NORTFIWEST ORIENT AIRLINES CITIES SERVED BY NORTHWEST ORIENT orth America Anchorage Atlanta Billings Bismarck/Mandan Boston Bozeman Butte Chicago Cleveland Detroit Edmonton Fairbanks Fargo/Moorhead Ft. Lauderdale/Hollyvvood Fort Myers Grand Forks Great Falls Helena Honolulu Las Vegas Los Angeles/Long Beach/Ontario The Orient Madison Miami Hong Kong Milwaukee Manila Minneapolis/St. Paul Okinawa 1issoula Osaka ew Orleans Seoul ew York Taipei ewark Tokyo Orlando Philadelphia Phoenix Europe Pittsburgh Portland Amsterdam Rochester Copenhagen St. Louis Glasgo\v/Prestwick San Francisco/Oakland/San Jose Hamburg* Seattle/Tacoma Manchester Spokane Oslo* Tampa/St. Petersburg/Clearwater Shannon* Washington. D.C./Baltimore Stockholm Winnipeg * Spring, 1980 DESCRIPTION OF BUSINESS Northwest Airlines, Inc., incorporated in the State of Minnesota, is a scheduled air carrier engaged in commercial transportation of passengers, mail and property and operates under certificates of public convenience and necessity issued by the Civil Aeronautics Board. The present route system covers app10ximately 30,218 route miles and serves directly cities in 21 states of the 48 contiguous states, as well as Alaska, Hawaii, the District of Columbia, Canada, countries in Asia, including Japan, Korea. Taiwan, Hong Kong and the Philippines and countries in Europe including Sweden, Denmark, England, Netherlands and Scotland. Authorizations to serve Shanghai, Beijing, and other points in continental China rernam in effect although presently inoperative. 1979 1978* Total Operating Revenues ............. . $1,310 558,000 $ 790.162,000 Operating Income ..................... . 55,352,000 67,285,000 et Earnings for the Year .............. . 72,475,000 61,841.000 Per Common Share .... . ........... . . 3.35 2.86 Per Dollar of Revenues .. ......... ... . 5. Set 7.8cJ; Stockholders' Equity ......... .. ....... . 849.122,000 793.691 ,000 Per Common Share ................. . 39.24 36.70 Dividends Paid ....................... . 17.306,000 16,210,000 Operating Expenses: Per Available Ton-Mile .............. . 29.4ct 27.9ct Per Revenue Ton-Miles .............. . 63.4q: 65.7 Revenue Traffic: Passengers Carried ............... . .. . 11,636,000 6.575 ,000 Passenger- files Flown .............. . 13.298,161.000 7.018,305.000 Ton-Miles, Mail, Freight & Express ... . 626.401,000 377.851.000 Common Shares at Year End ........... . 21,640.000 21.626,000 Employees: umber at Year End ................ . 12.814 10,680 Total Wages and Benefits Paid ....... . $351.403 000 $222,188,000 *Operating results were affected by a major strike which extended from April 29 through August 15. 1978. 4 Boeing 747F Freighters All cargo aircraft capable of carrying a structural pay load of 262,900 pounds. 22 Boeing 747 Fan-Jets 12 with range of 5,460 miles with 369 passengers. 5 with ran ge of 6.670 miles with 363 passengers. 5 with range of 6,900 mi !es with 369 passengers NORTHWEST ORIENT'S FAN-JET FLEET Total 110 as of De emb r 31. 19 79 2 2 McDonnell Douglas DCl0-40 Fan-Jets Range of 5.100 mile with 236 passengers. 46 Boeing 727-200 Fan-Jets Range of 1.760 miles with 128 passengers. 16 Boeing 727-100 Fan-Jets Range of 2.060 miles with 93 passengers. 3 53rd Annual Report to the Shareholders N orthwest Airlines' net earnings of $72,475,000 were the second highest in the company's history. Revenues of $1,310,558,000 were an all time record. This performance placed Northwest Airlines fourth in net earnings among U.S. airlines for 1979, although the company ranked only eighth in total operating revenues. Coming in the face of an order issued by the federal government which grounded the U. S. airlines' DC10 fleet, including Northwest Airlines' 22 DCl0-40 aircraft. from June 6 through July 13, we feel that 1979 results were very good. Also, as detailed below, the company undertook a major expansion of routes and services during 1979. The very substantial start-up costs of these new services were all charged to current operations during the year; and the major development burden is now behind us. Thus, we can look ahead in the coming years to profitable integration of these new routes into a larger and more competitive Northwest Airlines. Route Development Plan At the company's annual meeting last May we outlined our 1979 route development and operating plan as including three main features: 1. Expansion of our domestic system with new opportunities under deregulation. 2. Inauguration of our first-ever routes to Europe. 3. Expansion of schedules over new routings in the Pacific. Expansion Well Developed We have made considerable progress in developing these 4 expansion plans. Five new cities were added to Northwest Airlines domestic route structure in 1979. St. Louis and Orlando in January; Las Vegas in February; Phoenix in November; and Ft. Myers in December. Five new cities in Europe were linked to Northwest Airlines' system in 1979 with transatlantic 747 passenger service from New York to Copenhagen and Stockholm, and a separate flight pattern from Boston to Glasgow and Copenhagen. In the fall, freighter service was added to Amsterdam and Manchester. Also, as planned, Northwest Airlines inaugurated the first nonstop service to Seoul, Korea from the United States in the spring of 1979. Later in the year we began new nonstop flights from Honolulu to Osaka, Japan continuing to Taipei. These important new services in the Orient markets will serve to enhance the strong position Northwest has built over three decades of transpacific service. New Route Authority Early in 1980 the Civil Aeronautics Board selected Northwest Airlines as the U. S. carrier to provide new nonstop service between Minneapolis/St. Paul and London in the Wild Card Route Case. Subject to confirmation of the CAB order by the President of the United States, service to London will begin on June 1, 1980. The year ahead will also see further expansion of our transatlantic services to three new European cities; Shannon, Ireland; Hamburg, Germany; and Oslo, Norway. Thus, for the first time in its history Northwest Airlines will be able to mount a comprehensive service pattern for passengers and cargo linking a growing domestic system with key markets in northern Europe. This new opportunity will bring continued revenue growth over the years ahead. New Aircraft Coming Deli very was accepted on seven new Boeing passenger aircraft during 1979 - five 7 47-200B's and two 727-200A's. In 1980, as previously announced, Northwest Airlines will take deli very of seven more new Boeing aircraft; four 727-200A's; two 747-200B passenger planes and one 747F all-cargo freighter. A decision on ordering new generation jet aircraft which offer the new advantage in fuel saving design and engine technology will be made in the months ahead. Financial Condition Northwest Airlines continues to maintain perhaps the strongest balance sheet in the entire air transportation industry. At the end of 1979, stockholders equity stood at $849,122,000, and long term debt at only $100,000,000. This favorable debt/equity ratio positions your company very well for the turbulent days ahead, and for expansion of routes and services as new opportunities present themselves. As always, Northwest Airlines continues to maintain careful control of all operating expenses, and throughout 1979 operated at the lowest cost per available t.on mile of any trunk airline. Also noteworthy, as we look ahead to the coming year, is the fact that as of March 1, 1980 - and for the first time i!)