Northwest Airlines Annual Report 1983

Northwest Orient Airlines Annual Report 1983 BUILDING AND EXPANDING
FOR FUTURE GROWTH
Northwest Orient Airlines Highlights 1
1983 1982* 198 1
Total Operating Revenue $2,196,036,000 1,877 ,568,000 $1,854,290,000
Operating Income (Lo s) 68,886,000 (8,375 ,000) 1,747 ,000
et Earning for the Year 50,073,000 5,019 ,000 10,460,000
Per Common Share 2.19 .23 .48
Per Dollar of Revenue 2.3 .3 .6
Stockholder ' Equity $854,189,000 820,605 ,000 $832 510,000
Per Common Share 39.33 37 .85 38.43
Dividend Paid 17,367,000 17,332,000 17,326,000
Operating Expenses:
Per Available Ton-Mile 40.5 40.7 41 .0
Per Revenue Ton-Mile 76.0 80.3 83.9
Revenue Traffic:
Pa enger Carried 12,718,000 11 ,356,000 11 145 000
Pa enger-Miles Flown 17,711,929,000 15 675 ,194 000 14,25 l 932,000
Ton-Miles, Mail and Freight 979,753,000 739,955 ,000 761 ,622,000
Common Shares at Year End 21,716,000 21 678 000 21 ,661 ,000
Employee :
umber at Year End 14,187 13 ,754 13 ,096
Total Wages and Benefit Paid $569,535,000 478 953 ,000 444,054,000
*Operating results were affected by a major strike which extended from May 22, 1982 to June 17, 1982 .
Operating Revenue
(Million of Dollar )
2.400
2.000
1.600
1.200
800
400
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et Earning
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Scheduled Revenue Pa enger -
Mile (millions)
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15.000
12.000
9.000
6.000
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Mile (million )
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From the Chairman and Chief Executive Officer
Th 57th Annual R port to Shareholder
In 1983 orthwe t Airline po ted its tronge t financial re ult ince 1979 with
net earning of 50 million or 2.19 per hare, up from 5 .0 million or 23 cents
per har in 1982. Our trong performance wa highlighted by everal key
de elopment :
Total operating revenue urpa ed $2 billion for the fir t time in our
hi tory, increa ing 17 percent to $2.2 billion.
Freight revenue increa ed sharply to 290 million, up 41 percent
from 1982.
Operating income wa $69 million, and with total depreciation at 147
million, our ca h operating income amounted to $216 million.
orthwe t wa one of the few airline to avoid intere t expense in 1983.
By inve ting the proceed from our 100 million debenture i ued in February
1983 , our investment income exceeded net interest expense by $4.4 million -
an out tanding performance in an indu try addled by heavy debt.
Our ability to grow and prosper in a highly competitive environment wa
evidenced by a 13 percent increase in pas enger traffic and by a 60 percent
sy temwide passenger load factor, our highest since 1956.
Fleet Expansion
All of the aircraft in our fleet are owned and paid for. Late in 1983, we
announced plans to purcha e 20 new-generation Boeing 757 passenger aircraft,
valued at 800 million including engine and pare parts. The 757 are scheduled
for deli very at the rate of 10 in 1985 and 10 in 1986. These fuel-efficient planes,
equipped with the new Pratt & Whitney 2037 engine, will enhance our
competitive capabilitie and permit profitable expan ion of our dome tic route
y tern .
In September, we received delivery of a new Boeing 747-200 freighter, our
ixth, and placed it in ervice in the growing Pacific air freight market. In
addition, to increa e our international capacity we purcha ed four new long-
range Boeing 747-200 pa senger aircraft for delivery in Spring 1984, thu
olidifying our po ition as owner of the largest full-size 747 fleet among all
U.S. airlines.
Thi aggressive fleet expansion program will be financed largely with
internally-generated fund . By year-end, nearly $100 million wa on deposit
with manufacturers in addition to the more than 100 million in ca h and short-
term investments that had been set aside for acquisitions. Some borrowing will
be nece sary to augment ca h flow from depreciation and earnings to make the
final delivery payments. However, thi will not unduly tax our financial strength,
and Northwe t' debt/equity ratio will remain among the mo t con ervative
in the industry.
Routes and Traffic
Route expan ion effort in 1983 were focused primarily on our growing
international system. After adding new route and trengthening others,
2
Northwest was providing 56 passenger and cargo roundtrips per week to the Far
East over seven U.S. gateway tracks. Advance schedule indicate that we will
operate 70 round trips a week in the peak season of 1984. This will include new
service to the People's Republic of China and Kuala Lumpur, Malay ia, in
addition to further development of our new San Franci co-Tokyo nonstop route.
European traffic also was strong in 1983 as we increased Atlantic roundtrip
crossings to 31 per week. In 1984, we will be erving nine European cities with
the addition of Frankfurt and Dublin. On the dome tic ide we further advanced
our position in the Sun Belt by introducing ervice to Tue on in December.
Organization
We took steps to strengthen North we t's top management team in 1983 .
Steven G. Rothmeier was elected Pre ident and Chief Operating Officer in
September. At the same time, Jame A. Abbott was named Senior Vice President
and General Counsel and elected to the Board of Director . To broaden the
management base further, Benjamin G. Griggs , Jr. wa elected Executive Vice
President--Operations, with responsibility for Flight Operation , Maintenance and
Engineering, and Ground Operations. In addition, Brent J. Ba kfield was named
Vice President-In-Flight Services; Phillip R. Go ard was elected Vice Pre ident-
Ground Services; and Walter H. Pemberton became Vice Pre ident-
Communications and Computer Services.
The Year Ahead
Looking ahead, we are fully prepared to meet the challenges of a
deregulated airline industry and compete succes fully with large and small
carriers alike. Our strong financial position will serve us well in any operating
environment, and we will continue to build and emphasize our unique blend of a
strong domestic route system welded to a two-ocean international network.
A special word of thanks is due our more than 14,000 skilled and dedicated
employees worldwide, whose hard work made 1983 a year of improved service
and earnings. We also appreciate the continued support of our many
shareholders, and we look forward to reporting another succe ful year in 1984.
Sincerely
~.~~
M.J. Lapensky
Chairman of the Board and Chief Executive Officer
February 21 , 1984
We posted
our strongest
operating
results since
1979.
3
Northwest announced the purchase of 20 Boeing 757 passenger aircraft for delivery in 1985
and 1986. These fuel-efficient planes will-be financed primarily with internally-generated funds.
4
The Industry's Most Advanced and Efficient Fleet
To maximize efficiency and permit substantial expansion of our dome tic
route system , Northwe ti purcha ing 20 Boeing 757 aircraft, powered
by Pratt & Whitney 2037 engines . Thi new-generation aircraft purcha e
is valued at $800 million, the single largest fleet buy in Northwest's
hi tory. Ten will be delivered in 1985 and the remaining ten in 1986.
The fuel-efficient 757 will accommodate 185 pa enger in a fir t-
clas and economy-cl a configuration . The aircraft will enhance our
ability to compete with new, low-co t carrier , and the 757 are equipped
to easily accommodate Northwe t' dome tic non top flights up to 3,000
miles.
In other fleet ex pan ion development in 1983 , orthwe t al o
purcha ed:
Four long-range Boeing 747-200 pa enger aircraft that will help
meet the needs of Northwe t' rapidly growing international
system. Delivery is scheduled for spring 1984.
One Boeing 747-200F all-cargo aircraft delivered in September,
1983, and now in service on tran pacific route .
Two Boeing 727-200 aircraft that are currently erving
dome tic routes.
