UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A-1

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF     

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number 0-9781

CONTINENTAL AIRLINES, INC.

(Exact name of registrant as specified in its charter)

Delaware

74-2099724

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

1600 Smith Street, Dept. HQSEO

Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

713-324-2950

(Registrant's telephone number, including area code)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____

__________

As of October 6, 2000, 10,966,938 shares of Class A common stock and 47,397,247 shares of Class B common stock were outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements is amended and restated in its entirety as follows:

CONTINENTAL AIRLINES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

 

 

Three Months       

Nine Months       

 

Ended September 30,

Ended September 30,

 

2000  

1999  

2000  

1999  

 

(Unaudited)        

(Unaudited)        

         

Operating Revenue:

       

Passenger

$2,469 

$2,132 

$7,030 

$6,106 

Cargo and mail

 93 

76 

 266 

213 

Other

60 

  56 

174 

168 

 

2,622 

2,264 

7,470 

6,487 

         

Operating Expenses:

       

Wages, salaries and related costs

740 

644 

2,117 

1,882 

Aircraft fuel

 363 

208 

1,026 

512 

Aircraft rentals

215 

197 

631 

570 

Maintenance, materials and

repairs

167 

156 

497 

454 

Commissions

138 

154 

412 

439 

Landing fees and other rentals

133 

130 

400 

365 

Reservations and sales 

117 

107 

352 

314 

Depreciation and amortization

102 

93 

295 

266 

Other

  393 

373 

1,153 

1,083 

 

2,368 

2,062 

6,883 

5,885 

         

Operating Income

254 

202 

587 

602 

         

Nonoperating Income (Expense):

       

Interest expense

(60)

(58)

(187)

(168)

Interest capitalized

15 

13 

42 

42 

Interest income

22 

16 

65 

46 

Other, net

(7)

(6)

(10)

3 

 

(30)

(35)

(90)

(77)

 

 

 

(continued on next page)

CONTINENTAL AIRLINES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

 

 

Three Months       

Nine Months      

 

Ended September 30,

Ended September 30,

 

2000  

1999  

2000  

1999  

 

(Unaudited)        

(Unaudited)        

         

Income before Income Taxes,

Cumulative Effect of Accounting

Changes and Extraordinary Charge

 

$ 224

 

$ 167 

 

$497  

 

$ 525 

         

Income Tax Provision

 (87)

(63)

(193

(204)

         

Income before Cumulative Effect of

Accounting Changes and Extra-

ordinary Charge

 

 137 

 

104 

 

304  

 

321 

         

Cumulative Effect of Accounting

Changes, Net of Applicable Income

Taxes of $19

 

 - 

 

-

 

 

(33)

         

Extraordinary Charge, Net of

Applicable Income Taxes of $1

and $3, respectively

 

(2)

 

-

 

  (6

 

- 

         

Net Income

$ 135 

$ 104 

$  298 

$ 288 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(continued on next page)

CONTINENTAL AIRLINES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

 

 

Three Months      

Nine Months       

 

Ended September 30,

Ended September 30,

 

2000  

1999  

2000  

1999  

 

(Unaudited)        

(Unaudited)        

         

Earnings per Common Share:

       

Income Before Cumulative Effect

of Accounting Changes and

Extraordinary Charge

 

$  2.29 

 

$  1.47 

 

$  4.95  

 

$  4.58 

Cumulative Effect of Accounting

Changes, net of tax

-  

(0.47)

Extraordinary Charge, net of tax

(0.03)

- 

(0.10

- 

         

Net Income

$ 2.26 

$ 1.47 

$ 4.85 

$ 4.11 

         

Earnings per Common Share

Assuming Dilution:

       

Income Before Cumulative Effect

of Accounting Changes and

Extraordinary Charge

 

$  2.24 

 

$  1.44 

 

$  4.85 

 

$  4.29 

Cumulative Effect of Accounting

Changes, net of tax

-  

(0.43)

Extraordinary Charge, net of tax

(0.03)

- 

 (0.09

- 

         

Net Income

$ 2.21 

$ 1.44 

$ 4.76  

$ 3.86 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONTINENTAL AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except for share data)

 

 

September 30,

December 31,

ASSETS

    2000       

     1999    

 

(Unaudited)  

 
     

Current Assets:

   

