1953 1952 Seat Miles Flown ..................... 613,814,000 453,332,000 Seat Miles Sold ....................... 359,965,000 298,931,000 Passengers Carried .................... 838,732 774,079 Total Operating Revenues ............. $22,876,797 18,595,063 Net Income .......................... 1,184,864 1,232,114 Dividends Paid ....................... 429,128 404,369 Common Stock Outstanding ........... 715,213 715,213 Income per Share ................... 1.66 1.72 Dividends per Share ................ 0.60 0.60 Cash and U.S. Government Securities ... $ 4,041,436 5,090,998 Working Capital ...................... 755,134 1,307,994 Investment in Property and Equipment .. 18,854,100 17,430,349 Notes Payable to Bank ................ 3,727,244 4,618,837 Total Shareholders' Equity ............ $ 9,746,451 8,990,715 Shareholders' Equity per Share of Common Stock ................... 13.63 12.57 Number of Employees ................ 1,813 1,649 Wages and Salaries Paid ............... $ 8,708,869 7,436,27-5 WESTERN AIR LINES This is the twenty-eighth annual report of America's Oldest Airline. The year 1953 was a period of transition, and continued growth and development for your Company. A fleet of new Douglas DC-6B' s, one of the most modern and efficient airliners flying today, was placed in service early in the year. A new, direct service was inaugurated between Minneapolis/ St. Paul and Los Angeles, via Rapid City, Casper, and Salt Lake City, and major improvements were effected in service offered on the Company's other routes. The traffic handled by Western in passen- gers, mail and cargo during 1953 substantially exceeded the volume for any other year in its history. Total operating revenues increased 23% to an all-time record. Operation of the new route and introduction of the DC-6B's added approximately 35% to the seat-miles flown by the Company during the year. As a result of this increase in service offered to the public, together with increased costs for wages, mate- rials and other items, total operating expenses were approximately 29% above the previous year. Although rising costs are of constant con- cern, it should be pointed out that during 1953 the Company was able to reduce its unit costs materially. Earnings Net income for th year, aft r taxes, amount d to $1,184,864 or $1.66 per share of capital stock outstanding. This compar d with $1,232,114 or $1.72 per share for 1952. Although net earnings did not quite equal those of the year preceding, the integration of new aircraft, inauguration of a new route and additional services, coupled with a decrease in unit costs, place your Com- pany in an improved competitive position for future traffic and earnings. One of the most serious problems facing the air transportation industry in recent years has been the necessity for absorbing the cost in- creases inherent in an inflationary economy without _ corresponding increase in the level of fares. This industry is one of the few segments of our nation's business that has absorbed substantially higher costs with no material increase in the price of its product. The fare paid by Western's passengers during 1953 averaged 5.(34 cents per passenger-mile, or slightly less than the average level of 5.76 cents paid in 1948. During the same five years the cost-of-living index rose steadily. Neverthe- less, Western in that period reduced its unit operating costs from 35.0 cents per available ton-mile in 1948 to 29.7 cents for 1953. This achievement was made possible by the intro- duction of more modern and efficient aircraft, greater efficiency of op ration, teamwork of the Company's personnel, and a steadily incr asing volume of traffic. Dividends In 1953 the Company paid four quarterly divi- dends of 15 cents each, or a total of 60 cents per har , the same as paid in the previous y ar. At its first quarterly meeting in 1954, the 24 21 18 15 3 Board of Directors declared a dividend of 15 cents per share, payable March 15, 1954, to shareholders of record March 1, 1954. Finances The financial condition of the Company re- mains fundamentally sound. Cash and United States Government securities as of December 31, 1953, totaled $4,041,436. During the year Western increased its investment in fixed assets by $1,423,751, completed progress payments amounting to $479,301 on four additional DC-6B airplanes to be delivered in the fall of 1954, and reduced notes payable by $891,593. As a result, net working capital decreased from $1,307,994 at the close of 1952 to $755,134 at the end of 1953. The balance of the purchase price of the DC-6B aircraft which are on order will be financed by additional