At the time of delivery of the four new 747-200 pa enger aircraft by
summer 1984, Northwest will own and operate 34 Boeing 747 the
largest full- ize 747 fleet of any major U.S. airline.
A of summer, 1984, Northwe t's total fleet will consist of:
Boeing 727-100 9
Boeing 727-200 56
McDonnell Douglas DC 10-40 19
Boeing 747 r 28
Boeing 747 Freighter 6
Total Fleet 118
5
Operating a
fully-owned and
debt-free fleet
of the most
advanced
aircraft in the
world.
Frankfurt, the second largest gateway in Europe, will become the ninth city on
Northwest's Atlantic route system in Spring of 1984. 6
An Expanding Worldwide Route System
Continuing our program of selective, trategic route addition rthwe t
strengthened its worldwide route system in 1983 by expanding in a
number of key markets. Spanning the globe from Hamburg to Hong
Kong, Northwest serves 77 cities in 28 tate and 14 countrie .
The majority of the 1983 route additions involved our international
system, reflecting the strong growth in overseas traffic. Of pecial
significance was the new and expanded service to the Orient. The pa t
year marked Northwest's 36th year of service in the Pacific. During the
peak summer months , we were providing 56 pas enger and cargo round
trips each week from the gateways of New York, Chicago, Lo Angele
San Francisco, Seattle, Anchorage and Honolulu. Based on advance
schedules, Northwest will be providing ten round trips per day in
passenger and cargo service across the Pacific in 1984 - more than any
other transpacific airline.
Route system highlights in the Orient during 1983 included:
New nonstop servic_
e between Chicago and Seoul, Korea.
New nonstop service between San Francisco and Tokyo.
New single-plane service between Minneapolis/St. Paul and Tokyo.
More nonstops between New York and Tokyo - from two flights
each week in 1982 to five in 1983.
In Spring of 1984, Northwest will inaugurate twice-weekly service
between the U.S. and the People's Republic of China with flights serving
Shanghai.
In another significant route addition in 1984, Northwest will be
introducing direct service from San Francisco via Tokyo to the major
business center of Kuala Lumpur, Maylasia.
Northwest's European route system also recorded an increase in
service in 1983, rising to 31 transatlantic crossings every week. In Spring
1984, we will inaugurate service to Frankfurt, West Germany, and Dublin ,
Ireland. Dublin will bring to nine the number of cities served by
Northwest in its Atlantic system.
On the domestic side, Northwest further bolstered its po ition in the
Sun Belt. Direct service was introduced between Tucson and the Twin
Cities, Milwaukee and Phoenix. Tucson became the fifteenth Sun Belt
city served by Northwest.
Photo courtesy of the German
National Tourist Office
7
Spanning the
globe from
Hamburg to
Hong Kong,
Northwest's
route system
serves 77 cities
in 28 states and
14 countries.
Northwest owns and operates six B747F all-cargo freighters, the most among all U.S.
combination carriers. Northwest is the largest U.S. trunk carrier in the U.S./Orient air freight market.
8
Among the World's Largest Air Freight Operations
orthwe t' air freight operation are the econd large t among all . S.
carrier and fifth largest in the world. In term of ton-mile flo n
orthwe t i the large t freight carrier among all . S. combination
carrier . Total cargo ton-miles were up 32 percent in 1983 and total
revenue climbed 30 percent for the ear.
orthwest focu ed it 1983 air freight effort on the rapidl gro mg
tran pacific market . Cargo ton-mile increa ed nearl 50 percent on our
Pacific route re ulting in an all-time orth e t record for total freight
and mail catTied to the Orient.
orthwest' ixth 747F all-cargo aircraft joined our fr ight r fle t la t
year. This permitted three additional tran pacific freighter flight each
week and added 20 percent more capacit to our freighter fleet. Follo ing
delivery of this ixth plane orth e t operated 13 Pacific 747F flight
each week during the peak ea on.
orthwe t freighter er ice through the San Franci co gate a
urpa sed Lo Angele cargo traffic in it fir t ear of operation. The
combined Lo Angele /San Franci co freighter er ice ha trongl
positioned u in the key We t Coast-Far Ea t market and pro ides a olid
foundation for future growth.
Air freight charter operation generated ignificant re enue in 1983.
A major contribution wa 14 li e tock charter from Minneapoli /St. Paul
to Seoul Korea. A record 1 598 cattle weighing nearl 850,000 pound
were transported for breeding purpose .
The inauguration of orthwe t Cargo Control Center greatl
improved freight load on both freighters and widebody pa enger
aircraft. This fully automated control ystem keep track of orth
fleet of cargo containers and closely matche freight with aircraft capacity.
This helped increase air freight revenue particularly from widebody
passenger flight which were u ed increa ingly to upplement our
freighter fleet. ,.
9
Strongly
positioned in
West Coast-
Far East air
cargo markets,
providing
a solid
foundation for
future growth.
Construction was started in 1983 on Northwest's new $5.6 million, 60,000-square-foot cargo
facility at the Bird Island Flats air cargo complex at Boston's Logan International Airport.
OF
NORTHWEST ORIENT
CARGO FACILITY
APRIL 198 4
10
Expanding Terminal Facilities for Future Growth
orthwe t committed more than $25 million in 1983 on new, expanded
and upgraded pas enger and air freight facilitie at terminal throughout
the U.S. Keeping our ground facilitie modem efficient and capable of
handling increa ing volume of pa enger and cargo i a critically
important aspect of our long-term growth plan . Some of the larger
projects in 1983 included:
New York. Northwe t opened new pas enger facilitie at LaGuardia
Airport, providing much greater convenien e for our ew York
cu tomer . In addition, work wa tarted on a 7. 7 million building
expansion at our John F. Kennedy cargo facility which will expand
orthwe ts JFK freight handling capacity by 150 percent.
San Francisco. New pa enger facilitie were opened at San
Francisco International Airport, de igned to handle dome tic and
international flight . We also acquired a 79 000 quare-foot cargo facility
which include two freighter po ition and a mechanized cargo handling
y tern.
Los Angeles. Work commenced on a 7.9 million , 60 000- quare-
foot freight facility at Lo Angele International Airport the country
econd largest cargo market and one of orthwe t mo t important
gateway to and from the Far Ea t.
Ft. M)ers. orthwest opened new terminal facilitie with one
widebody gate at Southwest Regional Airport, which i de igned to
handle all Northwe t traffic for the southwe tern corner of Florida.
Honolulu. A new 2 million cargo facility became operational,
including refrigerated torage capacity for 70 000 pound of peri hable
good .
Phoenix. orthwe t moved into a new pas enger terminal that will
provide greater cu tomer convenience and opportunity for future
expan 10n.
Minneapolis/St. Paul. Work ha tarted on a connector between
orthwest's two primary passenger concour e , which will reduce the
connecting times for pas engers between flight . In addition , the
refurbi hing of all Top Flight Club wa begun with work on the lounge
at Minneapolis/St. Paul. In 1984 work also will begin on a major
expan ion of gate facilities on the Gold Concourse.
11
Keeping ground
facilities
modern and
efficient is
critically
important to
our long-term
growth plans.
Regal Imperial Service was introduced on all of Northwest's international flights in 1983. This
service features gourmet cuisine, fine wi'!es, Royal Doulton China and other deluxe amenities. 12
A Commitment to Strategic Planning and Marketing
Northwest's growth and profitability are being fueled by our ongoing
commitment to strategic long-range planning and aggressive marketing.
