Northwest Airlines, Inc. NORTHWEST AIRLINES, I N C . , Annual f!7lejtml OFFICERS AND DIRECTORS * OFFICERS CROIL H TER, Chairman, Board of Directors DONALD W. NYROP, President MALCOLM S. MACKAY, E ecutive Vice President FRANK C. JUDD, Vice President-Operations and Engineering LINUS C. GLOTZBACH, Vice President-Personnel GORDON M. BAIN, Vice President ales PAULL. BENSCOTER, Vice President-Orient R egion A. E. FLOAN, Vice President and Secretary PHILLIP T. DROTNING, Vice President- Public R elations LEO ARD S. HOLSTAD, Comptroller WM. J. EIDEN, Treasurer ALROY D. PIEPGRAS, Assistant Comptroller DONALD H. HARDESTY, Assistant Treasurer FRANK J. SCOTT, Assistant Secretary DALE MERRICK, Assistant Vice President-Properties C. L. STEWART, Assistant Vice President-Plans DIRECTORS 19-56 CROIL HUNTER- Chairman, Board of Directors, N@rthwest Airlines, I nc. JAMES H. BINGER- Vice President, Minneapolis-Honeywell R egulator Co., Minneapolis, M inn. A. E. FLOAN-Vice President and Secretary, Northwest Airlines, I nc. MORTON H. FRY- Partner, R ~er and Company, New York City ROBERT M. HARDY- President, Sunshine Mining Co., Yakima, Wash. JOSEPH T. JOHNSON- President, The Milwaukee Co., Milwaukee, W is. MALCOLM S. MACKAY- E ecutive Vice President, Northwest Airlines, I nc. DONALD W. NYROP- President, Northwest Airlines, Inc. ALONZO PEITEYS-Vice President and Director, Farmers State Bank, Brush, Colo. C. FRANK REAVIS- Partner, H odges, R eavis, M cGrath & Downey, New York City ALBERT G. REDPATH- Partner, Auchincloss, Parker & R edpath, New York City WILLIAM STERN- President, Dakota National Bank, Fargo, N. D. LYMAN E. WAKEFIELD, JR.- Vice President, First National Bank of Minneapolis, Minneapolis, Minn. ALBERT J. WEATHERHEAD, JR.- President, The Weatherhead Company, Cleveland, Ohio WHEELOCK WHITNEY- Director and M ember of Executive Committee, Truax -Traer Coal Company, Chicago, Ill. R egistrar THE CHASE MANHATTAN BANK, NEW YORK, N. Y. Transfer Agent BANKERS TRUST COMPANY, NEW YORK, N. Y. * As of March 8, 1957 GENERAL OFFICES : 1885 UNIVERSITY AVENUE , ST. PAUL 1, MINNESOTA TO SHAREOWNERS OF NORTHWEST AIRLINES , INC . EARNINGS The total net income for 1956 was 3,225,595. Preferred dividends amounted to 304,608 lea ing $2 920,987 or $2.18 per share for the 1 341,620 outstand- ing hares of common stock. In 1955 total net income was $2 116,180 which after preferred dividends left earnings of $1.80 per share for the 963,135 shares of common stock then outstanding. The margin of operating re enues over operating expenses was 4 593 243 compared with 4 416,634 for 1955. Because of increa ed interest expense combined with a decline in other income, net income from opera- tions after taxes but before profits from dispo als of property was $1,887,978 for 1956 compared with 2,027,3 19 for 1955. The ear just ended wa the second successi e year in which your compan operated without any subsidy payments from the . S. Go ernment. In 1954 subsidy payments totaled $3,035 000. Profits from disposals of property, mainly aircraft , ere 1,337,617, after taxes. In 1955 uch profits were $88.861. The company more than two years ago placed orders with Douglas Aircraft Company for new aircraft that are now being put into service. The orders for new equipment total ten DC-6B and fourteen DC-7C air- craft. }though the first plane was not delivered until January 19, 1957, total operating revenue in 1956 of 76,672,482 were 7.4o/ o er 1955 and e tabli hed a ne\ high. The record revenues , ere achieved despite the fact available seat miles increased only 3.5o/ during the year and despite a continuing increase in pas enger pref- erence for lower-yield air coach tran portation. Pa - senger re enue of $60 264 291 was up 5.3% U. S. mail revenue of $7,192,138 increased 10.4o/ while foreign mail revenue of 666 287 rose 15.4 . Express freight and excess baggage re enue of 7,154,612 rose 16.8 c. R e enue of 815)73 from charter and other transportation service was more than se en time hat it , a in 1955 primarily due to special government con- tract volume in the international operations. Inter- national operating revenues totaled $25,800,000 repre- enting one-third of otir ystem revenues. Your company carried 1 427 063 revenue passengers on the s stem, an increase of 6.2o/c over 1955. Revenue pa senger miles totaled 1,094 121,438 for a 7.5 o/c rise over the pre ious ear. The system pas enger load factor rose to 60.5 o as load factors impro ed in all of our major operating regions. "\'\' e carried more than 16 million ton miles of mail la t year for an 8.9 improvement o er 1955. Freight ton miles also rose substantially, 31.2 for the ystem. Total operating expen es roe 7.7% o er 1955 while our a,ailable ton miles offered for sale rose 8.5% re- ulting in a further decline in unit co t. Our dome tic operating co t per available ton mile is among the very lo\ e t in the domestic indu try, , hile our international co t compare fa orably with other international air carriers. BANK CREDIT AGREEMENT Our commitment for new DC-6B and DC-7C aircraft were revised and increased during the year 1956, and a new bank credit agreement was negotiated effective - o ember 15, 1956, to supersede the previous agreement of June 30. 