- many years - all union-represented A view across the river from Hamburg's city center shows the lovely character of this thriving German city. employees of Northwest Airlines were under contract with no bargaining in progress. Two Officers Promoted Two corporate officers were promoted in recognition of their excellent contributions to Northwest Airlines. John F. Horn was named Vice President-Properties; and Steven D. Wheeler was promoted to Secretary of the Corporation, both on January 3, 1980. Outlook For 1980 Fourth quarter 1979 earnings were down sharply and three main factors will influence the airline industry's performance and that of Northwest Airlines during 1980: 1. Jet fuel prices. 2. The current traffic recession. 3. Second year effects of deregulation. The cost of jet fuel, about 42 cents per gallon in January 1979, is now nearing 90 cents per gallon - and rising rapidly. Today, 42 percent of every revenue dollar is taken by aviation jet fuel. Coupled with rapid increases in the price of fuel, the current recession in traffic may well make it difficult to pass through the full cost increase to the traveling and shipping public. These factors will limit airline profits during 1980. Your company, however. is better equipped than most of its competitors to face uncertain conditions ahead because of its outstanding fleet of aircraft, its demonstrated ability to control costs and its unrivaled financial strength. Blarney castle is a familiar sight to tourists who have visited County Cork, Ireland. Frogner Park in Oslo features some of the most unique sculpture in all of Europe. In 1980. as in the past, Northwest Airlines will continue to rank among the industry's top performers. Sincerely, M. Joseph Lapensky President and Chief Executive Officer March 15, 1980 5 SERVICE HIGHLIGHTS Deregulation Brings New Routes and New Competition; NWA Adds Facilities for Future Growth The advent of airline deregulation saw orthwest Airlines expand its route system substantially in 1979 - and also saw other carriers begin service on NWA's routes. In all, five new U.S. cities were added - Orlando, St. Louis , Las Vegas, Phoenix and Fort Myers. In Europe, new WA facilities were established at Amsterdam and Manchester. Because Boston has become a major hub of operations, both domestically and internationally, orthwest Airlines acquired expanded facilities at Boston Logan Airport's south terminal at a cost of more than $1 million. This increased the gate capacity from two to five aircraft and permitted improved service to the public. At ew York's Kennedy airport, the WA terminal building was dramatically upgraded in support of the new orth Atlantic routes. A completely new baggage claim area was constructed. Another jetway was added. The ticket counter was completely refurbished. At Northwest Airlines' home base in Minneapolis/St. Paul, existing facilities were improved with the addition of a third baggage claim carrousel. The ticket counter was completely renovated and a handling system was installed that provides much better passenger service. Reservations System Improved The combination of heavy traffic, introduction of new and complex discount fares and a lengthy strike against one of the nation's largest 6 airlines placed a heavy burden on all airlines' reservations systems in 1979. orthwest was no exception. To improve customer service and to provide for additional reservations capacity needed in the future , Northwest Airlines has launched a $14 million program. The new Insta Res/Series 80 computer system, when completely installed in early 1981, will provide a 100 per cent increase in the rate of transactions per second, a 12-time increase in the storage capacity of the computer memory and more than triple the speed of NWA's present computer system. In addition to implementing the full range of passenger service functions, the new system will provide new advanced automatic fare quotation and teleticketing programs. ew reservations offices were completed in Los Angeles, consolidating San Francisco operations as well as handling Las Vegas and Phoenix, and in Tampa, which now handles A $14 million computer expansion program was begun by NWA in 1979. Sleeper seats have been installed in NWA's fleet of 747s for added comfort. activities formerly headquartered in Miami. The latter office also handles Atlanta, Fort Myers, Fort Lauderdale, Orlando and New Orleans. Aircraft Refurbished NWA's aircraft fleet has not been ignored in the program to improve the company's facilities and service. More than $10 million is being spent on a complete refurbishment of the airline's Boeing 7 4 7 passenger fleet. No mere facelift, this program calls for complete renovation - removal of all seats, new carpeting and interior wall panels and new galley equipment. Cost per aircraft is in excess of $500,000 for this project. Another improvement in NWA's 747 fleet came with the program to install "Sleep er Sea ts" in the upper deck lounges of these aircraft. These seats permit passengers to recline some 50 degrees if desired and also have an adjustable legrest for additional comfort. New Routes Begun Deregulation of the airline industry brought about several ways to obtain new domestic routes: dormant authority, automatic market entry and the traditional selection process. orthwest Airlines took advantage of these provisions to inaugurate new service in several important markets: WA began service between San Francisco and Seattle on April 29 and between Los Angeles and Seattle on June 8. Service between the Twin Ci ties and Phoenix was started Nov. 15 with one round trip daily. This pattern was increased to two daily round trips on Dec. 18. Fort Myers' service was introduced Dec. 18 on these routings: Twin Cities-Chicago-Fort Myers; Boston-Orlando-Fort Myers and Fort Myers-Tampa-Chicago- Winnipeg . Expansion of baggage claim facilities has improved service in Minneapolis/St. Paul. China Interest Strong Northwest Airlines continues to pursue a strong interest in Two high ranking officials of the People's Republic of China visit the cockpit on a charter flight conducted by WA. restoring its ervice to the People's Republic of China, which was suspended in 1949. Visits to the People's Republic to meet with aviation and tourism officials were made by WA's senior management in 1979. These visits followed earlier visits by sales executives who arranged very successful PRC tour programs working with Pacific Delight, a long-time tour operator in the Orient. orthwest Airlines was also selected to provide a special charter aircraft when Vice Premier Kang Shien, one of the PRC's foremost petroleum experts, and Song Zhenming, minister of petroleum, participated in an eleven day tour of important U.S. energy installations . The tour covered Pittsburgh; New Orleans; Dallas/Fort Worth; Midland, Texas; Liberal, Kansas; Denver, Billings , Spokane and Anchorage. An artist's drawing of WA's new reservation center at Tampa/St. Petersburg, which handles the southeastern U.S. And, in ovember of 1980, orthwest Airlines will carry 800 to 1,000 representatives of some 200 major U. . firms - along with their exhibits and displays - to the first U.S. industrial exhibition to be held in the PR . People Most Important Despite the investment of millions of dollars in new computer systems, ground equipm nt and facilities and aircraft, people remain the most important single factor in delivering airline service to the custom r. In a very busy 1979, orthwest Airlines hired a total of 2,817 persons - and promoted 2,662 others. A total of 558 new flight attendants were employed in 1979 as new rout s and excellent traffic stimulated growth. This wa in addition to 2 31 new transportation agents, 223 new equipment service employees and 2 83 reservations agents as WA continued to upgrade its service. During 1979 negotiations were conducted, and successfully concluded, with three of orthwest Airlines' largest labor unions - Brotherhood of Railway and Airline Clerks, International Association of Machinists and International Brotherhood of Teamsters' Airline Division. Collectively, these unions represent nearly 9,000 of NWA s 12,814 employees. ew agreements were also signed with the unions representing orth west Airlines' meteorologists , technicians , foremen, flight dispatchers, radio and teletype operators and Canadian agent personnel. At the annual 2 5-year service award banquet last ovember 10, a total of 188 long-time WA employees were honored. The recognition that people remain the most important single factor in this servic business will continue to shape management decisions as we enter the highly competitive era of the 1980's. 7 Newon Northwest. BOSTON PHILADELPHIA -~LAN; ~ - SlartlngFeb. 