Western Air Express Corporation and Subsidiary Companies ANNUAL REPORT 1931 WESTERN AIR EXPRESS CORPORATION OFFICERS President ,., ,., ,., ,., --HARRIS M. HANSHUE Vice--President ,., ,., ,., ,., W. M. GARLAND Vice--President ,., ,., ,., ,., ,., ,., C. E. WILSON Secretary and Assistant Treasurer,.,,.,,.,,.,,.,,.,,., J. W. MILLER HARRY CHANDLER F. G. COBURN M. C. COOPER w. R. FAWCETT FRED J. FISHER JACK FRYE DIRECTORS w. M. GARLAND HARRIS M. HANSHUE ALAN J. LOWREY E. 0. McDONNELL J.M. SCHOONMAKER, JR. C. E. WILSON REGISTRARS: Citizens National Trust & Savings Bank, Los Angeles, California American Trust Company, San Francisco, California STOCK TRANSFER AGENTS: Security--First National Bank of Los Angeles, California Anglo & London Paris National Bank, San Francisco, California AUDITORS: Peat, Marwick, Mitchell & Co. GENERAL OFFICE: United Airport, Burbank, California March 8, 1932 To the Stockholders: Herewith is submitted the Annual Report upon the affairs of your Company for the year ended December 31, 1931. During the past year the consolidation of the Western Air Express lines between San Francisco, Los Angeles and Kansas City with T.A.T,.Maddux Air Lines, which was begun in 1930 by the formation of Transcontinental & Western Air, Inc., was consummated. In exchange for the assets put into this new company by Western Air Express, your Company received 296,825 shares of common stock of Transcontinental & Western Air, Inc., this representing approximately 47% of the total issue. T.A.T.,.Maddux Air Lines received an equal amount. This new Company, which operates the central transcontinental route between Los Angeles and New York, has shown material development and expansion during the year. Two mail schedules are now operated daily each way between New York and Los Angeles via Kansas City, Missouri, and one schedule each way daily between Amarillo and St. Louis on the Tulsa cut,.off. The second daily schedule was started as the night flight in July of last year. A daily passenger schedule was inaugurated between Columbus and Chicago and there was also operated a daily passenger schedule between Los Angeles and San Francisco. In order to reduce expenses and coordinate activities, a central base and administration office was establish-- ed at Kansas City. The air mail rate for the day schedule given Transcontinental & Western Air, Inc. at its inception was rather low and although the volume of mail increased beyond the requirements of the contract, it has not been possible for this rate to be adjusted until January 1932. Beginning then a twenty--four hour schedule was inaugurated between Los Angeles and New York. Passenger transportation in general showed a marked decrease for the year 1931 and this falling off of passenger business was materially reflected in the decrease of revenue of Transcontinental & Western Air, Inc. Although the operations for the ye_ar showed a consider-- able loss, the January 1932 operating statement of Transcontinental & Western Air, Inc. shows a profit for the first time since this Corporation began operations. With the new twenty,.four hour service, the adjusted mail rates and the anticipated increase in passenger revenues during the summer months, it is believed these profits will be enhanced as the year progresses. In July 1931 your Board of Directors voted to acquire the preferred stock of Aero Cor-- poration of California, Inc. Previous to this time over 99% of the common stock was owned by your Company. The purchase of the preferred stock was necessary in order to simplify the liquidation of this corporation and eliminate any difficulties which might have arisen there-- from. The assets of Aero Corporation of California, Inc., are being disposed of and the cash received from the sale thereof is being placed on deposit to offset the liability of the notes issued in payment for this preferred stock. During 1931 your Company expanded its mail routes by receiving an extension of the Cheyenne--Denver--Pueblo mail contract to Amarillo, Texas and to Albuquerque, New Mexico and by subleasing from American Airways the contract for carrying the mail from Albuquerque, New Mexico to El Paso, Texas. An additional night mail run between Denver and Cheyenne was also put into operation. In consideration of the extensions in the Rocky Mountain district, which routes were formerly operated by Mid--Continent Air Express Corporation, it was neces-- sary to acquire the assets and good will of that company, which acquisition was completed in September 1931. in payment of which common stock of Wes tern Air Express Corporation was given. As the result of the general economy