By developing and implementing a host of innovative marketing
strategies, we are continuously bolstering Northwest's position in our
chosen markets , domestic and overseas.
Northwest introduced Regal Imperial Service on all international
flights in 1983 to increase the volume of high-yield first and executive
class fares. Regal Imperial has done just that. This all-new service
includes designer linen, fine wines, choice of gourmet entrees served on
custom-:designed Royal Daulton China and a variety of other amenities.
Unique to Northwest, our Deferred Payment plan for winter vacation
travel to Sun Belt cities was another example of targeted, innovative
marketing. Under this program, passengers guarantee their winter air fares
in advance with credit cards - interest free - and make no payments
until after the trip. Still another effective promotional program for the
business traveler was the unveiling of Northwest's third Free Flight Plan
one of the most successful in the industry.
More than 16,000 U.S. travel agents can electronically access
Northwest's fares and schedules. In addition to our own modem, high
speed POLARIS reservation system, Northwest is a co-host in three other
large reservations systems: SABRE, APOLLO and MARS. Northwest
also participates in the main automated reservation systems serving
Canada, England, Ireland, Scotland and Hong Kong.
Northwest has taken steps to work much more closely with
commuter airlines to develop interline feed from cities not served by us.
This cooperation includes joint fares, joint advertising and marketing, and
in some cases , including commuter airlines in our computerized
reservation system, POLARIS.
Northwest has aggressively marketed its tour and leisure and
convention ana sales businesses in 1983. As a result, both divisions
reported strong revenue gains for the year.
13
Functioning as
an aggressive
marketing
organization,
committed to
strategic long-
term planning.
Northwest Orient Airlines Route System 14 Existing cities served by Northwest.
New routes and cities being added in 1984.
15
/
Management's Discussion And Analysis 16
Operating Revenues
Operating revenue increa ed I 7% in I 983 to a record
2. I 96,036,000 compared with $ I ,877,568 ,000 in 198_
and I .854.290,000 in I 981. Pa senger revenues for the
year increa ed 15 .6% to I ,8 I 2,227,000 on a I 3% increase
m r enue pa nger-miles and a 2.3% increase in yield
(re enue per pa enger mile). I 982 pa enger revenues of
1.567,986.000 were 3% higher than I 98 I , due entirely to
increa ed traffic.
While I 983 revenue pa senger-mile increa ed I 3%,
available eat-mile increased only 12.4% resulting in a .3
p rcentage point increa e in load factor to 60%. The I 982
load factor of 59. 7% wa a 2. 3 percentage point increase
o er I 98 I.
The domestic market experienced everal major fare
change during I 983. Fare war dominated the first quarter
when $99 fare were wide pread, while the econd quarter
howed ome ign of yield improvement due to the
elimination of many di count fare . Yield improvement
Sources of 1983 Operating Revenues
(Thousands of Dollars)
Pa senger - Coach
1.6 1.964
76.6o/c
Freight
2 9. I 70
13.2%
Pa enger - Fir t Cla
130.263
- .9o/c
Mail
--.5 5
2.59c
Charter and Other
39 _ 0-
l . q.
continued in the third and fourth quarters as a result of
several discount fare increases and a lower level of special
discount and promotional fare traffic.
Freight revenues increased a record $84,152,000 or 41 %
to $289,170,000 as freight ton-miles increased 39.2% and
yield per ton-mile increased 2%. 1982 freight revenues of
$205,018,000 were down 7.5% from the $221,691,000
recorded in 1981 primarily due to reduced 747F freighter
operations during the strike in 1982. Mail revenues
decreased by 4,866,000 to $55,585 ,000 in 1983 ,
primarily the result of U.S. mail rate reductions. Charter
and other tran portation revenues increased $1,440,000 to
$36,198,000.
Operating Expenses
Operating expenses for 1983 totaled $2,127,150,000
compared with $1 885,943,000 in 1982 and
$1,852,543,000 in 1981. Despite the 12. 8% increase in
total expenses, operating expenses per available ton-mile
decreased in 1983 for the third straight year to 40.5 from
40.7 in 1982 and 41 in 1981.
Distribution of 1983 Operating Expenses
(Thousands of Dollars)
Fuel and Oil
672 ,169
31.6%
Employee Wage and Benefits
$569,535
26.8%
Landing Fees, Rentals,
Material and Services
486,595
22.9%
Commis ion
251.943
11 .8%
Depreciation and Amortization
146.90
6.9o/c
The co t per gall n of jet fuel declined 9. 97 from 198_
and, a a result total fuel co t for 1983 wa up a mode t
.8'7 de pite a L ~ increa e in re enue plane-mile flo n.
Per onnel co t increa ed 18. 9~ and other a h
e pen e ro e 16.0o/l in 19 3 reflecting an in rea m
capa i and higher le el of traffic a ell a moderate
increa e in \ age and upplier price le el .
gene commi ion increa ed b 68,312 ,000 in 1983
due to increased commi sion rate and a higher le el of
ale b commi ion agent .
Depreciation and amortization expen e totaled
l-+6 ,908.000 in 198 compared ith 136.651,000 in
1982 and 133 489 .000 in 1981. The 1983 in rea e wa
primaril the re ult of the addition of a ne 747F freighter
in September and the rapid rite-off of e eral u ed 7 _ 7
aircraft acquired during the ear. The impact and effect of
inflation and changing price are di cu ed in Footnote J to
the financial statement .
Operating Revenues and Expenses
( lillion of Dollar )
Revenues
5 __ 200
__ 000
1.800
1.600
1.400
1 __
oo
Expen e
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17
Earnings and Di idends
et earning of 50,07 .000 ( 2. 19 per hare for 1983
were a ub tantial improvement o er the $5.019 .000 ( . 23
per hare) and 10.460.000 $.4 per hare) reported in
19 _ and 19 l re pecti el .
Operatincr re enue increa d 17% in 1983 \ hile
op rating e pen e ro e L . ~ . r ulting in operating in-
ome of $68, 6,000 compared to an 8.375,000 operating
lo in 198_ and operating income of 1.747 ,000 in 1981.
In e tmentincomein 1983totaled 7,960.000
compared ith 2.550,000 in 19 _ and 2,-66.000 in
19 l . Interete penetotaled 3,54 .000inl983.
7 .216.000 in 19 - and 14, l 5 000 in 1981.
Gain from the di po al of equipment a a mode t
05 ,000 in 1983 a no aircraft v ere old. 1982 gain
totaled L , _5 ,000 and 1981 gain v ere $16 ,975 .000
reflecting the ale of fi e and e n Boeing 7 _ 7- 1 OOC
air -raft re pecti el .
Earning before income ta e for 198 ere
73 ,60 .000. and compare with 6 8 000 for 19 _ and
7 ,909.000 for 1981 .
Stockholders Equity S Long Term Debt
(Milli n of Dollar )
'900
r o
600
' 300
I 0
0
Equity - Debt
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Management's Discussion And Analysis (Continued)
18
The 1983 operating income of $68,886,000 is the
highest Northwest has achieved since the record year of
1977 , while the $50,073,000 net earnings are the largest
since 1979.
Northwest Airlines continued its dividend payment
policy in 1983 with quarterly payments for the 29th
consecutive year. Cash dividends of 80 per share were
paid totaling $17,367,000. Northwest common stock is
principally traded on the New York Stock Exchange. A
table showing sales prices and dividends paid per share in
1983 and 1982 is included on page 33.