1 NEW ORLEANS ~ - COPENHAGEN and STOCKHOLM _, _ ,.,.. ....,,.....,..lll _, GL.ASGOW, COPENHAGEN -"-' Hi, Las Vegas! We're your new airline. ~ 1'' ~ C I sAN""1 ?RANy cisco New S42 Super Coach Fartt Hi Phoenix! Wfire Northwest ... your new way to Mpls./St. Paul. 50%0FF INTRODUCTORY FARE ss2 s106 _,,..__.,,_.,,. ,.._.,,o, .,.,., :r;."7:t:;:'0...7! .. -:."=~ ... ~~C:.::.':"..:...~~~.:... -;:..~11ltm -:-:.~9':'~=-~..._. "' 7 @ NORTHWEST ORIENT NWA Sets Revenue Record of Glasgow-Copenhagen markets. $1.3 Billion as Transatlantic Service Is Introduced and Five New U.S. Cities Are Added to System 8 It was a year of records and of new services in 1979 as orth west Airlines' sales and marketing efforts produced operating revenues of $1,310,558,000 and a system total of 11,636,000 passengers - both all-time highs. Inauguration of orthwest Airlines' new transatlantic service from Boston to Scotland came on February 10 when all-cargo 747F service was introduced, followed by extension of this service to Copenhagen on March 2. Transatlantic passenger service was inaugurated by orthwest Airlines on March 31 on a routing of ew York-Copenhagen- Stockholm. On April 29, additional service began in the Boston- The second major marketing program centered on introduction of Northwest Airlines' service to five new U.S. cities in 1979 - St. Louis , Las Vegas, Orlando, Phoenix and Fort Myers. TransAtlantic Advertising Establishing Northwest Airlines as a new transatlantic operator was P.Ssential in both the U.S. and European markets . This priority resulted in the largest annual advertising expenditure ever by Northwest Airlines - a total of $12,809,000, up from the previous high of $10,203,000. ational media in the U.S. carried the message of our new transatlantic routes. In Europe, advertising was launched in five countries. This advertising gave emphasis to the exceptional comfort advantages of orthwest Airlines ' 747 aircraft which feature wider seats , fewer seats and roomier aisles than our competitors. A roomier ride to your favorite sun. - KAWAII CALIFORNIA 0-,o,.,,tN u...,~..__F\.,,,_._ T_'Sl,...rno..ot ..__, __ ..,.....,., --Loa ~-S..J:< , ..... '"-'~----u. --ewe- .... .._ ... "!~ - ...,._ __ g,._,_ _ _ - - - - The roomier ride a Northwest Wtde-Cabin @ NORTHWEST ORIENT Price Competition Keen Both in the five new U.S. cities added to orth, est Airlines domestic system in 1979 and in all other of our markets as , ell. airline deregulation had a major impact. One of the most dramatic results was the keen price competition as airlines vi d for customers in both new, and old, markets. There v.ras a marked increase in the number and types_ of discount and promotional fares offered and. as a result. far greater emphasis was given to price advertising than in the past. Tour Programs Expanded ith start-up of transatlantic service, orthwest Airlines' tour programs have expanded to include Europe in addition to the U.S. and the Orient. V\ ith the U.S. rapidly becoming a travel bargain for Europeans, new tour programs were developed centering on Florida - the single most popular tour destination for our travelers from Scandina ia and the United Kingdom. 8\\ tour programs to the People's Republic of China were pioneered b orth\1 vest Airlin - the first advertised in over 20 years. The \t\ ere immediately oversubscribed. Travel Agency Partnership Travel agents continue to be the large t single source of revenue for orthwest Airlines. In recognition of that fact e have continued our very successful program of Travel Fairs. In 1979 approximatel 8,000 travel agents attended these trade shows which feature not only our services, but those of tour and cruise operators and other travel-related services as well. To improve our service to the travel agent communit , 1 orth\ est Airlines has launched a 14 million computer services CHINA An opportunity of a lifetime ll)'Ollec:tro,,.,oi,ca,,ai glll ....,._,::ltlroglQUrSIOOiw\a. ~Plio."9-ll'Ol"l,_,...,.,,....0,-..,,-,A, "In lfl0DOOl'f,IO'I ~~~:.:wrs u~~~ac!:~ -OC~trre~ Aouno-1ni,a,rl&111f the di posal of older. less producti, e aircraft. Inflation trends continue to increase co t in the airline industry. particularlJ in \\ ages. rentals. and cost of materials and supplies in addition to the marked cost increases in jet fuel. Earnings and Dividends Net earnings in 1979 \\ere 72.4 75,000. the second highest in the Compan:'.) 's historJ. or 3.35 per a erage share of common stock outstanding. This compares \\ith 61.841.000 or 2.86 per share in 1978 and 92.719.000 or $4.29 per share in 1977. The 1979 earnings figure of North,\ est Airlines is the fourth highest in Sales Price of Common Shares Quarter 1979 1978 1st High 29 26 Lo 233/s 21 2nd High 28 32 1 -'s Lo 26 23 3rd High 34 371/s Lo 307 /s 26 4th High 283/s 32 Low 26 223/s EMPLOYEE COMPENSATION Thousands of Dollars the U. . airline industr:'.) for the ear, this despit the fact that orth,\ est is the eighth largest airline in the industr:'.). Gain from disposals of propert \\ as 15.544.000. down from 34.290.000 in 1978 and 51,054.000 in 1977 du to a reduction in the number of aircraft sold. orth,\ est irlines continued its dividend payment policJ in 1979 with quarterly pa ments for the 25th consecutive :'.) ear. The cash dividend \\ as increased to . 80 per share in 1979 and totaled 17,306.000. The principal market in \\ hich orth west common stock is traded is Th ew York tock E change. A table shm\ ing the sale price ranges for the ears 1979 and 1978 and th di idends paid per share for the same periods is included in the accompan ing graphs and charts. Taxes On Earnings Income taxes on earnings in 1979 were 11,885.000 compared to 47.194.000 in 1978 and $60.425.000 in 1977. In estment tax er dit earned amounted to 27.396.000. a significant increase from the 6.320.000 in 1978 and 14.851.000 in 1977. The Company continues to use accelerated depreciation method for income tax purposes. Dividends OPERATING REVENUES AND EXPENSES Per Share 1979 1978 $.20 S.1875 .20 .1875 .20 .1875 .20 .1875 M1ll1ons of Dollars REVEN UES 1111 EXPENSES - 1500 1400 32 30 28 26 24 22 20 18 AVERAGE WAGES A.ND FRINGE BENEFITS 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 0 PER EMPLOYEE 1975 1976 1977 1978 1979 1975 1976 1977 1978 1979 11 ACTUAL AND BREAK-EVEN PASSENGER LOAD FACTOR STOCKHOLDERS' EQUITY VS. LONG-TERM DEBT Percent ACTUAL 1111 Millions of Dollars EQUITY 1111 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 BREAK-EVEN 1111 DEBT 11111 900 1975 1976 1977 1978 1979 800 700 600 500 400 300 200 100 0 1975 FINANCIAL REVIEW FOR 1979 (Continued from page 11) Cash Flow Funds generated in the current year from all sources amounted to $204,363,000. Benefits from the Company's policy of owning its own equipment rather than leasing provided funds through depreciation which with amortization amounted to $106,401 ,000 in 1979. Application of funds in 1979 totaled $323.151 ,000 and consisted primarily of flight equipment and ground property additions, advance deposits on aircraft and cash dividends. Seven new aircraft were added to the orthwest fleet in 1979. Traffic and Services Scheduled operations in 1979 reflected gains in both traffic and capacity over 1978 and 1977. Growth in passenger and cargo traffic resulted from increased 12 operations after the 1978 strike and route expansion resulting from deregulation and inauguration of Atlantic services. Northwest carried a record 11,636,170 passengers in 1979. Financial Condition The Company continued to improve its financial position in 19 79 and retained its ranking as one of the strongest carriers in the airline industry. Although orthwest is not immune from the fuel cost problems and general economic conditions that caused the industry considerable financial discomfort in 1979, the Company was able to produce the second highest profits in its history. orthwest's debt to equity ratio on December 31, 1979 was 11.8%. This favorable debt equity ratio is one of the lowest, if not the 1976 1977 1978 lowest, in the U.S. airline industry. 