borrowings of $3,600,000 at time of delivery in accordance with terms of the existing bank credit agreement. Equity of the shareholders increased from $8,990,715 at the close of 1952 to $9,746,451 at the end of 1953, representing a gain in book value per share from $12.57 to $13.63. The shareholders' equity as of the close of 1952 was passenger revenue I I I I I 1949 so 51 52 53 "' "' 0 ! "' I,, ;: .: " 0 0 "" total revenue I I I I I I I I I I I I I 1949 50 51 52 53 0 ~ C 0 C revised to reflect a charge to earned surplus of $190,820 necessitated by an adverse decision of the United States Supreme Court in connec- tion with a 1948 mail compensation case which had been pending for . several years. Revenues Total operating revenues increased from $18,595,063 in 1952 to $22,876,797 for 1953, an increase of 23%, and a new record for the Company. Contributing substantially to this gain were the normal growth of air travel, the economic growth of the areas served, the inauguration of service over the new route between Minnesota and California, and the improved and augmented service made pos- sible by the new DC-6B equipment. The number of passengers carried increased from 774,079 in 1952 to 838,732 for 1953. Passengers carried by Western during 1952 traveled an average distance of 386 miles and paid an average of $20.99 for their tickets, exclusive of federal transportation tax. During 1953 the average distance traveled increased to 429 miles and the average passenger paid $24.19 for his ticket, exclusive of tax. The Com- pany's average revenue per passenger-mile during 1953 amounted to 5.64 cents as com- pared with 5.44 cents the prior year. The greater yield per passenger-mile resulted from the fact that the Company's principal increase in service during the year was in first-class rather than air coach schedules. Although pas- senger traffic is by far the most important source of revenue to Western, representing 89% of total revenues in 1953, substantial gains were also experienced in express, freight, and excess baggage. These categories totaled $846,063, as compared with $661,987 for 1952, an increase in these revenues of 28%. Expenses Operating expenses for 1953 totaled $20,385,466 as compared with $15,759,745 for the year pre- ceding, an increase of 29%. The increase in expenses was largely the result of the additional service made possible by the DC-6B aircraft, trend of operating revenues milllons of dollars simplified s tatement ol Income although increased cost of wages, materials and other expense items was a substantial factor. Total aircraft operating expenses, which in- clude flying operations, the direct cost of main- taining flight equipment, and depreciation on this equipment, increased during the year by $3,010,233 or 42%. All ground and indirect expenses increased $1,615,488 or 19%. For the year 1952, total operating expenses per avail- able ton-mile flown amounted to 32.5 cents. In 1953 however, this unit cost was reduced to 29.7 cents per available ton-mile. At the same time, Western's passenger breakeven load fac- tor was reduced from 54.9% in 1952 to 51.6% for 1953. Aircraft and Facilities In addition to the new DC-6B aircraft which were placed in scheduled service during 1953 by the Company on its Pacific Coast route and between Minnesota and California, important additions and improvements were made in other flight equipment and ground facilities. This continuing program resulted in comple- tion during the year of the following important projects, most of which had been started in 1952: The Company's five Douglas DC-4 air- craft which are utilized in air coach service were scheduled through the maintenance shops and received complete overhaul, including re- furbishing of the cabin interiors. Interiors of the nine Douglas DC-3 and ten Convair air- craft were likewise modernized in keeping with the new cabin decor of Western's fleet. Engines used on the Convairs were modified to permit interchange with engines of t):ie new DC-6B aircraft. In addition to improving the operat- ing characteristics of the Convair-Liners, this change also afforded the benefits of mainte- nance efficiency and economy which result from the highest practical degre of standardi- zation. Another area of improvement which involved substantial expenditur was the in- stallation of latest types of radio and naviga- tional equipment on all aircraft, including engine analyzers on ach of the four D -6B's. To meet operating r quirements of its DC-6B's in the Pacific Northw st and the in- Where our Income came from: 1953 Passengers ................. $20,302,792 Mail ....................... 