Taxes on Earnings
Income tax expense totaled $23 530,000 in 1983 compared
to income tax credits of $4,331,000 in 1982 and
$2,551,000 in 1981. Investment tax credits earned were
$9,745,000 in 1983 , $3,128,000 in 1982, and $4,837,000
in 1981. In 1
estment tax credits are applied on tax returns
as allowed by income tax regulations. Credits not currently
applied are offset against deferred taxes , and as of
Operating Costs Per Available Ton Mile
$.42
$.40
.3
$.36
.34
S.32
.30
December 31. 1983 these credit totaled $36,46 1,000. No
tax benefit were "sold " during 1983 as Northwest
Airline plans to utilize all of it depreciation deduction
and investment tax credits in its own tax returns . The
Company continues to use accelerated depreciation
methods for income tax purposes as provided by law.
Financial Condition
With its 854,189,000 of stockholders' equity and low
level of debt, Northwest ranks as one of the financially
strongest carriers in the industry. Unlike many others,
Northwest is not saddled with a heavy debt load and the
resulting interest burden ( 1983 investment income actual ly
exceeded interest expense), and its entire fleet of aircraft is
owned and paid for. Even though the fleet expansion
program recently entered into i the most aggressive in the
history of the Company, it is expected that the purchases
can be financed largely with internally generated funds.
Despite the largest first quarter loss in Northwest'
Fuel Efficiency Increases
(Revenue ton miles per gallon)
''' Percent of increa~e over 1979
4.0
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00
-I
I I
I I I I
I I 11 .
I I 1
I
I I I I
. '
. ._ ._
..
. -
hi tor . the Compan produced net earning in 19 of
50.073,000 on the trength of record third quart r
earning . the 35th on e uti ,ear of profitabl op ration.
The outlook for 19 4 i encouraging. and orthv e t"
trong financial condition. dedicated emplo ee . and
efficient operation hould allov for a trong performance
in the future.
Cash Flow, Liquidity and Capital Resources
Cash pro ided from operation totaled 209. 65 .000
compared ith 13_. 95 .000 in 19 _ and I 39. 63 .000 in
19 I . Included in a h from operation are the benefit
from orth e t" polic of O\ ning rath r than lea ing it
equipment. hich in 1983 pro ided ca h through
depreciation and amortization totaling$ l-l-6.908.000. In
Februar . 1983 Northv e t irline old I 00.000.000 of
71
/2% Con ertible Subordinated Debenture due in _007
v hich are con ertible into common tock at a rate of
$50. 75 per hare.
Ca h and hart-term in e tment increa ed to
IO l .686.000 a total ca h pro ided of -+ r .66- .000
e ceeded the 406.-t 79,000 total ca h u ed b
69.1 6.000. The major u e of ca h during the ear v ere
Selected Financial Data
(In Thou and
Year Ended December 31 1983
19
equipment purcha e of 134.684,000 and aircraft depo it
of 99.572,000. One ne Boeing 747-200 freighter and
ix u ed 727' were pla ed into er ice during 1983.
orth e t ha ontracted to purcha e four Boeing 74 7-200
pa enger aircraft for deli er in l 984 and t ent Boeing
757 pa enger aircraft for deli er in 1985 and 1986. The
total co t of the e aircraft and related equipment will be
l.140 .206.000 of hich 99.572.000 i alread on
depo it ith the manufacturer. The proceed from the 71
/:/~
Con ertibl Subordinated Debenture plu a h from
operation , upplemented with borrowing a nece ar . will
be u ed to make the remaining pa ment on the e aircraft
hich will be 240.68 .000 in 19 4. 407 .048 .000 in
1985, and 392.89 .000 in 1986. With total debt of on!
12~ of tockholder ' equit . a commercial paper rating at
the highe t A- l/P-1 le el . and net a et in e ce of
5-l-.000.000, orth e t belie e it ill ha e no diffi ult
in generating adequate ca h to meet all future corporate
need . At December 31. 1983 orthwe t had
100.000.000 in bank line of credit. Book alue per hare
of common tock increa ed to 39.33 at December 31,
1983 compared ith 3 7. 85 at December 31. 1982 and
3 .43 at December 31, 1981 .
19 :2* 19 1 19 0 1979
Operating Re enue $2,196,036 1.877 .568 1.854._90 1,639.330 1.310.558
et Earnings 50,073 5.019 10,460 7.084 7_.475
Total Assets 1,602,236 1,377 .387 1.492,381 l .532 ,539 1,5- 8.9_]
Long-Term Debt 100,000 12.500 62.500 100,000
Per Common Share:
Earnings 2.19 .23 .48 .33 3.35
Ca h Dividend .80 .80 .80 .80 .80
Direct service to Tucson from Minneapolis/St. Paul, Milwaukee, and Phoenix was inaugurated
in 1983, making Tucson the fifteenth Sun Belt city served by Northwest. 20
Statements of Earnings Northwest Airlines, Inc.
(In Thousands)
Year Ended December 31
Operating Revenues
Passenger
Freight
Mail
Charter and other transportation
Non transport
Operating Expenses
Flying operations
Maintenance
Passenger service
Aircraft and traffic servicing
Reservations , sales and advertising
Administrative and general
Depreciation and amortization
OPERATING INCOME (LOSS)
Other Income (Expenses)
Investment income
Interest, net of capitalized interest
(1983-$4,872; 1982-$1 ,681 ; 1981-$672)
Gain on sale of flight equipment
Other
EARN! GS BEFORE I COME TAXES
Income tax expense ( credit) - ote D
Earnings per share - primary and fully diluted .
1983
$1,812,227
289,170
55,585
36,198
2,856
2,196,036
868,145
192,383
186,802
308,782
383,551
40,579
146,908
2,127,150
68,886
7,960
(3,548)
805
(500)
4,717
73,603
23,530
$ 50,073
$ 2.19
*Operating results were affected by a major strike which extended from May 22, 1982 to June 17. 1982.
See notes to fi nancial statements.
21
1982* 1981
$1 ,567,986 $1,521 ,856
205 ,018 221 ,691
60 ,451 59,786
34,758 21 ,766
9,355 29 ,191
1,877 ,568 1,854,290
838 ,693 858 ,997
149,749 156,450
158,816 147,650
265 ,764 248 ,766
298 ,611 271 ,344
37,659 35 ,847
136,651 133,489
1,885 ,943 1,852,543
(8,375) 1,747
2,550 2,266
(7,216) (14,135)
12,425 16,975
1,304 1,056
9,063 6,162
688 7,909
(4,331 ) (2,551 )
$ 5,019 $ 10,460
$ .23 $ .48
Statements of Financial Position Northwest Airlines, Inc.
( Dollars In Thousands)
December 31
ASSETS
Current Assets
Cash and short-term investments
Accounts receivable, less allowance of $1,800
Flight equipment spare parts, less allowance for depreciation of $31,406 ( 1982-$27 ,086)
Maintenance and operating supplies
Prepaid expenses
1DTAL CURRENT ASSETS
Other Assets
Property And Equipment
Flight equipment
Less allowance for depreciation
Advance payments on new flight equipment
Other property and equipment
Less allowance for depreciation
22
1983 1982
$ 101,686 $ 32,500
189,665 143,647
58,502 41,417
17,599 20,171
18,372 14,597
385,824 252,332
12,409 10,159
2,080,299 1,996,925
1,103,798 977,854
976,501 1,019,071
99,572
242,233 199,161
114,303 103,336
127,930 95,825
1,204,003 1,114,896
$1,602,236 $1,377,387
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Commercial paper
Accounts payable and other liabilities
Employee compensation
Air traffic liability
Income taxes
TOTAL CURRENT LIABILITIES
Long-Term Debt - Note B
Deferred Credits And Other Liabilities
Income taxes - Note D
Other
Stockholders' Equity - Note C
Common Stock $1 .25 par value, authorized 40,000,000 shares; issued and outstanding
21,715,995 shares (I 982-21,678,458)
Capital surplus
Retained earnings
Commitments And Contingencies - Notes E and F
See notes to financial statements.
