Western Air Express Corporation and Subsidiary Companies ANNUAL REPORT 1934 WESTERN AIR EXPRESS CORPORATION OFFICERS President ,.. ,.. ,.. ,.. ,.. ALVIN P. ADAMS Vice,..President,..,..,.. - ,.. W. M. GARLAND Vice,..President ,.. ,.. ,.. ,.. ,.. ,.. C. N. JAMES Secretary and Treasurer,.. ,.. - ,.. ,.. - ,.. J. W. MILLER ALVIN P. ADAMS W. G. BuRHENN L. H. DWERLKOTTE DIRECTOR REGISTRAR w. M. GARLAND C. N. JAMES J. W. MILLER Citizens National Trust & Savings Bank, Los Angeles, California STOCK TRANSFER AGENT Security,..First National Bank of Los Angeles, California AUDITORS Peat, Marwick, Mitchell & Co. GENERAL OFFICES Union Air Terminal, Burbank, California March 12. 1935 To the Stockholders: There is submitted herewith consolidated profit and loss statement of your company for the calendar year 1934, together with a consolidated balance sheet of the company and its subsid- iaries as of December 31, 1934, to which is appended the report of Messrs. Peat, Marwick, Mitchell & Company, the accountants for your company. The annulment of all domestic air mail contracts in February, 1934 resulted in the cessation of all air mail income for a period of approximately three months, and the lower rates provided for in the new contract on the Salt Lake City~San Diego route, together with your company's suspension of operations on its Rocky Mountain division, brought about a subsequent reduction in revenues from this source as compared with those under the cancelled contract. The lower mail rate has caused the air mail income of your company to drop from $35,276.00 or 41.3 cents per mile, in December, 1933 for the double schedule over the San Diego--Los Angeles--Salt Lake City route, to $10,782.96, or 23.8 cents per revenue mile, in December, 1934 for the single schedule over the same route. Mainly for this reason, the profit and loss statement of your com~ pany for 1934 shows a net loss of $153,509.70 after depreciation charges of $62,348.54 and taxes. This compares with a net profit in the previous year of $186,250.48, after all charges and taxes. An analysis of operating results shows that air mail revenue during 1934 totalled only $172,007.21 as compared with $775,898.21 in 1933, a decrease of $603,891.00; and that passenger revenue was also less, totalling $182,777.23 for 1934 as compared with $226,912.16 in the pre.- viou::; year. The total decrease in gross revenue of $638,125.16 was partially offset by a reduction in operating costs amounting to $318,235.47. This reduction, however, is principally accounted for by the reduction in revenue miles flown from 1,691,621 in 1933 to 974,432 in 1934. Effective February 15, 1935, the Post Office Department authorized an additional daily round-tnp air mail schedule between Salt Lake City and Los Angeles so that your company now operates two round--trips daily between these points and one round--trip daily between Los Angeles and San Diego. This additional schedule should result in a. substantial increase in air mail revenue, as well as in additional passenger and express business. Your Management is hopeful that the present session of Congress will result in legislation more favorable to the aviation industry, but feels that it is still too early to make any definite forecast at this time. Our route from San Diego through Los Angeles to Salt Lake City and the United Air Lines' mid--continent route could well serve as important feeders for each other, and your Management consequently feels that both from a sales and an operating standpoint we should cooperate with United Air Lines to bring the operating standards of the two routes as nearly as possible into conformity with each other. Towards this end we have for some time been operating connecting schedules with through tickets, and have recently engaged stewardesses for our planes and made arrangements for a joint ticket office and waiting room at Salt Lake City. At the close of last year, your company sold its four Douglas airplanes, together with certain equipment used in connection therewith, for cash at net depreciated book values, and at the same time secured a lease, with option to purchase, on four Boeing airplanes on terms con-- sidered by your Management to be advantageous to the Company. The sale of the four Douglas airplanes is reflected in the attached balance sheet. The four leased Boeings were placed in service early this year. This change in equipment not only permits a more economical operation, but is also in line with the company's policy of providing a uniform service with the mid- continent route of United Air Lines, on which Boeings are also flown. Respectfully yours, AL VIN P. ADAMS President Current Assets: WESTERN AIR EXPRESS CORPORATION AND SUBSIDIARIES ASSETS CONSOLIDATED BALANCE SHEET As at December 31. 1934 ! Current Liabilities: LIABILITIES Cash in Banks and on Hand ................................................... . $ 713,337.76 l Dividend Payable .................................................................... $ 556,612.50 Accounts Receivable, less Reserve of $10,000 ..................... . Accounts Receivable from United States Post Office De-- partment under old Air Mail Contract ......................... . Total Current Assets ............................................. . Inventory of Parts and Supplies, less Reserve of $14,000.00 ....... . Prepaid Expenses ......................................................................... . United States Government Bonds and Notes ( Par Value $35,000.00) deposited with United States Post Office Department ............................................................................. . Miscellaneous Stocks and Bonds ................................................... . Properties and Equipment: Land .................................................................. $ 13,256.95 Hangars, Buildings, Airplanes, Engines and Other Equipment ......................................... 