875,587 Express, freight and baggage .. 846,063 Gain on disposal of property .. 137,814 Other income ................ 1,752,423 23,914,679 And how It was used: Wages and salaries ........... 8,708,869 Social security, group insurance and retirement plan ...... 523,285 Gasoline and oil ............. 3,219,067 Materials, supplies and repair parts ......... 2,255,037 Depreciation and obsolescence. 1,740,585 Advertising .................. 708,847 For service to passengers ...... 756,734 Rentals and landing fees .... . . 620,714 Insurance .................. 759,276 Interest . ................... 188,447 Taxes other than income taxes .. 658,712 Utilities and services .......... 662,087 Other costs .................. 678,155 Total .................. 21,479,815 Amount remaining before Federal taxes on Income . .. 2,434,864 Less Federal taxes on Income . 1,250,000 Net Income ................... $ 1,184,864 creased service offered to that area, the Com- pany during 1953 completed a new hangar building at the Seattle-Tacoma International Airport and a new passenger terminal building at Portland International Airport. At the same time, sales, reservations, and passenger han- dling facilities were improved to meet the steady increase in traffic. Streamlined and centralized reservations control procedures were established during the year; efficient, automatic ticketing machines were placed in service at key terminals; and downtown and airport ticket offices in a number of the major cities were modernized for greater operating utility and customer appeal. It is anticipated that delivery of four addi- tional DC-6B's in the fall of 1954, one of which is a r plac m nt for th DC-6B lost in April of 1953, may nabl the Company to retire some f its old r and less efficient aircraft. With nine 22-pa s ng r DC-3 aircraft still in servic , it 1952 16,250,201 719,266 661,987 26,154 1,927,190 19,584,798 7,436,275 335,012 2,104,793 1,977,205 1,082,344 512,284 588,809 535,936 515,788 108,539 533,278 573,732 548,689 16,852,684 2,732,114 1,500,000 1,232,114 simplified balance sheet is planned ultimately to replace as many as possible of these airplanes with the more mod- ern and efficient pressurized Convair-Liners wherever traffic potential and airport conditions warrant. Mail Pay and Taxes Mail compensation received by the Company increased 21.7% during the year to $875,587. This amounted to only 3.8% of Western's total operating revenues, and included no el~ment of subsidy. The increase in total compensation was due to greater ton-mileage of mail carried, since the service rate of 53 cents per ton-mile received by the Company remained unchanged during both 1952 and 1953. Late in 1953, the Civil Aeronautics Board instituted a proceeding to review the Com- pany's mail rate as of January 1, 1954, together with another proceeding to investigate the air- mail rate structure of the thirteen domestic trunk lines. Although it is impossible to predict the final service rate which the Civil Aeronautics Board will establish for the Company, it is believed unlikely that the proceedings will result in any material reduction in the Company's mail compensation. In addition to the provision for federal in- come taxes for 1953 in the amount of $1,250,000, Western paid directly to the federal govern- ment $325,186 in fuel and lubricant taxes, and collected for the federal government the sum of $2,550,209 in transportation taxes on persons and property. There is some possibility that Passenger Revenue , Air Coach . 20.3.% . ,;- '?other 3.?% We own: 1953 Cash and U.S. Govt. securities $ 4,041,436 Owed to us by others ......... 1,639,492 Materials and supplies ........ 383,575 Buildings and improvements, net 2,322,383 Flight and other equipment, net. 7,521,714 Deposits on new equipment .... 1,154,038 Prepaid expenses ............ 790,727 Deferred charges, net ......... 65,426 17,918,791 We owe: Notes payable ............... 3,727,244 Accounts payable ............ 2,963,035 Income taxes ................ 842,045 Tickets sold but not yet used .... 