SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File Number 0-23642
NORTHWEST AIRLINES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4205287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 LONE OAK PARKWAY, EAGAN, MINNESOTA 55121
(Address of principal executive offices)
(Zip Code)
(612) 726-2111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
At March 31, 1996, there were 92,410,667 shares of the registrant's Class A
Common Stock and 4,037,379 shares of the registrant's Class B Common Stock
outstanding.
NORTHWEST AIRLINES CORPORATION
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Statements of Income - Three
months ended March 31, 1996 and 1995. 3
Condensed Consolidated Balance Sheets - March 31,
1996, December 31, 1995 and March 31, 1995. 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995. 5
Notes to Condensed Consolidated Financial Statements 6
The Computations of Primary and Fully Diluted Earnings Per
Common Share, attached hereto and filed as Exhibits 11.1 and
11.2, and the Computations of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Fixed Charges and Preferred
Stock Requirements, attached hereto and filed as Exhibits 12.1
and 12.2, are incorporated herein by reference.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
EXHIBIT INDEX 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTHWEST AIRLINES CORPORATION
- - --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended March 31
(UNAUDITED, IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) 1996 1995
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES
Passenger $ 1,935.5 $ 1,687.8
Cargo 170.3 179.1
Other 159.0 176.1
--------------- --------------
2,264.8 2,043.0
OPERATING EXPENSES
Salaries, wages and benefits 644.2 584.3
Stock-based employee compensation 120.1 63.6
Aircraft fuel, oil and taxes 305.6 249.0
Commissions 203.7 191.8
Aircraft rentals 84.1 84.3
Other rentals and landing fees 108.7 109.6
Aircraft maintenance materials and repairs 123.6 101.8
Depreciation and amortization 90.0 88.8
Other 450.4 422.5
--------------- --------------
2,130.4 1,895.7
OPERATING INCOME 134.4 147.3
OTHER INCOME (EXPENSE)
Interest expense, net (68.6) (103.7)
Interest of mandatorily redeemable preferred security holder (7.0) --
Investment income 15.3 15.0
Foreign currency gain (loss) 6.9 (59.1)
Other 6.8 5.0
--------------- --------------
(46.6) (142.8)
--------------- --------------
INCOME BEFORE INCOME TAXES 87.8 4.5
Income tax expense 34.4 1.9
--------------- --------------
NET INCOME 53.4 2.6
Preferred stock requirements (13.0) (14.5)
Exchange of preferred stock -- 59.2
--------------- --------------
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 40.4 $ 47.3
=============== ==============
Earnings (loss) per common share:
PRIMARY
Before effects of exchange of preferred stock $ .41 $ (.13)
Exchange of preferred stock -- .65
--------------- --------------
Earnings per common share $ .41 $ .52
=============== ==============
FULLY DILUTED
Before effects of exchange of preferred stock $ .37 $ (.10)
Exchange of preferred stock -- .61
--------------- --------------
Earnings per common share $ .37 $ .51
=============== ==============
Average shares used in computation:
PRIMARY 98,370,401 91,219,503
FULLY DILUTED 108,281,429 97,600,745
</TABLE>
SEE ACCOMPANYING NOTES.
NORTHWEST AIRLINES CORPORATION
- - --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31 December 31 March 31
(UNAUDITED, IN MILLIONS) 1996 1995 1995
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 848.2 $ 850.9 $ 453.2
Short-term investments 307.8 260.7 416.7
Accounts receivable, net 728.7 700.3 745.9
Flight equipment spare parts, net 270.8 268.0 240.9
Prepaid expenses and other 288.3 258.3 268.0
--------- --------- ---------
2,443.8 2,338.2 2,124.7
PROPERTY AND EQUIPMENT
Flight equipment, net 3,227.8 3,097.2 2,973.2
Other property and equipment, net 958.4 982.2 1,102.9
--------- --------- ---------
4,186.2 4,079.4 4,076.1
FLIGHT EQUIPMENT UNDER CAPITAL LEASES, NET 700.7 710.1 738.2
OTHER ASSETS
International routes, net 769.6 775.7 792.2
Investments in affiliated companies and other 505.1 508.9 437.6
--------- --------- ---------
1,274.7 1,284.6 1,229.8
--------- --------- ---------
$ 8,605.4 $ 8,412.3 $ 8,168.8
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Air traffic liability $ 1,014.0 $ 888.4 $ 855.8
Accounts payable and other liabilities 1,553.6 1,560.4 1,494.6
Current maturities of long-term debt and
capital lease obligations 346.0 391.8 197.2
--------- --------- ---------
2,913.6 2,840.6 2,547.6
LONG-TERM DEBT 2,062.0 2,137.4 3,774.4
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES 754.3 779.1 823.9
DEFERRED CREDITS AND OTHER LIABILTIES
Deferred income taxes 777.1 772.5 761.4
Pension and postretirement benefits 843.3 831.1 444.2
Other 362.9 306.5 341.7
--------- --------- ---------
1,983.3 1,910.1 1,547.3
MANDATORILY REDEEMABLE PREFERRED SECURITY OF
