Western Air Lines Annual Report 1962

1962 ANNUAL REPORT
HIGHLIGHTS OF 1962 1961*
Seat miles produced 2,402,344,000 1,718,854,000
Seat miles sold
,
1,307,173,000 957,560,000
Passengers carried 2,128,225 1,529,137
Total operating revenues $ 86,369,850 $ 64,252,277
Operating income 11,380,651 2,189,966
Net earnings 5,014,384 863,708
Cash dividends paid $ 1,430,730 $ 1,430,730
Common stock outstanding 1,430,730 1,430,730
Earnings per share 3.50 0.60
Dividends per share:
Cash --annual rate 1.00 1.00
Total shareholders' equity 35,600,961 32,017,307
Shareholders' equity per share 24.88 22.38
Cash and securities $ 18,641,554 $ 10,008,068
Working capital 12,364,101 5,504,662
Properties and equipment at cost 104,984,213 90,793,871
Long-term debt 39,488,357 36,097,406
Number of employees at year end 3,078 2,794
Wages and salaries paid $ 21,839,862 $ 17,986,716
Operations were adversely affected by strike.
37TM ANNUAL REPORT
EARNINGS In 1962, Western Air Lines earned a profit of $5,014,384, nearly
equaling the company's earnings record of $5,016,656 in 1959.
The 1962 earnings, equal to $3.50 a share, were realized mainly
from operations, with net income from this source totaling $4,703,186,
or $3.29 a share.
Special items produced $0.21 a share, reflecting the difference be
tween net gains of $889,087, or $0.62 a share, from the disposal of prop
erty and a year-end write-down of $577,889, equivalent to $0.41 a share,
on company DC-6B's (to an average book value of less than $160,000).
In 1961, when operations were sharply curtailed by an illegal walk
out of flight engineers, earnings were $863,708, or $0.60 a share.
Earnings in 1960 were $2,439,376, or $1.70 a share.
Per-share results for all three years are based on 1,430,730 shares
outstanding.
The 1962 earnings were derived from operating income of $11,380-
651, highest in the company's 37-year history. Previous high was
$11,210,450 in 1959. Operating income was $6,275,931 in 1960 and
$2,189,966 in 1961.
DIVIDENDS For the 12th consecutive year, shareholders of Western Air Lines re
ceived cash dividends in 1962. Quarterly dividends of $0.25 were paid
on March 9, May 18, August 3 and November 2 for an annual total of
$1.00 a share.
Continuing the company's policy of holding quarterly meetings in
key cities on the Western system, the directors took dividend action in
meetings held at San Diego, Los Angeles, Salt Lake City and Seattle.
At the first regular board meeting of 1963, held in Sacramento on
February 11, a quarterly dividend of $0.25 was voted, payable on
March 8 to stockholders of record on February 21.
REVENUES Operating revenues of Western Air Lines also reached a 37-year peak
during 1962, totaling $86,369,850, a 25 per cent increase over the
previous high of $69,077,068, achieved in 1960.
While sources of revenue remained identical, the shift of passenger
travel from deluxe to aircoach accommodations was more pronounced
in 1962. Economy-class passenger services accounted for 65.2 per cent
of income, compared to 48.4 in 1961. Revenues from deluxe services
decreased from 42.6 per cent to 26.6 per cent during the year.
Passenger traffic accounted for 91.8 per cent of Western's 1962 in
come dollar; express, freight and excess baggage contributed 3.4 per
cent; mail added 1.6 per cent; all other sources, including property
gains, contributed 3.2 per cent.
On February 1, 1962, Western, along with other major U.S. car
riers, increased fares by three per cent on all domestic flights except
California intrastate operations. On March 20, with the authorization
of the California Public Utilities Commission, the company also in
creased fares for intrastate travel. The tariffs were issued by the CAB
with a six-months expiration date which subsequently was removed.
(
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BRIEF STATEMENT OF EARNINGS
Western's income came from: 1962 1961*
Passengers
Deluxe $23,544,861 $27,950,131
Coach 57,624,935 31,786,925
81,169,796 59,737,056
Express, freight and baggage 2,964,055 2,271,466
Mail 1,426,720 1,230,768
Gain on disposition
of property 1,539,087 1,157,024
Other income 1,292,514 1,280,496
88,392,172 65,676,810
Western's expenses were:
Wages and salaries 21,839,862 17,986,716
Social security, group
insurance and
retirement plans 1,937,375 1,282,514
Aircraft fuels 9,659,785 7,642,784
Materials and repairs 9,335,283 6,670,629
Depreciation 13,088,598 11,210,520
Rentals of flying equipment 1,381,263 1,931,963
Other rentals and
landing fees 2,611,112 1,774,955
Advertising and publicity 2,823,355 2,480,419
For service to passengers 2,577,694 2,425,500
Insurance 2,946,972 2,268,167
Interest 2,285,700 1,889,798
Taxes 6,727,535 2,069,403
Utilities and services 4,639,192 3,440,262
Other costs 1,524,062 1,739,472
83,377,788 64,813,102
Net earnings $ 5,014,384 $ 863,708
Operations were adversely affected by strike.