1955. The new agreement is with the same group of fifteen banks as were represented in the previous agreement. These banks are all located in cities which we serve. Bankers Tru t Company, ew York i the lead bank. FORTY-SECOND STREET The pre ent agreement permits the company to borrow to a maximum amount of $38,500 000 during the period through September 29 1958, and to a maximum amount of 35,000,000 through December 30 1958. During such period the company may borrow and prepay within uch limit but the amount o, ed as of December 31, 1958 may not exceed 30 000,000. The balance out- standing on that date is payable at the rate of an aggregate amount of 20 thereof each ear for five year . The loan out tan ding on December 31, 1956 , ere 13 800,000. The borrowing are not directly related to any par- ticular aircraft purchase payments of the company but are limited by covenants which relate the maximum borrowing to net flight equipment values (including depo its with manufacturers on the purchases thereof) and to the net worth of the company. one of the property of the company is specifically pledged in sup- port of uch loans but upon request of the banks the company i obligated to provide a chattel mortgage on uch flight equipment a may be designated by them. The intere t rate of 4 % on outstanding loans and the commitment fee of one-half of 1 % per annum are \ery favorable for pre ent money market conditions and reflect a good credit tatus for the company. NET WORTH The net worth of the company at the end of 1956 was 30 171 714 of which $21. 79 per share was applicable to each of the 1 341,620 shares of common stock out- tanding a of December 31, 1956. This compares with net worth of $28 228,484 at the end of 1955, of which 21.60 per hare was applicable to each of the 963,135 hares of common stock outstanding a of December 31, 1955. O ur earned surplus was $9,569,339 at the end of 1956 compared with $7,453 305 at the end of 1955. DIVIDENDS AND STOCK CONVERSION Dividend on the 4.60 o Cumulative Preference Stock were paid regularly on the quarterly due dates of Febru- ary 1, M ay 1, August 1 and ovember 1. The February 1, 1957 quarterly dividend was also paid, on that date. Quarterly dividends of 20c per share of common stock were also paid on the same quarterly dates. The Febru- ary 1, 1957 quarterly common dividend of 20c was paid on that date. Prior to January 1, 1957, each share of the 4.60% Cumulative Preference Stock was convertible, at the option of the holder, into one and one-half shares of common stock. During 1956, 252,323 shares of the Pre- ference Stock were converted to 378,484 shares of common. Conversions of Preference Stock had also been m:11.de in prior years. Furthermore, a number of Pre- ference shares have been retired in past years through sinking fund provisions, thus of the 390,000 shares of such stock issued in May 1947, only 37,577 shares remained outstanding as of December 31, 1956. Pre- ference shares will continue to be retired under the sinking fund provisions. ROUTES International and O verseas-O ral argument before the Civil Aeronautics Board on orthwest's application for permanent certification of its Seattle-Anchorage- Tokyo route was held on February 21, 1957. Previously, the hearing examiner had issued an initial decision recommending that orthwest be granted a permanent certificate for this portion of its international route' struc- ture. This docket is now awaiting Board decision and approval by the President of the United States who makes final decision in all international route matters. Similarly, oral argument was held on February 20, 1957, with respect to the R eopened Trans-Pacific Cer- tificate R enewal Case covering Pan American World Airways' request to operate over the orth Pacific route to Tokyo from its California terminals, as well as from the Pacific orthwest terminals of Portland and Seattle. On December 18, 1956, the hearing examiner issued his recommended decision finding that duplication of North- west's transpacific service from Seattle-Portland to Tokyo by Pan American i~ not required in the public interest. H e did recommend, however, that a Great Circle author- ity for Pan American from the co-terminals San Fran- cisco/ Los Angeles be granted. Northwest continues to oppose all applications of Pan American for North THE DC-7C-NEWEST AND FASTEST Pacific routes. Thi ca e i now awaiting Board decision and Presidential a ppro\'al. In connection with international and overseas routes, orthwest has on file with the Board the following applications which await hearing: 1. Service by orthwe t between Los Angeles and San Francisco California and Tokyo Japan over the Great Circle route. 