program of the Government during the year past, the rates paid to the air mail operators were materially reduced, the total reduction amounting to over 30% for the year on the rates paid your Company on the Salt Lake,.Los Angeles route. Notwithstanding these reductions in revenue, your Company showed a net profit of approxi-- mately 90c per share in the year 1931 before giving effect to the Wes tern Air Express equity in the loss of Transcontinental & Western Air, Inc. Although the night mail schedule between Salt Lake City and Los Angeles was cancelled on January 2, 1932, it is believed that the non-- operation of this schedule is purely temporary and will be reinstated at such time as additional appropriations are obtained by the Post Office Department. With the day mail schedule at present being flown between Los Angeles and Salt Lake City and the probable reinstatement of the night mail,-combined with the operations on the mail lines in the Rocky Mountain district, which have proved profitable,-your Company should show satisfactory earnings for the year 1932. Respectfully submitted, HARRIS M. HANSHUE President WESTERN AIR EXPRESS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET As at December 31, 1931 ASSETS Current Assets: Cash in Banks and on Hand ................................................... . Certificates of Deposit ........................................................... . Accounts Receivable-United States Government ............. . Other Notes and Accounts Receivable, less Reserve ........... . Inventories of Parts and Supplies ......................................... . Sundry Assets of Aero Corporation of California, Inc. ( a Subsidiary), less Reserve of $60,366.99 to reduce to estimated realizable value ................................. . Total Current Assets ............................................. . Prepaid Expenses and Deferred Charges ................................... . United States Government Bonds-Par Value $24,000.00-Deposited with United States Post Office Department ......................................................... . Deposit ( 10%) under Contract for Purchase of Airplanes ( In Abeyance pending Settlement) ...................... . Sundry Investments-at Cost ....................................................... . Investment in Mid .... Continent Air Express Cor .... poration (Tobe represented by 11,291 Shares of Stock of Western Air Express Corporation when Issued-See Contra).............................. $297,718.75 Less Reserve to reduce to Par Value of 11,291 Shares ............................................................. . 184,808.75 *Investment in Common Stock of Transcontinental & Western Air, lnc.-296,825 Shares, at Cost ....................... . Airports and Leases ................................................ 63,175.00 Hangars, Buildings, Airplanes, Engines and Other Equipment ........................................................ 617,337.61 680.512.61 Less Reserve for Depreciation.................................. 373,584.20 306,928.41 Unimproved Real Estate ........................................ 147,876.85 $ 474,121.08 175,000.00 107,287.15 14,377.59 24,837.13 54,632.95 850,255.90 30,448.26 24,371.19 30,000.00 25,201.00 112,910.00 2,720,898.98 454.805.26 $4,248,890.59 * A preliminary Balance Sheet as at December 31, 1931, received from Transcontinental & Western Air, Inc., shows a net book value of $1,841 ,200.50 applicable to the stock owned by Western Air Express Corporation. The difference between this figure and the cost of the stock as shown above ($2,720,898.98) represents, for the most part, the Company's proportion of operating losses from inception to December 31, 1931. The aforementioned preliminary Balance Sheet indicates that the above figure of $1,841,200.50 may be increased $142,294.21, which represents a possible adjustment of air mail revenue for the latter part of 1931. LIABILITIES Current Liabilities: 5% Promissory Notes Payable-Due July 1. 1932 ........... . Accounts Payable-Trade ................................................... . Accrued Expenses ................................................................. . Total Current Liabilities ....................................... . 