SUBSIDIARY WHICH HOLDS SOLELY NON-RECOURSE
OBLIGATION OF COMPANY 588.5 618.4 --
REDEEMABLE PREFERRED STOCK 1,006.9 945.5 738.6
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Common stock .9 .9 .9
Additional paid-in capital 1,044.3 970.7 712.8
Accumulated deficit (1,477.5) (1,517.8) (1,863.7)
Other (270.9) (272.6) (113.0)
--------- --------- ---------
(703.2) (818.8) (1,263.0)
--------- --------- ---------
$ 8,605.4 $ 8,412.3 $ 8,168.8
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
NORTHWEST AIRLINES CORPORATION
- - --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended March 31
(UNAUDITED, IN MILLIONS) 1996 1995
- - -----------------------------------------------------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 289.7 $ 194.7
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (252.3) (151.9)
Net (increase) decrease in short-term investments (46.6) 185.7
Other, net 7.1 (0.9)
--------- -------
Net cash provided by (used in) investing activities (291.8) 32.9
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale and leaseback transaction 50.0 --
Payment of long-term debt and capital lease obligations (40.6) (243.7)
Other, net (10.0) 1.3
--------- -------
Net cash used in financing activities (0.6) (242.4)
DECREASE IN CASH AND CASH EQUIVALENTS (2.7) (14.8)
Cash and cash equivalents at beginning of period 850.9 468.0
--------- -------
Cash and cash equivalents at end of period $ 848.2 $ 453.2
========= =======
Cash and cash equivalents and unrestricted short-term
investments at end of period $ 1,045.1 $ 766.2
========= =======
Borrowing capacity under revolving credit facility $ 187.5 $ 277.7
========= =======
</TABLE>
SEE ACCOMPANYING NOTES.
NORTHWEST AIRLINES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements of Northwest Airlines
Corporation ("NWA Corp." or the "Company") included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted as permitted by such rules and regulations. These
financial statements and related notes should be read in conjunction
with the financial statements and notes thereto included in the
Company's audited consolidated financial statements for the year ended
December 31, 1995 contained in the Company's Annual Report on Form 10-K
for 1995 (the "Annual Report").
In the opinion of management, the interim financial statements reflect
adjustments, consisting of normal recurring accruals, which are
necessary to present fairly the Company's financial position, results
of operations and cash flows for the periods indicated.
2. The Company's accounting and reporting policies are summarized in Note
A of the Notes to Consolidated Financial Statements in the Annual
Report.
Effective with the first quarter 1996 financial reporting, the Company
reports gains (losses) relating to the disposition of assets as
operating expenses instead of in other income (expense) in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." This change had no impact on net income, and gains
(losses) on the disposition of assets are excluded from unit cost
calculations.
3. Pursuant to amended labor agreements which provide for wage and other
cost reductions aggregating approximately $886 million over a 39 month
period which commenced August 1993, the Company has agreed to issue
common and preferred stock to employees. Note B of the Notes to
Consolidated Financial Statements in the Annual Report contains
additional discussion of the labor cost savings agreements, stock to be
issued to employees and the related accounting treatment. The fifth
installment of shares issuable to the employee trusts, consisting of
2,555,757 shares of Series C Preferred Stock, 4,215,409 shares of Class
A Common Stock and 536,880 shares of Class B Common Stock, was made on
March 1, 1996.
4. The income tax expense is based on estimated annual effective tax rates
which differ from the federal statutory rate of 35% primarily due to
state income taxes and certain nondeductible expenses.
5. As discussed under "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources"
the Company entered into agreements providing for the purchase and
financing of certain Airbus A320 aircraft as well as the rescheduling
of certain Airbus A330 aircraft deliveries. The Company has
substitution rights with respect to the A330 aircraft. This transaction
also includes the rescheduling of existing debt to beyond 2000 at lower
interest rates.
6. At March 31, 1996, the Company had no borrowings outstanding under its
revolving credit facility. The $187.5 million in borrowing capacity
under such facility along with $1.05 billion of cash, cash equivalents
and unrestricted short-term investments provided the Company with $1.23
billion of available liquidity at March 31, 1996. Scheduled maturities
of long-term debt subsequent to March 31, 1996 are $266.0 million in
1996, $143.8 million in 1997, $211.8 million in 1998, $350.3 million in
1999 and $60.6 million in 2000.