STATEMENT OF SOURCE AND
DISPOSITION OF FUNDS FOR 1962
Source of funds:
PER SHARE AMOUNT
Net earnings $ 3.50 $ 5.014,384
Depreciation 9.15 13,088,598
Deferred federal taxes on income 2.65 3,797,000
15.30 21,899,982
Increase in long-term debt 3,390,952
25,290,934
Disposition of funds:
Planes and other equipment
accounts 17,546,310
Cash dividends 1,430,730
Deferred charges and other assets (545,545)
Increase in working capital 6,859,439
$25,290,934
J V J
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WESTERN'S INCOME DOLLAR
.
WESTERN S EXPENSE DOLLAR
65.2 from aircoach 28.5 for wages and salaries
passenger services
26.6 from deluxe passenger services 17.4 for depreciation and flying equipment rentals
3.4 from express, freight and excess baggage 11.6 for aircraft fuels
1
1.6 from mail 11.2 for materials and repairs
3.2 from all other sources, including property gains 8.0 for local, state and federal taxes
23.3 for all other expenses
V
EXPENSES Total operating expenses during 1962 rose to $74,989,199, a 21 per cent
increase over strike-affected 1961 when expenses totaled $62,062,311.
A major portion of the rise was incurred in producing 40 per cent
more seat-miles for sale than in the previous year. Much of the in
crease was achieved through the addition of three Boeing 720B's to
the company fleet. The increased costs also reflect the continuing spiral
in labor, services, materials and taxes.
Expenses of flying operations increased 16.8 per cent during the
year, from $17,392,095 to $20,313,399, while maintenance costs
climbed from $9,206,272 to $12,445,297, an increase of 35.2 per cent.
Despite the over-all increase in operating expenses, the cost per ton-
mile produced was reduced from 27.61 cents in 1961 to 24.38 in 1962.
In 1960, the cost was 30.26 cents per ton-mile.
Seat-mile costs were reduced from 3.61 cents in 1961 to 3.12 in 1962,
compared to 3.54 cents in 1960.
As a result, the company's break-even point (the percentage of seats
produced which must be sold to effect a break-even of expenses and in
come) was reduced to 48 per cent, compared to a break-even point of
55.5 per cent in 1961 and 50 per cent in 1959, the company's record
year.
Depreciation and amortization continued to increase during the
year, totaling $11,894,584, exclusive of the write-down of the DC-6B's,
as the company acquired new flight and ground equipment.
FINANCES Western closed the year 1962 in a strong financial position.
Working capital totaled $12,364,101, up $6,859,439 from the 1961
level. The ratio of current assets to current liabilities also improved
during the year, from $1.38-to-$1.00 at the close of 1961, to $1.71-to-
$1.00 at the end of 1962.
The improvement in working capital and current assets resulted
from both a successful year of operations and from funds generated
through the application of new depreciation guideline lives.
In a year-end adjustment, the company recorded retroactively
as a purchase the Electra engine and propeller lease and financing
arrangement. Since its inception in 1959, this agreement had been
noted in the financial statements as a lease. The change in presenta
tion, which also is being made by other airlines with similar lease
agreements, is supported by the Civil Aeronautics Board.
During 1962 the company borrowed $9,000,000 under loan agree
ments created in 1961 coincident to the order for three Boeing 720B's
which were delivered in 1962. Expenditures for Boeing aircraft and
plant improvements totaled $18,502,161 during the year.
Long-term financing related to the purchase of three 720B's which
will be delivered in 1963 was arranged during the year in the amount
of $10,920,000, consisting of $4,320,000 in bank financing and $6,600,-
000 from insurance companies.
As of December 31, 1962, Western's long-term debt totaled $39,-
488,357. This debt was composed primarily of $16,980,000 in notes
payable to banks, $25,080,000 in notes payable to insurance companies
and $2,859,222 for equipment lease/purchase contracts, less current
maturities amounting to $5,430,865.
A full summary of debt, interest rates and repayment schedules are
shown in Note 2 to the financial statements on the final page of this
report.
BAGGAGE CHECK-IN
W* VU
*i*n>f* i
SHAREHOLDERS At the close of 1962, there were 1,430,730 shares of Western Air Lines
AND STOCK common stock issued and outstanding, the same number as were on
record at the close of the previous year.
The stock was held by approximately 8,500 stockholders, represent
ing each of the 50 states and several foreign countries.
At the annual meeting of shareholders in Los Angeles on April 26,
1962, 85.5 per cent of all shares were voted either in person or by
proxy.
Shareholders' equity in 1962 established a new all-time high for the
company's 37 years of operation, totaling $35,600,961 or $24.88 a share,
compared with a 1961 equity of $32,017,307, equal to $22.38 a share.
On the New York Stock Exchange, 547,900 shares of the company's
stock were traded during the year at prices ranging from a low of 19
to a high of 32*4, with a 1962 closing price of 31%. On the Pacific
Coast Stock Exchange, 58,592 shares were traded with a high of 32,
a low of 20 and a year-end closing price of 31%.