2. Service by orthwest between Honolulu and Tokyo. 3. Request for authority to serve Winnipeg, Mani- toba, and Edmonton, Alberta, on the same flight. 4. Service by Northwest between Anchorage and Fairbanks. EDMONTON WHEAT AND OIL Domestic-In February 195 7, orthwest filed its brief to the hearing examiner in the Great Lakes-Southeast Service Case, which includes our applications to serve the Florida cities of Tampa/ St. Peter burg and :Miami ia Chicago, Indianapolis Louisville, Cincinnati and Atlanta on one routing and via Detroit, Cle\eland, and Pitt burgh on another. This proceeding also includes our application to add a new egment from Chicago to ashington D. C. via Dayton, Columbus and Pitts- burgh as well as a request to conduct operations between Chicago-Cleveland Chicago-Pittsburgh and Chicago- \ ashington. Al o included in the Great Lakes-Southeast Ser ice Case is a reque t for the remo al of the restric- tion on orthwest's er\'ice " hich prevents ' turn around" service between Detroit and \ ashington, D. C., either non top or \ia Cle,eland and Pittsburgh. In this proceeding your company is placing particular emphasis on it Florida application , approval of which would pro\ide improvement to our finztncial results through access to the rapidly growing southeast markets and relief from our pre ent winter seasonal traffic decline. In 1956 the Ci,il eronautic Board set do, n for hearino- a proceeding known a the Chicago-:Mih aukee- Twin Cities Ca e which will hear applications for com- pet1tlve service on the Chicago-Twin Cities segment. The scope of this proceeding has not been fully defined and hearing dates have not as yet been established. ew Applications and Applications on File-During the year your company filed with the Civil Aeronautics Board a number of new route applications to enable ::-lorthwest to render improved service. These include the following : 1. Addition of Baltimore, Maryland, as a co-terminal with Washington: D. C. 2. Application to elimi_ nate the restriction prohibiting Northwest from operating "turn around" flights between Chicago and New York. 3. Application for service to Flint and Grand R apids, Michigan. 4. Application for service from Detroit to Boston via Buffalo, Hartford/ Springfield. Your company had previously filed applications with the Civil Aeronautics Board to improve its route struc- ture. These applications have not yet befln assigned for hearing. These include the proposals for service as follows : 1. Minneapolis/St. Paul to Los Angeles and San Francisco via Denver and Salt Lake City. 2. Billings to San Francisco via Salt Lake City. 3. Detroit to ew York ia Cleveland, Pittsburgh and Philadelphia. 4. Chicago to Boston via Detroit and Toronto. 5. ew York to Boston via Hartford/ Springfield. As in prior years, your company will continue to seek those route impro ements which will expand our revenue sources and assure further financial strength. ANGLING IN ROCKIES EQUIPMENT AND SERVICE Your company continue to add the most modern aircraft to its growing fl et to provide it u tomer with the fine t and fa t t ervice both within the nited tate and to the O rient. During 1957 ev n new Doug- la D -6B' and eight Douglas DC-7C will be put in operation. Thi program of fleet modernization will continue into th early month of 1958 when three additional DC-6B' and ix DC-7C' will be received. The e aircraft com- bined with the ten DC-6B's and nine Boeino- Strato- . . b crm er. operated m 1956, will give your company a pre unzed fleet of forty-three aircraft which will pro- vide 'top-flight" luxury service between all major cities on our y tern. Thi compare with seventeen pressurized aircraft operated on J anuary 1, 1955. The plane being delivered this year and next, to- gether with pare engine and part will cost approxi- mately 58 million. They , ill gradually replace our older non-pres urized unit which are being disposed of as the needs of th ervice require. Fourteen non- pre urized DC-4 and DC-3 aircraft will be retained to erve point in which airport facilitie will not accommo- date the larger more modern aircraft. The effect of the delivery of the fir t four DC-6B's were already being ob erved as this report went to the printer. A of February 