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Continental Airlines Announces Initial Public Offering of Regional Airline Subsidiary.

HOUSTON, July 10 /PRNewswire/ --

Continental Airlines (NYSE: CAL) today announced that its wholly owned subsidiary, ExpressJet Holdings, Inc. (ExpressJet), filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of its Class A common stock. ExpressJet wholly owns ExpressJet Airlines, Inc., the regional airline that operates as Continental Express.

Soon after the six-month anniversary of the planned offering, subject to receipt of a favorable ruling from the Internal Revenue Service, Continental Airlines intends to spin-off to its stockholders the remaining shares of ExpressJet in a tax-free distribution.

In connection with the planned offering and spin-off, Continental Airlines plans to prepay a portion of its outstanding indebtedness and has suspended its previously announced stock repurchase program until a date to be announced in the future.

Unaudited pro forma consolidated condensed financial statements of Continental Airlines giving effect to the prepayment of debt and to the spin- off and related matters are included in this press release.

A registration statement relating to the ExpressJet securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of the ExpressJet securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. The offering will be made only by means of a prospectus. The terms "expected to," "plans to" and "intended to" identify forward-looking statements as defined by federal securities laws. The proposed offering and related spin-off of ExpressJet are subject to a number of conditions and approvals and there can be no assurance that an offering or spin-off will be completed as described or within the time periods outlined above. Important factors that could cause actual results to be materially different than those described in the forward- looking statements include the failure to receive an Internal Revenue Service ruling that the spin-off will be tax-free to Continental Airlines and its stockholders for U.S. federal income tax purposes.

UNAUDITED PRO FORMA CONSOLIDATED

CONDENSED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated condensed financial statements of Continental Airlines, Inc. are derived from the application of pro forma adjustments to our historical financial statements:

-- The unaudited pro forma consolidated condensed statement of operations

for the three months ended March 31, 2001 gives effect to (1) the

retirement of $150 million in debt in connection with the planned

initial public offering of Class A common stock of our wholly owned

subsidiary, ExpressJet Holdings, Inc. (which we refer to as

"Holdings"), the holder of all the capital stock of ExpressJet

Airlines, Inc. (formerly known as Continental Express, Inc., which we

refer to as "Express"), and (2) the subsequent 100% spin-off of

Holdings, as if each of these transactions had been effective as of

January 1, 2001.

-- The unaudited pro forma consolidated condensed statement of operations

for the year ended December 31, 2000 gives effect to (1) the retirement

of $150 million in debt in connection with the planned initial public

offering of Class A common stock of Holdings, (2) the subsequent 100%

spin-off of Holdings and (3) the capacity purchase arrangement which

replaced our previous revenue sharing arrangement with Express and went

into effect on January 1, 2001, as if each of these transactions had

been effective as of January 1, 2000.

-- The unaudited pro forma consolidated condensed balance sheet at

March 31, 2001 has been prepared as if (1) the retirement of

$150 million in debt in connection with the planned initial public

offering of Class A common stock of Holdings and (2) the subsequent

100% spin-off of Holdings had occurred on March 31, 2001.

The total net proceeds from the planned initial public offering are not currently known. Consequently, that portion of the total net proceeds in excess of the amount to be used to retire at least $150 million of debt described above is not reflected in any of the following pro forma information.

The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transactions had been consummated at the assumed dates, nor is it necessarily indicative of future results of operations.

These unaudited pro forma consolidated condensed financial statements should be read in conjunction with our audited historical financial statements and the related notes thereto, and the other information about our company filed with the Securities and Exchange Commission.

Three Months Ended March 31, 2001

(in millions, except per share data)

Capacity

Purchase

As and Other

Actual Adjusted(A) Adjustments Pro Forma

Pro Forma Consolidated

Condensed Statement of

Operations:

Operating revenue $2,451 $2,206 $ (45) (B) $2,161

Operating expenses:

Wages, salaries and (3) (C)

related costs 758 709 (18) (B) 688

Aircraft fuel 345 317 (2) (B) 315

Aircraft rent 214 175 175

Maintenance, materials

and repairs 160 128 128

Other rentals and landing

fees 141 122 122

Commissions 115 115 (10) (B) 105

Reservations and sales 128 128 (13) (B) 115

Depreciation and

amortization 105 100 100

Passenger servicing 91 87 (2) (B) 85

Other 318 276 276

2,375 2,157 (48) 2,109

Operating income 76 49 3 52

Interest income (expense),

net (42) (37) 4 (D) (33)

Other non-operating income

(expense) (15) (15) --- (15)

Income (loss) before income

taxes 19 (3) 7 4

Income tax (expense) benefit (8) 1 (3) (E) (2)

Distribution on preferred

securities (2) (2) --- (2)

Net income (loss) $ 9 $ (4) $ 4 $ 0

Basic earnings per share 0.17 0.00

Diluted earnings per share 0.16 0.00

Shares used in computing

basic earnings per share 54.9 54.9

Shares used in computing

diluted earnings per

share 56.4 56.4

Year Ended December 31, 2000

(in millions, except per share data)

Capacity

Purchase

As and Other

Actual Adjusted(A) Adjustments Pro Forma

Pro Forma Consolidated

Condensed Statement of

Operations:

Operating revenue $9,899 $9,055 $(119) (B) $8,936

Operating expenses:

Wages, salaries and

related Costs 2,875 2,719 (4) (C) 2,715

Aircraft fuel 1,393 1,287 1,287

Aircraft rent 844 697 697

Maintenance, materials

and Repairs 646 530 530

Other rentals and

landing fees 532 474 474

Commissions 526 489 489

Reservations and sales 455 392 392

Depreciation and

amortization 402 379 379

Passenger servicing 362 339 339

Other 1,135 985 985

9,170 8,291 (4) 8,287

Operating income (loss) 729 764 (115) 649

Interest income (expense),

net (107) (83) 16 (D) (67)

Other non-operating

income (expense) (51) (51) --- (51)

Income (loss) before

income taxes 571 630 (99) 531

Income tax (expense)

benefit (222) (242) 36 (E) (206)

Distribution on preferred

securities (1) (1) --- (1)

Income (loss) before

extraordinary Charges 348 387 (63) 324

Extraordinary charge (6) (6) --- (6)

Net income (loss) $ 342 $ 381 $ (63) $ 318

Basic earnings per share 5.62 5.24

Diluted earnings per share 5.45 5.08

Shares used in computing

basic earnings per share 60.7 60.7

Shares used in computing

diluted earnings per

share 62.8 62.8

Notes to Pro Forma Consolidated Condensed Statements of Operations:

(A) As adjusted amounts, reflect the removal of the historical

consolidated financial results of Holdings and its wholly owned

subsidiary, Express, as a result of the planned initial public

offering and spin-off.

(B) Reflects the restatement of revenues from the historical revenue

sharing arrangement between Continental Airlines and Express, which

was based on a proration formula, to a fixed-fee capacity purchase

arrangement whereby Continental Airlines pays fixed rates for each

scheduled block hour of flight by aircraft operated by Express. These

rates vary depending on the average length of Express's scheduled

flights, Express's aggregate number of flights and the type of

aircraft provided, and are otherwise subject to certain adjustments.

The fixed rates used to determine the 2000 pro forma revenue were

based on historical and expected operating costs, which had been set

to provide Express with the capacity purchase arrangement's targeted

margin on earnings before interest and taxes. Adjustments to expenses

reflect the reclassification of certain items associated with

Express's operations to revenue where the capacity purchase expenses

are recorded. All amounts associated with the capacity purchase

arrangement including the fixed fee payments, the revenue associated

with passengers traveling a portion of their trip on Express and the

expenses associated with these passengers are reflected together in

revenue.

(C) Reflects the adjustment to profit sharing expense based on the pro

forma, as adjusted income.

(D) Reflects the reduction in interest expense associated with the

$150 million reduction in debt and additional interest income

associated with the receivable from Express.

(E) Reflects the income tax effects of the pro forma adjustments.

March 31, 2001

(in millions of dollars)

As Other

Actual Adjusted(A) Adjustments Pro Forma

Pro Forma Consolidated

Condensed Balance Sheet:

Assets:

Cash and cash equivalents $1,007 $ 936 $ --- $ 936

Accounts receivable, net 572 572 572

Spare parts and supplies,

net 276 240 240

Deferred income taxes 139 73 73

Prepayments and other 187 187 187

Total current assets 2,181 2,008 --- 2,008

Total property and

equipment, net 5,504 5,315 5,315

Routes, gates and slots 1,068 1,054 1,054

Receivable from Express 535 535

Other assets 515 515 515

Total assets $9,268 $9,427 $ --- $9,427

Liabilities:

Current maturities of

long-term debt and

capital leases $ 361 $ 359 $ --- $ 359

Accounts payable 912 901 901

Air traffic liability 1,357 1,357 1,357

Accrued other liabilities 544 478 478

Total current

liabilities 3,174 3,095 3,095

Long-term debt and capital

leases 3,639 3,631 (150) (B) 3,481

Deferred income taxes 835 835 53 (B) 888

Other long-term liabilities 208 205 205

Continental-Obligated

Mandatorily Redeemable

Preferred Securities of

Subsidiary Trust Holding

Solely Convertible

Subordinated Debentures 243 243 243

Stockholders' Equity:

Common stock 1 1 1

Additional paid-in capital 831 831 831

Retained earnings

(accumulated deficit) 1,465 1,714 97 (B) 1,811

Other (1,128) (1,128) (1,128)

Total stockholders'

equity 1,169 1,418 97 1,515

Total liabilities and

stockholders' equity $9,268 $9,427 $ --- $9,427

Notes to Pro Forma Consolidated Condensed Balance Sheet:

(A) As adjusted amounts reflect the removal of the financial results of

Holdings and its wholly owned subsidiary, Express, as a result of the

planned initial public offering and spin-off.

(B) Reflects the reduction of debt associated with the proceeds from the

planned initial public offering of Holdings and the related income tax

effect.

Continental Airlines is the fifth largest airline in the U.S., offering more than 2,200 daily departures to 133 domestic and 92 international destinations. Operating hubs in Newark, Houston, Cleveland and Guam, Continental (www.continental.com) serves more international cities than any other U.S. carrier, including extensive service throughout the Americas, Europe and Asia.

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Date:Jul 10, 2001
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