The company continued its established practice of reporting finan
cial results to shareholders and the general public through financial
news media at regular intervals throughout the year. In addition,
stockholders were advised of Western's progress through regular pub
lication of the Shareholders Report.
In 1962, the company's Annual Report won the Financial World
Merit Award for the sixth consecutive time; the company also was
one of three airlines to be listed among the world's 524 "Excellently
Managed" companies by the American Institute of Management.
ANNUAL This year's stockholders' meeting will be held at the Beverly Hilton
MEETING Hotel, Beverly Hills, on April 25. On or about March 13, stockholders
will receive a formal notice of the meeting and proxy material.
EQUIPMENT The addition of three new Boeing 720B's, increasing the Western Air
Lines fanjet fleet to seven aircraft, highlighted company operations
during 1962.
The three new planes were delivered in July and August, permitting
the company to expand its fanjet service and boost passenger seat-
miles produced during the year to a record 2,402,344,000, compared
with 1,718,854,000 in strike-affected 1961 and the previous record of
1,776,076,000 in 1960.
Following delivery of the three 720B's, the company returned two
707s, which had been leased since May 1960, to the Boeing Company.
The company announced the purchase of three additional 720B's for
delivery in April, May and June 1963. The new planes are being ac
quired to increase jet service on the company's existing routes; how
ever, they also will have provisions for overwater navigational and
safety equipment, giving them the capability of providing Hawaii-
Mainland service when final CAB approval is granted.
During 1962, three Douglas DC-6B's were sold. At year's end, West
ern operated a fleet of 35 aircraft, including the seven 720B's, 12 jet-
powered Lockheed Electra II's and 16 DC-6B's.
In response to public demand for low-cost aircoach accommoda
tions, conversion of aircraft to predominantly aircoach configuration
was made during the year.
Western's unique curbside
luggage service at Los Angeles
International Airport--bags are
picked up at passengers' cars and
checked to destination.
Artist's conception of new company headquarters and expanded maintenance facility; construction to begin in 1963.
The company's 720B's offered 98 aircoach and 24 deluxe seats. Five
of Western's Electras operated as all-coach planes with 96 seats and
seven Electras were equipped with 58 aircoach seats and 26 deluxe.
Four DC-6B's were operated with 92 aircoach seats and 12 DC-6B's
in dual configuration (19 deluxe, 55 aircoach).
During the year, studies were completed for the construction of new
main base facilities at the company's Los Angeles International Air
port headquarters location. The new facilities will consist of a four-
story modern office building to house the company's headquarters
staff, a three-position jet hangar, additional maintenance shops and
alterations to existing facilities to provide jet engine overhaul shops,
a jet engine test cell and storage facilities.
Construction of the new facilities is scheduled to begin in the spring
of 1963 and to be completed in the summer of 1964. The new corpo
rate headquarters will face Century Boulevard, the main avenue to
the new Los Angeles International Airport terminal area, adjacent to
the company's existing general offices.
During 1962, modernized terminal facilities were occupied by the
company at Minneapolis-St. Paul, Los Angeles, Phoenix, Oakland and
Butte; scheduled for 1963 are new terminals at Las Vegas and San
Francisco.
The company's passenger terminal at the new $70,000,000 Los An
geles International Airport won public acclaim for such unusual fea
tures as curbside baggage checking, electric courtesy cars which carry
passengers from the ticketing building to the satellite building where
flights are boarded, and push-button flight, weather and passenger
information.
ROUTE Throughout 1962, Western continued its aggressive route development
DEVELOPMENT program, implementing route awards already granted by the Civil
Aeronautics Board and seeking to add key cities to the company's
33-city system in 12 western states, Canada and Mexico.
Of major importance is the Trans-Pacific Route Case in which West
ern is awaiting final CAB authority to establish new and improved
service between the Mainland and Hawaii.
On January 19, 1961, the CAB announced its decision of December
7, 1960, in the Trans-Pacific case granting Western Air Lines certifi
cates to operate jet routes linking major western cities with Hawaii
through three principal Pacific Coast gateways --
Los Angeles, San
Francisco/Oakland and San Diego.
However, the federal regulatory board accompanied its decision
with a temporary stay order delaying the effectiveness of Western's
operating rights pending further study of the international route
phases of the complex proceedings. The CAB stated that the stay
order was issued because its international route recommendations,
which require Presidential approval, had been largely disapproved by
former President Dwight D. Eisenhower, who had suggested that the
CAB also reconsider its domestic route awards as part of the over-all
Pacific air pattern. In July 1961, the CAB reopened the record for fur
ther proceedings limited solely to the international phase of the case.
On June 8, 1962, the CAB lifted the stay order on the domestic
phase of the case, thus permitting the other carriers interested in the
proceedings to file petitions for reconsideration on July 5, 1962. The
denial of those petitions for reconsideration is the final procedural
step necessary for the CAB to issue a certificate to Western author
izing it to commence operations to Hawaii.
Meanwhile, the CAB has received briefs on the reopened interna
tional phase of the case and oral argument before the federal board
may be held soon. Thus, both the international and domestic phases
of this complex and lengthy proceeding should be before the CAB for
a final decision in the near future.