1957, all international pa - enger flight as well a flight within the Orient are flown with pre urized equipment. Thi modern equip- ment provides not only greater passenger comfort, but ignificant reduction in flight time, a well. On flight between Tokyo and H ong Kong the DC-6B aves one hour forty minute and between Tokyo and eoul thirty minute a compared with the older DC-4 unpre urized plane. The fir t of the D -7C aircraft was received in March. and crew training i in progr . With the April 28 chedule, the transpacific flight between S attle/ Port- land and Tokyo will be converted to this equipment, and increased frequencies of ervice will be provided betwe n major points in the domestic sy tern. Radar equipment has now been in talled on the entire fleet of Boeing Stratocruisers and on all but four of our presently operating DC-6B's. Radar on these aircraft will be installed by June 1 of this year. All of the new aircraft will be delivered with radar equipment. T~e initial experience with this equipment, which per- mits safer and more reliable operation of aircraft during all flight conditions, ha demon-3trated that pas enger comfort i ubstantially increased by the ability of the captain to "see" thunderstorm activity miles ahead and elect a clear path around it. R adar is also an im- portant navigational aid in revealing characteristic of the terrain over which the aircraft is flying, thus assi t- ing in determining the exact po ition of the plane. In preparation for acquisition of jet aircraft an' ord r ~vas pl~ced with Pra~t & "Yhitney for twent;-one J-75 Jet eng_mes._ The engmes will be required for the long- range Jet aircraft eventually ordered and a substantial aving in cost was effected by placing the order at this time. The company continues technical and economic studie of jet aircraft, but no decision has yet been made as to ~he t~pe to be ordered. Good delivery positions for new Jet aircraft for early 1960 are available to the company. Six flights weekly with pressurized equipment are bei1:g. flown between Seattle/ Tacoma and Tokyo. In addit10n we 012erate . a we~kly cargo and mail flight and, thus, provide daily ervice to the Orient. Serv~ce between Seattle/ 1:acoma and Hawaii is oper- ated with Dougla DC-6B aircraft four times per week. DUDES FOLLOWING THE LEADER WA IKIKI-DIAMOND HEAD First class luxury service with Boeing Stratocruisers is being provided on many important domestic route seg- ments, such as our Chicago-west coast nonstop, New York-Twin Cities, New York-Chicago, Washington, D. C.-Twin Cities and coast-to-coast. Our interchange agreement with Eastern Air Lines provides daily through service between the Twin Cities of Minneapoli and St. Paul and Miami via Chicago. During winter months our aircraft manned by your company's crews on the Twin Cities-Chicago segment are flown one round trip per day from the Twin Cities to Miami. During the summer month Eastern Air Lines' equipment is used. On March 5, 1956 your company entered into a long- term agreement with the Minneapolis-St. Paul Metro- politan Airports Commi sion whereby the Commi ion would build and your company lease a complete over- haul, operations and general headquarters facility at Wold-Chamberlain Field on a basis that will amortize the Commi sion's cost plu interest over the thirty-year p riod of th lease. More than a quarter of a million dollars worth of engineering work has been done on the project inc that time. o actual construction has berrun because of variom lawsuits that have been filed by t:>certain groups who object to th expansion of Wold- Chamberlain Field and who have challenged the legal tatu of th development of the airport. Legi lation cl irrned to enabl the Commi ion to proceed with the pro:ram i now und r con ideration by the Minnesota Legi laturc. Your company i in ne d of uch a fa- ility in order to ervice the large number of new air- craft to be deljvered this year and next. PERSONNEL Management i grat ful for the cooperation of its employees and proud of the intere t they display in their company's welfare. On D cember 31 1956, your company employed 5,568 men and women of whom 5 151 wer located in the nited State , Alaska, Hawaii and Canada. Four hundred seventeen emplo}' e were located in the Orient of whom 85 o were foreign nationals. Contract negotiation during 1956 wer conducted within an excellent mployee relations atmosphere in which satisfactory agreement were reached providing for rat of pay and fringe benefit equal to the be t among the trunklin air carriers of comparable size to your company. The company training program is continually being strengthened and improved. On-th -job and off-the-job training was provided to