1979 Long-term debt totaled $100,000,000 with repayment beginning in April 1981 and terminating in January 1983. Stod:holders equity at December 31, 1979 was $849,122,000 compared with $793,691 ,000 in 1978. The book value per average common share increased to $39.24 from $36. 70 a year ago. Present financial arrangements are expected to cover the purchase from Boeing Aircraft of two B-747 passenger aircraft, one B-747F all-cargo airplane and four B-727-200 passenger jet aircraft for delivery in 1980. These airplanes with spare engines will require an expenditure of $208,579,000 of which $96 503,000 has been deposited with Boeing at year end. Statements of Earnings NORTHWEST AIRLINES, INC. (In Thousands) Operating Revenues Passenger . ............................................ . Cargo ... ... ........................................... . Mail . .... ..... ........................................ . Charter and other transportation ........................ . Mutual Aid .. .. . . . . .. ................................. . ontransport .......................................... . Operating Expenses Flying operations ....................... ............. . . . 1v1aintenance .......................................... . Passenger service .... . ........................ . .. . ..... . Aircraft and traffic servicing . . .. ................ . ....... . Reservations, sales and advertising . ..................... . Administrative and general .......... . .......... . ..... . . . Depreciation and amortization .. ..... ................... . Other Income (Expenses) Interest on long-term debt, net of capitalized interest of (1979 - $6,240; 1978 - $4.679) - Jote A .. . Gain on sale of flight equipment ........................ . Other .......................... ........ . ..... ......... . Earnings Before Income Taxes ........................... . Income taxes - ote D ................................. . . Net Earnings ................ ... ......... .. .......... .... . s Average shares of Common Stock outstanding during the year ........................................ . Earnings per share of Common Stock ........ .. ............ . See notes to financial statements Year Ended December 31 1979 1,067.214 160.716 38.685 15.093 -0- 28.850 1.310.558 526.887 111.647 114.654 198.509 169.341 27.767 106.401 1.255.206 55.352 1.635) 15.544 15.099 29.008 84.360 11.885 72.475 21 .632 $3.35 1978 * $557.401 87,077 18,944 10,997 104.864 10.879 790,162 241.740 72,233 60.749 117.410 100.615 25,160 104,970 722,877 67.285 3.376) 34,290 10.836 41,750 109.035 47,194 $ 61.841 21.618 $2.86 xOperating results were affected by a major strike \,hich extended from April 29 through August 15. 1978. 13 Statements of Financial Position NORTHWEST AIRLINES, INC. (Dollars In Thousands) ASSETS December 31 Current Assets 1979 1978 Cash and short-term investments .... . .. . . . ... ..... ...... . $ 74,583 $ 184,028 Accounts receivable, less allowance of $1 ,500 (1978 - $1 ,400) . . ...... ..... . ..... ... .. ...... .. .. .. . . 111,432 79,782 Recoverable income taxes ...... .. . .... . .... . ........... . 21 ,726 -0- Flight equipment spare parts , less allowance for depreciation of $17,600 (1978- $17,340) . ...... ...... . 32,461 28,980 Maintenance and operating supplies . .. . .. ... .. .... ..... . 9,238 7,661 Prepaid expenses . .. .. . . .. .. . . .... . .. . .. . . ...... . .. ... . . 3,724 6,058 Total Current Assets 253 ,164 306,509 Other Assets . ... . ..... . . . .. .. . ...... . . ... ... . .......... . . 26,113 19,566 Property and Equipment Flight equipment .. . ........ .. . ....... . . . . .......... . . . . 1,779,770 1,525,442 Less allowance for depreciation . .. . . .................... . 685 ,214 602 ,827 1,094,556 922,615 Advance payments on new flight equipment - Note E .. . . 96,503 98,106 1,191,059 1,020,721 Other property and equipment ....... .... ....... ... .... , . 147,231 129,588 Less allowance for depreciation ...... . ..... . .. . . .... .... . 88,646 83,519 58,585 46,069 1,249,644 1,066,790 $1 ,528,921 $1 ,392,865 14 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses ..... .. .......... . Employee compensation ......... . ........ ........ . .... . Air traffic liability ..................................... . Income taxes .......................................... . Total Current Liabilities Long-Term Debt - ote B ........... ...... .. .. .......... . Deferred Credits and Other Liabilities Income taxes - ote D ................. ........ ....... . Other . ... .... . .. . ...... . ................. .. ........ ... . Stockholders' Equity - ote C Common Stock $1.25 par value, authorized 40.000.000 shares; issued and outstanding 21.639.589 shares (1978 - 21.626,284 shares) ......... ... .. . ............ . Capital surplus .......................... . ............. . Retained earnings ........................ . ....... .... . . Commibnents and Contingencies - otes E and F See notes to financial statements December 31 1979 163.400 29.347 59.5H -0- 252.291 100.000 313.329 14.179 327.508 27 ,049 124.797 697.276 849.122 $ 1978 99,302 27.909 43,714 15,923 186.848 100,000 290,660 21.666 312,326 27,033 124,551 642,107 793,691 $1.528.921 $1,392,865 15 Statements of Changes in Financial Position NORTHWEST AIRLINES, INC. (In Thousands) Funds Provided Net earnings .......................................... . Items not affecting working capital: Depreciation and amortization ........................ . Increase in deferred income taxes .... ........ ....... .. . Total From Operations Proceeds from sale of flight equipment less gain included in earnings ........................ . Other ........... ... ... ...... ......... . ........ ....... . . Total Provided Funds Used Flight equipment and other property additions . . .. ....... . Advance deposits on aircraft ........................... . Cash dividends ........................................ . Other .......... ... ... .. ........... ........... ......... . Total Used Increase (Decrease) In Working Capital ................... . Changes in working capital consist of Increase (decrease) in current assets: Cash and short-term investments ...................... . Receivables ......................................... . Recoverable income taxes ............................ . Inventories .......................................... . Prepaid expenses .................................... . Increase (decrease) in current liabilities: Accounts payable and accrued expenses ............... . Other accrued liabilities .............................. . Air traffic liability ................................... . Current maturities of long-term debt .................. . Increase (Decrease) in Working Capital ................... . See notes to financial statements 16 Year Ended December 31 1979 $ 72 ,475 106,401 22 ,669 201 ,545 2,818 -0- 204,363 193,634 96,503 17,306 15,708 323 ,151 $(118,788) $(109,445) 31 ,650 21 ,726 5,058 2,334) 53,345) 64 098 14,485) 15,830 -0- 65 ,443 $(118,788) 1978 $ 61,841 $ $ ( 104,970 29,311 196,122 6,795 5,509 208,426 52,299 98,106 16,210 -0- 166,615 41,811 54,311 3,631) -0- 805) 350 50,225 2,019) 13,501 932 4,000) 8,414 $ 41 ,811 Statements of Stockholders' Equity NORTHWEST AIRLINES, INC. (In Thousands) Balance January 1, 1978 .. . . .... Exercise of stock options . . .... Net earnings for 1978 . .. . . . ... Cash dividends - $. 