On May 8, 1996, the Company consummated an agreement to use $50 million
of existing funds to prepay a portion of its loan under the
Company's Credit Agreement and increase the revolving credit facility
by the same amount.
7. In accordance with Rule 1-02 (bb) of Regulation S-X, the following
summary data is presented for Northwest Airlines, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN MILLIONS) Three Months Ended
March 31
-------------------------
1996 1995
----------- -----------
Operating revenues $ 2,178.2 $ 1,942.9
Operating expenses 2,060.3 1,809.4
----------- -----------
Operating income 117.9 133.5
Other income (expense) (47.6) (130.8)
----------- -----------
Income before income taxes 70.3 2.7
Income tax expense 27.3 11.1
----------- -----------
Net income (loss) $ 43.0 $ (8.4)
=========== ===========
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(UNAUDITED, IN MILLIONS) March 31
-------------------------
1996 1995
----------- -----------
Current assets $ 1,917.8 $ 1,643.7
Noncurrent assets 5,558.1 5,407.1
Current liabilities 2,637.5 2,462.5
Long-term debt and obligations
under capital leases 2,257.4 3,836.6
Deferred credits and other liabilities 1,341.9 936.4
Mandatorily redeemable preferred
security of subsidiary 588.5 --
See also Note P to Consolidated Financial Statements in the Annual Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
Substantially all of the Company's results of operations are attributable to
Northwest Airlines, Inc. ("Northwest") and the following discussion pertains
primarily to Northwest. The Company's results of operations for interim periods
are not necessarily indicative of such results for an entire year due to
seasonal factors as well as competitive and general economic conditions.
For the quarter ended March 31, 1996, the Company reported unaudited net income
of $53.4 million and operating income of $134.4 million. Primary earnings per
common share were $.41 ($.37 fully diluted). Cash flow from operations was
$289.7 million during the first quarter of 1996. Net cash used in investing and
financing activities during the first quarter of 1996 was $292.4 million. Cash,
cash equivalents and unrestricted short-term investments increased $278.9
million over the first quarter of 1995 to $1.05 billion at March 31, 1996.
Additionally, at March 31, 1996, the Company had available $187.5 million in
borrowing capacity under its revolving credit facility, providing total
available liquidity of $1.23 billion.
Information with respect to the Company's operating statistics follows:
<TABLE>
<CAPTION>
Three months ended March 31 Percent
1996 1995 Change
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Scheduled service:
Available seat miles (ASM) (millions) 22,185.7 20,459.7 8.4
Revenue passenger miles (millions) 15,576.5 13,890.1 12.1
Passenger load factor (percent) 70.2 67.9 2.3 pts.
Revenue passengers (thousands) 12,036 11,144 8.0
Revenue yield per passenger mile (cents) 12.43 12.15 2.3
Passenger revenue per scheduled ASM (cents) 8.72 8.25 5.7
Operating revenue per total ASM (cents) (1) 9.44 9.04 4.4
Operating expense per total ASM (cents) (1) 8.91 8.42 5.8
Operating expense excluding stock-based
compensation per total ASM (cents) (1) 8.36 8.11 3.1
Cargo ton miles (millions) 487.2 523.5 (6.9)
Fuel gallons consumed (millions) 458.0 433.1 5.7
Average fuel cost per gallon (cents) 61.9 55.1 12.3
Number of operating aircraft at end of period 386 366 5.5
Full-time equivalent employees at end of period 45,619 43,672 4.5
</TABLE>
(1) Excludes the revenues or expenses related to the operation of
Northwest's fleet of eight 747 freighter aircraft and MLT Inc.
RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Operating income decreased $12.9 million to $134.4 million. Operating income was
unfavorably impacted by an increase of $56.5 million ($35.5 million net of tax)
in stock-based compensation expense caused by a 89% increase in the price of the
Company's common stock. Excluding this increase, first quarter 1996 operating
income would have been $190.9 million, an improvement of $43.6 million over 1995
which was largely due to a $247.7 million increase in passenger revenues.
Operating revenue per total ASM increased 4.4% from 9.04 cents in 1995 to 9.44
cents in 1996.
OPERATING REVENUES. Operating revenues were $2.26 billion, an improvement of
$221.8 million (10.9%). System passenger revenues (which represented 85.5% of
total operating revenues) increased $247.7 million (14.7%). The increase was
attributable to a 2.3% increase in system yield, a 3.4% (2.3 points) increase in
passenger load factor and an 8.4% increase in scheduled service ASMs.