640,016 8,172,340 Excess of what we own over what we owe, or shareholders' equity .... $ 9,746,451 the 15% transportation tax will be reduced during the coming year. This levy initially was enacted primarily to discourage civilian use of transportation facilities during World War II, and its repeal or reduction should have a stimulating effect on air travel. Air Coach Services Passenger revenue produced by the Company's air coach services during 1953 increased only $118,815 or 2.6%, due primarily to the fact that equipment was not available for additional Coachmaster schedules until late in the year. As a result, virtually the entire increase in pas- senger revenues during the year was attribut- able to first-class services. During 1952 air coach service produced 27.9% of the Company's passenger revenues. With the substantial increase in first-class serv- ices in 1953, air coach revenues for that year amounted to but 22.9%. Although Western did not materially increase its air coach schedules during 1953, the Company believes that the demand for coach services between major population centers will continue to grow. To meet requirements for additional frequency and an economy-fare service, 66- passenger DC-4 Coachmaster flights were in- revenue dollar 1952 5,090,998 1,434,403 305,950 2,172,103 7,530,367 674,737 812,166 208,351 18,229,075 4,618,837 3,034,074 1,071,882 513,567 9,238,360 8,990,715 augurated on December 15 with a daily round- trip between Minneapolis/St. Paul and Los Angeles, making one stop at Salt Lake City. Economy flights are also operated with Coachmasters between all major cities on the Pacific Coast, and between Los Angeles and Las Vegas, Nevada. On December 15, 1953, the Company introduced a new excursion flight with a special round-trip fare between San Diego and Las Vegas, via Palm Springs, Calif., linking these famous resort centers for the first time with direct air service. Route Structure At the close of 1953 the Western Air Lines system consisted of 5525 route miles, serving 44 cities in twelve Western states and the Prov- ince of Alberta, Canada. On February 1, 1953, operations were started with Convair-Liners over the important new route between Minneapolis/St. Paul and Los Angeles, with intermediate stops at Huron, Pierre, and Rapid City, South Dakota; Casper, Wyoming; Salt Lake City, Utah, and Las Vegas, Nevada. On March 1, 1953, an additional first- class service was inaugurated with DC-6B equipment on a one-stop schedule. Early in 1953 the Company filed with the Civil Aeronautics Board applications for a route between Denver, Colorado, and San Francisco-Oakland, California, via Salt Lake City, Utah; and between Denver and San Diego, California, via Phoenix, Arizona. Strong civic support is being extended on behalf of Western's applications to provide vitally needed regional trunkline air service between these areas. The first-mentioned application has been consolidated in the "Denver Service Case" and hearings in that case are scheduled to begin in May, 1954. Suspension of operations at El Centro, Cali- fornia, and Yuma, Arizona, ordered by the Civil Aeronautics Board in 1952, remains in effect. The Company has asked the Board to lift this suspension and approve the extension of service from Yuma into Phoenix. The certificate of public convenienc and nee ssity issued to Western by the Civil A ro- W ESTERN 'S nautics Board and approved by the President of the United States in 1946 for a route between Los Angeles and Mexico City remains inactive in the absence of a bilateral agreement be- tween the Governments of the United States and Mexico allowing reciprocal airline routes. The status of this operation and its future development remains uncertain. Although the Company is still anxious to serve the city of Calgary in the Province of Alberta, Canada, a service which is needed, this service cannot be provided until an agreement is reached between our Government and that of Canada. Conferences contemplating review of the existing bilateral agreement between the two countries are scheduled to be held in the near future, but it is impossible to predict what the outcome of these conferences may be. Personnel Throughout the past year the Company has enjoyed excellent employee relations, and wishes to acknowledge the loyal and efficient service of its personnel. At the end of the year, employees totaled 1,813, of whom about 90% were represented by the seven labor unions which have been certified as bargaining repre- sentatives for various employee groups. Nego- tiations presently are underway with respect to several proposed new contracts. Contract negotiations in 1953 generally"resulted in higher wage rates. The Company's group insurance program continues to receive good acceptance. Of the eligible employees, some 65% carry the life Twenty-five years of continuous service with Western Air Lines was completed during 1953 by veteran employees (left to right), W. Edgar Eatchel, general foreman, Frank Eastman, dispatcher, and Fred Kelly, captain. insurance coverage, 86% the sickness and acci- dent coverage, and 83% the hospitalization benefits. This latter coverage was increased and broadened at the start of 