technical, maintenance and flight personnel with particular emphasis on training needs relative to th integration of new quipment into our fleet. Increa ed training of ales and customer service personnel made a ub tantial contribution to our improved ervice. Employee interest in the growth of your company is particularly hown by the ugge tions submitted by em- ployee under the company's sugge tion and award plan. During 1956, more than $10 000 wa paid to 259 em- ployee for sugge tion which resulted in tangible com- pany cost reduction and savings of more than $156,000 per year. Your management incerely believes that it has the finest group of employee in the airline indu try and our recruitment program i being trengthened to the end that we will continue to attract the highe t possible type of employee. MANAGEMENT CHANGES At the annual meeting of har holders held on M a 21, 1956, Albert E. Floan, Vice Pre ident and Secretary, was elected to the Board of Director filling a vacancy caused by a re ignation in 1955. On Iovember 15, 1956 Phillip T . Drotnino- was elected to a new position Vice Pre ident-Public R la- tion . For the past eight year Mr. Drotning has erved as Executive Secretary to the Governor of vVisconsin. H e has also had extensive experience a . a new paper and magazine writer. With deep regret we report th death of a Director of your company, Wheelock Whitney, who pa ed away on M arch 23 1957. He had b en elected Director on M ay 18, 1953 and had erved ince that tim with gr at ability and di tinction. We hall mi him k enly. By authority of the Board of Directors Chairman of the Board M arch 25, 1957 Saint Paul, Minnesota Pre idcnt STATEMENTS OF FINANCIAL POSITION NORTHWEST AIRLINES, INC. ASSETS December 31 , CURRENT ASSETS 1956 1955 $ 7,432,277 ount r c i able le allowance of $85,000- 1956, $75,000- 1955........ 7,636 567 Iain t nan and op rating upplie, at av rage co t...... ................ .... ........ 1,896,061 Pr paid .xp n,c .. ........... ................................................................. ............... 452,416 TOT AL CURRENT ASSETS $17,417,321 INVESTMENTS AND OTHER ASSETS R lat d indu try inve tm nts and advance - at o t. ................................. $ 226,973 FLIGHT EQUIPMENT at cost ...................................................................... $57,124,808 Le allowanc for depr ciation and ob" ole cence ........................................ 32,838 728 $24,286,080 d\'anccs on purchase contracts- ote ...................................................... 10,565,169 $34,851,249 OTHER EQUIPMENT AND PROPERTY at cost ............................... $13,261,618 Le allowance for d prccia tion............ ........................................ ....... .... ..... 8 187,183 $ 5,074 435 DEFERRED CHARGES Trainina and oth r co t. in onnc tion with air raft fie t , I accu- mulat d amortization $235,707- J 956. 637 644- 1955 ... ...................... $ 510 814 M ice llan ous .................. ........ ...................................................................... .... 255,745 $ 766 559 $58,336.537 ee notes to finan cial statem ents. $ 6,042,984 6,566,861 1,832 533 379,793 $14822,171 $ 231,450 $56 332 679 29,564,507 $26,768,172 7,509 182 $34,277,354 $12 584,570 7,476,867 $ 5 107,703 $ 709,761 366,269 $ 1,076,030 $55.514, 708 LIABILITIES AND STOCKHOLDERS' EQUITY December 31, CURRENT LIABILITIES 1956 1955 Accounts payable, collections as agent etc ........ ............................................ $ 6,806,737 Salaries, wages and vacations.......................................................................... 2,568,034 Air travel card deposit ..................................................... .. ........... .... ............... 1,031,900 Unredeemed ticket liability.......................................................................... .... 901,405 Income taxes timated .................................................................................. 1,556,747 TOTAL CURRENT LIABILITIES $12,864,823 LONG-TERM DEBT- Note A 4 % otes payable to bank .......................................................................... 13,800,000 3 % ote payable to bank ................................................................... ...... . DEFERRED INCOME TAXES- arising from accelerated depreciation method STOCKHOLDERS' EQUITY - Note C Cumulative Preference Stock, $25 par value ; authorized 600,000 shares is uable in series: 4.6% Series; authorized 375,125 shares; outstand- 1,500,000 ing hares 37,577- 1956, 296,975- 1955- Note B .................................... $ 939,425 Common Stock, $10 par value authorized 3 000 000 hare ; is ued and out tanding share 1 341,620- 1956, 963,135- 1955- Note D .......... 