Domestic passenger revenue increased $161.7 million (14.0%) to $1.32 billion. A
6.4% increase in scheduled service ASMs resulting primarily from the addition of
the Canadian routes and a 5.2% increase in yield were the factors which led to
the improved performance. Pacific passenger revenue increased by $60.7 million
(13.5%) to $509.0 million. The increase was attributable to a 10.4% increase in
scheduled service ASMs due to additional frequencies and aircraft
reconfigurations, and a 7.0% (4.9 points) increase in passenger load factor,
offset by a 3.8% decrease in passenger yield. Transatlantic passenger revenue
increased $25.4 million (30.9%) to $107.5 million due primarily to a 10.6%
increase in yield and an 18.7% increase in scheduled service ASMs primarily as a
result of the addition of the Detroit-London route and Amsterdam-Washington D.C.
route.
Cargo revenue decreased $8.8 million (4.9%) to $170.3 million due to 6.9% fewer
cargo ton miles. Cargo capacity was reduced because of increased passenger
loads. Other revenue decreased by $17.1 million (9.7%) due primarily to
decreased passenger charter revenue.
OPERATING EXPENSES. Operating expenses increased $234.7 million. While operating
capacity increased 8.0% to 22.2 billion total service ASMs, operating expense
per total service ASM increased 5.8%. Excluding stock-based compensation in both
periods, operating expense per ASM increased 3.1% to 8.36 cents largely related
to increases in flying, passenger load factors and higher fuel prices as well as
a new jet fuel tax discussed below. Salaries, wages and benefits expense
increased $59.9 million (10.3%) due in part to an increase in average full-time
equivalent employees of 3.9% which was primarily attributable to the increased
flying of 8.0% and increased traffic. Additionally, included in the increased
salaries, wages and benefits expense was a $20.2 million unfavorable impact in
pension expense due to a changed pension discount rate assumption. Non-cash
stock-based employee compensation expense, which is reported separately from
salaries, wages and benefits, is a function of shares earned by employees and
the period-ending common stock price. The stock-based compensation expense
increased to $120.1 million from $63.6 million for the first quarter of 1996 and
1995, respectively, due to an increase in the period-ending common stock price
to $51.25 per share at March 29, 1996 from $27.125 per share at March 31, 1995.
Aircraft fuel, oil and taxes increased $56.6 million (22.7%) to $305.6 million
due to a 5.7% increase in fuel gallons consumed as a result of increased flying
and an increase of 12.3% in average fuel cost per gallon. Also, in October 1995,
a 4.3 cents per gallon United States excise tax on aviation fuel went into
effect due to the expiration of an existing exemption. This new tax increased
the Company's operating expenses for the first quarter of 1996 by $12.1 million,
and unless suspended by the government will increase the Company's annual
operating expenses by approximately $50 million based on Northwest's anticipated
1996 domestic fuel consumption. Aircraft maintenance materials and repairs
increased $21.8 million (21.4%) to $123.6 million due to process changes and the
timing of maintenance activities. Other expenses grew $27.9 million (6.6%)
largely due to increased outside services and higher promotional spending,
offset by decreased passenger charter expenses.
OTHER INCOME AND EXPENSE. Interest expense-net decreased $35.1 million (33.8%)
due in large part to the prepayment of the 1989 acquisition loan and the
restructuring of the Company's financing arrangement related to certain property
in Japan described in Notes C and E to Consolidated Financial Statements in the
Annual Report. The foreign currency gain for the three months ended March 31,
1996 was attributable to balance sheet remeasurement of foreign
currency-denominated assets and liabilities. Foreign currency loss for the three
months ended March 31, 1995 was attributable to a $36.2 million loss on balance
sheet remeasurement and a $22.9 million charge for Japanese yen collar option
contracts.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $289.7 million, a $95.0 million
increase compared with the three months ended March 31, 1995. Investing
activities in 1996 pertain primarily to property and equipment additions. The
acquisition of three 757-200 aircraft and one DC-9 aircraft and the modification
of DC-9 aircraft account for the majority of the $252.3 million of property
additions in 1996. Investing activities in 1995 pertain to both property
additions and short-term investment transactions. Financing activities in 1995
pertain primarily to the prepayment of $200 million of scheduled 1995 debt
maturities.
In March 1996, the Company entered into agreements providing for the purchase
and financing of 20 Airbus A320 aircraft (thirteen in 1998 and seven in 1999) as
well as the rescheduling of 16 Airbus A330 aircraft deliveries to eight in each
of 2004 and 2005. The Company has substitution rights with respect to the A330
aircraft. Additionally, this transaction included the rescheduling of $456.9
million of existing debt to beyond 2000 at lower interest rates.