Cash and cash equivalents

$  1,156 

$ 1,198 

Short-term investments

 -  

392 

Accounts receivable, net

 600 

506 

Spare parts and supplies, net

  264 

236 

Deferred income taxes

  142 

145 

Prepayments and other

   187 

129 

Total current assets

  2,349 

2,606 

     

Property and Equipment:

   

Owned property and equipment:

   

Flight equipment

4,107 

3,593 

Other

   985 

814 

 

5,092 

4,407 

Less: Accumulated depreciation

  1,011 

808 

 

  4,081 

3,599 

     

Purchase deposits for flight equipment

   453 

366 

     

Capital leases:

   

Flight equipment

225 

300 

Other

  85 

88 

 

310 

388 

Less: Accumulated amortization

   160 

180 

 

   150 

208 

Total property and equipment

 4,684 

4,173 

     

Other Assets:

   

Routes, gates and slots, net

 1,093 

1,131 

Other assets, net

   333 

313 

     

Total other assets

  1,426 

1,444 

     

Total Assets

$  8,459 

$ 8,223 

 

(continued on next page)

CONTINENTAL AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except for share data)

 

September 30,

December 31,

LIABILITIES AND STOCKHOLDERS' EQUITY

    2000      

     1999    

 

(Unaudited)  

 

Current Liabilities:

   

Current maturities of long-term debt

$    257  

$ 278 

Current maturities of capital leases

24  

43 

Accounts payable

996  

856 

Air traffic liability

1,241  

1,042 

Accrued payroll and pensions

234  

299 

Accrued other liabilities

  256  

257 

Total current liabilities

 3,008  

 2,775 

     

Long-Term Debt

 2,738  

 2,855 

     

Capital Leases

166  

  200 

     

Deferred Credits and Other Long-Term Liabilities:

   

Deferred income taxes

778  

590 

Other

    208  

  210 

Total deferred credits and other long-term

liabilities

  986  

  800 

     

Commitments and Contingencies

   
     

Common Stockholders' Equity:

   

Class A common stock - $.01 par, 50,000,000 shares

authorized; 10,969,438 and 11,320,849 shares

issued and outstanding in 2000 and 1999,

respectively

 

 

 

 

Class B common stock - $.01 par, 200,000,000 shares

authorized; 64,073,431 issued in 2000 and

63,923,431 issued in 1999

 

 

Additional paid-in capital

 814 

871 

Retained earnings

 1,411 

1,114 

Accumulated other comprehensive income (loss)

20 

(1)

Treasury stock - 16,518,584 and 9,763,684 Class B

shares in 2000 and 1999, respectively, at cost

 (685

(392)

Total common stockholders' equity

 1,561  

1,593 

Total Liabilities and Stockholders' Equity

$ 8,459  

$ 8,223 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONTINENTAL AIRLINES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

 

        Nine Months

        Ended September 30,

 

2000  

    1999    

 

(Unaudited)           

     

Net cash provided by operating activities

$ 836 

$   679 

     

Cash Flows from Investing Activities:

   

Purchase deposits paid in connection with future

aircraft deliveries, net of refunds

(94)

(135)

Capital expenditures

(352)

(513)

Proceeds from sale (purchase) of short-term investments

392 

(155)

Proceeds from sale of investments

20 

Other

    19 

25 

Net cash used by investing activities

   (35)

(758)

     

Cash Flows from Financing Activities:

   

Proceeds from issuance of long-term debt, net

153 

369 

Payments on long-term debt and capital lease

obligations

(648)

(243)

Purchase of Class B common stock

(431)

(344)

Proceeds from issuance of Class B common stock

80 

29 

Other

     3 

14 

Net cash used by financing activities

 (843)

(175)

     

Net Decrease in Cash and Cash Equivalents

(42) 

(254)

     

Cash and Cash Equivalents - Beginning of Period

1,198 

1,399

     

Cash and Cash Equivalents - End of Period

$1,156 

$1,145

     

Investing and Financing Activities Not Affecting Cash:

   

Property and equipment acquired through the

issuance of debt

$  315 

$   673 

Conversion of trust originated preferred securities

$     -  

$   111 

Conversion of 6-3/4% Convertible Subordinated Notes

$     -  

$   230 

 

 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONTINENTAL AIRLINES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Such adjustments are of a normal, recurring nature. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in the Annual Report of Continental Airlines, Inc. (the "Company" or "Continental") on Form 10-K for the year ended December 31, 1999 (the "1999 10-K").