1954. Effective July 1, 1952, with the approval of the share- holders, a Company-wide contributory Retire- ment Plan was placed in effect. Approximately 90% of eligible employees are now participat- ing in this program. Employees and their families have continued to utilize the Company's liberal policy with respect to emergency and vacation transporta- tion on a space-available basis. During 1953 the Triple- Club, an educa- tional and entertainment organization of em- ployees in the Los Angeles area, sponsored a number of successful activities. The Western- aire Federal Credit Union, an employee organi- zation chartered in 1948, continued its progress during the year. As of December 31, 1953, members' savings amounted to $535,000, and outstanding loans totaled $520,000. Since 1949 the Credit Union has paid a dividend of 5% per year to depositing members. Outlook Western Air Lines is fortunate to be located in and to serve the most promising and rapidly growing area of the United States. Many of the 44 cities on the Company's system have made record gains in population and industrial activity during the past few years, and there is every indication this trend will continue. As the West continues its economic development in the years ahead, the demand for air transpor- tation will likewise increase, and your Company proposes to share in that growth as the regional trunk airline for the Western states and the Province of Alberta, Canada, which it is privileged to serve. The Company is owned by some 6500 share- holders, of whom a large proportion live in the West. Grateful acknowledgment is made of the extent to which they have availed themselves of Western's services, and have encouraged their friends and associates to do so. Considerable attention currently is being devoted by many airlines and manufacturers to the development and utility of jet aircraft and helicopters. The Company is keeping in c~os_e touch with these developments. The jet a1rlmers presently being designed for commer- cial service are intended for long-range opera- tions, and it does not appear likely there will be a place for this type of aircraft in Western's equipment program for many years to come. Development of the helicopter is along lines of short-haul, intracity, and airport shuttle operation, and in this type of air service the ~elicopter probably will play an increasingly important role. During 1954 your Company will devote its efforts to increasing the dependability and effi- ciency of its operation, improving its service to the public, and providing the finest air trans- portation available in Western America. Respectfully submitted, President February 26, 1954 Western Air Lines Building Los Angeles International Airport Los Angeles 45, California Operating Revenue: Passenger ................................. . Express, freight, excess baggage and other .... . Charter and other transport services ........... . Incidental revenue - net (Note 2) ............ . Mail ..................................... . Operating Expenses: Flying operations ........................... . Ground operations .......................... . Flight equipment maintenance - direct ........ . Ground and indirect maintenance ............ . Passenger service ........................... . Traffic and sales ............................ . Advertising and publicity .................... . General and administrative .................. . Depreciation ............................... . Operating Income ................. ... .. . Non- Operating Income : Gain on disposition of property ............... . Other .... . ......................... ... . . . . Non- Operating Charges: Interest ................................... . Amortization of routes, contracts and leases ..... . Other .................................... . Income before Federal Taxes on Income ... . Provision for Federal Taxes on Income ( Note 3) .. . Net Income ......... . .................. . Amount reported as of December 31, 1952 ......... . Deduct retroactive mail pay adjustment ( Note 6): Provision for refund of 1948 mail pay ......... . Related Federal tax credit ...... . ............ . Provision for contingencies created in 1951. . . . . Adjusted amount as of December 31, 1952 .......... . Net Income for 1953 ............... ...... ....... . Dividends paid in cash - $0.60 a share ............ . Amount as of December 31, 1953 ( Note 1) ..... .... . 