On May 8, 1996, the Company consummated an agreement to use $50 million of
existing funds to prepay a portion of its loan under the Company's Credit
Agreement and increase the revolving credit facility by the same amount.
OTHER INFORMATION
FOREIGN CURRENCY. In general, as the yen strengthens (weakens), the Company's
operating income is favorably (unfavorably) impacted and a nonoperating foreign
currency loss (gain) is recognized due to the remeasurement of net yen
liabilities. The Company's yen-denominated revenues exceed its yen-denominated
expenses by approximately 60 billion yen per year and its yen-denominated
liabilities exceed its yen-denominated assets. In recent periods the yen has
weakened as the yen exchange rate has changed from 87 yen to $1 at March 31,
1995 to 103 yen to $1 at December 31, 1995 to 107 yen to $1 at March 31, 1996.
USE OF FINANCIAL INSTRUMENTS. In order to mitigate its exposure to foreign
exchange rate fluctuations, from time to time the Company uses a collar option
strategy to hedge its anticipated yen-denominated net cash flows. At March 31,
1996 the Company had hedged using collar options approximately 80% of its
remaining 1996 anticipated yen-denominated net cash inflows (43 billion yen). In
the ordinary course of business, the Company manages the price risk of fuel
costs utilizing both regulated exchange traded futures contracts and fuel swap
agreements. Gains or losses on hedge contracts are deferred until the related
fuel inventory is expensed. As of March 31, 1996, the Company had no material
hedges for future fuel requirements.
FULLY DISTRIBUTED EARNINGS PER SHARE. The effect of the accounting for
stock-based compensation on the Company's operating results and earnings per
share may make it difficult to compare its earnings with other companies.
Accordingly, management believes the pro forma "fully distributed" earnings per
share amount, which excludes stock-based compensation and includes all the
shares to be issued to its employees, provides additional information and makes
analysis between years more comparable. On a fully distributed basis, the
Company's net earnings applicable to common stockholders would have been $115.9
million ($1.01 per share) for the three months ended March 31, 1996, an
improvement of $26.7 million ($.23 per share) over the corresponding period in
1995. The fully distributed earnings per share for 1995 includes the effect of
$.52 per share increase resulting from the January 1995 exchange of the
Company's preferred stock for common stock.
U.S. TRANSPORTATION TAX. The U.S. 10% passenger ticket tax applicable to
domestic travel, the 6.25% domestic cargo waybill tax and the $6 per passenger
international departure tax expired on December 31, 1995. Consequently, the
Company ceased collecting these taxes (which aggregated $504.8 million in 1995)
on January 1, 1996. Management cannot predict if or when such taxes will be
reinstated or replaced with user fees and the impact on future operating income
of such reinstatement is uncertain.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3, "Legal Proceedings" included in the Annual Report.
In connection with the litigation captioned NORTHWEST AIRLINES, INC. V. AMERICAN
AIRLINES, INC. (U.S.D.C. District of Minnesota. Civ. No. 4-91-539), a trial date
of June 17, 1996 has been scheduled. On March 27, 1996, the District Court
granted a motion for summary judgment in favor of KLM Royal Dutch Airlines in
AMERICAN AIRLINES, INC. V. KLM ROYAL DUTCH AIRLINES, INC. (U.S.D.C. District of
Minnesota Civ. No. 4-93-1104), a related case presently consolidated with
NORTHWEST AIRLINES, INC. V. AMERICAN AIRLINES, INC. On April 26, 1996, American
filed a notice of appeal of the judgment in the KLM case to the U.S. Court of
Appeals for the Eighth Circuit. The District Court presently has before it the
question of whether the trial of the NORTHWEST AIRLINES, INC. V. AMERICAN
AIRLINES, INC. case must or should be deferred during the pendancy of the appeal
in the KLM case.
In the ordinary course of its business the Company is party to various legal
actions which the Company believes are incidental to the operation of its
business. The Company believes that the outcome of the proceedings to which it
is currently a party (including those described above and in the Annual Report)
will not have a material adverse effect on the Company's financial statements
taken as a whole.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.1 - Amendment No. 5 to A330 Purchase Agreement
among AVSA, S.A.R.L. and Northwest Aircraft
Inc. (The Company has applied to the Commission
for confidential treatment of certain
portions of this exhibit.)
Exhibit 11.1 - Computation of Primary Earnings per Common
Share.
Exhibit 11.2 - Computation of Fully Diluted Earnings per
Common Share.