$
1983
214,662
50,863
104,933
5,097
375,555
100,000
260,123
12,369
272,492
27,145
126,474
700,570
854,189
$
23
1982
4,958
173,357
40,016
77,205
2,790
298,326
247,239
11,217
258,456
27,098
125,643
667,864
820,605
$1,602,236 $1,377,387
Statements of Changes in Financial Position Northwest Airlines, Inc.
(In Thousands)
Year Ended December 31
Cash Provided
Net earnings
Add (deduct) non-cash items:
Depreciation and amortization
Increase (decrease) in deferred income taxes
1DTAL FROM OPERATIONS
Issuance of 7 % convertible debt
Issuance of commercial paper and other borrowings
Decrease in interest receivable
Increase in accounts payable and other liabilities
Increase (decrease) in air traffic liability
Net book value of property dispositions
Other
1DTAL CASH PROVIDED
Cash Used
Flight equipment and other property additions
Deposits made on flight equipment
Payments of commercial paper and other borrowings
Reduction of long-term debt including current maturities
Increase in accounts receivable
Dividends
Other
1DTAL CASH USED
INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments at the beginning of the year
Cash and short-term investments at the end of the year
See notes to financial statements.
1983
$ 50,073
146,908
12,884
209,865
100,000
76,042
41,305
27,728
2,667
18,058
475,665
134,684
99,572
81,000
46,018
17,367
27,838
406,479
69,186
32,500
$101,686
1982
$ 5,019
136,651
(8,775)
132,895
40,516
43,528
21,174
(11,028)
4,731
5,450
237,266
55,070
81,109
62,500
5,535
17,332
17,790
239,336
(2,070)
34,570
$ 32,500
24
1981
$ 10,460
133,489
(4,086)
139,863
46,332
9,840
(18,780)
6,274
8,394
191,923
50,676
34,949
37,500
13,155
17,326
24,261
177,867
14,056
20,514
$ 34,570
Statements of Stockholders' Equity Northwest Airlines, Inc. 25
(In Thousands)
Common Stock
Capital Retained
Shares Amount Surplus Earnings
Balance January 1, 1981 21,647 $27,059 $124,940 $687,043
Exercise of stock options 14 18 316
Net earnings for 1981 10,460
Cash dividends - $.80 a share (17,326)
Balance December 31, 1981 21,661 27,077 125,256 680,177
Exercise of stock options 17 21 387
Net earnings for 1982 5,019
Cash dividends - $.80 a share (17,332)
Balance December 31, 1982 21,678 27,098 125,643 667,864
Exercise of stock options 38 47 831
Net earnings for 1983 50,073
Cash dividends - $.80 a share (17,367)
Balance December 31, 1983 21,716 $27,145 $126,474 $700,570
See notes to financial statements.
Notes to Financial Statements Northwest Airlines, Inc.
December 3 I . 1983
26
Note A - Accounting Policies
A summary of significant accounting policies of the
Company is set forth below:
Basis of Presemation: The financial statements include the
accounts of the Company and its wholly-owned
subsidiaries after elimination of inter-company accounts
and tran actions.
Sho11-Term Investments: Short-term investments are stated
at cost which approximates market and amounted to
$78,547,000 and $18,330,000 at December 31, 1983 and
1982, respectively.
Flight Equipment and Property: Provision 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 747 and DC-IO
aircraft and ten years with 15% residual value for 727
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.
Pension Plans: The Company has several noncontributory
pension plans covering substantially all of its employees.
The Company's policy is to annually fund pension costs
accrued, which includes amortization of prior service costs
over periods of ten to thirty years.
Income Taxes: Income taxes are provided at statutory rates
to earnings before income taxes regardless of when such
taxes are paid. Deferred income taxes arise principally
from timing differences between financial and tax methods
of accounting for depreciation and capitalized interest.
The Company uses the flow-through method of
accounting for investment credits. Investment credits not
applied on tax returns are offset against deferred income
taxes to the extent they are applicable to deferred taxes
becoming payable in the investment credit carryover
periods.
Operating Revenues: Passenger and freight revenues are
recognized when the transportation is provided.
Earnings Per Share: Net earnings per share are calculated
by dividing net income, adjusted for interest expense (net
of income taxes) related to the convertible debentures, by
the weighted average number of shares of Common Stock
and Common Stock equivalents. Common Stock
equivalents consist of convertible debentures and stock
options.
Note B - Long-Term Debt and Credit Arrangements
The Company has line of credit arrangements with banks
for short-term borrowings up to $100,000,000 through
April 15, 1984. Bmrnwings under the credit lines bear
interest at the prime rate. Commitment fees which are 3/s%
per annum on outstanding balances of commercial paper
amounted to $16,000 in 1983.
Long-term debt consists of 71
/2% Convertible
Subordinated Debentures due in 2007. The debentures are
convertible into Common Stock at a rate of $50. 75 per
share. The Company may redeem the debentures at any
time after December 15, 1984 at prices ranging from 107%
in 1984 to 100% after 2001, of the principal amount.
Annual sinking fund payments are required beginning in
1992 of $5,000,000, less the amount of debentures
converted or redeemed.
Note C - Stockholders' Equity
Shares
Cumulative Preferred Stock,
$25 par value:
Authorized
Issued
1983 1982
1,000,000 1,000,000
None None
The Company has 1,970,443 shares of Common Stock
reserved for conversion of the 71/2% convertible
subordinated debentures as of December 31. 1983.
27
Common Stock options at prices which were not less Shares available for stock option and other plans were
than 100% of market at date of grant are as follows: 203,835 and 181,487 at December 31 , 1983 and 1982,
Shares Price Per Share respectively.
Outstanding at
Note D - Taxes on Earnings (In thousands)
January 1 , 1982 44,118 $22. 75/24.00
Granted 130 000 23.31 Reconciliation of the Company's effective income tax rate
Exercised (17 ,091) 22. 75/24.00 is as follows:
Lapsed (2,700) 23.31 Year Ended December 31 1983 1982 1981
Outstanding at
Statutory rate applied to
pre-tax income $33,857 $ 316 $ 3,637
December 31. 1982 154,327 22. 75/23.31/24.00
Add (deduct):
Exercised (37,537) 22.75/23.31/24.00
Investment tax
Lapsed (22 348) 22. 75/23.31/24.00
credit earned (9,745) (3 ,128) (4,837)
Outstanding at Rate change on timing
December 31 , 1983 94,442 23.31 differences (1,284) (1,152) (1 ,390)
Other 702 (367) 39
Options exercisable: Total income tax
At December 31 , 1982 27,027 22. 75/24.00 expense (credit) $23,530 $(4,331) $(2,551)
At December 31 . 1983 34,142 23.31
Federal, foreign and state income taxes ( credit) consists of the following:
Federal
Foreign
State
Current
$6,396
827
2,068
$9,291
1983 1982 1981
Deferred Current Deferred Current Deferred
$14,138 $1 619 $(6,821) $ 22 $(3,598)
855 788
101 1,009 (993) (207) 444
$14,239 $3,483 $(7,814) $603 $(3, 154)
The deferred income tax expense (credit), consists of the
following:
1983 1982 1981
Accelerated
depreciation $(10,961) $ (3,947) $ 1,919
Investment tax and
other credits 24,123 13,127 (11,064)
Prepaid expenses 1,024 (51) 1,525
Interest 2,241 (18,724) 5,452
Deferred employee
benefits (685) 3,437 (25)
Rate change on timing
differences (1,284) (1,152) (1,160)
Other (219) (504) 199
$14,239 $ (7,814) $ (3,154)
Investment tax credits of $36,46 I not applied on tax
returns but offset against deferred income taxes at
December 31, 1983 will expire $18,707 in 1995; $4,817 in
1996: $3,198 in 1997; and $9,739 in 1998.