13 416 200 Capital urplu , after deduction of $560,625 in prior years for part of dividends paid on 4-.6 o Cumulative Pref _ rencc Stock.... .................... 6,246 750 Earned urplu ................................................................................................... . CONTINGENT LIABILITY - for repurchase of travel contracts sold- $233,524 COMMITMENTS- ote E See notes to financial statements. 9,569 339 $30,171,714 $58,336,537 $ 6,784,360 2,186,530 940,525 778,453 1,411,356 $12,101,224 14,500,000 685 000 $ 7,424,375 9,631,355 3,719,449 7,453,305 $28,228 484 $55 514,708 STATEMENTS OF INCOME NORTHWEST AIRLINES, INC. Year Ended December 31, OPERA TING REVENUES 1956 195~ Panitendo- \~ ~~~ii=~~j;::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::$6~ ,~~t}~t For io-n mail ...................................................... .. ..... ...... .... ............................... 666 287 Expr fr ight and xc bao-o-ao .............................................................. 7,154 612 hart r and oth r tran portation............... ..................................................... 815,773 th r ... .... .... .... .... .. . ... .. .... .... .... .. . . .... .... ... . ... . .... ...... .. .. ..... ........ ...... ........ .............. 579,381 $76 672,482 OPERATING EXPENSES Fl ino- z md o-rotmd p ration ......................................................................... . $3 7 265,983 ~~~\~na~o~ d~~~ rfftfo 1 ~ ::::::::::::::::::::::::::: :: :::::::::: :: :::::::::::: ::::: ::::::::::::::.._-_-: ::::: 1~ '~6~:i~~ Traffi al and ad rti ino-........... .... .... ........ ........ ........ ................ ............... 9 026,449 dmini tra ti and n ral (in ludino- pay roll taxe prop rty ta e, etc.) 4 390,449 Empl r tirem nt plan.............................................................................. 670 991 $72,079,239 $ 4,593,243 OTHER DEDUCTIONS AND INCOME Int re t on lono-t rm debt. .... .......... ...................................... ..................... ...... $ 582,745 th r in om l mi llan u deduction.. .... ............................................. 62 480 $ 520 265 INCOME BEFORE TAXES AND PROPERTY DISPOSALS ............ $ 4 072 978 TAXES ON INCOME (includino- d fcrr d tax $815,000- 1956, '-l 685 000- 1955 ari ino- from a cl r~ted d prcciation method ) ............ 2 l 85 000 NET INCOME FROM OPERATIONS ....................................................... , 1,887 978 PROFIT FROM DISPOSALS OF PROPERTY, 1 appli abl in- om taxc +90,000-19 6 30,000- 1955.................................................. 1 337 617 NET INCOME FOR THE YEAR ................................................................. , 3,225 595 note to financial tatements. $57,252,957 6,512,846 577,383 6,123,606 111,127 785,575 $71,363,494 $35 056 409 12,538,345 6,370,354 8,419,929 4,085,957 475,866 $66,946,860 $ 4 416,634 350,651 101 336 $ 249,3 15 $ 4 167,3 19 2,140 000 $ 2,027,3 19 88 861 2 116 180 NOTES TO FINANCIAL STATEMENTS NORTHWEST AIRLINES, INC. December 31 , 1956 ote A-Bank Credit Agreement For the purpose of equipment financing (Note E ), a Bank Credit Agreement dated ovember 15, 1956, establishes credits of which the outstanding amount may not exceed $38,500,000 through September 29, 1958, $35,000,000 thereafter through December 30, 1958, and $30,000,000 on D ecember 31, 1958. R epayments aggregating 20% of the borrowings outstanding as of D ecember 31, 1958, are required during each year 1959 through 19 63. The Company has agreed that, among other things, it will not permit (a) its working capital (computed as defined in the Agreement) at any time to be less than certain specified amounts, ranging from $3,000.000 through Ylarch 31. 1958 to $6,000,000 after Jt:ne 30, 1960 ; (b) the unpaid principal balance of the notes outstanding to exceed certain percentages of net worth and certain percentages of the depreciated value of flight equipment ; and (c) its net worth to be less than $34,000,000 after D ecember 31, 1958. ote B-4.6 o Cumulati e Preference Stock This Stock Series is entitled upon voluntary liquidation or redemption to $25 1/4 a share plus accumulated unpaid di i- dends and is subject to retirement through market or sinking fund provisions. At D ecember 31, 1956, 337,548 of the authorized shares had been redeemed and converted and were not reissuable. On or before :March 31 . 