Certain reclassifications have been made in the prior year's financial statements to conform to the current year presentation.

 

NOTE 1 - EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted earnings per share (in millions):

 

Three Months     

Nine Months      

 

Ended September 30,

Ended September 30,

 

2000 

1999 

2000 

1999 

 

(Unaudited)      

(Unaudited)      

         

Numerator for basic earnings per

share - net income

$135 

$104 

$298 

$288 

         

Effect of dilutive securities:

       

6-3/4% convertible subordinated

notes

      - 

- 

     - 

4 

         

Numerator for diluted earnings per

share - net income after assumed

conversions

 

$135 

 

$104 

 

$298 

 

$292 

         

Denominator for basic earnings per

share - weighted-average shares

 59.7 

70.8 

 61.3 

70.1 

         

Effect of dilutive securities:

       

Employee stock options

1.4 

1.3 

1.2 

1.4 

Preferred Securities of Trust

0.1 

6-3/4% convertible subordinated

notes

    - 

    - 

   - 

3.9 

Dilutive potential common shares

1.4 

1.3 

  1.2 

5.4 

         

Denominator for diluted earnings per

share - adjusted weighted-average

and assumed conversions

 

 61.1 

 

72.1 

 

 62.5 

 

75.5 

 

NOTE 2 - COMPREHENSIVE INCOME

The Company includes unrealized gains and losses on available-for-sale securities, changes in minimum pension liabilities and changes in the fair value of derivative financial instruments, which qualify for hedge accounting in other comprehensive income. During the third quarter of 2000 and 1999, total comprehensive income amounted to $123 million and $103 million, respectively. For the nine months ended 2000 and 1999, total comprehensive income amounted to $319 million and $305 million, respectively. The significant difference between net income and total comprehensive income for all periods was primarily attributable to changes in the fair value of derivative financial instruments.

NOTE 3 - CUMULATIVE EFFECT OF ACCOUNTING CHANGES AND

EXTRAORDINARY CHARGE

Frequent Flyer Program. The Company sells mileage credits in its frequent flyer program ("OnePass") to participating partners, such as hotels, car rental agencies and credit card companies. During 1999, as a result of Staff Accounting Bulletin No. 101 - "Revenue Recognition in Financial Statements," the Company changed the method it uses to account for the sale of these mileage credits. This change, which totaled $27 million, net of tax, was applied retroactively to January 1, 1999. Under the new accounting method, revenue from the sale of mileage credits is deferred and recognized when transportation is provided. Previously, the resulting revenue, net of the incremental cost of providing future air travel, was recorded in the period in which the credits were sold. This change reduced net income for the three months and nine months ended September 30, 1999 by $6 million ($10 million pre-tax) and $16 million ($26 million pre-tax), respectively. The quarterly information for 1999 presented herein reflects this change.

Start-Up Costs. Continental adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities ("SOP 98-5") in the first quarter of 1999. SOP 98-5 amended Statement of Position 88-1, "Accounting for Developmental and Preoperating Costs, Purchases and Exchanges of Take-Off and Landing Slots, and Airframe Modifications" by requiring preoperating costs related to the integration of new types of aircraft to be expensed as incurred and requiring all unamortized start-up costs (e.g., pilot training costs related to induction of new aircraft) to be expensed upon adoption. This resulted in the Company recording a $6 million cumulative effect of a change in accounting principle, net of tax, in the first quarter of 1999.

Extraordinary Charge. During 2000, Continental repurchased or redeemed the remaining $242 million of its 9-1/2% senior unsecured notes, in addition to the early extinguishment of other debt, resulting in a $2 million and $6 million extraordinary charge (net of income tax benefit) for early debt repayment for the three months and nine months ended September 30, 2000, respectively.

NOTE 4 - AIRCRAFT PURCHASE COMMITMENTS

As shown in the following table, Continental's aircraft fleet consisted of 367 jets, 91 regional jets and 77 turboprop aircraft at September 30, 2000. Continental's purchase commitments as of September 30, 2000 are also shown below.