75 a share . Balance December 31, 1978 ... . . Exercise of stock options ...... Net earnings for 1979 . .... .. . . Cash dividends-$.80 a share . Balance December 31 , 1979 ..... See notes to finan cial statements APPLICATION OF INVESTMENT TAX CREDIT Available* Appliedt and Reflected on Period in Earnings Tax Returns 1979 .. . ... . . . .. . . $27,395,700 $24,964,200 Applied on ._J Returns . . . . . . . . 24,964!200 To be Applied .... ~ 2!431!500 *The Company uses the flow-through method of accounting for investment credits and records the credits as a reduction of income tax expense in the year earned. tlnvestment credits are applied on tax returns as allowed by income tax regulations. Credits not ap- plied currently are offset against deferred taxes. Common Stock Capital Retained Shares Amount Suq~ lus Earnings 21,607 $27,008 $124,188 $596,476 19 25 363 61,841 16,210) 21 ,626 27,033 124,551 642,107 14 16 246 72,475 ( 17,306) 21,640 $27,049 $124,797 $697,276 NORTHWEST AIRLINES FLEET Year End On Order Aircraft Type 1979 1978 B727 & B727C-100 .... 16 19 B727-200 .. .. . ... .... 46 44 4 DC10-40 . .. . .... . . ... 22 22 B747 .. . ... . . ... . . . . . 22 17 2 B747F ... . . . . ... . ... . 4 4 1 Total . . .. .. .......... 110 106 7 See Note E to financial statements 17 Notes to Financial Statements NORTHWEST AIRLINES, INC. December 31, 1979 Note A - Accounting Policies A summary of significant accounting policies of the Company is set forth below: Basis of Presentation The financial statements include the accounts of the Company and its wholly-owned sub- idiaries after elimination of inter-company accounts and transactions. Short-Term Investments Short-term investments are stated at cost which approximates market and amounted to $65,145.610 and $171,690,041 at December 31, 1979 and 1978, respectively. Flight Equipment and Property Provi ion for depreciation is computed by the straight line method over the estimated useful lives of the assets. Useful lives are estimated at fifteen years with 10% residual values for 7 47 and DC-10 aircraft and ten years with 15% residual values for all other aircraft. Useful lives of buildings vary from 5-30 years and other equipment from 4-10 years. Depreciation of flight equipment spare parts, rotables and assemblies is provided by the straight line method at rates which depreciate cost, less residual value, over the estimated useful lives of the related aircraft. The Company charges e penditures for maintenance and repairs to operating expense. Expendi- tures which materially increase values or extend useful lives are capitalized. Book value of assets old or otherwise disposed of is eliminated from the accounts in the year of disposal and the resulting gain or loss is included in operations. Interest on long-term debt relating to deposits advanced to manufacturers prior to the delivery of n w aircraft is capitalized and amortized over the useful life of the aircraft. Pension Plans The Company has several pension plans covering substantially all of its employees. The policy is to fund pension costs accrued including the amortization of prior service costs over a period of thirty years. Income Taxes In ome taxes are provided at statutory rates to earnings before income taxes regardless of when such taxe are paid. Deferred income taxes arise principally from timing differences between financial and ta -x methods of accounting for depreciation and capitalized interest. The Company use th flow-through method of accounting for investment credits. Investment redit not applied on tax returns are offset against deferred income taxes to the extent they are applicabl to deferr d ta es becoming payable in the investment credit carryover periods. Operating Revenues Pas eng r and cargo revenues are recognized when the transportation is provided. 18 Notes to Financial Statements Note A - Accounting Policies (Continued) Earnings Per Share Earnings per share are based on the a, erage number of shares of Common Stock outstanding. o material dilution \\ ould result upon e 'ercise of out tanding tock options. Note B - Long-Term Debt Long-term debt consists of borro\\ ings from banks pa) able $12.5 million quarterly beginning April 1. 1981. Interest is paid based on a formula related to prime commercial loan rates. havvever. total interest shall not e ceed 7 3/a % per annum over the term of the loan. The debt matures $37.5 million in 1981. $50 million in 1982 and $12.5 million in 1983. The CompanJ was in compliance with the co enants of the debt agreement at the end of both years. At December 31. 1979. approximately $226.000.000 ofretained earnings was unrestricted under the terms of the agreement. Note C - Stockholders' Equity Cumulative Preferred Stock. $25 par alue: Authorized ........ ..... .. ...... ................. . .. . .. . Issued ......................... .... . ...... . .... . ...... . Common Stock options at prices v\ hich were not less than 100% of market at date of grant are as follows: Outstanding at January 1 . 1978 ....................... . Granted ..... . ........ . ............................ . Exercised ......... . ........................... . ... . Lapsed .......... .. ........................... ... .. . Outstanding at December 31. 1978 .................... . Exercised ........ ..... ......... ... .............. .. . Lapsed ................ . . . .......... . .............. . Outstanding at December 31. 1979 .................... . Options exercisable: At December 31. 1978 .............. .......... ..... . . At December 31. 1979 ........ ... ..... ... ... ... ..... . Shares 1979 1.000.000 1978 1.000.000 Tone one Shares Price Per Share 77.300 $19.13/20.06 75.680 22. 75/24.00 ( 19.598) 19.13/20.06 ( 28.472) 19.13/24.00 104.910 19.13/24.00 ( 13.305) 19.13/24.00 ( 1.210) 24.00 90.395 19.13/24.00 33.250 $19.13 55,295 19.13/24.00 Shares available for stock option and other plans were 284.288 and 283,078 at December 31, 1979 and 1978. respectively. 19 Notes to Financial Statements Note D - Taxes on Earnings The provision for taxes on earnings consists of the following: Current: Provision for the year .................................. . Investment credit applied: Earned in current year: Applied on tax return .............................. . Refund for carryback to prior year .................. . Earned in prior years ................................ . Deferred: Provision for the year Investment credit: Earned in current year ............................... . Transferred to current ( earned in prior years, applied on tax return in current year) ............. .. . Total income tax expense ................................ . The deferred expense consists of: Net current items ............................. . ........ . Net noncurrent items .................................. . Year Ended December 31 1979 1978 $11,968,200 $39 ,918,700 ( 9,549,200) ( 6,319,800) (15,415.000) -0- -0- (16,103,800) (12.996,000) 17,495,100 27,312,300 13,595,300 2,431,500) -0- -0- 16,103,800 24,880,800 29,699,100 $11,884,800 $47,194,200 $ 2,211,800 $ 388,500 22,669,000 29,310,600 $24,880,800 $29,699,100 The Company's effective tax rate was 14.1 % for 1979 and 43.3% for 1978. The rates are lower than the statutory federal rate primarily because of investment tax credits earned. Note E - Commibnents The Company does not lease any aircraft or related flight equipment. At December 31, 1979 the Company had contracted to purchase two B 747-200B, one 747-200 F and four B 727-200 jet aircraft and spare engines for delivery in 1980 for which deposits of $96,503,000 have been made with the manufacturers. Additional expenditures of $110,345,000 will be required in 1980. Leased property consists of space in air terminals. land and buildings at airports, and ticket, sales and reservation offices under noncancelable operating leases which expire in various years through 2010. Portions of these facilities are subleased under noncancelable operating leases expiring in various years through 1991. 