5% Promissory Notes Payable: Due July 1, 1933 .......................................... $ Due July 1, 1934 ......................................... . Reserves: For Contingencies ....................................... . For Maintenance of Airplanes and Engines 7% Cumulative Participating Preferred Stock of Aero Corporation of California, Inc., ( a Sub ... sidiary), in hands of Public ( Dividends Paid 66,100.00 87,600.00 59,637.40 37,683.53 to December 31, 1930) ......................................................... . Common Stock to be Issued to Stockholders of Mid .... Continent Air Express Corporation for Assets acquired, of which the Company will receive 11,291 Shares when distributed-See Contra ..................................................................................... . Capital Stock: Authorized, 500,000 Shares of $10.00 each Issued, 210,792 Shares ................................. 2,107,920.00 Paid .... Jn and Capital Surplus .............................. 1,010.285.73 $ 60,000.00 76,803.54 13,766.10 150,569.64 153,700.00 97,320.93 500.00 233,100.00 Earned Surplus .................................................... 495,494.29 3,613,700.02 Contingent Liabilities Reported: Airplane Sales Contracts Discounted .................................. $22,871.24 $4,248,890.59 To the Board of Directors of WESTERN AIR EXPRESS CORPORATION We have examined the accounts of Western Air Express Corporation and its Subsi# diaries, Western Air Express, Inc., and Aero Corporation of California, Inc., for the year ended December 31, 1931. In our opinion, based on our examination and information furnished to us, the accompanying Consolidated Balance Sheet and relative Profit and Loss and Surplus Accounts set forth the financial condition of the Companies as at December 31, 1931, and the result of the operations for the year. Los Angeles, California, March 2, 1932. PEAT, MARWICK, MITCHELL & CO. WESTERN AIR EXPRESS CORPORATION AND SUBSIDIARIES Gross Revenue: CONSOLIDATED PROFIT AND LOSS ACCOUNT For the Year ended December 31, 1931 Mail ----------------------- Passenger ---------------- Other Airplane Earnings ----------- Sale of Parts, Supplies, Labor, Rentals, etc.----- Gross Revenue -------------- Operating and General Expenses, including Depreciation .. - Net Operating Profit --------- Interest and Discount Earned, less Interest Charges ...... -- Losses on Equipment Sold and Other Charges not applicable to Current Operations-Net ( excluding Loss charged to Special Reserve in amount of $38,372.78) ----- Net Income, before deducting Loss of Aero Corporation of California, Inc., ( a Sub-- sidiary) ------- Net Loss of Aero Corporation of California, Inc., ( a Sub-- sidiary), excluding Liquidation Losses Charged to Special $1,184,381.23 80,375.74 3,918.78 27,239.00 1,295,914.75 983,724.01 312,190.74 12,923.91 325,114.65 84,632.61 240,482.04 Reserves in amount of $172,458.10 ------ 47,099.93 Net Income -------------- $193,382.11 NOTE:-No Provision for Federal Income Tax is necessary, due to Statutory Net Loss of Prior Year. No deduction has been made for the proportion of the net loss of Transcontinental & Western Air, Inc., applicable to Western Air Express Corporation interest therein, for the year ended December 31, 1931. According to preliminary figures which have been received, the Company's proportion of this loss aggregates $485,317.21, which is subject to a possible reduction of $142,294.21 in respect of adjustment of air mail revenue. WESTERN AIR EXPRESS CORPORATION AND SUBSIDIARIES CONSOLIDATED PROFIT AND LOSS ACCOUNT- Continued EARNED SURPLUS Balance as at December 31, 1930.................................................. $ 731,717.18 Add Net Income for the Year ended December 31, 1931.. ......... . Deduct: Provision for Contingencies.......................... $ 118,000.00 Provision for Liquidation of Aero Corpora ... tion of California, Inc., ( a Subsidiary) Dividend Paid, May 1, 1931 ....................... . 280,000.00 31,605.00 193,382.11 925,099.29 429,605.00 Balance as at December 31, 1931.................................................... $ 495,494.29 PArn .... IN AND CAPITAL SuRPLus Balance as at December 31. 1930.................................................... $ 759,022.92 Add: Premium on Capital Stock Sold.................... $ 300,000.00 Discount on Preferred Stock of Aero Cor .... poration of California, Inc. ( a Subsidiary) Purchased ................................................. . Surplus arising from Acquisition of Com ... mon Stock of Aero Corporation of Cali ... fornia, Inc. ( a Subsidiary) ....................... . Deduct Excess of Par Value of Common Stock to be Issued to Stockholders of Mid .... Con ... tinent Air Express Corporation over Value of Leases, Rights, Equipment and Other Assets transferred to Wes tern Air Express 71,472.50 1,178.37 372,650.87 1,131,673.79 Corporation, less Liabilities assumed...................................... 121,388.06 . Balance as at December 31, 1931.................................................... $1 ,010,285.73