Exhibit 12.1 - Computation of Ratio of Earnings to Fixed
Charges
Exhibit 12.2 - Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Requirements
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the first quarter of
1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Northwest Airlines Corporation
Dated: May 13, 1996 By: /s/ Mark W. Osterberg
Mark W. Osterberg
Vice President and
Chief Accounting Officer
EXHIBIT INDEX
Exhibit No. Description
10.1 Amendment No. 5 to A330 Purchase Agreement among AVSA,
S.A.R.L. and Northwest Aircraft Inc. (Exhibit 10.1 hereto is
being filed with a request for confidential treatment of
certain portions).
11.1 Computation of Primary Earnings Per Common Share.
11.2 Computation of Fully Diluted Earnings per Common Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
12.2 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Requirements.
27.1 Financial Data Schedule
EXPURGATED Confidential Treatment
Requested By Northwest
Airlines Corporation
Exhibit 10.1
Amendment No. 5
to the A330 Purchase Agreement
dated as of February 10, 1989
between
AVSA, S.A.R.L.
and
NORTHWEST AIRCRAFT INC.
This Amendment No. 5 (hereinafter referred to as the "Amendment") is entered
into as of March 29, 1996, between AVSA, S.A.R.L., a societe a responsabilite
limitee organized and existing under the laws of the Republic of France, having
its registered office located at 2, Rond-Point Maurice Bellonte, 31700 Blagnac,
France (hereinafter referred to as the "Seller"), and NORTHWEST AIRCRAFT INC., a
corporation organized and existing under the laws of the State of Delaware,
United States of America, having its principal corporate offices located at 2700
Lone Oak Parkway, Eagan, Minnesota 55121, USA (hereinafter referred to as the
"Buyer").
All capitalized terms not otherwise defined herein shall have the meanings
provided for in the Agreement (as defined hereinbelow). The terms "herein,"
"hereof" and "hereunder" and words of similar import refer to this Amendment.
Both parties agree that this Amendment shall constitute an integral,
nonseverable part of the Agreement and be governed by its provisions, except
that if the Agreement and this Amendment have specific provisions that are
inconsistent, the specific provisions contained in this Amendment shall govern.
WITNESSETH
WHEREAS, the Buyer and the Seller entered into an A330 Purchase Agreement, dated
as of February 10, 1989, relating to the sale by the Seller and the purchase by
the Buyer of certain Airbus Industrie A330 aircraft (the "Aircraft"), which
agreement, as previously amended and supplemented by Amendment No. 1, dated May
31, 1989, Amendment No. 2, dated June 5, 1992, Amendment No. 3, dated December
7, 1992, and Amendment No. 4, dated August 5, 1993, together with all Exhibits,
Appendices and Letter Agreements attached thereto, is hereinafter called the
"Agreement";
WHEREAS, the Buyer and the Seller have agreed to provide for revisions to the
Agreement, by way of this Amendment;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. DELIVERY SCHEDULE
The delivery schedule in Subclause 9.1.1 of the Agreement, as amended
by Amendment No. 1, Amendment No. 2 and Amendment No. 4 to the
Agreement, is superseded and replaced by the following schedule for
Aircraft Nos. 1 through 16:
QUOTE
Aircraft No. Month of Delivery
Aircraft No. 1 {CONFIDENTIAL
Aircraft No. 2 MATERIAL
Aircraft No. 3 OMITTED
Aircraft No. 4 AND FILED
Aircraft No. 5 SEPARATELY
Aircraft No. 6 WITH THE
Aircraft No. 7 SECURITIES
Aircraft No. 8 AND
Aircraft No. 9 EXCHANGE
Aircraft No. 10 COMMISSION
Aircraft No. 11 PURSUANT
Aircraft No. 12 TO A
Aircraft No. 13 REQUEST
Aircraft No. 14 FOR
Aircraft No. 15 CONFIDENTIAL
Aircraft No. 16 TREATMENT}
UNQUOTE
2. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
3. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
4. AIRCRAFT DEPOSITS
The Buyer has previously paid to the Seller US $125,000 (US dollars --
one hundred twenty-five thousand) per Aircraft pursuant to Paragraph 3
of Amendment No. 3 to the Agreement. {CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT}
5. EFFECT OF AMENDMENT ON PREDELIVERY PAYMENTS
5.1 The Buyer and the Seller hereby agree to adjust payment dates for the
predelivery payments related to each of the Aircraft to correspond to
the revised delivery schedule agreed in Paragraph 1 of this Amendment.
The new payment dates will be determined in accordance with and will be
subject to all existing terms and conditions of the Agreement that
relate to predelivery payments. The adjusted payment dates shall be
effective as of the date of this Amendment.