Aircraft

Type   

Total  

Aircraft

Owned

Leased

Firm  

Orders

Options

           

777-200

16 

12 

767-400ER

22 

767-200ER

10 

11 

757-200

41 

13 

28 

737-900

15 

15 

737-800

53 

15 

38 

29 

35 

737-700

36 

12 

24 

31 

737-500

66 

15 

51 

737-300

65 

14 

51 

DC10-30

23 

17 

MD-80

  65 

  17 

  48 

- 

- 

 

367 

  98 

269 

 78 

 99 

           

ERJ-145XR

75 

100 

ERJ-145

76 

76 

73 

ERJ-135

  15 

    - 

  15 

  35 

     - 

 

  91 

    - 

  91 

183 

100 

           

ATR-72

   

ATR-42-320

31 

22 

   

EMB-120

22 

12 

10 

   

Beech 1900-D

  22 

- 

  22 

   
 

  77 

  23 

  54 

   
           

Total

535 

121 

414 

   

The Company anticipates taking delivery of 28 Boeing jet aircraft in 2000 (18 of which were placed in service during the first nine months of 2000) and the remainder of its firm orders through November 2005.

In October 2000, the Company announced an order for 15 new Boeing 757-300 aircraft. The first delivery is expected in late 2001 with deliveries continuing through 2003.

During 2000, the Company's wholly owned subsidiary, Continental Express, Inc. ("Express") anticipates taking delivery of 22 Embraer ERJ-145 ("ERJ-145") regional jets (20 of which were placed in service in the first nine months of 2000) and 12 Embraer ERJ-135 ("ERJ-135") regional jets (nine of which were placed in service in the first nine months of 2000) and the remainder of its firm orders through the first quarter of 2005.

As of September 30, 2000, the estimated aggregate cost of the Company's firm orders for Boeing aircraft is approximately $4.1 billion. Continental currently plans to finance its new Boeing aircraft with a combination of enhanced pass through trust certificates, lease equity and other third-party financing, subject to availability and market conditions. As of September 30, 2000, Continental had approximately $316 million in financing arranged for such future Boeing deliveries. Continental also has commitments or letters of intent for backstop financing for approximately 19% of the anticipated remaining acquisition cost of such Boeing deliveries. In addition, at September 30, 2000, Continental had firm commitments to purchase 28 spare engines related to the new Boeing aircraft for approximately $189 million, which will be deliverable through March 2005. Further financing will be needed to satisfy the Company's capital commitments for aircraft and aircraft-related expenditures such as engines, spare parts, simulators and related items. There can be no assurance that sufficient financing will be available for all aircraft and other capital expenditures not covered by firm financing commitments. Deliveries of new Boeing aircraft are expected to continue to increase aircraft rental, depreciation and interest costs while generating cost savings in the areas of maintenance, fuel and pilot training.

As of September 30, 2000, the estimated aggregate cost of Express's firm orders for ERJ-145 and ERJ-135 aircraft is approximately $2.8 billion. Embraer has agreed to arrange lease financing by third parties of the firm ERJ-145 and ERJ-135 aircraft to be delivered to Express, subject to Express's option to purchase ERJ-135 aircraft. In the fourth quarter of 2000, Continental expects to purchase 18 ERJ-145 aircraft which are currently being leased.

NOTE 5 - LONG-TERM DEBT

Long-term debt is summarized as follows (in millions):

 

September 30,

        2000        

December 31,

      1999        

     

Secured

   

Notes payable, interest rates of 5.00% to 8.50%,

payable through 2019

$2,052 

$1,817 

Floating rate notes, interest rates of LIBOR

plus 0.65% to 1.00%, Eurodollar plus 1.00%,

or Commercial Paper plus 0.45% to 0.60%,

payable through 2012

 

 

357 

 

 

241 

Term loan, floating interest rate of LIBOR

or Eurodollar plus 1.00%, payable through

2002

 

150 

 

215 

Term loan, floating interest rate of LIBOR

or Eurodollar plus 1.25%, payable through

2004

 

72 

 

74 

Notes payable, interest rates of 8.49% to

9.46%, payable through 2008

40 

51 

Revolving credit facility, floating interest

rates of LIBOR or Eurodollar plus 1.38%,

payable through 2001

 

 

160 

     

Unsecured

   

Senior notes payable, interest rate of 8.00%,

payable through 2005

200 

200 

Notes payable, interest rate of 8.13%,

payable through 2008

112 

112 

Senior notes payable, 9.50%, payable through 2001

242 

Other

     12 

     21 

 

2,995 

3,133 

Less: current maturities

257 

   278 

Total long-term debt

$2,738 

$2,855

In March 2000, the Company completed an offering of $743 million of pass-through certificates to be used to finance (through either leveraged leases or secured debt financings) the debt portion of the acquisition cost of 21 Boeing aircraft.

