in its tenth year, the Northliner
Magazine continues to provide
quality inflight reading material for
passengers. The bimonthly publication
carries stories about the company
- and people, places and events of
general interest.
Throughout North Central's system,
many friends of the airline help
promote its service. Their generous
support is greatly appreciated.
Su1nmer Sun'litnes
Wild fishing times. Foreign-yet-near Toronto times. Colorado mountain
times. Exciting New York times. Historic New England times.
Take your pick ... and the good times are yours.
Whether you want to go on a Canadian wilderness fishing trip or go
whitewater rafting in Colorado. Visit cosmopolitan Toronto or explore old New
England . Go horseback riding in the Rockies. Play tennis. Golf. The planning
is easy, and the price is right.
North Central and your travel agent have a
number of money-saving tour packages awaiting you.
Simply return the coupon for more info rmation.
And have yourself a great time this summer!
Send to: Sales Dept., North Central Airlines, 7500 Nonhliner Drive, Minneapolis, MN 55450
I'm interested in
D Canadian Wilderness Tours
D Colorado Tours
D New England Tours
D Toronto Tours
D New York Tours
~--- Name ________________ _
Address _ __________ . ____ _
City _______ State _ _ _ _ Zip __ _
NORTH CENTRAL AIRLINES
GOOD PEOPLE MAKE OUR AIRLINE GREAT
NORTH CENTRAL AIRLINES, INC .
7 500 NORTHLINER DRIVE MINNEAPOLIS , MINNESOTA 55450