20 Notes to Financial Statements Note E - Commibnents (Continued) Future minimum rental commitments at December 31 , 1979 for noncancelable operating leases with initial or remaining terms of one year or more. of which $243.673.000 is for air terminal and airport facilities, are as follows: 1980 1981 1982 1983 1984 $ 15.650.000 15,303.000 14.344.000 13.392,000 13.063.000 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178.721.000 250,473.000 Sublease rental income . . . . . . . . . . . . . . . . ( 6.815.000) $243.658.000 Rental expense for all operating leases consisted of: Minimum ............................................... . Sublease rental income . . ................................. . Note F - Contingencies 1979 $22,029.000 ( 842.000) $21.187,000 1978 $16.568,000 ( 724,000) $15 .844,000 The Company is a defendant in a class action brought in 1970 in federal court in\\ ashington. D.C. by c;;ertain of its female cabin attendants alleging violations of certain provisions of the Equal Pay Act of 1963 and the Civil Rights Act of 1964. The trial judge held that provisions of both statutes had been violated by the Company. The Company appealed that decision. The Court of Appeals for the District of Columbia affirmed the trial judge on all substantive issues and remanded the case for further consideration including (1) a redetermination as to whether plaintiffs seeking recovery under the Equal Pay Act may be entitled to liquidated damages which could effectively double the Company's liability to certain of the plaintiffs and (2) a determina- tion of the appropriate statute of limitations applicable to the alleged Civil Rights Act iolations which could also increase the Company's liability. After a denial of a motion for rehearing by the Court of Appeals. the Company petitioned the Supreme Court of the United States to revie\\ the decision of the Court of Appeals. That petition was denied on February 21. 1978. The case has been remanded to the trial court to decide the unresolved issues and to identify specific plaintiffs and the amounts to which they are entitled. 21 Notes to Financial Statements Note F - Contingencies (Continued) On remand the trial court decided that a three year rather than a two year statute of limitations of the District of Columbia is applicable to the alleged Civil Rights Act violations thereby increas- ing the Company's potential liability for back pay by one additional year. The Company estimates that its ultimate liability may range from approximately $1 million to approximately $50 million. However. either party has the right to seek appellate review of the case again following the trial court's further decision, so that no specific amount of ultimate liability may be estimated as probable. The Company has brought action against the unions that represented the plaintiffs in the class action described above. The Company seeks indemnification and contribution from the unions for any liability for which the Company may utlimately be held responsible. The District Court held that the unions may be liable for contribution under the Civil Rights Act but not under the Equal Pay Act. The Court of Appeals for the District of Columbia affirmed the lower court with respect to the Equal Pay Act claim and interjected an issue, which was raised by the defendants on appeal, of whether the Company's claim under the Civil Rights Act is barred because the claim was asserted too late. The Company has petitioned the Supreme Court of the United States to review the Court of Appeals decision. The Supreme Court has not acted on the petition. The outcome of this lawsuit cannot be predicted. The Company is a defendant, along with other airlines , in a number of legal actions alleging noise and air pollution resulting from aircraft operations around certain airports. Company management does not believe that these actions will result in material liability to the Company. Note G - Pension Plans The Company's pension expense was $29,691 ,000 in 1979 and $27,941 ,000 in 1978. Unfunded prior service costs at January 1, 1979 were estimated by consulting actuaries to be $30,625,000. The market value of the assets in all pension funds was $252 ,681,000; $7,971,000 less than the vested benefits estimated by the consulting actuaries. Note H - Export Sales Northwest Airlines, Inc. is a scheduled air carrier engaged in commercial transportation of passengers, mail and cargo, and operates under certificates of public convenience and necessity issued by the Civil Aeronautics Board. Operating revenues include export sales of $255,000,000, principally associated with countries in Asia. Revenue from sales consummated in foreign countries is considered to be export sales. 22 Notes to Financial Statements Note I - Quarterly Results of Operations (Unaudited) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1979: (In Thousands) Earnings Operating Operating et Per Share of Revenues Expenses Earnings Common Stock 1979 First quarter .. ..... .... ...... $ 279 ,183 $ 263 . 700 $17,353 $ .80 Second quarter ... .... ....... 343,795 296,628 34.138 1.58 Third quarter .. ...... .. ...... 354,122 338,815 18,956 .88 Fourth quarter ... .... ........ 333 ,458 356.063 2,028 .09 $1,310,558 $1 ,255.206 $72.475 $3.35 1978 First quarter .. . . . . ..... ...... $ 275.616 $ 250,983 $16,563 $ .77 Second quarter .............. 160.310 140,145 20,546 .95 Third quarter ........ . .... ... 115,804 111.247 11,552 .53 Fourth quarter .. ... ... .. . .... 238,432 220,502 13.180 .61 $ 790,162 $ 722 ,877 $61 ,841 $2.86 Note J - Supplemental Information on the Effects of Changing Prices (Unaudited) AS REQUIRED BY FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) STATEMENT NO. 33, "FINANCIAL REPORTING AND CHA GI G PRICES", THE COMPANY MUST PRO- VIDE SUPPLEMENT AL INFORMATION CONCERNING THE EFFECTS OF CHANGING PRICES ON ITS FINANCIAL STATEMENTS. The disclosures are intended to address two different aspects of an inflationary environment: (1) the effect of a rise in the general price level on the exchange value or purchasing power of the dollar (called " general inflation") and (2) the specific price changes in the individual resources used by the Company. Because there is presently no consensus on which aspect of inflation (if any) should be reported. FASB has devised an experiment requiring certain large, publicly held companies to present supplemental informa- tion reflecting both types of inflation measurements. IT IS IMPORT ANT THAT FINANCIAL STATEMENT USERS UNDERSTAND WHAT THE INFLATION-ADJUSTED DATA IS INTENDED TO REPRESENT, AND ALSO RECOGNIZE ITS INHERENT LIMITATIONS. THE COMPANY HAS SERIOUS RESERVATIONS ABOUT THE USEFULNESS OF THIS DAT A. The Company believes that the following information is essential for a proper understanding and assessment of the data presented: 23 Notes to Financial Statements Note J - Supplemental Information on the Effects of Changing Prices (Unaudited) (Continued) THE SUPPLEMENT AL INFORMATION ON CHANGING PRICES DOES NOT REFLECT A COM- PREHENSIVE APPLICATION OF EITHER TYPE OF INFLATION ACCOUNTING. During the experimental period the FASB decided to focus on those items most affected by changing prices, that is: (1) the effect of both general inflation and specific price changes on properties and related depreciation expense, and (2) the effect of general inflation on monetary assets and liabilities. Statement of Earnings Adjusted for Changing Prices Year Ended December 31, 1979 (Dollars In Thousands) Operating revenues ................ . Depreciation and amortization ...... . Other operating expenses ........... . Gain on sale of flight equipment .... . Other income, net .................. . Earnings (loss) before income taxes .. . Income taxes ...................... . Net earnings (loss) ................. . Other Information Purchasing power gain from holding net monetary liabilities during the year Increase in specific prices ( current) costs) of property and equipment As Reported in the Primary Statements $1,310,558 106,401 1,148,805 15,544) 13,464) 1,226,198 84,360 11,885 $ 72,475 held during the year* ............................. . Less effect of increase in general price level ........................................ . Excess of increase in specific prices over increases in the general price level .. . ... . ...................................... . Adjusted for General Inflation $1,310,558 161,793 1,148,805 ( 11,501) ( 13,464) 1,285,633 24,925 11,885 $ 13,040 Adjusted for General Inflation $ 47,349 Adjusted for Changes in Specific Prices (Current Costs) $1,310,558 183,299 1,148,805 -0- 13,464) 1,318,640 8,082) 11,885 $( 19,967) Adjusted for Changes in Specific Prices ( Current Costs) $ 47,349 $275,281 241,196 $ 34,085 *At December 31 , 1979, current cost of property and equipment, net of accumulated deprecia- tion, was $2,119,178,000 (historical amount - $1,249,644,000). 24 Notes to Financial Statements Note J - Supplemental Information on the Effects of Changing Prices (Unaudited) (Continued) Five Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices In Average 1979 Dollars Year Ended December 31 1979 1978 1977 1976 1975 (In thousands of dollars, except per share data) Operating revenues . . . . . . . . $1 ,310,558 $879,126 $1 ,253 ,320 $1 ,228,926 $1,079,667 Historical Cost Information Adjusted for General Inflation Net earnings ............. . Per share data ............ . Net assets at year-end ...... ... ...... . Current Cost Information Net earnings (loss) ........ . Per share data ...... . ... .. . Excess of increase in specific prices of property and equipment over increase in the general price level . ..... . Net assets at year-end ..... . Other Information Purchasing power gain from holding net monetary liabilities during the year ... .... .. . Cash dividends declared per common share ...... . Market price per common share at year-end ....... . Average consumer price index .... .... .. ... ... .. . $13,040 $ .60 $1,324,008 $(19, 967) $ (.92) $ 34,085 $1 ,741,563 $ 47,349 $.80 $26.13 217.4 $.83 $30.54 195.4 Statement of Earnings $.60 $27.60 181.5 $.57 $37.11 170.5 $.61 $30.07 161.2 The accompanying supplemental statement of earnings presents income data under three measurement methods. These are: 25 Notes to Financial Statements Note J - Supplemental Information on the Effects of Changing Prices (Unaudited) (Continued) a. As Reported in the Primary Statements - This amount is net earnings as reported in the primary financial statements on the historical cost basis of accounting. Under generally accepted accounting principles the effects of changing prices generally are not recognized for assets and liabilities. b. Adjusted for General Inflation - This represents the historical amounts of revenues and expenses stated in dollars of the same (constant) general purchasing power, as measured by the average level of the Consumer Price Index (CPI) for 1979. Under this measurement method, historical amounts of depreciation expense and the gain on the sale of properties are adjusted to reflect the change in the level of the CPI that has occurred since the date the related properties were acquired. The amounts of revenues and other costs and expenses already approximate average 1979 constant dollars and remain unchanged from those amounts presented in the primary financial statements. c. Adjusted for Changes in Specific Prices (Current Costs) - Income under current cost accounting attempts to deal with a different issue than income adjusted for general infla- tion. The specific prices of the Company's property have risen at a different rate than the general inflation rate as measured by the CPI. Current cost accounting measures properties at their current cost (rather than their historical cost) at the balance sheet date; depreciation is computed on average current cost for the year. Purchasing Power Gain From Holding Net Monetary Liabilities During the Year When prices are increasing, the holding of monetary assets (e.g ., cash and receivables) results in a loss of general purchasing power. Similarly, liabilities are associated with a gain of general purchasing power because the amount of money required to settle the liabilities represents dollars of diminished purchasing power. The net gain in purchasing power is shown separately in the accompanying supplemental data. The amount has been calculated based on the Company's average net monetary liabilities for the year multiplied by the change in the CPI for the year. Such amount does not represent funds available for distribution to shareholders. Increases in Current Cost of Properties Under current cost accounting. increases in specific prices ( current cost) of properties held during the year (including realized gains and losses on those sold) are not included in income from continuing operations but are presented separately. The current cost increase is reduced by the effect of general inflation measured by app lying the annual rate of change in the CPI to the average current cost balances of properties. Current Cost Measurements The current rate of property and equipment has been estimated by management using pricing data furnished to the airline industry by the Air Transport Association. Flight equipment represents approximately 95% of the property and equipment. Current cost depreciation is based on the average current cost of properties during the year. The depreciation methods (straight-line), salvage values and useful lives are the same as those used in preparing the primary financial statements. Current cost calculations involve a substantial number of judgments as well as use of various estimating techniques that have been employed to limit the cost of accumulating the data. The data reported should not be thought of as precise measurements of the assets and expenses involved. but instead represent reasonable approximations of the price changes that have occurred in the business environment in which the Company operates. Current cost does not purport to represent the amount at which the assets could be sold. 26 Report of Ernst & Whinney, Independent Auditors To the Stockholders and Board of Directors Northwest Airlines , Inc. Saint Paul, Minnesota We have examined the statements of financial position of Northwest Airlines, Inc. and sub- sidiaries as of December 31 , 1979 and 1978, and the related statements of earnings, 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 cir cums tan ces. In our opinion, the financial statements referred to above present fairly the consolidated finan- cial position of Northwest Airlines , Inc. and subsidiaries at December 31 , 1979 and 1978, and the consolidated results of their operations and changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Saint Paul, Minnesota February 14, 1980 Notice to Stockholders Any person who either owns, as of December 31 of the year preceding issuance of this annual report, or subsequently acquires, beneficially or as trustee, more than 5 per centum, in the aggregate, of any class of the capital stock or capital of the air carrier, shall file with the Civil Aeronautics Board (CAB) a report containing the information required by Section 245.12 of the CAB's E,conomic Regulations on or before April 1 , as to capital stock or capital owned as of December 31 of the preceding year, and, in the case of stock subsequently acquired, a report under Section 245 .13 of such Economic Regulations, within 10 days after such acquisition, unless such person has otherwise filed with the CAB a report covering such acquisition or ownership. A bank or broker which holds, as trustee, more than 5 per centum of any class of the capital stock or capital of an air carrier to the extent that it holds such shares on the last day of any quarter of a calendar year, shall file with the CAB, within 30 days after the end of the quarter a report in accordance with the provisions of Section 245 .14 of the CAB's Economic Regulations. Any person required to report under the CAB 's regulations who grants a security interest in more than 5 per centum of any class of the capital stock or capital of the air carrier shall, within 3 0 days after granting such security interest, file with the CAB a report containing the information required in Section 245.15 of the CAB's Economic Regulations. 