During 1962, the company implemented the CAB's final decision in
the Pacific Southwest Local Service Case which authorized Western
to operate the Los Angeles-Sacramento-Reno and San Francisco/Oak-
land-Las Vegas routes. These services were inaugurated on April 29.
The decision also eliminated the restriction which required Western
to stop at Los Angeles on all flights between San Francisco/Oakland,
on one hand, and San Diego, Long Beach, Palm Springs and Ontario,
on the other hand. Operations also were established over these new
routes in 1962. The initial traffic response has been gratifying.
Toward the close of 1962, the CAB held oral argument in the South
ern Rocky Mountain Area Local Service Case, a proceeding involving
the area bounded by Los Angeles, Las Vegas, Reno, Denver, El Paso
and San Diego. Western presented its case for a Phoenix-Salt Lake
City route and opposed the duplication of its routes in this area by
subsidized local service carriers which are applicants in the proceeding.
Because of insufficient demand for service between Calgary and
Edmonton, Alberta, Canada, the company was authorized by the CAB
and the Air Transport Board of Canada to suspend service on that
segment for an indefinite period commencing January 1, 1962.
In 1962, the CAB adopted a new regulation stating it would dismiss
as "stale" all applications more than three years old, subject to the
right of the carriers to refile such applications if they wished to prose
cute them further. A number of Western's applications were dismissed
pursuant to this regulation and were refiled by the company. The out
standing applications of the company are shown by the dotted lines on
the map on the inside of the cover page of this report.
7 \
BRIEF BALANCE SHEET
Western owns: 1962 1961
Cash and securities $18,641,554 $10,008,068
Owed by others 9,695,305 8,614,461
Expendable parts and
supplies 1,266,308 1,300,666
Buildings and improvements,
net 2,484,779 2,344,585
Flight and other equipment,
net 60,374,316 56,148,401
Deposits on new equipment 4,837,528 4,624,202
Prepaid expenses 1,229,162 1,809,221
Deferred charges and other.. 301,459 847,004
98,830,411 85,696,608
Western owes:
Owed to vendors and others 9,482,491 8,440,570
Federal income taxes--
current and deferred 7,252,124 3,481,808
Tickets sold but not yet used 1,575,613 1,508,455
Notes payable--
current and long-term 44,919,222 39,696,316
Deferred earnings -
552,152
63,229,450
--
53,679,301
Excess of what is owned
over what is owed, or
shareholders' equity $35,600,961
--
$32,017,307
V J
SALES AND
SERVICE
Weslern's electronic Audio Guides
at Los Angeles terminal provide
arrival and departure times,
weather reports and other
information at push of button.
Introduction of a record number of new services, new highs achieved
in traffic volume and revenues and emphasis on economy air services,
keynoted the Western Air Lines marketing program during 1962.
For the first time in its 37-year history, the company passed the two
million mark in passengers carried, with 2,128,225 for the year. This
compared with 1,529,137 travelers in 1961, and 1,721,619 during 1960,
the previous record year.
Passenger revenues totaled $81,169,796, a 35.9 per cent gain over
the $59,737,056 in 1961, when first and second quarter operations were
substantially curtailed by the flight engineers' illegal walkout. The
1962 passenger revenues compared with a previous high of $64,355,851
in 1960.
Cargo shipments were the greatest in the company's history. Includ
ing express, freight, and excess baggage, they accounted for revenues
of $2,964,055, compared with $2,271,466 the previous year. Western
received $1,426,720 in service payments for handling regular air mail
and non-priority transport of surface mail by air. In 1961 this
amounted to $1,230,768.
With continuing emphasis on sales teamwork between Western and
its authorized travel agents, the company's ticket sales by agencies
established a new record of $23,453,000, an increase of 46 per cent
over the previous year.
A new high also was established in traffic development among
connecting airlines, with Western's interline revenues totaling $27,-
459,000, up 30 per cent over 1961. Military and government sales
amounted to $4,408,000 for the year.
The over-all load factor on Western flights was 54.4 per cent, with
a break-even factor of 48 per cent. For 1961, the load factor was 55.7
per cent, with a 55.5 per cent break-even factor.
Average length of passenger trips over Western's system during
1962 was 614 miles, compared to 626 the previous year. The average
ticket coupon amounted to $38.33; in 1961, it was $39.07.
Extensive programs of advertising, promotion and publicity marked
the introduction of more than a dozen new services by the company
during the year. In addition to the inauguration of service over the
company's new routes, Western expanded 720B fanjet service to in
clude flights between Portland and San Francisco; between San Fran
cisco, Denver and Minneapolis/St. Paul; and between Los Angeles,
Salt Lake City and Minneapolis/St. Paul.
By the close of 1962, Western had become the nation's No. 1 trunk
line in the aircoach field, operating more than 80 per cent of its capac
ity in aircoach seats. It provided coach service on all its flights and to
every city on the system.
Using DC-6B's with dual-configuration seating, the company pro
vided the first four-engine aircoach service on its routes north of Salt
Lake City to Idaho, Montana and Calgary; and north of Denver to
Wyoming, Montana, Calgary and to South Dakota.