Notes to Financial Statements (Continued) Northwest Airlines, Inc. 28
Note E - Commitments
The Company does not lease any aircraft or related flight
equipment.
At December 31 , 1983 the Company had contracted to
purchase four Boeing 747-200B aircraft for delivery in
1984 and twenty Boeing 7 57 aircraft for delivery in 1985
and 1986. Deposits of $99,572,000 have been made with
the manufacturers , and additional expenditures of
$240,688,000 in 1984, $407 ,048 ,000 in 1985 and
$392,898,000 in 1986 will be required for these aircraft
and related equipment.
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 2018. Portions of these facilities
are subleased under noncancelable operating leases
expiring in various years through 1991.
Future minimum rental commitments at December 31 ,
1983 for noncancelable operating leases with initial or
remaining terms of one year or more, of which
$321 ,000,000 is for air terminal and airport facilities, are
as follows:
1984
1985
1986
1987
1988
Thereafter
$ 25,389,000
22,456,000
21,424,000
20,379,000
18,011,000
227,421,000
Sublease rental income
335,080,000
4,457,000
$330,623,000
Rental expense for all operating leases consisted of:
Minimum
Sublease
rental
income
1983 1982 1981
$35,633,000 $29,571 ,000 $25,238,000
(1,099,000) (1,075,000) (917,000)
$34,534,000 $28,496,000 $24,321,000
Note F - Contingencies
The Company is a defendant in a class action brought in
1970 in federal court in Washington , D.C. by certain 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 by the trial court. After a denial of a motion
for rehearing by the Court of Appeals, the Company
petitioned the Supreme Court of the United States to
review the decision of the Court of Appeals. That petition
was denied on February 21, 1978. The case was then
remanded to the trial court.
On remand the trial court resolved several outstanding
issues and determined an award of damages to each of the
plaintiffs. Judgment was entered on November 30, 1982
with total awards amounting to approximately
1mp:rn: :.rnd the plaintiffs hJ, e
urt \..1 f Ap~" at: fr,r the Di:tri(t
ir 'uir. H\.. we, r. if the laimiffs pr , ail and
th mpany doe: nN reY::iil 1n th als. the ultinur
liJ ilit~ miS":ht b inffe:1: d b: :rn am ,, hi 'h the
Qmp ny :urn r rres nrly qu:rntif:. 1:-, 2ll. IQ _'. th
rrial (0Urt enter d judgment against the 1mp n: fl r
:1p r':--.imately ~2 .: 0.0l in anome: sf es and .:\..1,'t'-.
Th. t judgment has :1lsl'1
been app a.led by the Oll1f an:.
The ultimate ur.: m of this litigatiL...,n (,mn 1t be
predio d and. th refor . 1w sp ific ank unr of ultimate
liability m:::i.:-, b :timated a: pn able. The 1mp.m:
e.::timate.:: rhar it: ulrimat liability ma:-, rang fr\..1 111
appn)\.imat ly .= 1. (). l induding
plaintiff: :Ht\.. rn ys fee_ and '\..1st: and inten :t rhr1.__1ugh
De(ember: 1. I ~3.
The mpany i: al o in\"L--i!Yed in oth r I gal a 'tions
relating t 1 emironm ntal i.::.::u s t rim:1ril:-, n1.__1i:e and air
pc lluti n . alleged empl yee di: 'rimination. and 0th r
m:mers relating r the ompany: usine:s. \\'hik the
Ct mpany i - unabl t 1 predi 't th ultimate ut '1.__1me 1f th se
a.:rions. it is the c pinion of m:rnagem nt that their
dispositi n will not haw a material adver:e fleet on the
C "mpany- finan ial po irion.
29
'\ote G - Pen'\ion Plan -
The 1mp:111:-, s p nsiL 11 c\.pi.:'!1S \\ ;l_'
s_ -. l -. in l () '
.:-23 . ..it:iO.l>l in lll ... 2 ,lll s,:-__ 5--t-.l(l(l in 14<. I.
leruin :timares rc1J1in~ tc1 a 't 1ariJI as.umpti\..n:- ,, 'r
'h,m=:- d in l O(. _ _ Th .._'h,rntc, re.ult din r du.: d l u 2
n.-it n e\p ns \..1f ~1ppr 1\t11Ut 1:-, : I l'l.~ milli 111.
.-'\ppn_
...,\.inur l~ :-. .:: milli n l,f th d1~ln. 'UIT d in rh
fL'lurth quart r. The ch n~es in stimat s h:i, n efte 't <..1n
pcn,-i<..nben fits fl"' m~k"':" s .
. -'\, 'umular d pla1 b n fit infonn,HiQn. a, rinur
't
n,ulting J -rn:iries. and plan n 't as, ts fr r th 1111~ Jn:-, s
A 'tuari:11 pr sent , :.ilue
<..1f ,1, 'Urnulated plan
b n fir::
\ . sred
er as:ets a\ ailabl for
b ~nefit:
.."3"'3.19S.000
37.131.000
.. -H0 . .330.000
$55 L 968. 000
The im rest rare u:ed in 'Omputing rhe present \ alu 0f
ac -umubted p!:ln benefits \\ a: -r e\. -e r for ' nain
rerir d plan participants \\her a l-Vc rat \\ 'JS used. Th
rare for retirees i bas d upon the a 'tual earnings l1 f a
dedicated : 'uriti ": p0rtf1Jlil"' ,tat lished f w th pa) ment
of their benefits .
. ote H - Export Sales
rthw st .-'\irline . ln '. i, a S'hedul d air ';,l!Ti'r ngagt.'d
in 'l1mmercial transportation <.. f passeng rs. freight and
mail. and c p 'rates under ccnifi -ares f pub Ii( c rn ni nc
and n cejry issued b:-, rh iYil Aer0n:.1uti s BL ard .
E\pmsale wcre ~ L.000,)LOin l :)3 . "'_-_, .Cl10.Cl0in
l )2 and .:..i..-: .000.0 0 in l ... l, principal I: a..::sociated
\\ irh 'L"'luntries in A ia and Eut\1f '. RcYenu" from .'aks
consummated in f reign 'Ountrie: is onsid --red tl b'
t'\fLrt :ale:.
Notes to Financial Statements (Continued) Northwest Airlines, Inc.
30
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,
1983:
1983
First quarter
Second quarter
Third quarter
Fourth quarter
1982*
First quarter
Second quarter
Third quarter
Fourth quarter
Operating
Revenues
$ 451,882
537,537
646,670
559,947
$2,196,036
$ 415,438
414,106
574,995
473,029
$1,877,568
(In Thousands)
Operating
Expenses
$ 495,077
513,482
569,597
548,994
$2,127,150
$ 451,588
419,290
527,103
487,962
$1,885,943
Earnings
Net (Loss) Per
Earnings Share of
(Loss) Common Stock
$(20,905) $ (. 96)
14,356 .66
45,050 1.91
11,572 .49
$ 50,073 $2.19
$(17,968) $(.83)
(1,453) (.07)
27,010 1.25
(2,570) (.12)
$ 5,019 $ .23
*Operating results were affected by a major strike which extended from May 22, 1982 to June 17, 1982.