303,679.92 316,936.87 Less Reserve for Depreciation........................ 233,417.72 83,519.15 Unimproved Real Estate ................................ 147,876.85 Airport Leases and Rights not used in Operations .................................................... 39,275.00 Other Property not used in Operations (Net) 10,920.41 61,014.45 50,956.48 825,308.69 26,046.88 16,064.75 35,612.01 887.42 281,591.41 Accounts Payable ................................................................... . Accrued Expenses ................................................................. . Total Current Liabilities ....................................... . Capital Stock: Authorized, 500,000 Shares of $1.00 each Issued, 222,645 Shares .................................... 222,645.00 Capital Surplus ........................................................ 413,887.12 636,532.12 Operating Deficit ................................................... . 41,302.34 Contingent Liabilities-None Reported. 26,104.33 7,564.55 590,281.38 595,229.78 Total ......................................................................... $1,185,511.16 Total.................................................... $1 ,185,511.16 OTES:- ( 1) The Corporation has negotiated a lease~purchase option contract for three Boeing Model 217 D Airplanes which involves an estimated liability of approximately $130,000.00. (2) The Corporation declared a distribution to the stockholders of 296,825 shares of stock in Transcontinental & W estern Air, Inc., costing $2,720,898.98. The distribution had not been completed at December 31, 1931. (3) The Federal Income T ax Returns for 1932 and subsequent years have not been examined by the Treasury Department. WESTERN AIR EXPRESS CORPORATION AND SUBSIDIARIES Gross Revenue: CONSOLIDATED PROFIT AND LOSS ACCOUNT For the Year ended December 31, 1934 Mail .............................................................................................. $172,007.21 Passenger .................................................................................... 182,777.23 Other Airplane Earnings ............................................................ 17,870.92 Sale of Parts, Supplies, Labor, etc............................................. 6,554.04 Gross Revenue ............................................................. 379,209.40 Operating and General Expenses.......................... $ 468,444.37 Depreciation ............................................................. . 62,348.54 530,792.91 Net Operating Loss .................................................... 151,583.51 Loss on Sale of Equipment and Parts including Reserves Provided ...................................................................... 19,100.59 Interest Earned, less Interest Charges................... 15,986.31 Sundry Income-Net.............................................. 1,188.09 Loss ............................................................................. . SURPLUS ACCOUNTS Capital Surplus 170,684.10 17,174.40 $153,509.70 Earned Surplus Balance, as at December 31, 1933........................ $1,010,385.73 $770,626.37 Add: Operating Reserves provided in Prior Years, restored to Surplus ...................................... 18,788.86 Capital Surplus arising from Reduction of Par Value of Capital Stock from $10.00 to $1.00 per Share ............................................ 2,003,805.00 3,014,190.73 789,415.23 Deduct: Loss for the Year ended December 31, 1934........................ 153,509.70 Dividend and Distribution: Cash, $2.50 per Share............................................................ 556,612.50 Transcontinental & Western Air, Inc. stock- 296,825 Shares ( Cost $2,720,898.98 ).......... 2,600,303.61 120,595.37 2,600,303.61 830,717.57 Balance, as at December 31, 1934........................ $ 413,887.12 * 41.302.34 *Deficit. To the Board of Directors of WESTERN AIR EXPRESS CORPORATION We have made an examination of the Consolidated Balance Sheet of Western Air Express Corporation and its wholly owned subsidiaries, Western Air Express, Inc., and General Air Lines, Inc., as at December 31, 1934 and of the Consolidated Profit and Loss and Surplus Accounts for the year 1934. In connection there-- with, we examined or tested accounting records of the Companies and other supporting evidence and obtained information and ex ... planations from officers and employees of the Companies; we also made a general review of the accounting methods and of the operating and income accounts for the year, but we did not make a detailed audit of the transactions. Unimproved real estate and airport leases and rights recorded at $147,876.85 and $39,275.00 respectively are not at present used in the operations of the Companies and as to the values thereof we are unable to express an opinion. In our opinion, based upon such examination and subject to the foregoing qualification, the accompanying Consolidated Balance Sheet and related Profit and Loss and Surplus Accounts fairly present, in accordance with accepted principles of accounting consistently maintained by the Companies during the year under review, their consolidated position at December 31, 1934 and the results of their operations for the year. Los Angeles, California, January 19, 1935. PEAT, MARWICK, MITCHELL & Co.