1953 $20,302,792 846,063 43,503 808,852 22,001,210 875,587 22,876,797 6,557,636 2,775,060 2,177,944 1,116,157 1,477,868 2,044,680 749,434 L768,302 1,718,385 20,385,466 2,491,331 137,814 58,381 196,195 188,447 22,200 42,015 252,662 2,434,864 1,250,000 $ 1,184,864 $ 781,639 390,819 390,820 200,000 1952 16,250,201 661,987 8,766 954,843 17,875,797 719,266 18,595,063 4,658,975 2,478,858 1,739,368 960,103 1,179,019 1,684,652 554,454 1,485,680 1,018,636 15,759,745 2,835,318 26,154 32,319 58,473 108,539 21,240 31,898 161,677 2,732,114 1,500,000 1,232,114 $3,897,283 190,820 3,706,463 1,184,864 4,891,327 429,128 $4,462,199 POii TH Y AII ND D D C M II 31 0 1953 (with comparative figures for 1952) POii TH YAII ND D D C M II a1. 1953 balance sheet .... c as ol December 31, 1953 (with revised comparative figures for 1952-Note 6) 1953 1952 1953 1952 Current Assets: Current Liabilities: Cash ............ . .... . ........ . ..... . .. . ........... $ 3,045,126 2,603,698 Current portion of long term notes ................... $ 1,655,000 1,716,000 U.S. Government Securities at cost. ............ . . . ... . . 996,310 2,487,300 Accounts payable .................................. 1,162,876 1,491,627 Receivables: Accounts payable - taxes collected from others ........ 342,107 266,953 Traffic balances ....... . .. .... .. . ... . ....... . .. . .. 1,009,307 791,560 Accrued salaries, wages, taxes, insurance and other .... 1,213,252 1,045,569 U. S. and State Government Departments ........... 355,616 386,216 Air travel plan deposits ........... . ................. 244,800 229,925 Other ( net of allowance for doubtful accounts $25,000) 274,569 256,627 Unused transportation ............... . .............. 640,016 513,567 1,639,492 1,434,403 Inventory of parts and supplies at the lower Federal taxes on income - estimated .. . . ............. 842,045 1,071,882 of cost or replacement market . ... . ............. . .. 383,575 305,950 Total Current Liabilities ....... . ................. 6,100,096 6,335,523 Prepaid expenses ... . . . .. ........ . . . . ... . . . . . ... .. . .. 790,727 812,166 Notes payable - secured ( net of current portion included Total Current Assets . ..... . .. .. . .. .. . .. . .......... 6,855,230 7,643,517 in Current Liabilities) (Note 1) . ................... 2,072,244 2,902,837 Sundry securities ... .. ............. . .......... . .......... 16,377 17,421 Deferred Federal taxes on income (Note 3) ............... 204,000 Properties and equipment at cost ( Note 1): Shareholders' equity: Flight equipment . ... . . . ......... . . . . . . . . . . . . . ...... 13,801,038 12,757,010 Buildings on and improvements to leased property .. . . . .. 3,294,762 3,014,066 Common stock - $1.00 par value per share Other property and equipment .. . .... . ... . .. . .... . . .... 1,758,300 1,659,273 Authorized 2,000,000 shares ( Note 4) 18,854,100 17,430,349 Issued 715,213 shares .... . .. . .. . . .. ............ 715,213 715,213 Less allowance for depreciation .......... . .. ... . .. 9,010,003 7,727,879 Capital surplus ( no change during year) ............. 4,569,039 4,569,039 9,844,097 9,702,470 Earned surplus from December 31, 1934 ( Note 1) ...... 4,462,199 3,706,463 Deposits on equipment purchase contracts (Note 2) . ....... . . 1,154,038 674,737 9,746,451 8,990,715 Routes, contracts and leases, less amortization $135,660 ... . ... 66,625 88,825 Commitments and contingent liabilities ( Note 2) Def erred charges .. ... . .. .. . .. . .... . . . ................... . 186,424 102,105 Retirement plan ( Note 5 ) $18,122,791 18,229,075 $18,122,791 18,229,075 , Rf.PORT ~NTANTS ---- California Los Angeles, 26 1954 februarY ' ... ,. .. ,c ... .-.us1"-'1..1 " ~~:,.~:t:N'TAI.. Uf'OPI. ~~::,. eRt'f-'IN 1-40NG KONO 1N0 1-' J-'1"-'M :~~~~O -'--'t:f'ICA Note 1. Notes Payable-Secured. The long term notes payable of $3,727,244 together with the related equipment purchase borrowings to be obtained in 1954 of $3,600,000 are repayable in monthly amounts aggregating $1,305,000 annually plus interest at the rate of 3 % per annum. Additional principal is to be repaid on or before each April 1 in amount equal to 33 % of net income of the preceding calendar year. The indebtedness is secured principally by aircraft, engines, propellers and the Los Angeles hangar and office building representing a total cost of approximately $14,750,000. The related bank credit agreement includes, among other things, conditions and require- ments which effectively limit the amount of earned surplus distributable as cash dividends. The greatest amount of earned surplus is restricted by the requirement that the excess of current assets over current liabilities ( exclusive of the current portion of long term debt) shall not be less than $1,000,000 or a greater amount measured by average monthly expense ( exclusive of depreciation), which greater