5.2 The schedule of predelivery payments as set forth in Subclause 6.2.2 of
the Agreement, as amended by Amendment No. 3 to the Agreement, is
deleted in its entirety and replaced by the following:
QUOTE
Percentage of the
Predelivery New Predelivery
Payment Payment Reference
Number Payment Date Price
{CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT}
UNQUOTE
6. {CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT}
7. REMARKETING
The Buyer hereby acknowledges for the benefit of the Seller that the
Seller shall have, as of the date hereof, the absolute, unconditional
and unfettered right, at the Seller's option, to remarket to any other
existing or future customer the delivery positions formerly assigned to
the Buyer under the Agreement and rescheduled hereby.
8. APPLICABILITY OF AMENDMENT
The Agreement shall be deemed amended to the extent herein provided
and, except as specifically amended hereby, shall continue in full
force and effect in accordance with its original terms.
9. GOVERNING LAW
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. THE PERFORMANCE OF THIS AMENDMENT
SHALL BE DETERMINED ALSO IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
10. ASSIGNMENT
Notwithstanding any other provision of this Amendment or of the
Agreement, this Amendment and the rights and obligations of the Buyer
hereunder shall not be assigned or transferred in any manner
independently of the Agreement without the prior written consent of the
Seller, and any attempted assignment or transfer in contravention of
the provisions of this Paragraph 10 shall be void and of no force or
effect.
11. CONFIDENTIALITY
Subject to any legal or governmental requirements of disclosure, the
parties (which for this purpose shall include their employees, agents
and advisors) shall maintain the terms and conditions of this Amendment
and any reports or other data furnished hereunder strictly
confidential. Without limiting the generality of the foregoing, the
Buyer and Northwest shall use their reasonable efforts to limit the
disclosure of the contents of this Amendment to the extent legally
permissible in any filing required to be made by the Buyer or Northwest
with any governmental agency and shall make such applications as shall
be necessary to implement the foregoing. The Buyer, Northwest and the
Seller shall consult with each other prior to the making of any public
disclosure, otherwise permitted hereunder, of this Amendment or the
terms and conditions thereof. The provisions of this Paragraph 11 shall
survive any termination of this Amendment.
If the foregoing correctly sets forth our understanding, please execute
the original and one (1) copy hereof in the space provided below and return a
copy to the Seller.
AVSA, S.A.R.L.
By: /s/ Christophe Mourey
Its: Chief Executive Officer
Accepted and Agreed
NORTHWEST AIRCRAFT INC.
By: /s/ Joseph E. Francht, Jr.
Its: Vice President-Finance and Treasurer
Consented to:
NORTHWEST AIRLINES, INC.
By: /s/ Joseph E. Francht, Jr.
Its: Senior Vice President-Finance and Treasurer
EXHIBIT 11.1
NORTHWEST AIRLINES CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) Three months ended March 31
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Reconciliation of net income applicable to common stockholders:
Net income before preferred stock requirements $ 53.4 $ 2.6
Preferred stock requirements (13.0) (14.5)
-------------- --------------
Income (loss) applicable to common stockholders before
exchange of preferred stock 40.4 (11.9)
Exchange of preferred stock -- 59.2
-------------- --------------
Net income applicable to common stockholders $ 40.4 $ 47.3
============== ==============
Reconciliation of weighted average number of shares outstanding to amount used
in primary earnings per share computation:
Weighted average number of common shares outstanding,
excluding shares issued to employee trusts 81,728,857 80,143,775
Weighted average number of common shares earned by employees since August
1, 1993 due to the exercise of the Series C Preferred Stock special
conversion option in February 1994 13,966,068 8,471,221
Stock options issued reduced by the number of shares which could have been
purchased with the proceeds from exercise of such options 2,675,476 2,604,507
-------------- --------------
Weighted average number of common shares
outstanding, as adjusted 98,370,401 91,219,503
============== ==============
Earnings (loss) per common share - primary:
Before exchange of preferred stock $ .41 $ (.13)
Exchange of preferred stock -- .65
-------------- --------------
Earnings per common share $ .41 $ .52
============== ==============
</TABLE>
EXHIBIT 11.2
NORTHWEST AIRLINES CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) Three months ended March 31