On the highly competitive Los Angeles-San Francisco route, most
heavily traveled route in the U.S., Western introduced a new "Thrift-
air" economy service. It provides frequent, no-frills schedules in DC-
6B high-density coaches at the lowest air fare between the two cities.
Another major development in Western's aircoach program was
the establishment of DC-6B economy flights from Los Angeles and
San Diego to Mexico City, first scheduled international air service
from San Diego. In December, the service was expanded to daily
schedules for Los Angeles and four days a week via San Diego, supple
menting daily Los Angeles-Mexico City 720B fanjet flights.
Summer travel to the Pacific Northwest set new records as families
and groups visited the Seattle World's Fair. Western Air Lines and
Samsonite Luggage operated a joint exhibit and travel information
center, conveying their related messages to 10,000,000 World's Fair
visitors.
Knowing that many business and vacation travelers are golfers,
Western became the first U.S. airline to carry golfing equipment as
excess baggage at special low rates.
In cooperative "Fly-Drive" activities with the major car-rental or
ganizations, Western continued its emphasis on the traffic potential
moving over intercity highways. This was a major theme in the com
pany's 11th annual "Sun Break" campaign in wintry northern areas.
Western again stepped up its sales activities directed toward con
ventions, regional conferences and group travel.
Late in 1962, arrangements were concluded which permit 875,000
holders of American Express credit cards to charge flights anywhere
on the Western Air Lines system. This addition to its four other credit
card plans, Diners' Club, Hilton Carte Blanche, the industry-wide
Universal Air Travel Plan and Western's own Charge-A-Flight, gives
the company the most extensive credit facilities of any major airline
in the nation.
Western's ticket-by-mail program was extended during the year to
all cities on the system as a customer convenience, and was marked
by steady growth in volume.
Another Western "first"--
electric courtesy cars take passengers
from lobby to satellite building
where flights are boarded at
Los Angeles International Airport.
another new
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A ticket office and a sales headquarters were opened in Sacramento
during 1962 when flights were inaugurated to California's capital
city. To improve identification and service in Minneapolis, the com
pany relocated its air travel center in new and larger quarters. Sales
facilities were modernized in Seattle, San Francisco, Palo Alto, Bill
ings, Rapid City and Sioux Falls.
PERSONNEL The company's growth during 1962 also was reflected on its personnel
rosters as employment reached an all-time high during the year. As
of December 31, the company employed 3,078 men and women, com
pared to 2,794 a year earlier.
Four were in the Executive Division, 1,072 in Operations, 1,473 in
Service, 260 in Sales, 254 in Treasury and 15 in the Legal Division.
Salaries and payrolls for 1962 accounted for $21,839,862, or 28.5
per cent of total expenses.
The year was one of complete labor peace for the company.
A contract was signed with the Air Line Dispatchers Association
which will run to June 1965. Contracts also are in force between
Western and the Brotherhood of Railway Clerks, the International
Brotherhood of Teamsters, the Air Line Pilots Association, the Air
Line Stewards and Stewardesses Association and the Communications
Workers of America. Eighty-seven per cent of total employees are
represented by the six unions.
Agreements which cover mechanics, clerks, teletype operators, pilots
and stewardesses will be open for negotiation during 1963.
Western continues to hold one of the highest seniority standings in
the airline industry. Twelve employees have more than 30 years ex
perience with the company and five per cent have 20 years or more;
26 per cent have at least 10 years experience and 50 per cent have at
least five years service.
Seventy-one per cent of employees were men, 29 per cent women.
Participation by employees in the company's voluntary group in
surance program continued high during 1962 with 90 per cent of
personnel, or 2,765, subscribing to one or more of the inclusive types
of coverage offered. Of this group, 1,419 also carried family-member
coverage. An additional life insurance feature of the company plan
was subscribed to by 1,175 employees.
During the underwriter's 1962 reporting period, a total of $404,720
was paid to employees and their families for hospitalization ($274,-
230), accident and sickness coverage ($105,290) and group life in
surance ($25,200).
As of December 31, 1962, 68.8 per cent of the 1,528 employees who
were eligible were participating in the company's insured, contribu
tory retirement income program, now in its 11th year of operation.
In addition to this plan, a variable pension plan of the trusteed type
was continued for pilots.
During the year, the retirement programs cost the company $727,-
088 for current and past services. On December 31, the remaining
past-service cost to be funded over the next two years, amounted to
approximately $150,000.
Completing its 15th year of service to Western employees, the
Westernaire Federal Credit Union reported total assets of $2,708,000
and a membership which included 85 per cent of all company employees.
Supporting company sales
programs are carefully selected
advertisements which highlight
services, destinations and other
travel attractions.