amount as of December 31, 1953 approximated $1,625,000. Earned surplus as of December 31, 1953 was accordingly restricted in the amount of $3,677,065 leaving $785,134 not so restricted. In 1953 the credit agreement was amended to provide $2,700,000 of the equipment- purchase borrowings above referred to and arrangements were made to increase this amount to $3,600,000 to be used for the acquisition of the Douglas DC-6B aircraft referred to in Note 2. The maximum indebtedness is limited to $6,500,000. The commit- ment fee on the unused portion is of 1 % per annum. Note 2. Commitments and Contingent Liabilities. The Company is acquiring in 1954 four new Douglas DC-6B aircraft with delivery scheduled to commence in August which represent a commitment at December 31, 1953 of approximately $4,800,000 as to which advance payments of $1,154,038 were made. Though provision has been made for all known income tax liabilities, the Federal income tax returns ~or the years 1952 and 1953 are subject to examination by the U. S. Treasury Department. The Company has not been subject to the excess profits .tax. Under applicable Federal statutes incidental revenues of the Company for 1951, 1952 and 1953 in respective gross amounts of $1,050,000, $1,700,000 and $1,500,000 are subject to renegotiation. In the opinion of management the ultimate refund, if any, will not have a materially adverse effect on the financial statements of the Company. As of December 31, 1953 the Company was contingently liable for claims and law suits in which it is or may be a defendant but management and its counsel believe the ultimate liability, if any, will not materially affect the financial statements. Note 3. Deferred Federal Taxes on Income. The necessity certificates which covered four DC-6B aircraft and the new Seattle hangar permit the deduction for Federal tax purposes of accelerated depreciation during the first five years. The additional depre- ciation deduction, which is in excess of the depreciation recorded on the books of account, results in 1953 in a deferral of Federal taxes on income of $124,000. The Federal tax so deferred is included in the Federal tax provision reflected on the Statement of Income and is being set aside to offset the estimated Federal tax effect in those future years when the depreciation recordable on the books of account will be more than that amount allowable for Federal tax purposes. There is also included in the deferred tax account the amount of $80,000 which repre- sents the tax deferral occasioned by the involuntary gain resulting from the loss of a Douglas DC-6B aircraft. Note 4. Options to Purchase Capital Stock. 35,000 shares were reserved as of Decem- ber 31, 1953 under a Restricted Stock Option Plan. 31,000 shares have been allocated, as of February 15, 1954, to twelve officers and key employees; options have been issued for 30,000 of the allocated shares with option prices ranging from $8.49 to $14.14 a share. The term of each option granted shall be five years from the date granted and the right to grant options under this plan shall terminate April 9, 1956. Note 5. Retirement Plan. The cost of the insured contributory retirement plan as charged to operating expenses in 1953 totaled $361,552 for both current and past serv- ices. Management contemplates that the remaining past service cost will be funded over a period of approximately ten years and will require annual payments of $106,000. Note 6. 1948 Mail Pay. The United States Supreme Court on February 1, 1954 affirmed a decision of the United States Court of Appeals for the District of Columbia Circuit which will require a gross refund of mail pay for 1948 in the amount of $781,639 ($334,639 has been previously recaptured); the case was remanded to the Civil o- nautics Board and under its administrative procedures the Compan might r~ re 1e but not in excess of $447,000. Earned surplus has been charge w1tJi am~t of tqe mail pay involved less an applicable Federal tax credit. The relate rovisioh for o(_n- tingencies created in 1951 has been restored to earned surplus. (The compara v~l>alan sheet figures as of December 31, 1952 have been accordingly rev1scu.--~--.J1.,--...-a.._ ~~zi.f!i~~-fiE~~~~~ _ _. -- -- ,r' ,_..,,.,._ ,,.-;,,,- - . ;;,,;~"!f; ~::._ -- .. -:,_;_ ; ---~ -.:I - - ~ Revenues:* Passenger ..................... $ Mail .......................... Express, freight and excess baggage. Other ......................... Total Revenues ............... Operating Expenses: * Depreciation ................... Other ......................... Total Operating Expenses ....... Operating Profit (Loss)* ........... Other Income or (Charges) * ........ Provision for Federal Taxes on Income':' Net Income (Loss)* ............. $ Earnings per sharef ................ $ Dividends paid per share ........... $ Route Miles ..................... . Available Ton Miles':' ............. . Revenue Ton Miles,;, .............. . Passengers and Tonnage Carried: Revenue passengers .... ......... . Mail tons ..................... . Express and freight tons ......... . Revenue Miles Flown:* Airplane miles . . ............... . Passenger seat miles ............ . Passenger miles ................ . Mail ton miles ................. . Express and freight ton miles ..... . Other Statistics : Passenger load factor ............ % Average length in miles per passenger trip ................ . Average revenue per passenger mile $ Number of employees end of year .. * 000 omitted t based on shares outstanding at close of respective years. 1953 1952 20,302 16,250 875 719 846 662 853 964 - - 22,876 18,595 1,718 1,019 18,667 14,741 20,385 15,760 2,491 2,835 (56) ( 103) 2,435 2,732 1,250 1,500 1,185 1,232 1.66 1.72 0.60 0.60 5,525 5,016 68,580 48,557 38,088 31,434 838,732 774,079 3,284 3,243 4,206 3,729 14,450 12,631 613,814 453,332 359,965 298,931 1,610 1,358 2,100 1,524 58.6 66.0 429 386 .0564 .0544 1,813 1,649 1951 1950 13,688 11,395 1,212 2,090 507 497 875 264 16,282 14,246 998 1,124 12,750 11,486 13,748 12,610 2,534 1,636 280 (196) 2,814 1,440 1,425 690 1,389 750 2.52 1.43 0.50 5,016 5,016 43,036 44,515 27,549 24,697 691,322 619,624 ,'.3,419 2,150 3,191 3,396 11,487 11,78,'.3 401,720 414,169 259,693 2,'.33,118 1,449 978 1,282 1,442 64.7 56.3 ,'.376 376 .0527 .0489 1,459 1,279 1949 1948 1947 1946 1945 1944 8,471 7,813 10,114 10,474 5,654 3,169 2,504 1,293 1,570 1,326 1,239 837 313 483 410 318 206 155 246 31 282 118 132 130 - - 11,534 9,620 12,376 12,236 7,231 4,291 1,335 1,164 1,845 1,369 555 321 9,229 9,198 11,196 11,744 6,297 3,677 - - 10,564 10,362 13,041 13,113 6,852 3,998 970 (742) (665) (877) 379 293 (258) ( 186) (192) (20) 6 712 (928) (857) (877) 359 299 391 (589) 88 (277) 169 147 - - 321 (339) (945) (600) 190 152 0.61 (0.65) ( 1.80) (1.14) 0.46 0.37 4,727 4,727 4,725 4,808 3,117 2,962 32,034 29,534 35,757 35,831 16,383 14,660 20,887 22,877 422,193 ,'.353,569 491,680 602,302 303,931 147,854 1,359 1,543 1,722 1,852 3,347 2,267 2,435 2,702 2,252 1,640 754 472 9,496 8,707 9,607 10,594 7,279 4,057 299,503 243,771 312,615 301,856 138,852 73,101 155,747 13.5,724 194,92,'.3 214,023 117,106 63,073 567 574 733 706 1,120 905 926 1,089 912 635 307 222 52.0 55.7 62.4 70.9 84.3 86.3 369 ,'.384 396 355 385 427 .0544 .0576 .0519 .0489 .0483 .0502 1,226 1,285 1,529 2,396 1,674 1,120 board of directors Hugh W. Darling Guthrie, Darling & Shattuck, Attorneys at Law Los Angeles, California Terrell C. Drinkwater President, Western Air Lines, Inc. Robert E. Driscoll Chairman of the Board of Directors First National Bank of the Black Hills Rapid City, South Dakota Hector C. Haight Los Angeles, California Marvin W. Landes Vice President, Western Air Lines, Inc. L. Welch Pogue Pogue & Neal, Attorneys at Law Washington, D. C. executive staff Terrell C. Drinkwater, President Stanley R. Shatto, Vice President - Operations Marvin W. Landes, Vice President- Service Paul E. Sullivan, Vice President - Administration and Secretary Arthur F. Kelly, Vice President - Sales J. Judson Taylor, Vice President and Treasurer D. P. Renda, Attorney and Assistant Secretary C. J. J. Cox, Controller and Assistant Treasurer G. G. Brooder, Assistant to the President Thomas M. Murphy, Assistant to the President WESTERN AIR Lt. NES Joseph F. Ringland President, Northwestern National Bank of Minneapolis Minneapolis, Minnesota Stanley R. Shatto Vice President, Western Air Lines, Inc. Harry J. Volk Vice President for Western Operations The Prudential Insurance Company of America Los Angeles, California John M. Wallace President, Walker Bank & Trust Company Salt Lake City, Utah Alexander Warden Publisher, Great Falls Tribune-Leader Great Falls, Montana Sidney F. Woodbury Chairman of the Board of Directors Woodbury & Company, Portland, Oregon general ottices Western Air Lines Building, 6060 Avion Drive Los Angeles International Airport Los Angeles 45, California registrars Citizens National Trust & Savings Bank Los Angeles Chase National Bank New York stock transfer agents Security-First National Bank of Los Angeles Los Angeles New York Trust Company New York general counsel Guthrie, Darling & Shattuck Los Angeles auditors Peat, Marwick, Mitchell & Co. Los Angeles EGAS y ## SPRINGS # ~s ..._# CH~ .... -.,PHOENIX WESTERN AIR LINES Present and Proposed Routes