---------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
Reconciliation of net income applicable to common stockholders:
Net income before preferred stock requirements $ 53.4 $ 2.6
Preferred stock requirements (13.0) (14.5)
Addback: Series C Preferred Stock requirements -- 2.1
--------------- --------------
Income (loss) applicable to common stockholders before
exchange of preferred stock 40.4 (9.8)
Exchange of preferred stock -- 59.2
--------------- --------------
Net income applicable to common stockholders, as adjusted $ 40.4 $ 49.4
=============== ==============
Reconciliation of weighted average number of shares outstanding to amount used
in fully diluted earnings per share computation:
Weighted average number of common shares outstanding,
excluding shares issued to employee trusts 81,728,857 80,143,775
Weighted average number of common shares earned by employees since August
1, 1993 due to the exercise of the Series C Preferred Stock special
conversion option in February 1994 13,966,068 8,471,221
Weighted average number of shares of Series C Preferred Stock earned by
employees since August 1, 1993 for which the special conversion option
was not elected and assumed to be converted to common stock 9,856,577 5,978,580
Stock options issued reduced by the number of shares which could have been
purchased with the proceeds from exercise of such options 2,729,927 3,007,169
--------------- --------------
Weighted average number of common shares
outstanding, as adjusted 108,281,429 97,600,745
=============== ==============
Earnings (loss) per common share assuming full dilution:
Before exchange of preferred stock $ .37 $ (.10)
Exchange of preferred stock -- .61
--------------- --------------
Earnings per common share $ .37 $ .51
=============== ==============
</TABLE>
EXHIBIT 12.1
NORTHWEST AIRLINES CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1996 1995
-------- --------
<S> <C> <C>
EARNINGS:
Income before income taxes $ 87.8 $ 4.5
Less: Income (loss) from less than 50% owned investees 3.7 (0.2)
Add:
Rent expense representative of interest (1) 46.1 46.4
Interest expense net of capitalized interest 65.7 100.5
Interest of mandatorily redeemable preferred security holder 7.0 --
Amortization of debt discount and expense 2.9 3.2
Amortization of interest capitalized 0.7 0.8
-------- --------
ADJUSTED EARNINGS $ 206.5 $ 155.6
======== ========
FIXED CHARGES:
Rent expense representative of interest (1) $ 46.1 $ 46.4
Interest expense net of capitalized interest 65.7 100.5
Interest of mandatorily redeemable preferred security holder 7.0 --
Amortization of debt discount and expense 2.9 3.2
Capitalized interest 2.2 2.4
-------- --------
FIXED CHARGES $ 123.9 $ 152.5
======== ========
RATIO OF EARNINGS TO FIXED CHARGES 1.67 1.02
======== ========
</TABLE>
(1) Calculated as one-third of rentals, which is considered representative
of the interest factor.
EXHIBIT 12.2
NORTHWEST AIRLINES CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK REQUIREMENTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1996 1995
-------- --------
<S> <C> <C>
EARNINGS:
Income before income taxes $ 87.8 $ 4.5
Less: Income (loss) from less than 50%
owned investees 3.7 (0.2)
Add:
Rent expense representative of interest (1) 46.1 46.4
Interest expense net of capitalized interest 65.7 100.5
Interest of mandatorily redeemable preferred security holder 7.0 --
Amortization of debt discount and expense 2.9 3.2
Amortization of interest capitalized 0.7 0.8
-------- --------
ADJUSTED EARNINGS $ 206.5 $ 155.6
======== ========
FIXED CHARGES:
Rent expense representative of interest (1) $ 46.1 $ 46.4
Interest expense net of capitalized interest 65.7 100.5
Interest of mandatorily redeemable preferred security holder 7.0 --
Preferred stock requirements 21.4 25.1
Amortization of debt discount and expense 2.9 3.2
Capitalized interest 2.2 2.4
-------- --------
FIXED CHARGES $ 145.3 $ 177.6
======== ========
RATIO OF EARNINGS TO FIXED CHARGES 1.42 --
======== ========
COVERAGE DEFICIENCY $ 22.0
========
</TABLE>
(1) Calculated as one-third of rentals, which is considered representative
of the interest factor.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 848
<SECURITIES> 308
<RECEIVABLES> 751
<ALLOWANCES> 22
<INVENTORY> 271
<CURRENT-ASSETS> 2,444
<PP&E> 5,697
<DEPRECIATION> 1,511
<TOTAL-ASSETS> 8,605
<CURRENT-LIABILITIES> 2,914
<BONDS> 0
1,007
0
<COMMON> 1
<OTHER-SE> (704)
<TOTAL-LIABILITY-AND-EQUITY> 8,605
<SALES> 2,265
<TOTAL-REVENUES> 2,265
<CGS> 0
<TOTAL-COSTS> 2,130
<OTHER-EXPENSES> (47)
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> (69)
<INCOME-PRETAX> 88
<INCOME-TAX> 34
<INCOME-CONTINUING> 53
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53
<EPS-PRIMARY> .41
<EPS-DILUTED> .37
</TABLE>