See also Note G.
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 CHANGING
PRICES" , THE COMPANY MUST PROVIDE
SUPPLEMENTAL INFORMATION CONCERNING THE
EFFECT OF CHANGING PRICES ON ITS FINANCIAL
STATEMENTS. The disclosures are intended to address
two different aspects of an inflationary environment: (I)
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 information reflecting both types
of inflation measurements.
IT IS IMPORTANT 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
DATA.
The Company believes that the following information is
essential for a proper understanding and assessment of the
data presented:
THE SUPPLEMENTAL INFORMATION ON
CHANGING PRICES DOES NOT REFLECT A
COMPREHENSIVE 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, 1983
(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 held
during the year*
Less e:ff ect of increase in general price level
Excess of increase in specific prices over increases in the general
price level
As Reported
in the Primary
Statements
$2,196,036
146,908
1,980,242
(805)
(3,91 2)
2, 122,433
73 ,603
23 ,530
$ 50,073
Adjusted
for General
Inflation
$2,196,036
258,061
1,980,242
(763)
(3,91 2)
2,233 ,628
(37,592)
23 ,530
$ (61 ,122)
Adjusted
for General
Inflation
$ 13,794
31
Adjusted for
Changes in
Specific Prices
(Current Costs)
$2,196,036
348,982
1,980,242
(3,912)
2,325,31 2
(129,276)
23 ,530
$ (152,806)
Adjusted for
Changes in
Specific Prices
(Current Costs)
$ 13,794
$ 522,338
92,143
$ 430,195
*At December 31 , 1983, current cost of property and equipment, net of accumulated depreciation, was $3,011 ,477 ,000 (historical amount -
$1 ,204,003,000) .
Five Year Comparison of Selected Supplementary Financial Data Adjusted For Effects of Changing Prices
In Average 1983 Dollars
Year Ended December 31
Operating revenues
Historical Cost Information Adjusted for
General Inflation
Net earnings (loss)
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
1983 1982 1981 1980 1979
(In thousands of dollars , except per share data)
$2,196,036 $1 ,937,967 $2,031 ,278 $1 ,982,075 $1 ,798,852
$
(61,122)
(2.60)
1,556,173
(152,806)
(6.51)
430,195
2,668,281
13,794
.80 $
44.75
298.4
(110,000)
(5 .08)
1,610,520
(172,442)
(7. 96)
240,391
2,390,227
14,077
.83 $
48 .51
289.1
(97 ,348)
(4.49)
1,700,847
(147,996)
(6.82)
112,393
2,387,046
42,586
.88 $
29.58
272.4
(75 ,793)
(3 .51)
1,777,083
(108 ,185)
(4.99)
164,624
2,435 ,616
63 ,765
.97 $
28.73
246.8
17,894
.83
1,818 ,041
(27 ,402.)
(1. 26)
46,775
2,391 ,053
64,976
1.10
37.92
217.4
Notes to Financial Statements (Continued) Northwest Airlines, Inc. 32
Starement of Earnings
The accompanying supplemental statement of earnings
presents income data under three measurement methods.
These are:
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 1983. 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 1983
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
inflation. 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.
Income Taxes
Current tax laws do not recognize deductions for current
cost depreciation expense; therefore, no adjustments have
been made to the provisions for income tax.
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 stockholders.
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 applying the annual
rate of change in the CPI to the average current cost
balances of properties.
Current Cost Measurements
The current cost 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 90% 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.
Accountant's Report
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 subsidiaries as of December
31, 1983 and 1982, and the related statements of earnings,
stockholders' equity and changes in financial position for
each of the three years in the period ended December 31.
1983. Our examinations were made in accordance with
generally accepted auditing standards and, accordingly,
included such tests of die accounting records and such
other auditing procedures as we considered necessary in
the circumstances.
Stockholders' Information
Stock Prices and Dividends
Sales Price of Dividends
Common Shares Per Share
Quarter 1983 1982 1983 1982
I st High $51 1/2 $32 $.20 $.20
Low 41 22 1/4
2nd High 55 1/2 31 3/4 $.20 $.20
Low 42 1/2 24
3rd High 51 5/8 34 $.20 $.20
Low 36 23 7/8
4th High 49 3/8 50 3/4 $.20 $.20
Low 36 1/4 29
Stock Listed
Common Stock listed on New York Exchange, Pacific
Coast Stock Exchange and Midwest Stock Exchange.
There were 7, 172 stockholders of record as of March
9, 1984.
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
Economic 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.
33
In our opinion, the financial statements referred to above
present fairly the consolidated financial position of
Northwest Airlines, Inc. and subsidiaries at December 31.
1983 and 1982, and the consolidated results of their
operations and changes in their financial position for each
of the three years in the period ended December 31, 1983,
in conformity with generally accepted accounting
principles applied on a consistent basis.
Saint Paul, Minnesota
February 21 , 1 984
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 30
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
Aeronautics Board, Washington, D.C. 20428.
Co-Registrars and Tran sf er Agents
Norwest Bank Minneapolis, N .A., Minneapolis, MN;
Norwest Trust Company, New York, NY
Notice of Annual Meeting
The 1984 annual shareholders' meeting will be held at
Northwest Airlines General Offices, Minneapolis/St. Paul
International Airport, St. Paui , Minnesota, on Monday,
May 21, 1984 at 9:30 A.M.
10 Year Summary* Northwest Airlines, Inc.
(Dollars in Thousands Except Per Share Figures)
Years Ended December 3 I
Operating Revenues
Passenger
Freight
Mail
Charter and other transportation
Non transport
lDTAL OPERATING REVENUES
Operating Expenses
Depreciation and amortization
Other
TOTAL OPERATING EXPENSES
Operating income (loss)
Interest expense
Other income and (deductions)-net
Earnings (loss) before taxes
Income taxes (credit)
Net Earnings'
Earnings per average share'
Cash dividends
Dividends per share
Stockholders' equity
Number of shares outstanding at end of year
Book value per share at end of year
Assets and Long-Term Debt
Flight property at cost
Flight property at net book value
Total assets
Long-term debt
Unit Expenses
Per available ton-mile
Per Revenue ton-mile
Per cent of operating revenues
Statistics-Scheduled Services
Revenue plane-miles (000)
Available seat-miles (000)
Revenue passenger-miles (000)
Passenger load factor
Revenue passengers carried
Freight ton-miles (000)
Total revenue ton-miles (000)
Statistics-Total Operations
Revenue plane-miles (000)
Available ton-miles (000)
*Not covered by Accountants' Report.
t Strikes adversely affected 1978 and l 982 .
1983
$ 1,812,227
289,170
55,585
36,198
2,856
$ 2,196,036
$ 146,908
1,980,242
$ 2,127,150
$ 68,886
(3,548)
8,265
$
$
73,603
23,530
50,073
$ 2.19
17,367
.80
854,189
21,715,995
$ 39.33
$ 2,080,299
976,501
1,602,236
100,000
40.5
76.0
96.9%
133,699
29,511,287
17,711,929
60.0%
12,718,468
835,197
2,750,946
134,870
5,255,086
1982t
$ 1,567,986
205,018
60,451
34,758
9,355
$ 1,877,568
$ 136,651
1,749,292
$ 1,885,943
$ (8,375)
(7,216)
16,279
$ 688
(4,331)
$ 5,019
$ .23
17,332
.80
820,605
21,678,458
$ 37.85
$ 1,996,925
1,019,071
1,377,387
40.7
80.3
100.4%
119,189
26,257,466
15,675,194
59.7%
11,356,165
600,198
2,307,475
120,378
4,635,415
'See Financial Highlights pages 16 through 19 for Management's Discussion of the Summary of Operations.