195 7 the Company is required to set aside $274,818 in a non-cumulative fund for the purchase, if practicable, on the market of shares of such Stock at not exceeding $25 a share. . ny unused balance after the ensuing twelve-month period reverts to the general funds of the Com- pany. fter 1957, other, and cumulati e, sinking fund pro i- ions become applicable. During any period while the Compan is in default in the payment of dividends on Cumulative Preference tock, the Company may not purchase any of such tock except pursuant to an offer to all holders thereof and may not redeem less than all of such Stock then outstanding. Di idends accruing to February 1, 195 7 ha\e been paid. ote C-Re triction on Earned urplu nder pro isions of the Bank Credit Agreement, the Com- pany is not permitted to declare or pay any cash dividends on its capital stock during any fiscal quarter of 1957 unle s net worth at the clo e of the preceding fiscal quarter is at least: 30 100 000 on D ecember 31 1956. 29,300 000 on M arch 31 '1957, $30,000 000 on June 30, 1957, and 31_,700,000 on eptember 30, 1957. The total of such declarat10ns and payments for 1957 may not exceed $1,057,267, an amount based on net earnings for the year 1956. Similar restrictions in different amounts will apply to 19513 and future years. The Agreement prohibits repurchase of the Company's capital stock, except that 4.6% Cumulative Preference Stock may be retired through market fund purchases (Note B) and out of proceeds of the sale of additional Common Stock. The terms of the Cumulati e Preference Stock also contain provisions relating to dividends on and repurchase of Common Stock which are less restrictive than those above. ote D-Common Stock Options and Reservations Of the unissued Common Stock at December 31, 1956, 41,500 shares were subject to various outstanding options exercisable by Company officer and employees over five-year periods from dates of grants and expiring not later than July 1, 1961. 36,500 shares were exercisable at D ecember 31, 1956 (14 500 at 12.1 25 a share and 22,000 at $15 .675 a share) and the option prices were 95% or more of the fair market prices at the date of grant. An additional 8,000 shares of unissued Common Stock are reserved for options which may be granted in the future to officers and employees. Note E-Commitment At December 31. 1956 commitments hr the purcha e of ten Douglas D C-6B and fourteen D C-7C aircraft (to be deli ered January, 1957 to June, 1958) and other equipment amounted to approximately $62,460,000 on which $10,565,169 had been deposited with manufacturers. Payments of approxi- mately $28,510,000 will be required iJ;J. 1957. Note F-i\lail Tran portation umpen ation ); o final determinations of total mail compensation ha e been made by the Civil eronautics Board on international and domestic routes for 1951 ;,i.nd on international routes for 1954. For these uns@ttled periods the Company has accrued income on the ba i of temporary rates set by the Board. On J anuary 10 195 7 the Board i ued an order a king the Company to show cause why temporary compen ation for 1954 should not tentatively be reduced 1,400,000 pending final hearing . The Company is contesting the Boards actions and cannot predict the outcome at thi time. ~feanwhile no effect has been given in the accompanying financial statements to the proposed reduction \ hich would approximate 650,000 after applicable income taxes. FIVE YEAR STATEMENT OF INCOME ( Amounts shown in thousands) NORTHWEST AIRLINES, INC. Five years ended December 31, 1956 Per cent Increase (D ecrease ) 1956 1956to1955 1955 1954 OPERATING REVENUES Passenger ........................................... ................... ................. $60,264 United States mail... ................... ........................................... . 7,192 Foreign mail... ....................................... .................................. 666 Express, freight, and excess baggage................................ .... 7,155 Charter and other transportation.......................................... 816 Pacific Airlift for United States Government .......... Repair and service income, rents, etc., net ....................... .. OPERATING EXPENSES 579 $76,672 Flying and ground operations .............................................. $37,266 M aintenance and repairs........................................................ 13,819 Provision for depreciation.................................................... 6,906 Traffic, sales, and advertising.............................. .................. 9,027 Administrative and general ( including pay roll taxes, property taxes, etc. )................... ...................... ................. 5,061 $72,079 $ 4,593 OTHER DEDUCTIO s, Net.. ............................................ . 520 I 'COME BEFORE TAXES AND DISPOSALS OF PROPERTY .......... $ 4,073 TAXES O INCOME.................................................................... 2,185 NET I coME FROM OPERATro s .............................................. $ 1,888 PROFIT FROM DISPOSALS OF PROPERTY ................. .................. $ 1,828 Less applicable income taxes ............................. 