WESTERN
A DECADE OF GROWTH
AIR LINES
1962 1961* 1960 1959 1958* 195T 1956* 1955 1954- 1953
Revenues:**
Passenger $ 81,170 59,737 64,356 59,194 31,459 39,243 26,249 28,756 22,423 20,302
Express, freight and excess baggage 2,964 2,271 2,473 2,256 1,305 1,596 954 1,185 968 846
Mail 1,427 1,231 1,393 1,295 732 1,067 775 862 764 875
Other 809 1,013 855 508 474 313 210 236 326 853
Total Revenues 86,370 64,252 69,077 63,253 33,970 42,219 28,188 31,039 24,481 22,876
Operating Expenses:**
Depreciation and amortization 11,895 11,211 10,000 6,643 4,136 3,011 2,294 2,151 1,761 1,718
Payroll 21,840 17,987 19,478 17,704 11,947 14,335 10,283 11,057 9,239 8,367
Other 41,254 32,864 33,323 27,696 16,831 20,076 13,009 13,775 11,456 10,246
Total Operating Expenses 74,989 62,062 62,801 52,043 32,914 37,422 25,586 26,983 22,456 20,331
Operating Income** 11,381 2,190 6,276 11,210 1,056 4,797 2,602 4,056 2,025 2,545
Interest** (2,286) (1,889) (1,330) (1,127) (1,023) (780) (394) (262) (160) (188)
Other Income and Expenses--Net** 483 (119) 438 180 74 90 31 10 (15) (6)
9,578 182 5,384 10,263 107 4,107 2,239 3,804 1,850 2,351
Provision for Taxes on Income** 4,875 125 3,050 5,456 227 2,233 1,205 1,860 764 1,244
Net Earnings from Operations**... 4,703 57 2,334 4,807 (120) 1,874 1,034 1,944 1,086 1,107
Special Items (Less Applicable
Income Taxes):**
Gain on disposition of property 889 807 105 210 1,522 528 2,010 38 373 78
Write-down of aircraft (578) - - -- -- - - -- -- --
Net Earnings** $ 5,014 864 2,439 5,017 1,402 2,402 3,044 1,982 1,459 1,185
Net earnings from operations per share0. $ 3.29 0.04 1.63 4.41 (0.12) 1.95 1.13 2.14 1.24 1.27
Special items per share0 0.21 0.56 0.07 0.19 1.51 0.55 2.19 0.04 0.43 0.08
Dividends paid per share:
Cash0 1.00 1.00 0.99 0.80 0.73 0.70 0.66 0.74 0.49 0.49
Stock - -
5% 4% 4% 4% 4% - - -
Shares outstanding**0 1,431 1,431 1,431 1,091 1,011 962 917 909 876 875
Shareholders' equity--total** $ 35,601 32,017 32,584 24,545 18,996 17,469 14,991 12,430 10,786 9,746
Shareholders' equity--a share0 24.88 22.38 22.77 22.50 18.78 18.16 16.35 13.67 12.31 11.14
Working capital** 12,364 5,505 16,841 11,518 5,320 4,688 4,600 2,784 1,490 755
Long-term debt** 39,488 36,097 24,790 25,272 19,748 16,827 9,677 3,484 3,755 2,072
Properties and equipment--net** 62,859 58,493 33,302 37,546 31,035 24,652 17,216 11,208 13,146 9,844
Total assets** 98,830 85,697 72,433 67,223 49,596 44,017 32,075 23,332 20,204 18,123
Route miles at end of year 9,545 8,827 8,827 8,827 9,153 8,799 6,350 5,525 5,525 5,525
Airplanes at end of year:
Boeing 720-B 7 4 - -- -- - -- -- -- _
Boeing 707--leased -
2 2 -- -- -- - -- -- _
Lockheed Electra II 12 12 6 5 -- -- -- _ -- _
Douglas DC-6B 16 19 27 27 27 21 14 8 8 4
Other aircraft--piston powered - -
4 5 8 14 16 23 24 24
Airplane miles flown** 25,262 20,624 25,996 25,689 16,449 21,896 14,851 18,335 15,842 14,450
Ton miles produced** 307,570 224,819 207,554 196,178 123,416 137,640 86,196 100,015 80,261 68,580
Ton miles sold** 137,492 101,232 109,316 103,741 56,710 74,468 48,481 54,999 42,669 38,088
Seat miles produced** 2,402,344 1,718,854 1,776,076 1,623,007 981,740 1,175,071 740,174 870,596 721,255 613,814
Seat miles sold** 1,307,173 957,560 1,034,481 982,010 533,443 702,727 458,131 514,677 402,255 359,965
Express, freight & mail ton miles sold**.,. 11,574 8,987 9,538 8,899 5,309 7,118 4,667 5,828 4,225 3,710
Passengers carried 2,128,225 1,529,137 1,721,619 1,689,278 970,498 1,379,653 928,746 1,092,578 834,910 838,732
Express, freight & mail tons carried 16,037 12,364 13,354 12,792 8,010 11,537 8,200 10,332 7,559 7,490
Passenger load factor--actual % 54.4 55.7 58.2 60.5 54.3 59.8 61.9 59.1 55.7 58.6
--breakeven point % 48.0 55.5 53.3 50.0 54.1 53.5 56.6 51.3 51.1 51.8
Average length in miles per
passenger trip 614 626 601 581 550 509 493 471 482 429
Average revenue per passenger mile $ .0623 .0632 .0626 .0605 .0595 .0558 .0573 .0559 .0557 .0564
Employees at end of year 3,078 2,794 2,730 2,962 2,547 2,773 2,343 2,130 1,864 1,813
`Operations were adversely affected by strike.