34
1981
$ 1,521,856
221,691
59,786
21,766
29,191
$ 1,854,290
$ 133,489
1,719,054
$ 1,852,543
$ 1,747
(14,135)
20,297
$ 7,909
(2,551)
$ 10,460
$ .48
17,326
.80
832,510
21,661,367
$ 38.43
$ 1,992,015
1,110,965
1,492,381
12,500
41.0
83.9
99.9%
120,139
24,813,981
14,251,932
57.4%
11,144,785
616,285
2,186,815
120,761
4,519,768
35
1980 1979 1978t 1977 1976 1975 1974
$ 1,347,830 $ 1,067,214 $ 557,401 $ 861,053 $ 786,414 $ 659,849 $ 628,488
190,837 160,716 87,077 121,185 119,882 88,308 76,157
57,305 38,685 18,944 29,894 25,137 23,280 22,911
16,303 15,093 10,997 25,871 25,955 29,019 27,322
27,055 28,850 115,743 8,352 6,420 107 4,113
$ 1,639,330 $ 1,310,558 $ 790,162 $ 1,046,355 $ 963,808 $ 800,563 $ 758,991
$ 124,078 $ 106,401 $ 104,970 $ 103,152 $ 102,713 $ 98,880 $ 96,213
1,539,386 1,148,805 617,907 838,619 758,147 651,983 584,993
$ 1,663,464 $ 1,255,206 $ 722,877 $ 941,771 $ 860,860 $ 750,863 $ 681,206
$ (24,134) $ 55,352 $ 67,285 $ 104,584 $ 102,948 $ 49,700 $ 77,785
(15,831) (1,635) (3,376) (6,518) (14,035) (16,120) (19,554)
3,862 30,643 45,126 55,078 9,351 13,509 40,148
$ (36,103) $ 84,360 $ 109,035 $ 153,144 $ 98,264 $ 47,089 $ 98,379
(43,187) 11,885 47,194 60,425 46,527 3,693 33,631
$ 7,084 $ 72,475 $ 61,841 $ 92,719 $ 51,737 $ 43,396 $ 64,748
$ .33 $ 3.35 $ 2.86 $ 4.29 $ 2.39 $ 2.01 $ 3.00
17,317 17,306 16,210 10,804 9,707 9,710 9,722
.80 .80 .75 .50 .45 .45 .45
839,042 849,122 793,691 747,672 665,744 623,677 589,991
21,647,280 21,639,589 21,626,284 21,606,686 21,606,036 21,604,136 21,604,136
$ 38.76 $ 39.24 $ 36.70 $ 34.60 $ 30.81 $ 28.87 $ 27.31
$ 1,995,168 $ 1,779,770 $ 1,525,442 $ 1,510,447 $ 1,448,402 $ 1,420,670 $ 1,282,556
1,200,495 1,094,556 922,615 962,957 924,537 977,062 907,935
1,532,539 ,. 1,528,921 1,392,865 1,299,451 1,151,562 1,215,146 1,121,153
62,500 100,000 100,000 100,000 122,000 246,000 213,900
37.0 29.4 27.9 22.9 21.6 20.6 19.9
80.6 63.4 65.7 54.4 50.5 50.2 48.2
101.5% 95.8% 91.5% 90.0% 89.3% 93.8% 89.8%
120,709 116,105 66,420 111,271 108,474 104,104 105,295
24,904,355 24,028,928 14,302,037 22,968,489 22,228,259 20,910,966 20,016,107
13,810,889 13,298,161 7,018,305 11,100,412 10,758,683 9,471,282 9,173,875
55.5% 55.3% 49.1% 48.3% 48.4% 45.3% 45.8%
11,501,148 11,636,170 6,574,901 10,354,808 9,818,343 8,865,263 8,948,373
529,434 504,753 302,153 458,143 467,399 386,309 317,437
2,048,349 1,956,217 1,079,681 1,676,470 1,647,317 1,428,381 1,330,803
121,243 117,027 67,471 114,643 112,279 107,721 110,519
4,495,666 4,265,640 2,594,632 4,109,110 3,982,743 3,642,650 3,431,038
Directors and Officers of Northwest Orient Airlines
(As of March 15, 1984)
36
Directors
M. Joseph Lapensky
Chairman of the Board and Chief Executive Officer
Northwest Airlines , Inc.
St. Paul, Minnesota
James A. Abbott
Senior Vice President and General Counsel
Northwest Airlines , Inc.
St. Paul, Minnesota
James H. Binger*
Former Chairman of the Executive Committee
Honeywell , Inc.
Minneapolis, Minnesota
Manufacturer of automation systems
E. W. Blanch, Jr. *
President & Chief Executive Officer
E.W. Blanch Company
Minneapolis, Minnesota
Re-insurance brokerage
Robert A. Charpie*
President
Cabot Corporation
Boston, Massachusetts
Production of oil and gas products
Raymond H. Herzog*
Former Chairman of the Board
3M Company
St. Paul, Minnesota
Multinational manufacturing
Melvin R. Laird*
Senior Counselor
Reader's Digest Association
Washington, D. C.
Magazine publishing
James N. Land , Jr.*
Financial Consultant
New York, New York
Donald G. McNeely*
Chairman of the Board
Space Center, Inc.
St. Paul, Minnesota
Logistics
Donald W. Nyrop*
President and Chief Executive Officer, 1954-1976;
Chairman and Chief Executive Officer, 1976-1978
Northwest Airlines, Inc.
St. Paul , Minnesota
Steven G. Rothmeier
President and Chief Operating Officer
Northwest Ai::lines, Inc.
St. Paul Minnesota
*Member, Audit Committee
Officers
M. J. Lapensky
Chairman of the Board and Chief Executive Officer
Steven G. Rothmeier
President and Chief Operating Officer
James A. Abbott
Senior Vice President and General Counsel
Bjarnie R. Anderson
Vice President-Washington
Brent J. Baskfield
Vice President-In-Flight Services
J. W. Campion
Vice President-Regulatory Proceedings
Terry M. Erskine
Vice President-Industrial Relations
Bruce H. Fillips
Vice President-Comptroller
Phillip R. Gossard
Vice President-Ground Services
Benjamin G. Griggs, Jr.
Executive Vice President-Operations
John F. Horn
Vice President-Orient Region
Thomas J. Koors
Executive.Vice President-Marketing and Sales
William A. Kutzke
Vice President-Airline Planning
Benjamin H. Lightfoot
Vice President-Maintenance and Engineering
Thomas E. McGinnity
Vice President-Purchasing and Stores
Bryan G. Moon
Vice President-Advertising
Walter H. Pemberton
Vice President-Communications and Computer Services
James F. Redeske
Vice President-Personnel Administration
R. James Thorne
Vice President-Properties
Steven D. Wheeler
Corporate Secretary
In the past year two long-time veterans of Northwest Airlines have
retired. Robert J. Glischinski, Vice President-Communications
and Computer Services, retired after 43 years of dedicated service
as did Robert W. Campbell, Vice President-Budgets after 39
years of outstanding service for Northwest Airlines.
~ NORTl-fWEST ORIENT
orthwe t Orient Airlines World Headquarters:
Minneapolis-St. Paul International Airport
St. Pa u I. M 5 5 I l I