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. ( \ \ 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 > 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 wstirnairunb SERVICE CAOTCCT I r%%9 I I FLIGHTS TO DENVER & MINNEAPOLIS/ST.PAUL 720B FAN/JETS WESTERN AIRLINES ANUNCIA SU GRAN REBAJA DE PRECIOS EN VIAJES AL EXTRANJERO MEXIC0199'^ only'lJ5 to SAN FRANCISCO ON WESTERN I ONLY I WESTERN AIRLINES BV W FASTEST FLIGHTS AND LOWEST FARES TO SEATTLE AND THE WORLD S FAIR 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