0Based on shares outstanding at close of respective periods adjusted for stock dividends paid through 1960.
**000 omitted.
STATEMENT OF EARNINGS
For the year ended
December 31, 1962
(with comparative
figures for 1961)
Operating Revenues:
Passenger
Express, freight and excess baggage
Charter and other transport service
Mail
Incidental revenue--net
Operating Expenses:
Flying operations
Maintenance
Passenger service
Aircraft and traffic servicing
Promotion and sales..t
General and administrative
Depreciation and amortization
Operating Income
Other Income (Expenses):
Interest expense
Interest income
Other income (expense) --net
Earnings before Taxes on Income
Provision for Taxes on Income (Note 1)
Net Earnings from Operations
Special Items (Less Applicable Income Taxes--Note 1):
Gain on disposition of property
Write-down of piston aircraft
Net Earnings
Operations were adversely affected by strike.
1962 1961*
$81,169,796 $59,737,056
2,964,055 2,271,466
484,899 785,989
1,426,720 1,230,768
324,380 226,998
86,369,850 64,252,277
20,313,399 17,392,095
12,445,297 9,206,272
5,517,229 4,678,754
10,861,460 8,130,517
10,194,263 8,310,103
3,762,967 3,134,050
11,894,584 11,210,520
74,989,199 62,062,311
11,380,651 2,189,966
(2,285,700) (1,889,798)
447,271 267,509
35,964 (385,993)
9,578,186 181,684
4,875,000 125,000
4,703,186 56,684
889,087 807,024
(577,889) -
$ 5,014,384 $ 863,708
STATEMENT OF RETAINED EARNINGS AND CAPITAL IN EXCESS OF PAR VALUE
For the year ended
December 31, 1962 Amount at December 31, 1961
Net earnings
RETAINED
EARNINGS
$11,224,992
5,014,384
16,239,376
CAPITAL IN
EXCESS OF
PAR VALUE
$19,361,585
19,361,585
Dividends paid:
Cash--$1.00 a share 1,430,730
Amount at December 31, 1962 (Note 2) $14,808,646 $19,361,585
See accompanying notes to financial statements.
Peat, Marwick, Mitchell 6c Go.
CERTIFIED PUBLIC ACCOUNTANTS
629 SOUTH SPRING STREET
LOS ANOELES 14, CALIF.
ACCOUNTANTS1 REPORT
The Board of Directors
Western Air Lines, Inc.:
We have examined the balance sheet of
Western Air Lines, Inc. as of December 31, 1962
and the related statements of earnings, retained
earnings and capital in excess of par value for
the year then ended. Our examination was made
in accordance with generally accepted auditing
standards, and accordingly included such tests
of the accounting records and such other auditing
procedures as we considered necessary in the
circumstances.
In our opinion, the accompanying balance
sheet and statements of earnings, retained earnings
and capital in excess of par value present fairly
the financial position of Western Air Lines, Inc.
at December 31, 1962 and the results of its
operations for the year then ended, in conformity
with generally accepted accounting principles
applied on a basis consistent with that of the
preceding year.
y^iAAdAw-Cc
Los Angeles, California
February 15, 1963
J
NOTES TO
FINANCIAL STATEMENTS
Note 1. Taxes on Income. Federal income tax returns through
the year 1960 have been examined by the U.S. Treasury Depart
ment. Provision has been made for all known income tax liabil
ities. The current year's provision for deferred income taxes re
lates to the use for tax purposes of (1) guideline lives published
by the Treasury Department and (2) accelerated depreciation.
The total provision for income taxes is summarized as follows:
Current Deferred
Taxes Taxes Total
Charged to operations:
Current year's provision. $ 656,000 4,294,000 4,950,000
Investment credit (240,000) 165,000 (75,000)
416,000 4,459,000 4,875,000
Included in special items:
Applicable to gain on the
disposition of property 687,000 (37,000) 650,000
Reduction applicable to
write-down of aircraft.. (625,000) (625,000)
Provision for taxes $1,103,000 3,797,000 4,900,000
As indicated above, an investment credit of $240,000 has been
applied against the 1962 Federal income tax liability. Approxi
mately $1,000,000 is available for carryover against future taxes
payable. The 48 per cent portion of the total investment credit
is being amortized to income over eight years.
Note 2. Long-term Debt. The long-term debt outstanding is sum
marized as follows:
Outstanding
Bank Loans: December 31, 1962 Payable
Final
Maturity
5% notes payable $ 2,130,000 $50,000
monthly
Sept. 1,
1966
5%% notes payable 4,850,000 $80,000
monthly
Dec. 31,
1967
5%% notes payable 10,000,000 $100,000a
monthly
Sept. 1,
1967
Insurance Company Loans:
4V4% notes payable 10,320,000 $1,200,000
annually
Sept. 1,
1970
5%% notes payable 5,760,000 $600,000
annually
effective
Sept. 1,1966
Sept. 1,
1975
614% notes payable 9,000,000
Equipment lease/purchase
contracts 2,859,222
44,919,222
Less current
maturities 5,430,865
$810,000
annually
effective
Sept. 1,1965
b
Sept. 1,
1975
Oct. 1,
1965
$39,488,357
a Increases to $200,000 monthly effective January 1, 1964.
b Payable $1,470,865 in 1963, $767,517 in 1964, and $620,840
in 1965.