490 ET PROFIT FROM DISPOSALS OF PROPERTY ......... ................. $ 1,338 ET INCOME FOR THE YEAR ........................... ......................... $ 3,226 5.2% 10.4 15.4 16.8 635.1 ( 26.2 ) 7.4 6.3 10.2 8.4 7.2 10.9 7.7 4.0 108.8 ( 2.3 ) 2.1 ( 6.9 ) 52.5 $57,253 $51,054 6,51.3 6,282 577 504 6,124 5,296 111 50 785 410 $71,363 $63,596 $35,057 $30,044 12,538 11 ,672 6,370 5,606 8,420 7,383 4,562 4,180 $66,947 $58,885 $ 4,416 $ 4,711 249 108 $ 4,167 $ 4,603 2,140 2,400 $ 2,027 $ 2,203 $ 119 $ 287 30 75 $ 89 $ 212 $ 2,116 $ 2,415 1953 (1952 $48,652 $ 1,963 6,869 6,767 496 706 5,373 5,116 180 I 1,055 4 185 \5,464 385 481 $66,140 $61,552 $31,801 $28,371 13,886 15,061 5,731 5,816 7,324 6,504 4,255 4,294 $62,997 $60,046 $ 3,143 $ 1,506 338 311 $ 2,805 $ 1,195 1,465 640 $ 1,340 $ 555 $ 815 $ 1,709 210 475 $ 605 $ 1,234 $ 1,945 $ 1,789 STATEMENTS OF SURPLUS NORTHWEST AIRLINES, INC. Year Ended December 31 , 1956 1955 CAPITAL SURPLUS ( after deduction of 560 625 in prior year for part of dividend paid on 4.6% Cumulativ Preference Stock) Balance at b ginning of ear............................................................................ 3,719 449 Addition ari ing from: Retirement of 7 075 hare of 4.65~ Cumulati\e Prefer nee Stock through market fund purchase .............................................................. 4 071 Sale of 17 850 hare of Common Stock under option agreements ......... . Comer ion uf 252 323 har - 1956 71 135 hare - 1955 of +.6 0 Cumulati Preference Stock into hare of Common Stock ( 1 hare of Common for each hare of Pref rence) ................ ................ 2 523 230 Balance at end of year ...................................................................................... 6 2+6,750 EARN ED SURPLUS Balance at b ginning of ear ........................................................................... . dd net income for the year. .......................................................................... . Deduct ca h dividend on: 4.6 a Cumulative Preference Stock for the year ended November 1 - 1.15 a hare .......... ........................................................... .......... ... ....... . Common Stock- .80 a har - 1956 .60 a hare- 1955 .......................... .. 7 453 305 3 225 595 10,678 900 30+ 608 804 953 1 109 561 Balance at end of ear...................................................................................... 9,569,339 Board of D irectors orthwest Airlines In c. aint Paul, Minn esota. S ee notes to financial statemeT.lts. ACCOUNTANTS' REPORT 2 964 638 43 461 711 350 $ 3 719,+49 6 275 889 2 116)80 $ 8 392 069 387 031 551 733 938,764 7 453 305 We ha,e examin d the fin ancial tatements of oRTHWE T . IRLINE , I NC. for th year Qnded D ecember 31, 1956. Our examination was made in accordance with generally a epted auditing tandard , and ac ordinrrly included such tests of the ac ounting records and uch other auditing procedures a we considered nece sary in the circum tance . In our opinion the accompanyinrr statement of financial po ition and tatement of income ancl surplu present fairly the financial po ition of ORTHWE T AIRLI Es, I ;-.;c. at D e mb r 31 1956 and the result of it operation for the year then ended , in conformit , ith g n rall y accepted a ount- ing prin iplcs applied on a basi consi tent with that of the pre eding year. aint Paul, M inne ota ERN T ER:'\ T farch 8, 1957 ONE OF MINNESOTA'S TEN THOUSAND LAKES NORTHWEST AIRLINES, I N C . , ~ ~ NORTHWEST 0'1,/,L,"'t AIRLINES SYSTEM MAP _ _ . . Routei Ope,aled - - COl'V'lechngA,rl,ne\ ~ Throvgh Pio""' ~ rv,ce P[ll't HC CHINA PROGRESS FOR THE Calendar Total Passenger Express Operating and Freight Year Revenue Revenue Revenue 1956 $76,672,482 $60,264,291 $6,426,502 1955 71 ,363,494 57,252 ,957 5,539,095 - 1954 63,595,851 51 ,053,599 4,676,190 - - 1953 66,140,027 48,652,465 4,890,153 - - - - - > - - 1952 61 ,552,380 41 ,962,758 4,781,081 1951 54,685,060 35, 192,765 4,371 ,533 1950 52 ,456,700 33,148,395 4,122,222 1949 39,970,747 27,873,942 3,163,278 - - - - 1948 34,369,835 24,074,778 2,072,362 - - - - - - - - - 1947 26,800,428 20,520,631 1,019,497 9 - 5 6 LATEST 10 YEARS Revenue Mail Tota l Passenger Ton Plane Miles Miles Miles Flown 1,094,121 ,438 16,780,406 32,461 ,321 1,017,400,443 15,407,054 30,909,610 909,674,550 6,990,462 27,029,860 851 ,174,754 5,002,605 27,816,827 720,046,264 5,017,993 23 ,210,634 602,220,853 I 4,57 1,276 19,53 1,632 I I 613,446,244 I 4,987,56 1 26,868,177 495, I 14,870 I 4,722,800 25,908,552 - ~- 386,509,809 4,026,074 22,288,002 - - 382,544,382 2,736,938 20,824,912 Q NORTHWEST AIRLINES, INC. Printed in U.S.A.