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 Aeronautic Board, Washington, D. C. 20428. 27 10 Year Summary* NORTHWEST AIRLINES, INC. (Doll,us in thousands except per share figures] 1979 1978t Operating Revenues Pa n er o o o ' o o o o o o o o 0 o o o I ' o o o o o o + o o + o o o o o O ' ' $ 1,067,214 $ 557.401 argo ......... ' ................. ' .............. ' .. 160,716 87.077 Mail ... ..... . ' ' ' ............. ........... ..... .... ' 38,685 '18,944 Chart r and oth r transportation . ' . ' ............... ' 15,093 10,997 ontra ns port ................... ' ................ ' 28,850 115.743 Total Operating R v nu s $ Operating Expenses 1,310,558 $ 790.1 G2 D preciation and amortization .................... ' ' $ 106,401 $ 104,9 70 0th r ......... ' ............... ' ................. ' ' 1.148,805 G'I 7.90 7 Total Operating Expenses $ 1,255,206 $ 722.B77 Op rating in ome . ...... ........ ' . .. ........... ... '. $ 55,352 $ 67,285 Interest expense on long-term d bt ........ .. ......... . (1,635) (3 ,376} 0th r incom and (deductions) - net ............... 30,643 45,126 Earning b for ta 'e .............................. ' ' . $ 84,360 $ lm).035 Income ta ... ' ' ............... ' . ' ........ .... .. ' .. 11,885 47,194 Net Earnings 1 ~ 1 . . .................. '. $ 72,475 $ 6 l.841 Earning p r av rag har I l l $ 3.3r.:: $ 2.86 ............................ Cash dividend . ' ' ............... ' ' .............. ' . '. 17,306 16,210 Divid nds per share .................................. .80 . 75 Stockholders' equil .............. ' ..... ........ .. ' ... 849.122 793,6~)1 umber of hares out landing al end of y ar ........... 21,6 9,58 21,626.284 Book value per share at nd of y ar !~. 1 . $ 39.24 $ 36.70 Assets and Long-Term Debt Flight prop rty at cost ... . ... . ....... . ................ $ 1,779,770 $ 1,525,442 Flight prop rty at net book value .. . ............. ...... 1,094,5 6 922,615 Total asset ' o o o o o I ' o o o o o o o o o o o o o o o ' 1,528,921 1,3SJ2,865 Long-term d bt .. ' ......... ' ...... ' .......... ..... .. ' 100,000 100.000 Unit Expenses Per available ton-mile ......... ' ' ' ................. . 29.4(/; 27.9 Perr v nu ton-m ile .......................... .. ... 63.4(/; 65. 7(J; Per cent of op rating revenu es . ' . ' ................ '. 5.8% ~H.5% Statistics - Scheduled Services Revenue plane-mil s (000) ........................ 116,lOr.:: 6(),420 Available seat-mil s (000) ........ ' ... ' ............. 24,028,928 14.302,03 7 Revenue passenger-miles (000) ... . ... ............. . ' 13,298,161 7,0'18,305 Pa senger load factor ...... . .. . . ... . ............. ' . ' 55.3% 4~U% Rev nue passengers carri d ............ ... .... . . .... 11,636,170 6,574.901 Freight and c pre s ton-miles l 000) ... . ... .... ... . '. 504,753 302. l 53 Total rev nu ton-miles (000) .... ' .............. '.'. 1,956,217 1,079,681 Statistics - Total Operations Revenue plane-miles (000) . . .... . ................... 117,027 67,471 Available ton-mi les (000) .... . . ' ' .............. '. 4,26 5,640 2,594,632 o t C:O \ '<' l'f' cl by 1\c-countnnt s I-{cport t Stri~Ps t1 d\t'f'Sl'!\ afrt'lll'd t~J 70 . tD 72 ;incl l!l 7H and the strikn recovery period of t9 71. 111 Sec Financial Review pages IO through 12 for Management's Discu sion and Analysi ofth, Summary of Operations. 1~1 PPr share> figures rnflcc-1 the increase in outstanding shares resulting from tock iss ues in 1970 and 1972. 28 1977 $ 861,053 $ 121,185 29,894 25,871 8,352 $ 1,046,355 $ $ 103,152 $ 838,619 $ 941,771 $ $ 104,584 $ (6,518) 55,078 $ 153,144 $ 60,425 $ 92.7 I 9 $ $ 4.29 $ 10,804 .50 747,672 21,606,686 $ 34.60 $ $ 1,510,447 $ 962,957 1,299,451 100,000 22.9q; 54.4(f, 90.0% ll 1,2 7 l 22,968,489 11.100 ,412 48.3% 10,354 ,808 458,143 1.676,470 114,643 4,109.110 1976 1975 1974 1973 1972t 1971t 1970t 786,414 $ 659,849 $ 628.488 $ 4 76.794 $ 277 .891 $ 331.966 $ 2fi0.335 119,882 88.308 76.157 55,280 34,694 39,641 30,053 25.137 23,280 22,9'11 18,415 13,309 19,443 18,Sl58 25,955 29,019 27,322 28,517 20,009 31.588 20.800 6.420 107 4,113 5,342 46,598 2,881 48.894 - - - - - - 963,808 $ 800,563 $ 758,991 $ 584,348 $ 392,501 $ 425.519 $ 37~).04() 102 ,7 13 $ 98,880 $ %,213 $ 87,642 $ 81,054 $ 77,245 $ 69,173 758,147 651,983 584,993 445,401 296,348 330,108 258,784 860,860 $ 750,863 $ 681,206 $ 533,043 $ 377,402 $ 407,353 $ 327.957 102.948 $ 49,700 $ 77,785 $ 51,305 $ 15,099 $ 18,166 $ 5'1 ,083 (14,035) (16,120) (19.554) (14,758) (8,356) ('13.051) (6,296) 9,351 13,509 40,148 19.133 l0.510 6,685 (227) 98,264 $ 47,089 $ 98,37S) $ 55,680 $ 17,253 $ 11,800 $ 44,560 46,527 3,693 33,631 3,830 (429) (9,561) 121 51,737 $ 43,396 $ 64,748 $ 51,850 $ 17 .682 $ 21,361 $ 44,439 2.39 $ 2.01 $ 3.00 $ 2.40 $ .83 $ 1.01 $ 2.11 9,707 9.710 9,722 9,722 9,620 9,518 9,465 .45 .45 .45 .45 .45 .45 .45 665.744 623,677 589,991 534,965 492,837 477,054 465,210 21 ,606,036 21,604,136 21,604.136 21,604,136 21,604,136 21,149,756 21,149,756 30.8 1 $ 28.87 $ 27 .31 $ 24.76 $ 22.81 $ 22.56 $ 22.00 l ,448,402 $ 1,420,670 $ 1,282,556 $ 1,216.632 $ 1,008,041 $ 1,012,568 $ 929,181 924,537 977,062 907,935 861,231 682,020 709,433 668,129 1,151,562 1,215,146 1,121,153 1,085,632 920,418 944,302 923,126 122,000 246,000 213,900 284,000 208,000 252,500 260,915 21.6 20.6 19.9 15.8Iinne ota Lyman E. vVakefield. Jr. t \ ice Chairman of the Board. Resource Trust Co. Minneapolis. ~1inne ota t7vfember. Audit Committee THE OFFICERS OF OR HWEST OR ENT AIRLINES* 1. Joseph Lapensky President & Chief Executi\e Officer James A. Abbott \ 'ice President-Law Robert \ \ . Campbell \ ice President-Budgets J. \\ illiam Campion \ ice President-Regulatory Proceedins Rov K. Erickson Vic'e President-Public Relation Robert J. Glischinski \ ice President-Communication and Computer Senice Benjamin G. Griggs Jr. \ ice President-Assistant to the President John F. Horn \ ice President-Properties \\ illiam E. Huskins. Jr. \'ice President-11aintenance and Engineering x A of :\larch 15. 1980 Co-Registrars and Transfer gents: Reginald C. Jenkins \ ice President-Orient Region T. J. Koors \ ice President-Transportation Services \ \ illiam . Kutzke \ ice President Thomas E. McGinnit \'ice President-Purchasing and Stores Br an G. Moon \ ice President-Ad\'ertising James F. Redeske \ 'ice President-Personnel Steven G. Rothmeier \ ice President-Finance and Treasurer Robert E. Strite \ ice President-Comptroller Ste en D. \ \'heeler Secretary Robert J. \\right \ 'ice Pre ident-Sales :\orth\\e tern :\"ational Ban . :\finneapoli . :\finne ota l\'orth\\estern Trust Co .. ~ ,, Yor ' . l\"e,, York Stock Listed: Common tock li ted on 1ew York E; chance. Pacific Coa t tock Exchance and l\Iid,,e t tock E chance General Office : :\finn apoli - t. Paul International irport. t. Paul. :\linne ota 55111