Scheduled borrowings for 1963 contemplate $4,320,000 from
the bank and $6,600,000 from the insurance companies. Appli
cable commitment fees are Vi of 1% and % of 1%, respectively.
The related agreements with the bank and insurance compa
nies provide among other things (including restrictions on addi
tional borrowings) conditions and requirements which at Decem
ber 31, 1962 operated to restrict retained earnings from cash
dividend distribution in the amount of $10,881,029 leaving
$3,927,617 not so restricted.
Note 3. Commitments and Contingent Liabilities. At December
31, 1962, the company had on order three Boeing 720B pure jet
aircraft with delivery scheduled for the second quarter of 1963.
These aircraft together with orders for other major items repre
sented purchase commitments at December 31, 1962 of approxi
mately $13,000,000 in excess of the related deposits already
paid.
The estimated minimum annual rentals under long-term
leases were approximately $1,000,000 at December 31, 1962.
As of December 31, 1962, the company was contingently liable
for claims and lawsuits 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 4. Retirement Plans. The costs charged to operating ex
pense in 1962 totaled $727,088 for both current and past
services. At December 31, 1962, the remaining unfunded past-
service cost amounted to approximately $150,000.
Note 5. Equipment Contract. In 1962, the Lockheed Electra en
gines and propellers covered by a lease/purchase contract
were retroactively recorded as purchased equipment and the
unpaid base rental was recorded as a liability. However, this
change in treatment had no effect on net earnings for the year.
The comparative financial statements for 1961 have been re
stated to reflect this change as of December 31, 1961.
BOARD OF DIRECTORS
Hugh W. Darling
Darling, Shattuck, Hall & Call
A ttorneys-at-Law
Los Angeles, California
Donald H. McLaughlin
Chairman of the Board
Homestake Mining Co.
San Francisco, California
Terrell C. Drinkwater
President
Western Air Lines, Inc.
Robert E. Driscoll
Honorary Chairman of the Board
First National Bank of the Black Hills
Rapid City, South Dakota
Hector C. Haight
Los Angeles, California
Goodrich Lowry
President
Northwest Bancorporation
Minneapolis, Minnesota
Edwin W. Pauley
Chairman of the Board and President
Pauley Petroleum, Inc.
Los Angeles, California
L. Welch Pogue
Pogue & Neal
A ttorneys-at-Law
Washington, D. C.
Stanley R. Shatto
Vice President-Operations
Western Air Lines, Inc.
John M. Wallace
Chairman of the Board
Walker Bank & Trust Co.
Salt Lake City, Utah
Alexander Warden
Publisher
Great Falls Tribune-Leader
Great Falls, Montana
Harry J. Volk
President
Union Bank
Los Angeles, California
Sidney F. Woodbury
President
Pine Street Co.
Portland, Oregon
THE EXECUTIVE STAFF
SENIOR OFFICERS Terrell C. Drinkwater, President
Stanley R. Shatto, Vice President-Operations
Marvin W. Landes, Vice President-Service
Arthur F. Kelly, Vice President-Sales
J. Judson Taylor, Vice President and Treasurer
D. P. Renda, Vice President-Legal and Secretary
G. G. Brooder, Vice President
OPERATIONS DIVISION Stanley R. Shatto, Vice President
Anton B. Favero, Assistant Vice President and Director of Maintenance
Harold W. Caward, Assistant Vice President and Director of Flight Operations
Terrell S. Shrader, Assistant Vice President and Director of Industrial Relations
Richard B. Ault, Director of Engineering
Peter P. Wolf, Director of Communications
Charles S. Fisher, Director of Flight Schedules
Stanley J. Cavill, System Chief Pilot
SERVICE DIVISION Marvin W. Landes, Vice President
Philip E. Peirce, Assistant Vice President and Director of Ground Services
Richard P. Ensign, Assistant Vice President and Director of In-Flight Services
SALES DIVISION Arthur F. Kelly, Vice President
Bert D. Lynn, Assistant Vice President and Director of Advertising and Sales Promotion
Arthur C. Smith, Assistant Vice President and Director of Sales Administration
Willis R. Balfour, Director of Agency and Interline Sales
Ray Silvius, Director of Public Relations
Memphis E. Sullivan, Director of Traffic
TREASURY DIVISION J- Judson Taylor, Vice President and Treasurer
Charles J. J. Cox, Assistant Treasurer and Controller
Kenneth W. Kendrick, Director of Purchasing and Stores
H. S. Gray, Director of Budget
LEGAL DIVISION D. P. Renda, Vice President and Secretary
John W. Simpson, Assistant Secretary and Director of Law
Thomas M. Murphy, Director of State and Community Affairs
James L. Mitchell, Director of Research
James M. Keefe, Director of Properties
YEARS OF CONTINUOUS OPERATION IN SERVING THE WEST