During 2000, Continental repurchased or redeemed the remaining $242 million of its 9-1/2% senior unsecured notes. The Company also prepaid its $160 million revolving credit facility, in addition to the early extinguishment of other debt. See Note 3.

 

 

The term loans are secured by the stock and substantially all the assets (other than aircraft subject to other financing arrangements) of Continental Micronesia, Inc., a wholly owned subsidiary of the Company.

Due to the cost of the facility, the lack of prior use and Continental's significant cash position, the Company did not renew its $225 million unused revolving credit facility which expired June 30, 2000.

Maturities of long-term debt due over the next five years are as follows (in millions):

Year ending September 30,

 

2001

$257

2002

264

2003

180

2004

287

2005

226

NOTE 6 - REGULATORY MATTERS

The Federal Aviation Administration has designated John F. Kennedy International Airport ("Kennedy") and LaGuardia Airport ("LaGuardia") in New York, O'Hare International Airport in Chicago ("O'Hare") and Ronald Reagan Washington National Airport in Washington, D.C. ("Reagan National") as "high density traffic airports" and has limited the number of departure and arrival slots at those airports. In April 2000, legislation was signed eliminating slot restrictions beginning in 2001 at O'Hare and in 2007 at LaGuardia and Kennedy. As a result of the passage of this legislation, the Company performed an evaluation of the slots to determine, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), whether future cash flows expected to result from the use of the slots will be less than the aggregate carrying amount of these slots. As a result of the evaluation, management determined that the estimated future cash flows expected to be generated by the slots will be more than their carrying value, and therefore, these slots are not impaired. At September 30, 2000, the net carrying value of the Company's slots at O'Hare and LaGuardia was $49 million and $11 million, respectively. The Company has no slots at Kennedy.

NOTE 7 - OTHER

On September 12, 2000, the Company's Board of Directors increased the size of its common stock repurchase program by the amount of cash proceeds received by the Company for the purchase of common stock by employees and other participants under the Company's employee stock purchase and stock option plans after January 1, 2000. The program also permits the expenditure of one half of future net income, plus all the proceeds from the sale of non-strategic assets, to repurchase common stock. As of September 30, 2000, the Company had approximately $265 million remaining in its stock repurchase program.

The Company holds a membership interest in The SITA Foundation ("SITA"), an organization which provides data communication services to the airline industry. SITA's primary asset is its ownership in Equant N.V. ("Equant"). In February 1999, SITA sold a portion of its interest in Equant in a secondary public offering and distributed the proceeds pro rata to certain of its members (including Continental) that elected to participate in the offering. Continental recorded a gain of $20 million ($12 million after tax) related to this transaction. The gain is included in other nonoperating income (expense) in the accompanying consolidated statement of operations for the nine months ended September 30, 1999. As of September 30, 2000, Continental owned depository certificates with respect to 356,873 shares of Equant.

NOTE 8 - SUBSEQUENT EVENTS

In October 2000, the Company made an offer to purchase for $215 million in cash certain assets currently used by US Airways, Inc. ("US Airways") at Reagan National that United Air Lines, Inc. ("United") proposes to sell if the proposed merger of United and US Airways occurs. The assets would include 119 jet and 103 commuter slots at Reagan National, as well as eight gates and related ticket counter, ramp, aircraft parking, office space and other facilities at the airport. The offer also includes the option to assume the lease of US Airways' line maintenance hangar at Reagan National.

& #9;SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CONTINENTAL AIRLINES, INC.

(Registrant)

 

 

 

 

Date: November 10, 2000 by: /s/ Lawrence W. Kellner                               

Lawrence W. Kellner

Executive Vice President and

Chief Financial Officer

(On behalf of Registrant)

 

 

 

Date: November 10, 2000 by: /s/ Chris Kenny                                              

Chris Kenny

Staff Vice President and Controller

(Principal Accounting Officer)